34968 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 400, 403, 410, 411, 417,

and 422

[HCFA–1030–IFC]

RIN 0938–AI29

Medicare Program; Establishment of

the Medicare+Choice Program

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Interim final rule with comment

period.

SUMMARY: The Balanced Budget Act of

1997 (BBA) establishes a new

Medicare+Choice (M+C) program that

significantly expands the health care

options available to Medicare

beneficiaries. Under this program,

eligible individuals may elect to receive

Medicare benefits through enrollment in

one of an array of private health plan

choices beyond the original Medicare

program or the plans now available

through managed care organizations

under section 1876 of the Social

Security Act. Among the alternatives

that will be available to Medicare

beneficiaries are M+C coordinated care

plans (including plans offered by health

maintenance organizations, preferred

provider organizations, and providersponsored organizations), M+C ‘‘MSA’’

plans, that is, a combination of a high

deductible M+C health insurance plan

and a contribution to an M+C medical

savings account (MSA), and M+C

private fee-for-service plans.

The introduction of the M+C program

will have a profound effect on Medicare

beneficiaries and on the health plans

and providers that furnish care. The

new provisions of the Medicare statute,

set forth as Part C of title XVIII of the

Social Security Act, address a wide

range of areas, including eligibility and

enrollment, benefits and beneficiary

protections, quality assurance,

participating providers, payments to

M+C organizations, premiums, appeals

and grievances, and contracting rules.

This interim final rule explains and

implements these provisions.

In addition, we are soliciting letters of

intent from organizations that intend to

offer M+C MSA plans to Medicare

beneficiaries and/or to serve as M+C

MSA trustees.

DATES: Effective date: This interim final

rule is effective July 27, 1998.

Comment period: Comments will be

considered if received at the appropriate

address, as provided below, no later

than September 24, 1998.

ADDRESSES: Mail written comments (1

original and 3 copies) to the following

address: Health Care Financing

Administration, Department of Health

and Human Services, Attention: HCFA–

1030–IFC, P.O. Box 26688, Baltimore,

MD 21207.

If you prefer, you may deliver your

written comments (1 original and 3

copies) to one of the following

addresses:

Room 309–G, Hubert H. Humphrey

Building, 200 Independence Avenue,

SW., Washington, DC 20201, or

Room C5–09–26, 7500 Security

Boulevard, Baltimore, MD 21244–

1850.

Because of staffing and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission. In

commenting, please refer to file code

HCFA–1027–IFC Comments received

timely will be available for public

inspection as they are received,

generally beginning approximately 3

weeks after publication of a document,

in Room 309–G of the Department’s

offices at 200 Independence Avenue,

SW., Washington, DC, on Monday

through Friday of each week from 8:30

a.m. to 5 p.m. (phone: (202) 690–7890).

FOR FURTHER INFORMATION CONTACT:

Provider Sponsored Organizations,

Aaron Brown, 410–786–1033.

M+C Private Fee-For Service Plans,

Anita Heygster, 410–786–4486.

M+C MSA Plans, Cindy Mason, 410–

786–6680.

Applications, Robert King, 410–786–

7623.

Quality Assurance, Brian Agnew,

410–786–5964.

Payment/ACRs, Al D’Alberto, 410–

786–1100.

Encounter Data, Cynthia Tudor, 410–

786–6499.

Federal/State, Rebecca Cardozo, 410–

786–0300.

Beneficiary Appeals, Valerie Hart,

410–786–6690.

Enrollment, Debe McKeldin, 410–

786–9159.

Information Campaign, Jan Drass,

410–786–1354.

Contracts, Chris Eisenberg, 410–786–

5509.

General Issues, Tony Hausner, 410–

786–8290.

General Issues, Dorothea Musgrave,

410–786–8290.

SUPPLEMENTARY INFORMATION:

I. Background

A. Balanced Budget Act of 1997

Health care benefits covered under

the Medicare program are divided into

two parts: hospital insurance, also

known as ‘‘Part A,’’ and supplementary

medical insurance, also known as ‘‘Part

B.’’ Health care services covered under

Part A include: inpatient hospital care,

skilled nursing facility care, home

health agency care, and hospice care.

Part B coverage is optional and requires

payment of a monthly premium. Part B

covers physician services (in both

hospital and nonhospital settings) and

services furnished by certain

nonphysician practitioners. It also

covers certain other services, including:

clinical laboratory tests, durable

medical equipment, medical supplies,

diagnostic tests, ambulance services,

prescription drugs that cannot be selfadministered, certain self-administered

anti-cancer drugs, some other therapy

services, certain other health services,

and blood not covered under Part A.

Section 4001 of the Balanced Budget

Act of 1997 (BBA) (Public Law 105–33),

enacted August 5, 1997, added sections

1851 through 1859 to the Social

Security Act (the Act) to establish a new

Part C of the Medicare program, known

as the ‘‘Medicare+Choice Program.’’

Note that hereinafter, unless otherwise

indicated references to the statute are

references to the Act. (The existing Part

C of the statute, which included

provisions in section 1876 governing

existing Medicare health maintenance

organization (HMO) contracts, has been

redesignated as Part D.) Under section

1851(a)(1), every individual entitled to

Medicare Part A and enrolled under Part

B, except for individuals with end-stage

renal disease, may elect to receive

benefits through either the existing

Medicare fee-for-service program or a

Part C M+C plan.

The introduction of the M+C program

represents what is arguably the most

significant change in the Medicare

program since its inception in 1965. As

its name implies, the primary goal of the

M+C program is to provide Medicare

beneficiaries with a wider range of

health plan choices to complement the

Original Medicare option. Alternatives

available to beneficiaries under the M+C

program include both the traditional

managed care plans (such as HMOs) that

have participated in Medicare on a

capitated payment basis under section

1876 , as well as a broader range of

plans comparable to those now available

through private insurance. Specifically,

effective January 1, 1999, section

1851(a)(2) provides for three types of

M+C plans:

• M+C coordinated care plans,

including HMO plans (with or without

point of service options), providersponsored organization (PSO) plans,

and preferred provider organization

(PPO) plans.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34969

• M+C medical savings account

(MSA) plans (that is, combinations of a

high deductible M+C health insurance

plan and a contribution to an M+C

MSA).

• M+C private fee-for-service plans.

In addition to expanding the types of

available health plans, the M+C program

introduces several other fundamental

changes to the private health plan sector

of the Medicare program. These changes

include:

• Establishment of an expanded array

of quality assurance standards and other

consumer protection requirements.

• Introduction of an annual

coordinated election period. This

election period, to be conducted in

November for a January effective date,

will feature a phased in lock-in of

enrollees to the plan they have elected

during this coordinated election period.

In addition, the annual coordinated

election period will include the

distribution by HCFA of uniform,

comprehensive information about

participating plans that is needed to

promote informed choices by

beneficiaries.

• Revisions in the way we calculate

payment rates to the plans that will

narrow the amount of payment variation

across the country and increase

incentives for plans to operate in

diverse geographic areas.

• Establishment of requirements

concerning participation procedures for

physicians and other health care

professionals in M+C plans, including

prohibitions on interference with advice

to enrollees.

These requirements will bring about

changes for beneficiaries, for physicians

and other health care providers, for

managed care organizations that now

contract with Medicare as well as those

that will be able to contract with

Medicare for the first time, and for

HCFA and the States. The specific areas

addressed by the different sections of

the statute are as follows:

• Section 1851—Eligibility, election

and enrollment

• Section 1852—Benefits and

beneficiary protections

• Section 1853—Payments to M+C

organizations

• Section 1854—Premiums

• Section 1855—Organizational and

financial requirements for M+C

organizations

• Section 1856—Establishment of

standards

• Section 1857—Contracts with M+C

organizations

• Section 1859—Definitions and

miscellaneous provisions

As provided for in section 1856(b)(1),

this interim final rule (1) incorporates

the new M+C provisions into the

Medicare regulations, (2) interprets the

new statutory provisions in Part C, and

(3) establishes by regulation new

standards under the M+C program.

Other provisions of the BBA addressed

in this interim final rule include:

• Section 4002—Transitional rules for

current HMO Medicare program.

• Section 4003—Conforming changes

in the Medigap program.

• Section 4006—M+C MSAs.

We note that in February, 1998, the

President issued an Executive Order

directing the Secretary to comply to the

extent possible through administrative

activities with the standards contained

in the Consumer Bill of Rights and

Responsibilities. Therefore, as discussed

in several sections of this preamble, we

have taken these standards into

consideration in developing the

regulations contained in this interim

final rule. We have also incorporated

conforming provisions consistent with

other parts of the Medicare statute, such

as exempting services under M+C

coordinated care plans from the antireferral provisions in section 1877.

In several places in this preamble, we

indicate that HCFA intends to develop

additional policy guidance or

instructions. In doing so, we will use a

formal rulemaking process and allow for

review by the Office of Management and

Budget pursuant to the requirements of

the Paperwork Reduction Act of 1995,

wherever it is appropriate to do so.

B. Codification of Regulations

The regulations text set forth in this

interim final rule is codified in 42 CFR

Part 422—Medicare+Choice Program.

(Note that new part 422 was established

in our April 14, 1998 interim final rule

on PSOs (63 FR 18124).) The current

Medicare regulations for managed care

organizations that contract with HCFA

under section 1876, or for health care

prepayment plans (HCPPs) that are paid

under section 1833(a)(1)(A), will

continue to be located in 42 CFR part

417, Health Maintenance Organizations,

Competitive Medical Plans, and Health

Care Prepayment Plans. Although the

part 422 provisions will eventually

supersede the regulations in part 417 for

contracts with risk-bearing HMOs and

competitive medical plans (CMPs), there

are some purposes for which the part

417 provisions will continue in effect

for a transitional period. Also, various

provisions of section 4002 of the BBA

provide for the continuation of costbased contracts under section 1876 and

of agreements with HCPPs under section

1833(a). Thus, the part 422 regulations

cannot entirely replace the part 417

regulations at this time. (Both

transitional provisions and those

relating to cost-based contracts and

HMOs are discussed in detail below in

the appropriate sections of this interim

final rule.)

For the convenience of organizations

that contract with HCFA only under the

M+C program, we are including in part

422 both new requirements that

implement newly enacted provisions in

Part C and existing requirements from

part 417 that also will be imposed under

Part C. For transitional requirements,

which could logically appear in both

parts, we are setting forth the full

requirements in part 422 and

referencing them in part 417.

Requirements that apply to

organizations that contract with HCFA,

or are paid by HCFA, only under section

1876 or 1833(a) will remain in part 417.

Regulations implementing the

provisions of section 1310 of the Public

Health Service Act concerning

Federally-qualified HMOs also remain

in part 417.

C. Organizational Overview of Part 422

The major subjects covered in each

subpart of part 422 are as follows:

• Subpart A—Definitions, including

definition of types of plans, application

process, and user fees.

• Subpart B—Requirements

concerning beneficiary eligibility,

election, enrollment and disenrollment

procedures, and plan information and

marketing materials.

• Subpart C—Requirements

concerning benefits, point of service

options, disclosure of information,

access to services, confidentiality of

enrollee records, advance directives,

and beneficiary protection against

liability.

• Subpart D—Quality assurance

standards, external review, and deeming

of accredited organizations.

• Subpart E—Organizational

relationships with participating entities

including the prohibition against

interference with health care

professionals’ advice to enrollees,

physician incentive requirements, and

special rules for M+C private fee-forservice plans and private contracts with

health care professionals.

• Subpart F—Payment methodology

for M+C organizations, coverage that

begins or ends during inpatient hospital

stays, hospice care, and encounter data

requirements.

• Subpart G—Requirements

concerning terms and conditions for

receiving capitated payments, limits on

premiums and cost sharing,

determination of adjusted community

rate, and prohibition of State-imposed

premium taxes.
34970 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

• Subpart H—Requirements

concerning provider-sponsored

organizations (PSOs).

• Subpart I—Organization

compliance with State law and

preemption by Federal law.

• Subpart K—General contract and

enrollment requirements,

administration and management, and

procedures for nonrenewal or

termination of contracts.

• Subpart L—Effect of change of

ownership or leasing of facilities during

term of contract.

• Subpart M—Requirements

concerning beneficiary grievances and

organization determinations and

appeals.

• Subpart N—Requirements and

procedures for contractor appeals of

nonrenewals or terminations of

contracts.

• Subpart O—Procedures for

imposing intermediate sanctions.

Each of these subparts is discussed

below in section II of this preamble.

Sections III and IV consist of separate

discussions of provisions of the part 422

regulations that specifically concern

M+C MSA plans and M+C private feefor-service plans, respectively.

II. Provisions of the Interim Final Rule

A. General Provisions—Subpart A

1. Overview

Subpart A begins with a brief section

(§ 422.1) that specifies the general

statutory authority for the ensuing

regulations and indicates that the scope

of part 422 is to establish standards

applicable to the M+C program. Under

§ 422.2, we then set forth definitions for

terms used in part 422 that we believe

need clarification. These definitions

provide the generally applied meaning

for terms that are used throughout part

422. Where necessary, we have included

in specific subparts of part 422

definitions for terms used primarily in

those subparts. In § 422.4, we define the

three different types of M+C plans,

consistent with section 1851(a)(2)—

M+C coordinated care plans, M+C MSA

plans and M+C private fee-for-service

plans.

Sections 422.6 and 422.8 then detail

the application process for an entity

seeking an M+C contract and HCFA’s

application evaluation procedures.

Section 422.10 adopts, for purposes of

the M+C program, the user fee

provisions now set forth at § 417.472(h).

2. Definitions (§ 422.2)

For the most part, the definitions

presented here are taken directly from

the statute or are essentially selfexplanatory. Below, we discuss some

notable exceptions to this, including

cases where we have clarified the exact

meaning and context of certain terms.

Please keep in mind that the definitions

set forth in subpart A reflect general

meanings for the terms as they are used

in part 422 unless otherwise indicated;

the definitions apply strictly for

purposes of part 422. For example, the

term ‘‘provider’’ has a more inclusive

meaning under part 422 than it does for

other Medicare purposes, as discussed

below. Similarly, when we define a term

anywhere in part 422 other than in

subpart A, it can be assumed that the

definition of the term is limited to a

specified purpose in the relevant

subpart or section. Thus, as specified in

the relevant sections of the regulations,

the term ‘‘substantial financial risk’’ has

a different meaning for purposes of the

physician incentive provisions under

§ 422.208 than it does in the PSO

provisions under § 422.356.

Benefits and Benefit Categories

In § 422.2, we have defined both the

term ‘‘benefits’’ as well the different

categories under which benefits are

provided: basic benefits, additional

benefits, mandatory supplemental

benefits, and optional supplemental

benefits. ‘‘Benefits’’ consist of the health

care services delivered or covered by an

M+C organization. (Note that ‘‘services,’’

under the long-standing Medicare

definition at § 400.202, encompass

medical care, services, and items.) The

definition of benefits is relevant both for

purposes of the process of determining

adjusted community rates (ACRs) for

M+C plans and for purposes of a new

provision in Part C that ‘‘pre-empts’’

State laws relating to ‘‘benefits.’’

When we refer to one of the categories

under which benefits are provided,

however, we generally are referring not

only to the actual health services that a

beneficiary receives or is eligible to

receive, but also to the pricing structure

applied to these benefits. For example,

the definition of ‘‘additional benefits’’

includes both the health care services

covered under a plan that are in

addition to regularly covered Medicare

services, as well as any reductions in

premiums or cost-sharing for Medicare

covered services. Thus, the amount of

deductibles or copayments that an M+C

plan enrollee must expend to receive

services would fall within the scope of

the term ‘‘additional benefits.’’

We wish to note that we have defined

‘‘basic benefits’’ in this regulation to

include both the Medicare-covered

benefits required under section

1852(a)(1)(A) and required ‘‘additional

benefits’’ under section 1852(a)(1)(B).

Both Medicare benefits and required

additional benefits are: (1) Coupled

together in section 1852(a)(1), in the

first paragraph under subsection (a),

titled ‘‘Basic Benefits’’; (2) benefits that

an M+C has an obligation to provide (in

contrast to supplemental benefits,

which may be provided totally at the

M+C organization’s discretion); (3)

benefits paid for with Medicare trust

fund money; and (4) benefits that are

covered by the basic premium, if any,

that counts towards the limit based on

the actuarial value of original Medicare

coinsurance and deductible amounts.

For all of these reasons, we have

decided to divide benefits into the two

categories of the ‘‘basic benefits’’

including all required benefits, and

‘‘supplemental benefits,’’ including both

mandatory and optional supplemental

benefits provided at the discretion of the

M+C organization. We note that while

Congress did not include a ‘‘definition’’

of ‘‘basic benefits’’ in Part C, it appears

to use the term ‘‘basic’’ to refer only to

the Medicare-covered service package.

(See, for example, section 1851(b)(1)(B)

or section 1854(e)(1).) Although

Congress did not actually include

additional benefits in the term ‘‘basic

benefits,’’ in almost all cases, it coupled

these benefits together, and treated them

the same. (See sections 1852(a)(1), and

1854(a)(2)(A), (3)(A), (4)(A), and (e)(1).)

We accordingly believe that it is

appropriate in this regulation to include

these two categories together in the

definition of ‘‘basic benefits’’ that

applies for purposes of part 422. We

note, however, that where a statutory

provision refers only to the Medicare

benefit component of our part 422

definition of ‘‘basic benefits,’’ we will

similarly limit the regulation

implementing that provision.

M+C Organization and M+C Plan

The definitions of ‘‘M+C

organization’’ and ‘‘M+C plan’’ set forth

in § 422.2 are based on the BBA’s use of

these terms, which is not always

compatible with the way the terms

‘‘organization’’ and ‘‘plan’’ have been

used in the past. In previous HCFA

documents, the term ‘‘managed care

organization’’ frequently has been used

interchangeably with the term

‘‘managed care plan’’ or ‘‘health plan.’’

Section 422.2 addresses this area of

potential confusion by clarifying the

distinction between an M+C

organization and an M+C plan.

Succinctly stated, an M+C

‘‘organization’’ is an entity that

contracts with HCFA to offer an M+C

plan; the ‘‘plan’’ consists of the specific

health benefits, terms of coverage, and

pricing structure.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34971

Section 1857(a) specifically states that

HCFA contracts with an M+C

organization. Thus, for requirements

that we would normally think of as

contractual requirements, we use the

term ‘‘M+C organization.’’ In § 422.2

then, an M+C organization is defined as

a public or private entity organized and

licensed under State law as a riskbearing entity (with the exceptions of

PSOs receiving waivers) that is certified

by HCFA as meeting the M+C contract

requirements. Under various BBA

provisions, the requirements M+C

organizations are responsible for

meeting include: processing the

enrollment and disenrollment of

beneficiaries within a plan; transmitting

information such as enrollment

information and encounter data to

HCFA; submitting marketing materials;

providing all Medicare-covered benefits

and other benefits covered under the

contract in a manner consistent with

specified access standards; performing

quality assurance; creating and carrying

out all plan procedures for grievances,

organization determinations, and

appeals; maintaining necessary records;

providing advance directives;

establishing procedures related to

provider participation; setting medical

policies; notifying beneficiaries of any

‘‘Conscience Protection’’ exceptions;

disclosing physician incentive plans;

receiving payment; reporting financial

information; paying user fees; making

prompt payments to providers;

receiving any sanctions invoked by

HCFA on any of the organization’s

plans; and fulfilling other contract

requirements as specified in regulation.

Again, in contrast, an M+C plan is

merely the health benefits coverage and

pricing structure that the organization

offers to beneficiaries. An M+C plan

may include the basic benefits only

(basic benefits include Medicarecovered benefits and additional

benefits) or basic benefits combined

with mandatory and/or optional

supplemental benefits.

An M+C organization may select

which providers furnish services under

the plan, as long as the benefit package

meets all the requirements for access

within the area, and outside of the area

for specific services. As discussed in

detail below, service areas and benefit

packages generally are associated with

individual plans; uniform premium

requirements and the need for an ACR

proposal also apply at the plan level.

Service Area

The service area designation of an

M+C plan is an important element of the

structure and design of a particular

plan. A plan’s service area—

• Determines the payment rate to the

organization for enrollees of the plan,

based on the counties included in the

service area;

• Affects what benefits will be

provided, since benefits and premiums

must be uniform under an M+C plan,

throughout that plan’s defined service

area;

• Determines which beneficiaries are

able to elect the plan, because

organizations are obligated to enroll any

eligible resident of the service area who

elects the plan; and

• For network plans, is the area in

which the plan is required to make

covered services available and

accessible; and determines the

boundaries beyond which the plan

assumes liability for urgently needed

care and may offer enrollment

continuation options.

As explained below, we will exercise

discretion in reviewing and approving

service areas requested by M+C plans.

For network plans, we will use our

knowledge of how service areas have

been designated in the past in the

Medicare managed care program and in

the Federally-qualified HMO program,

which we have administered since

1986, to ensure availability and

accessibility of services. We will

attempt to ensure that service areas of

M+C network plans are consistent with

community patterns of care and/or

rating practices—that is, service area

designations are not artificially

delineated in such a way that usual

sources of care, in terms of geographic

location, are not available to

beneficiaries; or in such a way that the

service area designation allows

‘‘gaming’’ of the community rate that

forms the basis of M+C premiums and

benefits, to the disadvantage of

Medicare beneficiaries. A

nondiscrimination standard will also

apply to both network and non-network

plans. To the extent possible, we will

attempt to ensure a ‘‘level playing field’’

among plans operating in the same

geographic area (for example, if one

plan in an area is subject to the county

integrity rule discussed below, a new

plan may also be subject to the same

standard in determining a new service

area). These standards will also be

applied in evaluating requests for M+C

service area expansions and service area

reductions. Consistent with the goals of

the new M+C program, we will attempt

to maximize the number of choices

available to Medicare beneficiaries and

maximize the availability of low-cost

plans offering additional benefits.

The regulations at § 422.2 provide that

an M+C organization may propose a

specified service area for each M+C

plan, and HCFA will determine whether

the proposed area can be approved. The

regulatory definition of service area is

slightly different from the current

service area definition at § 417.401. The

latter regulation defines the term

geographic area (which we used

interchangeably with service area with

respect to section 1876 contracts) as

‘‘the area found by the Secretary to be

the area in which an HMO is able to

deliver the full range of services,’’ a

definition that was essentially common

to both the Medicare program and the

Federally qualified HMO program

(§ 417.1, ‘‘service area’’). The earlier

definition emphasizes the role of the

Secretary (HCFA) in the designation of

service areas, and incorporates one of

the standards applicable to network

plans (which continue to apply to such

plans in these regulations). Statutory

references to a service area or

geographic area under Medicare,

including references in the BBA, do not

offer a definition of the term or an

indication of how the area is to be

determined.

We have modified the wording of the

earlier regulatory definition of ‘‘service

area’’ to recognize that organizations

will propose specific areas for M+C

plans. Pursuant to section 1856(b)(1),

which provides for establishing M+C

standards by regulation, and section

1856(b)(2), which provides for basing

the standards on standards under

section 1876, we have retained our

authority to approve or deny service

area configurations that organizations

propose. This reflects what has been the

actual past practice of the agency in

administering the Medicare HMO/CMP

program and the Federally-qualified

HMO program. The new definition also

recognizes that service areas designated

by organizations for non-network plans

are designated for the purpose of

determining who is eligible to enroll in

the plan.

Consistent with current and past

regulatory and statutory standards, we

will evaluate proposed service areas of

network plans to determine whether

covered services are available and

accessible, under the standards of

§ 422.112, to any resident of the area

eligible to elect enrollment in the plan.

We will also examine the proposed

service area of any plan, including nonnetwork plans, to ensure that the

delineation of the area does not result in

discrimination against beneficiaries

through ‘‘gerrymandering’’ or ‘‘redlining’’ to deliberately avoid particular

areas (e.g., to prevent the enrollment of

poorer Medicare beneficiaries, or those

known to be in poorer health). An

example of such a practice would be an
34972 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

urban area network plan’s exclusion of

poorer inner-city areas, leaving obvious

‘‘holes’’ in the service area where

residents would not have any problem

gaining access to care through the plan’s

providers had the area been included in

the proposed service area. Although we

would not ordinarily dictate the

inclusion of particular areas in the

service area of a plan—for example, a

multi-county commercial plan could

include only some of its counties in a

Medicare contract—we would seek to

prevent clear cases of discrimination

against, or disadvantaging of, particular

groups or populations.

Prior to the BBA, contracting HMOs

and CMPs (virtually without exception)

all had existing, defined service areas

prior to entering into a Medicare

contract. These were areas in which the

entities offered comprehensive health

care services to non-Medicare enrollees

of the specified geographic area. As

noted above, Medicare’s statutory

language did not clearly define the

terms service area or geographic area,

but it was assumed that each

organization would have a specific

service area in which it operated and

provided coverage to any enrollee from

the community (including any Medicare

enrollee). The Medicare premiums and

benefits are a function of the community

rate of the plan, the rate applicable to

any covered group within the

community covered by the plan. Hence,

until the mid-1980s, we required that

the service area for Medicare be the

same as the service area for the nonMedicare population. Subsequently, we

changed our policy to permit HMOs and

CMPs to limit the Medicare service area

to a subset of the non-Medicare

(commercial) area, breaking the link

between commercial service areas and

Medicare service areas (though the

Medicare premiums and benefits

continue to be based on the community

rate for the entire non-Medicare

community). We applied a ‘‘county

integrity’’ standard in determining how

HMOs could reduce their service areas

for Medicare; whole counties could be

excluded, but partial counties could

only be excluded if the organization

operated (for commercial purposes) only

in a portion of the county.

Because the BBA provisions on

waiver of minimum enrollment and

composition of enrollment requirements

permit organizations to have M+C plans

with no prior enrollment, there will be

plans that do not have designated

service areas and do not have a

commercial service area that can be

used as a reference point for the

designation of a Medicare service area.

In the case of network plans, we would

work with such organizations to

determine an appropriate service area

for the plan’s provider network, taking

into consideration the patterns of

medical care in the community (e.g.,

where people obtain care, the types of

providers available in the community,

reasonable travel times to obtain care).

We would also use our knowledge of

how plan service areas generally have

been determined and approved in the

past, as well as how other organizations

in the same area, or a similar area, have

established their service areas. There

could be concerns both with a proposed

area that is too wide, offering limited

availability of services for outlying

areas, and with a proposed area that is

too small, which would limit choices

available to beneficiaries or might raise

the concerns discussed above regarding

discrimination.

We believe that basing our decisions

on community patterns of care and the

practices of other organizations in the

same area, or in similar areas, is

consistent with our past approach to the

issue of service area designations, and

consistent with the BBA. The BBA

requires a similar approach in

developing elements of the adjusted

community rate for new plans (e.g.,

1854(f)(4), referring to ‘‘enrollment

experience of other contracts entered

into under this part and * * * data in

the general commercial marketplace’’).

With respect to another issue related

to service areas, our policy that

permitted HMOs and CMPs under 1876

to vary premium and benefit offerings

by county within a service area (the

‘‘flexible benefits’’ policy) will no longer

apply under M+C. The flexible benefits

policy permitted organizations to use

non-Medicare revenue to offer extra

benefits or reduced premiums (‘‘free

benefits’’) to residents of a particular

county or counties rather than in the

entire service area, as long as all

Medicare beneficiaries in the entire

service received at least the level of

benefits required under the statute as

determined through the adjusted

community rate process. With the

requirement that premiums and benefits

be uniform throughout an M+C service

area, it is not possible to continue the

flexible benefits policy. However, an

organization may be able to offer

multiple plans and propose different

service areas for the plans in order to

achieve a similar result as the flexible

benefits policy. This presents us with an

issue of how to deal with the proposals

for service areas, or the carving up of

existing non-Medicare service areas,

when it is done in order to have

different premiums and benefits in

different counties. In the case of

network plans, a carving up of an

existing service area, and the offering of

multiple plans across what may be a

single service area for the non-Medicare

population, is only possible if each of

the plans with different service areas is

able to ‘‘stand alone’’ in terms of

meeting all the requirements applicable

to plans. The designation of multiple

service areas in such cases should also

be consistent with community practices

in patterns of care, and/or consistent

with rating practices, and service are

designations, for other purchasers.

Except in the case of non-network

MSA plans, as discussed below, the fact

that Medicare pays different capitation

rates by county is not a sufficient reason

to establish service areas consisting of

individual counties. For example, a

staff-model HMO operating in a multicounty area, that has a service delivery

network consisting of only one hospital

and a group of physicians employed by

the organization, cannot designate each

county as a separate service area.

Although services are accessible and

available in each county, we do not

believe there is a valid reason to charge

different premiums by county, for

example, when all Medicare

beneficiaries enrolled in the

organization will be using the same

providers.

On the other hand, some

organizations that operate with very

large service areas may be justified in

breaking up larger service areas for

Medicare contracting purposes. This

would be similar to what Federallyqualified HMOs do in designating

distinct service areas as ‘‘regional

components,’’ which are sub-areas with

an autonomous provider network and

with different community rating for the

regional component. Some HMOs,

although they do not identify distinct

service areas, require enrollees to obtain

services from a particular subset of

providers within the broader network

(as Federally-qualified HMOs are

permitted to do (see 45 FR 28655 (April

29, 1980)). Some HMOs offer large

employers a statewide service area

consisting of different provider

networks in geographically distinct

areas in which there is no crossing of

boundaries, or very little crossing of

boundaries, to receive services. The

large employer may be offered one rate

for all areas, but the same HMO may

have smaller designated service areas

for smaller regional employers, in which

different rates apply.

In evaluating proposals requesting

approval of multiple service areas in a

contiguous geographic area, we would

consider the patterns of care in the

community; and the rating and service
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34973

area practices of the individual

organization, of other organizations in

the area, and of other organizations in

similar areas. The commercial service

area will continue to be a reference

point in that we would be likely to

approve a proposal if what is proposed

for Medicare contracting is similar to

what is done in the commercial

marketplace. Similarly, we would take

into consideration any determination, or

approval, of service areas by State

regulatory bodies.

At a minimum, each proposed M+C

service area must be an area in which

the full range of covered services are

available and accessible to all Medicare

enrollees primarily through providers

located in the service area. We would

also evaluate proposals on the basis of

the criteria we discuss above relating to

discrimination against, or

disadvantaging of, particular

beneficiaries in the community. These

criteria would also be used in evaluating

the proposed service areas of nonnetwork plans. Using the inner-city

example, an entity could request an area

consisting only of the poorer inner-city

area, where residents would be required

to pay a relatively high premium, while

other areas were charged a much lower

premium. We would view this practice

as discouraging enrollment within a

particular area. Although the statute

does not expressly provide for

evaluation of service area designations

to determine whether they are

discriminatory, we believe that it is

consistent with statutory requirements

relating to discrimination and

discouraging enrollment (at 1852(a)(3),

with respect to the pricing of mandatory

supplemental premiums, and 1852(b),

with respect to limiting enrollment

based on a health status factor,

including claims experience or

insurability). We have included the

above criteria for service area approval

in the definition of ‘‘service area’’ in

§ 422.2.

As noted above, we are providing for

a special exception for service areas for

non-network MSA plans. In the case of

M+C MSA plans, differences in

payment rates for a given county affect

not just the amount the M+C

organization offering the MSA plan is

paid, but the amount that is deposited

in MSA accounts. (See section III of this

preamble.) We have decided that in the

case of M+C non-network MSA plans,

under which enrollees are not limited to

receiving services in a defined area, we

will permit M+C organizations to offer

a different M+C plan in each county in

which they wish to enroll beneficiaries.

This would mean that a uniform amount

would be deposited in the M+C MSA

account of every enrollee in the M+C

MSA plan, and the M+C organization

could file a separate premium amount

for each county to ensure that the

proper amount is deposited in accounts

in that county.

Emergency and Urgently Needed

Services

The definitions of emergency services

and urgently needed services in § 422.2

are based on section 1852(d) and thus

differ from those in existing § 417.401.

In accordance with section 1852(d)(3) of

the statute, we are codifying the concept

that an ‘‘emergency medical condition’’

exists if a ‘‘prudent layperson’’ could

reasonably expect the absence of

immediate medical attention to result in

serious jeopardy or harm to the

individual. In addition, the new

definition of ‘‘emergency services’’

includes emergency services provided

both within and outside of the plan,

while the definition of ‘‘urgently needed

services’’ continues to encompass only

services provided outside of the plan’s

service area (or continuation area, if

applicable), except in extraordinary

circumstances such as those discussed

below.

Under section 1852(d)(1)(C)(i), M+C

organizations are required to pay for

nonemergency services provided other

than through the organization where the

services are immediately required

because of unforseen illness, injury or

condition, and it is not reasonable given

the circumstances to obtain the services

through the organization. We believe

that except in the rarest and most

extraordinary of circumstances, the only

situation in which it would not be

reasonable to receive nonemergency

services through the organization would

be when the enrollee is absent from the

service area of the M+C plan in which

he or she is enrolled. It is possible,

however, albeit extremely unlikely, that

there might be other situations in which

this standard would be met by an

enrollee who is in the plan service area.

For example, there could be some

temporary disruption of access to the

M+C plan’s provider network, such as a

strike, or possibly some temporary

physical impediment to traveling to

M+C plan providers that are otherwise

readily accessible. Under such

circumstances, an individual might not

need emergency services, but still may

warrant immediate attention. Because

we do not believe that we can say that

the statutory standard could never be

met by an individual who is in the plan

service area, we believe it is appropriate

to provide for an exception in the

definition of urgently needed services to

the rule that the enrollee be out of area.

We are thus providing for such an

exception in extraordinary cases in

which the network is unavailable or

inaccessible due to an unusual event.

Other Definitions

In our April 14, 1998 interim final

rule setting forth the definition of a PSO

and related requirements, we

established under § 422.350(b) a

definition for ‘‘health care provider’’

that is based on the PSO requirements

in section 1855(d)(5). In this interim

final rule, we are adopting the identical

definition for general purposes of the

M+C program. Under this definition, as

discussed in greater detail in our April

14 interim final rule (63 FR 18126), the

term ‘‘provider’’ applies both to

individuals licensed or certified by a

State to engage in the delivery health

care services (such as physicians, nurse

practitioners, clinical social workers), as

well as to entities engaged in the

delivery of health care services (such as

hospitals, nursing homes, home health

agencies).

Another clarification contained in this

subpart involves the definition of

‘‘copayment.’’ We have defined

copayment as a fixed amount that can

be charged for a service. This is to

distinguish copayment from

‘‘coinsurance,’’ which is a fixed

percentage of the total cost of a service

that can be charged. Copayments,

coinsurance, and deductibles represent

the three forms of cost-sharing under a

plan.

Finally, we have included a general

definition of the term ‘‘balance billing,’’

indicating that balance billing refers to

an amount billed by a provider that

represents the difference between the

amount the provider charges an

individual for a service and the sum of

the amount the individual’s health

insurer (for example, the original

Medicare program) will pay for the

service plus any cost sharing by the

individual. We note that there is

significant variation within both

original Medicare and the M+C program

regarding the extent to which balance

billing is permissible. For example,

under original Medicare, no balance

billing is permitted for providers of

services (such as hospitals and home

health agencies), while for

nonparticipating physicians, balance

billing is permissible only up to the

difference between the Medicare

allowed amount and the Medicare

limiting charge. Different rules apply

under original Medicare for other

nonparticipating suppliers (such as

ambulance or durable medical

equipment suppliers, for which there

are currently no limits on balance
34974 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

billing). Similarly, under the M+C

program, different balance billing

restrictions apply depending on the type

of M+C plan and the contracting status

of the provider. These restrictions are

discussed in detail in the appropriate

sections of this preamble, particularly in

section IV regarding M+C private feefor-service plans.

3. Types of M+C Plans (§ 422.4)

The creation of the M+C program

allows beneficiaries access to a much

wider array of private health plan

choices than the existing alternatives to

the original Medicare program.

Moreover, this new program will enable

Medicare to use innovations from the

commercial sector that have helped the

private market contain costs and expand

health care delivery options.

The BBA provides for several

different types of M+C plans to be

available for beneficiaries. As noted

above, these various M+C plans can be

classified into three general categories:

M+C coordinated care plans, M+C MSA

plans (that is, a combination of a high

deductible M+C health insurance plan

and a contribution to an M+C MSA),

and M+C private fee-for-service plans.

Within each of these three categories,

M+C organizations may offer a variety of

plans to Medicare beneficiaries.

Since these are the only legally

significant categories of plans under the

M+C program, we do not believe it is

necessary to define all of the different

entities that accept prepaid, capitated

payment for delivering health services.

Thus, examples of these entities, such as

PPOs, HMOs, or health insurance

organizations, are not defined for

purposes of this regulation. Essentially,

all entities that apply to offer an M+C

plan must conform to the requirements

for either an M+C coordinated care plan,

an M+C MSA plan, or an M+C private

fee-for-service plan.

M+C Coordinated Care Plans

(§ 422.4(a)(1))

Under the M+C program, beneficiaries

may choose from among a variety of

coordinated care plans. Coordinated

care plans include, but are not limited

to, HMO plans (with or without point of

service options) (HMOs), plans offered

by PSOs (as defined in section 1855(d)

and in our April 14, 1998 interim final

rule), and PPO plans. In addition,

certain beneficiaries may be able to

choose another type of coordinated care

plan, the Religious Fraternal Benefit

Society plan, which is defined in

section 1859(e).

Except in the case of a PSO granted

a waiver under subpart H of part 422,

all organizations offering M+C

coordinated care plans must meet the

State licensure requirements in section

1855 (and § 422.400). Thus, an M+C

coordinated care plan must be offered

by an entity that is (1) appropriately

licensed by the State to bear risk and (2)

eligible to offer health insurance or

health benefits coverage in each State in

which it offers an M+C plan.

In addition, an M+C coordinated care

plan must meet the definition of a

coordinated care plan set forth in

§ 422.4. That is, an M+C coordinated

care plan is a type of plan offered by an

M+C organization that includes a

network of providers that are under

contract or arrangement with the

organization to deliver the benefit

package approved by HCFA. The

network must be approved by HCFA to

ensure that all applicable requirements

are met including access and

availability standards, service area

requirements, and quality standards. A

coordinated care plan may include

mechanisms to control utilization, such

as referrals from a gatekeeper to receive

services within the plan, and financial

arrangements that offer incentives to

providers to furnish high quality and

cost-effective care.

Except for PSOs that have obtained a

waiver of the State licensure

requirement, and thus are subject to the

additional requirements set forth in

subpart H of part 422, distinctions

among HMOs, PSOs, PPOs, and other

coordinated care plans are not relevant

for the purpose of applying to offer an

M+C plan. The distinctions among the

various types of coordinated care plans

may be relevant for purposes of State

licensure. However, for the purpose of

an M+C application, we are not

concerned with what type of

coordinated care plan an applicant

intends to offer. In fact, an entity may

offer an M+C coordinated care plan

even though it is not specifically

licensed as an HMO, PSO, or PPO. As

long as the entity is licensed as a riskbearing entity in accordance with

section 1855 of the statute and the plan

being offered meets the definition of a

coordinated care plan under § 422.4, the

entity does not need to be licensed

specifically as an HMO, PSO, or PPO to

offer an M+C coordinated care plan.

For example, like an HMO or a PSO,

a PPO may offer an M+C plan. Any

organization that is licensed as a riskbearing entity in a State may offer an

M+C plan that is structured in the form

of a PPO. We are not requiring that an

organization applying to offer an M+C

PPO plan be operating as a PPO in the

non-Medicare marketplace. In that

sense, the BBA imposes a distinct

change from prior law, because it does

not require that organizations with

Medicare prepaid health plan contracts

meet certain conditions imposed on

their structure and their commercial

business. Under section 1876, a PPO

generally could not obtain a Medicare

risk contract because most PPOs have

members that are enrollees of an

indemnity insurance product, and

would not meet the requirements under

section 1876 to be an ‘‘eligible

organization’’ entitled to contract under

that section. The BBA only requires that

an organization be providing health

benefits and insurance to enrollees

(regardless of whether on an indemnity

or prepaid, capitated status) and that it

be licensed by the State as a risk-bearing

entity.

The majority of the PPOs that are

currently operating are plans being

offered by State-licensed indemnity

carriers or State-licensed HMOs.

However, where the State does license

the PPO as a risk-bearing entity, the PPO

may be eligible to become an M+C

organization in and of itself. Conversely,

where the State does not allow the PPO

to bear risk, the PPOs in those States

would not be eligible to become an M+C

organization on their own. These PPOs

that are not allowed to bear risk may

partner with a licensed risk-bearing

entity or contract with a licensed riskbearing entity to ‘‘rent out’’ their PPO

network of providers. Consistent with

our policy of deferring to the State as to

which entities constitute licensed riskbearing entities eligible for the M+C

program, HCFA will defer to the State

in terms of whether the PPOs can accept

partial capitation from the licensed

indemnity carrier or licensed HMO.

An entity offering a PPO plan must

still comply with the requirements in

1854(e), which limit enrollee financial

liability under a PPO plan in the same

manner that liability is limited under an

HMO plan or any other type of M+C

coordinated care plan. That is, the sum

of the premium for basic benefits and

the actuarial value of all out-of-pocket

expenses for such benefits (including

the actuarial value of all cost-sharing for

non-participating providers in a PPO)

cannot exceed the actuarial value of the

deductibles and coinsurance in original

fee-for-service Medicare. Therefore, if a

PPO expects a high level of utilization

of non-participating providers, it must

have a very low premium or it must

have a significantly reduced level of

cost-sharing for such services.

Religious Fraternal Benefit Society

Plans

One specific type of coordinated care

plan authorized by the BBA is a

religious fraternal benefit society plan
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34975

(RFB plan), which is defined in section

1859(e). An RFB plan is an entirely new

type of plan that may be offered under

the M+C program.

As with the other types of coordinated

care plans, an entity offering an RFB

plan must be organized and licensed

under State law as a risk-bearing entity

eligible to offer health insurance or

health benefits coverage in each State in

which it offers an M+C plan.

Essentially, an RFB society must meet

the state licensing requirements

outlined in section 1855. As discussed

above, the States define the criteria for

licensure, including any fiscal solvency

standards that apply.

Also, an organization offering an RFB

plan under the M+C program must do

more than merely pay health care claims

on behalf of their beneficiaries. Rather,

RFB plans that constitute M+C

coordinated care plans must meet the

definition of a coordinated care plan

included in this regulation. That is, they

must have a network of health

professionals and meet the applicable

access, availability, service area, and

quality assurance requirements.

Section 1859(e) defines and describes

the requirements for RFB plans. Section

1859(e)(2) describes an M+C RFB plan

as a coordinated care plan that: (A) Is

offered by a religious fraternal benefit

society only to members of the church,

convention, or affiliated group; and (B)

permits all members to enroll without

regard to health status-related factors.

Section 1859(e)(3) states that the RFB

plan must be offered by a religious

fraternal benefit society that: (A) is

described under section 501(c)(8) of the

Internal Revenue Code and is exempt

from taxation under section 501(a) of

that Act; (B) is affiliated with, carries

out the tenets of, and shares a religious

bond with, a church or convention or

association of churches or an affiliated

group of churches; (C) offers, in addition

to an M+C religious fraternal benefit

society plan, at least the same level of

health coverage to individuals not

entitled to Medicare benefits who are

members of such church, convention, or

group; and (D) does not impose any

limitation on membership in the society

based on any health status-related

factor.

Section 501(c) of the Internal Revenue

Code generally describes the rules

applicable to those organizations which

are not subject to Federal income tax

under section 501(a) of the code.

Section 501(c)(8) describes one type—

fraternal beneficiary societies, orders or

associations that (a) operate under the

lodge system for the exclusive benefit of

a Fraternity itself operating under the

lodge system; (b) provide for the

payment of life, sick or accident or other

benefits for the members of such society

or association or their dependents.

RFB Plans have two distinguishing

factors from other types of M+C

coordinated care plans. The first is that

RFB plans are allowed to limit their

enrollment to members of the church.

Section 1859(e)(1) indicates that a

religious fraternal benefit society

offering an M+C plan may restrict the

enrollment of individuals in the plan to

individuals who are members of the

church, convention, or group with

which the society is affiliated.

In addition to this ability to limit

enrollment strictly to members of the

church, RFB plans are distinct from

other M+C coordinated care plans in

that RFB plans may be subject to

possible payment adjustments to ensure

an ‘‘appropriate payment level.’’

Specifically, section 1859(e)(4) indicates

that the Secretary shall provide for such

adjustment to the payment amounts

otherwise established under section

1854 as may be appropriate to assure an

appropriate payment level, taking into

account the actuarial characteristics and

experience of such individuals.

M+C MSA Plans (§ 422.4(a)(2))

The definition of an M+C MSA plan,

as well as other requirements that apply

solely or in a different manner to M+C

MSA plans, are discussed in full in

section III. of this preamble. Note that in

section III.K. of this preamble, we solicit

letters of intent from organizations that

intend to offer M+C MSA plans to

Medicare beneficiaries and/or to serve

as M+C MSA trustees.

M+C Private Fee-For-Service Plans

(§ 422.4(a)(3))

The definition of an M+C private feefor-service plan, as well as other

requirements that apply solely or in a

different manner to M+C private fee-forservice plans, are discussed in full in

section IV of this preamble.

Multiple Plans (§ 422.4(b))

Section 422.4(b) establishes that an

M+C organization may offer multiple

plans, including plans of different types,

under a single contract with HCFA,

provided that the organization is

licensed or approved under State law to

offer the applicable types of plans. We

believe that this policy should prove to

be less administratively burdensome for

both prospective M+C organizations and

for HCFA than other alternatives, such

as requiring separate contracts between

HCFA and an M+C organization for each

plan, or type of plan, being offered by

the organization. We also specify under

this section that if an M+C organization

has received a waiver of the licensing

requirement to offer a PSO plan, the

waiver does not apply to the licensing

requirement for other types of plans.

Other issues associated with the ability

of an M+C organization to offer multiple

plans under a single contract with

HCFA are discussed below, in the

section of the preamble that deals with

the contract requirements contained in

subpart K of part 422.

4. Applications (§§ 422.6 and 422.8)

Sections 422.6 and 422.8 set forth the

application requirements for entities

seeking to contract with HCFA to offer

M+C plans, as well as HCFA’s

application evaluation procedures. For

the most part we have retained the

contracting requirements from

§§ 417.143 and 417.144 as authorized by

section 1856(b)(2). This section of the

law allows HCFA to use past contracting

standards applied to contracts under

section 1876 or to create new standards

as needed to implement the M+C

program. The application requirements

and evaluation procedures are almost

identical to the current application

procedures.

The primary change to our previous

process is the additional requirement

that organizations wishing to contract

with HCFA must submit documentation

of their appropriate State licensure, or

submit documentation of State

certification that the entity is, in fact,

able to offer health insurance or health

benefits coverage meeting State fiscal

solvency standards and authorized to

accept prepaid capitation for providing,

arranging, or paying for comprehensive

health care services. (Entities meeting

the definition of a PSO can be exempted

from this requirement if they meet

conditions for a waiver, which can be

granted by HCFA—see subpart H of part

422.) This requirement is necessitated

by the fact that HCFA will no longer

have primary responsibility for

determining the fiscal solvency of new

contractors. We intend to rely for the

most part on State certification to insure

that the entities that we contract with

are indeed fiscally solvent and have the

ability to handle and afford risk

payments for health care coverage,

although we will if necessary ‘‘look

behind’’ State certifications for

validation purposes.

In one addition to existing rules,

§ 422.8(b) specifies that HCFA may deny

an entity’s application to offer an M+C

plan if the entity has failed to complete

a corrective action plan during the term

of its previous contract with HCFA,

regardless of whether the contract was

under the section 1833, 1876, or the

new Part C provisions of the law. We
34976 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

believe that this provision explicitly

ensures that the proven performance

problems of entities that apply to

contract with HCFA under the M+C

program are taken into consideration in

the application evaluation process.

5. User Fees (§ 422.10)

The last section of subpart A contains

regulations implementing the user fees

provided for in section 1857(e)(2).

Section 1857(e)(2) directs the Secretary

to collect user fees from M+C

organizations, with each paying its pro

rata share, for the purpose of paying for

costs associated with enrollment and

information activities under section

1851 and subpart B, and counseling and

assistance programs under section 4360

of the Omnibus Budget Reconciliation

Act of 1990 (Public Law 103–66).

Under section 1876(k)(4)(D), the user

fees provided for in section 1857(e)(2)

apply in 1998 to HMOs and CMPs with

risk contracts under section 1876. On

December 2, 1997, we published

regulations in § 417.472(h)

implementing the user fee authority in

section 1857(e)(2), and setting forth a

methodology for determining an

organization’s ‘‘pro rata share’’ of these

fees. (62 FR 63669).

In this interim final rule, we are

simply adopting at § 422.10, for

purposes of the M+C program, the user

fee provisions now set forth at

§ 417.472(h). Our reasons for adopting

the methodology reflected in these

regulations are set forth in the preamble

to the December 2, 1997 rule. We intend

to respond to comments received on the

December 2 interim final rule, as well as

comments on this rule, in a future

rulemaking document.

B. Eligibility, Election, and Enrollment

1. Eligibility to Elect an M+C Plan

(§ 422.50)

Section 1876 background: The

provisions that have in the past applied

to managed care entities (and continue

to apply until these entities become

M+C organizations) are in section 1876

and part 417 of this chapter. Section

1876(d) provides that Medicare

beneficiaries who are entitled to benefits

under Part A and enrolled in Part B, or

enrolled under Part B only, except those

with ESRD, residing in the service area

of the plan are eligible to receive all

their Medicare benefits through an HMO

or CMP that has a contract with HCFA.

Regulations at § 417.423(b) excluded

beneficiaries who elect hospice care

from enrolling in an HMOs or CMPs as

long as the hospice election remains in

effect. Existing regulations at

§ 417.460(f) require that HMO or CMP

disenroll individuals who move out of

their geographic areas, except that

§ 417.460(f)(2) allows enrollees to

remain enrolled in an HMO or CMP

under the following circumstances: (1)

During a temporary move from the

service area for up to 90 days, or (2)

during a move to a new area for as long

as 1 year if the HMO or CMP has elected

to offer this option under § 417.460(f)(2).

a. Eligibility. The BBA established a

new section 1851(a) that includes the

eligibility criteria an individual must

meet in order to enroll in an M+C plan,

as defined in § 422.4. Accordingly,

except as discussed below at section

B.1.b. regarding the transition of Part B

only individuals, § 422.50 states that

individuals who are entitled to Part A

and enrolled in Part B are eligible to

enroll in an M+C plan. These

individuals are referred to as ‘‘M+C

eligible individuals.’’

Individuals with end stage renal

disease (ESRD) are not permitted to be

new enrollees of an M+C organization

offering an M+C plan. Section

1851(a)(3)(B) excludes individuals with

ESRD from enrolling in an M+C plan

generally, but provides that an

individual who develops ESRD while an

enrollee in an M+C plan may ‘‘continue

to be enrolled’’ in that plan. For

purposes of this provision only we are

considering individuals who are

enrolled in a private health plan offered

by the M+C organization to have been

enrollees of the M+C plan when they

developed ESRD. In section

422.50(a)(2), therefore, we provide that

an individual who develops end-stage

renal disease while enrolled in an M+C

plan, or in a private health plan offered

by the M+C organization offering an

M+C plan, may continue to be enrolled

in the M+C organization as an M+C plan

enrollee.

We take this position because we

believe that Congress intended in

section 1851(a)(3)(B) to permit

individuals with ESRD who are enrolled

with an M+C organization to remain

enrolled with that organization. If an

individual develops ESRD as an

enrollee of the organization after

becoming Medicare eligible, he or she

clearly would be permitted under

section 1851(a)(3)(B) to remain enrolled

with the organization. We do not believe

that enrollees of an M+C organization

should be penalized because they

develop ESRD prior to becoming

Medicare eligible rather than after. This

position is consistent with our existing

policy implementing a similar ESRD

exclusion under section 1876, and

therefore is supported by section

1856(b)(2), which provides for the

retention of ‘‘standards established

under section 1876 to carry out

analogous provisions of such section.’’

We are not continuing the

§ 417.423(b) exclusion policy on

hospice; individuals who elect hospice

coverage may elect an M+C plan. Unlike

ESRD patients, individuals who elect

hospice care are not specifically

excluded from participating in the M+C

program. In fact, section 1853(h)

contains special rules for M+C

organizations that enroll hospice

patients.

Section 1851(b) states that, except as

the Secretary may otherwise provide,

individuals must live in the geographic

area served by the M+C plan in order to

enroll in that plan. We have exercised

the discretion provided in this provision

to provide that those individuals

converting from health plans in which

they were enrolled prior to Medicare

entitlement who reside out of the plan’s

service area may also continue

enrollment in the M+C organization if

they reside in the continuation area of

the plan.

An M+C organization must disenroll

beneficiaries who permanently move

from the service area, unless the plan

has chosen to provide a continuation of

enrollment option in the area to which

the enrollee moved, as allowed in

section 1851(b)(1)(B) and the enrollee

chooses to remain with the plan. We

discuss continuation of enrollment in

detail in section b.2., ‘‘Continuation of

Enrollment.’’ Section 4002 enrollment

transition for 1876 risk contracts.

Section 1876 risk contracts cannot be

renewed for a contract year beginning

on or after January 1, 1999. Current risk

contractors that remain in compliance

with current standards and that

demonstrate compliance with new

requirements established by this

regulation will be able to transition into

the M+C program by entering into an

M+C contract, as an M+C organization,

with a contract effective date of January

1, 1999.

Section 4002(c) of the BBA provided

for a seamless transition of enrolled

membership. An individual who is

enrolled on December 31, 1998 with an

eligible organization under section 1876

shall be considered to be enrolled with

that organization on January 1, 1999

under the M+C program if that

organization has a contract under Part C

of title XVIII for providing services on

January 1, 1999, unless the individual

has disenrolled effective on that date.

In addition, section 4002(b) provides

that an individual who is enrolled in

Part B only and is enrolled in an eligible

organization with a risk-sharing contract

under section 1876 on December 31,

1998, may continue to be enrolled in the
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organization in accordance with our

regulations. This means that on January

1 there will be a small population of

‘‘grandfathered Part B only’’ enrollees

retained in organizations formerly with

risk contracts that now hold contracts

under the M+C program. However, this

is a one time opportunity, and an

individual who is enrolled in Part B and

not entitled to Part A and who

disenrolls from the M+C organization is

not eligible to elect a plan offered by

another M+C organization.

In summary, we are interpreting the

statute to allow an individual to

transition enrollment from the 1876

program without regard to location of

residence or whether the individual has

end-stage renal disease and to choose to

enroll in any plan offered by the M+C

organization into which they are

transitioning.

2. Continuation of Enrollment (§ 422.54)

As stated previously, section

1851(b)(1)(B) allows M+C organizations

to offer enrollees the option of

continued enrollment in the M+C plan

when enrollees leave the plan’s service

area to reside elsewhere, we have to

interpieted this to mean on a permanent

basis.

M+C organizations that choose the

continuation of enrollment option must

explain it in marketing materials and

make it available to all enrollees in the

service area. Enrollees may choose to

exercise this option when they move or

they may choose to disenroll.

Before an M+C organization may offer

a continuation of enrollment option to

Medicare beneficiaries, the organization

must obtain HCFA approval of the

continuation area, its marketing

materials, and the organization’s

assurances that it will meet access

requirements. Under section

1851(b)(1)(B), the organization must

provide enrollees with reasonable

access within the continuation area to

the Medicare covered benefits described

in section 1852(a)(1)(A).

The payment rate at which the M+C

organization will receive payment from

HCFA will be based on the rate and

adjustment factors that correspond to

the beneficiary’s permanent residence.

The M+C organization must, at a

minimum, provide or arrange for the

provision of Medicare covered benefits

in the continuation area as described in

the first sentence of § 422.100(b)(1), and

the plan must meet access and costsharing requirements for all basic

benefits.

Because the rate that we pay to M+C

organizations includes amounts that

ordinarily must be used to provide

additional benefits (see preamble for

subpart G), we believe that M+C

organizations should be required to

provide additional benefits in the

continuation area. As noted above,

however, section 1851(b)(1)(B) requires

only that Medicare benefits be provided

to continuation enrollees. We

accordingly are considering a legislative

proosial to require M+C organizations to

provide all services in section

1852(a)(1), including required

additional benefits under section

1852(a)(1)(B).

Section 1851(b)(1)(B) requires that

‘‘reasonable access’’ be provided in the

continuation area, and that enrollees be

subject to ‘‘reasonable cost-sharing.’’ We

are requiring that M+C organizations

satisfy the access requirements in

§ 422.112, and provide services either

through written agreements with

providers or by making payments that

satisfy the requirements in

§ 422.100(b)(2).

We are defining ‘‘reasonable costsharing’’ in the continuation area to be

limited to (1) the cost-sharing amounts

required in the M+C plan’s service area

(in which the enrollee no longer resides)

if provided by contract providers; (2) the

cost-sharing amounts required by the

continuation area plan if provided

through agreements with another M+C

plan; or (3) the amount for which a

beneficiary would be liable under

original Medicare if noncontracting

providers furnish the services.

We have included two items in these

regulations that reflect our prior

experience with similar situations. They

are: (1) that plans may require prior

notification from members of their

intention to use the continuation of

enrollment option, but this requirement

must be in their marketing materials,

and (2) appeals and grievances in the

continuation area must be handled in

the same timely fashion as in the service

area, but the ultimate responsibility for

the appropriate handling of appeals and

grievances is with the organization that

is receiving payment from HCFA.

3. Limitations on Enrollment in an M+C

MSA Plan (§ 422.56)

While most M+C eligible individuals

can choose to receive benefits through

one of the M+C plans defined in § 422.4,

the statute places limitations on

eligibility to enroll in M+C MSA plans.

Sections 1851(b)(2) and (b)(3)

specifically exclude certain individuals

from enrolling in M+C MSA plans. We

have specified at § 422.56(b) of this

section, that individuals who are

enrolled in a Federal Employees Health

Benefit program (FEHB) plan, or who

are eligible for health care benefits

through the Veterans Administration

(VA) or the Department of Defense

(DoD) may not enroll in an M+C MSA

plan. The statute provides that the

restrictions on FEHB enrollment may be

eliminated if the Director of the Office

of Management and Budget certifies to

the Secretary that the Office of

Personnel Management has adopted

polices that will ensure that the

enrollment of FEHB participants in M+C

MSA plans will not result in increased

expenditures for the Federal

government. The Office of Personnel

Management has indicated to HCFA that

they would not be able to certify that

FEHB costs would not increase at this

time. Under our authority in section

1851(b)(2)(B), we intend to apply the

same rules for enrollment restriction to

individuals who are eligible for health

benefits through the VA and DoD.

Additionally, in § 422.56(c) we have

incorporated the statutory requirement

under section 1851(b)(3) that

individuals who are entitled to

Medicare cost-sharing under a State

plan under title XIX are not eligible to

enroll in M+C MSA plans. In addition,

an individual who receives health

benefits that cover all or part of the

annual deductible under an M+C MSA

plan may not enroll in an M+C MSA

plan.

Note that M+C MSA plans are

described in detail in Section III of this

preamble.

4. Limited Enrollment Under M+C RFB

Plans (§ 422.57)

Section 1859(e)(1) states that

Religious Fraternal Benefit Society

(RFB) plans may limit the enrollment of

individuals to those who are members

of the church, convention or group with

which the society is affiliated. We have

included the restrictions on enrollment

in RFB plans at § 422.57.

5. Election Process (§ 422.60)

Under section 1851(c)(1) the Secretary

is required to establish a process

through which elections in M+C plans

are made and changed, including the

form and manner in which they are

done. In § 422.60, we describe the

election process for enrollment with the

M+C organization. Where applicable we

have included existing rules from 42

CFR § 417.430 with conforming

changes.

As stated at § 422.66(a), M+C eligible

individuals who wish to elect an M+C

plan may do so by filing the appropriate

election form with the M+C

organization. At § 422.60(a), we specify

that M+C organizations must accept

without restriction, except as specified

in § 422.57 for RFB plans, individuals

who enroll in an M+C plan during the
34978 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

election periods described in section

1851(e)(6) and set forth at § 422.62 of

the regulation.

As provided by section 1851(e)(6),

and stated at § 422.60(a), and displayed

in the following chart, M+C

organizations are required to accept

enrollments during the initial coverage

election period, the annual election

period, and special election periods, but

M+C organizations are not required to

be open for enrollment during open

enrollment periods.

WHEN ELECTIONS MAY BE MADE OR CHANGED*

Coverage Election Periods When: § 422.62 M+C Plans Required to Accept

Enrollments: § 422.60

Effective Date of Coverage:

§ 422.68

Initial Coverage Election Period ... 3 months before entitlement to

Part A and Part B.

Yes ................................................ 1st day of month of entitlement to

Part A and Part B.

Annual Election Period ................. Annually in November ................... Yes ................................................ January 1.

Special Election Period ................. Starting 2002, if beneficiary

moves, plan terminates, etc.

Yes ................................................ To Be Determined—depends on

situation.

Special Election Period at Age 65 Starting 2002, in first 12 months

after initial election of M+C plan.

No—Election is original Medicare 1st day of the month after month

of election.

Open Enrollment Periods .............. Anytime 1998–2001 Jan–Jun

2002 Jan–Mar 2003+.

No—Plans have option of accepting enrollments.1st day of the month after month

of election.

*Refer to referenced regulation text for detail.

Note that different rules apply to M+C MSA plans.

As provided at § 422.306(a)(2) to

reflect the requirements in section

1854(a)(1)(B), M+C organizations must

submit by May 1 of each year the

enrollment capacity of each plan they

offer. Section 422.60(b) then provides

that if HCFA determines that the M+C

plan has a capacity limit, the plan may

limit the enrollment of M+C eligible

individuals if the plan accepts first

those individuals who elected the plan

prior to the HCFA determination and

then accepts others in a manner that

does not discriminate on the basis of

health status.

We note that we have not included

regulation text to address the last

sentence of section 1851(g)(2) regarding

‘‘nonrepresentative’’ enrollment. As

written, the sentence disallows a

capacity limit if enrollment would

become substantially nonrepresentative

of the Medicare population in the plan’s

service area, as determined in

accordance with regulations of the

Secretary. We cannot envision

circumstances under which the

imposition of a capacity limit on

enrollment would by itself lead to an

enrollment ‘‘substantially nonrepresentative’’ of the Medicare

population in an M+C plan’s service

area. We particularly cannot envision

circumstances under which the nonrepresentativeness of enrollment would

be so ‘‘substantial’’ as to justify possible

risks to patient access and quality of

services as the result of overloaded

capacity. We accordingly are not

promulgating regulations at this time

implementing the authority in the last

sentence in section 1851(g)(2). We invite

comments on this provision, and would

consider including guidance on this

matter in a final regulation based upon

comments received.

At § 422.60(c) we indicate

requirements for the election form. The

form must comply with HCFA

instructions regarding content and

format, must be completed and signed

by the beneficiary (or the individual

who will soon be entitled to Medicare

benefits), and must include

authorization for disclosure and

exchange of necessary information

between HCFA and the M+C

organization. Persons who assist

beneficiaries in completing forms must

sign the form and indicate their

relationship to the beneficiary. The

forms must also be filed and retained by

the M+C organization.

In general, and as indicated by our

requirement that the beneficiary

complete and sign the form, we believe

that an M+C eligible individual should

personally complete and sign any

election form or disenrollment request

(referenced at § 422.66(b)) whenever

possible. If for some reason a beneficiary

is unable to sign for himself or herself,

we recognize and defer to state laws on

who may sign for other persons, which

is also the policy in the Section 1876

program.

In § 422.60(d), we specify that an

election is considered to have been

made on the date it is received by the

M+C organization. We believe it is

necessary that we define ‘‘when an

election is made’’ because it is a

determining factor in establishing the

effective date of M+C plan coverage.

Note that HCFA’s liability for payment

is not as of the election date, but rather,

is as of the effective date of coverage.

Effective dates of coverage are specified

at § 422.68.

We have also set forth at § 422.60(e)

a process for handling of forms,

including for providing written

notification of acceptance or denial in

the M+C plan.

6. Election of Coverage Under an M+C

Plan (§ 422.62)

Section 1876 background: Section

1876(c)(3)(A)(i) requires that HMOs and

CMPs hold an open enrollment period

for Medicare beneficiaries of at least 30

consecutive days during each contract

year to qualify for a Medicare contract.

For Medicare beneficiaries who enroll

during the open enrollment period,

§ 417.450(a)(2) states that the effective

date of coverage cannot be earlier than

the first month, nor later than the third

month, after the month in which HCFA

received the information necessary to

include the beneficiary in its records. In

§ 417.450(b), HCFA reserves the option

to approve a later month if requested by

the organization and the beneficiary.

HMOs and CMPs can also offer

continuous open enrollment outside of

the 30-day period.

In the M+C program under section

1851(a)(1), M+C eligible individuals

may elect to receive Medicare benefits

under original Medicare or through

election of an M+C plan. Section

1851(e) describes the various election

periods available to M+C eligible

individuals. Many of these provisions

allow the individual to ‘‘change the

election under subsection (a)(1)’’ during

these periods. If section 1851(a)(1) were

read narrowly, it arguably would only

allow an eligible individual to change

between original Medicare or the M+C

program under Part C. We have taken a

broader approach in interpreting section

(a)(1) to allow eligible individuals to not

only make a change between the

original Medicare program and an M+C

plan, but also among M+C plans.

Therefore, an M+C eligible individual
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34979

who changes his or her election may

change from an M+C plan to original

Medicare, from an M+C plan to another

M+C plan or from original Medicare to

an M+C plan.

The BBA establishes specific

parameters in which elections can be

made and/or changed. Individuals who

wish to elect an M+C plan or

subsequently change their election,

must do so during the periods

established under section 1851(e). That

section requires that elections or

changes in election be made during the

following periods: The initial coverage

election period, continuous open

enrollment periods, an annual

coordinated election period or special

election periods. Note that the Medigap

implications of a change of election to

original Medicare are discussed at

section II.B.12 (Extended Period of

Guaranteed Access to Medigap Plans) of

this preamble.

a. Initial Coverage Election Period.

Section 1851(e)(1) requires that the

Secretary specify an initial coverage

election period during which an

individual who is initially entitled to

Part A and enrolled in Part B may elect

an M+C plan. The statute further

stipulates that if an individual elects an

M+C plan during that period, coverage

under the plan will become effective as

of the first day on which the individual

may receive that coverage. We believe

that Congress intended that we give a

newly eligible individual the

opportunity to be enrolled in an M+C

plan as soon as he or she would be

entitled to actually receive both

Medicare Part A and Part B coverage.

In other contexts, we have interpreted

the concept of ‘‘entitled’’ to mean that

an individual has met all of the

necessary requirements for a benefit

(that is, is eligible for the benefit), and

has actually applied for and been

granted coverage. An individual is

considered to be ‘‘enrolled’’ under

section 1837, on the other hand, when

he or she has applied for Part B coverage

(or is deemed to have applied). Under

some situations, an individual may

apply for or be deemed to have applied

for Part B before he or she is actually

entitled to receive coverage. For

example, if an individual applies for

Part B coverage and becomes ‘‘enrolled’’

after he or she reaches age 65, the

individual may not actually be entitled

to Part B coverage under section 1838

until one or several months after the

month of application and enrollment. If

we were to interpret section 1851(e)(1)

to give effect to an M+C plan election

when an individual has only enrolled in

Part B, he or she could be entitled to the

benefits of the M+C plan before actually

being entitled to Medicare Part B

coverage. In order to avoid such a result,

we have interpreted ‘‘enrolled’’ in Part

B as ‘‘entitled’’ to Part B.

We believe our interpretation is

consistent with section 1851(e)(1),

which requires the Secretary to specify

an initial coverage election period that

would result in coverage under the plan

becoming effective as of the first day on

which the individual may receive that

coverage.

In establishing the initial coverage

election period we considered the

statutory process of entitlement to Part

A and enrollment in Part B. Section 226

of the Act provides that individuals who

are age 65 and entitled to retirement

benefits under title II or the Railroad

Retirement Board Act and those who are

under age 65 and have been entitled (or

deemed entitled) to disability benefits

under title II or the Railroad Retirement

Board Act for 24 months shall be

entitled to Part A under the Medicare

program and eligible to enroll in Part B.

Part A coverage is effective the month

an individual attains age 65, or the 25th

month he or she is entitled to disability

benefits. If an individual is entitled to

disability or retirement benefits at least

3 months before reaching age 65 or, in

the case of a disabled individual, three

months before the 25th month in which

he or she is entitled to disability

benefits, the individual is deemed

enrolled in Part B at that time. Under

section 1838, Part B is effective with the

month an individual reaches age 65 or

in the 25th month he or she is entitled

to disability benefits.

In order for an individual to have

coverage under an M+C plan effective as

of the first day on which the individual

may receive such coverage, the

individual must elect an M+C plan

before he or she is actually entitled to

Part A and Part B coverage. We have

therefore defined the initial coverage

election period as the 3-month period

that begins 3 months prior to the month

the individual is first entitled to both

Part A and Part B and ends the last day

of the month preceding the month of

entitlement.

This approach also permits

individuals who do not enroll in Part B

at initial eligibility (i.e. at age 65 or in

the 25th month of disability

entitlement) to elect an M+C plan at the

time of subsequent enrollment in Part B.

Section 1837(i) provides for a special

enrollment period for individuals who

defer enrollment in Part B because they

are covered under a group health plan

based on their own employment or that

of a spouse (in the case of the disabled,

the employment may be that of any

family member). Enrollment in Part B

may occur during any month the

individual is covered under the group

health plan based on current

employment or during the 8-month

period that begins the first full month

the individual is no longer covered

under the group health plan based on

current employment. Under section

1838(e), Part B coverage is effective the

first day of the month the application is

filed or, at the individual’s option, the

first day of any of the following three

months when enrollment occurs while

the individual is covered under the

group health plan based on current

employment or during the first full

month when not so covered. Therefore,

an individual may file an application for

Part B up to three months in advance of

entitlement. Consequently, individuals

who enroll in Part B during the special

enrollment period may elect an M+C

plan during the 3-month period prior to

entitlement to Part B.

Additionally, section 1837(e) allows

individuals who fail to enroll for Part B

during their initial enrollment period (3

months before they are entitled to Part

A or within 3 months after the month

they are entitled to Part A) to enroll for

Part B during a general enrollment

period, which runs from January

through March of every year, with

coverage effective July 1 of the year of

enrollment. In this case, the Part B

application may be filed up to 6 months

in advance of the month of entitlement.

(Individuals who enroll in a general

enrollment period are subject to an

increased premium under section

1839(b), measured by the length of the

delay in enrollment.)

In order to be consistent with the 3

month periods that can occur between

timely enrollment for Part B and actual

entitlement in existing sections of the

Medicare statute, we have limited the

period during which an individual may

elect an M+C plan to the 3-month

period prior to actual entitlement to Part

B. We believe that this correlation with

the 3-month period will be

administratively more efficient than a

shorter or longer time period.

b. Annual Coordinated Election

Period. Section 1851(e)(6) establishes

that organizations offering M+C plans in

January, 1999 must open enrollment to

Medicare beneficiaries in November,

1998. In addition, section 1851(e)(3)

establishes the month of November of

each year beginning in 1999 as the

annual coordinated election period.

During the month of November, an

M+C eligible individual may elect an

M+C plan or change his or her election.

Thus, the section 1876 requirement that

plans be open any 30-day period is

replaced by a requirement that plans
34980 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

have to be open for enrollment during

the month of November.

c. Open Enrollment Periods. Section

1851(e)(2) establishes open enrollment

periods during which M+C eligible

individuals may elect an M+C plan, if it

is open to new enrollees, or change their

elections. M+C individuals may not,

however, as provided in section

1851(e)(5), elect an M+C MSA plan

during open enrollment periods.

Note that as provided by section

1851(e)(6) and stated at § 422.60(a)(2),

M+C organizations may, but are not

required, to offer continuous open

enrollment during open enrollment

periods. This is similar to the section

1876 policy which also allowed, but did

not require, continuous open enrollment

outside of a 30-day period.

Section 1851(e)(2)(A) establishes that

at any time during calendar years 1998

through 2001, there will be no limit on

the number of elections or changes that

an M+C eligible individual can make.

Section (e)(2)(B) establishes the first

six months of 2002, (January through

June) as the open enrollment period for

that year. An M+C eligible individual

may elect an M+C plan or change his or

her election, but only once during the

first six months of the calendar year.

Section (e)(2)(C) establishes the first

three months of each year (January

through March) beginning 2003, as the

open enrollment period. An M+C

eligible individual may elect an M+C

plan or change his or her election, but

only once during the first three months

of the calendar year.

Section 1851(e)(2)(B)(i) allows that an

individual who becomes an M+C

eligible individual in 2002 and elects an

M+C plan or original Medicare, to

change that election once during the

first 6 months of M+C eligibility in

2002. Beginning in the year 2003 and

thereafter, a newly eligible individual

who has made an election may change

that election once during the first 3

months of M+C eligibility in that year.

Consequently, those who become M+C

eligible individuals late during the year

may not have a full 6-month or 3-month

open enrollment period. For example,

an individual who becomes eligible in

August 2002 has an open enrollment

period of 5 months, August through

December. The sixth month, January,

does not occur during 2002 and cannot

qualify as part of the open enrollment

period.

The limit to one change during the

open enrollment periods in the first six

months of 2002 and the first three

months of subsequent years does not

apply to changes in elections that an

individual makes during an annual

coordinated election period or during a

special election period.

In § 422.62, paragraphs (a)(4)(ii) and

(5)(ii), we have interpreted the 6 and 3

month periods ‘‘in which the individual

is an M+C eligible individual’’ in

section 1851, paragraphs (e)(2)(B)(i) and

(e)(2)(C)(i), as the periods that begin

with the month the individual is first

‘‘entitled to both Part A and Part B.’’

The statute defines ‘‘eligible for

Medicare+Choice’’ as eligible for Part A

and enrolled in Part B, a definition that

we have reflected in § 422.50(a)(1);

however, this definition could cause

problems for newly eligible individuals

during the open enrollment period.

For example, individuals who are

newly eligible for M+C in the year 2002

under section 1851(e)(2)(B) will have 6

months, beginning with their eligibility

for M+C, to change their election. If we

start counting this period from the time

individuals enroll in Part B, some will

have little or no opportunity to change.

Some of these individuals may not

actually be entitled to receive benefits

for a delayed period, which can be up

to 6 months after they have enrolled if

they have enrolled during a general

election period. Hence, the opportunity

to change could have no meaning, with

the open enrollment period expiring

before the individuals have actually

received any M+C coverage.

d. Special Election Periods. Section

1851(e)(4) establishes special election

periods beginning in 2002, during

which M+C eligible individuals may

disenroll from an M+C plan or elect

another M+C plan. Special election

periods are available if: (1) The service

area or continuation area is reduced or

the plan terminates or is terminated in

the area in which the individual resides;

(2) the individual moves out of the

plan’s service area and the plan does not

offer, or the individual does not elect,

the continuation of enrollment feature,

or there is some other change of

circumstances specified by HCFA; (3)

the individual demonstrates to HCFA,

in accordance with guidelines

established by HCFA, that the M+C

organization offering the plan

substantially violated a material

provision of its contract with regard to

the individual or the organization, its

agent, representative, or plan provider

materially misrepresented the plan’s

provisions in marketing the plan to the

individual; or (4) the individual meets

such other exceptional conditions

specified by HCFA.

The last paragraph in section

1851(e)(4) provides that, effective

January 1, 2002, an individual who,

upon first becoming eligible for benefits

under Part A at age 65, enrolls in an

M+C plan (other than an M+C MSA

plan), may discontinue the election and

elect original Medicare at any time

during the 12 month period beginning

on the effective date of the M+C

election. We have interpreted this

provision to apply to individuals who

elect an M+C plan (other than an M+C

MSA plan) during the initial enrollment

period, as defined under section

1837(d), that surrounds their 65th

birthday. This period begins 3 months

before and ends 3 months after the

month of an individual’s 65th birthday.

We believe that this interpretation

fulfills the intention of the statute,

which is to provide this special election

period to individuals who, upon turning

65 and first becoming entitled to

Medicare, elect an M+C plan. Our

interpretation takes into account the fact

that many, if not most, individuals will

be making an election during an initial

enrollment period, rather than during

the month that they turn 65.

e. Special Enrollment and

Disenrollment Rules for M+C MSA

Plans. Section 1851(e)(5) establishes

special rules for individuals enrolling in

M+C MSAs. M+C eligible individuals

may elect the M+C MSA option only

during an initial coverage election

period or during November of any year,

beginning in 1998. M+C MSA enrollees

may discontinue their election only

during November of 1998, during

annual coordinated election periods in

November of each subsequent year, and

during special election periods

described in the first sentence of section

1851(e)(4). Individuals who elect an

M+C MSA for the first time during the

annual coordinated election periods that

begin in November of 1999 may revoke

their election if they do so before

December 15 of the year in which they

make the election, i.e., before the M+C

MSA coverage begins. M+C MSA plans

are described in detail at the end of this

preamble.

7. Information about the M+C Program

(§ 422.64)

Once these regulations are effective

and M+C plans are approved by HCFA,

eligible Medicare beneficiaries will be

able to choose to receive their Medicare

benefits from a new array of health care

options. New options will include

coordinated care plans such as Health

Maintenance Organizations, Preferred

Provider Organizations, Provider

Sponsored Organizations, as well as

Private Fee for Service Plans and

Medical Savings Accounts. Medicare

beneficiaries will still be able to choose

to remain in original Medicare. These

choices are designed to offer Medicare

beneficiaries a marketplace of options
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34981

similar to those available to the nonMedicare population.

Under section 1851(d)(2), the

Secretary is obligated to mail an ‘‘open

season notification’’ at least 15 days

before the beginning of each annual

coordinated election period to each

M+C eligible individual residing in an

area and, to the extent practicable, to a

newly eligible individual not later than

30 days before the individual’s initial

coverage election period. The notice

must include certain general

information listed in section 1851(d)(3)

and a list of plans and certain plan

comparisons as described in section

1851(d)(4). Section 1851(d)(1) requires

that HCFA provide for activities to

broadly disseminate information to

beneficiaries and prospective

beneficiaries on their coverage options

under M+C, and section 1851(d)(5)

requires HCFA to maintain a toll-free

line for M+C inquiries and an Internet

site through which individuals can

obtain electronic information.

To promote informed choice, HCFA

will provide access, via the Internet and

through distribution of print materials,

to information about original Medicare

and M+C options. In accordance with

section 1851(d)(3) and reflected in

§ 422.64(c), HCFA will provide general

information to M+C eligible individuals

with respect to benefits available under

Part A and Part B of original Medicare,

including covered services, beneficiary

cost-sharing, such as deductibles,

coinsurance, and copayment amounts,

including any beneficiary liability for

balanced billing. Such general

information will also include

instructions on how to exercise election

options under M+C; procedural rights

including the grievance and appeals

procedures for original Medicare and

M+C and the individual’s right to be

protected against discrimination based

on health status related factors under

section 1852(b), including the fact that

an M+C organization may terminate its

contract, refuse to renew its contract, or

reduce the service area included in its

contract and the effect this may have on

the individuals enrolled in the M+C

plan. Finally, a general description of

the benefits, enrollment rights, and

other requirements applicable to

Medicare supplemental policies under

section 1882, including Medicare Select,

will be included.

Under section 1851(d)(4) and

reflected in § 422.64(c)(6), HCFA will

also provide information to M+C

eligible individuals comparing M+C

plan options, including the benefits

covered under the M+C plan; covered

services beyond those provided under

original Medicare; and beneficiary costsharing including maximum limitations

on out-of-pocket expenses and, in the

case of an MSA plan or M+C private feefor-service plan, differences in costsharing, premiums, and balance billing

as compared to other M+C plans and

whether the organization offering the

plan includes mandatory supplemental

benefits in addition to its base benefit

package or offers optional supplemental

benefits and the premiums and other

terms and conditions for such coverage.

The M+C monthly basic beneficiary

premium and M+C monthly

supplemental beneficiary premium, if

any for the plan or, in the case of an

MSA plan, the M+C monthly MSA

premium, will also be included. M+C

eligible individuals will also be

informed about the extent to which they

may obtain benefits through out-ofnetwork health care providers; the

extent to which they may select among

health care providers and the types of

providers participating in the plan’s

network. M+C eligible individuals will

be informed of the M+C organization’s

coverage of emergency and urgently

needed care, service area of the plan,

and, to the extent available, M+C plan

quality and performance indicators.

The information comparing plan

options is crucial to empowering

beneficiaries with the knowledge that

will help them evaluate M+C options

and make informed decisions based on

their individual needs. We wish to make

clear that our provision of comparative

data is intended neither to encourage or

discourage beneficiaries from choosing

one health care plan over another nor to

favor a choice of an M+C plan over

original Medicare.

We invite the public to comment or to

provide specific guidance on the types

of information that should be made

available to beneficiaries. Once we have

worked out what specific information

we will require within the above

categories, we will post these at our

Internet site.

The Internet site, www.Medicare.gov,

is a Medicare beneficiary-centered

consumer website designed to provide a

broad array of information on program

benefits, health system performance,

health care choices, healthy behaviors

and health promotion. This site will be

continuously improved to meet the

mandate in section 1851(d)(2)(C) that

we provide information in a style and

format that is easy to understand. If

necessary, we will publish regulations

and allow for OMB review, pursuant to

the requirements of the Paperwork

Reduction Act of 1995.

HCFA’s ‘‘Medicare Compare,’’ the

Managed Care Plans Comparison

Database, will be available on the

Internet for public use. ‘‘Medicare

Compare’’ provides a wealth of

information on health care plans,

allowing users to ‘‘comparison shop’’ for

plans. Users can look up information in

different areas, by state, county or zip

code. They can also compare costs for

premiums and types of services offered.

The information in the database will be

updated quarterly. Plan specific quality

performance measures from the HEDIS

information set and the Consumer

Assessment of Health Plans Survey

(CAHPS) will be incorporated into

information provided to beneficiaries

once the data and results have been

validated and determined to be accurate

and reliable. HCFA is committed to

using a public process to determine

information and data specifications,

including the details of what

information will need to be collected

and the methods of collection to

determine the remaining unspecified

data elements that organizations are

required to submit. HCFA will work

collaboratively with organizations

involved with quality and performance

standards and measurements, including

performance measurement experts,

public and private purchasers, and

beneficiary representatives in this

process. In addition, HCFA will hold

public meetings to invite interested

parties to comment and provide input in

the process of determining the data

specifications for additional

performance information, e.g., data

about appeals or health outcome

measures. Finally, HCFA will publish a

notice regarding plan data elements to

be collected and a summary of public

processes used to determine the data

elements in question and this document

would be available at the discretion of

the requestor. Educational information

will be made available on the Internet

site to prepare consumers on how to use

this information when comparing plans

and in making decisions about their

health care.

In support of efforts to promote

informed choice, HCFA will also

maintain a toll-free line for M+C

information.

Under section 1851(e)(3)(D), we are

required to provide in the fall of 1998

for a ‘‘Special Information Campaign’’ in

the form of an educational and publicity

campaign that informs M+C eligible

individuals about the availability of

M+C plans offered in different areas,

and about the election process. Section

1851(e)(3)(C) requires that we provide

for a nationally coordinated educational

and publicity campaign about M+C

plans and the election process in

November of each year, beginning in

1999. We may conduct these campaigns
34982 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

using health fairs, as well as other

methods for distributing information.

8. Coordination of Enrollment and

Disenrollment Through M+C

Organizations (§ 422.66)

a. Enrollment. Section 1851 (c)(1) and

(c)(2) provide that individuals who wish

to elect an M+C plan may do so through

filing an appropriate election form with

the organization during an election

period specified in section 1851(e), and

reflected in § 422.62. Section 1851(c)(1)

requires that the Secretary establish a

process through which elections in M+C

plans are made. Therefore, we reserve

the right to develop and provide

additional mechanisms for electing an

M+C plan. We have provided

instructions on how M+C organizations

must process elections at § 422.60(e). If

necessary, we will publish regulations

and allow for OMB review, pursuant to

the requirements of the Paperwork

Reduction Act of 1995.

b. Disenrollment. Section 1876

background: Under section

1876(c)(3)(B), which covers

disenrollment from HMOs and CMPs, a

Medicare beneficiary can disenroll from

an HMO or CMP at any time. Under the

HMO and CMP regulations in

§ 417.461(a), an enrollee who wishes to

disenroll may, at any time, give the

organization a signed, dated request in

the form and manner we specify. The

beneficiary can request a certain

disenrollment date, but it can be no

earlier than the first day of the month

following the month in which the

organization receives the disenrollment

request. Under section 9312(h) of the

Omnibus Budget Reconciliation Act of

1986, Medicare beneficiaries are also

permitted to disenroll from an eligible

organization under Section 1876 at a

local Social Security office.

Section 417.461(b) describes the

responsibility of the HMO or CMP to

promptly submit a disenrollment notice

to HCFA and provide the enrollee with

a copy of the request for disenrollment

and, in the case of a risk HMO or CMP,

an explanation of the date of

disenrollment. Section 417.461(c)

provides that HMOs and CMPs must

reimburse HCFA in cases where a

disenrollment notice is not submitted

timely to HCFA.

Currently, when an individual enrolls

in one HMO or CMP while still enrolled

in another, we regard this action as a

disenrollment from the first HMO or

CMP, and automatically amend our

enrollment records to reflect the

disenrollment. We do this so that the

beneficiary does not have to both submit

a disenrollment request to the first HMO

or CMP, and an enrollment request to

the new HMO or CMP.

To reflect these current policies,

§ 422.66(b)(1) provides that an

individual who wishes to disenroll may

change his or her election in the

following manner: (i) Elect a different

M+C plan during an election period

specified in § 422.62 or (ii) submit a

signed and dated request for

disenrollment to the M+C organization

during an election period specified in

§ 422.62. HCFA also reserves the right to

develop and provide additional

mechanisms for disenrollments in

accordance with section 1851(c). Note

that the Medigap implications of a

change of election to original Medicare

are discussed at section II.B.12

(Extended Period of Guaranteed Access

to Medigap Plans) of this preamble.

At § 422.66(b)(2) we specify that a

disenrollment request is considered to

have been made on the date it is

received by the M+C organization. Note

that HCFA’s liability for payment ends

not on the date the disenrollment

request is received by the M+C

organization, but rather, as of the date

of disenrollment. The date of

disenrollment is determined at § 422.68

for changes made by enrollees during

coverage election periods and at

§ 422.74 for disenrollments made by

M+C organizations.

At § 422.66(b)(3) and (4) we are

continuing the § 417.461(b) and (c)

requirements for M+C organizations to

provide timely notice of disenrollment

to HCFA and to provide the enrollee

with a copy of the disenrollment request

with information on the date of

disenrollment and any lock-in

requirements of the plan that apply

until the effective date of disenrollment.

We also state that disenrollment

requests must be filed and retained as

specified in HCFA instructions.

The regulation also provides that if

the M+C organization fails to submit a

correct and complete disenrollment

notice to us promptly, the M+C

organization must reimburse us for any

capitation payments it has received after

the month in which we would have

stopped payment, had the M+C

organization met the requirement.

c. Retroactive Disenrollment. Section

1876 background: In the case of section

1876 contractors, HCFA has permitted

beneficiaries to be retroactively

disenrolled from an HMO or CMP if it

determines that there never was a

legally valid enrollment, or a valid

request for disenrollment was properly

made but not processed or acted upon.

In the M+C program, HCFA will

continue to consider retroactive

disenrollments in cases in which we

determine that there never was a legally

valid enrollment, or a valid request for

disenrollment was made but not

processed or acted upon. We have

reflected this provision in § 422.66(b)(5).

d. Fee-for-Service Election by Default.

Section 1851(c)(3)(A)(i) establishes that

newly eligible enrollees who do not

choose an M+C plan during the initial

coverage election period are deemed to

have chosen original Medicare. We have

reflected this provision in § 422.66(c).

e. Seamless Continuation of Coverage

(Conversions). Section 1876

background: In regulations at § 417.432,

an HMO/CMP is required to accept any

individual who was already enrolled in

the HMO/CMP for the month

immediately prior to the month in

which he or she was entitled to both

Part A and Part B, or entitled to Part B

only. HCFA refers to such enrollments

as ‘‘conversions’’ or ‘‘age-ins.’’ The

individual’s effective month of

enrollment in the HMO or CMP as a

Medicare enrollee is effective the month

in which he or she is entitled to both

Medicare Parts A and B, or Part B only.

With the enactment of BBA, a new

section 1851(c)(3)(A)(ii) is added to the

statute that gives the Secretary

discretion to establish procedures under

which individuals who are enrolled in

a health plan offered by an M+C

organization at the time of their initial

coverage election periods will ‘‘default’’

to or be deemed to have elected an M+C

plan offered by the M+C organization,

unless these individuals elect a different

option. We have chosen not to have

individuals default to the M+C plan

offered by the organization. At this time

we do not have a mechanism in place

to capture the information we would

need to implement such a process. A

default process would require that M+C

eligible individuals as well as their

relevant health plan information be

identified and captured prior to the

individual’s initial coverage election

period. At present, we do not have

access to information on which health

plans individuals are enrolled in

because such plans are private health

plans. In addition, we are not given any

information if individuals have not

previously filed for title II (Social

Security) and/or title XVIII (Medicare)

benefits.

One option that we may consider

would be to specify that M+C

organizations which have individuals

enrolled in private health plans must

notify such individuals 4 months

preceding the month in which the

individual becomes an M+C eligible

individual of their opportunity to ‘‘agein’’ to the M+C plan or to select another

option. This would give the individual
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34983

the opportunity to select from a range of

health care options in a manner that

would facilitate seamless continuation

of coverage. M+C organizations would

be required to transmit to us the

necessary plan information for those

individuals who are interested in

exercising their opportunity to ‘‘age-in’’.

HCFA would then have the information

necessary to ‘‘deem’’ or ‘‘default’’ M+C

eligible individuals into the appropriate

M+C plan. We request public comments

on this issue and will issue further

clarification in the final rule. In the

interim, we have retained the

conversion of enrollment process

described in § 417.432 with conforming

changes.

In § 422.66(d) we specify that M+C

plans must accept any individual who

is enrolled in a health plan (other than

an M+C plan) offered by the same M+C

organization, during the month

immediately preceding the month in

which the individual is entitled to both

Part A and Part B. Conversion may

occur if the individual resides in the

service area or continuation area of the

plan and regardless of whether an

individual has ESRD. We limit

conversions to individual in a service

area and continuation area in order to

ensure that enrollees have access to the

full range of services offered by the

plan. This policy is also reflected in the

section describing eligibility to elect a

plan (§ 422.50(a)(2) and (a)(3)).

Therefore, an M+C organization’s

obligation to accept current enrollees

extends to enrollees in a service area or

a continuation area, or who developed

ESRD while enrolled with the

organization under a private health

plan. Converted beneficiaries who

reside out of the plan’s service area or

who have ESRD cannot, however, later

elect to enroll in a plan offered by

another M+C organization unless they

meet the statutory requirements at

sections 1851(b)(1)(A) and 1851(a)(e)(B).

In addition, we allow M+C

organizations to reserve vacancies for

their plans to accommodate conversions

in recognition that M+C organizations

must accept conversions. We require the

individual who is converting to file an

election form in accordance with

§ 422.60(c)(1). We also stipulate that the

M+C organization may not disenroll the

individual except under the conditions

described in § 422.74.

f. Maintenance of Enrollment. The

statute provides at section 1851(c)(3)(B)

that an individual who has made an

election or is deemed to have made an

election is considered to have continued

to make that election until the

individual changes it or the M+C plan

is discontinued or no longer serves the

area in which the individual resides. We

have stated this rule at § 422.66(e).

9. Effective Dates of Coverage and

Change of Coverage (§ 422.68)

Section 1851(f) establishes the

effective dates for elections and changes

to elections made during the various

enrollment periods. Note that the

Medigap implications of a change of

election to original Medicare are

discussed at section II.B.12 (Extended

Period of Guaranteed Access to Medigap

Plans) of this preamble.

Section 1851(f)(1) states that an

election made during the initial

coverage election period will take effect

on the date the individual becomes

entitled to Part A and enrolled under

Part B, but gives the Secretary discretion

to interpret this provision in a manner,

consistent with section 1838, that

prevents retroactive coverage. We are

interpreting ‘‘enrolled in Part B’’ as

‘‘entitled to Part B’’ in order to avoid

retroactive coverage in an M+C plan that

an individual might receive after

enrolling in Part B but prior to the time

the individual is actually entitled to Part

B benefits. Therefore, we have

established that an election made during

the initial coverage election period is

effective the first day of the month of

entitlement to both Part A and Part B.

Under section 1851(f)(3), an election

or change of election made during an

annual coordinated election period is

effective the first day of the following

calendar year. We have reflected this

provision in § 422.68(b).

Under section 1851(f)(2), an election

or change of election made during an

open enrollment period is effective the

first day of the first calendar month

following the month in which the

election is made. We have reflected this

provision in § 422.68(c).

Under section 1851(f)(4), an election

that occurs as the result of a special

election period is effective, to the extent

practicable, in a manner determined by

HCFA to promote continuity of

coverage. We have reflected this

provision in § 422.68(d).

At § 422.68(e) we are stating that an

election of original Medicare made

during a special election period by an

individual age 65 as provided at

§ 422.62(c) is effective the first day of

the first calendar month following the

month in which the election is made.

10. Disenrollment by the M+C

Organization (§ 422.74)

Section 1851(g)(3) specifies that M+C

organizations may only disenroll

individuals from an M+C plan for the

following reasons: the individual fails to

pay any basic and supplemental

premiums on a timely basis; the

individual engages in disruptive

behavior; or the M+C organization

terminates its coverage of all M+C

eligible individuals in the area in which

the individual resides.

In § 422.74, we have set forth the

conditions under which M+C

organizations can disenroll individuals.

Section 1851(g)(3)(A) provides that,

except as provided in section

1851(g)(3)(B), ‘‘a Medicare+Choice

organization may not for any reason

terminate’’ an individual’s enrollment

in ‘‘a Medicare+Choice plan it offers.’’

[Emphasis added.] We have included

the three grounds for termination set

forth in section 1851(g)(3)(B) in

§ 422.74. With respect to the ground in

section 1851(g)(3)(B)(ii), under which an

enrollee can be disenrolled for

‘‘disruptive behavior’’ as specified in

standards established in regulations, we

have implemented this ground for

termination in two separate provisions.

First, under § 422.74(b)(1)(ii), we refer to

an individual who meets general

standards for disruptiveness set forth in

§ 422.74(d)(2). Section 422.74(d)(2)

refers to behavior of an individual that

is ‘‘disruptive, unruly, abusive, or

uncooperative to the extent that his or

her continued enrollment * * *

seriously impairs the M+C

organization’s ability to furnish services.

* * *’’ We also separately refer to a

different kind of ‘‘disruption’’ or failure

to ‘‘cooperate’’; namely, fraud or abuse

of the enrollee’s enrollment card. This

ground for termination is also based on

section 1851(g)(3)(B)(ii), and standards

for disenrollment on this basis are also

included in § 422.74(d), in a separate

paragraph (3).

In addition to implementing the

grounds in section 1851(g)(3)(B), we

also provide in § 422.74 for the

termination of individuals who are no

longer eligible for enrollment in the

M+C plan, because they have left the

area, lost entitlement to Medicare, or

died. We believe that the prohibition in

section 1851(g)(3)(A) on terminating an

enrollee on grounds other than those set

forth in paragraph (B) applies only to

individuals who are otherwise eligible

for enrollment in the plan. Clearly, if an

individual does not meet the threshold

requirements for eligibility,

disenrollment is not only permissible

but required.

We have established specific

guidelines in § 422.74(d)(1) that the

M+C organization must follow when

disenrollment is based on failure to pay

basic and supplemental premiums,

including the requirement to send a

notice of nonpayment within 20 days

after the date that delinquent charges
34984 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

are due. The notice must alert the

individual that he or she is delinquent

on a premium payment, provide the

individual with an explanation of the

disenrollment procedures and any lockin provisions of the plan, and advise the

individual that failure to pay the

premiums within the 90-day grace

period will result in termination of M+C

coverage.

Note that in the section 1876 program,

disenrollment for non-payment of

premiums is treated differently. At

§ 417.460(c)(2), if a beneficiary pays the

basic premium and other charges, but

fails to pay the premium for optional

supplemental benefits, the organization

can discontinue the optional benefits,

but cannot disenroll the beneficiary.

However, under section 1851(g)(3)(B)(i),

an M+C organization may terminate an

election of a plan if any M+C monthly

basic and supplemental beneficiary

premiums are not paid on a timely

basis.

We have retained the current

processes described in § 417.460 for

disenrollment for disruptive behavior

and fraud and abuse. In the case of

disenrollment for disruptive behavior,

the M+C organization must ascertain

that the individual’s behavior is not

related to the use of medical services or

to diminished mental capacity. If an

individual is disenrolled for disruptive

behavior, HCFA will review the

documentation submitted by the M+C

organization and the beneficiary to

determine whether the disenrollment

requirements have been met.

We have included a qualifier for

disenrollment when the individual no

longer resides in the M+C plan’s service

area to conform to section 1851(b)(1)(B),

which permits plans to offer a

continuation of enrollment feature if the

individual moves out of the service area.

We have modified the existing

regulatory text at § 417.460(h) which

requires disenrollment when the

individual loses entitlement to Part B

benefits, to require disenrollment when

an individual loses entitlement to Part

A or Part B benefits. We have also

addressed the process for disenrollment

for plan termination or area reduction.

For all disenrollment situations,

except those due to the death of the

individual or loss of Part A or Part B

benefits, we require M+C organizations

to provide the individual with a written

notice of the disenrollment that

includes an explanation of why the

M+C organization is planning to

disenroll the individual and a

description of the individual’s right to a

hearing under the M+C organization’s

grievance procedures.

The statute provides at section

1851(g)(3)(C) that individuals who are

disenrolled from an M+C plan due to

disruptive behavior or failure to pay

basic or supplementary premiums will

be deemed to have elected original

Medicare. We have treated fraud and

abuse by the enrollee in the same

manner as other forms of disruptive

behavior, with the individual being

disenrolled into the original Medicare

program. We believe that the result

should be comparable because, in both

cases, the individual’s disruptive

behavior has given the organization

cause for the disenrollment. Individuals

who lose entitlement to Part A or Part

B benefits default to original Medicare

because they no longer meet the

requirements to receive Medicare

benefits through an M+C plan, which

requires entitlement to Part A and

enrollment in Part B.

As previously discussed, special

election periods are available to

individuals who are disenrolled (or who

disenroll) because of plan termination

or service area or continuation area

reduction or because they no longer

reside in the M+C plan’s service area or

continuation area. Section

1851(g)(3)(C)(ii), however, stipulates

that individuals who are disenrolled

and who do not make an election during

the special election period are deemed

to have elected original Medicare.

11. Approval of Marketing Materials and

Application Forms (§ 422.80)

Section 1851(h) contains

requirements related to marketing by

M+C organizations. These provisions

are implemented in § 422.80. Section

422.80(a) implements the requirement

in section 1851(h)(1) that all marketing

material and application forms be

submitted to HCFA for approval 45 days

before distribution, and that such

materials may only be used if HCFA

does not disapprove such use by the end

of this 45 day period. In section

422.80(b), we define ‘‘marketing

materials’’ which must be submitted for

approval under § 422.80(a).

Section 1851(h)(2) requires that M+C

standards under section 1856 include

guidelines for review of marketing

materials under section 1851(h)(1) and

§ 422.80(a). Section 422.80(c) contains

guidelines for HCFA’s review of

marketing materials under § 422.80(a).

As provided for in section 1852(b)(2),

these guidelines include existing

marketing guidelines for HMOs and

CMPs in § 417.428, which have been in

effect since the inception of the existing

Medicare risk contracting program.

Section 1851(h)(3) provides that, if

HCFA has not disapproved the

distribution of marketing materials or

forms with respect to an M+C plan in an

area, HCFA is deemed not to have

disapproved the distribution in all other

areas covered by the M+C plan and

organization except with regard to any

portion of the material or form that is

specific to the particular area. This

‘‘deemed approval,’’ or ‘‘1 stopshopping,’’ provision is included in the

statute to address the needs of M+C

organizations that operate in multiple

states and within multiple HCFA

Regional Office (RO) regulatory districts.

Under the section 1876 program, a

marketing piece submitted for HCFA

review in multiple ROs was often

susceptible to different regulatory

interpretations by different RO staff; this

occurrence could result in approval by

one RO and a request for revisions by

another RO. This phenomenon was

primarily the result of RO staffs working

within the environment of either an

‘‘emerging’’ market area or a ‘‘mature’’

area. The speed of review and approval

of marketing materials should be

enhanced by implementation of this

statutory requirement.

Section 1851(h)(4) provides that M+C

organizations shall conform to ‘‘fair

marketing standards’’ included in the

‘‘standards under section 1856,’’ and

requires that these standards prohibit an

organization from providing cash or

other monetery inducements for

enrollment. Standards under section

1854(h)(4) are set forth in § 422.80(e).

Again, as provided in section 1856(b)(2),

these standards include existing section

1876 standards.

Section 1851(h)(4)(B) indicates that

the fair marketing standards ‘‘may

include a prohibition against an M+C

organization (or agent of such an

organization) completing any portion of

any election form used to carry out

elections under this section on behalf of

any individual.’’ However, we have

decided at this time not to prohibit an

M+C organization (or agent of such an

organization) from assisting

beneficiaries in completing the election

form. We recognize and understand that

we must provide accommodations for

persons with disabilities and for

situations in which such a prohibition

could represent a potential physical

burden to beneficiaries. However, in

general, we believe that it is good

practice that the M+C eligible

individual should complete and sign the

election form. Currently, we have no

way to check for any plan impropriety,

especially in situations where

beneficiaries require help in completing

the enrollment form, except beneficiary

allegations and requests for

disenrollment. While we cannot
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quantify the amount of inappropriate

behavior, we know that some plans have

completed election forms for

beneficiaries fraudulently or have

convinced beneficiaries to sign forms

without explaining to them the contents

and telling them the form is for

enrollment (U.S. General Accounting

Office report: ‘‘HCFA Should Release

Data To Aid Consumers, Prompt Better

HMO Performance’’, HS–97–23, October

1996.) Therefore, we request public

comment on this issue and will provide

further guidance in the final rule.

In the interim, we are providing at

§ 422.60(c) that persons who assist

beneficiaries in completing forms

should sign the form and indicate their

relationship to the beneficiary. In

addition, we encourage M+C

organizations to use neutral parties such

as family members, ombudsmen or

counseling programs for those

individuals who require assistance in

completing forms.

Finally, in § 422.80(f), we specify that

HCFA may permit M+C organizations to

develop marketing materials designed

for members of an employer group who

are eligible for employer-sponsored

benefits through the M+C organization,

and to furnish these materials only to

such group members. While such

materials must be submitted for

approval under paragraph (a), HCFA

will only review portions of these

materials that relate to M+C plan

benefits.

12. Medigap

Prior to the enactment of the BBA,

Federal law provided only one

opportunity for a Medicare beneficiary

to purchase a Medicare supplement

(Medigap) policy on a ‘‘guaranteed

issue’’ basis. (Generally this means that

the insurance company cannot deny the

application, or charge extra, based on

the individual’s health experience.) This

opportunity was during the 6-month

period beginning with the date a

beneficiary is both age 65 or over, and

enrolled in Medicare Part B.

Amendments made by the BBA now

specify additional situations in which

beneficiaries will, after July 1, 1998, be

guaranteed access to certain types of

Medigap policies on a guaranteed issue

basis if they apply within 63 days after

losing other coverage, and submit

evidence of the date the prior coverage

terminated. The law also requires the

entity that provided the prior coverage

to notify beneficiaries of these rights.

Therefore, while this regulation does

not implement the Medigap provisions

of the BBA, it is important to be aware

of the implications for M+C

organizations, since some of the

situations covered by the Medigap

provisions involve beneficiaries who

leave M+C plans and return to original

Medicare. The situations that will give

rise to the obligation to notify the

beneficiary will include, for example,

termination of coverage by an M+C

plan, or loss of coverage under an M+C

plan due to a change in the individual’s

place of residence. The beneficiary also

will have the right to guaranteed issue

of a Medigap policy if he or she either

enrolls in an M+C plan upon first

becoming eligible for Medicare at age

65, or enrolls after previously being

covered under a Medigap policy, and

later disenrolls from the M+C plan

within 12 months of the effective date

of the M+C enrollment.

Because the Medigap provisions

establish specific time deadlines for

beneficiaries who wish to take

advantage of these new rights, prompt

action by M+C organizations to notify

beneficiaries of their rights, and by

HCFA to provide accurate evidence of

recently terminated coverage, will be

essential. CFA is committed to

providing beneficiaries whose M+C

coverage terminates under the specified

circumstances with timely and accurate

evidence of the recently terminated

coverage. There are a number of ways in

which we are considering providing the

necessary evidence, including enabling

Medigap insurers to query HCFA

systems, if privacy and security issues

can be resolved. HCFA is seeking

comments on the most effective way to

coordinate with Medigap insurers in

order to protect beneficiaries’ rights

under the statute, and promote

continuity of care.

We also urge M+C organizations to

keep in mind that they will be obligated

to notify beneficiaries whose coverage

terminates of their rights under the

Medigap provisions. Those provisions

are complex—only certain beneficiaries

will be entitled to guaranteed issue of

Medigap policies, and their choice of

policies will depend on the precise

reason for termination of their coverage

under the M+C plan. Further guidance

is available from the National

Association of Insurance Commissioners

(NAIC), which on April 29, 1998 issued

a revised Model regulation that

incorporated the Medigap changes made

by the BBA.

C. Benefits and Beneficiary Protections

1. General Requirements (§ 422.100)

Subpart C of these regulations details

the scope of benefits a Medicare

beneficiary is entitled to receive when

electing coverage through an M+C plan.

The statutory authority for most of the

provisions of subpart C is found in

section 1852, which outlines benefit

requirements and provides authority for

beneficiary protections under Medicare

Part C. Many of the statutory provisions

are the same as, or similar to, benefit

provisions of section 1876. Therefore,

much of the regulatory language of part

417 is retained for purposes of

establishing M+C standards, as provided

for in section 1856(b)(2) (which directs

that the M+C standards be based on the

analogous standards established under

section 1876).

A principal difference between

section 1876 provisions and the newly

enacted law is that the new law permits

a wider range of types of entities to

assume risk for the coverage of benefits

for Medicare enrollees. Section 1876

limited the Medicare contract option to

organizations that operated as entities

accepting full-risk, prepaid capitation

for the provision of a comprehensive

range of services and defined ‘‘eligible

organizations’’ as a Federally qualified

HMO (under title XIII of the Public

Health Service Act) or a competitive

medical plan (CMP). Except in a very

few instances where waivers were

granted during years when such waivers

were authorized, the organizations had

to offer such a product in the

commercial marketplace in order to

have a Medicare contract. From the

point of view of benefit requirements

imposed on plans, the new types of

network plans are subject to the same

benefit requirements applicable to

organizations that would have met the

definition of ‘‘eligible organization’’

under section 1876 (HMOs and CMPs).

The requirements under the new law for

network plans are in many cases

identical to the requirements under

section 1876.

While adding PPOs, indemnity

insurers, and provider-sponsored

organizations to the range of entities

eligible for Medicare contracts, the BBA

also permits non-network plans, such as

private fee-for-service plans and M+C

non-network MSA plans, to assume

prepaid, capitated risk for services used

by enrollees of these organizations.

Medicare beneficiaries who elect these

plans are not subject to the same

constraints in use of providers that exist

in network plans. Therefore, the benefit

requirements applicable to these plans,

and cost-sharing requirements, may be

very different from those that apply to

network plans. This section of the

preamble mainly discusses the

requirements for network plans.

Sections III and IV of the preamble

provide more extensive information

about benefit requirements applicable to

non-network M+C MSA plans and to
34986 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

private fee-for-service plans,

respectively.

All M+C organizations are required to

cover the full range of Medicare benefits

that enrollees would otherwise have

been able to receive under original

Medicare, subject to certain rules

regarding available networks of

providers. M+C organizations are

further required to cover Medicare

preventive benefits with the same

frequency that they are covered under

original Medicare (e.g., annual screening

mammography examinations).

Beneficiaries may be required to

contribute to the cost of covered

services in the form of cost-sharing

provided for under the M+C plan.

Beneficiaries may have to cover all costs

until a deductible is met (including the

high deductible provided for under an

MSA plan (see section III of this

preamble)), a percentage of costs in the

form of coinsurance, or a fixed amount

for services, in the form of a copayment.

As discussed in subpart G below, there

are limits that apply to the cost-sharing

that can be imposed on beneficiaries

under M+C plans. For benefits that are

covered under original Medicare, the

benefits must be obtained through

providers meeting the conditions of

participation of the Medicare program.

Organizations with network plans,

which include coordinated care plans

and network M+C MSA plans, are

required to provide these services

directly or through arrangements (i.e.,

written agreements with providers) in

order to meet the availability and

accessibility requirements of section

1852(d)(1) and § 422.112, discussed

below.

In some situations, an M+C

organization, for its network plan or

plans, may be required to assume

liability for services provided to

Medicare enrollees through

noncontracting providers. Under

§ 422.100(b), the organization is

required to assume financial

responsibility for the following items

and services obtained from a provider

that does not contract with the M+C

organization:

• Emergency services as defined in

§ 422.2;

• Urgently needed services as defined

in § 422.2;

• Renal dialysis services provided

while the enrollee was temporarily

outside the M+C plan’s service area;

• Post-stabilization care as described

in § 422.100(b)(iv); and

• For both network and non-network

plans, services denied by the M+C

organization and found upon appeal

(under subpart M of this part) to be

services the enrollee was entitled to

have furnished or paid for by the M+C

organization.

The requirements that the M+C

organization assume financial liability

for renal dialysis services, and poststabilization care are new requirements

introduced by the BBA that were not

included in section 1876 requirements.

The BBA also revised the definition of

emergency services, as discussed

elsewhere in the preamble.

‘‘Post-stabilization care’’ (also referred

to in the Act as ‘‘maintenance care’’)

means medically necessary, nonemergency services needed to ensure

that the enrollee remains stabilized from

the time that the treating hospital

requests authorization from the M+C

organization until—

• The enrollee is discharged;

• A plan physician arrives and

assumes responsibility for the enrollee’s

care; or

• The treating physician and plan

agree to another arrangement.

Section 422.100(b)(1)(iv) provides that

an M+C organization is responsible for

the cost of post-stabilization care

provided outside the plan if they were

pre-approved, if they were not preapproved because the organization did

not respond to the request by the

provider of post-stabilization care

services for pre-approval within 1 hour

after the organization was asked to

approve post-stabilization care, or if the

M+C organization could not be

contacted for pre-approval. M+C

organization liability will extend until

the organization has contacted the

hospital to arrange for discharge or

transfer. These requirements reflect

comments we received on poststabilization care in response to the

Federal Register notice of January 20,

1998. The majority of commenters

advocated that we establish a timeframe

for an M+C organization’s response to a

request for approval. Because we agree

that an untimely response to a request

for approval would unduly delay the

delivery of the post-stabilization care

services, thereby compromising their

effectiveness, we have established a 1-

hour timeframe in the regulation as an

enrollee protection. Because a

completely accurate assessment of an

enrollee’s need for post-stabilization

care services cannot be made until the

enrollee is stabilized, we expect that the

provider of the post-stabilization care

services will not request the M+C

organization’s approval of the services

until after the enrollee is stabilized, at

which time enough details about the

enrollee’s condition should be known to

allow the organization to make an

informed decision on whether to

approve the care almost immediately.

We welcome comments on this issue.

In the case of payments to

noncontracting providers for covered

items and services, the M+C

organization’s obligation is met when it

provides for payment in an amount the

provider would have received under

original Medicare (including payment

from the organization and beneficiary

cost-sharing under the plan).

The benefits offered by an M+C plan

may be divided into two major

components, ‘‘basic benefits’’ and

‘‘supplemental benefits.’’ Basic benefits

in an M+C plan include all Medicarecovered services (except hospice) and

additional benefits. Basic benefits are

discussed below, and special rules for

M+C enrollees electing hospice are set

forth in § 422.266 and discussed in

section II.F.9. of this preamble.

Supplemental benefits include both

mandatory and optional supplements,

which we also discuss below.

Section 1852(a)(1) stipulates that M+C

organizations offering an M+C plan (or

plans) must offer it to all Medicare

beneficiaries eligible to elect the plan

who reside in the service area of the

M+C plan at a uniform premium with

uniform cost sharing. An organization

may offer more than one plan in the

same service area. The premium and

cost-sharing may vary among plans

within the same organization. We will

review each M+C plan offered by the

same organization to ensure that it is not

designed to promote discrimination,

discourage enrollment, steer specific

subsets of Medicare beneficiaries to

particular M+C plans, or inhibit access

to services.

2. Requirements Relating to Basic

Benefits (§ 422.101)

With the exception of special rules

concerning hospice care and M+C

coverage that begins during an inpatient

hospital stay (described in §§ 422.266

and 422.264, respectively), a Medicare

enrollee is entitled to have the M+C

organization provide all Medicarecovered services that are available in the

geographic area in which services are

covered under the plan.

M+C organizations are required to

provide their enrollees with services

covered under original Medicare and

available to beneficiaries residing in the

geographic area in which services are

covered under the plan, as we provide

at § 422.101(a). Organizations must also

abide by our national coverage

decisions, as well as specific written

policies of the Medicare carrier or

intermediary with jurisdiction for

claims (if the encounter had occurred

under original Medicare) in the
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34987

geographic area served by the plan.

(These policies are sometimes called

‘‘local medical review determinations.’’)

In cases where services are covered

under the plan in an area that includes

jurisdictions of more than one

contractor for original Medicare, and the

contractors have different medical

review policies, the plan must apply the

medical review policies of the

contractor in the area where the

beneficiary lives.

In addition, the organization is

required to provide ‘‘additional

benefits,’’ which include health care

services not covered by Medicare, as

well as reductions in premiums or cost

sharing for covered services. As

discussed in section II.A of this

preamble, we use the term ‘‘basic

benefits’’ to encompass all Medicarecovered benefits (except hospice

services) and additional benefits. These

benefits are determined by our approval

of an M+C organization’s Adjusted

Community Rate (ACR) proposal for a

given M+C plan and must be provided

uniformly to all Medicare enrollees

electing that plan. Additional benefits

are generated when the average payment

rate for a plan exceeds the adjusted

community rate, thereby producing a

surplus known as the ‘‘excess amount.’’

(See section II.F of this preamble for a

more thorough discussion of the

requirements that apply to additional

benefits, which are set forth under

§ 422.312.)

In the case of an M+C private fee-forservice plan or a non-network M+C

MSA plan, the obligation to cover

Medicare services is not limited to

services available in the plan’s approved

service area. Rather, in this context, we

interpret ‘‘geographic area served by the

plan’’ in section section 1852(a)(1)(A) to

mean the area within which the M+C

private fee-for-service or non-network

M+C MSA plan enrollee has the right to

receive covered services under the plan.

Under our authority in section

1856(b)(1) to establish standards under

the M+C program, § 422.100(h)

establishes special rules for influenza

vaccine, pneumococcal vaccine, and

screening mammography. Section

422.100(h)(2) prohibits enrollee costsharing for influenza vaccine and

pneumococcal vaccine. Under original

Medicare, there is no cost-sharing

imposed on these items, and we believe

congressional intent is for Medicare

beneficiaries to have maximum possible

access to both vaccines. We note that

original Medicare provides for

beneficiary payment of coinsurance for

mammography screening; therefore, a

plan may also impose copayment or

coinsurance for this service.

Also note that beneficiaries under

original Medicare may ‘‘self-refer’’ and

directly access screening mammography

and influenza vaccine. We have

established a similar standard in

§ 422.100(h)(1) for M+C enrollees.

3. Supplemental Benefits (§ 422.102)

Section 1852(a)(3) provides for

supplemental benefits. These benefits

are health care items and services

beyond the basic benefits described

above and are categorized as either

mandatory or optional.

Mandatory supplemental benefits are

benefits not included in basic benefits

which must be purchased by all

beneficiaries who enroll in the M+C

plan under which they are included.

Mandatory supplemental benefits may

be offered under coordinated care plans

and fee-for-service plans only, and must

be approved by HCFA. HCFA will

approve such benefits unless we

determine that they would substantially

discourage enrollment in the plan.

Specifically, we will determine whether

the inclusion of the mandatory

supplemental benefits would discourage

particular subcategories of Medicare

beneficiaries from enrolling (e.g., those

residing in certain parts of a plan

service area). These benefits are

addressed in § 422.102(a).

Section 1852(a)(3)(C) provides that

nothing in paragraph (3) of section

1852(a), addressing supplemental

benefits, shall be construed to prevent a

fee-for-service plan from offering

supplemental benefits covering the

balance billing permitted under section

1852(k)(2)(A)(i) and § 422.216(b)(1) and

additional services. See discussion of

M+C private fee-for-service plans in

section IV of this preamble. The only

provision in section 1852(a)(3) that

could possibly be construed to prevent

a private fee-for-service plan from

offering such benefits would be the right

of the Secretary, and of HCFA under

these regulations, to disapprove

mandatory supplemental benefits. We

accordingly wish to make it clear that

HCFA will not disapprove such benefits

in the case of a private fee-for-service

plan. (As discussed below in subpart G,

HCFA does not have the right to review

or approve the amount that a private

fee-for-service plan charges for

supplemental benefits.) We believe that

the foregoing statement is sufficient to

give effect to section 1852(a)(3)(C).

Optional supplemental benefits are

benefits beyond basic benefits that may

be purchased by an M+C plan enrollee

at his or her option. If a plan offer

optional supplemental benefits, it must

offer those benefits to all enrollees in

the M+C plan. While optional

supplemental benefits may be offered

under all types of plans, in the case of

MSA plans, there are limits, discussed

in section III of the preamble, on the

nature of optional supplemental benefits

that can be offered.

Under mandatory supplemental

benefits for coordinated care plans, an

M+C organization may require an

enrollee who elects an M+C plan to

accept and pay for items and services

beyond basic benefits if he or she wants

to enroll in a particular M+C plan. If an

organization requires supplemental

benefits, it must do so uniformly for all

Medicare beneficiaries enrolled in that

plan. As provided for at section

1852(a)(3)(A), we will approve such

offerings unless we determine that

would substantially discourage

enrollment in the plan. We will

determine whether the mandatory

supplemental benefits would discourage

subcategories of Medicare beneficiaries

from enrolling (e.g., those residing in

certain parts of a plan’s service area).

An organization may also offer

optional supplemental benefits within

an M+C plan. In this case, the

beneficiary is free to choose to accept or

decline the supplement. In the case of

both mandatory and optional

supplemental benefits, the benefits are

paid for by (or on behalf of) the

individual electing the M+C plan.

Sections 422.103 and 422.104,

addressing benefits under MSA plans

generally, and optional supplemental

benefits under an MSA plan, are

discussed in section III. below.

4. Special Rules for Point-of-Service

(POS) Option (§ 422.105)

This section of the rule codifies our

existing policy for point-of-service

plans. Because these policies have not

previously appeared in regulations, we

welcome comments.

A POS benefit is an option that an

M+C organization may offer through an

M+C coordinated care plan or network

M+C MSA plan to provide Medicare

enrollees with additional choice in

obtaining specified health care items

and services from entities that do not

have a contract with the M+C

organization. A coordinated care plan

may offer a POS option as an additional

benefit, a mandatory supplemental

benefit, or an optional supplemental

benefit. A network MSA plan may only

offer a POS option as a supplemental

benefit.

Under POS, the health plan generally

provides partial reimbursement to

enrollees for items and services

obtained from non-network providers.

The enrollee may be required to pay a

premium for the benefit unless the
34988 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

benefit is offered as an additional

benefit. The Act contains two mentions

of the term ‘‘point of service’’ as it

relates to M+C plans. Section

1851(a)(1)(A) states that an HMO may

include a POS option, and section

1852(c)(1)(C), requires disclosure to

enrollees of ‘‘any point-of-service option

(including the supplemental premium

for such option).’’ Therefore, the Act

indicates that HMOs could offer POS

products, and that there could be a

supplemental enrollee premium for

such a product.

We currently permit HMOs and CMPs

to offer POS products. There is no

specific statutory reference to such a

product in section 1876; the statutory

basis for allowing Medicare HMOs to

provide POS products lies in the

additional and supplemental benefit

offerings an HMO may have under

section 1876. We believe that under the

structure of the M+C program, any

coordinated care plan or network M+C

MSA plan may offer a POS product.

The regulations at § 422.105

governing the POS benefit are largely a

restatement of our previously issued

guidelines. In issuing the guidelines, we

were particularly concerned with

assuring the continued accessibility and

availability of medically necessary care

within the Medicare plan’s approved

network. We also emphasized that

organizations are responsible for:

members’ continuity of care; ensuring

beneficiaries are fully informed about

how the POS benefit would be

implemented; and the potential

financial liability of the individual. We

also required organizations to provide

data to us about the POS benefit,

including expenditures and levels of

POS utilization, and the effect on the

financial status of the organization.

Moreover, the guidelines required the

plans to maintain a record-keeping

system to make information on

utilization of the POS benefit available

to plan providers. These previous

operational policy requirements are

carried over into § 422.105.

There are some changes in § 422.105

to the guidelines we issued under

section 1876, however. One has to do

with POS coverage available for innetwork items and services. Under the

guidelines, we permitted HMOs and

CMPs to include network providers who

could be paid through the POS option.

These regulations eliminate that option.

Additionally, under § 422.105, we will

now require plans to place a cap on a

beneficiary’s total annual financial

liability under a POS benefit. In another

change, we are eliminating separate

solvency standards for POS products.

Each of these changes is discussed

below.

Although HCFA guidelines did permit

a Medicare beneficiary to use a POS

option to seek, for example, ‘‘direct

access’’ to a specialist within the plan’s

network, and thereby avoid any prior

authorization requirement or other plan

rules relating to access to particular

providers, we believe such a feature of

a POS option is inconsistent with the

concept of a network plan and not a

desirable feature of a POS option. The

basic access and availability

requirements both of sections 1876 and

1852(d) require that benefits be made

available, through providers selected by

the M+C organization, in a manner that

ensures availability, accessibility and

continuity of care. If the care an

individual seeks from a network

provider is necessary care, the

individual should be able to obtain that

care through the network, following

network rules. Although the enrollee

might not receive treatment from the

particular provider he or she prefers, the

organization and its contractors are

obligated to make covered services

available to all enrollees through

network providers. We do not believe it

is appropriate to use the POS benefit to

circumvent network rules.

In § 422.105 we also specify that an

M+C organization offering a POS benefit

establish an annual limit on a

beneficiary’s maximum financial

liability when using a POS benefit. We

require a financial limit to alert

beneficiaries to their maximum

potential financial liability in using

their POS benefit. We consider it a

critical part of beneficiary information

that enrollees are clearly informed about

all of their potential costs when

enrolling in an M+C plan.

Another change from existing policy

in § 422.105 is the elimination of the

additional solvency requirements that

have been imposed under the POS

guidelines (though reporting

requirements relating to solvency

remain). The Act gives the States

primary responsibility for setting and

enforcing solvency standards for M+C

plans (other than a provider-sponsored

organization with a waiver of the State

licensure requirement), and our

imposition of additional solvency

requirements on POS products is

inconsistent with the States’

responsibility. (In fact, because of

solvency concerns, many States require

licensure as an indemnity insurer if an

HMO wishes to offer a POS product.)

We will continue to require M+C

organizations to comply with this

reporting requirement, as was the case

with Medicare contractors under section

1876. This reporting requirement is not

superseded by the Act’s preemption

provision relating to benefits in section

1856(b)(3)(B).

5. Special Arrangements With Employer

Groups (§ 422.106)

An M+C organization may negotiate

with an employer group to provide

benefits to Medicare members of the

employer group who are enrolled in an

M+C plan offered by the organization

and these benefits must be provided

uniformly to members of the group.

While these negotiated employer group

benefits may be designed to

complement benefits available to

Medicare beneficiaries enrolled in the

plan, they are offered by the employer

group independently as the product of

private negotiation. These benefits may

include contributions on the employee

group member’s behalf toward M+C

plan premiums or cost-sharing for

which the Medicare eligible group

member is responsible, or benefits not

covered by the M+C plan, for which

premiums and cost-sharing may be

charged. We do not review such

employer group benefits, premiums, or

cost-sharing amounts.

6. Medicare Secondary Payer (MSP)

Procedures (§ 422.108)

As specified in section 1852(a)(4), if a

Medicare enrollee receives covered

items and services from an M+C

organization for which the enrollee is

entitled to benefits under a State or

Federal workers’ compensation law or

plan, any no-fault insurance, or any

liability insurance policy or plan

(including a self-insured plan), the M+C

organization may charge the insurance

carrier, employer or other entity that is

responsible to pay for the provision of

those items and services. The M+C

organization may also charge the

Medicare enrollee to the extent that the

enrollee has been paid by the carrier,

employer, or other entity for those items

and services. In addition, an M+C

organization may charge a group health

plan or large group health plan for items

and services for which Medicare is a

secondary payor.

In this area, pursuant to section

1856(b) (1) and (2), we are retaining for

M+C organizations the requirements

that applied to HMOs and CMPs under

part 417.

7. Effect of National Coverage

Determinations (NCDs) (§ 422.109)

This provision implements section

1852(a)(5). Under this rule, M+C

organizations are not required to assume

risk for the costs of certain ‘‘significant

cost’’ NCDs until an adjustment has
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34989

been made in the per capita rate to

reflect the NCD. A national coverage

determination is a national policy

statement regarding the coverage status

of a specified service that HCFA makes

as a program memorandum or manual

instruction. The term does not include

coverage changes mandated by statute.

Past NCDs have included items such as

heart transplants.

On February 22, 1994 HCFA

published a notice of proposed rule

making (NPRM) to define ‘‘significant

cost’’ and other requirements for NCDs

as they applied to section 1876 risk

contracting plans. With one exception

discussed below, we are including in

this rule the policies included in the

February 22, 1994 proposed rule. For

example, we have maintained the

definition of ‘‘significant cost’’ as

$100,000 for a single NCD service for

calendar years 1998 and 1999. We are

providing for an automatic adjustment

of a single service threshold amount to

reflect rising costs, and will adjust the

dollar threshold by the national per

capita growth percentage used to

calculate the annual capitation rates to

pay M+C organizations. We are also

providing an alternative definition for

lower cost services that will affect a

large number of beneficiaries. For the

cost of all of the services furnished

nationwide as a result of a particular

NCD, we have redefined significant cost

as 0.1 percent of the national

standardized annual capitation rate

(which is used in calculating the annual

capitation rates used to pay M+C

organizations) multiplied by the total

number of Medicare beneficiaries

nationwide for the applicable calendar

year.

This rule also describes how the NCD

will be provided to M+C plan enrollees

during the period the M+C organization

is not at risk for the new or expanded

benefit established by the NCD,

including procedures to pay M+C

organizations and the policies affecting

beneficiary liability. It is in this area

that this rule differs from the February

22, 1994 proposed rule. That proposed

rule reflected the NCD provision that

applied to HMOs with risk contracts

under section 1876. There is one key

difference between the NCD provision

in section 1876 and the NCD provision

under the new M+C. Like the new NCD

provision in section 1852(a)(5), section

1876(c)(2)(B) provided that services

required under certain mid-year NCDs

were excluded from risk contracts until

the first year in which payment for the

services is reflected in capitation

payments. However, under Section

1876(a)(6), original Medicare coverage

of such NCD services was identified as

an exception to the rule that only the

risk-contracting HMO could receive

Medicare payment on behalf of one of

its enrollees. Therefore, an HMO

enrollee was not required to receive

NCD services excluded from the HMO’s

contract through the HMO, and could

receive the services either from the

HMO or from any other Medicare

provider, and Medicare would pay. This

was reflected in the February 2, 1994

proposed rule.

Under the M+C program, however,

there is no similar exception for

excluded NCD services providing that

only an M+C organization may be paid

by Medicare on behalf of an enrollee in

an M+C plan offered by that

organization. We believe that this

difference reflects Congress’ intent that

beneficiaries be required to receive

services through their M+C

organization, under the same rules that

apply to any other non-urgent and nonemergency services. Under the new

NCD provision, only the method that

HCFA pays the organization for the

services, and the cost-sharing that

applies to such services differs from

other services. If the excluded NCD

services are received from, or through,

the M+C organization, the organization

will be paid on a fee-for-service basis for

those services. If the services are not

available from the plan, the organization

will pay the authorized provider after

receiving fee-for-service from the

intermediaries or carriers.

Pursuant to our authority under

section 1856(b)(1), we are expressly

requiring that the M+C organization

provide the NCD services in question on

a fee-for-service basis.

8. Discrimination Against Beneficiaries

Prohibited (§ 422.110)

The current rule reflects section

1852(b), and the details provided in

§ 422.110 are consistent with existing

policy and regulation. In general, M+C

organizations may not discriminate

among Medicare beneficiaries based on

health-related factors with the exception

that organizations may not enroll new

beneficiaries with end-stage renal

disease. For further discussion of

discrimination provisions affecting M+C

enrollees with ESRD, see the discussion

in section II.B.1 of this preamble.

9. Disclosure Requirements (§ 422.111)

In section 1852(c), the Act lists

several areas where an M+C

organization must disclose specific

information to each M+C plan enrollee.

These requirements are, in large part, a

codification of existing program

administration requirements under

section 1876, and we detail these

requirements in § 422.111 of the

regulations. In general, an M+C

organization is required to provide in a

clear, accurate, and standardized form

information relating to: service area;

benefits access; out-of-area coverage;

emergency coverage; supplemental

benefits; prior authorization rules; plan

grievance and appeals procedures;

disenrollment rights and

responsibilities; and information about

the M+C organization’s quality

assurance program.

M+C organizations are also required

to provide further information on a

beneficiary’s request, which we also

detail in § 422.111 of the regulation text.

These ‘‘upon request’’ requirements

include: general coverage and

comparative plan information;

information on utilization control

procedures; information on grievances

and appeals; information on the

financial condition of the M+C

organization; and a summary of

physician compensation arrangements.

10. Access to Services (§ 422.112)

The requirements of section 1852(d)

of the Act (concerning access to

services) are being implemented

through this rule, in part, by applying

existing regulations and policies

pursuant to our authority in section

1856(b)(1) to establish standards under

the M+C program. We are also

addressing recommendations from the

President’s ‘‘Consumer Bill of Rights

and Responsibilities’’ (CBRR), and

incorporating the ‘‘Quality Improvement

System for Managed Care’’ (QISMC)

standards.

For example, our existing policy

shaped the language in § 422.112(a)(1)(i)

requiring M+C organizations to

maintain and monitor a network of

appropriate providers, supported by

written agreements sufficient to certify

beneficiary access to covered services.

The CBRR shaped the access to (and

continuity of) specialist services text in

§ 422.112(a), as well as provisions for

provider credentialing and timeliness of

access, among other consumer

protections. We also include a provision

at § 422.112(a)(4)(vii)for M+C

organizations to ensure ‘‘cultural

competency’’ in the provision of health

care. This provision reflects CBRR

recommendations that M+C

organizations make a particular effort to

ensure that enrollees with limited

English proficiency, limited education,

or other socioeconomic disadvantages

receive the health care to which they are

entitled.

The Consumer’s Bill of Rights and

Responsibilities also recommends that

women be able to choose a women’s
34990 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

health care specialist within network for

the provision of routine and preventive

women’s health care services. In

support of this recommendation,

§ 422.112(a)(1)(iii)(A) requires M+C

network plans to provide direct access

to a women’s health specialist within

the network for routine and preventive

women’s health care services provided

as basic benefits, as defined in § 422.2.

We note that coverage of routine and

preventive health services under

original Medicare is limited. For

example, original Medicare covers a

screening pap smear and a screening

pelvic exam, including a clinical breast

exam, once every 3 years under normal

circumstances. M+C plans must cover

routine and preventive health services

with at least the same frequency as they

are covered under original Medicare and

may offer expanded services in these

areas as additional benefits.

M+C plans satisfy the requirement in

§ 422.112(a)(1)(iii)(A) by providing

direct access to gynecologists, certified

nurse midwives, and other qualified

health care providers for provision of

routine and preventive women’s health

services. At the same time, M+C plans

are required to provide women enrollees

with continued access to their primary

care physician to ensure continuity of

care. We welcome comments on this

issue.

In § 422.112(a)(1)(iii)(B), we require

that plans have HCFA-approved

procedures—

• To identify Medicare enrollees with

complex or serious medical conditions;

• For assessment of those conditions,

including medical procedures to

diagnose and monitor them on an

ongoing basis; and

• For establishment and

implementation of a treatment plan

appropriate to those conditions, with an

adequate number of direct access visits

to specialists to accommodate the

treatment plan. To meet these

requirements and those of

§ 422.112(a)(5)(v)(A), M+C plans must

conduct a baseline and establish a

treatment plan for people with complex

or serious medical conditions. This

assessment should be completed within

timeframes deemed appropriate by M+C

plans based on the needs of its

enrollees, but, in general, should occur

within 90 days of the effective date of

enrollment.

Section 422.112(a)(5)(v)(A) also

requires M+C plans to conduct a

baseline health assessment for all new

Medicare enrollees (i.e., not limited to

those with complex or serious medical

conditions) in a timely manner. We

believe that this initial assessment

should also be performed based on

timelines deemed appropriate by the

plan, but not later than 90 days after the

effective date of enrollment. We

welcome comments regarding timely

baseline assessments both for new

enrollees and those with complex or

serious medical conditions.

Note that, as indicated in the heading

of § 422.112(a), some access provisions

apply only to network organizations,

(i.e., coordinated care plans and

network MSAs), while others

(§ 422.112(b)) apply to all M+C

organizations.

Section 422.112(b) states that M+C

organizations must provide coverage of

emergency services and urgently needed

services even in the absence of the

organization’s prior approval and

without regard to the provider’s

contractual relationship with the M+C

organization. For definitions of

emergency and urgently needed

services, see § 422.2.

This section continues the prohibition

at § 417.414(c)(1) on prior authorization

requirements for emergency services as

explicitly provided by 1852(d) and

continues the § 417.414(c)(1) regulatory

prohibition on prior authorization

requirements for urgently-needed

services. This section also establishes a

prohibition on prior authorization

requirements for emergency services

provided within the plan because the

prohibition on prior authorization at

section 1852(d) applies to services

provided both within and outside the

organization.

Consistent with the new definition of

‘‘emergency medical condition’’ in

section 1852(d)(3)(B), we are codifying

longstanding HMO/CMP Manual policy

(§ 2104) of prohibiting retrospective

denial for services which appeared, to

the prudent layperson, to be

emergencies, but which turn out to be

nonemergency in nature.

We are establishing that when a

physician or other representative

affiliated with the organization instructs

the enrollee to seek emergency services

within or outside the organization, the

organization is responsible for payment

for medically necessary emergency

services provided to the enrollee.

We are codifying in regulation an

HMO/CMP Manual policy (§ 2104)

specifying that the decision of the

examining physician treating the

individual enrollee prevails regarding

when the enrollee may be considered

stabilized for discharge or transfer.

We are establishing limits on costsharing for emergency services obtained

outside of the M+C plan’s provider

network equal to of the lesser of $50 or

what the organization may charge for

emergency services provided within the

plan’s provider network. We are

imposing this requirement in order to

facilitate and ensure access to covered

emergency services provided other than

through the organization. We do not

view this requirement as overly

burdensome. A review of 1997 data on

what Medicare HMOs and CMPs

charged for emergency services found

that 93 percent of contracts charged $50

or less. We believe that it may be

appropriate to lower this limit or

eliminate cost-sharing altogether, and

would welcome comments on this

subject.

Note that an M+C organization’s

failure to provide medically necessary

emergency services could result in

intermediate sanctions for failing to

provide coverage, or payment, or

through actions (such as a prospective

refusal of payment) that could result in

discharge or transfer of an unstabilized

patient. The new coverage requirements

for M+C enrollees do not affect the

rights of all persons (whether or not

they are Medicare beneficiaries) to

receive emergency services at any

Medicare-participating hospital that

offers emergency services (under the

patient ‘‘anti-dumping’’ statute in

section 1867).

11. Access to Services Under an M+C

Private Fee-for-Service plan (§ 422.114)

In the case of an M+C organization

that offers an M+C private fee-forservice plan, that organization must

demonstrate that it has a sufficient

number and range of providers willing

to furnish items and services under the

plan. An M+C organization meets this

requirement if, with respect to a

particular category of providers, the

organization has:

• Payment rates that apply under

original Medicare for the provider and

service in question;

• Contracts or agreements with a

sufficient number and range of

providers to furnish the items and

services covered under the M+C private

fee-for-service plan; or

• A combination of the two.

Additionally, an M+C private fee-forservice plan must permit enrollees to

obtain items and services from any

entity that is authorized to provide

items and services under Medicare Parts

A and B and agrees to provide services

under the terms of the M+C private feefor-service plan. For a fuller discussion

of M+C private fee-for-service plans, see

section IV of this preamble.

12. Confidentiality and Accuracy of

Enrollee Records (§ 422.118)

M+C organizations are required to

safeguard the confidentiality and
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accuracy of enrollee records that

identify a particular enrollee, including

both medical documents and enrollment

information. An M+C organization may

circulate this information within the

organization to coordinate care for a

Medicare enrollee. The M+C

organization may not, however,

circulate this information outside the

organization without specific

authorization from the Medicare

enrollee. M+C organizations are

prohibited from selling (or circulating

outside the organization) names and

addresses of enrollees for any purpose,

including scientific study.

Additionally, the M+C organization

must maintain records in an accurate

and timely manner and ensure timely

access to enrollees who wish to examine

their records. Moreover, the M+C

organization must abide by all Federal

and State laws regarding confidentiality

and disclosure for mental health

records, medical records, other health

information, and enrollee information.

13. Information on Advance Directives

(§ 422.128)

Advance directives are documents

signed by a patient that explain the

patient’s wishes concerning a given

course of medical care should a

situation arise where he or she is unable

to make these wishes known. The M+C

organization is responsible for

documenting advance directives in a

prominent part of the Medicare

beneficiary’s medical record.

Accordingly, pursuant to our authority

in section 1856(b)(1) and (2) to establish

M+C standards, we are retaining for

M+C organizations the requirements

that applied to HMOs and CMPs under

part 417.

14. Protection Against Liability and Loss

of Benefits (§ 422.132)

Each M+C organization must adopt

and maintain satisfactory arrangements

to protect Medicare enrollees from

incurring liability for payment of any

fees that are the legal obligation of the

M+C organization. By reference in

§ 417.407(f) (implementing regulations

for section 1876), enrollee protections

described in § 417.122 are unchanged by

the BBA, and their application to M+C

organizations are carried forward in this

section.

Medicare law requires that Medicare

contracting M+C organizations make

Medicare covered services ‘‘available

and accessible.’’ Section 1852(d)(1), in

describing access to services, allows

M+C organizations to select the

providers from whom benefits may be

obtained so long as ‘‘the organization

makes such benefits available and

accessible to each individual electing

the plan within the plan service area

with reasonable promptness * * * ’’ We

believe these sections require health

plans to provide the same accessibility

afforded by HCFA to beneficiaries under

original Medicare.

D. Quality Assurance

1. Overview

Subpart D of part 422 contains the

quality assurance requirements for M+C

organizations. These requirements

implement and are based on the

provisions of section 1852(e) of the Act.

They also incorporate the requirements

of section 1851(d)(4)(D), which provides

that the information made available to

Medicare beneficiaries for plan

comparison purposes should include

plan quality and performance

indicators, to the extent available.

Section 1852(e)(1) sets forth the general

rule that each M+C organization must

establish an ongoing quality assurance

program, consistent with implementing

regulations, for the health care services

it provides to enrollees in the

organization’s M+C plans. The rest of

section 1852(e) contains the required

elements of the quality assurance

program, requirements for external

review, and provisions concerning the

use of accreditation organizations to

determine compliance with the quality

assurance requirements.

The provisions of section 1852(e)

represent a significant expansion in the

scope of the statutory quality assurance

provisions applicable to managed care

organizations that contract with the

Medicare program. Existing section

1876(c)(6) contains a general

requirement similar to that of section

1852(e)(1) that an organization must

have a quality assurance program, but it

provides very limited guidance as to the

nature of this program. The only

required elements of a quality assurance

program under section 1876(c)(6) are

that it stress health outcomes and

include physician review of the

procedures used in the provision of

health care services. Like section

1876(c)(6), existing quality assurance

regulations (§ 417.418 and, by reference,

§ 417.106(a)) contain few detailed

requirements concerning quality

assurance. The regulations basically

restate the statutory requirements

relating to health outcomes and

physician review and then add two

broad requirements regarding data

collection and the need for written

procedures for taking remedial action.

In contrast, section 1852(e) sets forth

a series of specific elements that now

must be addressed in an M+C

organization’s quality assurance

program. As discussed in detail below,

these requirements focus on the need for

an M+C organization, with respect to

each M+C plan that it offers, to operate

an outcome-oriented quality assessment

and performance improvement program

that achieves demonstrable

improvements, across a broad spectrum

of care and services, in the health,

functional status, and satisfaction of its

enrollees. (Note that some of the specific

performance improvement requirements

of the statute do not apply to M+C nonnetwork MSA plans or PFFS plans, as

addressed under § 422.152(e).) The

collection, evaluation, and reporting of

the data necessary to demonstrate

quality improvements are also critical

elements of each M+C organization’s

quality-related responsibilities.

2. Origins of the Quality Assessment

and Improvement Requirements

The regulations to implement sections

1852(e)(1) and (2) and section

1851(d)(4)(D) incorporate each of the

explicit statutory requirements into new

subpart D. Consistent with our explicit

statutory authority under section

1851(e), these regulations include

additional detail to clarify how an M+C

organization can meet the statutory

requirements. Like Congress, we

recognize that the state of the art in

quality assurance has evolved from a

problem-focused approach, with an

emphasis on remedial action, to a

proactive approach aimed at achieving

continuous, systemic quality

improvement. In recent years, HCFA,

the States, and other managed care

purchasers have been involved in a

series of initiatives aimed at improving

the quality of care and services provided

to managed care enrollees. Examples of

such efforts include:

• The Quality Assurance Reform

Initiative (QARI), which developed and

tested standards for States to use in

monitoring and improving quality in

Medicaid contractors, with a particular

emphasis on plans’ own internal quality

improvement efforts.

• Uniform data collection and

reporting instruments, such as the

Health Plan Employer Data and

Information Set (HEDIS 3.0), which was

developed by the National Committee

for Quality Assurance (NCQA). Use of

HEDIS 3.0 is now a contract

requirement for Medicare risk-based

managed care plans, under section 1876

and is intended to allow assessment and

comparison of plan performance.

• Projects to enhance the role of

Medicare Peer Review Organizations

(PROs) in evaluating and improving

managed care plan quality, including
34992 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

the development and testing of a

minimum set of performance evaluation

measures and quality improvement

projects developed through

collaboration between PROs and

managed care organizations. States have

undertaken similar efforts through

Medicaid External Quality Review

Organizations (EQROs).

Among the most comprehensive of

recent quality-related initiatives is the

Quality Improvement System for

Managed Care (QISMC). During the past

2 years, HCFA has been working closely

with other Federal and State officials, as

well as representatives of beneficiary

advocacy groups and the managed care

industry, to develop quality standards

that can better ensure that managed care

organizations that contract with HCFA

protect and improve the health and

satisfaction of their enrollees. QISMC is

the product of these efforts. Originally

drafted based on the authority of section

1876, it builds on a variety of recent

HCFA and State efforts, like those

mentioned above, to promote the

assessment and improvement of

managed care quality. The QISMC

standards are in the final stages of

development at this time and are being

modified to reflect the quality-related

requirements under the BBA. Once

QISMC is complete, we believe it will

offer a uniform set of quality standards

that can be used by HCFA and the State

Medicaid agencies to determine whether

a managed care organization can meet

the quality assurance requirements

necessary to become and remain eligible

to enter into a Medicare or Medicaid

contract.

The QISMC initiative is substantially

in accord with the quality assurance

requirements of new section 1851(e).

For example, both the statutory

requirements and the QISMC quality

standards emphasize measurement of

health outcomes, consumer satisfaction,

the accountability of managed care

organizations for achieving ongoing

quality improvement, the need for

intervention to achieve this

improvement, and the importance of

data collection, analysis, and reporting.

Moreover, as noted above,

representatives of all segments of the

managed care community have

contributed to the development of

QISMC, and generally support HCFA’s

intention to eventually require managed

care organizations to meet the QISMC

standards. Given the shared goals of the

BBA and QISMC standards, and HCFA’s

implementation plans for QISMC, we

believe it is appropriate to establish new

M+C quality assurance regulations that

reflect those QISMC standards that

mirror the intent of the statute.

Although we have not included in the

regulations the level of detail embodied

in QISMC, we have attempted to build

into the regulations some principles

from QISMC that can guide M+C

organizations in meeting the quality

requirements established by the statute.

For example, § 422.152(d) establishes

objective standards concerning the

improvement projects that are required

of M+C organizations, in accordance

with the statutory requirements

concerning an organization’s

responsibility to take action to improve

quality (such as section 1852(e)(2)(A)(xi)

of the Act.

Although QISMC remains an evolving

document, several of the discussions

below of the ways in which

organizations can meet the M+C quality

requirements are informed to some

degree by the underlying details

contained in QISMC. Also, as discussed

below, we anticipate that requirements

pertaining to a plan’s quality assessment

and performance improvement

responsibilities may be implemented as

part of the M+C contracting process.

QISMC standards may be a guide in

implementing the requirements in the

BBA and these regulations. Eventually,

we believe QISMC can serve to define

what HCFA’s expectations are with

regard to an M+C organization’s quality

assessment and improvement

responsibilities. (A copy of the most

recent version of QISMC is available at

HCFA’s website, www.hcfa.gov/quality/

qlty-3e.htm.)

3. Quality Assessment and Performance

Improvement Requirements (§ 422.152)

This section of the regulation

implements paragraphs (e)(1) and (2) of

section 1852. Subject to certain

exceptions for M+C PFFS and nonnetwork MSA plans, which are

discussed below, the statute requires

that an organization’s quality assurance

program meet the following

requirements with respect to each plan

that it offers:

(i) Stress health outcomes and provide

for the collection, analysis, and

reporting of data (in accordance with a

quality measurement system that HCFA

recognizes) that will permit

measurement of outcomes and other

quality indices.

(ii) Monitor and evaluate high-volume

and high-risk services and the care of

acute and chronic conditions.

(iii) Evaluate the continuity and

coordination of the care that enrollees

receive.

(iv) Be evaluated on an ongoing basis

as to its effectiveness.

(v) Include measures of consumer

satisfaction.

(vi) Provide HCFA access to the

information it needs to monitor and

ensure the quality of the care provided.

(vii) Provide for physicians and other

health care professionals to review the

process followed in providing health

care services.

(viii) Establish written protocols for

utilization review, based on current

standards of medical practice.

(ix) Have mechanisms to detect both

underutilization and over utilization of

services.

(x) Establish or alter practice

parameters when areas needing

improvement are identified.

(xi) Take action to improve quality

and assess the effectiveness of that

action through systematic follow-up.

(xii) Make available to HCFA

information on quality and outcomes

measures to facilitate beneficiary

comparisons and choice of health care

options (in such form and on such

quality and outcomes measures as

HCFA determines is appropriate).

As noted above, section 1852(e)(1)

also requires that the organization’s

quality assurance program be consistent

with any regulation developed by

HCFA. Therefore, § 422.152 reflects the

statutory requirements listed above, as

well as those implementing

requirements that are consistent with,

and necessary to accomplish, the intent

of the Act. While certain requirements

in section 1852(e)(2) that expressly refer

to ‘‘improvement’’ in quality do not

apply to all types of M+C plans, we

believe that all of the requirements in

section 1852(e) are geared toward

improving quality, not simply

monitoring it. For this reason, we are

using the term ‘‘quality assessment and

performance improvement program’’ to

refer to the program that is required of

all M+C plans, which section 1852(e)(1)

refers to as a ‘‘quality assurance

program.’’ We accordingly use the term

‘‘quality assessment and performance

improvement program’’ in the heading

of § 422.152 and in the general rule at

§ 422.152(a).

a. Requirements for M+C Coordinated

Care Plans and Network MSA Plans.

Sections 422.152(b) through (d) set forth

requirements that M+C organizations

must meet with respect to M+C

coordinated care plans and network

MSA plans. As alluded to above, as

directed by section 1852(e), these

requirements reflect a departure from

the problem-focused approach to

ensuring quality that was prevalent in

the past. Thus, under these regulations,

it will no longer be sufficient for

organizations to identify and correct

problems in their operations—they must

now focus on systemic quality
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34993

improvement as well. This approach is

also consistent with HCFA’s

responsibility to demand value in the

form of positive outcomes from the

organizations with which we contract.

To implement this approach,

§ 422.152(b) establishes two basic

quality assessment and performance

improvement requirements: (1)

measurement and reporting of

performance; and (2) conducting

performance improvement projects that

achieve, through ongoing measurement

and intervention, demonstrable and

sustained improvement in significant

aspects of both clinical care and

nonclinical care areas that can be

expected to affect health outcomes and

member satisfaction. The specific

requirements associated with the

measurement and reporting of

performance and the execution of

performance improvement projects are

set forth under § 422.152(c) and (d), as

discussed in detail below. Before

turning to that discussion, however, we

note that § 422.152 also incorporates

statutory requirements from section

1852(e)(2)(viii), (ix), and (xii), as listed

above, concerning written utilization

review protocols, the identification of

underutilization and overutilization of

services, and the availability of

information on quality and outcome

measures as needed to facilitate

beneficiary comparisons and choices

among M+C plans.

b. Performance Measurement and

Reporting. Section 422.152(c) elaborates

on paragraph (b)(1) by requiring that the

organization: (1) measure and report its

performance to HCFA using measures

required by HCFA, and (2) for M+C

coordinated care plans, achieve any

minimum performance levels that may

be established locally, regionally, or

nationally by HCFA. The first

requirement is based directly on the

requirement under section

1852(e)(2)(A)(i) of the Act concerning

outcome measurement and reporting.

Thus, it applies both to M+C

coordinated care plans and network

MSA plans (as well as to M+C nonnetwork MSA plans and PFFS plans, as

discussed below in section II.D.2.d of

the preamble). The second requirement

enables HCFA to evaluate a plan’s

ability to meet the objectives of sections

1852(e)(2)(A)(x) and (xi) of the Act

concerning quality assessment and

improvement. It also reflects HCFA’s

responsibility to require that the

services we purchase meet minimum

quality standards. (We note that

although the requirements of sections

1852(e)(2)(A)(x) and (xi) of the Act

apply to M+C network MSA plans as

well as to M+C coordinated care plans,

we are not requiring in this interim final

rule that M+C network MSA plans

achieve minimum performance levels.

In keeping with the demonstration

status of the M+C MSA plans, we intend

to evaluate the performance of these

plans in the context of the evaluation

provisions of section 1851(b)(4)(B) of

the Act.)

Health plan performance

measurement and reporting is in its

early stages. Consensus regarding what

aspects of plan performance can and

should be measured, how this

information should be reported, how it

should be audited, and which measures

are collectible for which types of

organizations, is only now being

developed. HCFA, large private

purchasers, managed care organizations,

and others have made important

progress in defining and measuring

health plan performance. This

regulation must move us toward

enhancing health plan accountability

while leaving flexibility for the specific

reporting and performance requirements

to progress as we learn more about

performance measurement. We want to

be able to respond rapidly to new

developments in the state of the art of

quality measurement and improving

performance levels.

We do not intend to adopt a ‘‘one size

fits all’’ approach that assumes that

reporting under all types of M+C plans

will be possible in the same manner for

all measures. We will balance our efforts

to increase uniformity to facilitate

consumer comparison of plans with

sensitivity to the different

organizational structures of plans and

their different abilities to affect provider

behavior.

In general, an M+C organization

should not be held accountable for

improving services that it does not

promise to provide under a plan, nor for

reporting information to which it does

not reasonably have access under a

plan. At the same time, an organization

should be held accountable for

improving plan performance with

respect to the benefits provides under

the M+C program and all applicable

M+C standards, and for having the

information needed to maintain and

improve the quality of the services it

delivers or arranges for. Organizations

should be expected to improve their

capacity to collect and analyze

information about the delivery of M+C

benefits, consistent with changes that

are occurring in the health plan market

place. We believe that Congress

intended us to take the actions that any

prudent purchaser would take to hold

M+C organizations accountable for the

benefits they promise to provide under

a plan.

For these reasons, we are not

specifying the particular measures for

which reporting will be required or the

minimum performance levels that M+C

coordinated care plans will be expected

to achieve. Instead, the regulation

clarifies the general clinical and

nonclinical areas to be addressed by the

performance reporting, such as

effectiveness of care, use of services,

and access to services. The performance

measures to be reported and the

minimum performance standards that

the M+C plan or plans offered by an

organization will be required to meet

will be addresses on an organization

and plan-specific basis, as described

below.

Section 422.152(c)(1) establishes that

standard performance measures may be

specified in data collection and

reporting instruments required by

HCFA. For example, as mentioned

earlier, HCFA has already begun

requiring reporting of standardized

quality measurement data through

instruments such as HEDIS  3.0, as

well as reporting of standardized

consumer satisfaction data through the

Consumer Assessment of Health Plans

Study (CAHPS). We expect that in

contract year 1999, the standard

performance measures for M+C

organizations will include most HEDIS

measures and a member survey, with

the possibility of additional measures.

(Where data on particular measures are

not reasonably available with respect to

a given plan, organizations can report

‘‘not available’’. HCFA will work with

M+C organizations to identify those

measures for which data are and are not

reasonably available for a given plan.)

To the extent that we do include HEDIS

measures, we will use the HEDIS

measurement specifications. Before the

beginning of the next contract year, we

will decide on the measures on which

reporting will be required for contract

year 1999 and will notify organizations

of those measures through the

contracting process.

We expect to develop a core set of

measures on which reporting will be

required under all plans. We also expect

to identify additional reporting

requirements to reflect the plan’s

characteristics (such as supplemental

benefits, type of delivery system) and

past performance.

In adopting minimum performance

requirements for coordinated care plans,

we intend to ensure that the targets are

achievable, meaningful, and equitable.

We intend to move toward minimum

uniform national performance standards
34994 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

based on what plans across the nation

are able to achieve.

We expect to start with standards that

are adjusted to reflect performance in

the plan’s region and the individual

plan’s or organization’s historical

performance (or performance in

Medicare fee-for-service where the plan

has no history). Performance

requirements will be established only

for measures for which there are

sufficient historical data available to

establish regional standards based on

actual performance of a number of

plans. (We will therefore require

reporting on measures for which

performance standards have not been

established.) Other criteria will also

guide the selection of measures for

which minimum performance levels

will be established, including their

significance for the health of the

enrolled population under a plan and

the likelihood that they fairly reflect the

organization’s performance.

Because the process of identifying

achievable, meaningful and equitable

minimum performance levels will

require a significant amount of data

collection and analysis, we expect that

it will be several years before a full

complement of minimum performance

levels can be established. At this point,

it is uncertain whether any minimum

performance levels will be established

for the 1999 contract year. We will

identify minimum performance levels

on a measure by measure basis, after

evaluating baseline data and the

distribution of organization performance

and considering potential opportunities

for improvement. The process of

identifying minimum performance

levels will evolve as new methods of

performance measurement develop.

HCFA is committed to public

involvement in the selection of

measurement topics. HCFA will also

work collaboratively with organizations

involved with quality and performance

standards and measurements, including

performance measurement experts,

health plans, public and private

purchasers and beneficiary

representatives in the selection of

specific measures and setting of

minimum performance levels. As we

develop minimum performance

standards, we will consider how our

goal of maintaining maximum consumer

choice in the M+C program should

affect our expectations concerning plan

performance.

When we have identified minimum

performance levels, we plan to establish

them prospectively upon contract

initiation and renewal, so that an

organization will have the entire

contract year in which to take action to

meet them. By the end of the contract

year, the organization must meet any

identified minimum performance levels.

In some cases, we believe that the next

contract year will have already begun by

the time HCFA learns whether the

organization has met the minimum

performance levels established for the

previous year. Therefore, we specify

that HCFA may decline to renew an

organization’s contract in the year that

HCFA determines that the organization

failed to meet the minimum

performance levels, even if the failure

itself was in the prior contract year.

c. Performance Improvement Projects.

Section 422.152(d) establishes the

requirements for performance

improvement projects, beginning with

the requirement that performance

improvement projects focus on specified

areas of clinical and nonclinical

services. It also explains that HCFA will

set M+C organizational and planspecific requirements for the number

and distribution of these projects among

the required areas. In addition, it

authorizes HCFA to direct an M+C

organization to undertake specific

performance improvement projects and

participate in national and State-wide

performance improvement projects.

Section 422.152(d) reflects many of the

provisions of section 1852(e)(2) of the

statute, including for example the

requirements for projects in areas such

as high-volume and high-risk services

and continuity and coordination of care

(sections 1852(e)(2)(A)(ii) and (iii),

respectively).

Section 422.152(d)(1) explains what is

meant by a project. All projects must

involve the measurement of

performance, system interventions

(including the establishment or

alteration of practice parameters),

improving performance, and systematic

follow-up on the effect of the

interventions.

Section 422.152(d)(2) requires that

projects address the entire population to

which the performance measure is

relevant. Thus, once a topic has been

selected, the organization must assure

that its measurement and improvement

efforts are at least plan-wide. (Note that

we do not intend to prohibit an M+C

organization from conducting

performance improvement projects that

would cut across plans.) We expect that,

to the extent feasible, each project

should reach all enrollees and providers

in the plan network who are involved in

the aspect of care or services to be

studied. This does not mean that a

project must involve review of the

performance of each provider who

furnishes the services that are the

subject of the project, or that it must

survey every affected enrollee. Sampling

is acceptable if the organization can

demonstrate that its samples are

genuinely random. An organization

could do so by showing, for example

that:

• Each relevant provider and enrollee

has a chance of being selected; no

provider or enrollee is systematically

excluded from the sampling.

• Each provider serving a given

number of enrollees has the same

probability of being selected as any

other provider serving the same number

of enrollees.

• Providers and enrollees who were

not included in the sample for the

baseline measurement have the same

chance for being selected for the followup measurement as providers and

enrollees who were included in the

baseline.

Section 422.152(d)(3) states that

HCFA will establish M+C organizational

and M+C plan-specific obligations for

the number and distribution of projects

among the required clinical and nonclinical areas. Sections 422.152(d)(4)

and (5) then specify the minimum

clinical and nonclinical focus areas that

must be addressed through these

projects. These minimum focus areas

are:

• Clinical areas—prevention and care

of acute and chronic conditions; high

volume services and high risk services;

continuity and coordination of care.

• Nonclinical areas: appeals,

grievances, and other complaints; access

and availability of services.

Note that these areas represent

minimum requirements, and

organizations are likely to carry out

projects in other areas in order to meet

their contractual performance

improvement obligations. The length of

the performance improvement cycle,

that is, the period of time during which

an organization must conduct a project

that demonstrates improvement in each

of the required focus areas, will be one

of the contractual performance

improvement obligations. Within each

clinical and nonclinical focus area, an

organization will have considerable

freedom to select its own particular

topics for measurement and

improvement, so that it can initiate

projects relating to aspects of care and

services that are significant for its planspecific population. Our goal is to

achieve a balance between encouraging

flexibility and innovation and ensuring

that every organization conducts

meaningful projects over a broad

spectrum of care and services. As noted

above, however, there may be instances

where it is necessary for HCFA to direct

the organization to address a specific
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34995

topic within a given focus area. Thus,

§ 422.152(d)(6)(i) provides that, in

addition to requiring that an

organization initiate its own

performance improvement projects,

HCFA may direct an organization to

conduct particular performance

improvement projects that are specific

to the organization. We believe this

could be necessary, for example, when

an organization demonstrates a

significant weakness in a particular

performance area, but the area is not

addressed in the organization’s own

performance improvement projects.

Similarly, § 422.152(d)(6)(ii) provides

that HCFA may require an organization

to participate in national or statewide

performance improvement projects.

These performance improvement

projects would focus on aspects of care

that we believe are of high priority, and

would be designed by HCFA (or

possibly by other entities, such as the

external quality review organizations

affiliated with Medicaid managed care

organizations).

In general, we believe that when an

organization initiates a project, the

clinical or nonclinical issue selected for

study should affect a substantial portion

of the plan’s M+C enrollees (or a

specified subpopulation of enrollees)

and have a potentially significant

impact on enrollee health, functional

status, or satisfaction. There may be

instances in which less frequent

conditions or services warrant study, as

when data show a pattern of unexpected

adverse outcomes; however, the

prevalence of a condition or volume of

services involved should be sufficient to

permit meaningful study.

A project topic may be suggested by

patterns of inappropriate utilization—

for example, frequent use of the

emergency room by enrollees with a

specific diagnosis. However, the project

should be focused clearly on identifying

and correcting deficiencies in care or

services that might have led to this

pattern, such as inadequate access to

primary care, rather than on utilization

and cost issues alone. This is not to say

that an organization may not make

efforts to address overutilization, but

only that such efforts may not meet the

requirements of § 422.152, unless the

primary objective is to improve

outcomes. Thus, it would be acceptable

for a project to focus on patterns of

overutilization that present a clear

threat to health or functional status, for

example, a high risk of iatrogenic

problems or other adverse outcomes.

Because the achievement of

demonstrable improvement is a central

criterion in the evaluation of projects,

the projects should necessarily address

areas in which meaningful improvement

can be effected through system

interventions by the organization. Thus,

organizations should focus on areas in

which there is significant variation in

practice and resulting outcomes within

a plan, or in which performance as a

whole falls below acceptable

benchmarks or norms.

Organizations are encouraged to

undertake complex projects or

innovative projects that have a high risk

of failure but that offer potential for

making a significant difference in the

health or functional status of enrollees.

We recommend that M+C organizations

look to the independent quality review

and improvement organizations with

which they have agreements (see the

discussion below about the external

review requirements of § 422.154) for

assistance in designing and executing

performance improvement projects.

Section 422.152(d)(7) requires that an

organization assess performance for

each project using one or more quality

indicators, that are objective, clearly

defined, and based on current clinical

knowledge or health services research.

In accordance with the emphasis section

1852(e)(2)(A)(i) places on outcomes, the

regulation requires that the quality

indicators measure outcomes such as

changes in health status, functional

status, and enrollee satisfaction, or

measure valid proxies of these

outcomes. We recognize that relatively

few existing standardized performance

measures actually address outcomes.

For example, of the 16 effectiveness

measures in HEDIS 3.0, only one (health

of seniors) is truly outcome-based. Even

when outcome measures are available,

their utility as quality indicators for

projects may be limited if the outcomes

are dictated largely by factors outside

the organization’s control.

Therefore, we do not require that

quality indicators be limited to outcome

measures. Process measures are

acceptable so long as the plan can show

that they are valid proxies, that is, there

is strong clinical evidence that the

process being measured is meaningfully

associated with outcomes. To the extent

possible, this determination should be

based on published guidelines that

support the association and that cite

evidence from randomized clinical

trials, case control studies, or cohort

studies. An M+C organization may

furnish its own similar evidence of

association between a process and an

outcome, as long as this association is

not contradicted by a published

guideline. Although published evidence

is generally required, there may be

certain areas of practice for which

empirical evidence of process/outcome

linkage is limited. At a minimum, an

organization should be able to

demonstrate that there is a consensus

among relevant practitioners as to the

importance of a given process.

While we consider enrollee

satisfaction an important aspect of care,

improvement in satisfaction may not be

the sole demonstrable outcome of a

project in any clinical focus areas. Some

improvement in health or functional

status must also be measured. (Note that

this measurement can rely on enrollee

surveys that address topics in addition

to satisfaction. For example, selfreported health status may be an

acceptable indicator.) For projects in the

nonclinical areas, use of health or

functional status indicators is generally

preferred, particularly for projects

addressing access and availability.

However, there may be some

nonclinical projects for which enrollee

satisfaction indicators alone are

sufficient.

Section 422.152(d)(8) requires that

performance assessment be based on

systematic, ongoing collection and

analysis of valid and reliable data. Data

will most commonly be derived from

administrative data generated by an

organization’s health information

system or from review of medical

records. (In assessing nonclinical

services, other sources such as enrollee

or provider surveys may be

appropriate.) When data are derived

from the health information system,

their reliability is obviously a function

of the general reliability of the system.

When data are derived from direct

review of medical records or other

primary source documents, steps must

be taken to assure that the data are

uniformly extracted and recorded.

Appropriately qualified personnel must

be used; this will vary with the nature

of the data being collected and the

degree of professional judgment

required. We expect there to be clear

guidelines or protocols for obtaining

and entering the data; this is especially

important if multiple reviewers are used

or if data are collected by multiple

subcontractors. Inter-reviewer reliability

should be assured through, for example,

repeat reviews of a sample of records.

Section 422.152(d)(9) requires that

interventions achieve improvement that

is significant and sustained over time. In

general, we will judge improvement to

be significant when a benchmark level

of performance is achieved in the

percentage of enrollees who exhibit a

negative outcome defined by the

indicator.

Again, specific acceptable

performance measures will be defined

for each M+C organization and M+C
34996 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

plan. Currently, we are considering

requiring a 10 percent reduction in

negative outcomes as evidence of

significant improvement. An

organization would meet this

requirement if, for example, its flu

immunization rate under a plan is 80

percent in the baseline and increases to

82 percent, because the percentage of

enrollees not immunized has dropped

from 20 percent to 18 percent, a 10

percent reduction. A plan whose

baseline rate was 60 percent would have

to reach 64 percent (a reduction in

nonimmunized enrollees from 40

percent to 36 percent).

We are considering requiring a 10

percent reduction in adverse outcomes

as evidence of significant improvement

for several reasons. First, the use of a

constant percentage reflects the

likelihood that change is harder to

achieve when an organization’s baseline

performance is already superior. Thus,

under a plan with an 80 percent

immunization rate, we would expect a

2 percentage point improvement, while

under a plan with a 60 percent rate, a

4 percentage point improvement would

be expected. Second, the 10 percent

level is consistent with results HCFA

has observed in successful improvement

projects sponsored by the agency.

Finally, we believe that smaller

improvements would generally be of

little clinical significance. We invite

comment on the issue of whether

§ 422.152(d)(9) should be revised to

provide for a 10 percent reduction in

adverse outcomes.

Note that improvement in an

indicator is not necessarily the same as

improvement in the health or functional

status of enrollees. For example, the

‘‘health of seniors’’ indicator under

HEDIS 3.0 will track, over time, changes

in the functional status of elderly

enrollees. Each enrollee’s functional

status may remain stable or actually

decline. However, an organization

would demonstrate improvement on the

indicator if it slowed the rate of decline,

whether or not it actually improved

enrollees’ functional status. HCFA is

considering judging improvement to be

sustained under a plan if it can be

demonstrated through continued

measurement that performance gains

have endured for at least one year.

We recognize that many organizations

still have limited experience in

conducting well-designed performance

improvement projects, and that any

given project may take some time to

produce measurable improvement.

Therefore, we intend to permit a gradual

phase-in of the number of focus areas

for which improvement must be

demonstrated consistent with the

individual circumstances of an M+C

organization.

Section 422.152(d)(10) concludes the

performance improvement requirements

by providing explicitly that an

organization must report the status and

results of each project to HCFA upon

request. This requirement is necessary

to implement the reporting

requirements embodied in sections

1852(e)(2)(A)(vi) and (xii) and

1851(d)(4)(D) and (d)(7), which call for

HCFA to make available to M+C eligible

individuals information comparing M+C

plan options, including information on

quality and performance.

d. Requirements for M+C Private Feefor-Service and Non-Network MSA

Plans. In enacting the quality assurance

provisions of the BBA, Congress

recognized that not all of the quality

assessment and performance

improvement activities that are

appropriate for a plan with a defined

provider network would be appropriate

for an M+C non-network MSA plan or

an M+C private fee-for-service plan.

(Section 1852(e)(2)(C) defines a nonnetwork MSA plan as an MSA plan that

does not provide any of the covered

benefits through a defined set of

providers under contract to the

organization or under arrangements

made by the organization, and we have

incorporated this provision into

§ 422.4(a)(2)(ii).) As a result, section

1852(e)(2)(B) establishes different

required elements of a quality

assessment and performance

improvement program depending on the

type of plan involved. Specifically, the

Act exempts M+C non-network MSA

and PFFS plans from the requirements

of paragraphs (e)(2)(A)(vii) through (xii)

of section 1852, which include the

utilization review requirements

discussed above as well as the explicit

requirement to take action to improve

quality and assess the effectiveness of

such action through systematic followup. However, the statute continues to

require that organizations offering these

types of plans stress outcomes, provide

for the data collection, analysis, and

reporting necessary to measure

outcomes, and monitor and ensure the

quality of care they provide.

Consistent with the statute, the

specific requirements to achieve

minimum performance levels and

undertake performance improvement

projects will not apply to M+C nonnetwork MSA and PFFS plans. Both

requirements are derived primarily from

the statutory requirements from which

these types of plans have been

exempted (that is, sections

1852(e)(2)(A)(x) and (xi). Instead, we

have established separate requirements

that apply for these types of plans under

§ 422.152(e). These requirements

parallel the requirements for other types

of plans to the extent permitted under

the statute. For example, § 422.152(e)(1)

requires that under these plans, an

organization must measure its

performance, using standard measures

established or adopted by HCFA. These

measures will focus on the prevention

and care of acute and chronic

conditions, high-volume and high-risk

services, and enrollee satisfaction. We

invite comment on whether additional

areas for standard measures should be

added to § 422.152(e)(1). Section

422.152(e)(2) requires evaluation of the

continuity and coordination of care that

enrollees receive. Together, the

requirements under § 422.152(e)(1) and

(2) reflect the requirements of

paragraphs (e)(2)(A)(i), (ii), (iii), and (v)

of section 1852.

Sections 1852(e)(2)(B)(ii) and (iii)

specify that if an M+C non-network

MSA or PFFS plan has written protocols

for utilization review, those protocols

must be based on current standards of

medical practice, and have mechanisms

to evaluate utilization services and

inform providers and enrollees of the

results of such evaluation. These

requirements are incorporated into

§ 422.152(e)(3).

e. Requirements for All Plans: Health

Information. In order to support the

measurement of performance levels and

the conduct of its performance

improvement projects, if applicable, all

plans must maintain a health

information system that collects,

analyzes, integrates, and reports data.

This requirement is covered at

§ 422.152(f). Although an encounter

data system may often be the most

efficient means of meeting the

requirements of this standard, the plan

may use any methods or procedures for

the collection of quality data, so long as

it can demonstrate that its system

achieves the objectives of the

requirement.

The strategy of relying on

performance measurement and

performance standards to assess and

improve quality is heavily dependent on

the validity of the data collected and

reported by plans. Therefore,

§ 422.152(f)(1)(ii) requires that an

organization ensure that the information

received from its providers is reliable

and complete. If the organization

receives individual encounter data

directly from providers, it must have a

system for comparing reported data to a

sample of medical records, to verify the

accuracy and timeliness of reporting or

transmission. The objective is to assure

that, to the extent feasible, there is a
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 34997

one-to-one correspondence between

items included in an organization’s

summary data and specific services

entered in medical records or equivalent

source documents. (That is, no reported

service was not performed, and no

service performed was not reported.) If

the organization receives aggregate

information, instead of individual

patient encounter reporting, from any

provider, under a plan the organization

must approve the provider’s own system

for collecting, recording, aggregating,

and reporting the data, and must assure

that the provider has its own

mechanisms for validation. Identified

deficiencies in reported data should be

addressed through provider education

or other corrective action. The

organization’s process for

recredentialing or recontracting with

practitioners and providers should

specify the actions to be taken in the

event of ongoing failure by a contractor

to meet the organization’s health

information standards.

In addition to requiring that the

information collected be accurate and

complete, § 422.152(f)(1)(iii) requires

that the organization make all

information collected available to

HCFA. This requirement reflects section

1852(e)(2)(A)(vi), which recognizes that

HCFA cannot adequately monitor and

ensure the quality of health care

services without access to appropriate

information. For example, access to this

information will allow HCFA to validate

the accuracy and completeness of the

information and to evaluate

performance improvement projects.

Note that although HCFA may disclose

whether an organization has met its

requirements for performance

improvement, we will not make public

the results of an organization’s

performance improvement projects, as

these results may involve enrolleespecific information.

f. Program Review. Section

422.152(f)(2) requires that for each plan

an organization have a process for

formal evaluation, at a minimum

annually, of the impact and

effectiveness of the quality assessment

and performance improvement program

strategy. The evaluation should assess

both the progress in implementing the

strategy and the extent to which the

strategy is in fact promoting the

development of an effective quality

assessment and performance

improvement program. It should

consider whether quality-related

activities in the organization’s workplan

are being completed on a timely basis or

whether commitment of additional

resources is necessary. The evaluation

should include recommendations for

needed changes in program strategy or

administration. These recommendations

should be forwarded to and considered

by the policymaking body of the

organization. These requirements reflect

the evaluation provisions of section

1852(e)(2)(A)(iv).

4. External Review (§ 422.154)

Section 1852(e)(3) requires, subject to

the exceptions discussed below, that

each M+C organization, for each M+C

plan it operates, have an agreement with

an independent quality review and

improvement organization (review

organization) approved by HCFA to

perform functions of the type described

in part 466 of chapter 42, which

establishes review responsibilities for

utilization and quality control Peer

Review Organizations (PROs). This

requirement appears in § 422.154(a).

PROs are physician-sponsored or

physician-access organizations that

review services ordered or furnished by

other practitioners in the same

professional field for the purpose of

determining whether such services are

or were reasonable or medically

necessary, and whether the quality of

such services meets professionally

recognized standards of health care.

Because PROs generally are already

accomplished at the activities the

statute requires of review organizations,

HCFA will approve as review

organizations the PROs and PRO-like

entities who are currently under

contract with HCFA to perform the

functions of part 466. The current PRO

contract will expire on March 31, 1999.

The entities awarded the next contract,

known as the Sixth Scope of Work, will

be approved to serve as review

organizations as of April 1, 1999.

An important element of both the

current and next contract is a strategy to

continuously improve quality of care

and strengthen the ability of health care

organizations and practitioners to assess

and improve their own performance.

Under this strategy, known as the

Health Care Quality Improvement

Program, part 466 contractors use

statistical information to examine

medical processes and outcomes of

health care and provide feedback to

providers so that this information can be

used to benchmark progress toward

improved practice and outcomes.

HCFA will establish guidelines for the

agreements between M+C organizations

and review organizations modeled on

the guidelines found in part 466. The

guidelines will specify that an M+C

organization must allocate adequate

space for the review organization to

carry out its review (during the period

of the review); and that the organization

must provide enrollee care data and

other pertinent data to the review

organization on a timely basis as needed

to facilitate making its determinations.

These requirements appear in

§ 422.154(b)(1).

With respect to M+C non-network

MSA and PFFS plans, for which

utilization review is not a requirement,

section 1852(e)(3)(A) of the statute

exempts organizations from the

requirement that there be an agreement

with a review organization. Section

1852(e)(3)(B) also provides an

exemption for review organization

activities with respect to accredited

plans that HCFA determines would be

duplicative of activities conducted as

part of the accreditation process. In the

case of review of quality complaints,

this exemption does not apply,

however, and the requirement for

investigation by the review organization

would apply even with respect to an

accredited plan. This exemption

appears in § 422.154(b)(2). While the

statute only mandates that the Secretary

exempt accredited plans from the

duplicative review by review

organizations, we believe that the same

logic extends to review activities that

would be duplicative of HCFA

monitoring review. Thus, pursuant to

our general authority under section

1856(b)(1) to establish standards under

Part C, we are providing in

§ 422.154(b)(2) that M+C organizations

are also exempt from review by a review

organization that would be duplicative

of HCFA monitoring review.

Under section 1852(e)(3)(C), HCFA

may waive the requirement that an M+C

organization have an agreement with a

review organization if HCFA determines

that an organization has consistently

maintained an excellent record of

quality assessment and performance

improvement and compliance with the

other requirements of this part. As

discussed in detail above, § 422.152

establishes requirements for a plan’s

quality assessment and performance

improvement (QAPI) program. After the

rule is effective, and HCFA has had the

opportunity to assess QAPI

implementation, we will be in a

position to establish waiver criteria,

which we intend to promulgate through

notice and comment rulemaking.

5. Deemed Compliance Based on

Accreditation (§§ 422.156 Through

422.158)

a. Compliance Deemed on the Basis of

Accreditation (§ 422.156). Section

1852(e)(4) gives HCFA the authority to

deem that an M+C organization meets

certain requirements if the M+C

organization is accredited and
34998 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

periodically reaccredited by a private

organization under a process that HCFA

has determined ensures that the M+C

organization, as a condition of

accreditation, meets standards that are

no less stringent than the applicable

HCFA requirements. We do not believe

that HCFA could effectively determine

whether a potentially unlimited number

of small, regional accreditation

organizations meet the standard in

section 1852(e)(4). Section 422.156

accordingly limits the deeming

provided for under section 1852(e)(4) to

national accreditation organizations.

National accreditation organizations are

those that offer accreditation services

that are available in every State to every

organization wishing to obtain

accreditation status.

The process that HCFA will use to

deem compliance with M+C

requirements will mirror the process

used for deeming compliance with feefor-service requirements, because that

process is equally applicable to the

managed care setting. Therefore, many

of the requirements of this section, as

well as those in §§ 422.157 and 422.158,

are essentially restatements of their feefor-service equivalents in subpart A of

part 488 of existing Medicare

regulations.

Section 422.156(a) specifies the

conditions under which an M+C

organization may be deemed to meet the

HCFA requirements permitted to be

deemed under section 1852(e)(4). (These

requirements are identified in the

regulations at § 422.156(b).) The first

condition is that the M+C organization

be fully accredited (and periodically

reaccredited) by a private, national

accreditation organization approved by

HCFA. Only full accreditation offers

HCFA adequate assurance that the M+C

organization meets the applicable HCFA

requirements. M+C organizations that

are conditionally or provisionally

accredited (or the equivalent thereof) by

their accreditation organization do not

meet all of their accreditation

organization’s requirements, and for this

reason, will not be deemed to meet the

HCFA requirements. The second

condition is that the M+C organization

be accredited using the standards

approved by HCFA for the purposes of

assessing the M+C organization’s

compliance with Medicare

requirements. Given that certain

accreditation organizations have

multiple accreditation processes (for

example, other product lines aside from

their Medicare product line), this

requirement is necessary to ensure that

only M+C organizations with the

appropriate accreditation are deemed to

meet HCFA requirements.

Section 422.156(b) specifies the

requirements that may be deemed. In

accordance with the statute, these

include the quality assessment and

performance improvement requirements

of § 422.152, and the requirements of

§ 422.118 related to confidentiality and

accuracy of enrollee records. An M+C

organization accredited by an approved

accreditation organization may be

deemed to meet any or all of these

requirements, depending on the specific

requirements for which its accreditation

organization’s request for approval was

granted.

Given the complexity and breadth of

the benefits and services offered under

the M+C program, we believe that we

should analyze the standards applied by

accreditation organizations on a

standard-by-standard basis. In the past,

in the context of original fee-for-service

Medicare, we have taken an ‘‘all or

nothing’’ approach in approving

accreditation organizations. If an

organization was approved, it was

approved for purposes of all

requirements, and all requirements were

accordingly deemed. Since section

1852(e)(4) refers to deeming of ‘‘the

requirements involved,’’ however, we

intend under this authority to determine

on a standard-by-standard basis whether

an accreditation organization applies

and enforces requirements no less

stringent than those in part 422 with

respect to the standard at issue. We will

determine the scope of the accreditation

organization’s approval (and thus the

extent to which M+C organizations

accredited by the organization are

deemed to meet HCFA requirements)

based on a comparison of the

accreditation organization’s standards,

and its procedures for assessing

compliance, with the deemable HCFA

requirements and our own decisionmaking standards.

As mentioned above, the

requirements that may be deemed are

the quality assessment and performance

improvement requirements of § 422.152,

and the confidentiality and accuracy of

enrollee records requirements of

§ 422.118. We will approve an

accreditation organization only for those

requirements for which it applies and

enforces standards that are as least as

stringent as the HCFA requirements. For

instance, § 422.152(e) requires that an

M+C organization conduct performance

improvement projects that achieve

significant and sustained improvement.

An accreditation organization will not

be approved for this requirement unless

we determine that, as a condition of

accreditation, the accreditation

organization’s requirements concerning

the conduct of performance

improvement projects are as rigorous as

the HCFA requirements, with a similar

emphasis on outcomes. We will make

such determinations on the basis of the

application materials submitted by

accreditation organizations seeking

HCFA approval in accordance with

§ 422.158. We would also do surveys to

validate the accreditation organization’s

enforcement on a standard-by-standard

basis.

Section 422.156(c) establishes when

deemed status is effective. Deemed

status is effective on the later of the

following dates: the date on which the

accreditation organization is approved

by HCFA, or the date that the M+C

organization is accredited by the

accreditation organization.

Section 422.156(d) establishes the

obligations of deemed M+C

organizations. An M+C organization

deemed to meet Medicare requirements

must submit to surveys to validate its

accreditation organization’s

accreditation process, and authorize its

accreditation organization to release to

HCFA a copy of its most current

accreditation survey, together with any

information related to the survey that

HCFA may require (including corrective

action plans and summaries of unmet

HCFA requirements.) These two

activities are part of HCFA’s ongoing

oversight strategy for ensuring that the

accreditation organization applies and

enforces its accreditation standards in a

manner comparable to HCFA’s.

Section 422.156(e) addresses removal

of deemed status. HCFA will remove

part or all of an M+C organization’s

deemed status if: (1) HCFA determines,

on the basis of its own survey or the

results of the accreditation survey, that

the M+C organization does not meet the

Medicare requirements for which

deemed status was granted; (2) HCFA

withdraws its approval of the

accreditation organization that

accredited the M+C organization; or (3)

the M+C fails to meet the requirements

of paragraph (d) of this section.

The final paragraph, § 422.156(f),

explains that HCFA retains the authority

to initiate enforcement action against

any M+C organization that it

determines, on the basis of its own

survey or the results of the accreditation

survey, no longer meets the Medicare

requirements for which deemed status

was granted. We expect the

accreditation organization to have a

system in place for enforcing

compliance with its standards, perhaps

sanctions for motivating correction of

deficiencies, but HCFA cannot delegate

to the accreditation organization the

authority to impose the intermediate
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sanctions established by section 1857(g)

or termination of the M+C contract.

b. Accreditation organizations

(§ 422.157). This section of the

regulation discusses three conditions for

HCFA approval of an accreditation

organization. HCFA may approve an

accreditation organization if the

organization applies and enforces

standards for M+C organizations that are

at least as stringent as Medicare

requirements (as discussed above); the

organization complies with the

application and reapplication

procedures set forth in § 422.158,

‘‘Procedures for approval of

accreditation as a basis for deeming

compliance;’’ and, the organization is

not controlled by the managed care

organizations it accredits, as defined at

42 CFR 413.17. Control exists if the

accredited organizations have the

power, directly or indirectly, to

significantly influence or direct the

activities or policies of the accreditation

organization. We have included this

requirement to preclude any conflict of

interest that should compromise the

integrity of the accreditation process.

Section 422.157(b) describes notice

and comment procedures. Because the

approval of an accreditation

organization could have broad impact

upon large numbers of organizations,

providers, and consumers, we are

providing notice and comment

opportunities similar to those provided

in the fee-for-service arena. HCFA will

publish a proposed notice in the Federal

Register whenever it contemplates

approving an accreditation

organization’s application for approval.

The proposed notice will specify the

basis for granting approval; describe

how the accreditation organization’s

accreditation program meets or exceeds

all of the Medicare requirements for

which HCFA would deem compliance

on the basis of accreditation; and

provide opportunity for public

comment. HCFA will publish a final

notice in the Federal Register whenever

it grants an accreditation organization’s

request for approval. Publication of the

final notice will occur after HCFA has

reviewed the public comments received

in response to the proposed notice. The

final notice will specify the effective

date of the approval, and the term of

approval, which will not exceed 6 years.

Section 422.157(c) establishes

ongoing accreditation organization

responsibilities. These responsibilities

largely parallel those currently imposed

upon accreditors under original

Medicare. One exception is the

requirement at § 422.157(c)(4) that an

accreditation organization notify HCFA

in writing within 3 days of identifying,

with respect to an accredited M+C

organization, a deficiency that poses

immediate jeopardy to the M+C

organization’s enrollees or to the general

public. Although the existing

counterpart for this requirement under

original Medicare (§ 488.4(b)(3)(vii))

allows an accreditation organization 10

days to provide this notice, we believe

that a 3-day time period will better

enable HCFA to take any necessary

action to protect the health and safety of

enrollees or the general public in a

situation that poses immediate jeopardy.

(Note that we also intend to address this

issue in our planned comprehensive

revision of the deeming requirements

under original fee-for-service Medicare.)

Section 422.157(d) establishes

specific criteria and procedures for

continuing oversight and for

withdrawing approval of an

accreditation organization. Oversight

consists of equivalency review,

validation review, and onsite

observation.

Equivalency review. HCFA compares

the accreditation organization’s

standards and its application and

enforcement of those standards to the

comparable HCFA requirements and

processes when HCFA imposes new

requirements or changes its survey

process; an accreditation organization

proposes to adopt new standards or

changes in its survey process; or the

term of an accreditation organization’s

approval expires.

Validation review. HCFA or its agent

may conduct a survey of an accredited

organization, examine the results of the

accreditation organization’s own survey,

or attend the accreditation

organization’s survey, in order to

validate the organization’s accreditation

process. At the conclusion of the

review, HCFA identifies any

accreditation programs for which

validation survey results indicate (1) a

20 percent rate of disparity between

certification by the accreditation

organization and certification by HCFA

or its agent on standards that do not

constitute immediate jeopardy to patient

health and safety if unmet; or (2)

indicate any disparity at all on

standards that constitute immediate

jeopardy to patient health and safety if

unmet. Our beneficiary-centered

approach to managed care oversight

dictates zero tolerance of accreditation

organization failures to identify

noncompliance that expose

beneficiaries to such serious risks. At

the conclusion of a validation review,

HCFA also identifies any accreditation

programs for which validation survey

results indicate, irrespective of the rate

of disparity, that there are widespread

or systematic problems in an

organization’s accreditation process

such that accreditation no longer

provides assurance that the Medicare

requirements are met or exceeded.

Accreditation programs identified as

noncompliant through validation review

may be subject to withdrawal of HCFA

approval.

Onsite observation. HCFA may

conduct an onsite inspection of the

accreditation organization’s operations

and offices to verify the organization’s

representations and assess the

organization’s compliance with its own

policies and procedures. The onsite

inspection may include, but is not

limited to, reviewing documents,

auditing meetings concerning the

accreditation process, evaluating survey

results or the accreditation status

decision making process, and

interviewing the organization’s staff.

Notice of intent to withdraw approval.

If a comparability review, validation

review, onsite observation, or HCFA’s

daily experience with the accreditation

organization suggests that an

accreditation organization is not

meeting the requirements of this

subpart, HCFA gives the organization

written notice of its intent to withdraw

approval.

HCFA may withdraw its approval of

an accreditation organization at any

time if we determine that deeming

based on accreditation no longer

guarantees that the M+C organization

meets the Medicare requirements, and

failure to meet those requirements could

jeopardize the health or safety of

Medicare enrollees or constitute a

significant hazard to the public health;

or the accreditation organization has

failed to meet its obligations under

§§ 422.156, 422.157, 422.158.

The final provision of § 422.157(d)

addresses reconsideration. An

accreditation organization dissatisfied

with a determination to withdraw HCFA

approval may request a reconsideration

of that determination in accordance

with subpart D of part 488 of this

chapter.

c. Application and reapplication

procedures for accreditation

organizations (§ 422.158). As

mentioned, the process that HCFA will

use to deem compliance with M+C

requirements is virtually identical to the

process that is being used for deeming

compliance with fee-for-service

requirements. This section of the

regulation is modeled on § 488.4,

‘‘Application and reapplication

procedures for accreditation

organizations.’’ One requirement that

appears in § 422.158 does not appear in

§ 488.4 is the requirement that an
35000 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

accreditation organization applying for

approval of deeming authority submit

the name and address of each person

with an ownership or control interest in

the accreditation organization. Such

information will be used to determine

whether the accreditation organization

is controlled by the organizations it

accredits, for the purposes of § 422.157.

The remaining requirements of this

section, which pertain to other required

information and materials, the

mechanics of the approval process, and

the reconsideration of an adverse

determination, are essentially

restatements of the requirements of

§ 488.4.

E. Relationships With Providers

Subpart E focuses on requirements for

relationships between M+C

organizations and health care

professionals with whom they contract

or enter agreements to provide services

to Medicare beneficiaries enrolled in an

M+C plan. These requirements

encourage communication,

coordination, and cooperation between

organizations and health care

professionals on plan rules and policies.

This subpart also includes other new

provider protections enacted as part of

the BBA; incorporates provisions

affecting health professionals that are

consistent with the recommendations

contained in the Consumer Bill of

Rights and Responsibilities, as

recommended by the President’s

Advisory Commission on Consumer

Protection and Quality in the Health

Care Industry, the model act adopted by

the National Association of Insurance

Commissioners, credentialing standards

of nationally accepted accrediting

bodies, and QISMC standards; and

incorporates policies already applicable

to provider and plan relationships

included in the current part 417 or other

policy issuances. In February 1998, an

executive order was issued directing the

Secretary to comply to the extent

possible through administrative

activities with the standards contained

within the Consumer Bill of Rights

presented to the President in November

1997. Many of the issues were

addressed in the BBA and

implementation of the regulations will

expand compliance with the directive.

1. Participation Procedures

(§ 422.202)(a))

Section 1852(j)(1) requires an M+C

organization that offers benefits under

an M+C plan through agreements with

physicians to establish reasonable

procedures relating to their

participation under the plan. This is a

new federal requirement for Medicare

contracting managed care organizations.

Current rules in part 417 do not

mandate that HMOs/CMPs adopt

provider participation rules. However,

some Medicare contractors have

adopted provider participation policies

in response to state laws or plan

policies.

We are interpreting this provision to

apply to all M+C organizations that

operate M+C plans providing benefits

through a limited network of contracting

health care professionals or groups of

health care professionals, that is, all

types of M+C coordinated care plans,

such as HMOs, PPOs, etc., as well as

network M+C MSA plans. In the case of

M+C private fee-for-service plans and

non-network M+C MSA plans, there are

no limits on the number of health

professionals who may provide services

covered under the M+C plan, as long as

they accept the plan’s terms and

conditions for payment. These plans in

essence operate on an ‘‘any willing

provider’’ approach to which the

procedures in section 1852(j)(1) would

not be relevant. Since any provider has

the right to participate, rules requiring

a notice of adverse participation

decisions, and appeals from such

decisions could have no applicability. It

also would not be feasible to provide the

notices required under section 1852(j)(1)

and § 422.202(a) (discussed below) to

the virtually unlimited number of

providers who would be entitled to

provide services to a M+C private feefor-service or non-network M+C MSA

plan enrollees.

The statutory requirements in section

1852(j)(1) focus on three procedural

aspects—ensuring that providers are

aware of the plan participation rules;

requiring written notice when

participation decisions are adverse; and

affording the provider an opportunity to

appeal adverse plan participation

decisions. The statute specifies that

these procedures apply to plan

relationships with physicians. In

reviewing the model act of the National

Association of Insurance Commissioners

(NAIC), QISMC standards, and many

state laws and regulations, we found

that these procedural protections

generally have been applied to all health

care professionals who are responsible

for delivering services to beneficiaries of

the plan, not just physicians. Since

Medicare-payments can be made to

practitioners other than physicians and

since M+C organizations may furnish

services utilizing a range of licensed

health care professionals, we believe it

is appropriate to apply these

requirements to all health care

professionals if coverage for their

services is provided under the M+C

plan. For purposes of § 422.202 and

§ 422.204, these include, but are not

limited to, a physician, podiatrist,

optometrist, chiropractor, psychologist,

dentist, physician assistant, physical or

occupational therapist, speech-language

pathologist, audiologist, nurse

practitioner, clinical nurse specialist,

certified nurse anesthetist, and certified

nurse-midwife and licensed certified

social worker. Thus, under our authority

under section 1856(b)(1) to establish

standards for M+C organizations,

§ 422.202 requires that all professionals

as listed above should be provided with

rules of participation, written notices of

participation decisions and an appeal

process.

With regard to types of procedures

that are subject to disclosure, written

notification and appeal requirements,

we are adopting a broad definition of

procedures that might affect

participation in the plan or network. In

§ 422.202 we specify that procedural

requirements should include any rules

that affect the process of direct delivery

of services by a health professional to a

Medicare beneficiary. The examples

include terms of payment, utilization

review, quality improvement programs,

credentialing, data reporting,

confidentiality, guidelines or criteria for

furnishing services, and other rules

related to administrative policy. All of

these procedures affect how a health

care professional would participate in a

plan and should therefore be divulged

up front prior to a health care

professional’s agreement to participate

in the plan. In addition, we believe that

full disclosure in advance, to potential

participating health care professionals,

of the broad range of procedures relating

to participation should reduce

subsequent challenges or appeals. While

the disclosure requirement in

§ 422.202(a)(1) does not apply directly

to M+C private fee-for-service plans, as

discussed below, M+C organizations

offering such plans will be required to

make the information described in

§ 422.202(a)(1) available to providers

treating enrollees of the plan.

Section 1852(j) requires the provision

of written notice of the participation

rules. We are requiring in § 422.202 that

any material changes in rules must be

provided in writing in advance of

implementation. Such advance

communication would enable health

care professionals to evaluate their

continued participation prior to

instituting a formal appeal process

regarding any rules they believe are

adverse. This benefits M+C

organizations and providers in allowing

the health care professional to judge

what is adverse as this can vary among
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35001

individual health care professionals;

what is adverse to one physician or

health care professional may not be

adverse to another.

2. Consultation (§ 422.202(b))

Consistent with section 1852(j)(2),

§ 422.202(b) requires an M+C

organization to consult with physicians

or relevant health care professionals

who have entered into participation

agreements/contracts with the

organization regarding the

organization’s medical policy, quality

and medical management procedures.

Pursuant to our authority in section

1856(b)(1) to establish standards under

the M+C program, in addition to

requiring consultation on any aspect of

clinical policy, we have included three

specific standards relating to the

development of practice guidelines—(1)

practice guidelines and utilization

management guidelines must be based

on reasonable medical evidence or

consensus of relevant practitioners,

developed in consultation with

participating practitioners, and

reviewed and updated periodically; (2)

the guidelines must be communicated to

practitioners and, as appropriate,

enrollees; and (3) decision making in

utilization management, enrollee

education, interpretation of covered

benefits, and other areas to which the

guidelines are applicable must be

consistent with the guidelines. These

three standards are taken from QISMC

discussed in section II.D. of this

preamble. These national standards also

are consistent with the NAIC model act

and language adopted for state laws

regarding managed care. We believe

these standards ensure that practitioners

are fully consulted in all aspects of the

use of practice guidelines from

development to application.

3. Treatment of Subcontracted Networks

(§ 422.202 (c))

In today’s business environment,

managed care organizations delegate not

only the provision of services to

subcontracted networks, but also a

variety of policy making and

implementation responsibilities. Each

health care professional is an integral

part of the organization’s health care

delivery system, whether he contracts

directly with the organization or

through an intermediary entity, such as

an Independent Practice Association

(IPA). Therefore, under our authority in

section 1856(b)(1) to establish M+C

standards, in § 422.202(c) we require

provider protections not only for direct

contracting physicians and health care

professionals but also for all

subcontracted arrangements. Extension

of the BBA provisions to subcontracts

means that providers within

subnetworks (e.g. an IPA) receive the

rules of participation, written notices,

and have an opportunity to appeal.

Thus, health care professionals within

the subcontracted groups should be

included in the procedures established

for participation appeals and in the

formulation of medical policy for the

organization. In cases where

subnetworks maintain most of the

medical records for the Medicare

beneficiaries they serve, it is essential

that the formulation of policy includes

all of the resources that contribute to

fair and equitable treatment for

beneficiaries. We also believe that

subnetworks should have the ability to

grieve or appeal decisions for the

providers within their subnetworks.

4. Provider Credentialing and Provider

Rights (§ 422.204)

Section 422.204(a), ‘‘Basic

Requirements,’’ states that the M+C

organization must have a system for

credentialing physicians and other

health care professionals. The M+C

organization must ensure that providers

meet applicable State and Federal

requirements. Basic benefits must be

provided through, or payments must be

made to, providers that meet applicable

requirements of title XVIII and part A of

title XI of the Act. Also, in the case of

providers meeting the definition of

‘‘provider of services’’ in section

1861(u), basic benefits may only be

provided through such providers if they

have a provider agreement with HCFA

permitting them to provide services

under original Medicare. An M+C

organization may not employ or contract

with providers excluded from

participation in Medicare. M+C

organizations, at a minimum, should

check the OIG website at http://

www.dhhs.gov/progorg/oig for the

listing of excluded providers and

entities. These requirements are

promulgated pursuant to our authority

under section 1856(b)(1) to establish

M+C standards by regulation, and are

based on (1) the requirement in section

1852(a)(1) of the Act that Medicare

covered services be furnished through

Medicare qualified providers, (2)

existing requirements in § 417.416, and

(3) detailed standards developed under

QISMC, discussed in section D. above.

Section 422.204(b), ‘‘Discrimination

Prohibited,’’ prohibits M+C

organizations from discriminating with

respect to provider participation,

provider reimbursement, or provider

indemnification to any provider acting

within the scope of his license or

certification under applicable State law,

solely on the basis of such license or

certification. These requirements are

based on section 1852(b)(2). This does

not prohibit plans from including

providers only to the extent necessary to

meet the needs of the plan’s enrollees,

ensure quality and control costs, and

does not prohibit an organization from

reimbursing different specialty

providers differing fees for their

services. It is however, the

responsibility of the organization to

adopt policies related to participation,

reimbursement, and indemnification

based on reasonable criteria.

Organizations may want to consider

such measures as health outcomes,

satisfaction surveys, market saturation

of the provider type or other legitimate

reasons.

Under § 422.204(c), ‘‘Denial,

suspension, or termination of a

contract,’’ organizations offering

coordinated care or network MSA plans

are required to provide information on

their plan participation criteria and an

appeals process for participation

decisions, including decisions involving

denial, suspension or termination of

contracts. We have incorporated the

timeframes for contract termination

notification between the M+C

organization and its providers contained

within the NAIC model act. As

discussed in section C. above, we have

incorporated similar timeframes for

notice to enrollees about changes in the

provider network, including changes

that result from a termination covered

under § 422.204(c).

The notice and appeals requirements

in this part are based on the requirement

in section 1852(j)(1)(C), requiring a

process for appealing adverse

participation decisions, and, as noted

above, on the NAIC model act, and our

authority under section 1856(b)(1) to

establish standards under Part C.

5. Interference With Health Care

Professionals’ Advice to Enrollees

Prohibited (§ 422.206)

Section 422.206 (a) incorporates the

requirements set forth in section

1852(j)(3)(A). This section prohibits an

M+C organization from interfering with

the advice of a health care professional

to an enrollee who is his or her patient.

Thus the health professional may act

within his or her scope of practice in

advising the enrollee about their health

status, all relevant medical or treatment

options available regardless of whether

care or treatment is provided under the

plan. For purposes of § 422.206, the

term health care professional includes

those listed in section 1852(j)(3)(D) of

the Act. Pursuant to our authority in

section 1852(b)(1) to establish standards
35002 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

under the M+C program, § 422.206(a)

includes standards from the Consumer

Bill of Rights that further delineate the

types and mode of communication

between patients and health care

providers regarding health care

treatment options within which

interference is prohibited. While the

scope of this section governs

communication regarding care or

treatment advice, we recognize that

patients seek advice from physicians

regarding insurance coverage choices as

well as treatment option choices.

Physicians can disclose their

participation in M+C organizations,

however, we are concerned about any

inappropriate steerage based on

knowledge of a beneficiary’s health

status or the physician’s financial

interest. Program instructions will be

issued as HCFA continues to clarify

policy in the area of provider marketing

and the role of physicians and other

health care professionals in

disseminating M+C information to

beneficiaries.

6. Conscience Protection (§ 422.206)

Section 422.206(b) incorporates the

requirements of section 1852(j)(3)(B).

The regulations state that the

prohibition against interference with the

content of advice a health care provider

gives to enrollees regarding medical

treatment should not be construed as

requiring counseling by a professional

or a referral to a service by that

professional, if there is an objection

based on moral or religious grounds,

and the M+C organization fulfills

certain notification requirements to

prospective and current enrollees. The

regulation incorporates the notification

process and time frames included in the

law and clarifies that the plan must also

notify HCFA at the time of application

and within 10 days of submitting its

ACR proposal. With respect to current

enrollees, the organization is eligible for

the exception to the rule in

§ 422.206(a)(1) if it provides notice

within 90 days after adopting the policy

at issue; however, under § 422.111(d),

notice of such a change must be

provided in advance.

7. Physician Incentive Plans (§§ 422.208

and 422.210)

Consistent with section 1852(j)(4),

regulations at §§ 422.208 and 422.210

outline the limitations on the operation

of physician incentive plans. The

provisions in this section are the same

as those previously included in

§ 417.479 with some reduction in the

amount of data that must be disclosed

by the organization. HCFA has

determined that the capitated data is no

longer required because other sources of

data, such as encounter data required by

the Act and the National Data Reporting

Requirements (NDRR) are available. The

provisions are consistent with the

provisions under section 1852(j)(4)

which prohibit specific payments as a

disincentive to provide services to an

individual enrollee and which place

limits on the transfer of substantial

financial risk for referral services to

physicians or physician groups

contracting with the M+C organization.

The provisions in these sections apply

to all coordinated care and network

MSA plans. M+C private fee-for-service

plans are prohibited from having a

physician incentive plan because they

may not place their providers at

financial risk. The physician incentive

plans regulations require that M+C

organizations conduct customer

satisfaction surveys of both enrollees

and disenrollees if any physician or

physician group in an M+C

organization’s network is placed at

substantial risk for referral services as

defined in § 422.208. (Please note that

there are at least two other uses of the

term ‘‘substantial financial risk’’

contained in legislation or regulation.

Specifically, section 216 of the Health

Insurance Portability and

Accountability Act of 1996 addressing

safe harbors from the anti-kickback

statute and the determination of

substantial financial risk related to PSOs

(63 FR 18124, April 14, 1998)) M+C

organizations may satisfy their

requirement for enrollee surveys either

by their mandated inclusion in HCFA’s

national administration of the Consumer

Assessments of Health Plans Study

(CAHPS) or, if the organization is

excluded from CAHPS due to not

having contracted with us for at least

one year, by conducting their own

surveys.

8. Limitation on Provider

Indemnification (§ 422.212)

Section 422.212 prohibits an M+C

organization from having a provider, or

group of providers, indemnify the

organization against any liability arising

from the organization’s denial of

medically necessary care. This

prohibition is a very narrow exception

for a civil action brought by, or on

behalf of, an enrollee where the damage

is due to a determination by the M+C

organization to deny medically

necessary care. The regulation includes

the statutory language from section

1852(j)(5) without elaboration.

9. Special Rules for Services Provided

by Noncontract Providers (§ 422.214)

Consistent with section 1852(k) and

section 4002(e), the regulations in

§ 422.214 require any health care

provider that does not have a contract

establishing payment amounts for

services furnished to a beneficiary

enrolled in an M+C coordinated care

plan to accept as payment in full, the

amounts that could have been collected

if the beneficiary were enrolled in

original Medicare. An M+C organization

(other than an M+C MSA plan) satisfies

its liability for Medicare covered

services if the provider receives the total

amount that would have been received

if the beneficiary were enrolled in

original Medicare. This amount equals

the total of Medicare’s payment

(including any applicable deductible

and coinsurance amounts) and any

balance billing amount that would have

been allowed by original Medicare. In

the case of a participating physician or

supplier, this amount would equal the

Medicare fee schedule amount for the

service. For a nonparticipating

physician, this amount would equal 115

percent of the fee schedule amount for

nonparticipating physicians (which is

95 percent of the fee schedule amount

applicable to participating physicians).

Of these amounts, the provider could

collect from the M+C plan enrollee the

cost sharing amount required under the

M+C plan, as approved by HCFA under

subpart G of part 422 and the remainder

from the M+C organization.

Section 1866(a)(1)(O) places a

limitation on what a provider of services

(as defined in section 1861(u)) must

accept as payment in full for services

furnished to an M+C plan enrollee. The

limit is applicable to those institutional

type providers of service that do not

have in effect a contract with the M+C

organization establishing payment

amounts for services furnished to an

enrollee. The limitation equals the

amount that would have been payable

for a beneficiary enrolled in original

Medicare less any payments that could

be collected directly from Medicare

representing graduate medical

education (both direct and indirect).

10. Special Rules for M+C Private Feefor-Service Plans

Special rules for M+C private fee-forservice plans are discussed in section IV

of this preamble.

11. Exclusion of Services Furnished

Under a Private Contract (§ 422.220)

Section 422.220 prohibits an M+C

organization offering an M+C plan from

paying for services furnished to an
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enrollee by a physician or other health

care professional who has signed a

private contract as described in section

1802(b). Section 4507 of the BBA

specifies that nothing in title XVIII of

the Act shall prohibit a physician or

practitioner from privately contracting

with a beneficiary to furnish services for

which no claim shall be submitted to

Medicare and no Medicare payment

shall be made directly or indirectly or

by any organization paid by Medicare

where the physician or practitioner has

opted out of Medicare for 2 years.

Therefore, no payment may be made by

an M+C organization for services

furnished to Medicare enrollees by a

physician or practitioner who opts out

of Medicare where he or she has signed

a private contract with an enrollee.

There is one exception: the physician or

practitioner who has opted out of

Medicare may not ask a beneficiary who

requires emergency or urgent care to

sign a private contract. Therefore, where

a physician or practitioner who has

opted out of Medicare provides

emergency or urgent care to an enrollee

of an M+C organization, the

organization must pay for the

emergency or urgent care the enrollee

required. For purposes of this provision,

we consider ‘‘urgent care’’ to mean

urgently needed services as defined in

§ 422.2.

12. M+C Plans and the Physician

Referral Prohibition

One other item that relates to M+C

organizations but is not contained

within the part 422 regulations is the

physician referral prohibition.

a. The prepaid health plan exception:

Under section 1877, if a physician or a

member of a physician’s immediate

family has a financial relationship with

a health care entity (through an

ownership interest or a compensation

relationship), the physician may not

refer Medicare patients to that entity for

any of 11 designated health services,

unless an exception applies. Under an

exception in section 1877(b)(3), the

prohibition on referrals does not apply

to services furnished by certain prepaid

health plans. To qualify for the

exception, the services must be

furnished by one of the following

organizations to its enrollees:

• Organizations with a contract under

section 1876, which authorizes us to

enter into contracts with HMOs and

competitive medical plans (CMPs) to

furnish covered items and services on a

risk-sharing or reasonable cost basis.

• Organizations with health care

prepayment plans, as described in

section 1833(a)(1)(A), which authorizes

payment for Medicare Part B services to

prepaid health plans on a reasonable

cost basis.

• Organizations receiving payments

on a prepaid basis under a

demonstration project under section

402(a) of the Social Security

Amendments of 1967 or section 222(a)

of the Social Security Amendments of

1972.

• Qualified health maintenance

organizations, within the meaning of

section 1310(d) of the Public Health

Service Act.

As discussed in section I. of this

preamble, beginning in January 1999,

the new M+C program replaces the

HMO and CMP risk contracting program

provided for in section 1876.

In enacting the BBA, Congress failed

to revise section 1877(b)(3) to except the

services furnished under M+C

coordinated care plans. We believe that

this must have been an oversight, since

Congress expressed no intention in the

legislative history for the BBA of

subjecting existing managed care

entities to the self-referral law. In

addition, subjecting physicians who

have an ownership interest in an M+C

organization offering a coordinated care

plan in which the physicians

participate, to the self-referral rules

would be contradictory to Congress’

purposes in establishing PSOs as

coordinated care plans. PSOs are

defined in the BBA provisions as

entities that must be organized and

operated by a provider (which may be

a physician) or a group of affiliated

health care providers (which may

include physicians). These providers

must share a substantial financial risk

for the provision of items and services

and have at least a majority financial

interest in the entity. The self-referral

provisions, on the other hand, are

specifically designed to discourage

physician ownership of entities that

provide a broad range of services to

Medicare beneficiaries.

b. No risk of program or patient abuse

exception—Coordinated Care Plans:

Although there is no statutory exception

for services furnished under

coordinated care plans, section

1877(b)(4) allows us to create an

exception to the referral prohibition for

a financial relationship which the

Secretary determines, and specifies in

regulations, does not pose a risk of

program or patient abuse. An example

of program abuse is Medicare payment

for unnecessary services. We will pay

M+C organizations for enrollees in

coordinated care plans on a capitated

basis and beneficiaries will be

responsible for premiums and cost

sharing. Section 1854 limits HCFA’s

capitation amount and the total amount

of beneficiary premiums and costsharing. Because M+C organizations

offering coordinated care plans will not

be paid for each additional service they

provide, we believe that there is no risk

of over-utilization of services. Because

HCFA’s capitation amount and the total

amount of beneficiary premiums and

cost sharing is limited, we believe that

there is no risk of program or patient

abuse.

Therefore, we are excluding from the

physician referral prohibition services

furnished under a coordinated care plan

to an enrollee. This exception applies in

all cases in which a physician has an

ownership interest in or a compensation

relationship with the M+C organization

offering the coordinated care plan. We

are making a change in the regulation

text at § 411.355(c)(5).

c. No risk of program or patient abuse

exception—M+C MSA Plans: M+C

organizations offering an M+C MSA

plan are paid a fixed capitation amount

for beneficiaries enrolled in the plan,

and section 1853(a) limits HCFA’s

capitation amount and section

1859(a)(3)(A) limits the amount that

M+C organizations under M+C MSA

plans will pay entities for furnishing

covered services. Section 1859(a)(3)(B)

limits the annual deductible amount.

However, the Act does not similarly

limit the amount that a beneficiary will

have to pay as premiums and

costsharing; that is, there is no limit on

beneficiary balance billing by the

entities that furnish health care services.

See section IV. below. Thus, although

there is no risk of program abuse, there

is a risk of patient abuse. Therefore, we

are not excluding from the physician

referral prohibition services furnished

under an M+C MSA.

d. No risk of program or patient abuse

exception—Private fee-for-service plans:

Section 1853(a) also limits HCFA’s

capitation amount to be paid to M+C

organizations under private fee-forservice-plans. Because there will not be

excessive payments by the Medicare

program, there is no risk of program

abuse. However, section 1859(b)(2)(A)

provides that the plans will pay an

individual or entity furnishing services

on a fee-for-service basis. Since

beneficiaries are responsible for

coinsurance amounts, copayments, and

balance billing amounts under private

fee-for-service plans (see section IV. of

this preamble), beneficiaries are subject

to added out-of-pocket liability if

physicians providing services under a

fee-for-service plan order additional

unneeded services in order to obtain

additional fee-for-service payments from

the M+C organization offering the

private fee-for-service plan. Thus,
35004 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

although there is no risk of program

abuse in this case, excessive Medicare

payment, there is a risk of patient abuse.

Therefore, we are not excluding from

the physician referral prohibition

services furnished under a private feefor-service plan.

F. Payments to M+C Organizations

1. General Provisions (§ 422.250)

Subpart F of part 422 sets forth rules

that govern Medicare payment to M+C

organizations, including the

methodology used to calculate M+C

capitation rates. These rules also apply

for 1998 under section 1876 risk

contracts.

Payments and Adjustments: We

provide in § 422.250(a)(1) that, with the

exception of payments under M+C MSA

plans and payments for ESRD enrollees

in all other plans, which we discuss

below, we will pay M+C organizations

for each enrollee in an M+C plan they

offer, a monthly payment that is equal

to 1/12th of the county-wide (or, in the

case of ESRD enrollees, 1/12th of the

State rate) ‘‘capitation rate’’ under

§ 422.252 that applies for the county in

which the enrollee lives, adjusted by

demographic factors applicable to that

enrollee. Effective January 1, 2000,

however, section 1853(a)(3)(C) directs

us to implement a risk adjustment

methodology that accounts for variation

in per capita cost based on health status

and demographic factors.

Implementation of health status risk

adjusters has implications for M+C plan

data submissions, and we discuss this

issue further below.

In addition to health status and

demographic risk adjustments, we make

an adjustment, under

§ 422.250(a)(2)(i)(A), to the payment rate

for M+C enrollees with end-stage renal

disease (ESRD). Under

§ 422.250(a)(2)(i)(B), we make an

adjustment that is the equivalent to a 50

cent reduction for each renal dialysis

treatment that we will use to help pay

for the ESRD network program in the

same manner as other reductions are

used in original Medicare. Finally,

under § 422.250(b), we provide for

making retroactive adjustments to the

aggregate monthly payment to an M+C

organization to reflect any difference

between the actual number of enrollees

and the number upon which we had

based the organization’s advance

monthly payment.

Under § 422.250(a)(2)(ii) for M+C

MSA plan enrollees, we make a monthly

payment to the M+C organization as

described above less the amount (if any)

identified in § 422.262(c)(1)(ii) to be

deposited in the M+C MSA. In addition,

we deposit in the M+C MSA the lump

sum amounts (if any) determined in

accordance with § 422.262(c). See

section III. below for a more complete

discussion of payments under M+C

MSA plans.

In § 422.250(a)(2)(iii), we provide for

adjustments to be made to payments

under RFB plans (which are limited to

members of a religious and fraternal

benefit plan) to ensure that the payment

level is appropriate for the actuarial

characteristics and experience of [RFB

plan] enrollees.

Payment Areas: In § 422.250(c)(1), we

reflect the general rule, under section

1853(d) of the Act, that the M+C

payment area is a county or equivalent

area specified by HCFA. Under

§ 422.250(c)(2), in the case of

beneficiaries with ESRD, the payment

area is the State or equivalent area we

specify. Additionally, in a significant

change to payment area policy from the

section 1876 program, section

1853(d)(3) permits Governors of States

to request that we approve alternative

geographic areas for payment rates.

These alternatives are either a single

State-wide M+C payment area or a

metropolitan-based system in which all

nonmetropolitan areas within the State

constitute a single payment area, and

any of the following constitutes a

separate M+C payment area:

• All portions of each single

metropolitan statistical area within the

State.

• All portions of each primary

metropolitan statistical area within each

consolidated metropolitan statistical

area within the State.

• A consolidation of noncontiguous

counties.

Section 1853(d)(3) directs us to

approve a Governor’s request; however,

this section of the Act also directs us to

subject these requests to a budget

neutrality requirement, and any

payment for alternative geographic areas

cannot exceed the aggregate payments

for that State absent the adjustment.

Additionally, the Governor’s request

must be submitted to us no later than

February 1 of the year preceding the

contract year. This provision is

implemented in § 422.250(e).

2. Annual Capitation Rates (§ 422.252)

Among the more significant payment

changes in section 1853 is the

incremental separation of capitated

Medicare payments from local fee-forservice rates. Previously, Medicare had

paid risk contractors according to the

Adjusted Average Per Capita Cost

(AAPCC) payment methodology. The

AAPCC was based on Medicare fee-forservice expenditures by county and was

used to pay risk contractors through

December 31, 1997. These fee-forservice expenditures were adjusted for

demographic factors (that is, age; sex;

institutional, welfare, and employment

status).

The AAPCC had been legitimately

criticized for its wide range of payment

rates among geographic regions—in

some cases it varied by over 20 percent

between adjacent counties. It was also

criticized for its poor risk adjustment

capabilities and inappropriate provision

of graduate medical education funds to

some Medicare risk plans. Moreover, the

AAPCC was criticized for setting erratic

annual payment updates, which often

made it difficult for contracting health

plans to engage in long-term business

planning. The BBA introduces a new

payment methodology that addresses

these and other concerns, and we

discuss them in detail below.

‘‘Greater of’’ Payment Rate: Since

January 1, 1998, Medicare capitation

rates paid to section 1876 risk

contractors for each calendar year have

been the greater of a blended capitation

rate, a minimum amount rate, or a

minimum percentage increase. This

same methodology will apply to

payments under M+C contracts.

• The blended capitation rate is a

blend of the area-specific (local) rate

and the national rate, with the latter

adjusted for input prices. The blended

capitation rate is then adjusted by a

budget neutrality factor.

• The minimum amount rate will

equal $367 per month per enrollee in

1998 for all areas in the 50 States and

the District of Columbia. Outside the 50

States and the District of Columbia, the

rate is not to exceed 150 percent of the

1997 AAPCC for those areas. The

minimum amount rate will be adjusted

each year using the update factors

described below. (On an individual

basis, our monthly payment may be

more or less than the minimum amount

due to the demographic or other risk

factors applicable to that individual

used to adjust the minimum amount

rate.)

• The minimum percentage increase

is 2 percent. The minimum percentage

increase rate for 1998 is 102 percent of

the 1997 AAPCC. Thereafter, it is 102

percent of the prior year’s rate.

3. Calculation and Adjustment Factors

(§ 422.254)

Blend of Area-Specific and National

Percentages: The 1997 AAPCC

capitation rates serve as the base for

both the area-specific rates in the blend

and the minimum percentage increase

rates. Section 1853(c)(2) stipulates that

the blended area-specific/national rate
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35005

(discussed further below) will be

implemented over a 6 year transition

period from 1998 through 2002

according to the following schedule:

• 90 percent area-specific/10 percent

national in 1998

• 82 percent area-specific/18 percent

national in 1999

• 74 percent area-specific/26 percent

national in 2000

• 66 percent area-specific/34 percent

national in 2001

• 58 percent area-specific/42 percent

national in 2002

• 50 percent area-specific/50 percent

national in 2003 and thereafter.

Section 1853(c)(6) also provides for a

‘‘national per capita M+C growth

percentage.’’ Each year, from 1998

through 2002, this national growth

percentage is applied to the national

and local components of the blended

rate and to the floor rate (discussed

below). The national per capita growth

percentage is HCFA’s projection of per

capita expenses, reduced by the

following amounts established in

section 1853(c)(6): 0.8 percentage points

in 1998 and 0.5 percentage points each

year from 1999 through 2002. After

2002, the reduction amount is zero. This

provision is implemented in

§ 422.254(d).

As indicated above, the blended rates

are adjusted by a budget neutrality

factor. Section 1853(c)(5) provides for a

‘‘budget neutrality’’ adjustment to the

blended capitation rate under

§ 422.252(a), designed to ensure that the

aggregate amount paid under the M+C

payment methodology equals the

amount that would have been paid if

payments were based entirely on areaspecific rates (as they were under

section 1876(a)). The statute requires

that this budget neutrality adjustment

apply only to the blended capitation

rate under § 422.252(a), rather than to

the final capitation rate under § 422.252.

Since the capitation rate is based upon

the highest of the blended capitation

rate, the minimum payment, and the

prior year’s payment plus 2 percent, the

budget neutrality adjustment cannot

produce any further savings once the

blended capitation rate is reduced to the

point where it is lower than the other

two amounts in every county. This is

what happened for 1998 and 1999. For

these years, the budget neutrality

adjustment reduced the blended rate to

the point where no county’s payment

rate is based upon the blended rate,

since one of the two other rates is higher

in every county. Yet, even with this

reduction, the goal of the budget

neutrality provision in section

1853(c)(5) was not met for 1998 and

1999. We are considering seeking a

statutory change to address this

problem.

Area-Specific Component of the

Blended Capitation Rate: Above we

discussed the relationship between areaspecific and national rates and how they

are intended to develop into a 50/50

balance by the year 2003. Here we

discuss features of the area-specific

(local) rate and, directly below, features

of the national rate.

In 1998, the base for the area-specific

rate is the 1997 AAPCC, adjusted for 20

percent of the indirect medical

education/direct graduate medical

education (GME) carve-out. This is a

significant change to payment policy

under section 1876 Medicare ‘‘risk’’

contracts. In accordance with section

1853(c)(3)(B), under § 422.254(e)(2), we

will remove all graduate medical

education payments in the base rate

between 1998 and 2002 on the following

schedule: 20 percent in 1998; 40 percent

in 1999; 60 percent in 2000; 80 percent

in 2001; and 100 percent in 2002 and

thereafter. These GME funds will be

removed from the area-specific portion

of the blended rate. Since the national

portion of the blend is computed based

on the adjusted local rates, it also

reflects removal of these GME funds.

Teaching hospitals will be paid directly

for the GME costs associated with

Medicare managed care enrollees under

§ 412.322.

Additionally, pursuant to section

1853(c)(3)(C)(ii), in § 422.254(e)(3), to

the extent we estimate that the 1997 per

capita base rate reflects payments to

State hospitals under section 1814(b)(3),

we will make appropriate adjustments

to the M+C payment rate. Payments are

made to hospitals located in Maryland

under this provision.

Finally, pursuant to section

1853(c)(3)(D), in § 422.254(e)(4), we

provide that HCFA may substitute a rate

for the 1997 capitation rate a rate that

is more representative of the costs of the

enrollees in the area if the 1997 rate

varied by more than 20 percent from the

1996 rate.

National Component of the Blended

Capitation Rate: The national

component of the blended capitation

rate has two major features: (1) the

national standardized annual capitation

rate; and (2) the national input-priceadjusted capitation rate.

The national standardized annual

capitation rate is a weighted average of

all area-specific rates adjusted for risk

factor weights used to calculate

payments as though all eligible

individuals were members of an M+C

plan. The calculation for the national

standardized annual capitation rate is

described at § 422.254(f).

The input-price-adjusted annual

national capitation rate is adjusted for

geographic variation in the prices of

goods and services used to produce

medical services and is the sum of the

products of three amounts:

• The national standardized annual

capitation rate for the year, which

consists of the weighted average of all

area-specific capitation rates.

• The proportion of the rate that is

attributable to each type of service.

• An index that reflects (for that year

and that type of service) the relative

input price of services in the area, as

compared to the national average input

price for these services.

The input-price-adjusted annual

national capitation rate is described in

§ 422.254(g).

4. Adjustments to Capitation Rates and

Aggregate Payments (§ 422.256)

Beginning with 1999 payment rates,

we will adjust all area-specific and

national capitation rates (and beginning

with the 2000 payment rates, the

minimum amount rate) for the previous

year to reflect any differences between

the projected national per capita growth

percentages and the current estimates of

those percentages.

We will also adjust for national

coverage determinations (NCD) that

were significant cost as defined in

§ 422.109 and defined above. An NCD is

a national policy statement regarding

the coverage status of a specified service

that we make under administrative

authority and publish in the Federal

Register as a notice of HCFA Ruling.

(The term does not include coverage

changes mandated by statute.)

If we determine that the cost of

furnishing a service subject to an NCD

is ‘‘significant,’’ we will adjust

capitation rates for the next calendar

year to take into account the cost of that

service. Until the new capitation rates

are in effect, the M+C organization

would be paid through original

Medicare for the provision of such

services.

Risk Adjustment: Section 1853(a)(3)

requires us to develop and submit to the

Congress, by March 1, 1999, a report on

a proposed method of risk adjustment of

M+C payment rates. We are also

required to implement a risk-adjustment

methodology for payment periods

beginning on or after January 1, 2000.

We provide for such risk adjustment in

§ 422.256(d). Under the previous

payment methodology, the AAPCC, we

used a demographic risk adjuster that

has been criticized as an inadequate

predictor of health care costs.
35006 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

Nonetheless, until the new risk

adjustment methodology is

implemented in 2000, we will be using

the same demographic adjusters used

under the AAPCC method to make

demographic adjustments under

§ 422.256(c) to the capitation rate

determined under § 422.252. Section

1853(a)(3)(C) specifically directs HCFA

to implement health-status based risk

adjusters, as well as ‘‘other demographic

factors.’’ Section 1853(a)(3)(D) requires

that, with the exception of enrollees in

M+C RFB plans, the same risk

adjustment methodology be used for all

enrollees in M+C plans, regardless of

plan type. The implementation of

health-status based risk adjusters has

major implications for M+C

organizations’ data requirements, as

discussed directly below.

5. Encounter Data (§ 422.257)

Section 1853(a)(3)(B) addresses the

collection of encounter data from M+C

organizations needed to implement the

risk adjustment methodology. The Act

requires that the collection of inpatient

hospital data for discharges beginning

on or after July 1, 1997 and allows the

collection of other data no earlier than

July 1, 1998. The statutory language is

tied to the creation of risk-adjusted

payment rates, as defined at § 422.256(c)

and (d) of this rule. Requirements

concerning collection of encounter data

apply to M+C organizations with respect

to all their M+C plans, including and

private fee-for-service plans.

There are two different ways

encounter data are used for riskadjustment purposes. To calculate

payment rates, encounter data are

necessary to tie payment to expected

patient resource use using diagnosis

codes. The initial risk-adjusted payment

will be based on inpatient hospital

encounter data. However, use of an

inpatient-based system in the long run

has two major weaknesses: (1) It

provides M+C organizations with an

incentive to hospitalize their enrollees

in order to receive additional payment;

and (2) a risk-adjustor system based

only on inpatient hospital diagnosis

codes will not allow more accurate

payment for the chronically-ill-but-nothospitalized. For both of these reasons,

we have developed a more

comprehensive risk-adjustment

methodology that uses diagnosis data

from physician services and hospital

outpatient department encounters. In

addition, physician services data

include data from limited license

practitioners, such as clinical

psychologists and nurse midwives who

provide services independently, but do

not include nonprofessional services

ordered by physicians as a result of the

initial physician services furnished,

such as laboratory services and durable

medical equipment.

Encounter data are also necessary to

‘‘recalibrate’’ any risk-adjusted payment

model. Recalibration is necessary to

adjust the payment models for improved

coding. For example, upcoding may

occur if plans improve coding of

beneficiary diagnoses and, as a result,

the average use of resources for

enrollees in a particular category may be

less than when the relative payment

rates were determined. When this

happens, the average actual

expenditures per enrollee for these

diagnoses are less than the average

expenditures used to assign the original

payment weights. The result is

overpayment for some diagnoses in the

risk adjustment model. To account for

possible coding changes, all risk

adjustor payment model diagnosis

weights would be recalculated, or

‘‘recalibrated’’ based on encounter data

gathered after implementation of risk

adjustment. A preferred method for full

recalibration requires that all services

provided to each M+C plan enrollee be

priced and the total cost of care

determined for each enrollee. This

approach would require that

organizations submit encounter data for

all services provided to each enrollee.

An alternative approach would require

the organizations to submit to HCFA the

cost of providing medical care for each

Medicare enrollee, but organizations

might oppose such a requirement as too

intrusive.

While the purpose of collecting the

encounter data will be to calculate riskadjusted payments, there are a wide

variety of other uses of whatever data

we collect. Quality improvement targets

can be identified using encounter data.

Our ability to monitor the care received

by M+C enrollees through targeted

special studies (such as an examination

of post-acute care utilization patterns)

will be greatly enhanced by the

availability of encounter data.

Encounter data will also be useful for

program integrity functions, both by

providing additional utilization norms

for original Medicare billing and by

providing additional information

regarding M+C organizations’ behavior.

Timing of Encounter Data Collection:

The first issue to address with regard to

data collection is the ability of the

organizations to generate the necessary

data and to ensure accurate

transmission. While some organizations

will be able to transmit encounter data

quickly and with little difficulty, others

will be further behind in their internal

information systems development. To

the extent that organizations have

capitated arrangements with their

providers, they may not currently

require encounter-type data from those

providers. The ability to generate

encounter data may well vary by type of

service provided as well as by type of

organization submitting the data. All

organizations will have to conform to

the HIPAA information system

standards regarding encounter data

formats by 24 months (36 months for

small organizations) after the effective

date of the final rule (currently

estimated to be published in the fall of

1998), so the main issues with regard to

the organizations should be transition

issues rather than long run

implementation issues.

HCFA has issued instructions

delineating a specific timetable for M+C

organizations to submit inpatient

hospital data. M+C organizations will be

required to select a fiscal intermediary

designated by HCFA to transmit data.

Given any start date, comprehensive

risk-adjusted payments will be made

about 3 years after the year of the initial

collection of outpatient hospital and

physician encounter data. Similarly,

recalibration of the risk-adjusted

payments to reflect managed care

practice patterns could occur about 3

years after the complete data are

collected. In order to minimize the

period for which payments are

determined based on inpatient hospital

data only, we will provide advance

notice to M+C organizations to collect

and submit physician, outpatient

hospital, SNF, and HHA data beginning

no earlier than October 1, 1999; and all

other data HCFA deems necessary

beginning no earlier than October 1,

2000.

Because M+C organization payments

will depend on the data transmitted and

because M+C organizations are the

entities with which HCFA contracts, we

will hold the M+C organization

responsible for transmission of the data.

If the M+C organization is held

responsible, it follows that they should

transmit the data directly, rather than

monitoring the transmission by their

providers. We will allow organizations

to hire third party data transmitters, but

the M+C organization will be

responsible for the accuracy and

completeness of the data transmitted.

Data Format: The format of the data

we will require will be identical to the

data we require of original Medicare

providers of similar services, because

pricing of the data using original

Medicare’s methods is necessary for

recalibration. The data will be processed

using designated HCFA contractors.

Providers are familiar with the HCFA
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35007

1500 (or its electronic equivalent) and

the electronic UB–92 (or other

electronic equivalent) through their

original Medicare billings. In addition,

organizations will have mechanisms in

place to receive UB–92 data from

hospitals and send it to fiscal

intermediaries by July 1, 1998, because

of the requirements for submission of

inpatient encounter data. It would

clearly be beneficial to all parties to use

the UB–92 and this transmission format

for any other required data that is

currently submitted on the UB–92 in

original Medicare. There are no current

organization-to-carrier links for data

HCFA currently processes on the

electronic version of the HCFA 1500.

From the provider, contractor, and

HCFA point of view, it is clear that use

of the electronic version of the HCFA

1500 would minimize any data

collection burden.

Data Accuracy: Audit of the data will

be necessary to ensure accuracy; any

audit efforts will include medical record

review for a portion of the submitted

data. Statistical analysis (for example,

examination of hospitalization rates for

various organizations and inquiry into

outliers) will be combined with

traditional audit methods in order to

maximize our examination of the data

while managing the amount of

contractor resources used for audit.

6. Announcement of Annual Capitation

Rates and Methodology Changes

(§ 422.258)

Previously, under section 1876, we

were required to announce Medicare

risk contractor payment rates by the first

week in September, no later than 45

days after publishing for comment our

mid-July announcement of payment

methodology changes. This schedule

was designed to allow HMOs and CMPs

time to consider the coming year’s

payment rates, decide about their

continued participation in the Medicare

program, calculate their Adjusted

Community Rate (ACR) proposal, and,

finally, afford us the time to approve or

disapprove the ACR proposal prior to

the January 1 contract effective date.

Under section 1853(b)(1), starting in

1998, we must announce rates by March

1 of the year prior to the year the rates

apply. We must include in this

announcement a description of the risk

and other factors and explain the

methodology in sufficient detail to

enable M+C organizations to compute

monthly adjusted capitation rates for

individuals in each of their payment

areas.

The March 1 announcement will

ensure that subsequent events can occur

to meet the November annual

coordinated election period stipulated

in section 1851(e)(3). As under prior

law, 45 days prior to announcing

payment rates on March 1, section

1853(b)(2) requires us to provide notice

of changes in the methodology and

assumptions used in the previous year.

7. Special Rules for Beneficiaries

Enrolled in M+C MSA Plans (§ 422.262)

The BBA establishes special rules for

beneficiaries enrolled in M+C MSA

plans, and we discuss them in detail

under section III. below.

8. Special Rules for Coverage That

Begins or Ends During an Inpatient

Hospital Stay (§ 422.264)

The BBA contains special payment

rules for situations where an M+C

enrollee’s coverage begins or ends while

the Medicare beneficiary is a hospital

inpatient. Section 1853(g) provides that,

where a beneficiary is receiving

inpatient hospital services from a

hospital covered under original

Medicare’s prospective payment system

(PPS) or another M+C organization on

the effective date his or her M+C

election of a new M+C plan, payment

for inpatient services (up until the date

of discharge) would continue to be the

responsibility of the original Medicare

program or previous M+C organization.

The M+C organization offering the

newly elected M+C plan would not be

responsible for inpatient hospital

service payment until the date of

discharge, and original Medicare or the

previous M+C organization would pay

the full amount for that beneficiary for

that inpatient episode, even if it extends

beyond the effective date of a

beneficiary’s M+C election.

In the case of a beneficiary’s M+C

plan election ending while he or she is

a hospital inpatient, the M+C

organization remains responsible for

payment for inpatient hospital services

furnished by a hospital after expiration

of enrollment up until the date of

discharge. Payment for these services

would not be made under Medicare’s

PPS system, and the responsible M+C

organization would not receive any

payment from us for the hospitalized

individual during the period the

individual was not enrolled.

9. Special Rules for Hospice Care

(§ 422.266)

Section 1853(h) of the BBA contains

special provisions for Medicare

beneficiaries who elect hospice care

concurrent with their enrollment in an

M+C organization. Specifically, an M+C

organization must inform each Medicare

enrollee eligible to elect hospice care

under section 1812(d)(1) about Medicare

hospice programs within the M+C

plan’s service area. If it is common

practice to refer patients to hospice

areas outside the service area, the

organization must inform the M+C

enrollee of that as well. This

information must be provided to

beneficiaries in a manner that

objectively presents all available

hospice providers, including a

statement of any ownership interest

held by the M+C organization or a

related entity. If the M+C organization

has an ownership or other financial

interest in one or more of the available

hospice providers, M+C plan enrollees

cannot be required to use that hospice

provider.

BBA payment provisions for hospice

care state that our monthly payment to

the M+C organization will be reduced to

an amount equal to the adjusted excess

amount in the M+C plan’s approved

ACR. Beyond the adjusted excess

amount, we pay through original

Medicare for hospice care furnished to

the M+C plan enrollee. We also pay

through original Medicare (to the M+C

organization), for other Medicarecovered services furnished to the

hospice patient.

Unless the individual disenrolls from

the M+C plan, an M+C enrollee electing

hospice continues his or her enrollment

in the plan and is entitled to receive

through the plan any benefits, other

than those that are the responsibility of

the Medicare hospice.

10. Source of Payment (§ 422.268)

As under the section 1876 risk

program, we will determine which

proportion of payments to M+C

organizations comes from the Hospital

Insurance Trust Fund (Part A) and

which proportion of payments comes

from the Supplementary Medical

Insurance Trust Fund (Part B). We

determine these proportions based on

the actuarial value of total benefits

under both parts.

G. Premiums and Cost-Sharing

Subpart G of part 422 details

provisions found in section 1854 for the

M+C program. In this subpart we

discuss how limits on M+C plan

enrollee premiums and other cost

sharing are established through the ACR

approval process. The ACR process is

applicable to all M+C plans except M+C

MSA plans. M+C MSA plans are not

required to submit an ACR, but other

information must be submitted for

HCFA’s review (see discussion below).

We discuss limitations that the process

imposes on other cost-sharing that M+C

organizations may impose on Medicare

enrollees for the M+C plan they elect.
35008 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

Note that there are a number of terms

pertinent to the following discussion,

and they are defined in § 422.302 of this

rule. ACR and APR are terms that were

used under section 1876 risk program.

Section 1854(b) discusses the definition

of the terms relating to beneficiary

premiums. The term additional

revenues is discussed in detail in

section 5 below.

As under the section 1876 risk

program, the ACR process under the

BBA serves three important purposes.

First, HCFA examines an M+C

organization’s ACR proposal for each

M+C plan to determine whether

Medicare payments in excess of the

amount the organization would charge

commercially for Medicare-covered

benefits are passed on to beneficiaries in

the form of added additional benefits.

Second, we review ACR proposals to

determine whether the structure of

premiums, deductibles, copayment, and

coinsurance charged to beneficiaries are

within the limits established by law as

required under section 1854(f)(1)(A).

Third, benefit package information is

reviewed to determine whether the

benefit package is in compliance with

the principles contained in subpart C.

We have taken into account that the

M+C program is a significant departure

from the section 1876 risk contracting

program it replaces. Therefore, we are

allowing a special period during which

organizations will be able to add

benefits (at no additional cost to the

M+C plan enrollee) or lower premiums

or cost-sharing mid-year. We also are

providing for the submission of ACRs

on a date other than May 1 if a contract

will begin on a date other than January

1. The transition rules for this period are

found in § 422.300(b). This special

period will end on December 31, 2001.

1. Rules Governing Premiums

(§ 422.304)

This section of the regulation

implements provisions of the BBA

relating to premiums paid by (or behalf

of) beneficiaries. Each Medicare enrollee

must be afforded the opportunity to pay

the M+C plan premium on a monthly

basis and, as under the section 1876 risk

program, pursuant to Section 1128B(b)

of the Act, the M+C organization may

not provide for cash or other financial

rebate as an inducement for enrollment

(or for any other reason).

As discussed in above, section

1852(a)(1) requires an M+C organization

to include in its M+C plan all services

covered under original Medicare (except

hospice care) that are available to

Medicare beneficiaries in the area in

which services are covered under the

M+C plan. In addition, additional

benefits must be provided to all

enrollees electing the M+C plan (see

section 1854(f)(1)). Section 1852(a)(3)

allows an M+C organization to add

supplemental benefits to the M+C plan

either at the M+C organization’s

discretion (with our approval) or at the

enrollee’s election. For these benefits

offered through a coordinated care plan,

section 1854(e) does not allow the M+C

organization in total, for the year, to

impose a total average cost to the

beneficiary, with an actuarial value

greater than the actuarial value of

original Medicare’s deductibles and

coinsurance for items and services

covered by original Medicare plus the

actuarial value approved through the

ACR process for supplemental services.

For M+C PFFS and M+C MSA plans, see

discussion below.

Section 1854(c) provides that M+C

basic and supplemental beneficiary

premiums and M+C MSA premiums

may not vary among individuals

enrolled in the plan. This means that all

enrollees in a given M+C plan must be

charged the same premium amount for

basic benefits and for any supplemental

benefits the M+C organization may

choose to offer. In the case of

coordinated care plans, this uniform

premium counts toward an overall limit

on the actuarial value of beneficiary

liability in section 1854(e) (discussed

further below). Thus, in the case of

coordinated care plans, the actuarial

value of any cost-sharing imposed under

the plan would also be uniform, since

a uniform premium would be subtracted

from a uniform overall limit to

determine the amount that can be

charged in cost-sharing.

We believe that section 1854(c)

reflects congressional intent that all

beneficiaries enrolled under a particular

M+C plan pay the same amount. While

cost-sharing amounts are not expressly

mentioned, in the case of coordinated

care plans, there is a uniform limit on

the actuarial value of cost-sharing.

Accordingly, pursuant to our authority

in section 1856(b)(1) to establish M+C

standards, we are providing in

§ 422.304(b) that M+C organizations

may not vary the level of copayments,

coinsurance, or deductibles charged for

basic benefits or supplemental benefits

among individuals enrolled in an M+C

plan.

2. Submission of Proposed Premiums

and Related Information (§ 422.306)

Section 1854(a) requires each M+C

organization to submit no later than

May 1 information about the M+C plan

the organization wants to offer in the

subsequent year. As under the Medicare

section 1876 risk program, except in the

case of M+C MSA plans, such

information includes a complete

description of the services included in

the M+C plan, ACR and service area

information, premium amounts, and

descriptions of enrollee cost sharing.

For M+C MSA plans, organizations have

to submit the MSA premium that is

used to determine the MSA deposit. No

ACRs are required for M+C MSA plans.

Pursuant to our authority in section

1856(b)(1), we have added a new

requirement that M+C organizations

also submit information on amounts

collected in the previous contract period

for basic benefits. We have done this to

assure Medicare enrollees are not being

charged cost-sharing that exceeds the

limits in section 1854(e)(see § 422.308).

Section 422.306(a) reflects the

requirement in section 1854(a)(1) that

the information in paragraphs (b), (c),

and (d) of § 422.306 be submitted by

May 1 of the year prior to the year for

which the information is submitted.

This information is needed timely in

order for HCFA to comply with the

requirement in subpart B that

comparative information on M+C plans

be provided to Medicare enrollees. As

noted above, during the transition

period prior to 2002 provided for in

§ 422.300(b), M+C organizations may be

permitted, at HCFA’s discretion, to

submit applications and ACR

information on a flow basis and as

discussed in section K below, under

§ 422.504(d) contracts could begin on a

date other than January 1. In such a

case, benefit package and pricing

structures must be approved before the

contract can take effect. Beginning with

the 2002 calendar year, however,

anyone wishing to offer an M+C plan in

that year must submit an ACR by May

1 of the previous year (May 1, 2001 in

the case of 2002).

If the information submitted is not

complete, accurate, or timely, HCFA has

the authority to impose sanctions under

subpart O or may choose not to renew

the contract.

We will review and approve all

information submitted except for any

amounts submitted by M+C MSA plans

and premiums submitted by M+C

private fee-for-service plans. Premiums

and cost sharing will be reviewed in

accordance with the rules established in

§ 422.310. Benefits offered under the

M+C plan will reviewed in accordance

with the rules established in Subpart C.

3. Limits on Premiums and Cost-Sharing

Amounts (§ 422.308)

The rules in this section set the limits

on the amount an M+C organization

may charge a Medicare enrollee of an

M+C plan. Section 1854(b) specifies that
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35009

the premium that a beneficiary is

charged under an M+C plan other than

an M+C MSA plan is the M+C monthly

basic premium, plus any M+C

supplemental premium. In the case of

an M+C MSA plan, the beneficiary is

charged only any M+C supplemental

premium that may apply. The limits of

Medicare enrollee liability are:

• For M+C basic benefits (Medicare

covered services and additional

benefits) offered by coordinated care

plans: 12 times the basic monthly

premium, plus the actuarial value of

plan cost-sharing (copayments,

coinsurance, and deductibles) for the

year, cannot exceed the actuarial value

of original Medicare’s deductibles and

coinsurance for the year or, if less, the

amount authorized to be charged in the

ACR (see § 422.310).

• For M+C basic benefits (Medicare

covered services and additional

benefits) offered by M+C private fee-forservice plans: the actuarial value of plan

cost sharing (copayments, coinsurance,

and deductibles) for the year, cannot

exceed the actuarial value of original

Medicare’s deductibles and coinsurance

for the year or, if less, the amount

authorized to be charged in the ACR

(see § 422.310).

• For supplemental benefits offered

by a coordinated care plan: 12 times the

M+C monthly supplemental premium

plus the actuarial value of plan cost

sharing (copayments, coinsurance, and

deductibles) cannot exceed the ACR for

such benefit or, if less, the amount

authorized to be charged in the ACR

(see § 422.310).

It is possible for an M+C organization

to have M+C plan enrollees that are

entitled to Medicare Part B benefits

only. Section 1876(k)(2) specifies that

existing Part B enrollees under section

1876 risk contracts on December 31,

1998 may remain as enrollees of the

organization in accordance with

regulations under section 1856(b)(1) if

the organization enters into an M+C

contract on January 1, 1999. Pursuant to

sections 1876(k)(2) and 1856(b)(1), this

final rule provides for such continued

Part B-only enrollment, and § 422.308

provides that the limit on enrollee

charges is the same as the limit that

applies to other enrollees, except that

the limit is based only on the actuarial

value of cost sharing paid under Part B

of original Medicare.

Also pursuant to our authority in

sections 1876(k)(2) and 1856(b)(1), in

§ 422.308(a)(3), we impose a limit on the

liability of Part B-only enrollees for an

M+C organization’s coverage of services

that would be covered by Medicare Part

A if the enrollee had Part A coverage.

Specifically, we provide that the

premium and cost sharing charged for

such coverage may not exceed the lesser

of what Medicare would pay an M+C

plan in capitation for the services, plus

the actuarial value of Medicare Part A

deductibles and coinsurance, or the

ACR for such services.

The above-described limits on

enrollee liability apply to enrollee costs

incurred for services furnished by

noncontracting providers as well as

providers that contract with the M+C

organization offering the M+C plan in

which the beneficiary is enrolled. In the

case of contracting providers, limits on

enrollee liability would generally be

delineated in the contract between the

provider and the M+C organization.

Also, in the case of most coordinated

care plans (for example, HMOs), it could

be assumed that most nonemergency

services will be obtained through

contract providers.

Thus, to the extent an M+C

coordinated care plan provides for

different cost sharing in the case of

noncontracting providers, it is not

difficult to estimate the percentage of

services that will be obtained at that

level of cost sharing, when making the

overall projection of the actuarial value

of the cost sharing structure. In the case

of M+C private fee-for-service plans, it

is less clear to what extent

noncontracting providers will be used,

and the information on actual cost

sharing from the prior year will be

particularly valuable in assessing the

accuracy of actuarial projections by the

M+C organization. We note that in all

cases, beneficiary liability is limited to

the cost sharing provided for under the

plan in the case of noncontract provider

services. While sections 1852(k) and

1866(a)(1)(O) require noncontracting

providers to accept as payment in full

the amounts that they would be

required to accept under original

Medicare, balance billing to the

beneficiary may be permitted under

original Medicare but it is not permitted

under the M+C plan in question. The

M+C organization must hold

beneficiaries harmless against any such

balance billing. See section IV. below

for a discussion of this issue in

connection with M+C private fee-forservice plans and section III in

connection with M+C MSA plans.

4. Incorrect Collections of Premiums

and Other Cost Sharing (§ 422.309)

This section contains procedures to be

used in situations where an M+C

organization collects more than the

amount that is allowed to be charged to

the Medicare enrollee. These procedures

were developed using the rules

previously applied under section 1876

and promulgated under our authority in

section 1856(b)(1) to establish standards

under Part C.

Section 1857(d) requires that at least 1⁄3 of the M+C organizations be audited

for, among other things, data used in the

submitted ACR and all charges to the

M+C plan enrollee for benefits covered

under the M+C plan. These audits may

reveal that the M+C organization has

been overcharging the M+C plan

enrollees. Section 422.309 requires the

M+C organization to refund these over

collections through an adjustment to

current and future premiums allowed to

be charged across all M+C plan

enrollees.

We note that in addition to the above

requirements for refunding amounts

incorrectly collected, an M+C

organization that collects amounts in

excess of those permitted is subject to

intermediate sanctions and civil money

penalties under subpart O. See section

422.752(a)(2) and discussion below in

section II. O. of the preamble. Refunding

amounts improperly collected, at a

minimum, would be a prerequisite to

the lifting of such sanctions.

5. ACR Approval Process (§ 422.310)

Section 1854 requires that an ACR

proposal be submitted each year for

each M+C coordinated care plan or M+C

private fee-for-service plan, and that

premiums be filed for MSA plans.

Section 422.310 of this rule sets forth

the rules M+C organizations must

follow to determine the limits placed on

an M+C plan’s price structure

(premiums, copayments, coinsurance,

deductibles, etc.). Since this regulation

was not published until after May 1,

1998, new requirements under this rule

discussed below will apply to contract

periods beginning on or after January 1,

2000. For contract periods beginning

before January 1, 2000, M+C

organizations shall use the rules

promulgated in accordance with section

1876 for risk contractors to determine

the limits placed on M+C plan’s price

structure.

Under the existing ACR process, a

M+C organization must establish an

initial rate for non-Medicare enrollees

for each M+C plan offered. This rate is

determined through a community rating

method (defined in section 1308 of the

Public Health Service Act) or an

aggregate premium method. The initial

rate is then modified by the relative

difference in utilization characteristics

of the Medicare population compared to

the non-Medicare population included

in the initial rate. Additional

adjustments may be made with our

agreement. Those M+C organizations

that do not have a non-Medicare
35010 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

population cannot establish an initial

rate. These M+C organizations will be

allowed to use an estimate of the ACR

value for a service or services offered

using generally accepted accounting

principles. These estimated values will

be treated as additional adjustments for

our review.

The ACR computation places a limit

on the beneficiary premiums and costsharing amounts of an M+C plan, and

we will only approve the beneficiary

premiums and cost-sharing amounts

proposed by an M+C organization for a

specific M+C plan if they do not exceed

the ACR limits.

As noted above, § 422.310 contains

new requirements for calculating ACRs

that will require existing section 1876

contractors to change the methodology

they have used to calculate their ACRs

under section 1876. We recognize that

section 1856(b)(2) provides that

consistent with the requirements of Part

C, standards established under Part C

should be based on standards

established under section 1876 to carry

our analogous provisions of that section.

The requirements in § 422.310 are based

on, and fully consistent with, the

existing section 1876 requirements in

§ 417.594. An M+C organization

following the methodology set forth in

§ 422.310 would fully comply with the

existing ACR provisions in § 417.594.

However, based upon our years of

experience under the section 1876

program, we have determined that the

language in § 417.594 permitted HMOs

and CMPs to use methods for

calculating their ACRs that produced

ACRs that we do not believe accurately

reflected the statutory standard

implemented in that section. Indeed, the

existing methodology has been

criticized by the General Accounting

Office and the Office of the Inspector

General as inaccurate, and subject to

modification by organizations. The

existing methodology also did not

provide for necessary adjustments (for

example, based upon changes in

utilization assumptions in anticipation

of changes in cost sharing structures, or

changes in Medicare coverage) that we

provide for in § 422.310. Also, as

discussed below, some of these changes

accommodate the fact that some

organizations do not maintain data used

under the old methodology (service

statistics) but do maintain data (cost

data) used under the new methodology

in § 422.310. Finally, the existing ACR

form necessarily has to be changed to

adapt to the new options under the M+C

program.

For all of the above reasons and others

discussed below, pursuant to our

authority in section 1856(b)(1) to

establish standards for M+C

organizations, and consistent with the

provision in section 1865(b)(2) that such

standards be based on section 1876

standards, we have built on the existing

ACR methodology in § 417.594 but

refined this methodology in order to

ensure the accuracy of ACRs under the

M+C program.

Specifically, we have added the

following new requirements to the

provisions in § 417.594:

1. Revision of data requirements used

to develop differences in utilization

characteristics of the Medicare

population from a relative service ratio

to a relative cost ratio (for additional

revenue, a relative excess revenue ratio)

experienced in a prior period.

2. Separation of the administrative

component into two parts—an

administrative cost component and a

component that reflects revenues

collected in excess of costs.

3. Provision for an M+C organization

to adjust for relative differences that the

organization expects to encounter in the

period covered by the ACR that were

not reflected in the prior period. Below

we discuss each in turn, including

where the new process diverges from

the former ACR methodology.

Revision of Data Requirements Used

to Develop Differences in Utilization

Characteristics of the Medicare

Population from a Service Ratio to a

Cost Ratio Experienced in a Prior

Period: Currently, risk contracting plans

(HMOs) under section 1876 of the Act

use a relative volume/complexity (V/C)

factor to modify commercial premiums

for each health care component (e.g.

inpatient hospital, physician) to account

for differences in utilization

characteristics between commercial

members and Medicare members. The

modified commercial premium is the

ACR value for that health care

component applicable to the Medicare

enrollee.

Currently, HMOs are directed to

develop the V/C factors using

comparative service statistic ratios on a

health care component basis. Service

ratios require HMOs to supply a large

amount of service statistics.

Risk contractors assert that they, as a

rule, do not keep service statistics in the

same manner, format, and/or detail

needed to compute these ratios. Some

HMOs have resorted to using statistics

gathered from one commercial package

to be compared to all Medicare enrollee

statistics. Others have used estimations

of service statistics (especially for those

services not offered by the HMO in the

past).

Managed care organizations keep

detailed records on the cost of care

included in the benefit packages sold.

Since the cost of providing medical care

is a function of both volume (number of

services) and complexity (price of the

service), M+C organizations could

compare the direct cost of medical care

(incurred in a previous period) between

the organization’s commercial and

Medicare populations on an average per

enrollee basis to account for differences

in utilization characteristics of the

respective populations. For those

services not offered in the past, the M+C

organization could use an estimate of

the cost to establish an ACR value for

the new service.

We believe this modification of data

requirements will make the ACR more

accurate, easier to process, and

ultimately, easier to verify. Costs could

be compared from year to year to

establish the reasonableness of the data

provided. In addition, cost data as

reported could be compared to other

required reports and the organization’s

financial statements. Later, during

monitoring visits, costs could be

compared to the organization’s financial

records.

This approach is justified in view of

the expanded participation of different

types of M+C plans authorized in the

BBA. BBA provisions include

organizations offering new types of M+C

plans that may not have an enrolled

commercial population and, without an

enrolled commercial population, these

organizations would be unable to

complete the current ACR. Under the

new method, these M+C organizations

would be allowed to develop a cost

estimate for the purpose of establishing

an ACR value for the Medicare

population.

Separation of Administrative

Component into Two Components—an

Administrative Cost Component and a

Component that Reflects Revenues

Collected in Excess of Costs: Currently,

HMOs are directed to bundle that part

of the commercial premium that

represents any excess revenue over

expenses with administration into one

component. In § 422.302, we refer to the

component of the premium that

represents revenue in excess of costs

incurred as ‘‘additional revenues.’’

Specifically, we define ‘‘additional

revenues’’ to mean revenues collected or

expected to be collected from charges

for M+C plans offered by an M+C

organization in excess of costs actually

incurred or expected to be incurred.

Additional revenues would include

such things as revenues in excess of

expenses of an M+C plan, profits,

contribution to surplus, risk margins,

contributions to risk reserves,

assessments by a related entity that do
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35011

not represent a direct medical or related

administrative cost, and any other

premium component not reflected in

direct medical care costs and

administrative costs.) The combined

component representing administrative

and excess revenues was then converted

to a Medicare value using the same

method the HMO used to compute the

amount for commercial enrollees. HMOs

have consistently claimed they use a

percentage method (For example,

administration is calculated as a specific

percentage of health care components).

In effect, this increases the

administration and additional revenues

anywhere from 300 percent to 500

percent for Medicare. In addition, this

bundling assumes that both

administration and additional revenues

are similar in nature and should be

treated the same.

Under the new ACR, we are requiring

M+C organizations to divide the

administrative component into two

parts and modify each part with a factor

that is consistent with each part. We

believe this will provide HCFA with

data that is both more accurate and

more useful.

Administrative costs will be included

in the ACR computation in the same

manner as they are incurred in

commercial premiums. M+C

organizations will be required to reveal

projected amounts of additional

revenues to HCFA for each population

group (commercial and Medicare). M+C

organizations would be required to

justify larger additional revenues

projected for the Medicare population in

relation to their commercial population.

Construction of a Method for an

Organization to Adjust for Relative

Differences the Organization Expects to

Encounter in the Period Covered by the

ACR that Were not Reflected in the Prior

Period: Section 1876 allowed for

modification of the initial rate by a

relative factor of services furnished in a

prior period. Implementing regulations

did not allow for any other

modifications to the initial rate in

establishing the ACR for a service or

services, and we have since recognized

that additional modifications to the

initial rate may be necessary. For

example, Medicare coverage may be

increased from one year to the next. If

the organization did not provide the

service in the past and no additional

modifications to the initial rate were

allowed, the organization could not

adjust for the new service in its ACR.

Organizations also had no method for

making adjustments to take into account

projected changes in utilization patterns

that would result from changes in cost

sharing amounts. We have included a

provision in this rule to allow for such

changes.

M+C organizations will be allowed to

further reduce the ACR values so that

the ACR values equal the actuarial value

of the charge structure of the M+C plan.

6. Requirement for Additional Benefits

(§ 422.312)

If the ACR calculation for an M+C

plan produces an excess amount (the

difference between the average of the

M+C per capita rates of payment (APR)

and the ACR value (less the actuarial

value of original Medicare’s deductibles

and coinsurance)) for Medicare covered

services, the M+C organization is

required to use that amount as follows:

• First, the M+C organization may

elect to contribute part or all of the

excess amount to a stabilization fund;

• Second, the M+C organization may

use the remainder to fund additional

services not covered by Medicare; and

• Third, the M+C organization must

use any remainder to reduce the

premium and/or cost sharing allowed

for services covered by original

Medicare.

A number of rules contained in this

section were developed using the rules

under section 1876, though certain

changes to those rules were made to

comply with new provisions in the

BBA. For example, the rules for the

stabilization fund under section 1876

were largely incorporated in this

section. However, section 1854(f)(2)

revised the time period and disposition

of those funds at the end of that time

period. We have incorporated these

changes in § 422.312(c).

H. Provider-Sponsored Organizations

This interim final rule makes certain

technical and conforming changes to

existing subpart H of part 422. These

changes are discussed in section II.R. of

this preamble.

I. Organization Compliance With State

Law and Preemption by Federal Law

1. State Licensure (§ 422.500)

Among the organizational and

financial requirements for M+C

organizations, section 1855 of the Act

requires that an organization shall be

organized and licensed under State law

as a risk-bearing entity eligible to offer

health insurance or health benefits

coverage in each State in which it offers

an M+C plan. (An exception to the

licensure requirement is made for PSOs,

as provided for in part 422 subpart H.)

Section 1855(b) specifies the level of

risk that an organization assumes under

an M+C contract (i.e., full risk for the

M+C benefit package), and the extent to

which the organization may insure

against such risk or may pass off all or

part of the risk to subcontracting

providers. The requirements of the

statute result in a two-pronged test of

appropriate licensure, consisting of the

licensure requirement itself and a scope

of licensure requirement.

Licensure and Scope of Licensure:

With regard to the licensure

requirement, although the BBA uses the

term ‘‘licensure,’’ we have interpreted

the provision as requiring a license or

some other type of certification (such as

a certificate of authority) that represents

permission granted by the appropriate

State authority for the organization to

operate within the State as a riskbearing entity offering health insurance

or health benefits. Having met the State

licensure requirement, an organization

must also show that the ability to offer

an M+C plan of the type they wish to

offer is within the scope of its State

licensure or State authorization. For

example, an organization that offers

only a prepaid dental plan in a State

could be licensed as a risk-bearing

entity, but its licensure status may not

permit the organization to offer a health

benefits plan that includes a

comprehensive range of services, as

would be necessary under an M+C

contract. Similarly, a State may require

an organization that is a licensed HMO

to obtain separate licensure as an

indemnity insurer in order to offer an

M+C point-of-service (POS) plan, on the

basis that the HMO scope of licensure

does not include the ability to offer

what is considered an indemnity

product. (A State’s requirement that an

organization have an indemnity license

in order to offer a POS product is not

superseded by the Federal preemption

provisions discussed below.)

In some States, a Medicaid HMO may

operate without a license from the

department of insurance or other State

agency that licenses organizations

offering health benefits or health

insurance in the commercial and

Medicare markets. The Medicaid plans

operate under the authority of the State

Medicaid agency, which may be the

agency establishing solvency standards

for such organizations, as required by

section 1903(m)(1)(A)(ii). The State

authorization for these plans may be

viewed as a limited scope licensure,

enabling plans to operate as Medicaid

contractors only, and not in other

segments of the health insurance

market.

To establish the licensure status of

organizations, and in particular to

determine compliance with scope of

licensure requirements, we will require,

as part of the application process for
35012 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

new applicants, documentation that

both the licensure and scope of

licensure requirements are met.

Organizations must provide verification

from the appropriate State regulatory

body authorized to license Medicare

risk products demonstrating that the

licensure status of the organization

enables it to offer the M+C plan, or

plans, it intends to offer. This would

ensure that, in the case of an

organization only authorized to offer a

Medicaid plan, for example, solvency

standards appropriate to an M+C

product are met. In the case of noncommercially licensed entities, we are

requiring that they obtain a special

certification from the State that they

meet appropriate solvency standards.

As noted in the BBA, ‘‘The fact that

an organization is licensed in

accordance with paragraph [1855(a)](1)

does not deem the organization to meet

other requirements imposed under this

part’’ (1855(a)(3)). That is, while the

State licensure requirement is imposed

on all plans as a prerequisite for

contracting as an M+C organization,

licensure in and of itself does not

guarantee that an organization will be

able to obtain an M+C contract. The

organization must meet other applicable

requirements of this part in order for us

to grant an M+C contract.

2. Federal Preemption of State Law

(§ 422.502)

Section 1856(b)(3)(A) of the Act

provides for a Federal preemption of

State laws, regulations, and standards

affecting any M+C standard if the State

provisions are inconsistent with Federal

standards (a preemption policy we refer

to below as a general preemption).

There is also a specific preemption of

State laws (1856(b)(3)(B)) in three areas

where Federal standards ‘‘preempt the

field’’; that is, regardless of whether

State laws are inconsistent or not,

Federal standards preempt State law,

regulations, and standards. The general

and specific preemption of State law

applies to ‘‘Medicare benefits and

Medicare beneficiaries,’’ as stated in the

conference report that accompanied the

BBA. The BBA preemption provisions

do not extend to non-Medicare enrollees

or activities or non-Medicare ‘‘lines of

business’’ of organizations that have

M+C contracts.

Prior to the BBA, section 1876 of the

Act (governing Medicare risk and cost

contracts with HMOs and competitive

medical plans) did not contain any

specific preemption provisions.

However, section 1876 requirements

could preempt a State law or standard

based on general constitutional Federal

preemption principles, consistent with

the provisions of Executive Order 12612

on Federalism. Under the guidelines of

the Executive Order, section 1876

requirements did not preempt a State

law or standard unless the law or

standard was in direct conflict with the

Federal law, or it prevented the

organization from complying with the

Federal law. Put another way, if Federal

law permitted the HMO to do what State

law required, there was no preemption.

In practice, rarely, if ever, did Federal

law preempt State laws affecting

Medicare prepaid plans. For example,

Medicare risk plans operating in States

with mandated benefit laws were

generally required to comply with such

State laws. Compliance with the State

mandated benefit law was not viewed as

interfering with the ability of plans to

function as Medicare risk contractors

under Federal standards. (Because the

BBA preemption applies only to M+C

plans, this approach to preemption

issues will continue to apply to cost

contracts governed by section 1876

rules.)

General Preemption: The general

preemption provision of the BBA will

be applied in the same way that the

Executive Order has been applied, in

that State laws or standards will be

preempted only when they are

inconsistent with M+C standards, as

clearly indicated in the statute. Because

the BBA requires that PSOs operating

under a waiver of the State licensure

requirement must comply with State

quality and consumer protection

standards, it seems clear that the

Congress expected States, in some cases,

to have more rigorous or more

comprehensive standards for quality

and consumer protection which would

enhance, rather than duplicate or be

subsumed under, the M+C standards for

quality and consumer protection. Thus,

unless one of the specific preemptions

discussed below applies, State laws or

standards that are more strict than the

M+C standards would not be preempted

unless they prevented compliance with

the M+C requirements. This is

consistent with the BBA conference

report language that notes that State

laws apply if they provide ‘‘consumer

protections in addition to, or more

stringent than’’ the BBA. The BBA also

provides that the quality and consumer

protection standards with which PSOs

must comply include only those

requirements ‘‘generally applicable to

M+C organizations and plans in the

State’’ which are ‘‘consistent with the

standards’’ of the BBA. That is, there are

likely to be quality and consumer

protection standards imposed by States

that all M+C plans must comply with,

and for which there is no Federal

preemption.

Specific Preemption: Though the

general preemption provision will be

applied in the same way that the

Executive Order has been applied, for

the three areas in which the Congress

provided for a specific preemption of

State laws, the M+C standards

supersede any State laws and standards.

These three areas are:

• Benefit requirements:

• Requirements relating to inclusion

or treatment of providers; and

• Coverage determinations

(‘‘including related appeals and

grievance processes’’).

We are adopting a narrow

interpretation of the applicability of the

three areas of specific preemption,

which we believe is justified by the

conference report language and the

overall structure of the BBA in its

delineation of the relative roles of the

State and Federal governments. Under

the BBA, States have exclusive authority

(other than in the case of PSOs) to make

the determination of whether

organizations are eligible to enter into

M+C contracts, while under section

1876 of the Act, it was the Federal

Government that designated ‘‘eligible

organizations’’ (HMOs under title XIII of

the Public Health Service Act (a Federal

designation) or competitive medical

plans (also a Federal designation)).

Under section 1876, the Federal

Government also determined solvency

standards for organizations, while under

the BBA this becomes a State

responsibility (other than for PSOs). The

conference report (p. 638) also clarifies

the intended scope of preemption in the

three specific areas. The report indicates

the conferees seek to put M+C on a par

with ‘‘original fee-for-service,’’ where

the ‘‘Federal government alone set

legislative requirements regarding

reimbursement, covered providers,

covered benefits and services, and

mechanisms for resolving coverage

disputes.’’ The conferees wish to

‘‘[extend] the same treatment to private

M+C plans providing Medicare benefits

to Medicare beneficiaries.’’

Using the analogy of original

Medicare, Federal law preempts State

laws and standards in certain specific

areas. Under original Medicare: States

cannot specify what must be included

as a Medicare benefit; States do not

specify the conditions of participation

of Medicare providers (though they

license providers and practitioners and

determine their scope of practice);

States may not specify how a coverage

determination is to be made with

respect to whether or not the Medicare

program covers a benefit; and a State
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35013

does not determine the type of appeal

mechanism that is to be used to appeal

a coverage decision made by a Medicare

carrier or intermediary with respect to a

Medicare benefit. For M+C plans, the

specific preemption of State laws in the

three areas would prevent, for example,

the application of mandated benefits

laws; ‘‘any willing provider’’ laws and

other laws mandating the inclusion of

specific types of providers or

practitioners; or laws that supplant or

duplicate the Medicare coverage

determination and appeal process as it

relates to coverage of benefits under the

M+C contract. However, States may

have various laws and requirements that

could still apply to

• Benefits (for example, a plan could

be required to have a toll free number

to answer benefit questions),

• Providers and practitioners

generally in the State (e.g., they must all

be licensed by the State and comply

with scope of practice laws), and

• Laws and standards which could

apply to disputes between members and

health plans, as discussed below.

Under our narrow construction of the

specific preemptions, and consistent

with our definition of the term

‘‘benefits’’ at § 422.2, the specific

preemption of benefit laws does not

extend to State laws and standards

relating to cost sharing or other financial

liability standards for enrollees of health

plans, though we are inviting comments

on our position, outlined below, that

cost sharing should not fall under the

benefits preemption, as well as

comments on whether there are types of

cost sharing that should or should not

be included in the benefits preemption.

Thus, a State law prescribing limits

on cost sharing generally, or limits on

cost sharing that can be imposed for

specific benefits, would not be

preempted. If the benefit to which the

State cost sharing limits apply is not a

Medicare covered benefit, however, the

limits on cost sharing would only apply

if the M+C organization chooses to offer

the benefit in question. Thus, to the

extent that limits on cost sharing are

linked to a benefit mandate, the cost

sharing limits could be seen to be

indirectly ‘‘preempted’’ in that the

obligation to provide the benefit to

which they apply is preempted. If the

M+C organization chooses not to

provide the benefit that would

otherwise be mandated under a

preempted benefit mandate, the cost

sharing limits that apply to that benefit

would never come into play. We note

that while cost sharing limits are not

specifically preempted under the

benefits preemption in section

1856(b)(3)(B)(i) and § 422.402(b)(1), cost

sharing limits are still subject to the

general preemption in section

1856(b)(3)(A) and § 422.402(a). Thus, to

the extent the cost sharing limit would

be inconsistent with M+C provisions, it

would be preempted. An example of

State cost-sharing requirements being

preempted because they are inconsistent

with M+C provisions would be a State

requirement that requires all insurers

and health plans to pay 100 percent of

the cost of a particular service (e.g.,

mammography screening or other

preventive care). In the case of an M+C

MSA plan, we would argue that the

general preemption provision applies,

because the State requirement is

inconsistent with the basis structure of

a high-deductible plan under which

covered services are not payable under

the plan until the deductible is met.

To address a specific question that

has arisen, State laws requiring direct

access to particular providers (either

contracted by the M+C organization or

not under contract), and State laws

requiring, for example, a second opinion

from non-contracted physicians, would

be superseded by the benefit and

provider participation preemptions

(though M+C standards in these

regulations dealing with access to

particular providers may have an effect

that is similar to that of State laws that

are superseded). This is because these

requirements in essence mandate the

‘‘benefit’’ of access to a particular

provider’s services even where the

services of that provider would not

otherwise be a covered benefit.

We are also adopting a narrow

interpretation of the scope of

preemption of coverage determinations.

Coverage determinations are made

initially by M+C organizations and may

be appealed as provided for under

subpart M of these regulations. Our

view is that the types of decisions

related to coverage included in this

specific preemption are only those

determinations that can be subject to the

appeal process of subpart M. These are

decisions about whether an item or

service is covered under the M+C

contract and the extent of financial

liability beneficiaries have for the cost

of covered services under their M+C

plan. The Medicare appeal process

applies to basic benefits, mandatory

supplemental benefits, and optional

supplemental benefits offered under an

M+C contract. The specific preemption

makes the Medicare appeal process the

exclusive remedy for disputes over

coverage determinations, displacing any

State grievance or appeal process that

might otherwise be available in such

cases. However, the specific preemption

does not preempt State remedies for

issues other than coverage under the

Medicare contract (i.e. tort claims or

contract claims under State law are not

preempted). The same claim or

circumstance that gave rise to a

Medicare appeal may have elements

that are subject to State remedies that

are not superseded. For example, an

M+C organization’s denial of care that a

beneficiary believes to be covered care

is subject to the Medicare appeals

process, but under our interpretation of

the scope of the specific preemption on

coverage decisions, the matter may also

be the subject of a tort case under State

law if medical malpractice is alleged, or

of a state contract law claim if an

enrollee alleges that the M+C

organization has obligated itself to

provide a particular service under State

law without regard to whether it is

covered under its M+C contract.

We are seeking public comments on

our interpretation of the applicability of

the three areas of pre-emption

specifically the exclusion of cost sharing

and financial liability standards from

the federal pre-emption and the

exclusion of direct access to particular

providers.

As noted above, where the BBA

preempts State laws and standards, any

Federal preemption based on the BBA

applies only to the Medicare ‘‘line(s) of

business’’ of an M+C organization (i.e.,

Medicare enrollees). As such, there

would be no Federal preemption of

State laws which are applicable to other

enrollees of the organization.

Additionally, there would be no Federal

preemption of State laws which are

applicable to arrangements outside the

scope of the BBA, such as arrangements

between employers and M+C plans for

the provision of negotiated employer

group benefits discussed at § 422.106 of

these regulations. Neither the specific

nor the general preemption would apply

to any aspect of such arrangements.

3. Prohibition on State Premium Taxes

(§ 422.404)

Section 1854(g) of the Act, introduced

in the BBA, provides that ‘‘No State may

impose a premium tax or similar tax

with respect to payments to M+C

organizations under section 1853.’’

Section 4002(b)(4) of the BBA makes the

prohibition on premium taxes

applicable to risk-sharing contracts

operating under section 1876 effective

the date of enactment of the BBA. This

prohibition does not apply to enrollee

premium payments made to M+C plans,

which are authorized under section

1854.

The regulations provide clarification

on the applicability of the prohibition of

State premium taxes. The BBA does not
35014 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

define the term ‘‘State,’’ but elsewhere

in the Medicare statute (1861(x),

referring to 210(h) of the Act), the term

‘‘State’’ is defined to include the District

of Columbia, the Commonwealth of

Puerto Rico, the Virgin Islands, Guam,

and American Samoa. The regulations

include this definition of State for

purposes of the scope of the premium

tax prohibition.

The BBA is also silent as to whether

the prohibition of premium taxes

includes county taxes or taxes by other

governmental entities within a State.

The Federal Employees Health Benefits

Program (FEHBP) statute, on the other

hand, has more specific language on the

applicability of the exemption from

premium taxes. The FEHBP statute

specifically extends the prohibition to

‘‘any political subdivision or other

governmental authority’’ of a State (5

U.S.C. 8909(f)(1)).

The BBA conference report does not

provide any clarification on this issue.

However, a July 31, 1997 summary of

the provisions of the BBA prepared by

the Senate Finance Committee

(‘‘Summary: Health and Welfare

Provisions in the Balanced Budget Act

of 1997’’), stated that ‘‘[t]he current law

on federal preemption of state premium

taxes or fees on Federal payments from

the FEHBP to health plans will be

extended to Federal payments to M+C

plans and other health plans receiving

capitated payments from the Medicare

Trust Funds.’’ Although the language of

the BBA prohibition is not as specific as

the FEHBP language, we are clarifying

in these regulations that the prohibition

does apply to any political subdivision

or other governmental authority within

a State. We believe such an

interpretation is necessary because

counties and other State authorities

derive their powers from the State.

Thus, any prohibition of State actions

contained in a Federal statute should be

interpreted as prohibitions on actions at

any level of State government or any

State or local governmental body within

a State.

The BBA does not define the phrase

‘‘premium tax or other similar tax,’’

other than by reference to the

applicability of such a tax to revenue

received from the Federal Government

for health plan enrollees. Relying again

on the FEHBP statute, we have included

a provision in the regulations

(§ 422.404(b) that serves to clarify the

scope of what constitutes a prohibited

premium tax. The FEHBP statute

expressly permits States to impose taxes

on the profits arising from participation

as an FEHBP plan, to the extent that the

tax on profits, or other taxes or fees, are

general business taxes. We have

included a similar exception because

such taxes are not taxes applied directly

and exclusively to premium revenues,

and therefore should not be prohibited

under section 1854(g).

The BBA premium tax prohibition

does not provide for any exception to

the prohibition based on the purpose of

the tax. For example, some States are

using a broadly applicable premium tax

to fund health care coverage for

individual State residents who might

otherwise be uninsured (e.g., financing

a State high-risk pool), or to fund a State

guaranty fund that could potentially

benefit enrollees of an M+C plan in the

event of insolvency. Although such

premium taxes do provide a social good,

and may yield a direct benefit to M+C

organizations and their enrollees, there

are no exceptions to the premium tax

prohibition included in the BBA or in

these regulations. By not having allowed

any exceptions, we would note that, to

the extent participation in a State

guaranty fund is used as means of

satisfying State (or Federal)

requirements for protections in the

event of insolvency, M+C organizations

that would otherwise have participated

in the guaranty fund by paying the

premium tax are likely to be required to

meet alternative insolvency

requirements. An M+C organization

may also choose to voluntarily pay

premium taxes in order to participate in

such a fund.

J. Subpart J of Part 422

Subpart J of part 422 is being

reserved.

K. Contracts with M+C Organizations

1. Definitions (§ 422.500)

Section 422.500 of subpart K contains

definitions germane to subpart K that

address provisions pertaining to

contracts with M+C organizations.

These definitions, for the most part,

have been imported from part 417 under

our authority from section 1856(b)(2).

The lone exception, Party of Interest has

been clarified in paragraph (3) to

include non-profit entities.

2. General Provisions (§ 422.501)

Section 1857(a) provides that the

Secretary will not permit an

organization to operate as an M+C

organization unless it has entered into a

contract with HCFA. The statute also

provides that the contract may cover

more than one M+C plan.

An applicant, however, must meet

certain requirements before HCFA can

consider entering into a contract with it.

First, in accordance with section

1855(a)(1), the applicant must be

licensed (or if the state does not license

such entities, hold a certificate of

authority/operation) as a risk-bearing

entity in the State in which it wishes to

operate as an M+C organization; section

1855(a)(2), however, allows for a waiver

of this requirement for Federallywaivered PSOs under certain

circumstances. Second, the applicant

must meet the minimum enrollment

requirements specified at section

1857(b). These requirements provide

that the organization must have at least

5,000 (or 1,500 if it is a Federallywaivered PSO) individuals receiving

health benefits from the organization or

at least 1,500 (or 500 if it is a PSO)

individuals receiving benefits in a rural

area. Section 1857(b)(3) gives the

Secretary the authority to waive the

minimum enrollment requirements for

the first 3 contract years.

Third, an M+C organization must

demonstrate certain administrative and

managerial capabilities that we believe

are essential for HCFA to examine prior

to agreeing to contract with any

applicant as an M+C organization. For

this reason, pursuant to section

1856(b)(2) which provides for the

adoption of regulations implementing

section 1876, we have adopted the

administration and management

requirements from §§ 417.120 and

417.124 and have applied them to M+C

organizations. In addition, pursuant to

our authority in section 1856(b)(1) to

establish standards under Part C by

regulation, we will require that all M+C

organizations establish a plan for

complying with all applicable Federal

and State standards. The compliance

plan must include written policies,

procedures, and standards of conduct,

the designation of a compliance officer

accountable to senior management of

the organization, provisions for internal

monitoring, auditing, accountability,

and an adhered to process for reporting

violations of law by the organization or

their subcontractors.

Further, pursuant to our authority in

section 1856(b)(1) to establish standards

for M+C organizations by regulation, we

are in this rule establishing an

additional condition for entering into an

M+C contract. Under this rule, an entity

that is accepting new enrollees under a

section 1876 cost contract will be

ineligible to enter into an M+C contract

covering the area it serves under its cost

contract. Our reason for establishing this

rule is to eliminate the potential for an

organization to encourage higher cost

enrollees to enroll under its cost

contract while healthy enrollees are

enrolled in its risk-based M+C plan.

This rule is consistent with our

longstanding policy that entities not
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35015

have both a risk and cost contract under

section 1876 in the same area.

Further, we provide at § 422.501(b)

that in order to be eligible to contract as

an M+C organization, an applicant

organization that held a prior contract

terminated by HCFA under § 422.510

within the past five years.

Section 1857(c)(5) authorizes the

Secretary to enter into contracts with

organizations without regard to

provisions of law or regulations that the

Secretary determines to be inconsistent

with the furtherance of the purpose of

Title XVIII of the Act. Based on this

authority, we provide in § 422.501(c)

that HCFA may enter into contracts

under part 422 without regard to the

Federal and Departmental acquisition

regulations set forth in title 48 of the

CFR.

Further, section 1857(d)(1) and (2)

provide for the auditing of the financial

records of at least one third of M+C

organizations annually, and the

inclusion of specified inspection and

auditing rights in M+C contracts. We

have incorporated these requirements in

§ 422.501(d). We likewise specify

related requirements that enable HCFA

to do so.

Since section 1857(a) allows that an

M+C contract may cover more than one

M+C plan, we have added paragraph (e),

‘‘Severability of contracts,’’ through our

authority in section 1856(b)(1). The

contract provides that upon HCFA’s

request (1) the contract will be amended

to exclude any M+C plan or Statelicensed entity specified by HCFA, and

(2) a separate contract for any such

excluded plan or entity would be

deemed to be in place when such a

request is made.

National Contracting

The BBA does not specifically define

or otherwise address the issue of

national contracting. While we are

interested in national contracting, we

have not specified it in the regulations

and welcome comment on this concept.

One option we are considering would

allow an M+C applicant to request that

HCFA enter into a national contract

with the applicant if the applicant holds

license as a risk-bearing entity in each

state where it operates or has a waiver

as provided in § 422.370. The applicant

M+C organization would have the

option of having a uniform premium

and benefit plan across the country,

with one service area and a national

ACR proposal.

We are considering a different

concept of a national agreement with

national chain organizations. This

concept would apply to those chain

organizations that enter into separate

contracts in multiple States. The

agreement would allow for the chain

organization to establish a uniform

policy across all of its states as to

marketing, quality assurance, utilization

review, claims processing, etc. HCFA

would have to approve the national

policy procedures. HCFA would

continue to contract separately with

individual, albeit related, M+C

organizations affiliated through

common ownership or control. We

would continue to monitor operational

activities for each organization in each

State, but having approved national

policy, our review at the State and local

level would be reduced.

3. Contract Provisions (§ 422.502)

Section 422.502 of this rule sets forth

the provisions and related requirements

for contracts between HCFA and M+C

organizations. In general, Medicare

beneficiaries may not elect to enroll in

an M+C plan offered by an M+C

organization, and no payment will be

made to the M+C organization, unless

the Secretary enters into a contract with

the organization. The provisions that

describe this relationship between the

Secretary and the M+C organization are

based on Part C of title XVIII of the Act

and on Medicare contract requirements

derived from subparts C and L of part

417.

The provisions of the Act as added by

the BBA are generally silent with regard

to the specific provisions that must be

included in the contract between the

M+C organization and HCFA. The Act

does, however, specify at section

1857(a) that the contract must provide

that the organization agrees to comply

with the applicable requirements,

standards, and terms and conditions of

payment of Part C of title XVIII of the

Act. In addition, section 1857(e)

provides that the contract shall contain

such other terms and conditions not

inconsistent with Part C of title XVIII of

the Act that the Secretary may find

necessary and appropriate. Included in

§ 422.502(a), ‘‘Agreement to comply

with regulations and instructions,’’ are

the following contract conditions:

• The M+C organization must agree to

accept new enrollments, make

enrollments effective, process voluntary

disenrollments, and limit involuntary

disenrollments. The M+C organization

agrees that it will comply with the

prohibition in § 422.108 on

discrimination in beneficiary

enrollment.

• The M+C organization must agree to

provide the basic benefits as required

under § 422.101 and to the extent

applicable, supplemental benefits under

§ 422.102.

• The M+C organization must agree to

provide access to benefits as required

under subpart C of part 422. All benefits

covered by Medicare must be provided

in a manner consistent with

professionally recognized standards of

health care.

• The M+C organization agrees to

disclose information to beneficiaries as

required under § 422.110.

• The M+C organization must agree to

operate a quality assurance and

performance improvement program, and

to have an agreement for external

quality review as required under

subpart D of part 422.

• The M+C organization must agree to

comply with all applicable provider

requirements in subpart E of part 422,

including provider certification

requirements, anti-discrimination

requirements, provider participation

and consultation requirements, the

prohibition on interference with

provider advice, limits on provider

indemnification, rules governing

payments to providers, and limits on

physician incentive plans.

• The M+C organization will agree to

comply with all requirements in subpart

M governing coverage determinations,

grievances, and appeals.

• The M+C organization will comply

with the reporting requirements in

§ 422.516 and the requirements for

submitting encounter data to HCFA in

§ 422.257.

• The M+C organization agrees that it

will be paid under the contract in

accordance with the payment rules

under subpart F of part 422.

• The M+C organization will develop

annual adjusted community rate

proposals and submit all required

information on premiums, benefits, cost

sharing by May 1, as provided in

subpart G of part 422.

• The M+C organization agree that its

contract may be terminated or not

renewed in accordance with subparts K

and N of part 422.

• The M+C organization will agree to

comply with all requirements that are

specific to a particular type of M+C

plan, such as the special rules for

private fee-for-service plans in

§§ 422.114 and 422.216 and the M+C

MSA requirements in §§ 422.56,

422.103, and 422.262.

• The M+C organization will agree to

comply with the confidentiality and

enrollee accuracy requirement in

§ 422.118.

• The M+C organization agrees that

complying with the aforementioned

contract conditions is material to

performance of the contract.

Contract requirements that were

either not required of HMOs and CMPs
35016 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

under section 1876, or have been

modified to implement the M+C

program follow:

• The M+C organization must possess

the capabilities to communicate with

HCFA electronically.

• The M+C organization is required to

provide prompt payment of covered

services if these services are not

furnished by a provider under contract

or agreement in an M+C plan’s health

services delivery network. Under

section 1876, the prompt payment

requirement was limited to

noncontracting providers. Section

1857(f) duplicates this requirement and

adds to it the requirement that if the

Secretary determines that an M+C

organization fails to pay claims

promptly, the Secretary may provide for

direct payment of the amounts owed

providers. When this occurs, the

Secretary reduces the amount of the

M+C organization’s monthly payment to

account for payments to these providers.

We explain the full implications of this

requirement in the discussion below

pertaining to § 422.520.

• Pursuant to our authority in section

1856(b)(1) to establish standards under

Part C, we are requiring that M+C

organizations maintain records for 6

years. The standard for retention of

records for HMO and CMPs was 3 years.

We are changing the retention period

from 3 years to 6 years so as not to

prematurely foreclose our ability to

address fraudulent or other abusive

activities.

• Pursuant to our authority at section

1856(b)(1) to establish standards under

Part C, we specify requirements relating

to M+C organizations providing access

to facilities and records at § 422.502(e).

In this section we assert that M+C

organizations allow HHS, the

Comptroller General, or their designees

to evaluate, through inspection or other

means, all aspects of medical services

furnished to Medicare beneficiary

enrollees, the facilities of M+C

organizations, and enrollment and

disenrollment records of M+C

organizations. We further provide that

HHS, the Comptroller General, or their

designees may audit, evaluate, or

inspect all facilities and records as the

Secretary may deem necessary to

enforce an M+C contract. HHS’s, the

Comptroller General’s, and designee’s

right to inspect such facilities and

records extends through 6 years from

the date of the contract period or

completion of any inspection or audit

activity, whichever is later. Exceptions

to this 6-year inspection timeframe can

occur in instances when: (1) HCFA

determines there is a special need to

retain particular records or a group of

records for a longer period and notifies

the M+C organization at least 30 days

before the normal disposition date, (2)

there has been a termination, dispute, or

fraud or similar fault by the M+C

organization, in which case the

retention may be extended to 6 years

from the date of any resulting final

solution of the termination, dispute, or

fraud or similar fault, or (3) HCFA

determines that there is a reasonable

possibility of fraud, in which case it

may inspect, evaluate, and audit the

M+C organization at any time.

• Pursuant to our authority in section

1856(b)(1) to establish standards under

Part C, and the provision in section

1856(b)(2) for adopting section 1876

standards, we have included certain

disclosure requirements from § 417.486

in § 422.502(f). We have also included

additional disclosure requirements to

reflect new reporting requirements in

§ 422.516.

• At § 422.502(f)(2), we add the

requirement that M+C plans submit to

HCFA specific information necessary to

evaluate and administer the program

and to enable beneficiaries to exercise

informed choice in obtaining Medicare

services. Section 1851(d) authorizes the

Secretary to obtain this information to

enable HCFA to fulfill its responsibility

to develop activities to disseminate

broadly information to current and

prospective Medicare beneficiaries in

order to promote an active, informed

selection among such options.

• Pursuant to section 1851(b)(4)(B),

we have specified requirements at

§ 422.502(b)(2)(vii) that M+C

organizations offering MSA plans

disclose to HCFA information that will

enable HCFA to evaluate the impact of

permitting enrollment in MSA plans.

• Enrollee financial protection

provisions are addressed at § 422.502(g).

The first item protects beneficiary

enrollees from incurring liability for

payment of any fee that M+C

organizations are legally obligated to

bear. Section 422.502(g) contains the

enrollee financial protection that has

applied to HMO and CMP enrollees

under § 417.122 (a)(1), which was made

applicable to all section 1876

contractors under § 417.407(f). The

beneficiary protection at 422.502(g)(1) is

designed to protect beneficiary enrollees

from being held financially responsible

for fees for which the M+C organization

is legally liable. Under the provision, we

assert that M+C organizations protect

beneficiary enrollees in two ways. First,

through inclusion, hold harmless

language in its written agreements with

the providers that comprised the M+C

plan’s Medicare provider network. And

pursuant to our rulemaking authority at

section 1856(b)(1), we also specify that

M+C organizations must indemnify

beneficiary enrollees for the

organization’s legal obligations that are

derived from health care services

provided to enrollee beneficiaries by

providers that have not entered into a

written agreement to participate in the

M+C organization’s Medicare provider

network. The beneficiary protection at

422.502(g)(2) afford beneficiaries

protection against loss of benefits for

which the M+C organization is legally

obligated to pay. Except in the case of

PSOs that have been awarded Federal

waivers (see subpart H), States have the

primary responsibility under Part C for

determining whether an M+C

organization has sufficient reserves to

assume the risk it takes on under an

M+C contract. The State that licenses

the entity under applicable State law

determines whether an entity has

sufficient financial reserves to enter into

an M+C contract.

Congress has given HCFA some

ongoing responsibility concerning

solvency, however. In section

1857(d)(4)(A)(i), M+C organizations are

required to provide the Secretary with

such information ‘‘as the Secretary may

require demonstrating that the

organization has a fiscally sound

operation.’’ Accordingly, we believe that

it is appropriate, under our authority in

section 1856(b)(1) to establish standards

under Part C to require (in § 422.502(g))

that an entity that already has an M+C

contract demonstrate to HCFA that it

has protections in place ensuring that

beneficiaries will not be held liable for

the entity’s debts. We believe that this

can be seen as part of having a fiscally

sound operation as provided for in

section 1857(d)(4)(A)(i).

• The subsection entitled

‘‘Requirements of Other Laws and

Regulations’’ at § 422.502(h) requires

that contracts reflect the M+C

organization’s obligations under other

laws, specifically, the Civil Rights Act of

1964, the Age Discrimination Act of

1975, the Americans with Disabilities

Act, other laws applicable to recipients

of Federal funds, and all other

applicable laws and rules.

• Pursuant to our authority under

section 1856(b)(1) to establish standards

under Part C, paragraph (i) of § 422.502

contains requirements that apply to

related entities, contractors, and

subcontractors of an M+C organization.

These requirements promote an M+C

organization’s accountability and

program integrity.

The requirements in paragraph (i)

recognize that organizations that are

likely to apply for M+C contracts

commonly enter into business
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35017

relationships with entities that they

placed under contract to perform certain

functions that otherwise would be the

responsibility of the organization to

perform including management and

provision of services. This section

therefore addresses these relationships

and establishes requirements that the

M+C organizations must adhere to in

order to provide HCFA assurances that

the M+C organization will be

accountable for all contract

requirements.

Specifically, this section gives HHS,

the Comptroller General or their

designee, the authority to audit,

evaluate and/or inspect documents,

papers, records of all of the

organizations mentioned in § 422.502(i);

and to obtain information from the M+C

organization and other entities

described here, six years following the

close of a contract or audit. Paragraph

(i)(3) of § 422.502 describes provisions

that must be included in contracts and

other written arrangements between

M+C organizations and other entities

described in this section.

• Section 422.502(j), which is derived

from section 1857(e), states that the

contract will contain other terms and

conditions consistent with this part as

HCFA may find necessary and

appropriate.

• Under § 422.502(k), we require that

all M+C contracts be severable as

discussed previously.

Finally, pursuant to our authority in

section 1856(b)(1) to establish standards

under Part C by regulation, we are

requiring in paragraphs (l) and (m) that

an M+C organization request payment

on document that certify the accuracy

and completeness of relevant data as a

condition for receiving its capitation

payment and, in the case of the ACR, for

retaining the portion of capitation

payment associated with the ACR

amount (rather than providing

additional benefits). Section 422.502(b)

also states that the M+C organization’s

CEO or CFO certify the accuracy of

encounter data, and, in instances when

encounter data are generated by a

related entity, contractor, or

subcontractor, such entity likewise

certifies the accuracy of the encounter

data.

In all of these cases, when an M+C

organization submits the data in

question to HCFA, we believe that it is

making a ‘‘claim’’ for capitation

payment in the amount dictated by the

data submitted, or in the case of the

ACR submission, a ‘‘claim’’ to retain the

portion of the capitation payment that is

under the ACR amount, rather than

providing additional benefits. We

believe it is important that when an

M+C organization is claiming payment

(or the right to retain payment) in a

particular amount based upon

information it is submitting to HCFA, it

should be willing to certify the accuracy

of this information. We believe that

these certifications will help ensure

accurate data submissions, and assist

HCFA and the Office of Inspector

General in anti-fraud activities.

4. Effective Date and Term of Contract

(§ 422.504)

Section 1857(c) provides that each

contract under section 1857 will be for

a term of at least 1 year, as determined

by the Secretary. This section also

provides that the effective date and term

of the contract will be specified in the

contract, except that in no case will a

contract under this section that provides

for coverage under an M+C MSA plan

be effective before January 1999 with

respect to such coverage. Based on these

provisions, § 422.504(b) of this rule

provides that beginning in 2002,

contracts will be for a period of 12

months beginning on January 1 and

ending on December 31. We include an

exception at § 422.504(d) which

indicates that prior to January 1, 2002,

HCFA may at its discretion approve

contracts for periods longer than 12

months, that begin on a date other than

January 1.

HCFA has decided not to exercise the

discretion provided in section

1857(a)(1) to make contracts

automatically renewable (section

1857(a)(1) provides that contracts

‘‘may’’ be automatically renewable from

term to term.) Instead, we specify at

§ 422.504(c) that the contract may be

renewed annually only if HCFA

affirmatively authorizes a renewal, and

the M+C organization has not given

HCFA a notice of nonrenewal. We

believe that this approach is consistent

with HCFA’s role as a prudent

purchaser and is in the best interest of

the tax payer, the Medicare beneficiary

and the Medicare program.

Under the current 1876 risk contract

program, HCFA receives applications on

a continuous basis and also awards

contracts on a continuous basis as soon

as the review process is complete, and

a decision for approval has been

reached. We have decided to maintain

this process for the next few years under

the M+C program. The BBA, however,

provides a framework that has

encouraged us to consider changing this

in the future. The requirements for a

coordinated open enrollment policy and

printed plan comparison charts and the

advent of the lock-in periods starting in

2002 suggests that HCFA move toward

a policy of establishing a cutoff date for

awarding contracts annually. This cutoff

date would be timed to ensure that all

new plans are included in the printed

plan comparison charts. If we

established a cutoff phase, HCFA would

implement this change to the

application and award processes in the

year 2001 in time for the first year of the

lock-in. We invite comments on this

issue.

5. Nonrenewal of Contract (§ 422.506)

Section 422.506(a) discusses the

process that an M+C organization must

follow if it decides not to renew its

contract. If the M+C organization does

not want to renew its contract, it must

notify HCFA in writing by May 1 of the

year preceding the year that the M+C

organization intends to no longer

contract with HCFA. In addition, the

M+C organization must notify each

Medicare enrollee by mail at least 90

days before the effective date of the

nonrenewal. It must also notify the

general public at least 90 days before the

end of the current calendar year by

publishing a notice in one or more of

the newspapers of general circulation

located in the M+C’s geographic area.

We also provide that HCFA may

accept a nonrenewal notice of an M+C

organization’s decision not to renew its

contract submitted after May 1 if the

M+C organization complies with the

requirements concerning enrollee and

public notification and acceptance

would not otherwise jeopardize the

effective and efficient administration of

the Medicare program. The May 1

deadline is timed to coincide with the

ACR submission and internal HCFA

timelines that require the timely

submission of information necessary for

developing annual health fair/open

enrollment materials that will be made

available to new and already-enrolled

Medicare beneficiaries. We believe that

the conference committee reports make

it clear that the Congress intends for

Medicare beneficiaries to make

informed choice based on accurate,

comparative M+C plan information. The

Conferees further make it clear that the

Secretary must take all steps necessary

to ensure that all Medicare beneficiaries

are provided the information needed to

make informed choices about health

coverage. We assert that the datespecific deadlines by which an M+C

organization must notify HCFA of its

decision not to renew its contract is a

necessary step that promotes and

represents the best intent of the law.

Section 1857(c)(4) provides that the

Secretary cannot enter into an M+C

contract with an M+C organization if,

within the preceding five years, that

organization has had an M+C contract
35018 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

that was ‘‘terminated at the request of

the organization,’’ except ‘‘in

circumstances that warrant special

consideration, as determined by the

Secretary.’’ While Congress used the

word ‘‘terminated’’ rather than

‘‘nonrenewed,’’ the only way that a

contract could end solely ‘‘at the request

of the organization’’ would be as the

result of a notice of nonrenewal of the

contract. In the case of a termination by

mutual consent, discussed below, this

only occurs if HCFA agrees that a

termination of the contract is in the best

interests of beneficiaries. Even in the

case of a termination by the M+C

organization under § 422.512 (discussed

below), an organization does not have

the right simply to ‘‘request’’

termination of the contract. Rather, it

must show HCFA noncompliance with

HCFA’s obligations. This has never

happened under the Part 417

counterpart of this authority for an

organization to terminate its contract

(§ 417.494(c)). Thus, we have always

interpreted similar language in section

1876 to apply when an organization

nonrenews its contract. We therefore

make this interpretation explicit in

§ 422.506(a)(4).

HCFA decision not to authorize

renewal. In accordance with § 422.506,

contracts are renewed annually only if

(1) HCFA informs the M+C organization

that it authorizes a renewal and (2) the

M+C organization has not provided

HCFA with a nonrenewal notice.

Section 422.506(b)(1) provides that

HCFA may decline to authorize a

renewal of a contract for any of the

following reasons:

• The M+C organization has not fully

implemented or shown discernable

progress in implementing quality

improvement projects;

• The M+C organization demonstrates

insufficient enrollment growth. As

participation in the M+C program grows

it is inevitable that some contracting

entities will not enroll sufficient

numbers of Medicare beneficiaries to

justify the administrative costs

associated with regulating meet the

applicable minimum enrollment

requirements at § 522.514.

• For any of the reasons listed in

§ 422.510(a) which would also permit

HCFA to terminate the contract.

• The M+C organization has

committed any of the acts in

§ 422.752(a) which would support the

imposition of intermediate sanctions or

civil money penalties under Subpart O.

We believe that these aforementioned

reasons for not authorizing renewal of a

contract are consistent with HCFA’s

intent to fulfill its role as a prudent

purchaser of health care services.

Section 422.506(b)(2) provides that if

HCFA decides not to authorize the

renewal of a contract, HCFA gives

written notice to—

• The M+C organization by mail by

May 1 of the current calendar year;

• The M+C organization’s enrollees at

least 90 days before the end of the

current calendar year; and

• The general public, by publishing a

notice in one or more newspapers of

general circulation in each community

or county located in the M+C

organization’s service area, at least 90

days before the end of the current

calendar year.

Section 422.506(b)(3) provides that

HCFA give the M+C organization

written notice of its right to appeal the

nonrenewal decision in accordance with

subpart N.

6. Modification or Termination of a

Contract by Mutual Consent (§ 422.508)

We provide guidance at § 422.508(a)

that allows for contract termination by

mutual consent. If a contract is

terminated by mutual consent, except as

provided in the § 422.508(b), the M+C

organization must provide notice to its

Medicare enrollees and the general

public as provided in § 422.512(b) (2),

and (3). If the contract terminated by

mutual consent is replaced on the

following day by a new M+C contract,

the notice specified above does not need

to be provided.

We have developed a mutual consent

termination policy because we believe

that there are circumstances under

which an M+C organization may agree

to a mutual termination by consent.

This policy gives HCFA the option to

offer this alternative to affected M+C

organizations. Further, HCFA may

decide that it is in the best interests of

tax payers, Medicare beneficiaries and

the Medicare program to agree to let an

M+C organization terminate its contract

midyear. Finally, we believe this policy

accommodates M+C organizations that

may wish to terminate their contract by

mutual consent at the end of a calendar

year and enter into a new 12 month

contract year on January 1 during the

years prior to 2002. We invite comment

on this proposed policy.

In § 422.508, with some

modifications, we have retained the

provision for contract modification or

termination by mutual consent that

applies to contracts under section 1876.

As under § 417.494(a), contracts may be

modified or terminated at any time by

written mutual consent. The two

changes we have made are that (1) we

have changed the obligation to provide

enrollees and the public with notice of

a termination to conform to the 60-day

notice requirement in § 422.512(b) (2)

and (3) (which retained the enrollee

notice requirement in § 417.484(c)(2));

and (2) we have provided for an

exception to the notice requirement for

cases in which a contract being

terminated by mutual consent is being

replaced by a new contract on the day

the termination becomes effective. We

continue to require that M+C

organizations notify their Medicare

beneficiary enrollees of any changes that

may occur pursuant to a contract

modification by mutual consent within

timeframes specified by HCFA.

7. Termination of a Contract by HCFA

(§ 422.510)

Section 1857(c)(2) provides that the

Secretary may at any time terminate an

M+C organization contract if the

Secretary determines that the M+C

organization—

• Failed substantially to carry out the

contract;

• Is carrying out the contract in a

manner inconsistent with the efficient

and effective administrative of Medicare

Part C; or

• No longer substantially meet the

applicable conditions of Medicare Part

C.

In addition to repeating the above

statutory language, we are implementing

this language by identifying specific

circumstances that we believe constitute

examples of an M+C organization

substantially failing to carry out either

its contract, or carrying out its contract

in a manner that is inconsistent with the

effective and efficient administration.

Specifically, we have identified the

following circumstances: The M+C

organization commits or participates in

fraudulent or abusive activities affecting

the Medicare program; the M+C

organization substantially fails to

comply with requirements in Subpart M

relating to grievances and appeals; the

M+C organization fails to provide HCFA

with valid encounter data as required

under § 422.257; the M+C organization

fails to implement an acceptable quality

assessment and performance

improvement program as required under

Subpart D; the M+C organization

substantially fails to comply with the

prompt payment requirements in

§ 422.520; the M+C organization

substantially fails to comply with the

service access requirements in § 422.112

or § 422.114; the M+C organization fails

to comply with the requirements of

§ 422.208 regarding physician incentive

plans.

Section 1857(h)(2)provides authority

for the Secretary to immediately

terminate a contract with an M+C

organization in instances where the
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35019

Secretary determines that a delay in

termination resulting from compliance

with the procedures in section

1857(h)(1) discussed below would pose

an imminent and serious risk to the

health of enrolled Medicare

beneficiaries.

We have implemented this authority

as follows. First, § 422.510(a)(5)

provides for termination when an M+C

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 when the

organization otherwise fails to make

services available to the extent that such

a risk to health exists. Second,

§ 422.510(b)(2) provides that a

termination based on § 422.510(a)(5)

takes effect immediately. Third

§ 422.510(c) provides that the

opportunity for corrective action does

not apply to a termination based upon

§ 422.510(a)(5). And fourth, subpart N of

part 422 provides that in the case of a

termination based on § 422.510(a)(5), a

hearing is not provided until after the

termination takes effect.

Section 1857(h)(1) specifies

procedures that must be followed before

a termination by HCFA can take effect

(unless the exception for an imminent

and serious risk to health applies, as

discussed above). We specify these

requirements at § 422.50(b)(1). Section

1857(h)(1)(A) requires that the M+C

organization be provided with a

‘‘reasonable opportunity to develop and

implement a corrective action plan to

correct the deficiencies’’ that were the

basis for a decision that grounds for

termination existed under section

1857(c)(2). Section 422.510(c) provides

for such a corrective action opportunity,

consistent with time frames specified in

Subpart N, except in cases in which the

termination is based upon

§ 422.510(a)(5), and the ‘‘imminent and

serious’’ risk to health exception in

section 1857(h)(2) applies.

Section 1857(h)(1)(B) requires that the

Secretary provide the M+C organization

with ‘‘reasonable notice and

opportunity for hearing,’’ including ‘‘the

right to appeal an initial decision * * *

before terminating the contract.’’

(Emphasis added.) Section 422.510(d)

implements this provision by requiring

that a notice of appeal rights under

Subpart N be provided when a

termination notice is sent to an M+C

organization. This notice would specify

that the termination would not be

effective until after the hearing and

appeal, except in the case of a

termination under § 422.510(a)(5).

Also, in instances where it is

necessary for HCFA to immediately

terminate its contract with an M+C

organization for violations prescribed in

§ 422.510(a)(5), we specify in

§ 422.510(b)(2) that if a termination

notice is sent and takes effect in the

middle of the month, HCFA has the

right to recover a prorated share of its

payment made to the M+C organization

at the beginning of the month following

notice of said termination.

8. Termination of a Contract by the M+C

Organization (§ 422.512)

Paragraph (a) of § 422.512 provides

that the M+C organization may

terminate the contract if HCFA has

failed substantially to carry out the

terms of the contract. The paragraph (b)

through (d) establishes requirements for

giving notice, specifies when the

termination is effective, and establishes

when HCFA’s liability for payment to

the M+C organization ends. Paragraph

(e) states that organizations that

terminate their contract with HCFA

cannot enter into an agreement with the

Secretary for five years unless there are

circumstances that warrant special

consideration.

9. Minimum Enrollment Requirements

(§ 422.514)

The newly-created section 1857(b) of

the Act specifies that HCFA may not

enter into a contract with an M+C

organization unless the organization has

at least 5,000 enrollees (or 1,500 if it is

a PSO), or at least 1,500 enrollees (or

500 if it is a PSO) if the organization

primarily serves individuals residing

outside of urbanized areas. We specify

these requirements in § 422.514(a).

Section 1857(b) refers to individuals

‘‘who are receiving health benefits

through the organization.’’ We

considered interpreting receiving health

‘‘benefits’’ to mean more than simply

receiving health services. A hospital or

doctor can furnish health services on a

fee-for-service basis, or an organization

can administer health benefits offered

by an employer without actually

providing ‘‘benefits’’ in the form of

covered costs. We also recognize that

some new organizations, both federally

waivered PSOs and new state licensed

entities, will apply to enter the M+C

program. Thus, such an interpretation

would allow some new entities to

achieve the minimum enrollment

requirement without having any or very

little enrollment.

The minimum enrollment

requirement is an indicator that the

organization applying for an M+C

contract can handle risk and capitated

payments and also is able to effectively

manage a health care delivery system

including the enrollment and

disenrollment of beneficiaries and the

timely payment of claims, provide

quality assurance, and have systems to

handle grievances and appeals. While

having experience with risk based

payments indicates the organization can

handle risk, it does not provide any

assurance that the organization can

manage all the contractual requirements

of an M+C organization.

We realize that through the waiver

process for federally waivered PSOs and

the application process for all new

entities we require reasonable assurance

that the organization will be able to

manage their contract. We do not want

to add an additional barrier to entry for

those organizations that have gone

through the waiver process or state

licensure but are still start-up

organizations.

We have decided to require that the

minimum enrollment requirement can

only be met counting enrollees in the

particular organization. This will show

the organization can handle risk and

manage their system.

Section 1857(b)(2) contains the

statement that the term ‘‘covered lives’’

should be substituted for ‘‘individuals’’

in applying the minimum enrollment

rule to MSA plans. As such, we will

count covered lives for MSAs for

purposes of meeting the minimum

enrollment requirements.

As stated earlier, section 1857(b)(3)

allows M+C organizations to request a

waiver of minimum enrollment

requirements during the first 3 contract

years. Therefore, under § 422.514(b)

HCFA may waive the minimum

enrollment requirement for 1 year to

those organization that need a waiver

provided such organizations

satisfactorily demonstrate: prior

experience with risk-based payment

arrangements; the ability to bear

financial risk under the M+C contract;

and marketing and enrollment activities

necessary to meet enrollment

requirements specified at § 422.514

(a)(1) and (a)(2). Both HCFA actuaries

and the National Association of

Insurance Commissioners recommend

against entering into an contract with a

applicant who does not project reaching

500 members within a short timeframe.

HCFA will monitor closely the progress

of organizations in meeting at least this

goal during the first contract year.

If the organization does not meet the

applicable minimum enrollment

requirement by the end of its first year

of operation we may waive the

requirements for an additional year if

the organization meets the requirement

specified in § 422.514(b)(2):
35020 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

• Requests an additional minimum

enrollment waiver at least 120 days

before the end of the year;

• Continues to demonstrate an ability

to meet its contractual obligations and

bear financial risk; and,

• Demonstrates an acceptable

marketing and enrollment process. The

organization’s enrollment projections

for the second year of the waiver will

become its enrollment standard.

In paragraph § 422.514(b)(3) we state

that we will only approve a third and

final waiver year if the organization has

achieved the transitional enrollment

standard that the organization projected

in their marketing and enrollment plan

required to receive a waiver for their

second year.

Finally, if an organization does not

achieve the minimum enrollment

requirement and is not operating with a

minimum enrollment waiver, HCFA

may elect not to renew the M+C

organization’s contract, we specify this

at § 422.514(c).

10. Reporting Requirements (§ 422.516)

This M+C regulation contains a

number of sections that specify

information requirements for M+C

organizations. This information is to be

provided from organizations to HCFA

(see §§ 422.64, 422.502, and 422.512),

from HCFA to beneficiaries (see

§ 422.64), and from the organizations to

the beneficiaries (see §§ 422.80 and

422.110).

The following listing summarizes all

the information required to be disclosed

either to HCFA, to beneficiaries, or to

both:

• Benefits

• Premiums

• Service area

• Quality and Performance: Outcomes,

HEDIS, Disenrollment, satisfaction

• Supplemental benefits

• Access: Number, mix, and

distribution of providers

• Out of area coverage

• Emergency care coverage

• Supplemental premiums

• Prior authorization rules

• Grievances and appeals procedures

and data

• Quality assurance program

• Utilization controls

• Compensation methods

• Financial reports

• Encounter data

• Claims

• Enrollment

These represent an extensive amount

of information to be disclosed both to

HCFA and to beneficiaries. M+C

organizations need to be particularly

aware of the many requirements to

disclose information to beneficiaries as

seen in §§ 422.80 and 422.110. They

will have to develop management

information systems that meet these

disclosure requirements. As it is, these

sections specify the basic requirements

as to information to be disclosed. HCFA

will provide more detailed policy

guidance on specific contents required

for each of these data elements. These

additional requirements will be

developed with input from the public,

such as plans, consumer groups, etc.

M+C organizations also need to take

into consideration in the development

of these management information

systems, that they will soon have to

meet the requirements of the

Administrative Simplification

provisions of the Health Insurance

Portability and Accountability Act of

1996. This act will result in regulations

for data standards that effect all

components of the health care system.

The act will specify standards for the

following types of transactions: claims,

enrollment and disenrollment,

eligibility, payments and remittances,

premiums, first report of injury, claim

status, referral, providers, patient

identifiers, health plan identifiers, and

code sets. The organizations will also

need to be in compliance with year 2000

changes.

Furthermore, M+C organizations will

need to address the confidentiality and

privacy provisions of these regulations

and related regulations, meet the

validation requirements associated with

several of the data sets incorporated into

this regulation, e.g, encounter data will

need to be validated, and be capable of

electronically transmitting this

information to HCFA in the future,

when such is so specified.

Section 1857(d) contains several

provisions involving the financial

records and financial status of M+C

organizations. As discussed above,

paragraphs (1) and (2) of section 1857(d)

provide for auditing and inspection of

M+C organizations’ financial records.

The paragraph (4) in section 1857(d)

specifically requires that organizations

‘‘in accordance with regulations of the

Secretary, report to the Secretary

financial information,’’ which ‘‘shall

include’’ such information as the

Secretary may require demonstrating

that the organization has a fiscally

sound operation. Under our authority at

section 1856(b)(2) to adopt section 1876

standards, we have decided to

implement this authority in part by

requiring that M+C organizations

comply with financial reporting

requirements currently set forth in

§ 417.126. These requirements are set

forth in § 422.516(a) and (b). We believe

that requirements specified in section

1857(d)(1), which require HCFA to

conduct annual audits of the financial

records of M+C organizations, compel

M+C organizations to provide all

required information described at

§ 422.516(a) and (b). Included in these

requirements are—

• Requirement that M+C

organizations develop and maintain a

system for reporting information to

HCFA, its enrollees and the general

public, information described elsewhere

in the regulation.

• A requirement that each M+C

organization report to HCFA a

description of significant business

transactions.

• A requirement that each M+C

organization submit combined financial

statements to HCFA on a timely basis,

as defined by HCFA.

• A requirement that for any

employees’ health benefits plan that

includes an M+C organization in its

offering, the M+C organization must

furnish, upon request, the information

the organization needs to fulfill its

reporting and disclosure obligations

(with respect to the particular M+C

organization) under the Employee

Retirement Income Security Act of 1974

(ERISA).

• A requirement that the organization

notify HCFA regarding any loans or

other special financial arrangements.

• A requirement that each M+C

organization must make financial

information available to enrollees upon

request.

11. Prompt Payment Requirements

(§ 422.520)

Under § 422.520, contracts with M+C

organizations must specify that the M+C

organization agrees to provide prompt

payment of claims that have been

submitted by providers for services and

supplies rendered to Medicare enrollees

when these services and supplies are

not furnished by an organizationcontracted provider. While this

requirement closely follows

requirements already in place for

section 1876 contractors, (including

provisions pertaining to interest to be

paid if timely payment is not made),

section 1857(f) extends similar prompt

payment requirements to claims

submitted by Medicare beneficiaries

enrolled in M+C private fee-for-service

plans. Section 422.520(a) contains this

new section 1857(f) requirement, as well

as the requirement that applies to noncontracting providers. Further, pursuant

to our authority under section

1856(b)(1) to establish standards under

Part C, we require organizations to act

upon (either approve or deny, not
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35021

necessarily pay) all claims within 60

calendar days from the date of request.

These claims include the remaining 5

percent of the clean claims not paid

within 30 days as well as all other

claims.

In addition, pursuant to our authority

in section 1856(b)(1) to establish

standards under Part C, we are requiring

in § 422.520(b) that contracts or other

written agreements between M+C

organizations and providers and

suppliers contain a ‘‘prompt payment’’

provision, the terms of which are

developed and agreed to by the M+C

organization and the relevant provider.

Section 1857(f)(2) also contains

another new provision that specifies

that if the Secretary determines that the

organization fails to make payments

promptly to non-contracting providers

and suppliers as required under section

1857(f)(1) (and § 422.520(a)), the

Secretary may provide for direct

payments to affected providers and

suppliers. We articulate these

requirements in § 422.520(c).

Special Rules for RFB Societies

Enrollment restriction rules may be

imposed by religious fraternal benefit

society M+C organizations, provided the

restriction of enrollment is consistent

with the requirements identified in

section 1859(e) of the Act. The RFB

M+C organizations must still meet the

requirements for financial solvency.

Moreover, the Secretary may adjust the

M+C organization’s payment to account

for the unique actuarial characteristics

of the individuals enrolled in the RFB

M+C organization. We specify these

requirements in § 422.250(a).

L. Effect of Change of Ownership or

Leasing of Facilities During Term of

Contract

This interim final rule applies to M+C

organizations the provisions concerning

the effect of change of ownership or

leasing facilities during the term of the

contract that are currently set forth with

regard to HMOs and CMPs in subpart M

of part 417 to M+C organizations. This

is accomplished by designating

§§ 417.520 through 417.523 as

§§ 422.550 through 422.533 in a new

subpart L in part 422 and making

certain nomenclature changes. (A crossreference to subpart L of part 422 is

included in subpart M of part 417 in

order that these provision may continue

to apply to Medicare contracts with

HMOs and CMPs under section 1876.)

We also revise redesignated § 422.550

(formerly § 417.520) to add that an M+C

organization that has Medicare contract

in effect and is considering or

negotiating a change in ownership must

provide to HCFA updated financial

information and a discussion of the

financial and solvency impact of the

change of ownership on the surviving

organization. We also add this

requirement to redesignated § 422.552

(formerly § 417.522), which contains

requirements relating to novation

agreements.

M. Subpart M—Grievances,

Organization Determinations, and

Appeals (§§ 422.560 Through 622)

1. Introduction

Subpart M of part 422 implements

sections 1852(f) and (g), which set forth

the procedures M+C organizations must

follow with regard to grievances,

organization determinations, and

reconsiderations and other appeals.

Under section 1852(f), an M+C

organization must provide meaningful

procedures for hearing and resolving

grievances between the organization

(including any other entity or individual

through which the organization

provides health care services) and

enrollees in its M+C plans. Section

1852(g) addresses the procedural

requirements concerning coverage

(‘‘organization’’) determinations and

reconsiderations and other appeals. As

discussed in detail below, only disputes

concerning ‘‘organization

determinations’’ are subject to the

reconsideration and other appeal

requirements under section 1852(g). In

general, organization determinations

involve whether an enrollee is entitled

to receive a health service or the amount

the enrollee is expected to pay for that

service. All other disputes are subject to

the grievance requirements under

section 1852(f). For purposes of this

regulation, a reconsideration consists of

a review of an adverse organization

determination (a decision that is

unfavorable to the M+C enrollee, in

whole or in part) by either the M+C

organization itself or an independent

review entity. We use the term ‘‘appeal’’

to denote any of the procedures that

deal with the review of organization

determinations, including

reconsiderations, hearings before

administrative law judges (ALJs),

reviews by the Departmental Appeals

Board (DAB) and judicial review.

For the grievance, organization

determination, and appeal

requirements, an M+C organization

must establish procedures that satisfy

these requirements with respect to each

M+C plan that it offers. These

requirements generally are the same for

each type of M+C plan—including M+C

non-network MSA plans and M+C PFFS

plans.

The grievance, organization

determination, and appeal requirements

for M+C organizations that are set forth

in this interim final rule are largely

based on the existing rules for managed

care organizations under part 417,

Subpart Q, Beneficiary Appeals. This is

in accord with section 1856(b)(2), which

directs that the M+C standards be based

on the analogous standards established

under section 1876, as long as they are

consistent with the requirements in part

C. Moreover, we note that to some

extent the statutory requirements

themselves reflect policies contained in

the existing part 417 requirements. For

example, the requirements under

section 1852(g)(3) concerning expedited

organization determinations and

reconsiderations essentially incorporate

the expedited review procedures that

were issued in HCFA’s April 30, 1997

final rule with comment (62 FR 23368).

(That final rule established expedited

review processes for organization and

reconsidered determinations, and

clarified that the definition of an

organization determination includes

discontinuations of service.)

Thus, the significant differences

between the grievance and appeal

requirements that apply under the M+C

program and the existing requirements

in subpart Q of part 417 are: (1) changes

that are explicitly mandated under the

statute, such as the requirement under

section 1852(g)(4) that HCFA contract

with an independent outside entity to

review coverage denials; and (2)

changes that implement statutory intent,

such as the reduced timeframe for

reconsiderations, which is consistent

with both the discretion provided under

section 1852(g)(2)(A) and Congress’

expectations as stated in the BBA

conference report. (As discussed below,

the conference report states that the

Conferees ‘‘* * * assume that the

Secretary will address the issue of

[reconsideration] timeframes in the Part

C regulations’’ and intend that the

Secretary adopt timeframes that are

shorter than those in existing

regulations. See H.R. Rep. No. 105–217,

pg. 605 (1997).) The only other

substantive changes contained in these

requirements are the incorporation into

the regulations of several limited policy

clarifications that have been issued by

HCFA as implementing instructions

pursuant to our April 30, 1997 final

rule. These changes are discussed in

detail below.

In addition to these limited

substantive changes, we have also taken

the opportunity to make numerous

editorial and organizational changes in

adopting the part 417 regulation

language on beneficiary appeals for
35022 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

purposes of the M+C program. For

example, we have added material that

summarizes the rights of M+C enrollees,

and we have established distinct

sections that clearly explain the

timeframe and notice requirements for

standard and expedited organization

determinations. These types of changes

do not affect the rights of beneficiaries

or the responsibilities of M+C

organizations with regard to grievances,

organization determinations, and

appeals, but we believe they can help to

ensure that these rights and

responsibilities are more clearly

understood within the managed care

community.

2. General Provisions (§§ 422.560–

522.562)

Subpart M begins with an

introductory section (§ 422.560) that

simply sets out the statutory basis and

scope for the requirements that follow.

Although this material is generally

shorter and more concise than the

similar provisions of subpart Q in part

417, we are now specifying under

§ 422.560(b) that the rules concerning

notice of noncoverage on inpatient

hospital care and immediate peer

review organization (PRO) review

procedures for noncoverage

determinations fall within the scope of

the M+C subpart M requirements.

Section 422.561 then sets forth several

definitions for terms used in the

subpart. Note that some definitions

previously located in subpart Q of part

417 (such as ‘‘ALJ’’) have now been

included in § 400.200, rather than in

part 422, since they constitute

definitions that apply for all Medicare

and Medicaid purposes. Terms included

here that are not defined in existing part

417 include ‘‘appeal,’’ ‘‘authorized

representative,’’ ‘‘enrollee,’’

‘‘grievance,’’ and ‘‘physician.’’ For the

most part, these definitions are selfexplanatory; they do not impose any

new requirements on M+C

organizations. For example, we clarify

that an ‘‘authorized representative’’ is

an individual authorized by an enrollee

to act on his or her behalf in obtaining

an organization determination, or in

dealing with any levels of the appeal

process, subject to the Social Security

regulations in 20 CFR part 404, subpart

R. We also specify that, for purposes of

subpart M, the term ‘‘enrollee’’ includes

an enrollee’s authorized representative.

Together, these definitions should

clarify that the rights of enrollees with

respect to grievance and appeal

procedures can consistently be

exercised for them by their authorized

representatives, except where

specifically proscribed in the

regulations. We also establish that

‘‘physician’’ is defined according to

section 1861(r), which is the standard

definition for both original Medicare

and the M+C program.

Section 422.562, General Provisions,

provides an overview of the rights and

responsibilities of M+C organizations

and M+C enrollees with respect to

grievances, organization determinations,

and appeals. The responsibilities of

M+C organizations, under § 422.562(a),

essentially parallel those in existing

§ 417.604(a). We have added a provision

stating that if an M+C organization

delegates any of its responsibilities

under subpart M to another entity or

individual through which the

organization provides health care

services, the M+C organization is

ultimately responsible for ensuring that

the applicable grievance and appeal

requirements are still met. This concept

is explicitly stated in section 1852(f)

concerning grievance procedures, and

we believe it is equally germane for

purposes of organization determinations

and appeals. An M+C organization’s

responsibility for functions that it

delegates is also established under the

contract requirements set forth in

§ 422.502(i). (Although we do not

encourage M+C organizations to

delegate their grievance, organization

determination or appeal responsibilities,

we recognize that particularly for an

M+C non-network MSA plan or an M+C

PFFS plan, an organization offering

such a plan may choose to delegate

some of these responsibilities to local

entities that can meet the applicable

subpart M requirements.)

Section 422.562(b) explains the basic

rights of M+C enrollees under subpart M

and provides regulatory references to

the sections that fully explain the

relevant rights. This section does not

establish any rights beyond those now

available under the part 417 rules, but

consolidates general information about

enrollees’ rights into a central location

in the regulations.

Like the part 417 regulations, the

general provisions section concludes

with brief sections addressing the

applicability of requirements in subpart

M and the applicability of other

regulations under title II of the Act.

3. Grievance Procedures (§ 422.564)

As noted above, section 1852(f)

requires that each M+C organization

provide ‘‘meaningful procedures for

hearing and resolving grievances.’’

There is no explicit indication in the

statute of what constitutes a grievance;

however, given the provision in section

1856(b)(2) for basing Part C standards on

standards under section 1876, we have

retained the meaning of grievance used

in part 417. We have defined this term

in § 422.561 as any complaint or dispute

other than one that involves an

‘‘organization determination’’ (as

described under § 422.566(b)).

An enrollee might file a grievance if,

for example, the enrollee received a

service but believed that the demeanor

of the person providing the service was

insulting or otherwise inappropriate.

Also, as specified under

§§ 422.570(d)(2)(ii) and

422.584(d)(2)(ii), grievance procedures

would apply when an enrollee disagrees

with an M+C organization’s decision not

to comply with an enrollee’s request to

expedite an organization determination

or a reconsideration. Under § 422.564(a),

we are requiring that an M+C

organization must resolve grievances in

a timely manner and that procedures for

doing so must comply with any

guidelines established by HCFA. This

guidance would include forthcoming

instructions, rulemaking, and

requirements built into HCFA’s Quality

Improvement System for Managed Care

(QISMC). (See section II.D of this

preamble for more information about

QISMC.) Section 422.564(b) then

clarifies that grievance procedures are

separate and distinct from appeal

procedures, which address organization

determinations. We also clarify under

§ 422.564(c) that the PRO complaint

process under section 1154(a)(14)

addresses quality issues, but is separate

and distinct from the M+C

organization’s grievance procedures.

Although we have not in the past

outlined detailed requirements for a

plan’s grievance procedures, we

considered doing so in this interim final

rule as a means of implementing the

requirement under section 1852(f) for

meaningful grievance procedures.

Accordingly, we consulted with the

managed care industry as well as

beneficiary advocacy groups, reviewed

comments we received from the public,

and looked to recent standards in this

area, such as those developed by the

National Association of Insurance

Commissioners (NAIC). (NAIC has

developed and adopted a Model

Grievance Act setting forth standards for

grievance procedures that include

timeframes for the resolution of qualityrelated issues.) We also recognize that

section 1852(c)(2)(C) requires

organizations to provide data on the

number of grievances and their

disposition in the aggregate upon an

enrollee’s request, and we believe

timely processing of grievances is

necessary to assist in consistent data

reporting. Thus, we considered

requiring certain timeframes for
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35023

addressing grievances and contemplated

further clarification of the definition of

a grievance.

However, due to limited time for

rulemaking, input we received from the

public opposing mandated grievance

procedures, and our understanding that

extensive research is underway

concerning State grievance requirements

(the results of which should be available

in the very near future), we have

decided not to prescribe specific

timeframes for grievances in this rule

and instead to consider doing so

through proposed rulemaking. We plan

to address such issues through a future

proposed rule. At this time, we welcome

comments on the necessary elements of

a meaningful grievance procedure,

including recommended timeframes, the

types of issues that should be

considered grievances, an expedited

grievance process, independent review

of grievances, reconsideration of

grievances, and the type of notification

enrollees should receive concerning the

outcome of their grievance.

4. Organization Determinations

(§§ 422.566 Through 422.576)

Section 1852(g) requires an M+C

organization to establish procedures for

hearing and resolving disputes between

the organization and its Medicare

enrollees concerning organization

determinations. These rights are similar

to those available to beneficiaries under

original Medicare, except that under the

M+C program the initial level of review

is typically conducted by the

organization itself rather than by a PRO,

intermediary, or carrier.

(For the convenience of the reader, we

are presenting below a chart offering a

sequential overview of the available

procedures and related timeframes

associated with service-related

organization determinations and

appeals. This chart is for illustrative

purposes only, and certain details (such

as when extensions are permissible and

timeframes for requests for payment)

have been omitted for ease of

presentation. For a full description of

the applicable requirements, please

consult the preamble material that

follows and the regulations set forth in

subpart M of part 422. Although the

chart reflects the maximum allowable

timeframes available to an M+C

organization under the M+C regulations

(for service requests), we emphasize that

the primary applicable requirement, as

discussed in detail below, is that an

M+C organization make a determination

as expeditiously as the enrollee’s health

condition requires. In addition, note

that maximum timeframes for an M+C

organization to make a payment-related

determination are somewhat longer than

for service-related determinations, as is

also discussed below.)

BILLING CODE 4120–01–P
35024 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

BILLING CODE 4120–01–C
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35025

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

§ 422.566 begins by specifying that an

M+C organization must have a

procedure for making timely

organization determinations regarding

the benefits an enrollee is entitled to

receive and the amount, if any, that an

enrollee must pay for a health service.

We note that under section 1852(g)(1),

the issues that must be addressed

through an organization determination

include an enrollee’s entitlement to

‘‘receive a health service under this

section.’’ (Emphasis added.) Section

1852(a) describes basic benefits that

M+C organizations must offer, as well as

supplemental benefits that organizations

may offer. Supplemental benefits may

either be provided to all enrollees on a

mandatory basis (with the Secretary’s

approval) or provided at the enrollee’s

option. In both cases, the enrollee pays

for supplemental benefits. Disputes

involving supplemental benefits that are

mandatory for all enrollees in a plan

will be organization determinations and

subject to the appeal process, as similar

benefits were under part 417. We

believe, however, that optional

supplemental benefits should also be

included in the meaning of ‘‘health

services under [section 1852]’’ and

disputes involving these types of

benefits should be the subject of

organization determinations and the

appeal process. This policy, which is

incorporated into § 422.566(a),

represents a departure from existing part

417 requirements, where disputes

concerning optional supplemental

benefits are not the subject of

organization determinations and must

be resolved only through grievance

procedures. Section 422.566(b) then

lists actions that are organization

determinations, consistent with existing

§ 417.606(a) (except for new language to

reflect the inclusion of optional

supplemental benefits and the explicit

mention of payment for poststabilization care, along with payment

for emergency or urgently needed

services, which appear already in

§ 422.606(a)).

Section 422.568 includes the standard

timeframe and notice requirements for

organization determinations. Note that

this section, in conjunction with

§§ 422.570 and 422.572, reflect a major

reorganization of the requirements in

existing §§ 417.608 and 417.609. This

reorganization was necessary both to

help clarify the different timeframe and

notice requirements that apply for

expedited determinations as well as to

facilitate the addition of several new

BBA requirements (which are discussed

below).

The primary substantive change in

§ 422.568 is the requirement under

§ 422.568(a) that an M+C organization

must make a determination with respect

to an enrollee’s request for service as

expeditiously as the enrollee’s health

status requires, and in no case later than

14 calendar days after the organization

receives the request. As discussed in

detail below in section II.M.6 of this

preamble, this new requirement

emphasizes making determinations

consistent with an enrollee’s health

needs, while also providing for a

reduction in the maximum time allowed

to make a determination from 60 days,

as reflected in § 417.608(a), to 14 days.

In conjunction with the reduced

timeframe for making an organization

determination, we are also providing

that the M+C organization may extend

the timeframe by up to 14 calendar days

if the enrollee requests the extension or

if the organization justifies a need for

additional information and how the

delay is in the interest of the enrollee

(for example, the receipt of additional

medical evidence from noncontract

providers may change an M+C

organization’s decision to deny). The

M+C organization must include written

justification for the extension in the case

file. The length of the extension period

is consistent with the extensions

currently allowed under part 417 for

expedited organization determinations.

We note that the maximum

timeframes for both organization

determinations and for reconsiderations

are now reckoned in ‘‘calendar days,’’ as

opposed to ‘‘working days,’’ in order to

be unambiguous and consistent with the

statute. In addition, under § 422.568(b),

we have specified that timeframes for

requests for organization determinations

on payment issues are identical to the

‘‘prompt payment’’ requirements set

forth under § 422.520. Thus, for issues

relating to payment, the requirements

are as follows: (1) For ‘‘clean claims,’’ an

M+C organization must make a

determination regarding the claim

within HCFA’s current ‘‘clean claim’’

rules, that is, 95 percent of clean claims

must be paid within 30 calendar days

after receipt of the request for payment.

(As defined in § 422.500, ‘‘clean claims’’

are claims that have no defect,

impropriety, lack of any required

substantiating documentation, or

particular circumstances requiring

special treatment that prevents timely

payment.) (2) For all other claims, an

M+C organization must make a

determination regarding the claim

within 60 calendar days after receipt of

the request for payment.

Consistent with section 1852(g)(1)(B),

§ 422.568(c) and (d) require that an M+C

organization issue written notification

for all denials, including the specific

reasons for the denial in understandable

language, information regarding the

enrollee’s right to either an expedited or

standard reconsideration, and a

description of both the expedited and

standard review processes, as well as

the rest of the appeal process.

Sections 422.570 and 422.572 set

forth the requirements for M+C

organizations with respect to expedited

determinations. Section 1852(g)(3)(A)

specifically allows either an enrollee or

a physician to request an expedited

organization determination or

reconsideration, regardless of whether

the physician is affiliated with the M+C

organization. We have reflected this

provision in §§ 422.570(a) (for expedited

organization determinations) and

422.584(a) (for expedited

reconsiderations). We have also

addressed the issue of the circumstances

under which a physician can request

expedited review for an enrollee. HCFA

currently allows any physician to

request an expedited organization

determination without being appointed

as an enrollee’s authorized

representative. In contrast, HCFA

requires that a physician be an

enrollee’s authorized representative in

order for the physician to request an

expedited reconsideration on the

enrollee’s behalf. We have made this

distinction because, in the context of an

organization determination, we regard

the physician as a provider who is

requesting a service for his or her

patient. In the context of a

reconsideration, on the other hand, we

believe the physician is serving as the

enrollee’s representative in the first

level of the appeal process.

We have decided to continue this

current policy, and have reflected in

§ 422.570(a) that any physician can

request an expedited organization

determination, while § 422.584(a)

provides that a physician who requests

an expedited reconsideration must be

acting on behalf of the enrollee as an

authorized representative. We would

also like to make it clear that, in any

case in which a physician is only

supporting an enrollee’s request for

expedited review, the physician does

not need to be the enrollee’s authorized

representative.

As mentioned above, the

requirements for expedited organization

determinations and the like

requirements for expedited

reconsiderations were the subject of

HCFA’s April 30, 1997 final rule.

Section 1852(g)(3) is modeled to a large

extent on our existing requirements. For

example, section 1852(g)(3)(B)(ii)
35026 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

explicitly states that an M+C

organization must expedite its

determination (or its reconsideration of

a determination) if a physician has

requested the expedited review and has

indicated, either orally or in writing,

that the application of a standard

timeframe for a determination (or

reconsideration) could seriously

jeopardize the life or health of the

enrollee or the enrollee’s ability to

regain maximum function. This new

statutory provision reflects the current

provisions in part 417. Sections

417.609(c)(4) and 417.617(c)(4) require

that an HMO or CMP grant a physician’s

request for expedited review; however,

they do not require that the physician

make any statements about the

enrollee’s health, as the physician must

under section 1852(g)(3)(B)(ii). In effect,

the statute now requires that an M+C

organization must expedite a

determination at the physician’s

request, that is, providing that the

physician’s request indicates the

possibility of serious jeopardy to the

enrollee.

Section 422.570(b)(2) specifies that a

physician may provide written or oral

support for a request for expedition, and

under § 422.570(c)(2)(ii), we clarify that

when requests for expedited

organization determinations are made or

supported by a physician, the M+C

organization must grant the request if

the physician indicates that the

enrollee’s health could be jeopardized.

In any case in which a physician has not

initiated the request, but supports it, we

regard the physician as having joined in

the request and, in effect, as being a corequestor. (We note that in a case when

an enrollee submitted a request for an

expedited organization determination

but did not know that physician support

could automatically expedite a

determination, an enrollee or a

physician may submit a subsequent

request, including the physician’s

statement of support, for an expedited

organization or reconsidered

determination.)

These sections also incorporate

several details necessary to clarify

current policy, such as the provision in

§ 422.568(d)(1) that an M+C

organization automatically transfer a

denied request for an expedited

organization determination to the

standard 14-day timeframe described in

§ 422.568(a), and the requirement under

§ 422.570(d)(2)(ii) that an M+C

organization inform the enrollee of the

right to file a grievance if he or she

disagrees with the M+C organization’s

decision not to expedite. We also

require under § 422.570(c)(1) that an

organization establish an efficient and

convenient means for individuals to

submit oral or written requests for

expedited organization determinations

and document any oral requests.

Generally, in accordance with the

provisions of § 422.570(b)(1), we would

expect that such requests would be

submitted directly to the M+C

organization. However, because we

recognize that some organizations may

already have established or may wish to

establish other convenient procedures

for accepting oral and written requests

for expedited review, we clarify under

§ 422.570(b)(1) that procedures may

involve submitting a request to another

entity responsible for making the

determination, as ‘‘directed by the M+C

organization.’’

Under section 1852(g)(3)(B)(iii), an

M+C organization must notify the

enrollee (and the physician involved, as

appropriate) of an expedited

determination. The requirement to

notify the physician is similar to one in

§ 417.609(c)(3), which requires of an

HMO or CMP ‘‘notification of the

enrollee, and the physician as

appropriate.’’ This requirement is set

forth in § 422.572(a). Section

1852(g)(3)(B)(iii) also requires that the

M+C organization notify the enrollee

and physician of an expedited

determination under time limits

established by the Secretary, but not

later than 72 hours after receiving the

request (or receiving the information

necessary to make the determination), or

such longer period as the Secretary may

permit in specified cases. Under this

authority, we are able to retain in

§ 422.572(a) the existing 72-hour

timeframe for expedited review that

appears in § 417.609(c)(3). Also, we

have exercised our discretion to allow

in § 422.572(b) an M+C organization to

extend the 72-hour deadline for

expedited review by up to 14 calendar

days if the enrollee requests the

extension or if the organization finds

that additional information is needed

and the delay is in the interest of the

enrollee.

Thus, the authority in section

1852(g)(3)(B) has allowed us to retain

the recently promulgated regulations on

expedited determinations with only a

few clarifications and minor technical

changes (for example, we have changed

the 10 working day extension in

§ 417.609(c)(3) to 14 calendar days, to be

consistent with how we are counting

days under the other section 1852

provisions). We have added to the

regulation an example of the type of

reason for which an extension may be

granted, and we have specified that an

M+C organization must notify an

enrollee of a determination as

expeditiously as the enrollee’s health

care needs require but no later than

upon expiration of the extension.

We have also added a provision in

both §§ 422.570(f) and 422.584(f) to

prohibit an M+C organization from

taking or threatening to take any

punitive action against a physician

acting on behalf or in support of an

enrollee in requesting an expedited

organization determination or

reconsideration. Since publication of

our April 30, 1997 final rule, several

national organizations (including the

American Medical Association and the

American Association of Retired

Persons) have expressed strong support

for a general prohibition that would

prevent retaliation against physicians

who act on behalf of or in support of

enrollees to expedite reviews. Moreover,

we believe that this prohibition

complements the anti-gag rules

incorporated into subpart E of this

interim final rule.

Section 422.574 identifies the parties

to an organization determination. The

statute does not specify who can ask for

an organization determination involving

the rights of an M+C enrollee to certain

health services. Section 1852(g) does

specify that an M+C organization must

reconsider a determination upon the

request of the enrollee, and either the

enrollee or a physician can request an

expedited reconsideration. The enrollee

specifically has the right to appeal a

reconsidered determination under

section 1852(g)(5), a provision that is

almost identical to the appeal provision

in section 1876(c)(5)(B) for HMO and

CMP enrollees.

We are interpreting these provisions

in the same manner as we interpreted

them in part 417 to include not just the

enrollee, but also to allow other parties

to exercise those rights. Section 417.610

lists as parties to an organization

determination not just the enrollee, but

certain physicians and other providers

who are assignees of the enrollee, legal

representatives of a deceased enrollee’s

estate, and the broad category of any

other entity determined to have an

appealable interest in the proceeding.

These parties can continue to have an

interest in the proceedings throughout

each level of an appeal. We have

retained this provision in § 422.574,

except that we have modified

§ 417.610(d) to include any provider or

entity determined to have an appealable

interest. We have also specifically

excluded the M+C organization, since

we believe that this entity constitutes

the decision maker, and as such is not

a party to an organization

determination.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35027

5. Reconsiderations by an M+C

Organization (§§ 422.578 Through

422.590)

If a decision regarding a request for

payment or service is unfavorable (in

whole or in part) to the enrollee, the

enrollee or any other party to an

organization determination as listed in

§ 422.574 who is dissatisfied with the

organization determination may request

that the M+C organization reconsider

the decision. Reconsiderations represent

the first step in the appeal process. The

reconsideration process encompasses

both standard and expedited

reconsiderations, as described under

§§ 422.582 and 422.584. The timeframe

and notice requirements for

reconsiderations are set forth under

§ 422.590.

One important distinction between

organization determinations and

reconsiderations is that an M+C

organization issues a reconsidered

determination only if the

reconsideration is entirely favorable to

the enrollee. As discussed in detail

below, § 422.590(a)(1) now requires that

with respect to standard

reconsiderations concerning requests for

service, an M+C organization must issue

any determination that is entirely

favorable to the enrollee as

expeditiously as the enrollee’s health

condition requires but no later than 30

calendar days after it receives the

request for reconsideration. (As with

organization determinations, we are also

providing under § 422.590(a) that the

M+C organization may extend the

timeframe by up to 14 calendar days if

the enrollee requests the extension or if

the organization justifies a need for

additional information and how the

delay is in the interest of the enrollee.)

Under § 422.590(b)(1), for standard

reconsiderations involving requests for

payment, the M+C organization must

issue any fully favorable determination

no later than 60 calendar days from the

date it receives the request for the

reconsideration. In the case of expedited

reconsiderations (which involve only

requests for services), § 422.590(d)(1)

requires that an M+C organization issue

any determination that is entirely

favorable to the enrollee as

expeditiously as the enrollee’s health

condition requires but no later than 72

hours after it receives the request for

expedited reconsideration, again with

the possibility of a 14-day extension as

described in § 422.590(d)(2). If,

however, the M+C organization’s

reconsideration results in an

affirmation, in whole or in part, of its

original adverse organization

determination, this decision is

automatically subject to further review

by an independent entity contracted by

HCFA. (Again, the timeframe within

which an M+C organization must

reconsider a standard or expedited case

has been tied to the enrollee’s health

needs for service requests, subject to

either a 30-day or 72-hour maximum

(with a possible 14-day extension),

while the timeframe remains at 60 days

for reconsideration requests involving

payment.)

Section 1852(g)(4) of the Act requires

HCFA to contract with an independent,

outside entity to review and resolve in

a timely manner reconsiderations that

affirm, in whole or in part, an M+C

organization’s denial of coverage. Thus,

unless an organization completely

reverses its coverage denial, the M+C

organization must prepare a written

explanation and refer the case to the

independent review entity for a new

and impartial determination concerning

the payment or service at issue. This

requirement is consistent with existing

policy. Under § 417.620, an HMO or

CMP that recommends partial or

complete affirmation of its adverse

determination must prepare a written

explanation and send the entire case to

HCFA, so that HCFA can make the

reconsidered determination. We have in

the past contracted with an independent

outside entity, the Center for Health

Dispute Resolution (CHDR), to perform

this function.

For standard requests for services,

§ 422.590(a)(2) requires that the M+C

organization send the case to the

independent review entity as

expeditiously as the enrollee’s health

requires, but no later than 30 calendar

days from the date it receives the

request for a standard reconsideration

(or the date of an expiration of an

extension). For standard requests for

payment, § 422.590(b)(2) allows the

M+C organization 60 calendar days from

the date it receives the request to send

the case to the independent review

entity. In instances involving expedited

requests for reconsideration,

§ 422.590(d)(5) requires that the M+C

organization forward its decision to the

independent entity as expeditiously as

the enrollee’s health condition requires,

but not later than within 24 hours of its

affirmation of the adverse organization

determination.

Section 1852(g)(2)(B) requires that any

reconsideration that relates to a

determination to deny coverage based

on a lack of medical necessity must be

made only by ‘‘a physician with

appropriate expertise in the field of

medicine which necessitates treatment.’’

We have interpreted this requirement in

§ 422.590(g)(2) to refer to a physician

with an expertise in the field of

medicine that is appropriate for the

services at issue. The statute also

requires that the physician be one other

than the physician involved in the

initial determination. We believe this

requirement is implicit in the provision

in § 422.590(g)(1) that the

reconsideration be conducted by a

person not involved in making the

organization determination.

For the most part, the procedures

outlined above are consistent with the

existing part 417 requirements and are

carried over into subpart M of part

422—all significant discretionary

changes (such as the timeframe

reductions) as well as statutory

requirements (such as required

physician review of certain coverage

denials) are discussed in this preamble.

We also are implementing several

changes in the reconsideration

requirements that are analogous to those

described for organization

determinations, such as the requirement

under § 422.584(d)(1) that an M+C

organization automatically transfer a

denied request for an expedited

reconsideration to the standard 30-day

timeframe described in § 422.590(a). In

addition, § 422.590(e) requires that if an

M+C organization refers a case to the

independent entity, it must

concurrently notify the enrollee of that

action.

6. Reduction of Timeframes for

Standard Organization Determinations

and Reconsidered Determinations

As noted above, section 1852(g)(1)(A)

requires that M+C organizations make

organization determinations ‘‘on a

timely basis.’’ For standard (nonexpedited) reconsiderations, section

1852(g)(2)(A) specifies that a decision

must be made no later than 60 days after

the enrollee’s request, but the Act

provides the Secretary with discretion

to reduce the timeframe. Again, the BBA

conference report (H.R. Rep. No. 105–

217, at pg. 605 (1997)) indicates

Congress’ understanding that HCFA was

developing proposed regulations that

would reduce existing timeframes and

that these efforts could instead be

incorporated into the regulations

implementing the M+C program.

Consequently, we have decided to

exercise such discretion and to reduce

the timeframes within which M+C

organizations must render both standard

organization and reconsidered

determinations involving requests for

service.

In researching this issue, we found

widespread support for reducing

timeframes for standard determinations

in both medical journals and reports
35028 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

from other independent entities. For

example, the Physician Payment Review

Commission’s (PPRC) 1996 Annual

Report to Congress listed ‘‘the

timeliness of the process, especially for

pre-service denials’’ as one of the areas

requiring improvement in the current

appeal process. PPRC reported that

‘‘[c]onsiderable delays are built into the

[appeal] process.’’ Likewise, the

Medicare Rights Center (MRC) recently

recommended that HCFA require health

plans to make non-expedited

organization determinations within 10

days of receiving the request. The MRC

also recommended that HCFA require

health plans to make non-expedited

reconsiderations within 20 days.

The 60-day timeframes in part 417 for

organization and reconsidered

determinations were based on the

original fee-for-service Medicare appeal

process. However, this process is mostly

retrospective. In coordinated care plans,

preservice requests for organization

determinations exceed the number of

retrospective requests. Reduced

timeframes often are of critical

importance—particularly when an

individual is awaiting prior

authorization for a service. Therefore,

we believe there is a compelling need to

reduce the current timeframe of 60 days

for determinations regarding the

provision of services in M+C

organizations.

Options Considered

In developing this rule, we consulted

with beneficiary advocacy groups and

the managed care industry concerning

several policy options, and reviewed

comments received from the public. The

groups agreed that the current 60-day

timeframe to issue organization and

reconsidered determinations was too

long. A representative of HCFA’s

independent contractor, the Center for

Health Dispute Resolution (CHDR), also

agreed that 60 days was too long for

processing determinations.

Beneficiary advocacy groups

indicated that the timeframe for

rendering standard service-related

organization determinations and

reconsiderations should be no more

than a total of 20–30 days. Advocates

reported (and our research supports)

that many States require determinations

within 30 days. Additionally,

beneficiary advocates indicated strong

support for the judgment of the United

States District Court for the District of

Arizona in Grijalva, et al. v. Shalala

(Civ. 93–711, 1997). That case involved

the appeal rights of Medicare

beneficiaries who were members of

HMOs and had their requests for

services denied. The court’s judgement

in Grijalva prescribes various

procedures to be used for beneficiary

appeals in Medicare managed care

programs, including the requirement

that the HMO make a decision within 5

days, with an opportunity for a 60-day

extension if there are exceptional

circumstances.

Representatives of the managed care

industry recommended that we adopt

the National Committee for Quality

Assurance’s (NCQA) standard of 10

working days (or 14 calendar days) for

organization determinations—with an

opportunity for an extension. It was also

noted that decisions on reconsiderations

often take more time than organization

determinations. The industry

representatives agreed that, in many

cases, plans process reconsiderations in

less than 30 days, but that often times,

additional time is needed to gather

information (e.g., medical records). The

industry representatives noted that in

some instances, allowing extra time to

collect information is advantageous to

the beneficiary.

Based on all of this information, we

are implementing revised requirements

from those in part 417 for an M+C

organization when it issues standard

organization determinations or

reconsiderations. These revised

requirements include a reduction in the

maximum timeframes from 60 days to

14 days for standard organization

determinations involving requests for

service, and from 60 days to 30 days for

standard reconsiderations involving

requests for service. (In both cases, 14-

day extensions would be permissible

under certain circumstances, as

discussed above.) More important,

§§ 422.568 and 422.590 establish for the

first time the requirement that M+C

organizations make both their

organization and reconsidered

determinations as expeditiously as the

enrollee’s health condition requires. We

believe that this emphasis on the health

needs of the individual enrollee is

consistent with the statutory

requirement that determinations be

made on a timely basis. Thus, the fact

that an organization makes a

determination on a service-related issue

within 14 days does not necessarily

constitute compliance with the

regulations if there is evidence that an

earlier determination was necessary to

prevent harm to the enrollee’s health.

7. Reconsiderations by an Independent

Entity (§§ 422.592 and 422.594)

Section 1852(g)(4) requires the

Secretary to contract with an

independent, outside entity to review

and resolve in a timely manner

reconsiderations that affirm denial of

coverage, in whole or in part. HCFA has

held such a contract for services from an

independent review entity for 9 years.

Section 422.592 reiterates the statutory

requirement. It also articulates the

principle that the independent entity

must conduct reviews as expeditiously

as the enrollee’s health requires, but not

to exceed the deadlines specified in its

contract with HCFA.

For standard reconsiderations, the

contractor historically has been able to

process most cases within 30 days. We

will require the contractor to meet the

standard articulated for M+C

organizations at section 422.590; that is,

subject to considerations of medical

exigency, the contractor must process

standard reconsiderations within 30

days, with the possibility of an

extension. As part of our new

requirement to collect and report

information regarding beneficiary

appeals, we will monitor all exceptions

to deadlines and reasons for delay. In

cases in which the delay is due to the

failure of the M+C organization to

supply the contractor with requested

information in a timely manner, we will

generally instruct the contractor to find

in the beneficiary’s favor on any issue

that it cannot decide without the

information in question. (When an M+C

organization has conducted a

reconsideration, it presumably will have

already collected all the relevant

documents and other information

needed to make the decision. However,

our experience demonstrates that the

independent reviewer must sometimes

request additional material in order to

have a complete record of the dispute.)

For expedited cases, we will require

the contractor to make a decision as

quickly as the enrollee’s condition

requires, or within 72 hours (with the

possibility of an extension under certain

circumstances), in accordance with the

expedited reconsideration requirements

for M+C organizations under

§ 422.590(d). As with standard

reconsiderations, we will monitor cases

that exceed this deadline along with the

reasons for the delay. If any delay is due

to the failure of the M+C organization to

supply the contractor with requested

information in a timely manner, we will

generally instruct the contractor to find

in the beneficiary’s favor on any issue

that it cannot decide without the

information in question.

In order to provide more guidance to

both our contractor and the M+C

organizations with which we will

contract, we will work with them and

other interested parties to develop

common guidelines for identifying those

cases that require immediate attention

due to the enrollee’s health condition.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35029

These guidelines will build upon, but

not be limited to, the criteria that M+C

organizations must use to evaluate

whether a case should be expedited,

currently contained in § 422.570(c)(2).

We will issue this information as part of

forthcoming manual instructions.

8. Administrative Law Judge (ALJ)

Hearings, Departmental Appeals Board

(DAB) Hearings, and Judicial Review

(§§ 422.600 Through 422.612)

If the independent reviewer’s

reconsidered determination is not fully

favorable to the enrollee, any of the

parties listed in § 422.574 has a right to

request a hearing before an ALJ of the

Social Security Administration if the

amount remaining in controversy is

$100 or more. (Note that the M+C

organization does not have a right to

request a hearing before the ALJ.) If the

ALJ hearing does not result in a fully

favorable determination, any party

(including the M+C organization) may

request that the Appeals Council of the

DAB review the ALJ decision. Following

the administrative review process, any

party (including the M+C organization)

is entitled to judicial review of the final

determination if the amount remaining

in controversy is $1,000 or more. In

establishing the requirements for M+C

organizations, we have clarified and

adopted the existing requirements in

part 417, with one exception. That is,

consistent with section 1852(g)(5), we

require under § 422.612(a) that a party

who wishes to request judicial review of

an ALJ’s decision must notify the other

parties involved.

9. Effectuation of a Reconsidered

Determination or Decision (§ 422.618)

Based on public reaction to our April

30, 1997 final rule, we believe there may

be a need for explicit regulatory

requirements concerning an M+C

organization’s effectuation of (that is, an

organization’s compliance with) an

appeal determination or decision.

Therefore, we are including at § 422.618

(and referencing at § 422.590(a)(1) and

(b)(1)) several requirements that

constitute a restatement of HCFA’s

longstanding policy in this regard (with

a corresponding timeframe reduction

from 60 to 30 days in the case of servicerelated reconsiderations). (See sections

2405.4 and 2405.5 of the HMO/CMP

Manual Transmittal 6, issued in March,

1991.) Specifically, § 422.618(a)(1)

requires that if, on reconsideration of a

request for service, an M+C organization

reverses its adverse organization

determination, the organization must

authorize or provide the service under

dispute as expeditiously as the

enrollee’s health requires, but no later

than 30 calendar days after the date the

M+C organization receives the request

for reconsideration (or no later than

upon expiration of an extension

described in § 422.590(a)(1)). For

reconsideration of requests for payment,

§ 422.618(a)(2) requires that if an M+C

organization reverses its adverse

organization determination, the

organization must pay for the service no

later than 60 calendar days after the date

the M+C organization receives the

request for reconsideration. Similarly,

under § 422.618(b), if an M+C

organization’s adverse organization

determination is reversed in whole or in

part by the independent entity’s

reconsideration or at a higher level of

appeal, the M+C organization must pay

for, authorize, or provide the service

under dispute as expeditiously as the

enrollee’s health condition requires, but

no later than 60 calendar days from the

date the M+C organization receives

notice reversing its organization

determination. The M+C organization

must also inform the independent,

outside entity that it has effectuated the

decision.

10. Noncoverage of Inpatient Hospital

Care—Notice and PRO Review

(§§ 422.620 and 422.622)

Under § 422.620, we are largely

incorporating the existing requirements

under § 417.440(f) concerning notice of

noncoverage of inpatient hospital care.

Section 417.440(f) requires that if an

enrollee in an HMO or CMP is a hospital

inpatient, the enrollee remains entitled

to inpatient care until he or she receives

notice that the care is no longer covered.

We have revised this provision,

however, to make it clear that inpatient

services only continue to be covered

until there is a notice of noncoverage in

situations in which the hospital

admission was authorized in the first

instance by the M+C organization or in

which the admission constituted

emergency or urgently needed care, as

described in §§ 422.2 and 422.112(b).

This clarification is warranted in light of

the fact that an M+C organization

offering an M+C non-network MSA or

private fee-for-service plan has the right

to deny coverage retroactively for a

hospital stay involving nonemergency

or nonurgently needed care on the

grounds that it was not medically

necessary. Also, this would make it

clear that an M+C organization does not

have to make payment under an MSA

plan if the deductible has not been

satisfied.

Section 422.622 explains our

requirements with respect to an

enrollee’s right to PRO review of a

determination by an M+C organization

or a hospital that inpatient care is no

longer necessary.

Under existing § 417.605, Medicare

managed care enrollees have two

protections available to them when they

believe they are being discharged

prematurely from a hospital—

immediate PRO Review or an HMO or

CMP’s internal expedited appeal

process. Under § 417.604(b), enrollees

may elect one appeal right or the other;

exercising one right eliminates the right

to the other.

We believe that the PRO review

process offers significant advantages to

enrollees, most significantly the

protection from financial liability for a

continued hospital stay until noon of

the calendar day following the day the

PRO notifies the enrollee of its review

determination. Additionally, PROs

generally communicate directly with the

Medicare enrollee (or authorized

representative) during the review,

conduct their reviews of an alleged

premature discharge within 3 days, and

use nurses and physicians to conduct

the reviews. In contrast, enrollees who

file for an expedited review with the

managed care organization are not

protected from financial liability during

an appeal. The HMO or CMP has 72

hours to conduct the review. If the

organization is unable to issue a fully

favorable decision to the enrollee, the

case file will be forwarded to the

independent contractor.

In developing the M+C requirements

with respect to this issue, we considered

whether the regulations should require

enrollees of M+C organizations to

exercise their right to immediate PRO

review. We consulted with

representatives of both the managed

care industry and beneficiary advocates.

The groups with which we consulted

indicated that the immediate PRO

review process appears to be a better

option for the enrollee. As noted

previously, PRO review provides

financial protection, direct

communication between the PRO and

the enrollee, and a decision that is

generally rendered more quickly than a

managed care plan’s determination.

However, we were not certain whether

we should limit beneficiaries to one

option. Particularly in the event that an

enrollee misses the deadline for filing

with the PRO, we believe that the

enrollee should retain the option of

filing an expedited appeal with the M+C

organization.

Based on this review, we have

concluded that the appropriate course is

to draft the M+C requirements so as to

make it clear that it is in the best interest

of an M+C enrollee to request PRO

review if the individual believes that he
35030 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

or she is being discharged from a

hospital prematurely. Thus,

§ 422.622(a)(1) specifies that: ‘‘An

enrollee who wishes to appeal a

determination by an M+C organization

or hospital that inpatient care is no

longer necessary must request

immediate PRO review. * * * An

enrollee who requests immediate PRO

review may remain in the hospital

without further financial liability

[subject to the provisions of

§ 422.622(c)]’’ (until PRO review is

completed). Section 422.622(a)(2) then

provides that an enrollee who fails to

make a timely request for PRO review

still has the option of requesting an

expedited reconsideration from the M+C

organization, although the financial

liability protections associated with the

PRO review process do not apply. We

believe that this regulatory construction

makes it clear that enrollees are

expected, for their own benefit, to avail

themselves of the PRO review process,

but does not eliminate the fall-back

option of the M+C organization’s

expedited review process for those

enrollees who fail to request PRO

review on a timely basis.

We have made further revisions to the

language in § 417.605 to adapt this

provision to the new M+C MSA and

private fee-for-service plan options. As

discussed above in connection with the

notice of non-coverage requirement in

§ 422.620, under these plan options, an

M+C organization may not be aware that

an enrollee has been hospitalized, and

has the right to deny coverage of such

a hospitalization on the grounds that the

stay was not medically necessary. Also,

in the case of an enrollee in an M+C

MSA plan, the individual may not have

reached the deductible under the plan,

and therefore payment for medically

necessary hospital services shall be

applied to the deductible. We thus have

made it clear in § 422.622(c)(1) that if an

M+C organization did not authorize

coverage of a hospital admission, and

notifies the enrollee that a continued

stay is not covered, the organization is

not required to pay for services while

the enrollee pursues an appeal with a

PRO (that is, unless and until it is

determined on appeal that the hospital

stay should have been covered under

the M+C plan). We have qualified this

statement to provide that the M+C

organization is obligated to pay for

continued services if the enrollee was

hospitalized in order to receive

emergency services or urgently needed

care as described in §§ 422.2 and

422.112(b), since these services do not

require prior authorization.

In cases in which the hospital makes

a determination that hospital services

are no longer needed, section

1154(e)(4)(B) of the Act expressly

precludes the hospital from charging a

Medicare beneficiary for services during

the period that a PRO is reviewing an

appeal under section 1154(e). We have

reflected this statutory provision in

§ 422.622(c)(2).

11. Conclusion

In developing the organization

determination, appeal and grievance

requirements for M+C organizations, we

have undertaken a broad review of the

existing Medicare managed care

requirements. We have consulted with

representatives of beneficiary advocacy

groups and the managed care industry

concerning several policy options. We

believe that we have included in this

interim final rule those improvements

that were practical within the short

timeframe allotted for rulemaking. In

addition to the changes made in this

rule, we intend to publish a notice of

proposed rulemaking in the near future

to implement a variety of other

improvements in the M+C dispute

resolution process.

Therefore, we welcome comments,

concerns, and ideas on all issues

discussed in this interim final rule, as

well as on the overall organizational

changes incorporated into these

regulations. In particular, as noted

above, we would appreciate comments

on whether HCFA should specify

requirements (such as timeframes) for

meaningful grievance procedures. We

also are seeking additional comments on

establishing effective and efficient

parameters as to when a reduction in

services (for example, a reduction in

prescription dosage, skilled nursing

facility coverage, home health care or

outpatient visits) constitutes a denial

that gives rise to an obligation to

provide written notice. Comments are

also welcome on whether notification

requirements should apply in all

instances of service discontinuations, as

opposed to only when an enrollee

indicates that he or she disagrees with

such a discontinuation, as provided

under § 422.566(b)(4). Finally, we

would appreciate input on categories of

meaningful data elements for reporting

plan-level grievances and appeals. We

believe such comments can assist with

our data collection and reporting efforts

(as required by the BBA) and in

promoting consistency at the plan level

in data collection and reporting. We

welcome all suggestions for other

improvements to the M+C grievance,

organization determination and appeal

processes.

N. Medicare Contract Appeals

Subpart N of this interim final rule

sets forth procedures for making and

reviewing the following contract

determinations: (1) A determination that

an entity is not qualified to enter into a

contract with HCFA under Part C of title

XVIII of the Act; (2) a determination to

terminate a contract with an M+C

organization; and (3) a determination

not to authorize a renewal of a contract

with an M+C organization. Pursuant to

at section 1856(b)(2), which provides for

the adoption of standards under section

1876 to implement analagous provisions

in the new Part C, the procedures set

forth in subpart N of part 422 are for the

most part modeled after the contract

appeal procedures currently in place

with regard to HMO and CMP contracts

under section 1876, which are set forth

at 42 CFR part 417 subpart R. We

describe below the provisions of new

subpart N of part 422 that are not

identical to 42 CFR part 417.

Section 422.641 sets forth the contract

determinations that are subject to the

reconsideration and appeals procedures

in subpart N.

Section 422.644(a) specifies that when

HCFA makes a contract determination,

it provides the M+C organizations

written notice specifying reasons for the

determination and M+C organization

rights pursuant to a reconsideration.

Under, § 422.644(d) a HCFA notice

that it has decided not to authorize an

M+C organization contract renewal is

sent to the M+C organization by May 1

of the current contract year. (Note that

while this notice informs an M+C

organizations of its right to appeal a

decision not to authorize a renewal, a

contract will not be renewed unless an

affirmative notice authorizing renewal is

sent by HCFA. See § 422.506(b)(2).) The

May 1 deadline specified above should

afford HCFA enough time to consider

any M+C organization’s request for

reconsideration and still afford adequate

time for HCFA to ensure the accuracy of

its printed and electronic material

utilized in the annual health fair.

If HCFA decides to terminate a

contract under § 422.644(c) for reasons

other than those specified at

422.510(a)(5) it must provide notice to

the M+C organization by mail at least 90

days before the intended date of the

termination. Consistent with section

1857(h)(2), which provides for

immediate termination where there is

an ‘‘imminent and serious risk’’ to

enrollee health and pursuant to our

rulemaking authority at section

1856(b)(1), in § 422.644(c) we also

provide a separate notice timeframe for

immediate terminations discussed in
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35031

§ 422.510(a)(5). See section K of this

preamble. Pursuant to violations

described in § 422.510(a)(5), HCFA will

notify the M+C organization in writing

that its contract has been terminated

effective the date of the termination

decision by HCFA. We believe that in

instances where the life and physical

well being of beneficiaries is in

jeopardy, HCFA must have the ability to

immediately sever its relationship with

an M+C organization in order to protect

beneficiaries and to safeguard taxpayer

confidence in HCFA’s administration of

the Medicare program.

Section 422.646 states that initial

contract determinations are final and

binding unless the determination is

reconsidered in a manner consistent

with applicable requirements described

in § 422.648. In § 422.650(b) we have

shortened the deadline for filing a

request for reconsideration to 15 days

from the sixty days allowed for HMOs

and CMPs under § 417.650(b), and have

eliminated the provision made in

§ 417.650(c) for a deadline extension for

good cause. We believe the time frames

afforded under § 422.650 still provide

M+C organizations sufficient time to

prepare a request for reconsideration of

the contract determination at issue,

should the organization decide to do so.

As in the case of the deadline for

requesting reconsideration, and based

on our rulemaking authority at section

1856(b)(1), in § 422.662(b), we have

shortened the 60 day time period for

requesting a hearing under § 417.662(b)

to 15 days. We also have again

eliminated ‘‘good cause’’ extension

authority that was found in § 417.662(c).

Like § 417.664(a), § 422.664(a)

provides that the effective date of a

determination to terminate a contract

will be postponed until after a final

decision is rendered on any M+C

organization appeal. Section 422.664(b)

also follows § 417.664(b) in providing

that a request for a hearing will not

postpone a decision not to authorize a

contract renewal unless HCFA finds an

extension of the contract past its

expiration date consistent with the

purposes of Part C. There are two

significant differences between

§ 417.664 and § 422.664, however. First,

as discussed below, § 417.664 provides

that in the case of a termination only,

the general rule is that the termination

will be postponed until after an

additional post-hearing decision level of

review required under section

1857(h)(1)(B). Second, § 422.664(c)

implements the ‘‘imminent and serious

risk to health’’ exception in section

1857(h)(2), under which a termination

can take effect immediately, and will

not be postponed while an appeal is

pursued. Specifically, when a contract

termination decision is based upon

§ 422.510(a)(5), discussed in section K

above, the termination is effective

immediately. While the M+C

organization still has the right to appeal

the termination, this appeal will not

prevent the termination from taking

effect.

In § 422.670, pursuant to our

rulemaking authority at section

1856(b)(1), we have added a

requirement that the hearing officer

establish a time and place for the

hearing within 30 days of the date of

their receipt of the request for a hearing.

Again, this time constraint has been

added because we believe it is necessary

to impose time-weighted discipline on

the reconsideration process that

strengthens HCFA’s enforcement

capabilities while simultaneously

enhancing beneficiary protections.

Changing the time frame from the openended language provided under

§ 417.670 to the 30-day time frame

provided at § 422.670 accomplishes

these goals.

In § 422.692, we provide in the case

of termination decisions only for an

appeal from the hearing decision, as

required under section 1857(h)(2) before

a termination can take effect. We have

provided for review of a hearing

officer’s decision by the Administrator,

under similar procedures to those used

for the Administrator’s review of

decisions of the Provider

Reimbursement Review Board pursuant

to § 405.1875.

O. Intermediate Sanctions

The M+C organization actions subject

to intermediate sanctions and civil

money penalties are substantially the

same as those established at § 417.500

for section 1876 contracting plans.

However, there are some exceptions.

Since the 50/50 enrollment requirement

has been dropped, so have the

accompanying intermediate sanctions.

The BBA also contains additional

sanction authority not found in

§ 417.500, which we are implementing

in subpart O. First, the BBA retains and

modifies new section 1876 intermediate

sanction and civil money penalty

authority originally enacted in the

Health Insurance Portability and

Accountability Act of 1996 (HIPAA).

This authority has not been

implemented in § 417.500. Under this

new authority (in section 1876(i)(1) for

HMOs and CMPs and in section

1857(g)(3) for the M+C program),

intermediate sanctions and civil money

penalties can be imposed on the same

grounds upon which a contract could be

terminated. See discussion of contract

termination in sections K. and N. above.

Under the section 1876 provision, the

procedures now found in section

1857(h)(1), discussed in section N.

above, applied to the new HIPAA

sanction authority, and had to be

followed before sanctions based upon

this new HIPAA authority could be

imposed. Under the BBA, however,

sanctions based on the grounds for

termination in section 1857(c)(2) can be

imposed on the same terms as the

sanctions in § 417.500. See section

1857(g)(3). As discussed above in

section K., in § 422.510(a)(4) through

(a)(11), we have identified specific M+C

organization behaviors that we believe

meet one of the broad grounds for

termination in section 1857(c)(2). Under

the authority in section 1857(g)(3) to

impose sanctions where the grounds in

section 1857(c)(2) exist, intermediate

sanctions can be imposed for any of the

violations identified in § 422.510(a), and

we so provide in § 422.752(b).

Finally, private fee for service plans

are subject to intermediate sanctions if

they fail to enforce the balance billing

limit that applies to charges to plan

members by contracting providers. See

discussion of these provisions in section

IV. of this preamble.

The process for imposing all of the

M+C intermediate sanctions will largely

be the same as established under

§ 417.500. Under this process, when

HCFA determines that a sanctionable

violation has occurred, it notifies the

M+C organization that enrollment and

marketing must be suspended (or,

alternatively, in the case of some

violations, payment for new enrollees

will be suspended) in 15 days, unless

the organization provides evidence that

HCFA’s determination is incorrect.

There is an exception to this 15 day

delay in the effective date of the

sanctions if HCFA determines that the

M+C organization’s conduct poses a

serious threat to an enrollee’s health and

safety. See § 422.756(d)(2). In addition

to or in place of these intermediate

sanctions, civil money penalties may be

imposed for the same underlying

violations. For any of the violations that

were previously set forth in § 417.500,

and are now in § 422.752(a), the Office

of Inspector General imposes civil

money penalties in accordance with 42

CFR part 1003. In the case of the new

HIPAA sanction authority discussed

above, HCFA imposes civil money

penalties, with the exception of a

determination under § 422.510(a)(4),

based upon fraudulent behavior by an

M+C organization. In this latter case,

OIG imposes civil money penalties.
35032 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

P. Technical and Conforming Changes

This interim final rule makes a

number of technical and conforming

changes to part 422 subpart H (which

was established by an interim final rule

published on April 14, 1998 (63 FR

18124) and amended by an interim final

rule published on May 7, 1998 (63 FR

25360) For example, we remove the

definition of ‘‘health care provider’’

from subpart H. We do this because this

rule establishes a definition of

‘‘provider’’ in subpart A of part 422 for

purposes of the entire part that is

exactly the same as the definition of

‘‘health care provider’’ appearing in

subpart H. Further, as a conforming

change, we then change ‘‘health care

provider’’ wherever it appears in

subpart H to ‘‘provider.’’

In addition to the additions and

revisions to part 422 of our regulations

discussed throughout this document,

this interim final rule also makes a

number of technical and conforming

changes to the following parts of 42

CFR: 400, 410, 411, and 417. These

changes, which are generally in the form

of redesignations and nomenclature

changes, are made in order to bring our

regulations into conformity with the

provisions of the section 4001 through

4006 of the BBA.

We have also made a conforming

change to 42 CFR part 403 ‘‘Special

Programs and Projects,’’ with regard to

Medicare supplemental policies. As

Medicare does not cover the total cost

of providing medical care,

approximately 75 percent of Medicare

beneficiaries purchase or have available

through their own, or a spouse’s

employment or former employment,

some type of private supplemental

health insurance coverage. This kind of

insurance helps to pay for expenses,

services, and supplies that Medicare

either does not cover or does not pay in

full such as coinsurance or deductible

charges, prescription drugs, and some

long term care services. This coverage is

ordinarily referred to as Medicare

supplemental (Medigap) insurance. The

BBA, in section 4003, provides that an

M+C plan is not considered a Medicare

supplementary policy. Therefore, we are

revising § 403.205 to specify that a

Medicare supplemental policy does not

include a M+C plan. We are aware of

other provisions in that statute affecting

the Medigap area, but those are

included or will be covered under the

National Association of Insurance

Commissioners (NAIC) Model Standards

in line with existing § 403.210. NAIC

works with us to annually update the

Model Standards with regard to changes

to the Medicare supplemental insurance

area.

Q. Transition Information for Current

Medicare Program

Section 4002 of the BBA included a

number of provisions that were effective

upon enactment for eligible

organizations with section 1876

contracts or section 1833 agreements or

that would alter the requirements for

those contractors that remained in force

following the implementation of the

M+C program. The provisions that were

effective upon enactment were

conveyed to current contractors through

operational policy letters (OPLs)

numbered 61, 63, and 65 and available

to the public on HCFA’s Internet

homepage. Most of the provisions

convey automatically with the

publication of the Part C regulations,

either contained in the newlyestablished part 422 or contained in

conforming changes to part 417, while

others simply created operational

impacts during the transition year of

1998.

The BBA in section 4002(a)

immediately changed the required

enrollment composition of 50 percent

Medicare and Medicaid, and 50 percent

commercial under section 1876 to: (1)

Consider only Medicare members for 50

percent of the enrollment, and (2)

permit waiver of the requirement when

it is ‘‘in the public interest.’’ All

enrollment composition requirements

for Medicare contractors are eliminated

beginning with contract periods on or

after January 1, 1999.

The BBA in section 4002(j) changed

the definition of a health care

prepayment plan (HCPP) to mean: (1)

An organization that is Union or

Employer sponsored; or (2) an

organization that does not provide, or

arrange for the provision of any

inpatient hospital services. Current

HCPPs must meet this definition on

January 1, 1999 and new 1998

applicants must meet the definition as

of the effective date of the HCPP

agreement. Also, as of January 1, 1999,

HCPPs are not required to meet Medigap

requirements.

The BBA also affected section 1876

cost contracts. Upon enactment of the

BBA (August 5, 1997), the Secretary

may not enter into new section 1876

cost contracts, except for current HCPPs

that converted to section 1876 cost

contracts. Also, 1876 cost contracts may

not be extended or renewed beyond

December 31, 2002.

III. Medicare+Choice MSA Plans

A. Background

As noted above, among the type of

M+C options available under section

1851(a)(2) of the Act is an M+C MSA

plan, that is, a combination of a high

deductible M+C insurance plan and a

contribution to an M+C MSA. Section

1859(b)(3)(A) of the Act defines an MSA

plan as an M+C plan that:

• Provides reimbursement for at least

all Medicare-covered items and services

(except hospice services) after an

enrollee incurs countable expenses

equal to the amount of the plan’s annual

deductible.

• Counts for purposes of the annual

deductible at least all amounts that

would have been payable under original

Medicare if the individual receiving the

services in question was a Medicare

beneficiary not enrolled in an M+C

plan, including amounts that would be

paid by the beneficiary in the form of

deductibles or coinsurance.

• After the annual deductible is

reached, provides a level of

reimbursement equal to at least the

lesser of actual expenses or the amount

that would have been paid under

original Medicare if the individual

receiving the services in question was a

Medicare beneficiary not enrolled in an

M+C plan, including amounts that

would be paid by the beneficiary in the

form of deductibles or coinsurance.

Eligible individuals may enroll in

M+C MSA plans effective January 1,

1999. Section 1859(b)(3)(B) sets the

maximum annual deductible under an

M+C MSA plan for 1999 at $6,000, with

changes for future years to be based on

the national per capita M+C growth

percentage established under section

1853(c)(6). (See section II.F of this

preamble.) In this interim final rule, we

are seeking comment regarding

establishing, pursuant to our general

authority under section 1856(b)(1), a

minimum deductible under an M+C

MSA plan. As discussed below, one

possibility would be to establish a

minimum deductible equal to the

projected actuarial value of the average

per capita copayment under original

Medicare, rounded to the nearest $50.

Section 4006 of the BBA adds new

section 138 of the Internal Revenue

Code of 1986 containing Internal

Revenue Service (IRS) rules concerning

M+C MSAs. In general, an M+C MSA is

a tax-exempt trust created solely for the

purpose of paying the qualified medical

expenses of the account holder. The

account may be established only in

connection with an M+C MSA plan, and

must consist only of contributions from

HCFA under the M+C program or of
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35033

transfers from another M+C MSA, if an

enrollee has set up more than one M+C

MSA. Section 138 also sets forth IRS

rules concerning the distribution of

MSA funds and tax penalties associated

with the distribution of funds from an

M+C MSA for purposes other than

paying the qualified medical expenses

of the account holder. (These provisions

are discussed below in section III.J of

this preamble.)

In establishing the M+C MSA option,

Congress specified under section

1851(b)(4) of the Act that the

opportunity to enroll in an M+C MSA

plan was available on a demonstration

basis to up to 390,000 enrollees through

December 31, 2002. The Secretary is

charged with regularly evaluating the

impact of permitting enrollment in M+C

MSA plans and with submitting a report

to Congress by March 1, 2002,

concerning the effects of the M+C MSA

program and whether it should be

extended beyond 2002.

The introduction of M+C MSAs

builds upon the private market MSA

demonstration program now available to

small employers and the self-employed

under the Health Insurance Portability

and Accountability Act of 1996

(HIPAA). Like the HIPAA

demonstration, the BBA conference

report (H.R. 105–217, pg. 585) indicates

that the introduction of M+C MSAs is

premised on the need for beneficiaries

to play a greater role in the health care

purchasing decision. M+C MSAs offer

beneficiaries incentives to ensure that

the health care resources they need are

allocated in an efficient manner. This

increased consumer control is believed

to have potential for discouraging the

overutilization of health services.

In implementing the BBA provisions

concerning the M+C MSA

demonstration, our primary objective is

to allow a true test of the potential

benefits of the MSA concept to the

Medicare program and its beneficiaries.

Thus, as with other parts of the M+C

regulations, an underlying design

principle has been to preserve as much

flexibility as possible for organizations

and providers in terms of service

delivery arrangements, while still

building in the protections intended

under the BBA for M+C MSA enrollees

and the Medicare trust fund. For the

convenience of the reader, all portions

of the M+C regulations that specifically

concern M+C MSA plans and accounts

are discussed below in this preamble;

however, the M+C MSA regulations do

not constitute a separate subpart of new

part 422. This is because, except as

noted below, the general M+C

requirements throughout part 422 apply

equally to M+C organizations that offer

M+C MSA plans; thus it would be

redundant to repeat all applicable

requirements in a separate M+C MSA

subpart.

B. General Provisions (Subpart A)

Sections 422.2 and 422.4 set forth

several definitions for terms connected

with M+C MSA plans, including ‘‘M+C

MSA,’’ ‘‘M+C MSA plan,’’ and ‘‘MSA

trustee.’’ As noted in section II.D of this

preamble, we also distinguish between

a ‘‘network’’ and a ‘‘non-network’’ M+C

MSA plan. The definitions consist of

general meanings for these terms as

used in the BBA and do not impose

specific requirements. Thus, the

definition for an MSA references the

applicable requirements of sections 138

and 220 of the Internal Revenue Code,

and the M+C MSA plan definition

references the applicable requirements

of new part 422.

The theory behind the new M+C MSA

option is that a beneficiary will pay a

lower monthly premium for a

‘‘catastrophic’’ insurance policy with a

high deductible, and use the money

deposited in his or her M+C MSA

account to cover expenses during the

extended period prior to this high

deductible being reached. This concept

is reinforced by the fact that Congress

excluded from eligibility for M+C MSA

plans individuals with ‘‘first dollar’’

health care coverage (such as, Medicaideligible individuals’—see discussion

below), who would not be required to

incur expenses during the significant

period of time expected to transpire

before the high M+C MSA plan

deductible is met. This is also the

reason that Congress amended the

Medigap statute to preclude insurers

from selling policies to enrollees in

M+C MSA plans that would cover costs

incurred before the high deductible is

met. Indeed, the legislative history

expressly refers to ‘‘[p]rohibit[ing] the

sale of certain [Medigap] policies to a

person electing a high deductible plan,’’

meaning an MSA plan. (H.R. Rep. No.

105–217, pg. 654 (1997). Emphasis

added).

Although Congress did not include a

minimum deductible amount, we

believe that the statutory scheme, and

the above-quoted reference to a ‘‘high

deductible plan’’ in the Conference

report, clearly imply that MSA plans

would have a higher deductible than

other plans. As noted above, we are

seeking comment on providing for a

minimum deductible based on the

actuarial value of the average per capita

cost-sharing under original Medicare

rounded to the nearest $50. For 1999,

this amount is $1,000. (Clearly, any

deductible lower than the actuarial

value of what original Medicare

beneficiaries pay is not a ‘‘high’’

deductible.) We believe that a minimum

deductible amount could ensure that

M+C MSA plans comport with the

‘‘high deductible’’ design envisioned by

Congress, without inappropriately

limiting organizations’ flexibility in

designing M+C MSA plans. Without

such a deductible, however, we are

concerned that an organization could

purport to offer an ‘‘M+C network MSA

plan’’ that had such a low deductible

that it would be impossible to

distinguish from a coordinated care

plan, although the plan would not be

subject to the rules that Congress

intended be applied to coordinated care

plans. Therefore, in deciding whether to

institute a minimum deductible for M+C

MSA plans, we intend to examine any

evidence that such abuses may be taking

place, in addition to our review of

public comments on the issue.

The only other general requirement

concerning M+C MSA plans is the

incorporation under § 422.4(a)(2) of the

statutory provision (section

1851(a)(2)(B)) that one of the available

alternatives under the M+C program is

the combination of an M+C MSA plan

with a contribution into an M+C MSA.

Consistent with the statute, any Statelicensed risk-bearing entity could offer

an M+C MSA plan, whether it is an

HMO offering an ‘‘M+C network MSA

plan’’ under which beneficiaries are

limited to a limited network of

providers for covered services after the

deductible is met, or an indemnity plan

covering services on a fee-for-service

basis after the deductible is met.

C. Eligibility, Election and Enrollment

Rules (Subpart B)

1. Eligibility and Enrollment (§ 422.56)

Any individual who is entitled to

Medicare under Part A, is enrolled

under Part B, and is not otherwise

prohibited (such as an ESRD patient), is

eligible to enroll in an M+C plan.

However, the statute places several

limitations on eligibility to enroll in an

M+C MSA plan. These limitations are

set forth at § 422.56 of the regulations.

Section 422.56(a) indicates that M+C

MSA plans are established on a

demonstration basis and incorporates

the statutory provisions of section

1851(b)(4), that is:

• No more than 390,000 individuals

may enroll in M+C MSA plans.

• No individual may enroll on or after

January 1, 2003, unless the enrollment

is a continuation of an enrollment

already in effect as of that date.

• No individual may enroll or

continue enrollment for any year unless
35034 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

he or she can provide assurances of

residing in the United States for at least

183 days during that year.

The 390,000 limit represents

approximately 1 percent of the Medicare

population. We do not intend to apply

any State or regional limits on

enrollment in M+C MSA plans,

although we will monitor the number of

enrollees on an ongoing basis. We

believe it is unlikely that the number of

applications for M+C MSAs will reach

390,000 in the first enrollment period,

November, 1998. If necessary, however,

we will accept applications for

enrollment in M+C MSA plans on a

first-come, first-served basis, with the

first 390,000 applicants being allowed to

enroll. We will notify organizations

offering M+C MSA plans directly

should the enrollment cap be reached.

The only restrictions on enrollment in

M+C MSA plans under § 422.56(b) and

(c) are those directly contemplated

under section 1851(b)(2) and (3) of the

statute. Specifically, § 422.56(b) states

that an individual who is enrolled in a

Federal Employee Health Benefits

Program (FEHBP) plan, or is eligible for

health care benefits through the

Veterans Administration (VA) or the

Department of Defense (DoD), may not

enroll in an M+C MSA plan. The statute

provides that the restriction on FEHBP

enrollment may be eliminated if the

Director of the Office of Management

and Budget certifies to the Secretary that

the Office of Personnel Management has

adopted policies to ensure that the

enrollment of FEHBP participants will

not result in increased expenditures for

health benefit plans. We intend to apply

this same test for the enrollment

restrictions that apply to VA and DoDeligible individuals. In addition,

§ 422.56(c) incorporates the statutory

prohibition under section 1851(b)(3) on

enrollment in M+C MSA plans by

individuals who are eligible for

Medicare cost-sharing under Medicaid

State plans.

Section 422.56(d) sets forth several

additional restrictions on enrollment in

M+C MSA plans that we believe are

clearly consistent with statutory intent.

These restrictions are discussed in

detail below in section III.D.2 of this

preamble, in the discussion of

supplemental benefits under an M+C

MSA plan.

2. Election (§ 422.62)

Section 1851(e) of the Act establishes

general rules concerning the time

periods when a beneficiary may elect to

enroll in an M+C plan, with special

rules for M+C MSA plans set forth at

section 1851(e)(5). Based on these

provisions, § 422.62(d) specifies that an

individual may elect an MSA plan only

during one of the following periods;

• An initial election period, that is,

the 7-month period beginning 3 months

before the individual is first entitled to

parts A and B of Medicare.

• The annual coordinated election

period in November of each year.

Unlike for other M+C plans, an

individual may discontinue election of

an M+C MSA plan only during the

annual coordinated election period.

Thus, effective January 1, 1999,

enrollees in M+C MSA plans are

‘‘locked in’’ for 1 year, or for the

remainder of the calendar year for

elections during an initial election

period that take effect other than on

January 1. This lock-in rule contrasts

sharply with the rules for other types of

M+C plans, which provide for

continuous open enrollment and

disenrollment through December 31,

2001.

There are two exceptions to this lockin rule. First, as specified under section

1851(e)(5)(C) and codified at

§ 422.62(d)(2)(ii), an individual who

elects an M+C MSA plan during an

annual election period in November of

a given year, and has never before

elected an M+C MSA plan, may revoke

that election by submitting to the

organization offering the plan a signed

request or by filing the appropriate

disenrollment form by December 15 of

that year. In addition, we are providing

at § 422.58(d)(2) that an individual may

disenroll from an M+C MSA plan

during the special election periods

prompted by circumstances such as

termination of the plan, change in the

individual’s place in residence, etc., as

spelled out under § 422.62(b). As

discussed in detail in section II.B of this

preamble, section 1851(e)(4) provides

that these special election periods are to

take effect on January 1, 2002, in concert

with the initial effective date for the

lock-in rules for M+C plans other than

MSA plans. Given that the lock-in rule

for M+C MSA plans takes effect on

January 1, 1999, we believe it is

appropriate that the protections afforded

by the special election period should be

applicable at that time to individuals

who elect M+C MSA plans.

3. Information About the M+C Program

(§ 422.64)

Section 1851(d) and § 422.64 address

the requirement that M+C organizations

must provide the information that

HCFA needs to help beneficiaries make

informed decisions with respect to their

available choices for Medicare coverage.

The only M+C MSA-specific

requirement involved here (also

applicable for M+C private fee-forservice plans) is that the description of

an M+C MSA plan’s benefits should

include differences in cost-sharing,

premiums, and balance billing, as

compared to other types of M+C plans

(see § 422.64(c)(7)(iv)). We believe that

the purpose of this requirement is to

make sure that beneficiaries are aware of

the fundamental differences between

M+C MSA or private fee-for-service

plans and other types of M+C plans,

rather than to present detailed

information concerning the benefits,

premiums, and copayments for all other

specific M+C plans in the area. For

compliance purposes, then we intend to

evaluate the information submitted by

organizations for MSA plans in these

terms. We note that we would apply the

same standard in determining

compliance with the requirement of

§ 422.110(b)(2)(ii) concerning an

organization’s responsibility to disclose

to its enrollees a description of the

benefits available under other types of

plans.

D. Benefits (Subpart C)

1. Basic Benefits Under an M+C MSA

Plan (§ 422.102)

Section 422.102 incorporates the

statutory requirements for M+C MSA

plans defined under section 1859(b)(3)

of the Act, as outlined above. Thus,

§ 422.102(a) specifies that an MSA

organization offering an MSA plan must

make available to an enrollee, or

provide reimbursement for, at least all

Medicare-covered services (except for

hospice services) after the enrollee’s

countable expenses reach the plan’s

annual deductible. We note that section

1859(b)(3)(A)(i) only uses the phrase

‘‘provides reimbursement for’’ the

covered services, but the intent of the

statute clearly includes situations where

a network M+C MSA plan would either

furnish the services directly or arrange

for provision of the services. We believe

that the phrase ‘‘make available to the

enrollee’’ accounts for either of these

situations.

Section 422.102(b) then indicates that

countable expenses must include the

lesser of actual costs or all the amounts

that would have been paid under

original Medicare if the services were

received by a Medicare beneficiary not

enrolled in an M+C plan, including the

amount that would have been paid by

the beneficiary under his or her

deductible and coinsurance obligation.

In accordance with section

1859(b)(3)(A)(ii) of the statute, under

each MSA plan, an organization would

have the discretion to define what it

considers countable expenses, subject to

the statutory threshold of the Medicare
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35035

payable amount. We would envision

that M+C organizations offering MSA

plans could provide that countable

expenses would include a considerably

broader range of services than does

Medicare, including expenses for

services that often would constitute

supplemental health care benefits under

other M+C plans, such as prescription

drugs, dental services, or preventative

care services. (As discussed below,

section 1852(a)(3)(B)(ii) prohibits an

M+C MSA plan from providing most

supplemental health care benefits before

an individual reaches the annual

deductible. However, counting the

expenses for such services towards the

annual deductible is permissible.) An

M+C organization could also choose to

provide that countable expenses under

an M+C MSA plan would include a

provider’s full charges, rather than just

the amount payable under the Medicare

payment rate schedules.

Section 422.102(c) provides that after

the deductible is met, an M+C MSA

plan pays the lesser of 100 percent of

either the actual expense of the services

or of the amounts that would have been

paid under original Medicare if the

services were received by a Medicare

beneficiary not enrolled in an M+C

plan, including the amount that would

have been paid by the beneficiary under

his or her deductible and coinsurance

obligation. As discussed below in

section III.F., M+C balance billing

protections do not apply in this

situation. Thus, unless explicitly

included in the terms of the M+C MSA

plan, any amounts billed in excess of

100 percent of this Medicare allowed

amount would be the responsibility of

the enrollee. In this provision, we have

interpreted the language in section

1859(b)(3)(A)(iii)(II) referring to the

‘‘amounts that would be paid (without

regard to any deductibles and

coinsurance) under parts A and B’’ to

mean the amount that would be paid if

there were no beneficiary liability

provided for in the form of deductibles

and coinsurance—in other words, the

full amount of the Medicare rate. We

have put this a different way in

§ 422.102(c), providing that the amount

in question includes the amounts that

the beneficiary would pay in

deductibles and coinsurance. We

considered interpreting ‘‘without regard

to any deductibles and coinsurance

amounts’’ to mean without counting the

amounts original Medicare beneficiaries

would pay in deductibles and

coinsurance. We decided, however, that

after a deductible of up to $6000, and

with balance billing permitted, M+C

MSA plans should be required to pay

the full Medicare payment rate once the

deductible is met. Again, an

organization would be free to offer

expanded benefits under an M+C MSA

plan beyond the minimum requirements

after the deductible is met, including

supplemental benefits that it could not

offer before the deductible is met.

Section 422.103(d), concerning the

annual deductible, is based on section

1859(b)(3)(B). As the statute specifies,

the maximum annual deductible for an

MSA plan for contract year 1999 is

$6,000. In subsequent contract years, the

maximum deductible may not exceed

the maximum deductible for the

previous contract year increased by the

national per capita M+C growth

percentage for the year. In calculating

the maximum deductible for future

years, HCFA will round the amount to

the nearest multiple of $50.

Another issue we examined in

developing the regulations concerning

the annual deductible for M+C MSA

plans was whether to establish specific

requirements on deductibles for

individuals who enroll in M+C MSA

plans effective other than on January 1

of a given year, that is, individuals who

turn 65 and make midyear elections of

an M+C MSA plan within their initial

enrollment periods. Our primary

alternatives on this issue were to: (1)

require all M+C MSA plans to ‘‘prorate’’

the deductible, that is, reduce the

amount of the deductible for midyear

enrollees in proportion to the amount of

the calendar year remaining or (2) allow

insurers the flexibility to decide for

themselves how to deal with partial year

enrollees. Although the prorating

alternative would reduce the costsharing burden on beneficiaries during

the first partial year, and thus possibly

make it more likely that an individual

whose initial election period occurs late

in the year would choose an M+C MSA

plan, this option has several drawbacks.

Few if any insurance carriers now

prorate their deductibles for midyear

enrollees, and we are reluctant to

implement such an approach

unilaterally, particularly since we have

no evidence that the costs of

implementing a prorated system would

be exceeded by the benefits to

beneficiaries in terms of reduced risk.

Such a requirement could limit interest

in establishing M+C MSA plans, if

insurers believed that they could be

placed at risk of the enrollment of

individuals with low prorated

deductibles who anticipate high cost

short-term health care needs.

Instead, we decided to allow insurers

to decide for their M+C MSA plans how

to deal with partial year enrollees. This

should foster flexible approaches to this

situation, with organizations making

decisions based on their perceptions of

the cost of implementation and the

benefits to them in terms of attracting

prospective enrollees. For example, an

organization’s plans could include a

‘‘carry-over’’ procedure. Under such a

procedure, bills incurred during a

specified period of one calendar year

could be carried over to the following

year and applied to the next year’s

deductible.

2. Supplemental Benefits (§§ 422.102

and 422.103)

Section 422.102 addresses the general

M+C rules on supplemental benefits.

Unlike other M+C plans, MSA plans are

not permitted to include any mandatory

supplemental benefits and are limited in

terms of the optional supplementary

benefits that can be offered. In

accordance with section

1852(a)(3)(B)(ii), § 422.103(a) specifies

that an M+C MSA plan generally may

not provide supplemental benefits that

cover expenses that count toward the

annual deductible. In addition, section

4003(b) of the BBA added new section

1882 to the Act to prohibit the sale of

most supplementary health insurance

policies to individuals enrolled in M+C

MSA plans. The only exceptions to this

rule are spelled out in section

1882(u)(2)(B). These exceptions apply

both for purposes of the prohibition on

selling freestanding supplementary

health insurance (or ‘‘Medigap’’

insurance), and for purposes of

‘‘optional supplemental benefits’’

offered under M+C MSA plans. These

exceptions are reflected in

§ 422.103(a)(2). Under § 422.103(a)(2),

the only types of policies that an

enrollee in an M+C MSA plan may

purchase that cover expenses that may

count toward the annual deductible are

as follows:

• A policy that provides coverage for

accidents, disability, dental care, vision

care, or long-term care.

• A policy in which substantially all

coverage relates to liabilities incurred

under workers’ compensation laws, tort

liabilities, or liabilities relating to use or

ownership of property.

• A policy that provides coverage for

a specified disease or illness or pays a

fixed amount per day (or other period)

for hospitalization. (Note that the fact

that an organization offering an M+C

MSA plan permits a particular expense

to count toward the plan’s annual

deductible does not necessarily mean

that such expenses are considered

‘‘qualified medical expenses’’ by the

IRS.)

The above restrictions on optional

supplemental benefits and Medigap
35036 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

coverage under section 1882, combined

with Congress’ explicit exclusion of

individuals with ‘‘first dollar’’ health

coverage under government programs

(Medicaid, VA benefits, and FEHBP

benefits—see section 1851(b)(2) and (3)

and discussion above), make it clear that

Congress intended that individuals

enrolled in M+C MSA plans would be

required to use the money in their M+C

MSA accounts to pay for services until

the ‘‘high deductible’’ under the plan is

met. While Congress addressed

government programs under which

expenses during the deductible would

be covered, and prohibited the sale of

new private supplemental insurance

that would cover such deductible

amounts (whether an optional

supplemental benefit offered under an

M+C MSA plan, or a freestanding

‘‘Medigap’’ policy), some categories of

individuals with first dollar coverage

that would cover expenses that would

count toward an M+C MSA plan

deductible would remain eligible to

enroll in M+C MSA plans absent a

regulatory prohibition.

We believe that it would give effect to

clear congressional intent to expand the

categories of individuals ineligible to

enroll in M+C MSA plans to include the

additional categories that Congress

neglected to include. For example,

while Congress prohibited the sale of

private insurance covering expenses

that count toward an M+C MSA

deductible, it did not address

individuals who may already have such

coverage, including those who have first

dollar Medigap coverage through their

employer. In addition, individuals who

have elected hospice coverage are also

eligible for first dollar Medicare

payment, without any qualification in

the case of MSA plans. (See section

1853(h)(2)(A).) This is also inconsistent

with Congress’ intended design for the

M+C MSA option. Pursuant to our

authority under section 1856(b)(1) to

establish M+C standards by regulation,

we accordingly are providing in

§ 422.56(d) that individuals with such

health benefits are ineligible to elect an

MSA plan.

As mentioned above, M+C MSA plans

may not provide any supplemental

benefits, except those exempted,

covering expenses that count towards

the annual deductible. Once the

deductible is reached, however, there

are no limitations on the supplemental

benefits a plan may offer, as long as the

plan satisfies the requirements

concerning making available basic part

A and B Medicare services. We believe

that a market may emerge for

supplemental insurance policies in

connection with M+C MSA high

deductible insurance policies. We

considered the possibility of

establishing one or more sample benefit

plans for use in conjunction with M+C

MSA plans, similar to the limited

number of standardized Medigap plans

that are now offered. Although we are

not doing so at this time, we welcome

comments on the need for such uniform

plans.

E. Quality Assurance (Subpart D)

Like for other M+C plans, an

organization offering an MSA plan must

have an ongoing quality assessment and

performance improvement program for

the services furnished to M+C enrollees

under the plan. As discussed in detail

above, the quality assurance

requirements that apply to an M+C MSA

plan depend on whether the plan is a

network model plan, that is, a plan that

provides benefits either through

contracting providers or under

arrangements made by the plan, or a

non-network plan. Consistent with

section 1852(e)(2) of the Act, a network

model M+C MSA plan must meet

requirements similar to those that apply

to all other M+C coordinated care plans

(with the exception of the achievement

of minimum performance levels); the

statute and regulations establish

different requirements for non-network

M+C MSA plans. See section II.D of this

preamble, and § 422.152 of the

regulations, for more information on

this subject. Also, see section II.D. of the

preamble and § 422.154 for information

on the external review requirements that

apply to network M+C MSA plans.

Under § 422.154(b)(1), the external

review requirements do not apply to

non-network M+C MSA plans.

F. Relationships Between Plans and

Participating Physicians (Subpart E)

For the most part, subpart E of new

part 422 does not establish any

requirements that are specific to MSA

plans. However, § 422.214, ‘‘Special

rules for services furnished by

noncontract providers,’’ does have

implications for enrollees in MSA plans.

The provisions of this section are based

on section 1852(k) of the Act, beginning

with the requirement under section

1852(k)(1) that for enrollees in M+C

coordinated care plans, a physician that

does not have a contract with the plan

must accept as payment in full an

amount no greater than the amount the

physician could collect if the individual

were under the fee-for-service Medicare

program, including any applicable

deductibles, coinsurance, or balance

billing permitted by the plan. (See

section 1848(g) concerning the Medicare

fee-for-service rules on limiting

charges.) Section 1852(k)(2) then

establishes balance billing limits for

M+C private fee-for-service plans, as

discussed in detail in section IV of this

preamble and § 422.216; however, the

statute contains no balance billing

protections for enrollees in M+C MSA

plans.

It is clear from the legislative history

of the provisions imposing balance

billing limits that the omission of any

limits under M+C MSA plans was not

inadvertent. Page 609 of the Conference

Report (H.R. Rep. No. 105–217) refers to

the House bill, which included across

the board limits on what could be

collected. The Senate amendment is

described as including a ‘‘[similar

provision except that it excepts from the

requirement * * * a[ ] fee-for-service

plan as well as an MSA plan.’’ The

‘‘conference agreement’’ is then

described as ‘‘including] the Senate

provision with an amendment to

provide for application of the provision

to Medicare+Choice fee for service

plans. * * *’’ Thus, Congress clearly

indicates that it provided for a balance

billing limit for M+C coordinated care

plans and private fee-for-service plans

(albeit a different limit), but not for M+C

MSA plans. On page 611, the

Conference Report expressly states that

the House bill provided that an ‘‘MSA

plan * * * would not be subject to the

* * * limitations on balance billing.’’

The conference agreement indicates that

it ‘‘includes’’ this ‘‘House bill’’ position.

In light of the absence of any statutory

provision for a limit on balance billing

under M+C MSA plans, and these clear

statements of congressional intent that

there be no such limits, we have not

provided for any limits on balance

billing under M+C MSA plans in these

regulations.

G. Payments Under MSA Plans (Subpart

F)

Section 1853 describes the method to

be used to calculate the annual M+C

capitation rate for a given payment area

(see section II.F of this preamble and

§ 422.254). We apply the same

methodology in determining the annual

capitated rate associated with each M+C

MSA plan enrollee. Thus, for calendar

year 1999, the capitated rate will

continue to be adjusted for the age,

gender, Medicaid-eligibility, disability,

institutional status, and employment of

the individual beneficiary, with risk

adjustment scheduled to begin on

January 1, 2000, as also discussed in

detail in section II.F of this preamble.

The special rules concerning the

allocation of the M+C capitated amount

for individuals enrolled in M+C MSA

plans are set forth at section 1853. In
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35037

general, HCFA will allocate the

capitated amount associated with each

M+C MSA enrollee as follows:

• On a lump-sum basis at the

beginning of the calendar year, pay into

a beneficiary’s M+C MSA an amount

equal to the difference between the

annual M+C capitation rate for the

county in which the beneficiary resides

and the M+C MSA premium filed by the

organization offering the MSA plan (this

premium is uniform for all enrollees

under a single M+C MSA plan.) This

results in a uniform amount being

deposited in an M+C MSA plan

enrollee’s M+C medical savings

account(s) in a given county, since the

uniform premium amount will be

subtracted from the uniform countywide capitation rate for every enrollee

in that county.

• On a monthly basis, pay to the M+C

organization an amount equal to onetwelfth of the difference, either positive

or negative, between the annual M+C

capitation payment for the individual

and the amount deposited in the

individual’s M+C MSA.

Section 422.262 contains the

regulations concerning the allocation of

Medicare trust funds for enrollees in

M+C MSA plans. First, under

§ 422.262(a), an enrollee must establish

an M+C MSA with a qualified trustee or

custodian. An enrollee may establish

more than one account, consistent with

section 1853(e)(2)(B) of the Act, but

must designate the particular account to

which payments by HCFA are to be

made. As specified under § 422.262(b),

a trustee can be a bank, insurance

company, or anyone approved by the

IRS to be a trustee of Individual

Retirement Accounts. Section

422.262(b) also requires that M+C MSA

trustees must register with HCFA, agree

to comply with IRS rules concerning

MSAs, and provide organizational

information that HCFA may require.

The specific requirements concerning

the amount that HCFA pays into an

individual’s M+C MSA are spelled out

at § 422.262(c). We calculate the

payment by first comparing the monthly

premium for the M+C MSA plan to the

county-wide capitation rate under

§ 422.252 that is used in making

payments to M+C organizations under

other types of M+C plans (final payment

to M+C organizations is based on this

county-wide capitation rate, adjusted by

demographic factors). If the monthly

premium is less than the monthly

capitation rate for the county, HCFA

deposits into the individual’s M+C MSA

a lump sum equal to the annual

difference between these two amounts,

that is, the monthly difference

multiplied by 12, or by the number of

months remaining in the calendar year

when the individual becomes covered

under the M+C MSA plan.

The lump-sum payment is made in

the first month of coverage under the

M+C MSA plan, but HCFA makes no

payment until the individual has not

established an M+C MSA before the

beginning of the month. Should an

individual’s coverage under an M+C

MSA plan end before the end of a

calendar year, HCFA will recover the

excess portion of the lump-sum deposit

attributable to the remaining months of

that year.

In summary, Medicare’s contributions

to an individual’s M+C MSA are equal

to the difference between the

unadjusted county-wide capitation rate

for the county in which the enrollee

lives and the premium filed by the

individual’s high deductible M+C MSA

plan. For example, if the annual

Medicare payment rate for a county is

$6,000 ($500 per month), and the

annual premium for an M+C MSA

insurance plan is $4800 ($400

multiplied by 12), HCFA would deposit

$1,200, in January, into the M+C MSA

of each plan enrollee residing in that

county. It would pay to the insurer

(generally divided into 12 equal

monthly payments) the difference

between the demographically adjusted

M+C payment amount for that

individual and the MSA contribution.

(See the example below.) The annual

payment by HCFA represents the only

permissible deposit into the

individuals’s M+C MSA, with the

exceptions of transfers from another

M+C MSA established by the same

individual or interest or income that

accrues to the account.

Example of Payments Under an M+C MSA Plan

Monthly premium for an M+C MSA plan ................................................................................................................................................ $400

Monthly M+C county-wide capitation rate ............................................................................................................................................... 500

Monthly demographically adjusted M+C payment for an individual beneficiary:

Individual A (65-year old beneficiary) ........................................................................................................................................ 450

Individual B (85-year old beneficiary) ........................................................................................................................................ 700

A. Annual contribution to enrollee’s

M+C MSA =

(M+C county-wide capitation

rate¥M+C MSA plan monthly

premium) × 12. ($500¥$400) × 12

= $1,200

B. Monthly payment to an M+C

organization under an M+C MSA plan

for an enrollee =

Demographically adjusted M+C

payment rate for an

enrollee¥Monthly contribution to

the enrollee’s M+C MSA plan

Individual A: $450¥$100 = $300

Individual B: $700¥$100 = $600

In theory, payments to the plan for an

individual enrollee could be positive or

negative, depending on the relationship

between a plan’s premium and the

capitation rate for a given county. If, in

the example above, the M+C MSA plan

premium were only $25 (rather than

$400), the monthly contribution to an

enrollee’s M+C MSA would be $475

($500¥$25 = $475). For the 65-year old

beneficiary (Individual A), the resultant

payment to the plan would be a negative

$25 ($450¥$475 = (¥$25)). Given that

organizations offering M+C MSA plans

likely will carefully assess payment

ranges and demographic factors within

their market areas before proposing a

premium, we believe that a negative

payment would be rare, but not

impossible.)

H. Premiums (Subpart G)

Section 1854 establishes the

requirements for determination of the

premiums charged to enrollees by M+C

organizations. Like other M+C

organizations, organizations offering

M+C MSA plans in general must submit

by May 1 of each year information

concerning enrollment capacity and

premiums. For M+C MSA plans, the

information to be submitted includes

the monthly M+C MSA plan premium

for basic benefits and the amount of any

beneficiary premium for supplementary

benefits. These requirements are set

forth under section 1854(a)(3) of the act

and § 422.306(c) of the regulations.

Unlike for M+C coordinated care

plans, section 1854(a)(5) Act expressly

exempts M+C MSA plan premiums from

review and approval by the Secretary.

Section 1854(b)(1)(B) merely states that

for M+C MSA plans, the monthly

amount of the premium charged to an

enrollee equals the M+C monthly

supplemental beneficiary premium, if

any. Although this provision effectively
35038 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

precludes an organization offering an

M+C MSA plan from charging an

additional premium to an enrollee for

basic Medicare benefits paid for through

the capitated payment made by HCFA,

the plan is free to set the basic and

supplemental premium at whatever

levels the market place will bear.

The only statutory limitation placed

on an M+C MSA plan’s ability to

establish premiums is the ‘‘uniform

premium’’ requirement of section

1854(c). The effect of this provision is

that the monthly basic and

supplementary premiums may not vary

among individuals enrolled in an M+C

MSA plan. (See the discussion of

service area in section II.A. of this

preamble.) Thus, insurers that want to

charge different amounts for different

benefits, according to geographic areas

for example, could do so only by

establishing multiple M+C MSA plans.

Within a plan, however, payments into

the M+C MSAs of individuals residing

in the same county will be uniform;

payments to the plans will vary for each

individual.

I. Other M+C Requirements

The remaining requirements under

subpart 422 have few if any

implications specific to M+C MSA

plans. For example, the organizational

and financial requirements, provisions

on compliance with State law,

contracting rules, and grievance and

appeal requirements generally apply in

equal measure to MSA plans as to other

types of plans. More accurately,

perhaps, these requirements primarily

apply to the M+C organization, rather

than the plan; thus, an organization

offering any type of M+C plan must

meet the applicable requirements.

One issue that may require

clarification, however, involves the

provision of section 1856(b)(3)(B)(i)

(and § 422.402(b)) that any State

standards relating to benefit

requirements are superseded. We

recognize that this provision means that

State benefit rules will not apply (such

as State laws that mandate first dollar

coverage for particular benefits such as

mammograms or other preventative

services). Some States may not license

entities to offer catastrophic coverage,

and it is possible that M+C MSA plans

could not be offered in that State. We

welcome public comment on this issue.

The only other sections of these

regulations that contain requirements

that are specific to M+C MSA plans are

found in Subpart K—Contracts with

M+C Organizations. First, in accordance

with section 1857(c)(3), § 422.504(a)

specifies that the effective date for a

contract providing coverage under an

M+C MSA plan may be no earlier than

January 1, 1999.

We note that § 422.500(b)(2)

authorizes HCFA to include in a

contract any requirements that we find

‘‘necessary and appropriate’’ that are not

inconsistent with the M+C statute and

regulations. Given the demonstration

basis of M+C MSA plans under section

1851(b)(4), and the corollary

requirements for an evaluation and a

report to Congress, we believe it may be

necessary and appropriate to require

that organizations offering M+C MSA

plans provide HCFA with data that will

enable us to evaluate M+C MSA plans

in terms of selection, use of preventive

care, access, and impact on the

Medicare trust fund. We are now in the

process of determining what, if any,

specific data will be required with

respect to M+C MSA plans (beyond the

encounter data to be collected with

respect to all M+C plans) to facilitate

HCFA’s evaluation. In

§ 422.502(f)(2)(vii), we provide authority

for HCFA to request data from M+C

organizations offering MSA plans

related to selection, use of preventive

care, and access to services.

J. Tax Rules

As mentioned earlier, section 4006 of

the BBA added new section 138 to the

Internal Revenue Code (IRC) of 1986

concerning M+C MSAs. The regulations

set forth in this interim final rule do not

incorporate the IRC provisions on M+C

MSAs. However, for the convenience of

the reader, we are presenting here a

brief summary of the tax rules

associated with M+C MSAs. For a full

explanation of the tax consequences of

establishing a M+C MSA, we refer

readers to sections 138 and 220 of the

IRC and to the relevant IRS

publications. (For more information,

contact the IRS at (888) 477–2778 or

through its website at

www.irs.ustreas.gov.)

When an individual joins an M+C

MSA plan, HCFA makes a specified

contribution, as explained above, into

the M+C MSA designated by the

individual. No other contribution may

be made into the M+C MSA, and the

contribution is not included in the

taxable income of the account holder.

Any income earned on amounts held in

the M+C MSA are not currently

included in taxable income, similar to

an individual retirement account.

Withdrawals from an M+C MSA are

not considered taxable income if used

for the ‘‘qualified medical expenses’’ of

the account holder, regardless of

whether the account holder is still

enrolled in an M+C MSA plan at the

time of the distribution. In general,

‘‘qualified medical expenses’’ are

defined the same as under the IRS rules

relating to itemized deductions for

medical expenses. (See sections 213(d)

and 220(d)(2)(A) of the IRC and IRS

publication 502, Medical and Dental

Expenses.) For M+C MSA purposes,

however, most health-related insurance

premiums do not constitute qualified

medical expenses, nor do amounts paid

for the medical expenses of any

individual other than the account

holder. Also, keep in mind that the IRS

definition of qualified medical expenses

encompasses a broader range of items

and services than are covered by

Medicare, including for example

prescription drugs and dental services.

Thus, items that are considered

qualified medical expenses by the IRS

do not necessarily constitute countable

expenses toward an M+C MSA plan’s

annual deductible.

An enrollee in an M+C MSA plan may

make withdrawals from an M+C MSA

that are not used to pay for the qualified

medical expenses of the account holder,

but these withdrawals are included in

the account holder’s taxable income and

may be subject to additional tax

penalties under section 138(c)(2) of the

IRC. The additional tax provisions do

not apply to distributions following the

disability (as defined in section 72(m)(7)

of the IRC) or death of the account

holder. Finally, under section 138(d) of

the IRC a surviving spouse of an M+C

MSA holder may continue the M+C

MSA upon the death of the account

holder, including making nontaxable

withdrawals for the qualified medical

expenses of the spouse or the spouse’s

dependents, but may not make new

contributions to the M+C MSA. Again,

we recommend contacting the IRS for

further details.

K. Letters of Intent

In closing, we wish to solicit letters of

intent from organizations that intend to

offer high deductible M+C MSA

insurance plans to Medicare

beneficiaries and/or to serve as M+C

MSA trustees or custodians. A letter of

intent to offer an M+C MSA plan should

include basic information about the

plan, the geographic area in which the

plan intends to operate, the name,

address, and telephone number of a

contact person, so that beneficiaries can

call the plan to verify whether the plan

did, in fact, submit an application and

receive our approval. This letter of

intent must be received no later than

July 31, 1998.

For prospective M+C MSA trustees,

the letter of intent must include the

name of the organization, the address, a

contact person and telephone number,
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35039

funds routing number, Federal tax

identification number, the geographic

area the trustee will serve, a public

information number for publication, and

attestation that the organization is a

chartered bank, licensed insurance

company, or other entity qualified

under section 408(a)(2) or section 408(h)

of the Internal Revenue Code to act as

a trustee or custodian of an individual

retirement account. For trustees, no

further application to us will be

required if the organization appears to

be qualified based upon submitted

information. Trustees that decide at a

later date to participate will have to

notify us before offering M+C MSAs.

Statements of intent should be

submitted to—Health Care Financing

Administration, CHPP, Attn: Cynthia

Mason, Room C4–17–27, 7500 Security

Boulevard, Baltimore, Maryland 21244.

A letter of intent in no way commits

an organization to submit an application

to offer an M+C MSA plan or serve as

an M+C MSA trustee, nor does it

preclude the submission of an

application if a letter of intent is not

submitted to us. As part of our

information campaign, we plan to

publish and disseminate the

information we receive to inform

beneficiaries of the plans that may be

participating in the M+C MSA plan

demonstration project.

IV. M+C Private Fee-for-Service Plans

1. Background and Definition of M+C

Private Fee for Service Plans

(§ 422.4(a)(3))

As noted above, among the type of

M+C options available under section

1851(a)(2) is an M+C private fee for

service plan. An M+C private fee for

service plan is an M+C plan like any

other except where there are special

rules and exceptions that apply to them.

The effect of these special rules and

exceptions is that we believe that M+C

plans will function much like a

traditional health insurance plan rather

than a coordinated care plan nor a

medical savings account. The law

provides considerable flexibility in the

creation of this M+C option and

therefore, it is likely that M+C private

fee for service plans will vary widely in

how they function. Moreover, the law

does not limit the premiums that an

M+C organization may charge for an

M+C private fee for service plan, thus

making it very sensitive to market forces

in its pricing, its benefits and its

function.

We propose to define an M+C private

fee-for-service plan as being an M+C

plan that pays providers of services at

a rate determined by the plan on a feefor-service basis without placing the

provider at financial risk, does not vary

the rates for a provider based on the

utilization of that provider’s services,

and does not restrict enrollees’ choice

among providers who are lawfully

authorized to provide the services and

agree to accept the plan’s terms and

conditions of payment. This is the

statutory definition of M+C private feefor-service plan at 1859(b)(2)(A). The

requirements these plans must meet to

contract with HCFA as an M+C private

fee-for-service plan are incorporated

into the relevant sections of this

regulation. An M+C private fee-forservice plan must meet all of the

requirements for any other M+C plan,

except to the extent that there are

special rules for M+C private fee-forservice plans.

2. Quality Assurance (§§ 422.152 and

422.154)

The law exempts M+C private fee for

service plans and non-network MSAs

from some of the quality assurance

requirements of the law. Moreover, the

law exempts M+C private fee for service

plans and non-network MSAs from

external quality review if they do not

have written utilization review

protocols. Specific discussion of the

statute and the regulations that

implement these provisions that apply

to both M+C private fee for service plans

and non-network MSAs are found in

subpart D at sections 422.152 and

422.154. As with all other requirements

for M+C organizations and M+C plans,

those provisions of regulations that are

not specific to coordinated care plans

and MSAs also apply to M+C private fee

for service plans.

3. Access to Services (§ 422.214)

In § 422.214 we implement the special

requirements for access to health

services that are contained in section

1852(d)(4). The law requires that the

Secretary must assure that the M+C

private fee-for-service plan offers

sufficient access to health care.

Specifically, in § 422.114(a) we require

that an M+C organization that offers an

M+C private fee-for-service plan must

demonstrate to HCFA that it has

sufficient number and range of health

care providers willing to furnish

services under the plan. Pursuant to the

specific instructions of the law, under

§ 422.114(a) HCFA will find that an

M+C organization meets this

requirement if, with respect to a

particular category of provider, the plan

has—

• Payment rates that are not less than

the rates that apply under original

Medicare for the provider in question;

• Contracts or agreements with a

sufficient number and range of

providers to furnish the services

covered under the plan; or

• A combination of the above.

Hence, an M+C private fee-for-service

plan will be found to have met the

access requirements for a category of

services if it has sufficient numbers of

providers under direct contract in its

service area or, if not, it has payment

rates that are equal to or higher than the

original Medicare payment for the

service. This access test must be met for

each category of service established by

HCFA on the M+C organization

application. Clearly, if an M+C private

fee-for-service plan has payment rates

that are no lower than Medicare, it need

not address if it has a sufficient number

of providers of services. However,

where the plan has payment rates that

are less than the Medicare payment for

that type of provider, the plan must

demonstrate that it has sufficient

number of providers of that type under

direct contract. For purposes of making

this judgement of sufficiency, HCFA

will use the same standards for M+C

private fee-for-service plans as for

coordinated care plans. We see no basis

to use different standards.

In § 422.114(b) we specify that the

plan must permit the enrollees to

receive services from any provider that

is authorized to provide the service

under original Medicare. This

implements that part of section

1852(d)(4) that says that the access

requirements cannot be construed as

restricting the persons from whom

enrollees of the M+C private fee-forservice plan may obtain covered

services.

4. Physician Incentive Plans (§§ 422.208

and 422.210)

In § 422.208(e) we specify that an

M+C private fee-for-service plan may

not use capitated payment, bonuses, or

withholds in the establishment of the

terms and conditions of payment. This

is necessary to implement that part of

the definition of an M+C private fee-forservice plan that specifies that the plan

must pay without placing the provider

at financial risk. We believe that these

physician incentives place the

physician at financial risk and thus are

not permitted by the law for M+C

private fee-for-service plan payments.

Capitation places physicians at risk

because of the uncertainty of the extent

to which the beneficiary will require the

physician’s time and services to provide

an adequate level of service. Withholds

from payment place the physicians at

financial risk because of the uncertainty

of what the ultimate payment for the
35040 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

services furnished will be. Bonuses are

essentially the same as withholds. In

both the case of bonuses and withholds,

the physicians knows the least amount

that could be paid but in both cases,

they face uncertainty about what the

total payment from the plan would be

for the services furnished.

5. Special Rules for M+C Private Feefor-Service Plans (§ 422.216)

In § 422.216(a) we address payment to

providers. Specifically in 422.216(a)(1)

we state that the M+C organization

offering an M+C private-fee-for-service

plan pays contract providers (including

those that are deemed to have contract

under § 422.216(f)) on a fee-for-service

basis at a rate, determined under the

plan, that does not place the provider at

financial risk. This reflects the statutory

definition of an M+C private fee-forservice plan.

We also specify in § 422.216(a)(1) that

the payment rate includes any

deductibles, coinsurance, and

copayment imposed under the plan and

must be the same for all providers paid

pursuant to a contract whether or not

the contract is signed or deemed to be

in place as discussed below. This

reflects our understanding of the

meaning and use of these terms in

common insurance use. It also reflects

our belief that the plan rate (on which

balance billing discussed below is

based) is intended to be analogous to the

Medicare allowed amount for a service,

of which the deductible, coinsurance or

copayment is a part. We think the

deductible, and coinsurance or

copayment is a part of the plan payment

rate because deductibles have to be

subtracted from that plan payment and

because coinsurance is a percentage of

the plan payment rate, thus being

included within the rate by definition.

We believe that the payment rate does

not include balance billing because the

common definition of balance billing

under both original Medicare and

common insurance is an amount above

and beyond the payment rate

established for the service. Balance

billing is discussed in more detail below

in (c) as a provider charge to enrollees.

As noted above, we specify in

§ 422.216(a)(1)(i) that a uniform

payment rate must be established for a

given item or service furnished under a

contract, whether the contract is signed

or deemed to exist (see discussion of

deemed contracts below). In

§ 422.216(b)(1)(i), we also require that

the plan deductible, coinsurance or

copayments and other beneficiary

liability be uniform for services

furnished by all contracting providers,

whether contracts are signed or deemed

to be in place. These two requirements

are closely related, since permissible

enrollee liability is linked by statute to

the plan’s payment rate. The balance

billing limitation in section

1852(k)(2)(A) that applies to M+C

private fee-for-service plans is based on

the plan payment rate, which has

deductible, copayment and coinsurance

amounts built into it. In our view,

therefore, the uniform cost-sharing rule

in § 422.216(b)(1)(i) follows from the

uniform payment rate rule in

§ 422.216(a)(1)(i).

We believe that the uniform rate

requirement in § 422.216(a)(1)(i) is

implicit in the definition of private feefor-service plans in section 1859(b)(2),

which refers in the singular to

reimbursing, hospitals physicians and

other providers at ‘‘a rate’’ determined

under the plan. The balance billing limit

in section 1852(k)(2)(A) even more

explicitly supports a uniformity rule, in

referring in the singular to ‘‘a’’

prepayment ‘‘rate’’ that is established

under ‘‘a contract (including [a deemed

contract]). * * *’’ Section 1852(k)(2)(A)

thus makes clear that Congress

contemplated that a single ‘‘rate’’ would

be established for a given service, or for

a service in a given area, under ‘‘a

contract,’’ and that this rate would

apply under the contract, ‘‘including’’ a

contract deemed ‘‘through the operation

of subsection (j)(6)’’ of section 1852

(discussed below).

Even if the statute did not refer to a

single rate that applies under a contract,

and expressly include a deemed

contract in this statement, we would

exercise our authority under section

1852(b)(1) to impose a uniform rate and

cost-sharing requirement. We

understand from oral presentations and

written comments received in response

to the January 20, 1998 Federal Register

notice (63 FR 2920), that some entities

would like to establish different

payment rates and enrollee cost-sharing

for providers that sign contracts than

those which would apply to providers

deemed to have a contract. These

entities indicated that they wanted to

establish incentives to use the network

of providers with signed contracts. We

believe that it would be inconsistent

with the scheme established by

Congress to permit this.

Under such an approach, the M+C

organization would in essence be

establishing a defined and limited

network of preferred providers.

Congress has applied a different set of

rules to plans that employ provider

networks, and exempted M+C private

fee-for-service plans from these

requirements. Indeed, a ‘‘preferred

provider organization’’ (PPO) plan and

‘‘point of service’’ option are each

expressly mentioned as examples of

‘‘coordinated care plans’’ subject to the

quality assurance rules that apply to

network plans, including network MSA

plans. We believe that permitting

private fee-for-service plans to have

different cost-sharing amounts for

providers with signed contracts would

create a ‘‘loophole’’ permitting

organizations from offering network

type PPO plans without complying with

the quality assurance requirement that

Congress intended to apply to network

plans.

In § 422.216(a)(1)(ii) we specify that

contracting providers must be paid on a

fee-for-service basis. This is required by

the definition of M+C private fee-forservice plans contained in

1859(b)(2)(A).

In § 422.216(a)(1)(iii) we specify that

the M+C organization must make the

payment rate available to providers that

furnish items or services that may be

covered under the M+C private fee-forservice plan offered by the organization.

We require this to ensure that the

contracting providers will be advised or

be able to acquire the amount of

payment for the services they furnish to

plan enrollees. This is particularly

important given the plan’s flexibility to

set and change payment rates.

In § 422.216(a)(2) we specify that the

M+C organization must pay a contract

provider (including one deemed to have

a contract) an amount that is equal to

the payment rate described above less

any applicable deductible, coinsurance

or copayment. The M+C plan’s share of

the payment is the payment rate (which

includes deductible, coinsurance and

copayment as discussed above) less that

enrollee’s cost-sharing.

In § 422.216(a)(3) we also specify that

the plan pays for services of noncontract

providers in accordance with

§ 422.100(b)(2).

Section 1852(k)(2)(B)(i) specifies that

the minimum payment rate for

noncontracting providers of M+C

private fee-for-service plans must be the

payment rate set in 1852(a)(2)(A), the

same payment rate that applies when

coordinated care plans pay

noncontracting providers for approved

services. The provisions of 1852(a)(2)(A)

are set in regulations at § 422.100(b)(2)

and thus that provision applies to the

payment to noncontracting providers by

M+C private fee-for-service plans. Thus,

the plan must pay the provider at least

the amount that the provider would

have received under original Medicare,

including any allowed balance billing

amounts. The provider must accept this

amount, together with allowable cost
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35041

sharing paid by the enrollee, as payment

in full.

In § 422.216(b) we address provider

charges to enrollees. Specifically in

§ 422.216(b)(1) we state that a contract

provider (including one that is deemed

to have a contract under paragraph (f)

(discussed below) may charge the

enrollee no more than the deductible,

coinsurance, copayment, and balance

billing amounts permitted under the

plan, that the plan must have the same

cost-sharing for deemed contract

providers as for contract providers and

that the plan may permit balance billing

no greater than 15 percent of the

payment rate for the service.

The provisions regarding what

enrollees may be charged are based on

our interpretation of section

1852(k)(2)(A)(i) that says that a provider

shall accept as payment in full ‘‘* * *

an amount not to exceed (including any

deductibles, coinsurance, copayments,

or balance billing otherwise permitted

under the plan) an amount equal to 115

percent of such payment rate.’’ We

believe that the intent of this provision

is that the plan may, but is not required

to, permit the provider to collect

balance billing equal to but not in

excess of 15 percent of the plan

payment rate. We believe that the intent

of the section was to permit a balance

billing provision that mirrors that which

currently exists section 1848(g) with

respect to services paid under the

Medicare fee schedule for physician

services for beneficiaries who are

enrolled in original Medicare.

We recognize, however, that the

inclusion of the words ‘‘balance billing

otherwise permitted under the plan’’ in

the second parentheses in section

1852(k)(2)(A)(i) could be construed, if

read literally, to permit the 115 percent

limit on enrollee liability for balance

billing to be applied to a payment ‘‘rate’’

that already included balance billing

‘‘otherwise provided for’’ in the plan.

This interpretation would in effect

have created two balance billing

amounts: one balance billing amount

within the payment rate (that would be

above and beyond the deductible,

coinsurance and copayment) and

another balance billing amount based

upon the payment rate (effectively a

balance billing amount as a percentage

of another balance billing amount). This

is a convoluted result that we do not

believe was intended. In addition to

producing a convoluted result, the

above reading of the reference to

balance billing in the second

parenthetical in section 1852(k)(2)(A)(i)

would permit M+C organizations to

avoid the limitation on enrollee liability

in section 1854(e)(4), which applies

only to deductibles, coinsurance, and

copayments. See section G. below. If an

M+C organization offering a private feefor-service plan could ‘‘provide for’’

balance billing amounts in its payment

rate, such amounts would not count

towards the overall limit on enrollee

liability in section 1854(e)(4). This

could result in unlimited enrollee

liability if such unlimited ‘‘plan’’

balance billing amounts were coupled

with balance billing of 115 percent of

rates that include the plan balance

billing.

The provision that requires that the

plan establish the same cost-sharing for

the services of deemed contract

providers as for contract providers is

discussed above in its relationship to

§ 422.216(a)(1).

In § 422.216(b)(1)(iii) we specify that

the M+C organization must specify in

the contract the deductible,

coinsurance, copayment, and balance

billing permitted under the plan for

services furnished by a contracting

provider (including a deemed contract

under paragraph (f)). We believe it is

important to ensure that the providers

who furnish services are explicitly

aware of the amounts they can collect

from enrollees since there are potential

penalties for violation of these limits.

In § 422.216(b)(1)(iv) we specify that

an M+C organization is subject to

intermediate sanctions under

§ 422.752(a)(7), under the rules in

subpart O of part 422, for failing to

enforce limits on beneficiary liability

that apply to contract (including

deemed contract) providers. This

implements section 1852(k)(2)(A)(i).

In § 422.216(b)(2) we specify that a

noncontract provider may charge the

enrollee no more than the cost-sharing

established under the M+C private feefor-service plan limited as specified in

§ 422.308(b). This requirement

implements section 1852(a)(2), which

applies to all M+C plans other than

MSA plans, and which is referenced in

section 1852(k)(2)(B)(i), which applies

specifically to payments to non-contract

providers under M+C private fee-forservice plans. Section 1852(a)(2)

requires that M+C organizations provide

for payment to non-contracting

providers of an amount, representing

the sum of payment from the

organization and any cost-sharing

provided for under the M+C plan, that

is at least equal to the total dollar

amount of payment that would be

authorized to be paid under parts A and

B, including any balance billing

permitted under such parts. We have

defined ‘‘cost-sharing’’ in section 422.2

as including only deductibles,

copayments and coinsurance, and not

balance billing amounts. Because

section 1852(a)(2)(A)(i) uses the term

cost-sharing, we believe that it requires

that M+C organizations make payment

in an amount that, when combined with

deductible amounts, coinsurance or

copayments provided for under the

M+C plan, at least equals the amount

the individual or entity would be able

to collect under original Medicare, as

we have provided in section

§ 422.216(b)(3). This means that

enrollees must be held harmless against

any balance billing by non-contracting

providers.

While § 1852(a)(2) thus limits enrollee

liability to deductible, coinsurance, and

copayment amounts (and does not

permit enrollee liability for balance

billing in the case of non-contracting

individuals or entities), it does not

contain any limit on the amount of

enrollee liability that can be imposed

under a M+C private fee-for-service plan

for services furnished by a noncontracting provider. While section

1854(e)(4) limits the actuarial value of

cost-sharing overall, it does not limit the

amount that can be charged for a

particular service, except as specified

elsewhere in this rule, for example

limits for emergency services as

established in section 422.112(b).

Hence, except for limits specified

elswhere in this rule, M+C organizations

that offer M+C private fee-for-service

plans will be able to establish costsharing for services of non-contracting

providers without regard to a specific

limit per service.

In § 422.216(c)(1) we specify that an

M+C organization that offers an M+C

private fee-for-service plan must enforce

the limit specified in paragraph (b)(1) of

this section. We also specify in

§ 422.216(b)(1)(iv) that if the M+C

organization fails to enforce the limit as

required by paragraph (c)(1) of this

section, the organization is subject to

intermediate sanctions under subpart O

of this part. We intend to leave to the

organization’s discretion the means by

which it will enforce the limits on

charges to enrollees. However, through

the ongoing monitoring of the M+C

private fee-for-service plan, HCFA will

review the means by which the plan is

enforcing the limits on charges to

enrollees by looking at the extent of

complaints from enrollees and the

action the M+C organization takes to

resolve them, both systematically and

individually.

In § 422.216(c)(2) we specify that an

M+C organization that offers an M+C

private fee for service plan must

monitor the amount collected by noncontract providers to ensure that those

amounts do not exceed the amounts
35042 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

permitted to be collected under

paragraph (b)(2) of this section. The

M+C organization must develop and

document violations specified in

instructions and must forward

documented cases to HCFA. HCFA may

impose the sanctions provided in

section 1848(g)(1)(B). These are the

penalties that apply to nonparticipating

physicians who fail to abide by the

limiting charge under original Medicare.

In § 422.216(d) we specify that the

M+C organization that offers an M+C

private fee-for-service plan must

provide to plan enrollees an appropriate

explanation of benefits that includes a

clear statement of the enrollee’s

liability, including any liability for

balance billing consistent with this

section. Section 1852(k)(2)(C)(i) requires

that the plan must notify the enrollee of

balance billing that can be collected by

the provider. We believe that it would

be misleading for this notice to be

limited to the balance billing that can be

collected by the provider since the

provider may also be able to collect

deductible, coinsurance and or a

copayment from the enrollee

(depending upon the plan’s policy) and

that therefore the plan should notify the

enrollee of all cost-sharing and balance

billing that can be collected by the

provider so that there is no confusion.

We also specify that, in its terms and

conditions of payment to hospitals, the

M+C organization must require a

hospital, if it imposes balance billing, to

provide to the enrollee, before

furnishing any services for which

balance billing could amount to $500 or

more, notice that balance billing is

permitted for those services and a good

faith estimate of the likely amount of

balance billing, based on the enrollee’s

presenting condition. Section

1852(k)(2)(C)(ii) requires that such a

notice be furnished by a hospital for

inpatient services and permits the

Secretary to require such a notice for

other hospital services at a tolerance to

be set by the Secretary. We believe that

this requirement was included in the

law because of the potential for the

balance billing provisions that apply to

contracting providers to create quite

large liability for enrollees of these

plans. For example, if an M+C private

fee-for-service plan permits a hospital to

balance bill up to the 115 percent of

plan payment rate that the law would

permit, and the plan payment is $10,000

for the hospital stay, the enrollee would

be liable for $1500 in balance billing in

addition to the deductible, coinsurance

and copayment the plan permits the

hospital to collect.

We specify that the advance notice

requirements applies to all services

furnished by a hospital because of the

trend towards furnishing services on an

outpatient basis that would previously

have been furnished on an inpatient

basis. These services can be very

expensive and we believe that the

enrollee has a need to know the costsharing for these services in advance of

receiving the services as for inpatient

hospital services.

We have set the tolerance at which

the hospital must provide this advance

notice at $500, which is the tolerance

for nonparticipating physicians to

provide advance notice of the

nonparticipating physician’s actual

charge under section 1842(m)(1) for

purposes of Part B of original Medicare.

In § 422.216(e) we specify that the

M+C organization must comply with the

coverage decisions, appeals, and

grievances procedures of subpart M.

This requires that the M+C organization,

offering the M+C private fee-for-service

plan, make coverage determinations on

all services and that it must make a

determination before the service is

furnished if the enrollee or provider

requests it. We believe that this

requirement is necessary to enforce the

provisions contained in section

1852(g)(1)(A), which apply to all M+C

organizations. Specifically, section

1852(g)(1)(A) requires that ‘‘A

Medicare+Choice organization shall

have a procedure for making

determinations regarding whether an

individual enrolled with the plan of the

organization under this part is entitled

to receive a health service under this

section and the amount (if any) that the

individual is required to pay with

respect to such services. Subject to

paragraph (3), such procedures shall

provide for such determinations to be

made on a timely basis.’’ Paragraph (3)

is the expedited decision process.

We recognize that providing advance

determinations of coverage has not been

a common feature of commercial fee-forservice plans in the past. However, the

law’s use of the present tense with

regard to the requirement for coverage

determinations and its reference to the

expedited appeals process (which is

intended to obtain a quick appeal of a

denial of a service not yet furnished)

clearly anticipates that there will be the

opportunity for an advance

determination of coverage for all M+C

plans. Moreover, the opportunity to

acquire an advance determination of

coverage is particularly important since

there is no protection from retroactive

denial for enrollees in an M+C private

fee-for-service plan. This is a source of

great risk for enrollees in M+C private

fee-for service plans, who, unlike

enrollees in coordinated care plans, may

seek treatment from any licensed

provider that agrees to accept the terms

and conditions of the plan.

While the opportunity for advance

determinations of coverage presents the

opportunity to minimize the risk by

giving the enrollee and provider the

opportunity to determine whether the

plan will pay for the service and the

amount for which the enrollee will be

liable, it does not provide protection to

the enrollee that is comparable to the

protection provided by original

Medicare under the provisions of

section 1879 (which apply to assigned

claims) and under 1842(l) (which apply

to unassigned physician claims). These

provisions hold the beneficiary without

fault when a services is denied as not

medically necessary to treat illness or

injury unless the beneficiary was

advised by the provider in advance of

the service that Medicare would not pay

and the beneficiary accepted liability if

Medicare did not cover the service.

These provisions also permit a

physician to take assignment on a claim

for Medicare services to be found to be

not at fault and to be paid by Medicare

for the noncovered service if he can

demonstrate that he did not know and

could not reasonably have known that

the service was not covered.

We considered and rejected imposing

several requirements that would have

provided Medicare beneficiaries with

protection like that available under

original Medicare. Specifically, we

considered requiring that the M+C

organization must require that

contracting providers (including

deemed contractors) submit claims for

the services they furnish to enrollees.

We also considered but rejected

requiring the M+C organization to

require that contracting providers

(including deemed contractors) assume

the responsibility for acquiring an

advance determination of coverage from

the plan or risk being unable to charge

the enrollee if they did not notify the

enrollee in advance of the service if the

plan does not cover the care. This

approach would have provided

enrollees protection from the liability of

full payment in the case of retroactive

denials and would have given providers

an opportunity to minimize their risk by

acquiring advance approval of coverage.

However, we decided that it would be

contrary to the spirit and intent of the

M+C fee-for-service legislation to

impose these requirements on providers

and plans, since they would make the

plan much more like a coordinated care

plan than like a traditional fee-forservice plan. Moreover, such a

construction would place the provider

at financial risk, contrary to the
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35043

definition of an M+C private fee-forservice plan.

Our silence in regulations on the

claims filing requirements of M+C

private fee-for-service plans and the

absence of any explicit mechanism for

providing protection to enrollees from

retroactive denials of coverage does not

foreclose the possibility that an M+C

private fee-for-service plan may choose

to address these issues. For example, the

M+C private fee-for-service plan may

choose to include in its terms and

conditions of payment a requirement

that the provider must bill the plan for

payment. Similarly, the M+C private

fee-for-service plan may choose to

provide some level of payment for

services subject to retroactive denials as

an additional benefit or as a

supplemental benefit under the plan.

This could be an attractive feature of the

plan and a valuable benefit to enrollees.

Although we are silent on these

issues, we remain concerned about the

absence of protections for beneficiaries

who enroll in private-fee-for-service

plans. We are soliciting comments on

these issues, and we are particularly

interested in comments on whether to

apply the protections discussed above

as a requirement or how otherwise to

protect the beneficiary from being

financially at risk, while not creating

undue burdens on providers and

insurers.

In § 422.216(f) we specify that any

provider that does not have a contract

will be treated as having a contract in

effect with the M+C organization

offering the M+C private fee-for-service

plan if the provider furnishing services

(1) is aware that the beneficiary

receiving the services is enrolled in the

plan, and (2) before furnishing the

services, has a reasonable opportunity to

be informed about the terms and

conditions of payment and coverage

under the plan. Section 1852(j)(6)

requires that we deem a noncontracting

provider to be a contracting provider

when these criteria are met. In

§ 422.216(f) we further specify three

general criteria, each of which must be

met for a provider to be deemed to have

a contract with the plan and which are

discussed further in § 422.216(g) and

(h).

In § 422.216(f) we specify that for the

deemed contract provision to apply the

services must be covered under the plan

and must be furnished to an enrollee of

an M+C private fee-for-service plan, by

a provider that does not have in effect

a signed contract with the M+C

organization. We also specify in

§ 422.216(f)(2) that the provider must

have been informed of the individual’s

enrollment in the plan and must have

been informed or given a reasonable

opportunity to obtain information about

the terms and conditions of payment

under the plan in a manner reasonably

designed to effect informed agreement.

The information must include the

information described in § 422.202(a)(1).

In § 422.216(g) and (h) we further

clarify that the requirements of

paragraph (f) of this section are met (and

the noncontract provider is subject to

the provisions for contracting entities) if

the following conditions are met.

Enrollment information must be

provided by one of the following

methods or a similar method:

• Presentation of an enrollment card

or other document attesting to

enrollment.

• Notice of enrollment from HCFA, a

Medicare intermediary or carrier, or the

M+C plan itself.

We considered how best to ensure

that the noncontracting provider would

be advised that the enrollee is enrolled

in the M+C private fee-for-service plan.

However, since there is no direct

contract between the provider and the

M+C private fee-for-service plan, it

becomes incumbent upon the enrollee

to advise the provider of the enrollment.

Even where the provider had previously

been notified of the beneficiary’s

enrollment in the M+C private fee-forservice plan (e.g. at the time of a

previous service), the provider cannot

automatically assume that the

beneficiary is enrolled in the plan and

may not be able to learn the

beneficiary’s enrollment status prior to

providing services. This occurs because,

before 2002, beneficiaries can disenroll

from M+C plans at any time, either

voluntarily or involuntarily by moving

out of the service area. After that date,

the beneficiary can disenroll within the

first 3 months of the year or at any time

if they move out of the service area.

Hence, there are very few times that a

noncontracting provider can know with

certainty that the beneficiary remains

enrolled in the M+C private fee-forservice plan based on previous

knowledge of enrollment. If the provider

fails to acquire current enrollment

information from the enrollee or the

plan at the time of each service, we do

not see how he or she can be held to

have met the first test of ‘‘deemed

contract status’’: knowing that the

beneficiary is enrolled in the plan.

To be a deemed contractor, the

provider or supplier who knows that the

patient is enrolled in the plan must

either have been given information on

payment terms and conditions or must

have had a reasonable opportunity to

learn such terms and conditions of plan

payment. Under that circumstance,

treatment of the patient implies consent

to the terms and conditions of plan

payment.

To meet the requirement of having

been given information on payment

terms and conditions, we specify in

paragraph (h)(1) that the information

must have been communicated to one of

the following:

• The provider of the services.

• The provider’s employer or billing

agent.

• A partnership of which the provider

is a member.

• Any party to which the provider

makes assignment or reassigns benefits.

We expanded the list of parties to

whom the information must be provided

beyond those of providers themselves in

recognition that providers, and in

particular, individual physicians and

practitioners, seldom receive the

insurance information that is sent to

them and seldom complete and submit

their own claims. By reassigning

insurance benefits to other parties and

by delegating the responsibility to

complete and submit claims to other

parties, they are, effectively, also

delegating the authority to make

decisions governing their payment for

which they remain responsible.

We also specify in paragraph (h)(1)

that the information must have been

transmitted via mail, FAX, electronic

mail or telephone. Announcements in

newspapers, journals, or magazines or

on radio or television are not considered

communication of the terms and

conditions of payment. We specify how

the information must have been

provided because we have been asked if

general distribution of information to

the public (e.g. annual newspaper

notice) is an acceptable notice to bind

the provider to being considered to be

a deemed contractor. We do not believe

that it is reasonable for a plan to do a

general public notice since the provider

may not see it and has no way of

relating that information to itself.

However, where the plan has

transmitted the information directly to

the provider by mail, FAX, electronic

mail or telephone, the statute’s test of

having been furnished the information

to the provider has clearly been met.

However, the law also provides that a

provider that has a reasonable

opportunity to acquire the terms and

conditions of plan payment must be

treated as if it were a contract provider.

To implement this provision of the law,

we further specify in paragraph (h)(2)

that a provider that does not have a

contract with the plan is deemed to

have a contract with the plan if the plan

has an acceptable procedure under

which the provider could acquire the
35044 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

terms and conditions of plan payment

before providing services to the

enrollee. Specifically, we say that this

test is met where the M+C plan has in

effect a procedure under which

noncontract providers are advised how

to request the payment information and

the plan responds to the request before

the provider furnishes the service. This

procedure could be the inclusion of a

toll free telephone number or E-mail

address on the enrollment card for the

provider’s use in acquiring the terms

and conditions of payment. Where the

plan responds to the provider’s request

before the service is furnished, the

provider would be treated as a contract

provider if the provider subsequently

furnishes the service to the enrollee,

regardless of whether the provider

agrees to accept the terms and

conditions of the plan.

The effect of these statutory

provisions is that there are very few

circumstances in which a provider

would not be treated as if it had a

contract with the plan. These would

include but not be limited to the

following:

• Where the beneficiary did not

notify the provider of enrollment in the

plan.

• Where the provider requested but

was not furnished terms and conditions

of payment in advance of the provision

of services to a known enrollee.

• Where the plan did not have a

process that provided terms and

conditions of payment.

We think that in most cases, plans

will ensure that there is a procedure in

place for providing this information

before services are furnished. We think

that the most likely circumstances in

which a provider will be considered to

be a noncontracting provider will be in

cases of emergency where the provider

has not previously been mailed the

terms and conditions of payment under

the plan or where the provider does not

know that the beneficiary is enrolled in

the plan.

In § 422.216(h)(2)(iii) we specify that

the plan must include the following in

the terms and conditions of plan

payment that it must furnish to

providers of services:

• Billing procedures.

• The amount the plan will pay

towards the service.

• The amount the provider is

permitted to collect from the enrollee.

• The information described in

§ 422.202(a)(1).

V. Regulatory Impact Statement

A. Introduction

We have examined the impact of this

rule as required by Executive Order

12866 and the Regulatory Flexibility Act

(RFA) (Public Law 96–354). Executive

Order 12866 directs agencies to assess

all costs and benefits of available

regulatory alternatives and, when

regulation is necessary, to select

regulatory approaches that maximize

net benefits (including potential

economic, environmental, public health

and safety effects, distributive impacts,

and equity). The RFA requires agencies

to analyze options for regulatory relief

of small businesses. For purposes of the

RFA, small entities include small

businesses, non-profit organizations and

governmental agencies. Most hospitals

and most other providers and suppliers

are small entities, either by nonprofit

status or by having revenues of $5

million or less annually.

Section 1102(b) of the Social Security

Act requires us to prepare a regulatory

impact analysis for any proposed rule

that may have a significant impact on

the operations of a substantial number

of small rural hospitals. This analysis

must conform to the provisions of

section 603 of the RFA. For purposes of

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

small rural hospital as a hospital that is

located outside a Metropolitan

Statistical Area and has fewer than 50

beds.

The Unfunded Mandates Reform Act

(Public Law 104–4) requires that

agencies prepare an assessment of

anticipated costs and benefits before

proposing any rule that may result in an

annual expenditure by State, local and

tribal governments, in the aggregate, or

by the private sector, of $100,000,000 or

more (adjusted annually for inflation).

This rule does not impose any mandates

on State, local, or tribal governments, or

the private sector that will result in an

annual expenditure of $100,000,000 or

more.

Summary of the Interim Final Rule

As discussed in detail above, this rule

implements the M+C program as

directed by the BBA of 1997. The

primary objective of the M+C program is

to increase the number and types of

health plan choices available to

Medicare beneficiaries.

Since the implementation of section

114 of the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA 82)

(Public law 97–248), the Medicare

program has offered beneficiaries a

prepaid capitated option through HMOs

and CMPs paid on a full risk basis.

Enrollment by Medicare beneficiaries in

Medicare managed care risk plans has

grown to over 4.5 million enrollees. The

number of plans increased 31 percent in

CY 1995, 36 percent in CY 1996, and 31

percent in CY 1997. With the

implementation of the M+C program,

we expect that the rate of growth of

beneficiaries enrolling in capitated

plans will continue.

The M+C program authorizes HCFA

to contract with several new types of

entities not previously available to

Medicare beneficiaries such as provider

sponsored organizations, preferred

provider organizations, entities offering

an ‘‘MSA plan’’ and a contribution into

an M+C medical savings account (MSA),

and M+C private fee-for-service plans.

These new options will provide

Medicare beneficiaries with a broad

range of health insurance alternatives

like those available in the private sector.

Based on current growth rates and other

information discussed later, we estimate

that anywhere from 160 to 800 new

entities may apply to contract with

HCFA as M+C organizations.

By expanding choices and providing

extensive educational materials through

a coordinated open enrollment period, it

is expected that beneficiaries will

choose plans and health delivery

systems that will maximize the benefits

to these individuals.

The BBA also revamped the payment

methodology for entities receiving

capitated payments from Medicare.

These payment changes were intended

primarily to insure that the amounts

paid to M+C organizations were fair and

equitable to both the Medicare Trust

Funds and to the participating

organizations. Although Medicare’s

capitation rates had been set at 95

percent of expected costs based on

actual fee-for-service costs, there is

significant evidence that Medicare has

paid more for enrollees in the managed

care program than it would have paid in

the fee-for-service program. This is due

primarily to the favorable selection that

these plans have experienced. The new

payment rules slow the annual increase

M+C organizations would have received

under the old payment methodology. In

addition, there has long been concern

regarding the regional variation in

payment rates, particularly between

urban and rural counties. Because the

capitated payment rates had been based

upon the fee-for-service payments, the

capitated rates not only included the

variation in local prices, they also

reflected different fee-for-service

practice patterns in each region. To

level out the variation in payment rates,

the new methodology uses a blend of

local and national rates and input price

adjustments to insure the payments

more closely reflect the different prices

in the region while giving less weight to

the different utilization rates. Finally, to

insure that the new options would be
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35045

viable in all parts of the country a floor

on capitated payments was introduced.

Summary of Discussion of Impact

We believe that the overall impact of

this regulation should be beneficial to

Medicare beneficiaries by providing

them with more options to receive

health care. However, although many of

the provisions in this regulation are

intended to assist beneficiaries by

providing them with comparative

information, we are concerned that the

many new choices and types of plans

may prove confusing even for the most

knowledgeable consumers. Reductions

in capitated payment amounts in what

are now relatively higher payment areas

may result in reduced benefits for

beneficiaries. Providers (especially rural

providers) should benefit from this

regulation because they can contract

directly with HCFA under the PSO

provisions. New contracting entities

will benefit as the Medicare statute has

not previously permitted entities that

were not state licensed HMOs or CMPs

to participate in the Medicare managed

care program. Providers could be

negatively impacted if they contract

with M+C organizations by the degree

that any reduction in the rate of growth

in payments to M+C organizations will

be passed on to them. We also recognize

that existing contractors and States may

be adversely affected but cannot

quantify to what degree. This impact

analysis will focus on the provisions of

the BBA and this regulation that

significantly alter the risk program we

have been administering since 1985.

The major differences between the

section 1876 risk program and the M+C

program are:

The coordinated open enrollment and

public education campaign:

New payment methodology for

contracting plans

Introduction of New Contracting

Entities

Provider Sponsored Organizations

Medicare Savings Account Plans

Private Fee-for-Service Plans

New Quality Standards

Our analysis will assess the impact

these changes will have on Medicare

beneficiaries, the Medicare Trust Funds,

providers, managed care entities, and

States. Whenever possible, we will use

appropriate methods for assessing the

impact quantitatively. However, because

of the large number of unknowns—such

as the prospective number of

contracting organizations—this analysis

relies upon many simplifying

assumptions.

B. Coordinated Open Enrollment and

Public Education Campaign

Section 1851 directs HCFA to hold

annual coordinated open enrollment

periods beginning in November 1999

(all plans will also be open to

enrollment in November 1998) to allow

eligible beneficiaries the opportunity to

enroll in M+C organizations. It also

directs HCFA to broadly disseminate

information to current and prospective

Medicare beneficiaries on the coverage

options available in order to promote an

active, informed selection among such

options. At least 15 days before each

annual, coordinated election period,

HCFA will send to each eligible

individual a notice containing

information in order to assist the

individual in making an election. This

information describes M+C options as

well as original Medicare. In addition,

M+C organizations are directed to

provide plan-specific information.

The public education campaign will

include information on covered

benefits, cost sharing and balance

billing liability under the original

Medicare program; election procedures;

grievance and appeals rights under the

original Medicare fee-for-service

program and the new M+C program;

information on Medigap and Medicare

SELECT; and the beneficiary’s right to

be protected against discrimination

based on health status.

The costs of the coordinated open

enrollment and public education

campaign will be borne primarily by the

participating M+C plans. Section 4001

of the BBA added a new section

1857(e)(2) to the Social Security Act that

establishes a fee requirement under

which M+C organizations and section

1876 contractors must contribute their

pro rata share, as determined by the

HCFA, of costs related to enrollment,

dissemination of information, and the

counseling and assistance programs.

The annual fee will be assessed by

HCFA on all participating organizations.

The amount of the user fee will vary

year to year as determined through the

appropriations process. The BBA

authorized ceiling amounts of $200

million in FY 98, $150 million in FY 99,

and $100 million annually in FY 2000

and beyond. However, in FY 1998

HCFA was authorized to collect only

$95 million through the appropriations

process.

On December 2, 1997 HCFA gave

notice of our methodology of assessing

current contractors for their pro rata

share of the expenses associated with

the CY 1998 information campaign. To

determine each organization’s share, we

divided the total amount appropriated

for the information campaign by the

total projected revenues for the first 9

months of CY 98. The resulting

percentage was deducted from the

payments to contracting organizations.

We explored several alternatives to

this methodology. One option was to

assess each organization on a per capita

basis (by number of Medicare enrollees).

Another option was to assess each

organization on the percentage of

revenue they received from capitated

Medicare payments, but have a cap on

the highest amount any organization

would pay.

We rejected both of these

methodologies as not consistent with

the goals of the BBA. One of the primary

effects of the reformed payment

methodology of the BBA was to even

out variation between high and low

payment areas. By charging a per capita

amount, those organizations that are

located in areas that have a high

payment rate would pay a reduced

percentage of their revenue. Or put

another way, we deemed that if an

organization received a higher payment

per person, it should pay a

correspondingly higher user fee for its

share of the education campaign. We

also decided not to put a cap on the

assessment any organization would

receive based on the premise that only

large organizations would receive the

benefit of a cap and smaller

organizations would have to pay more

to make up the difference. This did not

seem fair or consistent with our

intention of encouraging the creation of

new contracting entities and spurring

competition in areas with lower

payment rates.

As stated in the interim final rule

(M+C Program: Collection of User Fees

from M+C Plan and Risk-Sharing

Contractors (42 CFR 417.470–417.472)),

we will establish a fee percentage rate

and collect the fees over nine

consecutive months beginning with

January until the assessment limit has

been reached. The following table

illustrates the method by which we will

calculate the fee percentage rate,

provides the rate for FY 1998, and sets

forth projections for FY 1999–2002.
35046 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

TABLE 1.—COLLECTION OF CONTRIBUTIONS FROM ORGANIZATIONS FOR COSTS RELATING TO INFORMATION

DISSEMINATION

Projected

fiscal year

total medicare payment to organizations

(in millions

of dollars) 1

Projected

medicare

payment to

organizations per

month (in

millions of

dollars) 2

Projected

medicare

payment to

organizations over 9

months (in

millions of

dollars) 3

Authorized

assessment

amount (in

millions of

dollars) 4

Fee amount

secretary is

directed to

collect (in

millions of

dollars) 5

percentage

of projected

9-month

payment

FY 1998 ............................................................................ 30,000 2,465 22,181 200 95 .428

FY 1999 ............................................................................ 38,000 3,167 28,500 150 150 .526

FY 2000 ............................................................................ 47,000 3,917 35,250 100 100 .284

FY 2001 ............................................................................ 63,000 5,250 47,250 100 100 .212

FY 2002 ............................................................................ 64,000 5,333 48,000 100 100 .208

1Source: Congressional Budget Office, The Economic and Budget Outlook: Fiscal Year 1999–2008. January 1998.

2Projected total fiscal year payment divided by 12 (months).

3Projected monthly payment amount multiplied by 9 (months).

4 New Section 1857(e)(2)(D) of the Social Security Act, as added by the BBA (Public Law 105–33).

5For purposes of these projections, we have assumed that Congress will include the full amount authorized under the BBA.

As noted in the interim final rule

published on December 2, 1997, we

believe that assessing the fees to reflect

an organization’s pro rata share of the

expenses associated with the

information campaign will require the

deduction of only a very small

percentage of any organization’s total

annual Medicare payments. For

example, in FY 1998 the percentage fee

assessment is 0.428 percent—less than

one-half of one percent. In subsequent

fiscal years the fees as a percentage of

Medicare payments will likely represent

an even smaller percentage of the

Medicare payments as the number of

eligible organizations increase and the

existing organizations experience

enrollment growth.

Information Campaign

In general, we believe that this

investment in new forms of information

dissemination should be beneficial to

Medicare beneficiaries, contracting

organizations, and the Medicare

program. By providing extensive

educational materials, it is expected that

beneficiaries will choose organizations

and health delivery systems that will

maximize the benefits for them. Finally,

while organizations face an assessment

fee to support information campaign

activities, it comprises a very small

proportion of their revenue from the

Medicare program and could serve to

enhance their marketing efforts and to

save marketing expenditures.

HCFA’s information dissemination

activities provided for under this

regulation encompass a variety of

interventions, including mailings of

standardized, comparative information

about coverage options, an Internet web

site with such information, and a tollfree telephone line for beneficiary

inquiries. In addition, the regulation

provides for information dissemination

activities to be undertaken by M+C

organizations, including mailings to

Medicare enrollees of plan-specific

information and the provision of

additional information upon request by

Medicare eligible individuals.

In order for market competition to

work effectively, consumers must have

information about their choices in order

to make good decisions. The

information dissemination efforts

provided for under this regulation will

give Medicare beneficiaries information

about the Medicare market, enabling

them to compare fee-for-service

coverage to managed care coverage, as

well as coverage under different M+C

organizations.

The Medicare program and managed

care arrangements are inherently

complex subjects, and it is challenging

to communicate information that is

meaningful and accurate. Many studies

have shown that Medicare beneficiaries’

level of understanding of how the

Medicare program works today is very

low (GAO, 1996) and this lack of

understanding could be compounded by

the introduction of a new array of

choices if beneficiaries lack sufficient

information or lack the skills or

understanding necessary to use

available information.

For example, studies have found that

many individuals who disenrolled from

Medicare risk HMOs misunderstood the

nature of the plan, such as the lock-in

feature. (OIG, 1997; GAO, 1996; IOM,

1996). As Medicare beneficiaries

become better informed about the

Medicare program generally and their

options under M+C specifically, they

will be able to make more informed

decisions about meeting their health

care needs, leading to fewer

disenrollments based on

misunderstandings. Disenrollment can

be costly for plans. In 1996, a GHAA

study estimated that disenrollment costs

plans close to $1,300 per Medicare

disenrollee. (GHAA, 1996)

While enhancing beneficiary choice is

positive and providing beneficiaries

with information on their choices is

necessary, we are concerned that

Medicare beneficiaries, especially in

areas where several M+C organizations

are operating, may experience

information overload. Beneficiaries may

have great difficulty in understanding

the different types of plans available to

them in their area or understanding the

different benefit packages plans may

offer. Beneficiaries will be required to

assess their health needs in relation to

the benefits being offered and they may

well have to choose among a wide array

of different benefit packages. These will

be difficult choices and some

beneficiaries may not choose the option

best suited to their individual needs.

We believe important secondary

effects may ensue as well. To date, plans

have competed primarily on the basis of

price and benefits. Broad dissemination

of plan-specific information, including

quality measures, should encourage

competition among organizations based

on quality factors, in addition to price

and benefits. As Medicare beneficiaries

become more familiar with health plans,

their expectations of plan performance

and quality services will increase.

Enhanced beneficiary awareness will

provide an incentive to plans to

improve in areas that beneficiaries

demonstrate are important to their

decision making, such as the availability

of certain providers and positive

customer service experiences.

Moreover, beneficiaries will be better

health care consumers in general if they

understand their rights under managed
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35047

care and how to make a plan work for

them. As Medicare enrollees receive

more information and become more

active decision makers on plan options,

we believe they will also become more

informed and active decision makers

with respect to meeting their personal

medical needs. More informed and

active decision making on the part of

enrollees will, in turn, facilitate plans’

efforts to manage the delivery of

appropriate, high quality health care

services.

In addition, it should be noted that

the information campaign is designed to

reach all Medicare beneficiaries, and it

is likely that, to the extent that this

encourages growth in the M+C program,

organizations will be well positioned to

take advantage of the expanding market.

Since the number of organizations and

total revenues over which the BBA fee

collections will be spread is likely to

continue to rise with increased

participation in the M+C program in

future years, we believe the regulatory

impact of the selected option for

imposition of fees on M+C organizations

will not be significant. Moreover, M+C

organizations will benefit from the

increased visibility they will receive

through the focused information

campaign each open enrollment season.

Aside from the benefits of the public

education campaign there are benefits

derived from the coordinated open

enrollment for contracting

organizations, beneficiaries, and to a

lesser degree the Medicare Trust Funds,

as discussed below.

Coordinated Open Enrollment and

Beneficiary Lock-In

We anticipate that the transition into

a coordinated open enrollment period

and the beneficiary lock-in will be

beneficial to M+C organizations in their

efforts to attract and retain Medicare

enrollees. It also will allow them to

maximize their visibility as beneficiaries

focus on information about plans during

a single, coordinated period. An annual

open enrollment period may present a

challenge for start-up organizations that

did not have the benefit of adding

enrollment during continuous open

enrollment periods available before

2002. However, the M+C beneficiary

lock-in will provide a more stable

enrollment base for all participating

organizations.

Current contractors have conveyed

that continuous open enrollment, which

was prevalent prior to passage of the

BBA, provided an incentive for

beneficiaries that exhaust extra benefits

offered by one HMO/CMP to switch to

another HMO/CMP or back to

traditional fee-for-service Medicare.

This behavior provides a disincentive

for M+C organizations to offer extra

benefits, and we anticipate that M+C

organizations will be more likely to offer

extra benefits if concerns about

enrollees disenrolling upon exhausting

a benefit are diminished.

Moreover, as the lock-in is phased in,

organizations offering M+C plans will

operate within a framework that

supports their efforts to manage the

delivery of health care services. For

example, if beneficiaries are not moving

in and out of a plan, the M+C

organization offering the plan will be

better able to track a beneficiary’s

utilization of services over time. The

lock-in will encourage plans to invest

more in preventive health services or

screening of new enrollees, because it

increases the likelihood that the plan

will retain its members long enough to

benefit from eventual savings due to

reduced morbidity. (PPRC, 1996)

We also note that M+C organizations

will have to address the potential

staffing and administrative requirements

associated with a lock-in and a

compressed enrollment period, such as

how to staff appropriately to handle

inquiries during the open enrollment

period, how to process new enrollees

when enrollment begins, and how to

conduct initial physical histories and

review medications for new enrollees.

Therefore, there will be added burdens

on the M+C organizations as they

experience administrative and clinical

burdens in implementing the lock-in.

M+C organizations may have to hire

temporary staff and this would be a cost

to them (PPRC, 1996)

Although beneficiaries will have less

flexibility with a lock-in period, they

will also benefit from a coordinated

open enrollment period because it

provides a framework conducive to

informed decision making. Similar to

the experience of many individuals in

the private sector, beneficiaries will

receive extensive information each year,

allowing them to compare all options

simultaneously. By receiving

standardized, comparative information

during an annual, coordinated period,

beneficiaries will find it easier to make

appropriate choices among competing

plans and between these plans and

traditional Medicare fee-for-service. An

annual coordinated open enrollment

period will maximize the opportunity

for all beneficiaries to make decisions

that best meet their own needs.

Some beneficiaries may be more

reluctant to enroll in an M+C

organization if they must remain

enrolled for extended length of time.

The Office of Inspector General

surveyed a two-stage random sample of

4,065 enrollees and disenrollees from 40

Medicare risk HMOs to compare their

responses and to gain greater insight

into HMO issues. The majority of

beneficiaries surveyed stated that their

most important reason for joining an

HMO was their desire for more

affordable health care. Only 17 percent

of beneficiaries said they would be more

hesitant to join an HMO if they did not

have the option to disenroll at will. (OIG

1998) (see Table 2).

TABLE 2.—EFFECT OF MANDATORY ONE-YEAR ENROLLMENT—1996

[In percent]

All Enrollees Disenrollees

If beneficiary had to stay in HMO for one year, the effect on the enrollment decision would be:

—more likely to join .......................................................................................................................... 34 34 22

—less likely to join ............................................................................................................................ 17 16 33

—no effect on decision ..................................................................................................................... 49 49 45

Source: U.S. Department of Health and Human Services, Office of the Inspector General, Beneficiary Perspectives of Risk HMOs 1996, OEI–

06–95–00430 (March 1998).

Beneficiaries retain the protection of

the right to disenroll where the M+C

organization’s misrepresentation or the

beneficiary’s misunderstanding results

in an enrollment that should not have

occurred. In addition, the year-long

opportunity for newly eligible aged

individuals to disenroll and return to

original Medicare is a particularly

valuable protection for many

beneficiaries who may be just beginning

to understand the implications of new
35048 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

options. ( Newly eligible disabled

beneficiaries are not afforded this

option.) Beneficiary protections are

enhanced by guaranteed issue of

Medigap policies for first-time M+C

enrollees who gave up supplemental

coverage upon enrolling in an M+C

organization and disenroll within 12

months, and for newly eligible aged

beneficiaries who enroll in an M+C

organization at age 65 and disenroll

within twelve months of becoming

eligible for Medicare.

Finally, we believe the lock-in will

benefit the Medicare Trust Funds. The

General Accounting Office found that

the flexibility for beneficiaries to

disenroll at will can cause problems for

the Medicare program. (GAO, 1997) For

example, beneficiaries could decide to

use an M+C plan or other private plans

while in relatively good health but

disenroll to fee-for-service when their

health care needs increased. The result

could be a disproportionate number of

less healthy beneficiaries in the fee-forservice sector, excess payments to

HMOs, and unnecessary Medicare

spending. We believe that the ninemonth lock-in period will help reduce

risk selection and, consequently, reduce

the current problem of paying monthly

premiums for beneficiaries while they

are healthy but paying traditional claims

when they become ill and disenroll

from a managed care plan.

C. New Payment Methodology for M+C

Plans

Section 1853 directs HCFA to modify

the payment methodology for entities

receiving capitated payments from

Medicare. These payment changes are

intended to: promote savings, reduce

geographic variation in the rates, and

stimulate the growth of new entities to

serve Medicare beneficiaries in

historically underserved areas. As

described above, beginning in 1998,

monthly county rates are the greatest of:

(1) a minimum payment amount (of

$367 in 1998); (2) a minimum

percentage increase of 2 percent over

the preceding year’s payment for the

area; and (3) a blend of the area-specific

rate and an input-price adjusted

national rate, further adjusted by a

budget neutrality adjustment. The areaspecific portion of the blended rates and

the minimum payment amount are

updated each year by the national

average per capita Medicare growth rate

(with specified reductions from 1998–

2002).

Payment changes to M+C

organizations figure prominently in

reducing overall Medicare spending and

postponing the depletion of the

Medicare Trust Fund from 2001 to 2010.

The CBO estimates that the BBA

reduces Medicare spending by $116.4

billion dollars between 1998 and 2002.

An estimated $22.5 billion, or almost 20

percent of total Medicare savings under

the BBA, is attributable to payments to

M+C organizations. Much of the savings

is attributable to lower payment rates in

the original Medicare program.

Additionally, removal of GME and IME

from the capitated payments to M+C

organizations represents a redirection of

$4 billion, which would be paid directly

to providers. All told, the BBA payment

changes are estimated to reduce annual

spending increases for both the M+C

program and original Medicare from 8.5

percent to about 5 percent a year

between 1997 and 2002.

The new payment methodology will

lessen the significant geographic

variation in payments by reducing the

influence of factors that cannot be

explained by geographic differences in

medical input prices. Under the preBBA methodology, capitation amounts

were based on actual per capita costs for

original Medicare in each enrolled’s

county of residence. Under the BBA

formula, adjustments for input prices is

specifically included in the

computation of blended rates, but the

influence of practice pattern differences

is gradually minimized through the

payment blending. Over the period

1998–2002, each county’s blended

payment amount is increasingly based

upon a standardized rate that reflects

practice patterns across the country. In

this way, the new methodology attempts

to achieve a more equitable distribution

of payments, and will hopefully

encourage plans to focus on

implementation of quality-based, costeffective treatment methods.

One of the chief considerations in

restructuring the payment methodology

was evidence that Medicare managed

care organizations have attracted

healthier and therefore less expensive

enrollees than fee-for-service

organizations. In its 1996 Annual Report

to Congress the PPRC reported on a

study of enrollees in Medicare risk

plans between 1989 and 1994. This

study showed that those enrolled in

managed care plans cost the Medicare

program only 63 percent as much as the

average Medicare beneficiary during the

six months preceding enrollment when

both groups were enrolled in traditional

Medicare. In contrast, persons who

disenrolled and returned to traditional

fee-for-service Medicare cost the

program 160 percent as much as the

average beneficiary in the six months

following disenrollment. In its

December, 1997 study, the

Congressional Budget Office estimated

that Medicare paid 6–8 percent more for

enrollees in risk-based HMOs than it

would have paid for those enrollees

under fee-for-service Medicare.

Although prior law did set Medicare

capitation rates 5 percent below fee-forservice payments under original

Medicare, this reduction was not

enough to compensate for favorable risk

selection. The new methodology

mandated by the BBA requires risk

adjustment beginning in the year 2000.

Medicare managed care enrollment

has grown steadily in recent years.

However, most of the growth has been

concentrated in urban areas. Between

December of 1990 and December of

1997, enrollment in risk contracts grew

from 3.3 percent of Medicare

beneficiaries to 14.0 percent. Twentyfour percent of beneficiaries residing in

large urban areas with a population of

1 million or more were enrolled in a

Medicare risk plan in June of 1997.

Twelve percent of beneficiaries residing

in areas adjacent to large urban areas

and smaller metropolitan areas, and less

than 3 percent of Medicare beneficiaries

residing in rural areas, were enrolled in

a Medicare risk plan. Approximately

thirty-three percent of Medicare

beneficiaries reside in an area that is not

served by any Medicare managed care

organization.

We assessed the impact of the

payment methodology by first

considering the overall impact and then

considering the impact of changes in

payment on specific entities. The

potential overall impacts of changes in

payment are: reductions in spending;

redistribution of payments; increases in

enrollment in M+C plans; changes in

the distribution of enrollment in M+C

plans; and the creation of a more

competitive market offering a wider

range of choices for Medicare

beneficiaries.

We have identified the types of

entities and individuals that will be

directly affected by changes in payment.

They include: beneficiaries, M+C

organizations offering coordinated care

plans (including current Medicare

managed care contractors), and M+C

organizations offering private fee-forservice plans or MSA plans, States,

providers, and the Medicare Trust

Funds.

One clear impact of the revised

payment methodology is decreased

spending relative to estimates of

spending under prior law. In its BBA

analysis, CBO estimated that changes in

payments to managed care plans save

$22.5 billion between 1998–2002. As

stated earlier, these savings contribute

significantly toward efforts to extend the

long-term solvency of the Medicare Part
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35049

A Trust Fund. Table 3 provides more

recent alternative projections of $30

billion in savings between 1998–2003.

(HCFA Office of the Actuary, 3/98.)

TABLE 3.—PROJECTED IMPACT DUE

TO CHANGES IN PAYMENT METHODOLOGY

Fiscal year

Savings

(in billions

of dollars)

1998 .......................................... 0.3

1999 .......................................... 0.7

2000 .......................................... 4.4

2001 .......................................... 6.6

2002 .......................................... 8.1

2003 .......................................... 9.2

*Includes risk adjustment.

Source: HCFA Office of the Actuary, 3/98.

As noted above, projected savings due

to the change in the M+C payment

methodology are also tied in part to the

overall savings in Medicare created by

BBA changes in payments to Medicare

fee-for-service providers. Specifically,

since the National Per Capita M+C

growth factor (NGP) is defined as the

‘‘projected per capita rate of growth in

Medicare expenditures’’ reduced by the

BBA’s specified percentage reduction,

the NGP will include the impact of

reductions and/or slower increases to

provider payments in the original

Medicare program.

Another factor that affects the amount

of savings is the minimum payment

amount and the minimum percentage

increase. Because the payment

methodology does not allow for

reduction of the floor and minimum

payment increases, budget neutrality,

which is achieved by reducing or

increasing the blended rates, may not be

achieved in all years where the

computation requires a reduction in the

blended rates. This situation occurred in

the calculation of the 1998 and 1999

rates, when no county received the

blended rate because the budget

neutrality adjustment brought all rates

to an amount below the amount of the

minimum 2 percent increase. See

discussion in Section II.F. above.

It is clear that one aspect of the new

payment methodology, the floor,

actually increases spending compared to

prior law. CBO estimates that increasing

payments to the floor counties will cost

$2.2 billion more than expected under

previous law over the 5-year period of

1998–2002. However, increasing

payment to floor counties meets

important policy objectives in that by

reducing payment disparities it is hoped

that more choices will become available

in under-penetrated areas.

The payment methodology has

removed some of the variation in

payment rates by increasing payment

rates in lower payment counties through

use of a minimum payment amount. In

the future, blending will further reduce

variation by reducing the influence of

local fee-for-service costs in the blended

rates. Table 4 shows the impact of the

payment methodology by location. The

floor rate increased payments

significantly in rural areas and in some

urban counties as well.

TABLE 4.—AVERAGE AND RANGE OF MEDICARE COUNTY PAYMENT RATES, BY LOCATION, 1997–1998

1997 Average 1998 Average 1997 Range

(Low:High)

1998 Range

(Low:High)

All Counties ................................................................................................................................ 470 484 221:767 367:783

Central Urban ............................................................................................................................. 546 557 349:767 367:783

Other Urban ............................................................................................................................... 440 452 256:728 367:742

Urban Fringe .............................................................................................................................. 394 413 231:693 367:707

Other Rural ................................................................................................................................ 371 397 221:647 367:660

Source: MEDPAC, March 1998 Report to Congress: Medicare Payment Policy.

A further change in the methodology

is the graduate medical education

(GME) carve-out. While the removal of

GME does not generate savings for the

Medicare trust fund or Medicare GME,

it does reduce capitation rates in

counties that historically received GME

payments (except in counties where the

minimum payment amounts apply). In

general, GME carve-outs

disproportionately affect urban managed

care organizations because urban

counties house more teaching hospitals.

Table 5 shows the 1995 GME

percentages in urban and rural counties.

TABLE 5.—ESTIMATED GRADUATE MEDICAL EDUCATION PAYMENT REDUCTIONS AS A PROPORTION OF MEDICARE RISK PAYMENT RATES BY URBAN AND

RURAL LOCATION (PERCENTAGE), 1995

Location GME

percentage

All Counties ........................................................................................................................................................................................................................... 3.4

Urban Counties ..................................................................................................................................................................................................................... 3.8

Central Urban ................................................................................................................................................................................................................. 5.3

Other Urban ................................................................................................................................................................................................................... 3.1

Rural Counties ....................................................................................................................................................................................................................... 2.1

Urban Fringe .................................................................................................................................................................................................................. 2.2

Other Rural ..................................................................................................................................................................................................................... 1.9

Source: PPRC, 1997 Annual Report to Congress, Chapter 3, p. 62.

We anticipate that these changes to

the variations payment will affect the

enrollment distribution of M+C

enrollees.

The methodology has already

increased capitation levels in rural areas

now receiving the payment floor, in

some counties significantly. HCFA’s

Office of the Actuary currently predicts

that the blended rates will begin in CY

2000, which should increase rates in

some rural areas that received the 2

percent increase in 1998 and 1999. In

fact, to the extent that blended rates are

eventually applied under the budget

neutrality rules, the blended rate will

gradually elevate payments to counties

that have an area-specific payment that

is below the national average as

adjusted for input prices.

The improved incentives in rural

counties should prompt M+C

organizations to contract in these areas.

Greater participation of managed care

plans in rural counties should spur

increases in M+C enrollment in the long

run. CBO expects an incremental gain of

3 percent market share for coordinated

care plans by 2002. This growth occurs,

for the most part, in non-urban areas. It
35050 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

is expected that higher payments in

rural areas will encourage M+C

organizations to offer plans in these

areas. In particular, PSOs were included

as an M+C option in part because of the

belief that rural providers might

organize M+C organizations in their

areas which, because of their smaller

population bases, generally have not

been as attractive to managed care plans

for commercial or Medicare business.

Table 6 provides a profile of the

distribution of risk contractors and

enrollment prior to passage of the BBA.

TABLE 6.—DISTRIBUTION OF MEDICARE RISK ENROLLMENT, AND RISK CONTRACTORS

Location

Percent of

beneficiaries in

risk plans

(6/97)

Percent of

counties offering 0

risk plans

(6/97)

Percent of

counties offering 1

risk plan

(6/97)

Percent of

counties offering 2–4

risk plans

(6/97)

Percent of

counties offering more

than 5 risk

plans

(6/97)

Urban (MSA of 1 million or more) ............................................................ 24 0 2 19 79

Other Urban (surrounding counties or smaller MSA) ............................... 11.8 27 12 34 27

Fringe Urban (rural areas bordering MSA) .............................................. 2.6 71 18 11 1

Other rural areas ...................................................................................... 1.1 91 6 3 0

Source: MEDPAC 1997 Chartbook.

It is expected that as more M+C

organizations enter the Medicare

market, competitive pressures will

increase. As the payment changes are

implemented and geographic variation

in payment levels is reduced, the

profitability of M+C organizations will

be driven less by where they deliver

services, and more by how well they

deliver services. An organization’s

success will depend on the quality of

services offered, the extent and clarity of

an organization’s communications with

beneficiaries, the ability of a plan to

effectively manage the provision of care

to Medicare beneficiaries, and the

satisfaction levels of Medicare enrollees

in a plan, as well as the benefits offered

and the premiums charged. These

competitive forces should provide

increased access to high quality services

under capitated plans for Medicare

beneficiaries.

For beneficiaries in rural areas we

believe the overall impact of these

changes should make participation in

the M+C program a more viable option.

Conversely, as payment rates become

less robust in urban areas and margins

decrease, some coordinated care plans

may choose to reduce benefits, or

increase premiums. Reductions in

benefits or increases in premiums

would have a negative impact on

beneficiaries.

We should also note here that

oftentimes we look at payment as a

driving force in the Medicare program

as a whole. While the increased

payment to rural counties should on its

face provide an incentive for

organizations to offer their services and

products in rural areas, that may not

always be the case. That is, some may

assume that when Medicare pays

coordinated care plans considerably

more than the average per capita fee-forservice cost in a geographic area, as it

does in many of the payment floor

counties, this would cause organizations

to rush to enter into contracts in these

areas. However, plans may decide that

the smaller pool of potential enrollees

(and hence the smaller pool over which

to spread risk) do not justify either their

added financial risk or the

proportionally larger start up and

marketing costs associated with

launching a plan in a rural area.

We believe and Congress intended

that these increases for rural counties

would stimulate the growth of capitated

plans in these areas. However, there still

is a large degree of uncertainty over the

actual effects of the BBA changes for

rural areas. In the end only M+C

organizations can really determine if the

payment levels justify their costs.

D. Introduction of New Contracting

Entities

In general, we believe that new

entities will be formed to serve the

Medicare market. As discussed above,

the new payment methodology and the

availability of PSO and MSA plans

should stimulate the private sector’s

development of entities to compete for

Medicare beneficiaries. While estimates

of the development of new entities are

somewhat speculative, the following are

our best estimates based on currently

available information, enrollment

projections, informal surveys and

discussions with industry

representatives.

Provider Sponsored Organizations:

The Congressional Budget Office

projects that PSO enrollment will reach

a 3 percent share of Medicare

beneficiaries, or about 1 million

beneficiaries, by 2002 and that a

significant portion of the PSO

enrollment will be in rural areas (CBO,

1997).

Currently, there are approximately 5.5

million beneficiaries enrolled in 307

Medicare risk products, which is an

average of approximately 8,000

enrollees per Medicare risk plan. We

believe that CBO’s projections,

presented in the following table,

represent a good estimate of the

approximate number of new PSO plans

that will be established. Some industry

analysts have projected a higher level of

certified PSOs than projected by CBO.

While we believe it is highly unlikely

that as many as 25 PSOs will be

certified by the end of 1998, we believe

that CBO’s projections for 1999 and

thereafter are reasonable.

Enrollment estimate Year New PSOs

100,000 ............. 1998 25

400,000 ............. 1999 50

600,000 ............. 2000 75

800,000 ............. 2001 100

1,000,000 .......... 2002 125

Source of enrollment estimate: CBO, 1997.

As a secondary impact, the M+C

program could result in expanded

availability of PSOs, particularly in

rural areas. That is, PSOs that are

successful in their Medicare contracts

may decide to expand into the

commercial market. In turn, if

commercial payers learn of their success

in serving the Medicare population,

they may have more confidence in the

ability of PSOs to assume and manage

risk and may, therefore, be more

interested in contracting with them.

Private Fee-For-Service Plans: The

Congressional Budget Office projected

that no Medicare beneficiaries will

enroll in private fee-for-service plans,

and no reliable estimates for the number

of likely private fee-for-service market

entrants are available. However, we

have received some expressions of
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35051

interest from insurance carriers and

others regarding how these plans will

work and whether there is an

opportunity to serve Medicare

beneficiaries. If offered, we would

expect them to be most attractive to

wealthier beneficiaries because of their

anticipated higher premiums and other

out-of-pocket costs. While private feefor-service plan providers are allowed to

engage in limited balance billing, there

is no statutory limit on premiums that

a plan may charge beneficiaries.

Medical Savings Account Plans: The

Congressional Budget Office estimated

that 390,000 Medicare beneficiaries will

enroll in M+C MSA plans by 2000. This

is the statutory limit for the total

number of beneficiaries that can enroll

in the MSA demonstration. While there

are no reliable estimates on the number

of organizations that will offer M+C

MSAs, we expect that many

organizations offering MSA plans in the

commercial marketplace will offer MSA

plans in the Medicare market as well.

According to a recent General

Accounting Office study, 57 carriers,

including three HMOs, offered MSA

plans in the commercial market as of the

summer of 1997. Blue Cross & Blue

Shield plans represented almost onethird of the plans offered in the market.

At that time, an additional fifteen

carriers and eight HMOs indicated an

interest in offering MSA plans.

However, commercial enrollment in

MSA plans has been considerably lower

than had been anticipated. While the

demonstration project under the Health

Insurance Portability and

Accountability Act allowed for 750,000

MSAs to be sold, as of June 30, 1997,

only 17,145 individuals had enrolled in

these new products, according to the

Internal Revenue Service.

The GAO found that the complexities

surrounding the tax implications of an

MSA product, increased time necessary

to explain the product to customers, and

lower commissions to brokers/agents for

selling a high deductible product have

contributed to the low number of plans

sold. However, some of these

complexities may be mitigated under

the BBA, as beneficiaries are barred

from contributing their own money to

the medical savings account, and they

will receive extensive information about

MSA plans as part of the annual

information campaign on their M+C

options.

Impact of New Contracting Entities

Beneficiaries may benefit from

competitive pressures on M+C

organizations to compete on such

factors as reduced premiums, extra

benefits, and quality. However, the

difference between out-of-pocket costs

under managed care plans and the

traditional fee-for-service program may

decrease as M+C payments moderate.

Under the Medicare risk program,

beneficiaries enrolled in risk HMOs

generally have had lower out-of-pocket

costs than beneficiaries in the

traditional Medicare fee-for-service

sector. For example, a recent study by

the American Association of Retired

Persons projected that beneficiaries

enrolled in a Medicare managed care

plan will spend an average of 16 percent

of their annual income, or $1,775, on

out-of-pocket health care costs, in 1997.

This is compared to the estimated outof-pocket expenses for Medicare fee-forservice beneficiaries, which were

projected on average to be 21 percent of

their annual income, or $2,454, on outof-pocket costs. (AARP, 1997).

We also anticipate that many

providers will have new opportunities

to serve Medicare beneficiaries, such as

through provider sponsored

organizations or through strategic

partnerships with other coordinated

care plans seeking to enter new markets.

As M+C enrollment grows, providers

will find it increasingly important to

their business to participate in an M+C

network as many of their patients will

be locked into these networks. In turn,

we believe M+C organizations will seek

to contract with providers that are

capable of serving both their

commercial and Medicare populations.

Finally, the M+C program will most

affect those states in which the greatest

market opportunities for newly created

M+C organizations exist. Oversight and

licensing responsibilities will likely

increase for such states as newly created

M+C organizations, such as PSOs, seek

to serve the Medicare market. The BBA

increases the workload for States only to

the extent that new organizations will

begin operating in the State. It is likely

that States will also have to monitor the

compliance of PSOs that have a waiver

of State licensure in the case of quality

and consumer protection standards.

This constitutes an additional workload

of partial monitoring of plans that are

not subject to State solvency

requirements.

Many states will be confronted with

issues on licensing of PSOs, whether by

bringing such entities under existing

HMO laws and regulations or

establishing separate PSO licensing

provisions. In a recent report, the

National Association of Insurance

Commissioners reported that ten states

have already enacted state-level PSO

regulation (NAIC, 1997), and the

National Council for State Legislatures

reports that thirteen states currently are

considering PSO legislation.

States will also have to integrate PSOs

into their state guaranty fund or other

mechanism for protecting beneficiaries

against insolvent plans. While this will

not be a new function, it is expected to

increase the amount of regulatory

oversight necessary due to new market

entrants and could place burdens on a

state’s ability to protect consumers if

PSOs become insolvent.

Finally, the preemption of state

mandated benefit and provider

participation laws will lead to mandated

benefits being applied to a smaller

number of State residents. However,

states may still enforce any laws relating

to cost-sharing for a benefit included in

an M+C contract as well as any laws

restricting balance billing practices by

providers. Moreover, we believe that

few states will be impacted by the

BBA’s prohibition on state imposition of

premium taxes on payments to

Medicare risk contracts/M+C

organizations. While almost all states

impose premium taxes on insurers

generally (and nineteen states have

specific premium tax schedules for

HMOs), it is our understanding that

most states have not subjected Medicare

revenue to a premium tax and that many

states specifically exempt Medicare

payments to HMOs from any premium

tax.

E. New Quality Standards

Each M+C organization must have

arrangements for an ongoing quality

assessment and performance

improvement program for health care

services it provides to Medicare

beneficiaries enrolled in the M+C plans.

The quality assurance program for an

M+C organization must, among other

things: (1) stress health outcomes and

provide for the collection, analysis, and

reporting of data to permit measurement

of outcomes and other indices of the

quality of M+C organizations and

organizations; (2) include measures of

consumer satisfaction; (3) provide the

Secretary with such access to

information collected as appropriate to

monitor and ensure the quality of care;

(3) provide review by physicians and

other health care professionals of the

process followed in the provision of

health care services; (4) provide for the

establishment of written protocols for

utilization review, based on current

standards of medical practice; (5) have

mechanisms to detect both

underutilization and overutilization of

services; (6) take action to improve

quality and assess the effectiveness of

that action through systematic followup; and (7) make available information
35052 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

on quality and outcomes measures to

facilitate beneficiary comparison and

choice of health coverage options.

An M+C organization is deemed to

have met the quality assessment and

performance improvement requirements

if the organization is accredited (and

periodically reaccredited) at a level

acceptable to the Secretary by a

national, private accrediting

organization approved by the Secretary.

Deemed M+C organizations must meet

certain requirements, including

submitting to surveys to validate its

accreditation organization’s process and

authorizing its accreditation

organization to release to HCFA a copy

of its most current accreditation survey

and any information related to the

survey as required by HCFA.

Accrediting organizations will have to

meet certain requirements in order to

receive approval as well as ongoing

requirements to maintain its approved

status.

The quality assurance and

performance improvement requirements

under this regulation provide that each

M+C organization achieve minimum

performance levels on standardized

quality measures. They also require that

organizations conduct performance

improvement projects that achieve,

through ongoing measurement and

intervention, demonstrable and

sustained improvement in significant

aspects of clinical care and non-clinical

services that can be expected to affect

health outcomes and member

satisfaction. This approach to ensuring

quality reflects the expansion in recent

years of the problem-focused approach

that was prevalent in the past to include

a focus on systematic quality

improvement as well.

We believe that the quality

assessment and performance

improvement requirements under this

regulation will not impose significantly

new burdens on most M+C

organizations.

First, as discussed in detail in section

III D of this preamble, requirements

under this regulation build on a variety

of HCFA and State Medicaid agency

efforts to promote the assessment and

improvement of quality in plans

contracting with Medicare and

Medicaid, including:

• The Quality Improvement System

for Managed Care (QISMC), an initiative

with state and federal officials,

beneficiary advocates, and the managed

care industry to develop a coordinated

quality oversight system to reduce

duplicative or conflicting efforts and

that has an emphasis on demonstrable

and measurable improvement.

• Initiatives to improve

accountability by requiring uniform

collection and reporting of data to allow

assessment of plan performance and to

facilitate comparisons among plans,

such as the Health Plan Employer Data

and Information Set (HEDIS 3.0).

• Projects to enhance the role of

Medicare Peer Review Organizations

(PROs) in evaluating and improving

managed care plan quality, including

the development and testing of a

minimum set of performance evaluation

measures and quality improvement

projects developed through

collaboration between PROs and the

managed care industry.

Second, we anticipate that many new

M+C organizations will be offered by

organizations currently participating as

Medicare risk contractors. While we

acknowledge that many organizations

have not developed the capacity to fully

meet the pre-BBA requirements, we

believe that this regulation does not

create substantially new demands for

building new administrative and

information systems necessary to meet

the quality assessment and performance

improvement requirements for M+C

products, as such organizations already

are subject to similar requirements as

section 1857 contractors. Moreover, we

will build into the contract process a

gradual phase-in of the number of focus

areas for which a plan must demonstrate

improvement to allow sufficient time for

a plan to implement and conduct welldesigned improvement projects.

Third, we anticipate that many

organizations seeking to offer M+C

products will have had to invest in

administrative and information systems

to meet the requirements of other

purchasers and State regulators,

diminishing burdens this regulation

might otherwise have imposed. This is

true even for provider-sponsored

organizations that seek a federal waiver

from state solvency requirements, as

such entities are still subject to other

state requirements, including a state’s

quality assessment and improvement

requirements.

We have built on efforts in other

sectors in developing these quality

assessment and performance

improvement requirements in order to

minimize the burden that these

activities place on plans. (GAO,

September 1996; NCQA, 1997), such as:

• Many employers and cooperative

group purchasing groups and some

States already require that organizations

be accredited by the National

Committee on Quality Assurance, the

Joint Commission on Accreditation of

Healthcare Organizations, the American

Healthcare Accreditational Commission,

or other independent bodies.

• Many also require that

organizations report their performance

on HEDIS, FACCT, or other measures

and conduct enrolled surveys using the

CAHPS or other instruments. For

example, NCQA estimates that more

than 90 percent of plans are collecting

some or all of HEDIS data for their

commercial population. (NCQA, 1997)

• States have heightened their

regulatory efforts through insurance or

licensing requirements, and the

National Association of Insurance

Commissioners has developed model

acts on network adequacy, quality

assessment and improvement, and

utilization review.

Another important mechanism in

avoiding duplication of effort and

unnecessary administrative burdens

with respect to internal quality

assurance requirements is the ‘‘deemed’’

status afforded organizations for each

standard that is accredited by a national,

private accrediting organization.

Fourth, we have worked closely with

private-sector leaders in health plan

performance and quality measurement

to avoid duplication of effort and

promote standardization in

measurement approaches. (GAO,

September 1996) For example, we

convened advisory groups of managed

care organizations, State and Federal

purchasers and regulators, beneficiary

advocates, and experts in mental health

and substance abuse services and relied

heavily on the insight and expertise of

these groups in refining standards and

guidelines.

Fifth, measuring and reporting planand provider-specific information will

allow plans and networks to compare

themselves to competitors, track their

own performance over time, and so

drive their own internal quality

improvement programs. (Palmer, 1997).

Moreover, plans will have added

incentives to initiate performance

improvement projects that will lead to

more cost-effective delivery of health

care services, such as influenza

immunization outreach efforts which

lead to lower complications and

treatment of influenza-related

conditions or improving access to

primary care to reduce inappropriately

frequent use of the emergency room by

enrollees. This regulation allows plans

the freedom to select its own particular

topics for measurement and

improvement so that each plan can

conduct projects relating to aspects of

care and services that are significant for

its own population.

Although the quality standards under

this regulation are not substantially
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35053

different from requirements already in

place, we recognize that some M+C

organizations may need to invest in

administrative and/or information

systems necessary to comply with the

existing as well as the M+C standards.

Additionally, while some plans may be

tempted to invest their resources into

the areas in which they must measure

and demonstrate improved performance

at the expense of other parallel quality

initiatives, we have designed the quality

assessment and performance

improvement requirements under this

regulation to be as flexible as possible

and encourage plans to work with

HCFA in developing long-range goals

for projects.

Our role in overseeing compliance

with the quality standards interrelates

with our efforts to sponsor an annual

information campaign that coincides

with the open enrollment period for

M+C organizations and is an important

augmentation to those efforts. These

efforts are designed to ensure that all

organizations in the M+C program have

the organizational structure and

operational capacity to provide quality

health care to Medicare beneficiaries

and to ensure that beneficiaries have

accurate information on quality to guide

their health plan selections.

F. Conclusion

We expect that this rule overall will

have a positive impact on the Medicare

program, Medicare beneficiaries,

providers, rural providers and suppliers,

and entities that have not previously

contracted with us. However, some

current managed care contractors will

experience a decrease in the capitated

payments they otherwise would have

received without passage of the BBA,

possibly resulting in reduced benefits

for Medicare enrollees. States will also

have to develop mechanisms to license

new risk bearing entities known as

provider sponsored organizations after

3-year waivers.

VI. Collection of Information

Requirements

Emergency Clearance: Public

Information Collection Requirements

Submitted to the Office of Management

and Budget (OMB)

In compliance with the requirement

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

Paperwork Reduction Act of 1995, the

Health Care Financing Administration

(HCFA), Department of Health and

Human Services (DHHS), has submitted

to the Office of Management and Budget

(OMB) the following request for

emergency review. We are requesting an

emergency review because the

collection of this information is needed

prior to the expiration of the normal

time limits under OMB’s regulations at

5 CFR, Part 1320. The Agency cannot

reasonably comply with the normal

clearance procedures because of the

statutory requirement, as set forth in

section 1856 of Balanced Budget Act of

1997, to implement these requirements

on June 1, 1998.

HCFA is requesting OMB review and

approval of this collection within 11

working days, with a 180-day approval

period. Written comments and

recommendations will be accepted from

the public if received by the individual

designated below, within 10 working

days of publication of this document in

the Federal Register.

During this 180-day period HCFA will

pursue OMB clearance of this collection

as stipulated by 5 CFR 1320.5.

In order to fairly evaluate whether an

information collection should be

approved by OMB, section 3506(c)(2)(A)

of the PRA requires that we solicit

comment on the following issues:

• The need for the information

collection and its usefulness in carrying

out the proper functions of our agency.

• The accuracy of our estimate of the

information collection burden.

• The quality, utility, and clarity of

the information to be collected.

• Recommendations to minimize the

information collection burden on the

affected public, including automated

collection techniques.

Therefore, we are soliciting public

comment on each of these issues for the

information collection requirements

summarized and discussed below.

Application Requirements (§ 422.6)

In order to obtain a determination on

whether it meets the requirements to

become an M+C organization and is

qualified to provide a particular type of

M+C plan, an entity, or an individual

authorized to act for the entity (the

applicant) must complete an

application, in the form and manner

required by HCFA, including all of the

requirements set forth in § 422.6.

In order to contract with us under the

M+C program, organizations are

required to complete an application to

demonstrate their capability of carrying

out the requirements of the Medicare

program. Completing an application

requires the capability of organizations

to adhere to Medicare program

guidelines and demonstrate to HCFA by

in-house documentation that such

capability exists. In prior years,

applicants were required to complete

applications forms (HCFA 901–903) to

obtain a Medicare contract under

section 1876 of the program. The

application having OMB clearance

#0938–0470 estimated that

approximately 100 hours would be

required to complete an application. We

believe the new applications are quite

similar and therefore estimate that 100

hours will be required to complete an

application under the Medicare +

Choice program. We project

approximately 100 applications a year

requiring 10,000 hours of time by all

applicants on an annual basis.

Eligibility To Elect an M+C Plan

(§ 422.50)

A beneficiary must complete and sign

an election form and gives information

required for enrollment.

The burden associated with this

requirement is the time it takes for a

beneficiary to complete an enrollment

form. The enrollment form varies for

each organization, but similar

identifying information is collected. It is

estimated that it will take 2,000,000

beneficiaries (based on 2,012,025

enrollments in calendar year 1997) 10

minutes for an annual burden of

20,000,000 minutes = 333,000 hours.

Continuation of Enrollment (§ 422.54)

An M+C organization that wishes to

offer a continuation of enrollment

option must submit their marketing

materials to HCFA for approval, which

meet the requirements set forth in this

section, that describe the option and the

M+C organization’s assurances of access

to services as set forth in this section

and, an M+C organization that offers a

continuation of enrollment option must

convey all enrollee rights conferred

under this rule.

The burden associated with this

requirement is captured below in

§ 422.64.

Election Process (§ 422.60)

The election form must be completed

and signed by the M+C eligible

individual beneficiary (or the individual

who will soon become entitled to

Medicare benefits) and include

authorization for disclosure and

exchange of necessary information

between HCFA and the M+C

organization.

The burden associated with this

requirement is captured above in the

§ 422.50 discussion.

The M+C organization must file and

retain M+C plan election forms for the

period specified in HCFA instructions,

and submit beneficiary M+C plan and

optional supplemental benefit elections

to HCFA.

The burden associated with this

requirement is the time required for

each organization to perform record
35054 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

keeping on each application filed. It is

estimated that it will take each

organization 5 minutes for each of

2,000,000 beneficiaries (based on

2,012,025 enrollments in calendar year

1997). The total annual burden is

estimated at 10,000,000 minutes =

167,000 hours. On average, M+C

organizational level burden is 167,000/

450 (100 new/350 current) = 371 annual

hours. In addition, it is estimated to take

each M+C organization 4 hours per

month to electronically submit a subset

of beneficiary M+C plan and optional

supplemental benefit election

information to HCFA, for a total annual

burden of 21,600 hours.

The M+C organization must give the

beneficiary prompt written notice of

acceptance or denial in a format

specified by HCFA that meets the

requirements set forth in this section.

The burden associated with each

organization providing the beneficiary

prompt written notice, performed by an

automated system, is estimated at 1

minute per application processed. The

annual total burden is estimated at

2,000,000 minutes = 33,000 hours. On

average, M+C organizational level

burden is 33,000/450 (100 new/350

current) = 73 annual hours.

Within 30 days from receipt of the

election form (or from the date a

vacancy occurs for an individual who

was accepted for future enrollment), the

M+C organization must transmit the

information necessary for HCFA to add

the beneficiary to its records as an

enrollee of the M+C organization.

The burden associated with electronic

submission of information to HCFA is

estimated at 1 second per application

processed, for an annual burden of

2,000,000 minutes = 33,000 hours. On

average, M+C organizational level

burden is 33,000/450 (100 new/350

current) = 73 annual hours.

Election of Coverage Under an M+C

Plan (§ 422.62)

Except as provided in paragraph

(d)(2)(ii) of § 422.62, an individual may

disenroll from an M+C MSA plan only

during an annual election period or the

special election period described in

paragraph (b) of this section. However,

an individual who elects an M+C MSA

plan during an annual election period

and had never before elected an M+C

MSA plan may revoke that election, no

later than December 15 of that same

year, by submitting to the organization

that offers the M+C plan a signed and

dated request in the form and manner

prescribed by HCFA or by filing the

appropriate disenrollment form through

other mechanisms as determined by

HCFA.

The burden associated with this

requirement is the time required for

each beneficiary to complete a

disenrollment form. It is estimated that

about 5 percent of the maximum

number of beneficiaries permitted to

choose an MSA (390,000) would

disenroll (19,500) and each

disenrollment form would take 4

minutes to complete, for an annual

burden of 78,000 minutes = 1,300 hours.

Information About the M+C Program

(§ 422.64)

Each M+C organization must provide,

on an annual basis and in a format and

using standard terminology that may be

specified by HCFA, the information

necessary that meets the general and

content requirements set forth in

§ 422.6, to enable HCFA to provide to

current and potential beneficiaries the

information they need to make informed

decisions with respect to the available

choices for Medicare coverage.

The burden associated with this

requirement is the time required for the

organization to provide the information

to HCFA. It is estimated that it will take

450 (100 new/350 current) organizations

12 hours for an annual burden of 5,400

hours. In addition, it is estimated that

on an annual basis it will take 4 hours

for an estimated 50 organizations to

modify and submit their revised

materials to HCFA for review for a

annual burden of 200 hours.

Coordination of Enrollment and

Disenrollment Through M+C

Organizations (§ 422.66)

An individual who wishes to elect an

M+C plan offered by an M+C

organization may make or change his or

her election during the election periods

specified in § 422.62 by filing the

appropriate election form with the

organization or through other

mechanisms as determined by HCFA.

An individual who wishes to

disenroll from an M+C plan may do so

by (1) electing a different M+C plan by

filing the appropriate election form with

the M+C organization or through other

mechanisms as determined by HCFA,

(2) submitting a signed and dated

request for disenrollment to the M+C

organization in the form and manner

prescribed by HCFA or, (3) filing the

appropriate disenrollment form through

other mechanisms as determined by

HCFA.

The burden associated with electing a

different plan is included in 422.50. The

burden associated with disenrolling is

the time to complete a disenrollment

form. It is estimated that 720,000

disenrollments (based on the number of

disenrollments in calendar 1997) will

take 2 minutes each for an annual

burden of 1,440,000 minutes = 2,400

hours. On average, M+C organizational

level burden is 2,400/450 (100 new/350

current) = 5 annual hours.

The M+C organization must submit

each disenrollment notice to HCFA

promptly.

The burden associated with electronic

submission of information to HCFA is

estimated at 1 second per disenrollment

processed, for an annual burden of

1,200 minutes = 20 hours.

On average, M+C organizational level

burden is 1,200/450 (100 new/350

current) = 3 annual hours.

In the case of a plan where lock-in

applies, the M+C organization must

provide the enrollee with a statement

explaining that he or she remains

enrolled until the effective date of

disenrollments, and until that date,

neither the M+C organization nor HCFA

pays for services not provided or

arranged for by the M+C plan in which

the enrollee is enrolled.

The burden associated with each

organization providing the beneficiary

prompt written notice of disenrollment

and lock-in, produced by an automated

system, is estimated at 1 minute per

disenrollment processed, for an annual

burden of 720,000 minutes = 1,200

hours. On average, M+C organizational

level burden is 1,200/450 (100 new/350

current) = 3 annual hours.

The M+C organization must file and

retain disenrollment requests for the

period specified in HCFA instructions.

The burden associated for each

disenrollment request is the time

required for each organization to

perform recordkeeping on each

disenrollment request filed. It is

estimated that it will take 5 minutes for

720,000 disenrollments processed for an

annual burden of 3,600,0000 minutes =

60,000 hours. On average, M+C

organizational level burden is 6,000/450

(100 new/350 current) = 13 annual

hours.

Disenrollment by the M+C Organization

(§ 422.74)

If the disenrollment is for any of the

reasons specified in paragraphs (b)(1)

through (b)(2)(i) and (b)(3) of § 422.74,

that is, other than death or loss of

entitlement to Part A or Part B, the M+C

organization must give the individual a

written notice of the disenrollment with

an explanation of why the M+C

organization is planning to disenroll the

individual. The notice must be mailed

to the individual before submission of

the disenrollment notice to HCFA and

include an explanation of the

individual’s right to a hearing under the
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35055

M+C organization’s grievance

procedures.

There is a burden associated with the

requirement for the organization to

notify the beneficiary about an

involuntary disenrollment, and to

separately notify the beneficiary of the

effective date of the disenrollment. It is

estimated that less than 100 such

notices will be issued and that each

notice will take 1 minute for an annual

burden of less than 100 minutes = or

less than 1.5 hours.

A M+C organization may disenroll an

individual from the M+C plan for failure

to pay any basic and supplementary

premiums if the M+C organization

sends a written notice of nonpayment to

the enrollee within 20 days of the date

that the delinquent charges were due

stating that nonpayment of premiums

will not automatically result in

disenrollment and information about

the lock-in requirements of the M+C

plan.

There is a burden associated with the

requirement for the organization to

notify the beneficiary and it is estimated

that less than 500 of these requests

occur annually at 1 minute per

notification, resulting in an estimated

burden of 500 minutes, or

approximately 80 hours.

A M+C organization may disenroll an

individual from the M+C plan if the

individual’s behavior is disruptive,

unruly, abusive, or uncooperative to the

extent that his or her continued

enrollment in the plan seriously impairs

the M+C plan’s ability to furnish

services to either the particular

individual or other individuals enrolled

in the plan. The M+C organization must

document the enrollee’s behavior, its

own efforts to resolve any problems, and

any extenuating circumstances, as

described in paragraphs (d)(2)(i) through

(d)(2)(iii) of this section. And, a M+C

organization must submit

documentation related to the proposed

disenrollment and any information

submitted by the beneficiary, to HCFA

for review to determine whether the

M+C organization has met the

disenrollment requirements.

The burden associated with this

requirement is the time for the

organization to document the behavior

of the beneficiary and document the

efforts of the organization to resolve any

problems and provide information to

HCFA concerning the involuntary

disenrollment request. The burden

reflects documentation and

transmission of documentation to HCFA

by the managed care plans. It is

estimated that less than 100 such

requests occur annually (based on

estimate of regional office collection of

such information), and it is estimated

that each request will take 1 hour to

manually collect the data and 15

minutes to transmit the data to HCFA,

for a burden of 125 hours.

A M+C organization must report to

the Office of the Inspector General of the

DHHS any disenrollment based on fraud

or abuse by the individual.

There is a burden associated with the

requirement for the organization to

report to the Office of the Inspector

General any disenrollment based on

fraud or abuse by the individual. It is

estimated that only 1% of all

involuntary disenrollments, or 10

involve fraud or abuse, and the

reporting burden would be 1 minute

each, for a total burden of less than 1

hour.

If a M+C organization terminates or is

terminated or the service area or

continuation area are reduced with

respect to all M+C enrollees in the area

in which they reside, the M+C

organization must give each Medicare

enrollee a written notice of the effective

date of the plan termination or area

reduction and a description of

alternatives for obtaining benefits under

the M+C program. The notice must be

sent before the effective date of the plan

termination or area reduction.

The burden associated with this

requirement is captured below in

§ 422.506.

Approval of Marketing Materials and

Election Forms (§ 422.80)

At least 45 days before the date of

distribution the M+C organization must

submit any marketing material or

election form to HCFA for review. The

materials must be in a format and using

standard terminology specified by

HCFA, that meet the requirements

specified in this section.

The burden associated with this

requirement is captured above in

§ 422.64.

A M+C organization must notify the

general public of its enrollment period

(whether time-limited or continuous) in

an appropriate manner, through

appropriate media, throughout its

enrollment area.

We anticipate notification to the

general public would be through a

general circulation newspaper and

would require 8 hours of burden per

organization to modify their enrollment

period bulletin and seek publication in

a local newspaper, for an annual burden

of 3,600 hours.

Special Rules for Point of Service

Option (§ 422.105)

M+C organizations must maintain

written rules on how to obtain health

benefits through the POS benefit. While

the maintenance of written rules is a

recordkeeping requirement subject to

the PRA, the burden associated with

this requirement is exempt from the

PRA, as defined in 5 CFR 1320.3(b)(2)

and (b)(3).

The M+C organization must provide

to beneficiaries enrolling in a plan with

a POS benefit an ‘‘evidence of coverage’’

document, or otherwise provide written

documentation, that specifies all costs

and possible financial risks to the

enrollee, including the requirements set

forth in (d)(2)(i) through (d)(2)(iv) of this

section.

The burden associated with this

requirement is captured above in

§ 422.64.

An M+C organization that offers a

POS benefit must report data on the

POS benefit in the form and manner

prescribed by HCFA.

The special rules for M+C

organizations offering a POS benefit as

stipulated in § 422.105 requires that

M+C organizations provide to HCFA

POS data relating to the utilization of

the POS benefit by plan members. This

is not a new data requirement since

M+C organizations that offer a POS

benefit would need to have this data in

the normal course of business in order

to pay POS claims. We estimate that

providing this data to HCFA would

require 1 hour per quarterly submission.

Thus, the annual burden would be 1

hour × 4 = 4 hours per MCO in

providing the required POS data.

Disclosure Requirements (§ 422.111)

An M+C organization must disclose

the information specified in § 422.64

and in paragraph (b) of § 422.111 to each

enrollee eligible for or electing an M+C

plan it offers. The information must be

in clear, accurate, and standardized

form, and provided at the time of

enrollment and at least annually

thereafter. The burden associated with

this requirement is captured above in

§ 422.64.

If an M+C organization intends to

change its rules for an M+C plan, it must

submit the changes for HCFA review

under the procedures of § 422.80. The

burden associated with this requirement

is reflected in § 422.80 above.

The plan must also give notice to all

enrollees 30 days before the intended

effective date of the changes. The

burden associated with this requirement

is reflected above in § 422.80.

The M+C organization must make a

good faith effort to provide written

notice of a termination of a contracted

provider within 15 working days of

receipt or issuance of a notice of

termination, as described in
35056 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

§ 422.204(c)(4), to all enrollees who are

patients seen on a regular basis by the

provider whose contract is terminating,

irrespective of whether the termination

was for cause or without cause. When

a contract termination involves a

primary care professional, all enrollees

who are patients of that primary care

professional must also be notified.

HCFA has no basis to calculate the

burden impact imposed by these

requirements. Therefore, we explicitly

seek comment on the impact of this

notification requirement.

Access to Services (§ 422.112)

In the case of involuntary termination

of an M+C plan or specialist(s) for a

reason other than for cause, the M+C

organization must inform beneficiaries

of their right to maintain access to

specialists and provide the names of

other M+C plans in the area that

contract with specialists of the

beneficiary’s choice, as well as an

explanation of the process the

beneficiary would need to follow should

he or she decide to return to original

Medicare.

The requirements imposed by this

section would be pursuant to an

administrative action and therefore are

exempt from the PRA as defined in 5

CFR 1320.4.

An M+C plan seeking a service area

expansion must demonstrate that the

number and type of providers available

to plan enrollees are sufficient to meet

projected needs of the population to be

served. The burden associated with

meeting this requirement is captured

above in 422.6.

An M+C plan must demonstrate to

HCFA that its providers are credentialed

through the process set forth at

§ 422.204(a). The burden associated

with meeting this requirement is

captured above in 422.6.

Plans must have procedures approved

by HCFA for (1) identification of

individuals with complex or serious

medical conditions; (2) assessment of

those conditions, including medical

procedures to diagnose and/or monitor

them on an ongoing basis; and (3)

establishment of a treatment plan

appropriate to those conditions, with an

adequate number of direct access visits

to specialists to accommodate the

treatment plan. Treatment plans must be

time-specific and updated periodically

by the PCP.

Plans must also; (1) establish written

standards for the timeliness of access to

care and member services that meet or

exceed standards established by HCFA,

(2) continuously monitor and document

the timely access to care and member

services within a plan’s provider

network to ensure compliance with

these standards, and take corrective

action as necessary, (3) establish written

policies and procedures (coverage rules,

practice guidelines, payment policies,

and utilization management) that allow

for individual medical necessity

determinations, and (4) ensure that

providers consider and document

beneficiary input into the provider’s

proposed treatment plan.

Plans must maintain written

procedures to ensure that; (1) the M+C

organization and its provider network

have the information required for

effective and continuous patient care

and quality review, including

procedures to ensure that, each

provider, supplier, and practitioner

furnishing services to enrollees

maintains an enrollee health record in

accordance with standards established

by the M+C organization, taking into

account professional standards;

appropriate and confidential exchange

of information among provider network

components, (2) written procedures to

ensure that enrollees are informed of

specific health care needs that require

follow-up and receive, as appropriate,

training in self-care and other measures

they may take to promote their own

health; and (4) documentation

demonstrating that systems to address

barriers to enrollee compliance with

prescribed treatments or regimens.

HCFA’s believes these requirements

are reasonable and customary business

practices and the burden associated

with these requirements is exempt from

the PRA as defined in 5 CFR

1320.3(b)(2). Therefore, we are assigning

one token hour of burden for these

requirements. HCFA invites comment

on the burden estimate associated with

these requirements.

Confidentiality and Accuracy of

Enrollee Records (§ 422.118)

For any medical records or other

health and enrollment information it

maintains with respect to enrollees, an

M+C organization must establish and

maintain procedures set forth in (a)

through (c) of this section.

While the maintenance of health

records is a recordkeeping requirement

subject to the PRA, we believe the

burden associated with this requirement

is exempt from the PRA, as defined in

5 CFR 1320.3(b)(2) and (b)(3), and

assigning 1 token hour of burden for this

requirement. We solicit comment on the

burden associated with this

requirement.

Information on Advance Directives

(§ 422.128)

Each M+C organization must maintain

written policies and procedures that

meet the requirements for advance

directives, as set forth in 43 CFR part

489 subpart I.

An M+C organization must maintain

written policies and procedures

concerning advance directives with

respect to all adult individuals receiving

medical care by or through the M+C

organization.

An M+C organization must provide

written information to those individuals

with respect to the requirement set forth

in this section.

These requirements are identical to

the requirements currently approved

under OMB# 0938–0610, with an

expiration date of July, 31, 1999. Since

the currently approved requirements

encompass a larger universe of provider

types then just managed care

organizations it is difficult to estimate

the burden on the M+C organizational

level. However, the per beneficiary

encounter burden is estimated to be 3

minutes. In the near future, HCFA will

revise this collection to capture this new

provider type and resubmit the

collection to OMB for approval.

Protection Against Liability and Loss of

Benefits (§ 422.132)

Each M+C organization must adopt

and maintain arrangements satisfactory

to HCFA to protect its enrollees from

incurring liability for payment of any

fees that are the legal obligation of the

M+C organization. The burden

associated with demonstrating this

requirement is captured below under

§ 422.306.

Each M+C organization must have an

insolvency protection plan that provides

for continuation of benefits. Each plan

must submit a insolvency plan to HCFA

for approval. The reporting

requirements are similar to the

insolvency plan reporting requirements

submitted by 1876 plans. The burden

associated with completing and

submitting an insolvency plan is

estimated to be 40 hours per plan on an

annual basis. Therefore, the total annual

burden associated with this requirement

is 18,000 hours (40 hours x 450 plans

(100 new/350 current)). In the near

future, HCFA will revise this collection

to capture this new provider type and

resubmit the collection to OMB for

approval.

Quality Assessment and Performance

Improvement Program (§ 422.152)

The organization offering the plan

must measure performance under the
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35057

plan, using standard measures required

by HCFA, and report its performance to

HCFA.

All Medicare+Choice organizations

and an organization offering an M+C

non-network MSA plan or an M+C

private fee-for-service plan will be

required to measure performance under

their plans, using standard measures

required by HCFA, and report their

performance to HCFA. Reporting will be

required annually. The standard

measures that will be required will most

likely be those already captured in

HEDIS and CAHPS, approved under

OMB # 0938–0701. The currently

approved annual per plan burden is

estimated to be 400.53 hours. Therefore,

the total burden associated with this

requirement is 180,239 hours (400.53

hours × 450 plans (100 new/350

current)). In the near future HCFA will

resubmit this collection to OMB for

approval for use by M+C organizations.

The organization must report the

status and results of each performance

improvement project to HCFA as

requested.

All Medicare+Choice organizations

offering coordinated care plans will be

required to undertake performance

improvement projects relative to those

plans. Each organization must report the

status and results of each project to

HCFA as requested. We expect that, in

any given year, each organization will

complete two projects, and will have

two others underway, relative to each

plan. We expect that we will request the

status and results of each organization’s

projects annually. We estimate that it

will take an organization 5 hours to

prepare its report for each project.

Therefore, we estimate that the total

annual hours involved per plan to be 20

and an overall annual burden for all

plans of 9,000 hours.

For all types of plans that it offers, an

organization must: (1) Maintain a health

information system that collects,

analyzes, and integrates the data

necessary to implement its quality

assessment and performance

improvement program, (2) Ensure that

the information it receives from

providers of services is reliable and

complete, and (3) Make all collected

information available to HCFA.

All M+C organizations must maintain

a health information system, and must

make all collected information available

to HCFA. The requirement guarantees

our access to organization information:

it does not impose an obligation for

routine organization submission of

information. At this time, we do not

anticipate requesting information other

than that relating to the standard

measures and performance

improvement projects discussed above.

External Review (§ 422.154)

Except as provided in paragraph (c) of

§ 422.154, each M+C organization must,

for each M+C plan it operates, have an

agreement that meets the provisions of

this section, with an independent

quality review and improvement

organization (review organization)

approved by HCFA to perform functions

of the type described in 42 CFR part 466

of this chapter.

Most M+C organizations must have an

agreement with a review organization

approved by HCFA to perform functions

of the type described in 42 CFR part

466. A similar requirement already

exists for Medicare contracting HMOs,

at § 466.72. The burden estimate

prepared for OMB submission #0938–

0445 would also apply to the new

requirement. The currently approved

burden associated with this requirement

on the organizational level is 10 hours

every three years.

In the near future HCFA will resubmit

this collection to OMB for approval for

use by M+C organizations.

Compliance Deemed on the Basis of

Accreditation (§ 422.156)

An M+C organization deemed to meet

Medicare requirements must: (1) Submit

to surveys by HCFA to validate its

accreditation organization’s

accreditation process, and (2) authorize

its accreditation organization to release

to HCFA a copy of its most recent

accreditation survey, together with any

survey-related information that HCFA

may require (including corrective action

plans and summaries of unmet HCFA

requirements).

The burden associated with this

requirement is captured below in

§ 422.158.

Accreditation Organizations (§ 422.157)

An accreditation organization

approved by HCFA must undertake the

following activities on an ongoing basis:

(1) Provide to HCFA in written form and

on a monthly basis all of the

information required in paragraphs

(c)(1)(i) through (c)(1)(v) of § 422.157,

(2) Within 30 days of a change in HCFA

requirements, submit to HCFA all of the

information required in paragraphs

(c)(2)(i) through (c)(2)(iii) of § 422.157,

(4) Within 3 days of identifying, in an

accredited M+C organization, a

deficiency that poses immediate

jeopardy to the organization’s enrollees

or to the general public, give HCFA

written notice of the deficiency, and (5)

Within 10 days of HCFA’s notice of

withdrawal of approval, give written

notice of the withdrawal to all

accredited M+C organizations. The

burden associated with this requirement

is captured below in § 422.158.

Procedures for Approval of

Accreditation as a Basis for Deeming

Compliance (§ 422.158)

A private, national accreditation

organization applying for approval must

furnish to HCFA all of the information

and materials referenced in this section.

However, when reapplying for approval,

the organization need furnish only the

particular information and materials

requested by HCFA.

The BBA allows HCFA to deem that

a M+C organization meets certain

Medicare requirements if that

organization is accredited by an

accreditation organization approved by

HCFA. We expect that four national

accreditation organizations will

eventually be approved. The application

and oversight procedures that we have

developed for deeming in the managed

care arena mirror those already in place

in the fee-for-service arena as currently

approved under OMB # 0938–0690.

Therefore, much of the burden estimate

prepared for the fee-for-service deeming

regulations in 42 CFR part 488, Subpart

A, would also apply here. The initial

application burden associated with

obtaining deeming authority is 96 hours

every six years. Since we anticipate that

four organizations will apply, the total

burden is 386 hours over a six year

period. The ongoing burden of

supplying HCFA with data on the status

of its deemed facilities is estimated to be

48 annual hours per deeming

organization for a total annual burden of

192 hours. In the near future HCFA will

resubmit this collection to OMB for

approval of deeming in the managed

care arena use.

Participation Procedures (§ 422.202)

An M+C organization that operates a

coordinated care plan or network MSA

must provide for the participation of

individual health care professionals and

of the management and members of

groups through reasonable written

procedures that include the following;

(1) written notice of rules of

participation such as terms for payment,

utilization review, quality improvement

programs, credentialing, data reporting,

confidentiality, guidelines or criteria for

the furnishing of particular services, and

other rules related to administrative

policy, (2) written notice of material

changes in participation rules before the

changes are put into effect, (3) written

notice of participation decisions that are

adverse to health care professionals, (4)

a process for appealing adverse
35058 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

decisions, including the right of

physicians and other health care

professionals to present information and

their views on the decision.

The M+C organization must maintain

documentation demonstrating that: (1)

practice guidelines and utilization

management guidelines meet the

requirements of (1)(i) through (iv) of this

section, (2) the guidelines have been

communicated to providers and, as

appropriate, to enrollees, (3) decisions

with respect to utilization management,

enrollee education, coverage of services,

and other areas in which the guidelines

apply are consistent with the guidelines,

and (4) an M+C organization that

operates an M+C plan through

subcontracted physician groups or other

subcontracted networks of health care

professionals provided that the

participation procedures in this section

apply equally to physicians and other

health care professionals within those

subcontracted groups.

The burden associated with these

requirements is the time required to

maintain documentation demonstrating

that the requirements have been met

and, as necessary, the time necessary to

communicate the guidelines to

providers and enrollees. HCFA believes

that these requirements are reasonable

and customary business practices and

the burden of meeting these

requirements is exempt from the PRA as

stipulated under 5 CFR 1320.3(b)(2).

Therefore, we are assigning one token

hour of burden to these requirements.

We explicitly solicit comments on the

burden associated with meeting these

requirements.

Participation Contracts: Requirements

and Prohibitions (§ 422.204)

An M+C organization that operates a

coordinated care plan or network MSA

plan that provides benefits through

contracting health care professionals

must provide notice to contracting

professionals when the organization

denies, suspends, or terminates their

agreement with the professional and

include (1) the reason for the action, (2)

the standards and the profiling data the

organization used to evaluate the

professionals, (3) the numbers and mix

of health care professionals needed for

the organization to provide adequate

access to services, and (4) the

professional’s right to appeal the action

and the timing for requesting a hearing.

This is a new requirement.

The burden associated with this

requirement is the time required for

organization to prepare a written

notification of the denial, suspension, or

termination of their agreement with the

organization. In discussions with HCFA

plan managers, it was predicted that .5

percent of all organizations

(approximately 2 organizations) would

find it necessary to take such action for

about 1 percent of their contracted

professionals within a single year and if

the organization was already established

and doing business. The range of

number of contracted professionals

extends from 3 contracted professionals

to 67,000. Excluding outliers on both

ends of the range, we estimate that an

organization contracts with an average

of 3,000 health care professionals. Using

an estimate of 10 minutes per instance

to generate and furnish a notice of such

action, the total burden on known

contractors (350) would be 2

organizations * 30 * 10 minutes = 600

minutes or 10 hours annually.

In addition, HCFA expects to receive

approximately 100 additional

applications for contracts with new

entities to be processed in 1998 for

1999. For organizations creating new

networks, they would probably all have

at least one instance of denial the first

year affecting approximately 1 percent

of the number of contracting

professionals. Using an estimate of 10

minutes per instance to generate and

furnish a notice of such action, the total

burden on new contractors would be

100 organizations * 30 * 10 minutes =

30,000 minutes or 500 hours. The total

burden with current applications and

expected applications for contracts

would be 510 hours annually.

The number of new organizations is

expected to increase by 100, on an

annual basis creating an expected

burden for current contracts

[350(*.005(organization-rounded to the

nearest whole number) *30*10)/60 = ]10

hours + new contracts [100*30*10 /60

=]500 hours = 510 hours.

An M+C organization is required to

notify any licensing or disciplinary

bodies or other appropriate authorities

when it suspends or terminates a

contract with a health care professional

because of deficiencies in the quality of

care provided by the professional.

The burden associated with this

requirement is the time required for the

organization to prepare a written

notification to the appropriate

authorities. No exact data is available to

estimate how often this situation might

occur. HCFA estimates that this

situation might occur in 3 percent of the

M+C organizations once during an

annual period. The amount of time

estimated to prepare the written

notification is 10 minutes. The annual

burden associated with this requirement

is estimated to be [450 * .03 * 1 *10/

60] = 2.25 hours.

Interference With Health Care

Professionals’ Advice to Enrollees

Prohibited (§ 422.206)

Section 422.206 prohibits the M+C

organization from restricting the

provision of treatment advice by health

care professionals to enrollees.

However, the prohibition against

interference is not construed as

requiring counseling by a professional

or a referral to a service by that

professional, if there is an objection

based on moral and religious grounds.

Section 422.206 implements a new

disclosure requirement and requires

M+C organizations to notify HCFA

during the application process, and later

to all current and prospective enrollees,

through appropriate written means, if

the organization has such a conscience

protection policy regarding counseling

in effect or if the policy is changed

subsequent to the application. The

expected number of M+C organizations

exercising this option is not expected to

exceed 10 in any given year. The

amount of burden imposed in the

application process, which is captured

in the application burden and in the

preparation of the contents of the

subscriber agreement or member

handbook or a subsequent written

notice to enrollees is reflected above in

§ 422.6 and § 422.64.

Physician Incentive Plans: Requirements

and Limitations (§ 422.208)

An M+C organization must conduct

periodic surveys of current and former

enrollees where substantial financial

risk exists.

The burden associated with this

requirement is captured below in

§ 422.210.

Disclosure of Physician Incentive Plans

(§ 422.210)

Each M+C organization must provide

to HCFA descriptive information about

its physician incentive plan in sufficient

detail to enable HCFA to determine

whether that plan complies with the

requirements of § 422.208. Reporting

should be on the HCFA PIP Disclosure

Form (OMB No. 0938–0700). An M+C

organization must disclose annually to

HCFA the physician incentive

arrangements that are effective at the

start of each year.

Sections 422.208 and 422.210 require

disclosure of physician incentive plan

information to HCFA or to States and to

Medicare beneficiaries and the enrollee

surveys required when plans put

providers at substantial risk. This

collection of information, Incentive

Arrangement Form HCFA–R–201 and

supporting regulations, used to monitor
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35059

physician incentive plans on an annual

basis, is approved under OMB # 0938–

0700. In the near future HCFA will

resubmit this collection to OMB for

approval for use by M+C organizations.

Special Rules for M+C Private Fee-forService Plans (§ 422.216)

The M+C organization must make

information on its payment rates

available to providers that furnish

services that may be covered under the

M+C private fee-for-service plan.

We expect the M+CPFFS plan to

provide written information to

contracting providers and to make the

information available via a website or

toll free number to noncontracting

providers who inquire. 50 M+CPFFS

plans (estimate of M+CPFFS plans in

out years; in first year we may have

none) will be required to provide 20,000

annual responses (about 1 million

providers nationwide divided by 50

M+CPFFS plans) at an estimated 5

minutes per disclosure (average of

phone calls, website time, mailing time

for hard copies to contracting providers)

for a total annual burden of 1,667 hours

per provider and an overall annual

burden of 83,350 hours.

An M+C organization that offers an

M+C fee-for-service plan must enforce

the limit specified in paragraph (b)(1) of

this section. Specifically, an M+C

organization that offers an M+C private

fee-for-service plan must monitor the

amount collected by non-contract

providers to ensure that those amounts

do not exceed the amounts permitted to

be collected under paragraph (b)(2) of

this section. The M+C organization must

develop and document violations

specified in instructions and must

forward documented cases to HCFA.

M+C private fee-for-service plans

must investigate and send to HCFA

documentation of excessive charges by

providers. It is estimated that 50 M+C

private fee-for-service plans will have

10 cases per year, at 20 hours per case

(to contact the enrollee who

complained, acquire and review

documents, contact the provider,

prepare report to HCFA). Therefore, the

total burden associated with this

requirement is 10 cases × 20 hours = 200

annual hours per plan, for a total annual

burden of 10,000 hours.

An M+C organization that offers an

M+C private fee-for-service plan must

provide to plan enrollees, for each claim

filed by the enrollee or the provider that

furnished the service, an appropriate

explanation of benefits. The explanation

must include a clear statement of the

enrollee’s liability for deductibles,

coinsurance, copayment, and balance

billing.

This requirement is akin to the

Medicare EOMB or summary statement

and must be furnished on a regular basis

for every claim paid or denied by the

M+C private fee-for-service plan. It is

estimated that 3 million notices will be

disseminated by M+C private fee-forservice plans. This estimate is

determined by; multiply 5000 enrollees

per plan by 12 (one notice per month)

or 60,000, multiplied by an estimated 50

plans for a total of 3 million notices. At

an estimated 3 minutes of burden per

notice, the total burden is 9 million

minutes or 150,000 burden hours. On a

plan level the average annual burden is

estimated to be 3,000 hours.

In its terms and conditions of

payment to hospitals, organization the

hospital is required, if it imposes

balance billing, to provide to the

enrollee, before furnishing any services

for which balance billing could amount

to not less than $500: (1) Notice that

balance billing is permitted for those

services; (2) a good faith estimate of the

likely amount of balance billing, based

on the enrollees presenting condition;

and (3) the amount of any deductible,

coinsurance, and copayment that may

be due in addition to the balance billing

amount.

It is estimated that 20,000 of 25,000

estimated hospitalizations will require

these notices. The $500 tolerance will

be exceeded each time the plan payment

rate for the inpatient stay would exceed

$3333.33—which is probably almost all

of them—if the plan lets the hospital

balance bill. At 5 minutes of burden per

notice times 20,000 annual notices, the

total burden is 100,000 minutes or 1,667

hours of burden.

Encounter Data (§ 422.257)

Each M+C organization must submit

to HCFA (in accordance with HCFA

instructions) all data necessary and as

stipulated under this section to

characterize the context and purpose of

each encounter between a Medicare

enrollee and a provider, supplier,

physician, or other practitioner.

The Act requires that the collection of

inpatient hospital data for discharges

beginning on or after July 1, 1997 and

allows the collection of other data no

earlier than July 1, 1998. The statutory

language is clearly tied to the creation

of risk-adjusted payment rates, as

defined at § 422.256 (c) and (d) of this

rule. Requirements concerning

collection of encounter data apply to

M+C organizations with respect to all

their M+C plans, including medical

savings accounts (MSAs) and private

fee-for-service plans.

M+C organizations must submit data

as follows: (1) Beginning on a date

determined by HCFA, inpatient hospital

care data for all discharges that occur on

or after July 1, 1997.

These requirements are approved

under OMB # 0938–0711, with an

expiration date of July 31, 1998. The

burden associated with submitting data

for inpatient hospital care data for all

discharges that occur on or after July 1,

1997, is currently .5 minutes per EMC

bill and 1 minute per hard copy bill.

Although there are currently three

options for submitting bills, on average

the total annual burden per plan is 46.5

hours, with an overall burden of annual

32,833 hours.

HCFA will provide advance notice to

M+C organizations to collect and

submit: (1) Physician, outpatient

hospital, SNF, and HHA data beginning

no earlier than October 1, 1999; and (2)

all other data HCFA deems necessary

beginning no earlier than October 1,

2000. We estimate the following burden

for each category based on a projection

of 15 seconds per claim: Physician: 72

million claims = 300,000 hours

Outpatient hospital: 12 million claims =

50,000 hours HHA, Hospice, SNF: 2.4

million claims = 10,000 hours All other:

24 million claims = 100,000 hours

We will implement this provision by

providing for direct transmission from

the provider to HCFA with common PCbased technology. It should be noted

that prior to implementing the

requirement for M+C organizations to

collect and submit physician, outpatient

hospital, SNF, and HHA data HCFA will

amend OMB # 0938–0711 and seek

OMB PRA approval. As part of the PRA

process the public will be given several

opportunities to comment, via Federal

Register notification, on the proposed

collection prior to OMB approval and

implementation.

M+C organizations and their

providers and practitioners will be

required to submit medical records for

the validation of encounter data, as

prescribed by HCFA.

Currently HCFA plans on

implementing this requirement

pursuant to an administrative action or

audit, based on data submitted to HCFA

or one of its agents. Therefore, these

requirements are currently not subject to

the PRA as defined in 5 CFR 1320.4.

However, if HCFA were to implement

these requirements on a prospective

basis, as part of a program oversight

activity, we will amend OMB # 0938–

0711 and seek OMB PRA approval. As

part of the PRA process the public will

be given several opportunities to

comment, via Federal Register

notification, on the proposed collection

prior to OMB approval and

implementation.
35060 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

Special Rules for Beneficiaries Enrolled

in M+C MSA Plans (§ 422.262)

An entity that acts as a trustee for an

M+C MSA must: (1) Register with

HCFA, (2) certify that it is a licensed

bank, insurance company, or securities

broker, or other entity qualified, under

sections 408(a)(2) or 408(h) of the IRS

Code, to act as a trustee, (3) agree to

comply with the M+C MSA provisions

of section 138 of the IRS Code of 1986;

and (4) Provide any other information

that HCFA may require.

An M+C organization offering an M+C

MSA plan will have to register with

HCFA for each beneficiary enrolled.

This will require a short form that

would take no more than five minutes

to fill out. The Act limits the number of

MSA enrollees to 390,000; therefore,

with maximum participation,

registration with HCFA would take

32,500 hours. (i.e., 390,000 registration

forms at 5 minutes each.)

Items 2 and 3, above, are IRS

requirements and entail no reporting

requirements for HCFA. Under item 4,

above, we anticipate no further M+C

MSA reporting requirements at this

time.

Special Rules for Hospice Care

(§ 422.266)

An M+C organization that has a

contract under Subpart K of part 422

must inform each Medicare enrollee

eligible to elect hospice care under

section 1812(d)(1) of the Act about the

availability of hospice care (in a manner

that objectively presents all available

hospice providers, including a

statement of any ownership interest in

a hospice held by the M+C organization

or a related entity) if: (1) A Medicare

hospice program is located within the

organization’s service area, or (2) It is

common practice to refer patients to

hospice programs outside that area.

At present, one-twentieth of one

percent (three thousand) of Medicare

managed care enrollees have elected the

hospice option. We estimate that

informing beneficiaries about their

hospice choices would take about ten

minutes. For three thousand

beneficiaries, this represents a total

burden of 500 hours. On a

organizational level the annual burden

would be 500 hours / 450 M+C

organizations (100 new/350 current) =

1.2 annual burden hours per entity.

Submission of Proposed Premiums and

Related Information (§ 422.306)

Not later than May 1 of each year,

each M+C organization and any

organization intending to contract as an

M+C organization in the subsequent

year must submit to HCFA, in the

manner and form prescribed by HCFA,

for each M+C plan it intends to offer in

the following year: (1) The information

specified in paragraph (b), (c), or

paragraph (d) of this section for the type

of M+C plan involved, and (2) The

enrollment capacity (if any) in relation

to the M+C plan and area.

This collection effort will require the

submission of benefit and pricing forms

that will be used to price the benefit

package sold and describe the benefit

package being priced to Medicare

beneficiaries. Both collection efforts will

be completed at the same time, in order

to approve both the benefit and pricing

structure of a particular benefit package.

Organizations submitting benefit and

pricing forms would include all M+C

organizations plus any organization

intending to contract with HCFA as a

M+C organization.

The estimate of the hour burden of

this collection of information is as

follows:

Pricing portion of the Adjusted

Community Rate Proposal; 1 response

per year per respondent × 450 (350

current/100 new) annual respondents ×

100 hours of estimated burden per

response = 45,000 total annual burden

hours.

The Plan Benefit Package portion of

the Adjusted Community Rate Proposal;

1 response per year per respondent ×

450 (350 current/100 new) annual

respondents × 20 hours of estimated

burden per response = 9,000 total

annual burden hours.

Requirement for Additional Benefits

(§ 422.312)

An M+C organization’s request to

make a withdrawal from the

stabilization fund established for an

M+C plan to be used during a contract

period must be made in writing when

the M+C organization notifies HCFA

under § 422.306 of its proposed

premiums, other cost-sharing amounts,

and related information in preparation

for its next contract period.

The burden associated with this

requirement is captured above in

§ 422.306.

State Licensure Requirement (§ 422.400)

Except in the case of a PSO granted

a waiver under Subpart H of part 422,

each M+C organization must: (1) Be

licensed under State law, or otherwise

authorized to operate under State law,

as a risk-bearing entity (as defined in

§ 422.2) eligible to offer health

insurance or health benefits coverage in

each State in which it offers one or more

M+C plans; (2) If not commercially

licensed, obtain certification from the

State that the organization meets a level

of financial solvency and such other

standards as the State may require for it

to operate as an M+C organization; and

(3) Demonstrate to HCFA that—(i) The

scope of its license or authority allows

the organization to offer the type of M+C

plan or plans that it intends to offer in

the State; and (ii) If applicable, it has

obtained the State certification required

under § 422.400(b).

The regulations at § 422.400 require

health plans to demonstrate to HCFA

that they meet the State licensure

requirement of section 1855(a)(1) of the

Social Security Act. As explained in the

preamble, organizations must meet both

the basic requirement of State licensure

as a risk-bearing entity, as well as the

requirement that the scope of licensure

be consistent with the type (or types) of

M+C plan(s) the organization will be

offering. We are asking new

organizations (i.e., other than current

contractors) to submit, as part of the

process of applying for an M+C contract,

a written certification showing the

organization’s licensure status. As of the

date of publication of this interim final

regulation, we are working with the

National Association of Insurance

Commissioners to develop a form that

may be used to satisfy this requirement.

A written statement containing the same

type of information that is requested in

the form we are developing would also

suffice to show compliance with the

statutory requirement.

The written certification is a

combination of information provided by

the organization proposing to enter into

an M+C contract, and information to be

provided by the appropriate State

regulatory body (e.g. the State

department of insurance). This is

necessary because the written

certification serves two purposes. First,

it provides us with written evidence of

compliance with the State licensure

requirement for all M+C plans an

organization may wish to offer. Second,

it serves to inform State regulators of the

intention of organizations doing

business within the State with regard to

M+C offerings. The certification process

enables the State to ensure that the

organization is complying with the

State’s standards for licensure (for

example, as noted in the preamble, an

HMO that proposes to offer a Medicare

point-of-service (POS) product may be

informed by the State that HMO

licensure does not allow an organization

to offer POS products, and that

licensure as an indemnity insurer is

required in that State in order to offer

a POS product).

The certification will have to be

completed (or other written
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35061

documentation provided) only once by

each M+C organization, unless the

nature of the M+C plan(s) offered by the

organization differ from the original

certification (e.g., an HMO may decide

at some later date, after its initial

application to offer a POS product—

though even in such a case, a new

certification may not be necessary to the

extent that we are aware that applicable

State law does not require a different

licensure status). We estimate that the

time burden for the M+C organization is

10 minutes or less for completion of the

certification form, or preparation of

alternative written documentation.

Similarly, we would estimate, that the

time burden for the State regulatory

body should be 15 minutes or less

(including time necessary to verify

information from electronic or paper

files).

Because we are estimating that there

will be an average of 100 new applicants

per year for M+C contracts over the next

5 years, and because this requirement

will be imposed for nearly all

organizations on a one-time basis, we

estimate the annual total burden to be

25 minutes per respondent × 100 annual

responses for a total of 42 annual hours.

General Provisions (§ 422.501)/Contract

Provisions (§ 422.502)

In order to qualify as an M+C

organization, enroll beneficiaries in any

M+C plans it offers, and be paid on

behalf of Medicare beneficiaries

enrolled in those plans, an M+C

organization must enter into a contract

with HCFA.

Since the contract requirements

associated with these sections are

reflective the requirements and

associated burden set forth in other

sections of Part 422, the remaining

burden associated with the

requirements of these sections is the

time required for a M+C organizations to

read and sign the contract. It is

estimated that it will take 100 M+C

organizations on an annual basis, 2

hours each for a total annual burden of

200 hours. However, we solicit

comment on the burden associated with

these sections as it relates to the burden

of meeting the requirements of the

contract as reflected elsewhere in this

regulation.

Nonrenewal of Contract (§ 422.506)

An M+C organization that does not

intend to renew its contract, must notify

HCFA, each Medicare enrollee, and the

general public, before the end of the

contract. Based on current experience

HCFA receives 10 notifications of nonrenewal on an annual basis. We estimate

that the burden of notifying HCFA is 2

hours per notification for an annual

burden of 20 hours.

We estimate the burden associated

with notifying enrollees would take 16

hours per plan to draft and disseminate

through mass mailings information of

changes to affected beneficiaries for an

annual burden of 160 hours.

We anticipate notification to the

general public would be through the

same notice published in a general

circulation newspaper and would be an

additional burden of 4 hours per

organization for an annual burden of 40

hours.

Modification or Termination of Contract

by Mutual Consent (§ 422.508)

An M+C organization that modifies or

terminates it contract by written mutual

consent must notify HCFA, each

Medicare enrollee, and the general

public, within timeframes specified by

HCFA. Based on current experience

HCFA receives less then 10 notifications

of Modification or termination on an

annual basis that would require

notification of Medicare enrollees or the

general public. However, we estimate

that the burden of notifying HCFA is 2

hours per notification for an annual

burden of 20 hours.

Termination of Contract by HCFA

(§ 411.510)

If HCFA decides to terminate a

contract for reasons other than the

grounds specified in § 422.510(a)(5), the

M+C organization notifies its Medicare

enrollees and the general public by

publishing a notice in one or more

newspapers of general circulation in

each community or county located in

the M+C organization’s geographic area

of the termination by mail and at least

30 days before the effective date of the

termination. Based upon current

experience this requirement is imposed

pursuant to an administrative action

against fewer than 10 organizations on

an annual basis. Therefore, these

requirements are not subject to the PRA

as defined in 5 CFR 1320.4 and 5 CFR

1320.3(c).

Termination of Contract by the M+C

Organization (§ 422.512)

The M+C organization may terminate

the M+C contract if HCFA fails to

substantially carry out the terms of the

contract. The M+C organization must

give advance notice as follows as

required in paragraphs (a)(1) through

(a)(3) of § 422.512. In summary, an M+C

organization that does not intend to

renew its contract, it must notify HCFA,

each Medicare enrollee, and the general

public, before the end of the contract.

Based upon current experience this

requirement is imposed on fewer than

10 organizations on an annual basis.

Therefore, these requirements are not

subject to the PRA as defined in 5 CFR

1320.3(c).

Reporting Requirements (§ 422.516)

Each M+C organization must report to

HCFA annually, within 120 days of the

end of its fiscal year (unless for good

cause shown, HCFA authorizes an

extension of time), the requirements in

§ 422.516 (b)(1) through (b)(3). The

burden associate with these

requirements is currently captured

under form HCFA–906, OMB #0938–

0469. Although the burden associated

with the completion of the HCFA–906

differs by provider type, on average, the

annual burden per provider is 17 annual

hours, for a total burden of 3,130 hours.

In the near future HCFA will resubmit

this collection to OMB for approval for

use by M+C organizations.

For any employees’ health benefits

plan that includes an M+C organization

in its offerings, the M+C organization

must furnish, upon request, the

information the plan needs to fulfill its

reporting and disclosure obligations

under the Employee Retirement Income

Security Act of 1974 (ERISA). The M+C

organization must furnish the

information to the employer or the

employer’s designee, or to the plan

administrator, as the term

‘‘administrator’’ is defined in ERISA.

These reporting requirements are

currently imposed by the Department of

Treasury and therefore impose no

addition burden.

Each M+C organization must make

the information reported to HCFA under

§ 422.502(f)(1) available to its enrollees

upon reasonable request. This burden

associated with this requirement is

imposed pursuant to the dissemination

of enrollment/disenrollment

information referenced in Subpart B of

this regulation.

Each organization must notify HCFA

of any loans or other special financial

arrangements it makes with contractors,

subcontractors and related entities.

The burden associate with these

requirements is currently captured

under form HCFA–906, OMB #0938–

0469. In the near future HCFA will

resubmit this collection to OMB for

approval for use by M+C organizations.

Change of Ownership (§ 422.550)

§ 422.550 is amended to require in

paragraph (b) that an M+C organization

must provide updated financial

information and a discussion of the

financial and solvency impact of the

change of ownership on the surviving
35062 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

organization. The burden associated

with these requirements, which is

estimated to take 10 hours per

respondent × 10 annual respondents, is

currently captured under National Data

Reporting Requirements, form HCFA–

906, OMB #0938–0469. In the near

future HCFA will resubmit this

collection to OMB for approval for use

by M+C organizations.

§ 422.562 General provisions.

An M+C organization, with respect to

each M+C plan that it offers, must

establish and maintain written

procedures related to; (1) the grievance

procedures as described in § 422.564, (2)

making timely organization

determinations, (3) an appeal process

that meets the requirements of this

Subpart for issues that involve

organization determinations.

In addition, an M+C organization

must ensure that all enrollees receive

written information about the grievance

and appeal procedures that are available

to them through the M+C organization

and complaint process available to the

enrollee under the PRO process as set

forth under section 1154(a)(14) of the

Act.

While we believe the initial burden

associated with meeting these

requirements is captured elsewhere in

this regulation, we solicit comment on

the ongoing burden associated with

maintaining and disseminating the

information requirements set forth in

this section.

Standard Timeframes and Notice

Requirements for Organization

Determinations (§ 422.568)

When a party has made a request for

a service, the M+C organization must

notify the enrollee of its determination

as expeditiously as the enrollee’s health

condition requires, but no later than 30

calendar days after the date the

organization receives the request for a

standard organization determination.

If an M+C organization decides to

deny service or payment in whole or in

part, it must give the enrollee written

notice of the determination.

The burden associated with this

requirement is discussed below in

§ 422.572.

Expediting Certain Organization

Determinations (§ 422.570)

To ask for an expedited

determination, an enrollee or a health

care professional must submit an oral or

written request directly to the M+C

organization or, if applicable, to the

entity responsible for making the

determination, as directed by the M+C

organization. A physician may provide

oral or written support for a request for

an expedited determination.

If an M+C organization denies a

request for expedited determination, it

must give the enrollee prompt oral

notice of the denial and follow up,

within 2 working days, with a written

letter that: (1) Explains that the M+C

organization will process the request

using the 30-calendar-day timeframe for

standard determinations, (2) informs the

enrollee of the right to file a grievance

if he or she disagrees with the M+C

organization’s decision not to expedite;

and (3) provides instructions about the

grievance process and its timeframes.

If an M+C organization grants a

request for expedited determination, it

must make the determination and give

notice in accordance with § 422.572.

The burden associated with this

requirement is discussed below in

§ 422.572.

Timeframes and Notice Requirements

for Expedited Organization

Determinations (§ 422.572)

Except as provided in paragraph (b) of

§ 422.572, an M+C organization that

approves a request for expedited

determination must make its

determination and notify the enrollee

(and the physician as warranted by the

patient’s medical condition or situation)

of its decision, whether adverse or

favorable, as expeditiously as the

enrollee’s health condition requires, but

not later than 72 hours after receiving

the request.

The M+C organization may extend the

72-hour deadline by up to 14 calendar

days if the enrollee requests the

extension or if the organization finds

that it needs additional information and

the delay is in the interest of the

enrollee (for example, the receipt of

additional medical evidence may

change an M+C organization’s decision

to deny). The M+C organization must

notify the enrollee of its determination

before or immediately upon expiration

of the extension.

If the M+C organization first notifies

an enrollee of its expedited

determination orally, it must mail

written confirmation to the enrollee

within 2 working days of the oral

notification.

Organizations that contract with

HCFA under the M+C program are

required to implement procedures for

making timely organization

determinations and for resolving

reconsiderations and other levels of

appeals with respect to these

determinations. In general, organization

determinations involve whether an

enrollee is entitled to receive a health

service or the amount the enrollee is

expected to pay for that service. A

reconsideration consists of a review of

an adverse organization determination

(a decision by an M+C organization that

is unfavorable to the M+C enrollee, in

whole or in part) by either the M+C

organization itself or an independent

review entity. We use the term ‘‘appeal’’

to denote any of the procedures that

deal with the review of organization

determinations, including

reconsiderations, hearings before

administrative law judges (ALJs),

reviews by the Departmental Appeals

Board (DAB) and judicial review. As

discussed in detail in section II.M of

this preamble, the organization

determination and appeal requirements

for M+C organizations that are set forth

in this interim final rule are largely

based on the existing rules for managed

care organizations under Part 417,

Subpart Q, Beneficiary Appeals.

Sections 422.568, 422.570, and

422.572 contain the applicable

requirements for initial organization

determinations, which include

submission of an oral or written request

from an enrollee, and notification

procedures that the M+C organization

must follow when it makes a

determination. We estimate that

approximately 20 percent of the

approximately 1 million M+C enrollees

may make a request for an organization

determination in a year, with an

estimated burden of 2 minutes per

request. Estimated notification burden

associated with these requests is 5

minutes per request. The total overall

annual burden for enrollee requests and

organizational notification burden is

33,333 hours and 83,333 hours

respectively.

Request for a Standard Reconsideration

(§ 422.582)

A party to an organization

determination must ask for a

reconsideration of the determination by

filing a written request with: (1) The

M+C organization that made the

organization determination; (2) an SSA

office; or (3) in the case of a qualified

railroad retirement beneficiary, an RRB

office.

If the 60-day period in which to file

a request for a reconsideration has

expired, a party to the organization

determination may file a request for

reconsideration with the M+C

organization, SSA, or an RRB office. If

SSA or RRB receives a request, it

forwards the request to the M+C

organization for its reconsideration. The

request for reconsideration and to

extend the timeframe must: (1) Be in

writing; and( 2) state why the request for

reconsideration was not filed on time.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35063

The party who files a request for

reconsideration may withdraw it by

filing a written request for withdrawal at

one of the places listed in paragraph (a)

of this section.

The burden associated with this

requirement is discussed below in

§ 422.602.

Expediting Certain Reconsiderations

(§ 422.584)

To ask for an expedited

reconsideration, an enrollee or a health

care professional (on behalf of an

enrollee) must submit an oral or written

request directly to the M+C organization

or, if applicable, to the entity

responsible for making the

reconsideration, as directed by the M+C

organization. A physician may provide

oral or written support for a request for

an expedited reconsideration.

If an M+C organization denies a

request for expedited reconsideration, it

must take the following actions: (1)

Automatically transfer a request to the

standard timeframe and make the

determination within the 45-day

timeframe established in § 422.590(a);

(2) give the enrollee prompt oral notice,

and follow up, within 2 working days,

with a written letter that—(i) Explains

that the M+C organization will process

the enrollee’s request using the 45-day

timeframe for standard reconsiderations,

(ii) informs the enrollee of the right to

file a grievance if he or she disagrees

with the organization’s decision not to

expedite, and (iii) provides instructions

about the grievance process and its

timeframes.

If an M+C organization grants a

request for expedited reconsideration, it

must conduct the reconsideration and

give notice in accordance with

§ 422.590(d).

The burden associated with this

requirement is discussed below in

§ 422.602.

Timeframes and Responsibility for

Reconsiderations (422.590)

If the M+C organization makes a

reconsidered determination that affirms,

in whole or in part, its adverse

organization determination, it must

prepare a written explanation and send

the case file to the independent entity

contracted by HCFA as expeditiously as

the enrollee’s health condition requires,

but no later than 45 calendar days from

the date it receives the request for a

standard reconsideration. The

organization must make reasonable and

diligent efforts to assist in gathering and

forwarding information to the

independent entity.

If the M+C organization affirms, in

whole or in part, its adverse

organization determination, it must

prepare a written explanation and send

the case file to the independent entity

contracted by HCFA no later than 60

calendar days from the date it receives

the request for a standard

reconsideration. The organization must

make reasonable and diligent efforts to

assist in gathering and forwarding

information to the independent entity.

If the M+C organization fails to

provide the enrollee with a reconsidered

determination within the timeframes

specified in paragraph (a) or paragraph

(b) of this section, or to obtain a good

cause extension described in paragraph

(e) of this section, this failure

constitutes an affirmation of its adverse

organization determination, and the

M+C organization must submit the file

to the independent entity in the same

manner as described under paragraphs

(a)(2) and (b)(2) of this section.

The M+C organization may extend the

72-hour deadline by up to 14 calendar

days if the enrollee requests the

extension or if the organization finds

that it needs additional information and

the delay is in the interest of the

enrollee (for example, the receipt of

additional medical evidence may

change an M+C organization’s decision

to deny). The M+C organization must

notify the enrollee of its determination

before or immediately upon expiration

of the extension.

If the M+C organization first notifies

an enrollee orally of a completely

favorable expedited reconsideration, it

must mail written confirmation to the

enrollee within 2 working days.

If, as a result of its reconsideration,

the M+C organization affirms, in whole

or in part, its adverse expedited

organization determination, the M+C

organization must submit a written

explanation and the case file to the

independent entity contracted by HCFA

within 24 hours. The organization must

make reasonable and diligent efforts to

assist in gathering and forwarding

information to the independent entity.

If the M+C organization refers the

matter to the independent entity as

described under this section, it must

concurrently notify the enrollee of that

action.

If the M+C organization fails to

provide the enrollee with the results of

its reconsideration within the timeframe

described in paragraph (d) of this

section, this failure constitutes an

adverse reconsidered determination,

and the M+C organization must submit

the file to the independent entity within

24 hours of expiration of the timeframe

set forth in paragraph (d) of this section.

The burden associated with this

requirement is discussed below in

§ 422.602.

Notice of Reconsidered Determination

by the Independent Entity (§ 422.594)

When the independent entity makes

the reconsidered determination, it is

responsible for mailing a notice of its

reconsidered determination to the

parties and for sending a copy to HCFA.

See discussion below.

Request for an ALJ Hearing (§ 422.602)

A party must file a written request for

a hearing at one of the places listed in

§ 422.582(a) or with the independent,

outside entity. The organizations listed

in § 422.582(a) forward the request to

the independent, outside entity, which

is responsible for transferring the case to

the appropriate ALJ hearing office.

Sections 422.582, 422.584, and

422.590 contain the applicable

requirements for reconsiderations by an

M+C organization of adverse

organization determinations. The

required procedures generally involve a

written request from an enrollee,

preparation of a brief written

explanation and case file by the M+C

organization, and notification of the

decision by the M+C organization. Only

about 0.5 percent of organization

determinations, [that is, about 20,000

cases per year], ever reach the

reconsideration stage. For these cases,

we estimate a burden on the requesting

enrollee of approximately 20 minutes

per case and a burden on the M+C

organization of approximately 4 hours,

including both information collection

and notification. Note that § 422.590

specifies that if an M+C organization

affirms, in whole or in part, its adverse

organization determination, it must

forward the case to an independent

entity contracted by HCFA for further

review. We estimate that approximately

50 percent (10,000) of reconsidered

cases result in a decision that is adverse

to the enrollee, and thus review by the

independent entity. For these cases, we

estimate an additional burden on the

M+C organization of approximately 2

hours per case. Thus, the estimated total

annual burden on M+C organizations

associated with reconsiderations is

100,000 hours (4 hours times 20,000

cases plus 2 hours times 10,000 cases).

About 30 percent of reconsideration

requests that reach the independent

entity level are resolved fully in favor of

the enrollee. For the other 7,000 cases,

an enrollee may pursue additional

appeals, beginning with an appeal to an

ALJ. Only about 10 percent of these

cases are appealed to the ALJ, and for

these 700 cases, we estimate an
35064 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

incremental burden of 20 minutes on

the enrollee to make the request for an

appeal under § 422.602, and 2 hours on

the M+C organization for additional

information collection associated with

the appeal. Finally, under §§ 422.608

and 422.612, enrollees or M+C

organizations may appeal ALJ decisions

to the Departmental Appeal Board, and

subsequently request judicial review.

We would estimate an incremental

burden of an additional 2 to 4 hours per

case, with only about 20 DAB cases and

10 judicial review cases per year.

How M+C Organizations Must Notify

Enrollees of Noncoverage of Inpatient

Hospital Care (§ 422.620)

The M+C organization must give the

enrollee written notice that includes the

following: (1) The reason why inpatient

hospital care is no longer needed, (2) the

effective date of the enrollee’s liability

for continued inpatient care, and (3) the

enrollee’s appeal rights. If the M+C

organization allows the hospital to

determine whether inpatient care is

necessary, the hospital obtains the

concurrence of the contracting

physician responsible for the enrollee’s

hospital care or of another physician as

authorized by the M+C organization,

and notifies the enrollee, following the

procedures set forth in § 412.42(c)(3) of

this chapter.

The burden associated with this

requirement is discussed below in

§ 422.622.

Requesting Immediate PRO Review of

Noncoverage of Inpatient Hospital Care

(§ 422.622)

For the immediate PRO review

process, the enrollee must submit the

request for immediate review in writing

or by telephone to the PRO that has an

agreement with the hospital under

§ 466.78 of this chapter by noon of the

first working day after he or she receives

written notice that the M+C

organization or hospital has determined

that the hospital stay is no longer

necessary.

Under § 422.620, an M+C organization

is required to provide an M+C enrollee,

before a hospital discharge, with a

written notice of noncoverage if it

decides that inpatient care is no longer

necessary. Section 422.622 provides the

procedures that are to be followed if an

enrollee by the enrollee and the M+C

organization if the enrollee wishes to

request PRO review of the M+C

organization’s decision. We estimate

that there will be no more than 1,000 of

these type of cases per year under the

M+C program. We estimate that the

reporting burden for an M+C

organization to provide written notice of

noncoverage to be approximately 10

minutes per notice; for an M+C enrollee

to complete a request for immediate

PRO review to be approximately 10

minutes per request; and for the M+C

organization to submit requested

medical information to the PRO, to be

approximately 2 hours per response.

In response to a request from the M+C

organization, the hospital must submit

medical records and other pertinent

information to the PRO by close of

business of the first full working day

immediately following the day the

organization makes its request.

Given that this requirement is

imposed pursuant to an administrative

action against an organization, this

requirement is not subject to the PRA as

defined in 5 CFR 1320.4.

Request for Reconsideration (§ 422.650)

A request for reconsideration must be

made in writing and filed with any

HCFA office within 15 days from the

date of the notice of the initial

determination. Based upon current

experience this requirement is imposed

pursuant to an administrative action

against fewer than 10 organizations on

an annual basis. Therefore, these

requirements are not subject to the PRA

as defined in 5 CFR 1320.3(c) and 5 CFR

1320.4.

The M+C organization or M+C

contract applicant who filed the request

for a reconsideration may withdraw it at

any time before the notice of the

reconsidered determination is mailed.

The request for withdrawal must be in

writing and filed with HCFA. Based

upon current experience this

requirement is imposed pursuant to an

administrative action against fewer than

10 organizations on an annual basis.

Therefore, these requirements are not

subject to the PRA as defined in 5 CFR

1320.3(c) and 5 CFR 1320.4.

Request for Hearing (§ 422.662)

A request for a hearing must be made

in writing and filed by an authorized

official of the applicant entity or M+C

organization that was the party to the

determination under appeal. The

request for a hearing must be filed with

any HCFA office within 15 days after

the date of receipt of the notice of initial

or reconsidered determination.

Based upon current experience this

requirement is imposed pursuant to an

administrative action against fewer than

10 organizations on an annual basis.

Therefore, these requirements are not

subject to the PRA as defined in 5 CFR

1320.3(c) and 5 CFR 1320.4.

Disqualification of Hearing Officer

(§ 422.668)

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.

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 HCFA.

Based upon current experience these

requirements are imposed pursuant to

an administrative action against fewer

than 10 organizations on an annual

basis. Therefore, these requirements are

not subject to the PRA as defined in 5

CFR 1320.3(c) and 5 CFR 1320.4.

Time and Place of Hearing (§ 422.670)

The hearing officer fixes a time and

place for the hearing, which is not to

exceed 30 days from the receipt of the

request for the hearing, and sends

written notice to the parties. The notice

also informs the parties of the general

and specific issues to be resolved and

information about the hearing

procedure.

Based upon current experience these

requirements are imposed pursuant to

an administrative action against fewer

than 10 organizations on an annual

basis. Therefore, these requirements are

not subject to the PRA as defined in 5

CFR 1320.3(c) and 5 CFR 1320.4.

Record of Hearing (§ 422.686)

A complete record of the proceedings

at the hearing is made and transcribed

and made available to all parties upon

request. Based upon current experience

these requirements are imposed

pursuant to an administrative action

against fewer than 10 organizations on

an annual basis. Therefore, these

requirements are not subject to the PRA

as defined in 5 CFR 1320.3(c) and 5 CFR

1320.4.

Notice and Effect of Hearing Decision

(§ 422.690)

As soon as practical after the close of

the hearing, the hearing officer issues a

written decision that: (1) Is based upon

the evidence of record, and (2) contains

separately numbered findings of fact

and conclusions of law. And, the

hearing officer provides a copy of the

hearing decision to each party. Based

upon current experience these

requirements are imposed pursuant to

an administrative action against fewer

than 10 organizations on an annual

basis. Therefore, these requirements are
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35065

not subject to the PRA as defined in 5

CFR 1320.3(c) and 5 CFR 1320.4.

Effect of Revised Determination

(§ 422.698)

The revision of an initial or

reconsidered determination is binding

unless a party files a written request for

hearing of the revised determination in

accordance with § 422.662. Based upon

current experience these requirements

are imposed pursuant to an

administrative action against fewer than

10 organizations on an annual basis.

Therefore, these requirements are not

subject to the PRA as defined in 5 CFR

1320.3(c) and 5 CFR 1320.4.

As a note, the public will be afforded

several subsequent comment periods in

future publications of Federal Register

notices announcing our intention to

seek OMB approval of standardized

information collection requirements

such as the ACR and contractor

application forms that will be submitted

to OMB in the near future.

We have submitted a copy of this rule

to OMB for its review of the information

collection requirements above. To

obtain copies of the supporting

statement for these collection

requirements and any currently

approved forms that are related to the

proposed paperwork collections

referenced above, E-mail your request,

including your address, phone number

and HCFA regulation identifier HCFA–

1011, to Paperwork@hcfa.gov, or call the

Reports Clearance Office on (410) 786–

1326.

As noted above, comments on these

information collection and record

keeping requirements must be mailed

and/or faxed to the designee referenced

below, within ten working days of

publication of this collection in the

Federal Register:

Health Care Financing Administration,

Office of Information Services,

Information Technology Investment

Management Group, Division of

HCFA Enterprise Standards, Room

C2–26–17, 7500 Security Boulevard,

Baltimore, MD 21244–1850, Attn:

John Burke HCFA–1030, Fax Number:

(410) 786–1415

And

Office of Information and Regulatory

Affairs, Office of Management and

Budget, Room 10235, New Executive

Office Building, Washington, DC

20503, Attn: Allison Herron Eydt,

HCFA Desk Officer, Fax Number:

(202) 395–6974 or (202) 395–5167

VII. Responses to Comments

Because of the large number of items

of correspondence we normally receive

on a rule, we are not able to

acknowledge or respond to them

individually. We will, however,

consider all comments that we receive

by the date specified in the DATES

section of this preamble, and, if we

proceed with a subsequent document,

we will respond to the comments in that

document.

VIII. Waiver of Proposed Rulemaking

and Waiver of Delayed Effective Date

Because the Secretary is exercising

discretion in implementing sections

1851 through 1857 and section 1859 of

the Act, ordinarily we would publish a

notice of proposed rulemaking and

afford a period for public comments.

Further, we generally provide for final

rules to be effective no sooner than 30

days after the date of publication unless

we find good cause to waive the delay.

However, section 1856(b)(1) of the Act

requires that these regulations be

published by June 1, 1998, and provides

that in order to carry out this

requirement we may promulgate

regulations that take effect on an interim

basis, after notice and pending

opportunity for public comment.

On January 20, 1998, we published a

notice in the Federal Register in which

we requested public comments on the

implementation of the M+C program.

We received approximately 90 items of

correspondence in response to that

notice. Further, on February 4, 1998, we

held a public meeting to discuss issues

and concerns from plans, providers,

beneficiaries, and other interested

parties on the requirements and

implementation of the Medicare+Choice

program. Approximately 600

individuals representing managed care

organizations, local governmental

agencies, and advocacy groups attended

that meeting.

Because of the need to publish

regulations timely and in light of the

fact that we previously provided

opportunity for public comment, we

find good cause to waive the notice of

proposed rulemaking and to issue this

final rule on an interim basis. We are

providing a 90-day comment period for

public comment. We also find good

cause to waive the delay in the effective

date of this rule.

IX. Effect of the Contract With America

Advancement Act of 1996 (Public Law

104–121)

This rule has been determined to be

a major rule as defined in Title 5,

United States Code, section 804(2).

Ordinarily under 5 U.S.C. 801, as added

by section 251 of Public Law 104–121,

a major rule shall take effect 60 days

after the later of (1) the date a report on

the rule is submitted to the Congress, or

(2) the date the rule is published in the

Federal Register. However, section

808(2) of Title 5, United States Code,

provides that, notwithstanding 5 U.S.C.

801, a major rule shall take effect at

such time as the Federal agency

determines if for good cause the agency

finds that notice and comment

procedures are impracticable,

unnecessary, or contrary to the public

interest. As explained above, for good

cause we find that it was impracticable,

unnecessary, or contrary to the public

interest to complete notice and

comment procedures before publication

of this rule. Accordingly, pursuant to 5

U.S.C. 808(2), these regulations are

effective on July 27, 1998.

BILLING CODE 4120–01–P

42 CFR Chapter IV is amended as set

forth below.

A. Part 400

PART 400—INTRODUCTION;

DEFINITIONS

1. The authority citation for part 400

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh) and 44 U.S.C. chapter 35.

2. In § 400.200, the definition for

‘‘PRO’’ is revised and the following

definitions are added in alphabetical

order to read as follows.

§ 400.200 General definitions.

* * * * *

ALJ stands for administrative law

judge.

* * * * *

NCD stands for national coverage

determination.

* * * * *

Peer review organization means an

organization that has a contract with

HCFA, under part B of title XI of the

Act, to perform utilization and quality

control review of the health care

furnished, or to be furnished, to

Medicare beneficiaries.

PRO stands for peer review

organization.

* * * * *

RRB stands for Railroad Retirement

Board.

* * * * *

3. In § 400.202 a definition of

‘‘national coverage determination’’ is

added in alphabetical order to read as

follows.

§ 400.202 Definitions specific to Medicare.

* * * * *

National coverage determination

(NCD) means a national policy

determination regarding the coverage

status of a particular service, that HCFA
35066 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

makes under section 1862(a)(1) of the

Act, and publishes as a Federal Register

notice or HCFA Ruling. (The term does

not include coverage changes mandated

by statute.)

* * * * *

B. Part 403

PART 403—SPECIAL PROGRAMS AND

PROJECTS

1. The authority citation for part 403

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh).

2. In § 403.205, paragraph (d)

introductory text is revised to read as

follows:

§ 403.205 Medicare supplemental policy.

* * * * *

(d) Medicare supplemental policy

does not include a Medicare+Choice

plan or any of the following health

insurance policies or health benefit

plans:

* * * * *

C. Part 410

PART 410—SUPPLEMENTARY

MEDICAL INSURANCE (SMI)

BENEFITS

1. The authority citation for part 410

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh).

2. Part 410 is amended as set forth

below.

a. Section 410.57 is revised to read as

follows:

§ 410.57 Pneumococcal vaccine and flu

vaccine.

(a) Medicare Part B pays for

pneumococcal vaccine and its

administration when reasonable and

necessary for the prevention of disease,

if the vaccine is ordered by a doctor of

medicine or osteopathy.

(b) Medicare Part B pays for the

influenza virus vaccine and its

administration.

b. Section 410.152 is amended to add

a paragraph (1) to read as follows:

§ 410.152 Amounts of Payment.

* * * * *

(1) Amount of payment: Flu vaccine.

Medicare Part B pays 100 percent of the

Medicare allowed charge.

D. Part 411

PART 411—EXCLUSIONS FROM

MEDICARE AND LIMITATIONS ON

MEDICARE PAYMENT

1. The authority citation for part 411

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

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

1395hh).

§ 411.15 [Amended]

2. In § 411.15, in paragraph (e), the

following changes are made:

a. The ‘‘and’’ at the end of paragraph

(e)(2) is removed.

b. A semicolon and the word ‘‘and’’

are added at the end of paragraph (e)(3).

c. A new paragraph (e)(4) is added, to

read as follows:

§ 411.15 Particular services excluded from

coverage.

* * * * *

(e) * * *

(4) Influenza vaccinations that are

reasonable and necessary for the

prevention of illness.

* * * * *

3. In § 411.355, a new paragraph (c)(5)

is added, to read as follows:

§ 411.355 General exceptions to referral

prohibitions related to both ownership/

investment and compensation.

* * * * *

(c) * * *

(5) A coordinated care plan (within

the meaning of section 1851(a)(2)(A) of

the Act) offered by an organization in

accordance with a contract with HCFA

under section 1857 of the Act and part

422 of this chapter.

* * * * *

E. Part 417

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: Secs. 1102 and 1871 of the

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

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

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

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

2. Section 417.402 is revised to read

as follows:

§ 417.402 Effective date of initial

regulations.

(a) The changes made to section 1876

of the Act by section 114 of the Tax

Equity and Fiscal Responsibility Act of

1982 became effective on February 1,

1985, the effective date of the initial

implementing regulations.

(b) The changes made to section 1876

of the Act by section 4002 of the

Balanced Budget Act (BBA) of 1997 are

incorporated in section 422 except for

1876 cost contracts. Upon enactment of

the BBA (August 5, 1997) no new cost

contracts or service area expansions are

accepted by HCFA except for current

Health Care Prepayment Plans that may

convert to 1876 cost contracts. Also,

1876 cost contracts may not be extended

or renewed beyond December 31, 2002.

3. In § 417.413, paragraphs (d)(1) and

(d)(2) introductory text are revised and

new paragraphs (d)(2) (iii) and (d)(8) are

added to read as follows:

§ 417.413 Qualifying condition: Operating

experience and enrollment.

* * * * *

(d) Standard: Composition of

enrollment. (1) Requirement. Except as

specified in paragraphs (d)(2) and (e) of

this section, not more than 50 percent

of an HMO’s or CMP’s enrollment may

be Medicare beneficiaries.

(2) Waiver of composition of

enrollment standard. HCFA may waive

compliance with the requirements of

paragraph (d)(1) of this section if the

HMO or CMP has made and is making

reasonable efforts to enroll individuals

who are not Medicare beneficiaries and

it meets one of the following

requirements:

* * * * *

(iii) The HMO or CMP requests waiver

of the composition rule because it is in

the public interest. The organization

provides documentation that supports

one of the following:

(A) The organization serves a

medically underserved rural or urban

area.

(B) The organization demonstrates a

long-term business and community

service commitment to the area.

(C) The organization believes that a

waiver is necessary to promote managed

care choices in an area with limited or

no managed care choices.

* * * * *

(8) Termination of composition

standard. The 50 percent composition

of Medicare beneficiaries terminates for

all managed care plans on December 31,

1998.

* * * * *

4. In § 417.426, a new paragraph (a)(4)

is added to read as follows:

§ 417.426 Open enrollment requirements.

(a) Basic requirements. * * *

(4) An HMO or CMP with a risk

contract must accept applications from

eligible Medicare beneficiaries during

the month of November 1998.

* * * * *

5. Section 417.428 is revised to read

as follows:
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35067

§ 417.428 Marketing activities.

The requirements and prohibitions set

forth in § 422.80 of this chapter, for

M+C organizations, apply also to HMOs

and CMPs with contracts under section

1876 of the Act.

6. In § 417.472, paragraph (h) is

revised to read as follows:

§ 417.472 Basic contract requirements.

* * * * *

(h) Collection of fees from risk HMOs

and CMPs. (1) The rules set forth in

§ 422.10 of this chapter for M+C plans

also apply to collection of fees from risk

HMOs and CMPs.

(2) In applying the part 422 rules,

references to ‘‘M+C organizations’’ or

‘‘M+C plans’’ must be read as references

to ‘‘risk HMOs and CMPs’’.

Subpart M—[Amended]

7. Sections 417.520, 417.522 and

417.523 of subpart M are redesignated

as §§ 422.550, 422.522 and 422.553 in a

new subpart L in part 422, and the

heading for the new subpart L to part 44

is added to read ‘‘Change of Ownership

and Leasing of Facilities: Effect on

Medicare Contract, under part 422,

Medicare+Choice Program’’.

8. A new § 417.520 is added to

subpart M to read as follows:

§ 417.520 Effect on HMO and CMP

contracts.

(a) The provisions set forth in subpart

L of part 422 of this chapter also apply

to Medicare contracts with HMOs and

CMPs under section 1876 of the Act.

(b) In applying these provisions,

references to ‘‘M+C organizations’’ must

be read as references to ‘‘HMOs and

CMPs’’.

(c) In § 422.550, reference to ‘‘subpart

K of this part’’ must be read as reference

to ‘‘subpart L of part 417 of this

chapter’’.

(d) In § 422.553, reference to ‘‘subpart

K of this part’’ must be read as reference

to ‘‘subpart J of part 417 of this

chapter’’.

9. In § 417.584, a new paragraph (e) is

added to read as follows:

§ 417.584 Payment to HMOs or CMPs with

risk contracts.

* * * * *

(e) Determination of rate for calendar

year 1998. For calendar year 1998,

HMOs or CMPs with risk contracts will

be paid in accordance with principles

contained in subpart F of part 422 of

this chapter.

Subpart Q—[Amended]

10. In subpart Q, §§ 417.600 through

417.638 are removed.

11. A new § 417.600 is added to

subpart Q as follows:

§ 417.600 Beneficiary appeals and

grievances.

(a) The rights, procedures, and

requirements relating to beneficiary

appeals and grievances set forth in

subpart M 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 section 1852 of the Act

must be read as references to section

1876 of the Act; and references to M+C

organizations as references to HMOs

and CMPs.

12. In § 417.800 paragraph (a)

introductory text is republished and the

definition for ‘‘Health care prepayment

plan’’ is revised to read as follows:

§ 417.800 Payment to HCPPs: Definitions

and basic rules.

(a) Definitions: As used in this

subpart, unless the context indicates

otherwise—

* * * * *

Health care prepayment plan (HCPP)

means an organization that—

(1) Is union or employer sponsored;

(2) Does not provide, or arrange for

the provision of any in patient hospital

services. Current HCPPs must meet this

definition on January 1, 1999 and 1998

applicants must meet the definitions as

of the effective date of the HCPP

agreement. As of January 1, 1999,

HCPPs are not required to meet Medigap

requirements.

(3) Is responsible for the organization,

financing and delivery of covered Part B

services to a defined population on a

prepayment basis;

(4) Meets the conditions specified in

paragraph (b) of this section; and

(5) Elects to be reimbursed on a

reasonable cost basis.

* * * * *

BILLING CODE 4120–01–M

F. Part 422

PART 422—MEDICARE+CHOICE

PROGRAM

1. The authority citation continues to

read as follows:

Authority: Secs. 1102, 1851 through 1857,

1859, and 1871 of the Social Security Act (42

U.S.C. 1302, 1395w–21 through 1395w–27,

and 1395hh).

2. Subparts A through G are added as

follows:

Subpart A—General Provisions

Sec.

422.1 Basis and scope.

422.2 Definitions.

422.4 Types of M+C plans.

422.6 Application requirements.

422.8 Evaluation and determination

procedures.

422.10 Cost-sharing in enrollment-related

costs.

Subpart B—Eligibility, Election, and

Enrollment

422.50 Eligibility to elect an M+C plan.

422.54 Continuation of enrollment

422.56 Limitations on enrollment in an

M+C MSA plan.

422.57 Limited enrollment under M+C RFB

plans.

422.60 Election process

422.62 Election of coverage under an M+C

plan.

422.64 Information about the M+C program.

422.66 Coordination of enrollment and

disenrollment through M+C

organizations.

422.68 Effective dates of coverage and

change of coverage.

422.74 Disenrollment by the M+C

organization.

422.80 Approval of marketing materials and

application forms.

Subpart C—Benefits and Beneficiary

Protections

422.100 General requirements.

422.101 Requirements relating to basic

benefits.

422.102 Supplemental benefits.

422.103 Benefits under an M+C MSA plan.

422.104 Special rules for supplemental

benefits for M+C MSA plans.

422.105 Special rules for point of service

option.

422.106 Special arrangements with

employer groups.

422.108 Medicare secondary payer (MSP)

procedures.

422.109 Effect of national coverage

determinations (NCDs).

422.110 Discrimination against

beneficiaries prohibited.

422.111 Disclosure requirements.

422.112 Access to services.

422.114 Access to services under an M+C

private fee-for-service plan.

422.118 Confidentiality and accuracy of

enrollee records.

422.128 Information on advance directives.

422.132 Protection against liability and loss

of benefits.

Subpart D—Quality Assurance

422.152 Quality assessment and

performance improvement program.

422.154 External review.

422.156 Compliance deemed on the basis of

accreditation.

422.157 Accreditation organizations.

422.158 Procedures for approval of

accreditation as a basis for deeming

compliance.

Subpart E—Relationships With Providers

422.200 Basis and scope.

422.202 Participation procedures.

422.204 Provider credentialing and

provider rights.

422.206 Interference with health care

professionals’ advice to enrollees

prohibited.
35068 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

422.208 Physician incentive plans:

requirements and limitations.

422.210 Disclosure of physician incentive

plans

422.212 Limitations on provider

indemnification.

422.214 Special rules for services furnished

by noncontract providers.

422.216 Special rules for M+C fee-forservice plans.

422.220 Exclusion of services furnished

under a private contract.

Subpart F—Payments to Medicare+Choice

Organizations

422.249 Terminology

422.250 General provisions.

422.252 Annual capitation rates.

422.254 Calculation and adjustment factors.

422.256 Adjustments to capitation rates and

aggregate payments.

422.257 Encounter data.

422.258 Announcement of annual

capitation rates and methodology

changes.

422.262 Special rules for beneficiaries

enrolled in M+C MSA plans.

422.264 Special rules for coverage that

begins or ends during an inpatient

hospital stay.

422.266 Special rules for hospice care.

422.268 Source of payment and effect of

election of the M+C plan election on

payment.

Subpart G—Premiums and Cost-Sharing

422.300 Basis and scope.

422.302 Terminology.

422.304 Rules governing premiums and

cost-sharing.

422.306 Submission of proposed premiums

and related information.

422.308 Limits on premiums and costsharing amounts.

422.309 Incorrect collections of premiums

and cost-sharing.

422.310 Adjusted community rate (ACR)

approval process.

422.312 Requirement for additional

benefits.

Subpart A—General Provisions

§ 422.1 Basis and scope.

(a) Basis. This part is based on the

indicated provisions of the following

sections of the Act:

1851—Eligibility, election, and enrollment.

1852—Benefits and beneficiary protections.

1853—Payments to Medicare+Choice (M+C)

organizations.

1854—Premiums.

1855—Organization, licensure, and solvency

of M+C organizations.

1856—Standards.

1857—Contract requirements.

1859—Definitions; enrollment restriction for

certain M+C plans.

(b) Scope. This part establishes

standards and sets forth the

requirements, limitations, and

procedures for Medicare services

furnished, or paid for, by

Medicare+Choice organizations through

Medicare+Choice plans.

§ 422.2 Definitions.

As used in this part—

ACR stands for adjusted community

rate.

Additional benefits are health care

services not covered by Medicare, and

reductions in premiums or cost-sharing

for Medicare covered services, funded

from adjusted excess amounts as

calculated in the ACR.

Adjusted community rate (ACR) is the

equivalent of the maximum amount

allowed under § 422.310.

Arrangement means a written

agreement between an M+C

organization and a provider or provider

network, under which—

(1) The provider or provider network

agrees to furnish for a specific M+C

plan(s) specified services to the

organization’s M+C enrollees;

(2) The organization retains

responsibilities for the services; and

(3) Medicare payment to the

organization discharges the enrollee’s

obligation to pay for the services.

Balance billing generally refers to an

amount billed by a provider that

represents the difference between the

amount the provider charges an

individual for a service and the sum of

the amount the individual’s health

insurer (for example, the original

Medicare program) will pay for the

service plus any cost-sharing by the

individual.

Basic benefits means all Medicarecovered benefits, except hospice

services, and additional benefits.

Benefits are health care services that

are intended to maintain or improve the

health status of enrollees, for which the

M+C organization incurs a cost or

liability under an M+C plan, and that

are approved in the Benefit/ACR

process.

Coinsurance is a fixed percentage of

the total amount paid for a health care

service that can be charged to an M+C

enrollee on a per-service basis.

Copayment is a fixed amount that can

be charged to an M+C plan enrollee on

a per-service basis.

Cost-sharing includes deductibles,

coinsurance, and copayments.

Emergency medical condition means a

medical condition manifesting itself by

acute symptoms of sufficient severity

(including severe pain) such that a

prudent layperson, with an average

knowledge of health and medicine,

could reasonably expect the absence of

immediate medical attention to result

in—

(1) Serious jeopardy to the health of

the individual or, in the case of a

pregnant woman, the health of the

woman or her unborn child;

(2) Serious impairment to bodily

functions; or

(3) Serious dysfunction of any bodily

organ or part.

Emergency services means covered

inpatient and outpatient services that

are—

(1) Furnished by a provider qualified

to furnish emergency services; and

(2) Needed to evaluate or stabilize an

emergency medical condition.

Licensed by the State as a risk-bearing

entity means the entity is licensed or

otherwise authorized by the State to

assume risk for offering health

insurance or health benefits coverage,

such that the entity is authorized to

accept prepaid capitation for providing,

arranging, or paying for comprehensive

health services under an M+C contract.

M+C stands for Medicare+Choice.

M+C eligible individual means an

individual who meets the requirements

of § 422.50.

M+C organization means a public or

private entity organized and licensed by

a State as a risk-bearing entity (with the

exception of provider-sponsored

organizations receiving waivers) that is

certified by HCFA as meeting the M+C

contract requirements.

M+C plan means health benefits

coverage offered under a policy or

contract by an M+C organization that

includes a specific set of health benefits

offered at a uniform premium and

uniform level of cost-sharing to all

Medicare beneficiaries residing in the

service area of the M+C plan.

M+C plan enrollee is an M+C eligible

individual who has elected an M+C

plan offered by an M+C organization.

Mandatory supplemental benefits are

services not covered by Medicare that

an M+C enrollee must purchase as part

of an M+C plan that are paid for directly

by (or on behalf of) Medicare enrollees,

in the form of premiums or cost-sharing.

MSA stands for medical savings

account.

MSA trustee means a person or

business with which an enrollee

establishes an M+C MSA. A trustee may

be a bank, an insurance company, or

any other entity that—

(1) Is approved by the Internal

Revenue Service to be a trustee or

custodian of an individual retirement

account (IRA); and

(2) Meets the requirements of

§ 422.262(b).

Original Medicare means health

insurance available under Medicare Part

A and Part B through the traditional feefor service payment system.

Optional supplemental benefits

means health benefits normally not

covered by Medicare purchased at the

option of the M+C enrollee and that are
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35069

paid for directly by (or on behalf of) the

Medicare enrollee, in the form of

premiums or cost-sharing. These

services may be grouped or offered

individually.

Point of service (POS) is a benefit

option that an M+C coordinated care

plan can offer to its Medicare enrollees

as an additional, mandatory

supplemental, or optional supplemental

benefit. Under the POS benefit option,

the M+C plan allows members the

option of receiving specified services

outside of the M+C plan’s provider

network. In return for this flexibility,

members typically have higher costsharing requirements for services

received and, where offered as a

mandatory or optional supplemental

benefit, may also be charged a premium

for the POS benefit option.

Provider means—

(1) Any individual who is engaged in

the delivery of health care services in a

State and is licensed or certified by the

State to engage in that activity in the

State; and

(2) Any entity that is engaged in the

delivery of health care services in a

State and is licensed or certified to

deliver those services if such licensing

or certification is required by State law

or regulation.

Provider network means the providers

with which an M+C organization

contracts or makes arrangements to

furnish covered health care services to

Medicare enrollees under an M+C

coordinated care or network MSA plan.

Religious and Fraternal (RFB) Society

means an organization that—

(1) Is described in section 501(c)(8) of

the Internal Revenue Code of 1986 and

is exempt from taxation under section

501(a) of that Act; and

(2) Is affiliated with, carries out the

tenets of, and shares a religious bond

with, a church or convention or

association of churches or an affiliated

group of churches.

RFB plan means a coordinated care

plan that is offered by an RFB society.

Service area means a geographic area

approved by HCFA within which an

M+C eligible individual may enroll in a

particular M+C plan offered by the

organization. For coordinated care plans

and network medical savings account

(MSA) plans only, the service area also

is the area within which a network of

providers exists that meets the access

standards in § 422.112. The service area

also defines the area where a uniform

benefit package is offered. In deciding

whether to approve a service area

proposed by an M+C organization for an

M+C plan, HCFA considers the M+C

organization’s commercial service area

for the type of plan in question (if

applicable), community practices

generally, whether the boundaries of the

service area are discriminatory in effect,

and, in the case of coordinated care and

network MSA plans, the adequacy of the

provider network in the proposed

service area. HCFA may approve single

county M+C non-network MSA plans

even if the M+C organization has a

different commercial service area.

Urgently needed services means

covered services provided when an

enrollee is temporarily absent from the

M+C plan’s service (or, if applicable,

continuation) area (or, under unusual

and extraordinary circumstances,

provided when the enrollee is in the

service or continuation area but the

organization’s provider network is

temporarily unavailable or inaccessible)

when such services are medically

necessary and immediately required—

(1) As a result of an unforeseen

illness, injury, or condition; and

(2) It was not reasonable given the

circumstances to obtain the services

through the organization offering the

M+C plan.

§ 422.4 Types of M+C plans.

(a) General rule. An M+C plan may be

a coordinated care plan, a combination

of an M+C MSA plan and a contribution

into an M+C MSA established in

accordance with § 422.262, or an M+C

private fee-for-service plan.

(1) A coordinated care plan. A

coordinated care plan is a plan that

includes a network of providers that are

under contract or arrangement with the

organization to deliver the benefit

package approved by HCFA.

(i) The network is approved by HCFA

to ensure that all applicable

requirements are met, including access

and availability, service area, and

quality.

(ii) Coordinated care plans may

include mechanisms to control

utilization, such as referrals from a

gatekeeper for an enrollee to receive

services within the plan, and financial

arrangements that offer incentives to

providers to furnish high quality and

cost-effective care.

(iii) Coordinated care plans include

health maintenance organizations

(HMOs), provider-sponsored

organizations (PSOs) and preferred

provider organizations (PPOs), RFBs,

and other network plans (except

network MSA plans).

(2) A combination of an M+C MSA

plan and a contribution into the M+C

MSA established in accordance with

§ 422.262. (i) M+C MSA plan means a

plan that—

(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); and

(B) Meets all other applicable

requirements of this part.

(ii) An M+C MSA plan may be either

a network plan or a non-network plan.

(A) M+C network MSA plan means an

MSA plan under which enrollees must

receive services through a defined

provider network that is approved by

HCFA to ensure that all applicable

requirements are met, including access

and availability, service area, and

quality.

(B) M+C non-network MSA plan

means an MSA plan under which

enrollees are not required to receive

services through a provider network.

(iii) M+C MSA means a trust or

custodial account—

(A) That is established in conjunction

with an MSA plan for the purpose of

paying the qualified expenses of the

account holder; and

(B) Into which no deposits are made

other than contributions by HCFA under

the M+C program, or a trustee-to-trustee

transfer or rollover from another M+C

MSA of the same account holder, in

accordance with the requirements of

sections 138 and 220 of the Internal

Revenue Code.

(3) M+C private fee-for-service plan.

An M+C private fee-for-service plan is

an M+C plan that—

(i) Pays providers of services at a rate

determined by the plan on a fee-forservice basis without placing the

provider at financial risk;

(ii) Does not vary the rates for a

provider based on the utilization of that

provider’s services; and

(iii) Does not restrict enrollees’

choices among providers that are

lawfully authorized to provide services

and agree to accept the plan’s terms and

conditions of payment.

(b) Multiple plans. Under its contract,

an M+C organization may offer multiple

plans, regardless of type, provided that

the M+C organization is licensed or

approved under State law to provide

those types of plans (or, in the case of

a PSO plan, has received from HCFA a

waiver of the State licensing

requirement). If an M+C organization

has received a waiver for the licensing

requirement to offer a PSO plan, that

waiver does not apply to the licensing

requirement for any other type of M+C

plan.

§ 422.6 Application requirements.

(a) Scope. This section sets forth

application requirements for entities

that seek a contract as an M+C

organization offering an M+C plan.
35070 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

(b) Completion of an application. (1)

In order to obtain a determination on

whether it meets the requirements to

become an M+C organization and is

qualified to provide a particular type of

M+C plan, an entity, or an individual

authorized to act for the entity (the

applicant) must complete a certified

application, in the form and manner

required by HCFA, including the

following:

(i) Documentation of appropriate State

licensure or State certification that the

entity is able to offer health insurance

or health benefits coverage that meets

State-specified standards applicable to

M+C plans, and is authorized by the

State to accept prepaid capitation for

providing, arranging, or paying for the

comprehensive health care services to

be offered under the M+C contract; or

(ii) Federal waiver as described in

subpart H of this part.

(2) The authorized individual must

describe thoroughly how the entity and

M+C plan meet, or will meet, the

requirements described in this part.

(c) Responsibility for making

determinations. HCFA is responsible for

determining whether an entity qualifies

as an M+C organization and whether

proposed M+C plans meet the

requirements of this part.

(d) Resubmittal of application. An

application that has been denied by

HCFA may not be resubmitted for 4

months after the date of the notice from

HCFA denying the application.

(e) Disclosure of application

information under the Freedom of

Information Act. An applicant

submitting material that he or she

believes is protected from disclosure

under 5 U.S.C. 552, the Freedom of

Information Act, or because of

exceptions provided in 45 CFR part 5

(the Department’s regulations providing

exceptions to disclosure), should label

the material ‘‘privileged’’ and include

an explanation of the applicability of an

exception described in 45 CFR part 5.

§ 422.8 Evaluation and determination

procedures.

(a) Basis for evaluation and

determination. (1) HCFA evaluates an

application for an M+C contract on the

basis of information contained in the

application itself and any additional

information that HCFA obtains through

on-site visits, public hearings, and any

other appropriate procedures.

(2) If the application is incomplete,

HCFA notifies the entity and allows 60

days from the date of the notice for the

entity to furnish the missing

information.

(3) After evaluating all relevant

information, HCFA determines whether

the entity’s application meets the

applicable requirements of § 422.6.

(b) Use of information from a prior

contracting period. If an entity has

failed to comply with the terms of a

previous year’s contract with HCFA

under title XVIII of the Act as an HMO,

competitive medical plan, health care

prepayment plan, or M+C organization

or an entity has failed to complete a

corrective action plan during the term of

the contract, HCFA may deny an

application based on the entity’s failure

to comply with that prior contract with

HCFA even if the entity meets all of the

current requirements.

(c) Notice of determination. HCFA

notifies each entity that applies for an

M+C contract under this part of its

determination and the basis for the

determination. The determination may

be approval, intent to deny, or denial.

(d) Approval of application. If HCFA

approves the application, it gives

written notice to the M+C organization,

indicating that it meets the requirements

for an M+C contract.

(e) Intent to deny. (1) If HCFA finds

that the entity does not appear to meet

the requirements of an M+C

organization and appears to be able to

meet those requirements within 60 days,

HCFA gives the entity notice of intent

to deny qualification and a summary of

the basis for this preliminary finding.

(2) Within 60 days from the date of

the notice, the entity may respond in

writing to the issues or other matters

that were the basis for HCFA’s

preliminary finding and may revise its

application to remedy any defects HCFA

identified.

(f) Denial of application. If HCFA

denies the application, it gives written

notice to the M+C organization

indicating—

(1) That the M+C organization does

not meet the contract requirements

under part C of title XVIII of the Act;

(2) The reasons why the M+C

organization does not meet the contract

requirements; and

(3) The M+C organization’s right to

request reconsideration in accordance

with the procedures specified in subpart

N of this part.

(g) Oversight of continuing

compliance. (1) HCFA oversees an

entity’s continued compliance with the

requirements for an M+C organization.

(2) If an entity no longer meets those

requirements, HCFA terminates the

contract in accordance with § 422.510.

§ 422.10 Cost-sharing in enrollmentrelated costs.

(a) Basis and scope. This section

implements that portion of section 1857

of the Act that pertains to cost-sharing

in enrollment-related costs. It sets forth

the procedures that HCFA follows to

assess the required fees on M+C plans

offered by M+C organizations.

(b) Purpose of assessment. Section

1857(e)(2) of the Act authorizes HCFA

to charge and collect from each M+C

plan offered by an M+C organization its

pro rata share of fees for administering

section 1851 of the Act, relating to

dissemination of enrollment

information; and section 4360 of the

Omnibus Budget Reconciliation Act of

1990, relating to the health insurance

counseling and assistance program.

(c) Applicability. The fee assessment

also applies to those demonstrations for

which enrollment is effected or

coordinated under section 1851 of the

Act.

(d) Collection of fees—(1) Timing of

collection. HCFA collects the fees over

nine consecutive months beginning

with January of each fiscal year.

(2) Amount to be collected. The

aggregate amount of fees for a fiscal year

is the lesser of the following:

(i) The estimated costs to be incurred

by HCFA in that fiscal year to carry out

the activities described in paragraph (b)

of this section.

(ii) The amount authorized in the

DHHS appropriation for the fiscal year.

(e) Assessment methodology. (1) The

amount assessed is a percentage of the

total Medicare payments to each

organization. HCFA determines the

percentage rate using the following

formula:

A times B divided by C where—

A is the total of the estimated January

payments to all organizations subject to

assessment;

B is the nine-month (January through

September) assessment period; and

C is the total assessment amount

authorized for the particular fiscal year in

accordance with paragraph (d)(2) of this

section.

(2) HCFA determines each

organization’s pro rata share of the

annual fee on the basis of that

organization’s calculated monthly

payment amount during the nine

consecutive months beginning with

January. HCFA calculates each

organization’s monthly pro rata share by

multiplying the established percentage

rate by the total monthly calculated

Medicare payment amount to the

organization as recorded in HCFA’s

payment system on the first day of the

month.

(3) HCFA deducts the organization’s

fee from the amount of Federal funds

otherwise payable to the organization

for that month under the M+C program.

(4) If assessments reach the amount

authorized for the year before the end of
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35071

September, HCFA discontinues

assessment.

(5) If there are delays in determining

the amount of the annual aggregate fees

specified in paragraph (d)(2) of this

section or the fee percentage rate

specified in paragraph (e), HCFA may

adjust the assessment time period and

the fee percentage amount.

BILLING CODE 4120–01–P

Supbart B—Eligibility, Election, and

Enrollment

§ 422.50 Eligibility to elect an M+C plan.

(a) an individual is eligible to elect an

M+C plan if he or she—

(1) Is entitled to Medicare under Part

A and enrolled in Part B (except that an

individual entitled only to Part B and

who is (or was) enrolled in an HMO or

CMP with a risk contract under part 417

of this chapter on December 31, 1998

may continue to be enrolled in the M+C

organization may continue to be

enrolled in the M+C organization as an

M+C plan enrollee);

(2) Has not been medically

determined to have end-stage renal

disease, except that an individual who

develops end-stage renal disease while

enrolled in an M+C plan or in a health

plan offered by the M+C organization

offering an M+C plan in the service area

or continuation area in which the

individual resides may continue to be

enrolled in the M+C organization as an

M+C plan enrollee;

(3) Resides in the service area of the

plan, except that an individual who

resides in a continuation area of an M+C

plan while enrolled in a health plan

offered by the M+C organization may

continue to be enrolled in the M+C

organization as an M+C plan enrollee;

(4) Completes and signs an election

form and gives information required for

enrollment; and

(5) Agrees to abide by the rules of the

M+C organization after they are

disclosed to him or her in connection

with the election process.

(b) An M+C eligible individual may

not be enrolled in more than one M+C

plan at any given time.

§ 422.54 Continuation of enrollment.

(a) Definition. Continuation area

means an additional area (outside the

service area) within which the M+C

organization furnishes or arranges for

furnishing services to its continuationof-enrollment enrollees. Enrollees must

reside in a continuation area on a

permanent basis. A continuation area

does not expand the service area of any

plan.

(b) Basis rule. An M+C organization

may offer a continuation of enrollment

option to enrollees when they no longer

reside in the service area of a plan and

permanently move into the geographic

area designated by the M+C

organization as a continuation of

enrollment area. The intent to no longer

reside in an area and permanently live

in another area is verified through

documentation that establishes

residency, such as, driver’s license,

voter registration.

(c) General requirements. (1) An M+C

organization that wishes to offer a

continuation of enrollment option must

meet the following requirements:

(i) Obtain HCFA’s approval of the

continuation area, the marketing

materials that describe the option, and

the M+C organization’s assurances of

access to services.

(ii) Describe the option(s) in the

member materials it offers and make the

option available to all enrollees residing

in the continuation area.

(2) An enrollee who moves out of the

service area and into the geographic area

designated as the continuation area has

the choice of continuing enrollment or

disenrolling from the plan.

(d) Specific requirements—(1) Basic

benefits. The M+C organization must, at

a minimum, provide or arrange for the

Medicare-covered benefits described in

§ 422.101(a).

(2) Reasonable access. The M+C

organization must ensure reasonable

access in the continuation area—

(i) Through contracts with providers,

or through direct payment of claims that

satisfy the requirements in

§ 422.100(b)(2), to other providers who

meet requirements in subpart E of this

part; and

(ii) By ensuring that the access

requirements of § 422.112 are met.

(3) Reasonable cost-sharing. For

services furnished in the continuation

area, an enrollee’s cost-sharing liability

is limited to—

(i) The cost-sharing amounts required

in the M+C plan’s service area (in which

the enrollee no longer resides) if

provided by contract providers;

(ii) The cost-sharing amounts required

by the continuation area plan if

provided through agreements with

another M+C plan; or

(iii) The amount for which a

beneficiary would be liable under

original Medicare if noncontracting

providers furnish the services.

(4) Protection of enrollee rights. An

M+C organization that offers a

continuation of enrollment option must

convey all enrollee rights conferred

under this rule, with the understanding

that—

(i) The ultimate responsibility for all

appeals and grievance requirements

remain with the organization that is

receiving payment from HCFA; and

(ii) Organizations that require

enrollees to give advance notice of

intent to use the continuation of

enrollment option, must stipulate the

notification process in the marketing

materials.

(e) Capitation payments. HCFA’s

capitation payments to all M+C

organizations, for all Medicare

enrollees, are based on rates established

on the basis of the enrollee’s permanent

residence, regardless of where he or she

receives services.

§ 422.56 Limitations on enrollment in an

M+C MSA plan.

(a) General. An individual is not

eligible to elect an M+C MSA plan—

(1) If the number of individuals

enrolled in M+C MSA plans has reached

390,000;

(2) Unless the individual provides

assurances that are satisfactory to HCFA

that he or she will reside in the United

States for at least 183 days during the

year for which the election is effective;

or

(3) On or after January 1, 2003, unless

the enrollment is the continuation of an

enrollment in effect as of that date.

(b) Individuals eligible for or covered

under other health benefits program. An

individual who is enrolled in a Federal

Employee Health Benefit plan under 5

U.S.C. chapter 89, or is eligible for

health care benefits through the

Veteran’s Administration under 10

U.S.C. chapter 55 or the Department of

Defense under 38 U.S.C. chapter 17,

may not enroll in an M+C MSA plan.

(c) Individuals eligible for Medicare

cost-sharing under Medicaid State

plans. An individual who is entitled to

coverage of Medicare cost-sharing under

a State plan under title XIX of the Act

is not eligible to enroll in an M+C MSA

plan.

(d) Other limitations. An individual

who receives health benefits that cover

all or part of the annual deductible

under the M+C MSA plan may not

enroll in an M+C MSA plan. Examples

of this type of coverage include, but are

not limited to, primary health care

coverage other than Medicare, current

coverage under the Medicare hospice

benefit, supplemental insurance policies

not specifically permitted under

§ 422.103, and retirement health

benefits.

§ 422.57 Limited enrollment under M+C

RFB plans.

An RFB society that offers an M+C

RFB plan may offer that plan only to

members of the church, or convention

or group of churches with which the

society is affiliated.
35072 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

§ 422.60 Election process.

(a) Acceptance of enrollees: General

rule. (1) Except for the limitations on

enrollment in an M+C MSA plan

provided by § 422.62(d)(1) and except as

specified in paragraph (a)(2) of this

section, each M+C organization must

accept without restriction (except for an

M+C RFB plan as provided by § 422.57)

individuals who are eligible to elect an

M+C plan that M+C organization offers

and who elect an M+C plan during

initial coverage election periods, annual

election periods, and special election

periods specified in § 422.62 (a)(1),

(a)(2), and (b).

(2) M+C organizations must accept

elections during the open enrollment

periods specified in § 422.62(a)(3),

(a)(4), and (a)(5) if their M+C plans are

open to new enrollees.

(b) Capacity to accept new enrollees.

(1) M+C organizations must submit

information on enrollment capacity of

plans they offer by May 1 of each year

as provided by § 422.306(a)(2).

(2) If HCFA determines that an M+C

plan offered by an M+C organization has

a capacity limit, and the number of M+C

eligible individuals who elect to enroll

in that plan exceeds the limit, the M+C

organization offering the plan may limit

enrollment in the plan under this part,

but only if it provides priority in

acceptance as follows:

(i) First, for individuals who elected

the plan prior to the HCFA

determination that capacity has been

exceeded, elections will be processed in

chronological order by date of receipt of

their election forms.

(ii) Then for other individuals in a

manner that does not discriminate on

the basis of any factor related to health

as described in § 422.110.

(c) Election forms. (1) The election

form must comply with HCFA

instructions regarding content and

format and have been approved by

HCFA as described in § 422.80. The

form must be completed and signed by

the M+C eligible individual beneficiary

(or the individual who will soon

become entitled to Medicare benefits)

and include authorization for disclosure

and exchange of necessary information

between the U.S. Department of Health

and Human Services and its designees

and the M+C organization. Persons who

assist beneficiaries in completing forms

must sign the form and indicate their

relationship to the beneficiary.

(2) The M+C organization must file

and retain election forms for the period

specified in HCFA instructions.

(d) When an election is considered to

have been made. An election in an M+C

plan is considered to have been made

on the date the election form is received

by the M+C organization.

(e) Handling of election forms. The

M+C organization must have an

effective system for receiving,

controlling, and processing election

forms. The system must meet the

following conditions and requirements:

(1) Each election form is dated as of

the day it is received.

(2) Election forms are processed in

chronological order, by date of receipt.

(3) The M+C organization gives the

beneficiary prompt written notice of

acceptance or denial in a format

specified by HCFA.

(4) In a format specified by HCFA, a

notice of acceptance—

(i) Promptly informs the beneficiary of

the date on which enrollment will be

effective under § 422.68; and

(ii) If the M+C plan is enrolled to

capacity, explains the procedures that

will be followed when vacancies occur.

(5) A notice of denial explains the

reasons for denial in a format specified

by HCFA.

(6) Within 30 days from receipt of the

election form (or from the date a

vacancy occurs for an individual who

was accepted for future enrollment), the

M+C organization transmits the

information necessary for HCFA to add

the beneficiary to its records as an

enrollee of the M+C organization.

§ 422.62 Election of coverage under an

M+C plan.

(a) General: Coverage election

periods—(1) Initial coverage election

period. The initial coverage election

period is the period during which a new

M+C eligible individual may make an

initial election. This period begins 3

months prior to the month the

individual is first entitled to both Part

A and Part B and ends the last day of

the month preceding the month of

entitlement.

(2) Annual election period. (i)

Beginning in 1999, the month of

November is the annual election period

for the following calendar year.

Organizations offering M+C plans in

January 1999 must open enrollment to

Medicare beneficiaries in November

1998.

(ii) During the annual election period,

an individual eligible to enroll in an

M+C plan may change his or her

election from an M+C plan to original

Medicare or to a different M+C plan, or

from original Medicare to an M+C plan.

(3) Open enrollment and

disenrollment opportunities through

2001. From 1998 through 2001, the

number of elections or changes that an

M+C eligible individual may make is

not limited (except as provided for in

paragraph (d) of this section for M+C

MSA plans). Subject to the M+C plan

being open to enrollees as provide

under § 422.60(a)(2), an individual

eligible to elect an M+C plan may

change his or her election from an M+C

plan to original Medicare or to a

different M+C plan, or from original

Medicare to an M+C plan.

(4) Open enrollment and

disenrollment during 2002. (i) Except as

provided in paragraphs (a)(4)(ii) and

(a)(4)(iii) of this section, an individual

who is eligible to elect an M+C plan in

2002 may elect an M+C plan or change

his or her election from an M+C plan to

original Medicare or to a different M+C

plan, or from original Medicare to an

M+C plan, but only once during the first

6 months of the year.

(ii) Newly eligible M+C individual. An

individual who becomes an M+C

eligible individual during 2002 may

elect an M+C plan or original Medicare

and then change his or her election once

during the period that begins the month

the individual is entitled to both Part A

and Part B and ends on the last day of

the 6th month of such entitlement, or on

December 31, whichever is earlier. The

individual can change the election from

an M+C plan to original Medicare or to

a different M+C plan, or from original

Medicare to an M+C plan during this

period.

(iii) The limitation to one election or

change in paragraphs (a)(4)(i) and

(a)(4)(ii) of this section does not apply

to elections or changes made during the

annual election period specified in

(a)(2) of this section or during a special

enrollment period specified in

paragraph (b) of this section.

(5) Open enrollment and

disenrollment beginning in 2003. (i) For

2003 and subsequent years, except as

provided in paragraphs (a)(5)(ii) and

(a)(5)(iii) of this section, an individual

who is eligible to elect an M+C plan

may elect an M+C plan or change his or

her election from an M+C plan to

original Medicare or to a different M+C

plan, or from original Medicare to an

M+C plan, but only once during the first

3 months of the year.

(ii) Newly eligible M+C individual. An

individual who becomes an M+C

eligible individual during 2003 or later

may elect an M+C plan or original

Medicare and then change his or her

election once during the period that

begins the month the individual is

entitled to both Part A and Part B and

ends on the last day of the 3rd month

of such entitlement, or on December 31,

whichever is earlier. The individual can

change the election from an M+C plan

to original Medicare or to a different
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35073

M+C plan, or from original Medicare to

an M+C plan during this period.

(iii) The limitation to one election or

change in paragraphs (a)(5)(i) and

(a)(5)(ii) of this section does not apply

to elections or changes made during the

annual election period specified in

paragraph (a)(2) of this section or during

a special election period specified in

paragraph (b) of this section.

(b) Special election periods. Effective

as of January 1, 1999 for M+C plans, and

as of January 1, 2002, for all MSA other

types of M+C MSA plans, an individual

may at any time (that is, not limited to

the annual election period) discontinue

the election of an M+C plan offered by

an M+C organization and change his or

her election, in the form and manner

specified by HCFA, from an M+C plan

to original Medicare or to a different

M+C plan under any of the following

circumstances:

(1) HCFA has terminated the

organization’s contract for that plan or

the organization has terminated or

discontinued offering the plan in the

service area or continuation area in

which the individual resides.

(2) The individual is not eligible to

remain enrolled in the plan because of

a change in his or her place of residence

to a location out of the service area or

continuation area or other change in

circumstances as determined by HCFA

but not including terminations resulting

from a failure to make timely payment

of an M+C monthly or supplemental

beneficiary premium, or from disruptive

behavior.

(3) The individual demonstrates to

HCFA, in accordance with guidelines

issued by HCFA, that—

(i) The organization offering the plan

substantially violated a material

provision of its contract under this part

in relation to the individual, including,

but not limited to the following:

(A) Failure to provide the beneficiary

on a timely basis medically necessary

services for which benefits are available

under the plan.

(B) Failure to provide medical

services in accordance with applicable

quality standards; or

(ii) The organization (or its agent,

representative, or plan provider)

materially misrepresented the plan’s

provisions in marketing the plan to the

individual.

(4) The individual meets such other

exceptional conditions as HCFA may

provide.

(c) Special election period for

individual age 65. Effective January 1,

2002, an M+C eligible individual who

elects an M+C plan during the initial

coverage election period, as defined

under section 1837(d) of the Act, that

surrounds his or her 65th birthday (this

period begins 3 months before and ends

3 months after the month of the

individual’s 65th birthday) may

discontinue the election of that plan and

elect coverage under original Medicare

at any time during the 12-month period

that begins on the effective date of

enrollment in the M+C plan.

(d) Special rules for M+C plans—(1)

Enrollment. An individual may enroll in

an M+C plan only during an initial or

annual election period described in

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

section or during November 1998.

(2) Disenrollment. (i) Except as

provided in paragraph (d)(2)(ii) of this

section, an individual may disenroll

from an M+C plan only during—

(A) November 1998;

(B) An annual election period; or

(C) The special election period

described in paragraph (b) of this

section.

(ii) Exception. An individual who

elects an M+C MSA plan during an

annual election period and has never

before elected an M+C MSA plan may

revoke that election, no later than

December 15 of that same year, by

submitting to the organization that

offers the M+C MSA plan a signed and

dated request in the form and manner

prescribed by HCFA or by filing the

appropriate disenrollment form through

other mechanisms as determined by

HCFA.

§ 422.64 Information about the M+C

program.

(a) Source of information. Each M+C

organization must provide, on an annual

basis and in a format and using standard

terminology that may be specified by

HCFA, the information necessary to

enable HCFA to provide to current and

potential beneficiaries the information

they need to make informed decisions

with respect to the available choices for

Medicare coverage.

(b) Timing and recipients of the

information. HCFA mails a notice

containing the information described in

paragraph (c) of this section—

(1) At least 15 days before each

annual election period, to each

individual eligible to elect an M+C plan;

and

(2) To the extent practicable, not later

than 30 days before his or her initial

coverage election period to each

individual who will become eligible to

elect an M+C plan.

(c) Content of notice—(1) Benefits

under original Medicare. (i) Covered

services.

(ii) Beneficiary cost sharing, such as

deductibles, coinsurance, and

copayment amounts.

(iii) Any beneficiary liability for

balance billing.

(2) Enrollment procedures.

Information and instructions on how to

exercise election options under this

subpart.

(3) Rights. A general description of

procedural rights (including grievance

and appeals procedures) under original

Medicare and the M+C program and the

right to be protected against

discrimination based on factors related

to health status in accordance with

§ 422.110.

(4) Medigap and Medicare Select. A

general description of the benefits,

enrollment rights, and requirements

applicable to Medicare supplemental

policies under section 1882 of the Act,

and provisions relating to Medicare

Select policies under section 1882(t) of

the Act.

(5) Potential for contract termination.

The fact that an M+C organization may

terminate or refuse to renew its contract,

or reduce the service area included in

its contract, and the effect that any of

those actions may have on individuals

enrolled in that organization’s M+C

plan.

(6) Comparative information. A list of

M+C plans that are or will be available

to residents of the service area in the

following calendar year, and, for each

available plan, information on the

aspects described in paragraphs (c)(7)

through (c)(11) of this section, presented

in a manner that facilitates comparison

among the plans.

(7) Benefits. (i) Covered services

beyond those provided under original

Medicare.

(ii) Any beneficiary cost sharing.

(iii) Any maximum limitations on outof-pocket expenses.

(iv) In the case of an M+C MSA plan,

the amount of the annual MSA deposit

and the differences in cost-sharing,

enrollee premiums, and balance billing,

as compared to M+C plans.

(v) In the case of a M+C private feefor-service plan, differences in costsharing, enrollee premiums, and balance

billing, as compared to M+C plans.

(vi) The extent to which an enrollee

may obtain benefits through out-ofnetwork health care providers.

(vii) The types of providers that

participate in the plan’s network and

the extent to which an enrollee may

select among those providers.

(viii) The coverage of emergency and

urgently needed services.

(8) Premiums. (i) The M+C monthly

basic beneficiary premiums.

(ii) The M+C monthly supplemental

beneficiary premium.

(9) The plan’s service area.

(10) Quality and performance

indicators for benefits under a plan to
35074 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

the extent they are available as follows

(and how they compare with indicators

under original Medicare):

(i) Disenrollment rates for Medicare

enrollees for the 2 previous years,

excluding disenrollment due to death or

moving outside the plan’s service area,

calculated according to HCFA

guidelines.

(ii) Medicare enrollee satisfaction.

(iii) Health outcomes.

(iv) Plan-level appeal data.

(v) The recent record of plan

compliance with the requirements of

this part, as determined by the

Secretary.

(vi) Other performance indicators.

(11) Supplemental benefits. Whether

the plan offers mandatory supplemental

benefits or offers optional supplemental

benefits and the premiums and other

terms and conditions for those benefits.

(d) Format and updating. The

information is written and formatted

using language that is easily

understandable, and is updated at least

annually.

(e) Mailing. The mailing is

coordinated, to the extent practicable,

with the mailing of the annual notice of

Medicare benefits under section 1804 of

the Act.

§ 422.66 Coordination of enrollment and

disenrollment through M+C organizations.

(a) Enrollment. An individual who

wishes to elect an M+C plan offered by

an M+C organization may make or

change his or her election during the

election periods specified in § 422.62 by

filing the appropriate election form with

the organization or through other

mechanisms as determined by HCFA.

(b) Disenrollment—(1) Basic rule. An

individual who wishes to disenroll from

an M+C plan may change his or her

election during the election periods

specified in § 422.62 in either of the

following manners:

(i) Elect a different M+C plan by filing

the appropriate election form with the

M+C organization or through other

mechanisms as determined by HCFA.

(ii) Submit a signed and dated request

for disenrollment to the M+C

organization in the form and manner

prescribed by HCFA or file the

appropriate disenrollment form through

other mechanisms as determined by

HCFA.

(2) When a disenrollment request is

considered to have been made. A

disenrollment request is considered to

have been made on the date the

disenrollment request is received by the

M+C organization.

(3) Responsibilities of the M+C

organization. The M+C organization

must—

(i) Submit a disenrollment notice to

HCFA within 15 days of receipt;

(ii) Provide the enrollee with a copy

of the request for disenrollment; and

(iii) In the case of a plan where lockin applies, also provide the enrollee

with a statement explaining that he or

she—

(A) Remains enrolled until the

effective date of disenrollment; and

(B) Until that date, neither the M+C

organization nor HCFA pays for services

not provided or arranged for by the M+C

plan in which the enrollee is enrolled;

and

(iv) File and retain disenrollment

requests for the period specified in

HCFA instructions.

(4) Effect of failure to submit

disenrollment notice to HCFA promptly.

If the M+C organization fails to submit

the correct and complete notice required

in paragraph (b)(3)(i) of this section, the

M+C organization must reimburse

HCFA for any capitation payments

received after the month in which

payment would have ceased if the

requirement had been met timely.

(5) Retroactive disenrollment. HCFA

may grant retroactive disenrollment in

the following cases:

(i) There never was a legally valid

enrollment.

(ii) A valid request for disenrollment

was properly made but not processed or

acted upon.

(c) Election by default: Initial

coverage election period. An individual

who fails to make an election during the

initial coverage election period is

deemed to have elected original

Medicare.

(d) Conversion of enrollment

(seamless continuation of coverage)—(1)

Basic rule. An M+C plan offered by an

M+C organization must accept any

individual (residing in the service area

or continuation area of the M+C plan)

who is enrolled in a health plan offered

by an M+C organization (regardless of

whether the individual has end-stage

renal disease) during the month

immediately preceding the month in

which he or she is entitled to both Part

A and Part B as provided by

§ 422.50(a)(2) and (a)(3).

(2) Reserved vacancies. Subject to

HCFA’s approval, an M+C organization

may set aside a reasonable number of

vacancies in order to accommodate

enrollment of conversions. Any set

aside vacancies that are not filled within

a reasonable time must be made

available to other M+C eligible

individuals.

(3) Effective date of conversion.

Unless the individual chooses to

disenroll from the health plan offered by

the M+C organization, the individual’s

conversion to an M+C enrollee is

effective the month in which he or she

is entitled to both Part A and Part B.

(4) Prohibition against disenrollment.

The M+C organization may disenroll an

individual who is converting under the

provisions of paragraph (a) of this

section only under the conditions

specified in § 422.74.

(5) Election form. The individual who

is converting must complete and sign an

election form as described in

§ 422.60(c)(1).

(6) Submittal of information to HCFA.

The M+C organization must transmit the

information necessary for HCFA to add

the individual to its records as specified

in § 422.60(e)(6).

(e) Maintenance of enrollment. An

individual who has made or is deemed

to have made an election under this

section is considered to have continued

to have made that election until either

of the following, whichever occurs first:

(1) The individual changes the

election under this section.

(2) The elected M+C plan is

discontinued or no longer serves the

service area in which the individual

resides, and the organization does not

offer or the individual does not elect the

option of continuing enrollment, as

provided in § 422.54.

422.68 Effective dates of coverage and

change of coverage.

(a) Initial coverage election period. An

election made during an initial coverage

election period as described in

§ 422.62(a)(1) is effective as of the first

day of the month of entitlement to both

Part A and Part B.

(b) Annual election periods. For an

election or change of election made

during an annual election period as

described in § 422.62(a)(2), coverage is

effective as of the first day of the

following calendar year.

(c) Open enrollment periods. For an

election or change of election made

during an open enrollment period as

described in § 422.62(a)(3) through

(a)(5), coverage is effective as of the first

day of the first calendar month

following the month in which the

election is made.

(d) Special election periods. For an

election or change of election made

during a special election period as

described in § 422.62(b), the effective

date of coverage shall be determined by

HCFA, to the extent practicable, in a

manner consistent with protecting the

continuity of health benefits coverage.

(e) Special election period for

individual age 65. For an election of

coverage under original Medicare made

during a special election period for an

individual age 65 as described in
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35075

§ 422.62(c), coverage is effective as of

the first day of the first calendar month

following the month in which the

election is made.

§ 422.74 Disenrollment by the M+C

organization.

(a) General rule. Except as provided in

paragraphs (b) through (d) of this

section, an M+C organization may not—

(1) Disenroll an individual from any

M+C plan it offers; or

(2) Orally or in writing, or by any

action or inaction, request or encourage

an individual to disenroll.

(b) Basis for disenrollment—(1)

Optional disenrollment. An M+C

organization may disenroll an

individual from an M+C plan it offers in

any of the following circumstances:

(i) Any monthly basic and

supplementary beneficiary premiums

are not paid on a timely basis, subject

to the grace period for late payment

established under paragraph (d)(1) of

this section.

(ii) The individual has engaged in

disruptive behaviors specified at

paragraph (d)(2) of this section.

(iii) The individual provides

fraudulent information on his or her

election form or permits abuse of his or

her enrollment card as specified in

paragraph (d)(3) of this section.

(2) Required disenrollment. An M+C

organization must disenroll an

individual from an M+C plan it offers in

any of the following circumstances:

(i) The individual no longer resides in

the M+C plan’s service area as specified

in paragraph (d)(4) of this section, and

optional continued enrollment has not

been offered or elected pursuant to

§ 422.54.

(ii) The individual loses entitlement

to Part A or Part B benefits as described

in paragraph (d)(5) of this section.

(iii) Death of the individual as

described in paragraph (d)(6) of this

section.

(3) Plan termination or reduction of

service area or continuation area. An

M+C plan offered by an M+C

organization that terminates with

respect to all M+C individuals in the

area where the individual resides or is

terminated or reduces service area or

continuation area must comply with the

process for disenrollment set forth at

paragraph (d)(7) of this section.

(c) Notice requirement. If the

disenrollment is for any of the reasons

specified in paragraphs (b)(1) through

(b)(2)(i) and (b)(3) of this section, that is,

other than death or loss of entitlement

to Part A or Part B, the M+C

organization must give the individual a

written notice of the disenrollment with

an explanation of why the M+C

organization is planning to disenroll the

individual.

(1) The notice must be mailed to the

individual before submission of the

disenrollment notice to HCFA.

(2) The notice must include an

explanation of the individual’s right to

a hearing under the M+C organization’s

grievance procedures.

(d) Process for disenrollment—(1)

Monthly basic and supplementary

premiums are not paid timely. An M+C

organization may disenroll an

individual from the M+C plan for failure

to pay any basic or supplementary

premiums if the M+C organization—

(i) Makes a reasonable effort to collect

unpaid premium amounts by sending a

written notice of nonpayment to the

enrollee within 20 days after the date

that the delinquent charges were due—

(A) Alerting the individual that the

premiums are delinquent;

(B) Providing the individual with an

explanation of the disenrollment

procedures and any lock-in

requirements of the M+C plan; and

(C) Advising that failure to pay the

premiums within the 90-day grace

period will result in termination of M+C

coverage;

(ii) Only disenrolls a Medicare

enrollee when the organization has not

received payment within 90 days after

the date it has sent the notice of

nonpayment to the enrollee; and

(iii) Gives the individual a written

notice of disenrollment that meets the

requirements set forth in paragraph (c)

of this section.

(2) Disenrollment for disruptive

behavior—(i) Basis for disenrollment.

An M+C organization may disenroll an

individual from the M+C plan if the

individual’s behavior is disruptive,

unruly, abusive, or uncooperative to the

extent that his or her continued

enrollment in the plan seriously impairs

the M+C plan’s ability to furnish

services to either the particular

individual or other individuals enrolled

in the plan.

(ii) Effort to resolve the problem. The

M+C organization must make a serious

effort to resolve the problems presented

by the individual, including the use (or

attempted use) of the M+C

organization’s grievance procedures.

The beneficiary has a right to submit

any information or explanation that he

or she may wish to submit to the M+C

organization.

(iii) Consideration of extenuating

circumstances. The M+C organization

must establish that the individual’s

behavior is not related to the use of

medical services or to diminished

mental capacity.

(iv) Documentation. The M+C

organization must document the

enrollee’s behavior, its own efforts to

resolve any problems, and any

extenuating circumstances, as described

in paragraphs (d)(2)(i) through (d)(2)(iii)

of this section.

(v) HCFA review of the M+C

organization’s proposed disenrollment.

(A) HCFA decides after reviewing the

documentation submitted by the M+C

organization and any information

submitted by the beneficiary (which the

M+C organization must forward to

HCFA) whether the M+C organization

has met the disenrollment requirements.

(B) HCFA makes the decision within

20 working days after receipt of the

documentation and notifies the M+C

organization within 5 working days after

making its decision.

(vi) Effective date of disenrollment. If

HCFA permits an M+C organization to

disenroll an individual for disruptive

behavior, the termination is effective the

first day of the calendar month after the

month in which the M+C organization

gives the individual written notice of

the disenrollment that meets the

requirements set forth in paragraph (c)

of this section.

(3) Individual commits fraud or

permits abuse of enrollment care. (i)

Basis for disenrollment. An M+C

organization may disenroll the

individual from an M+C plan if the

individual—

(A) Knowingly provides, on the

election form, fraudulent information

that materially affects the individual’s

eligibility to enroll in the M+C plan; or

(B) Intentionally permits others to use

his or her enrollment card to obtain

services under the M+C plan.

(ii) Notice of disenrollment. The M+C

organization must give the individual a

written notice of the disenrollment that

meets the requirements set forth in

paragraph (c) of this section.

(iii) Report to HCFA. The M+C

organization must report to HCFA any

disenrollment based on fraud or abuse

by the individual.

(4) Individual no longer resides in the

M+C plan’s service area—(i) Basis for

disenrollment. Unless continuation of

enrollment is elected under § 422.54,

the M+C organization must disenroll an

individual who moves out of a plan’s

service area if the M+C organization

establishes, on the basis of a written

statement from the individual, or other

evidence acceptable to HCFA, that the

individual has moved out of a plan’s

service area for over 12 months.

(ii) Notice of disenrollment. The M+C

organization must give the individual a

written notice of the disenrollment that
35076 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

meets the requirements set forth in

paragraph (c) of this section.

(5) Loss of entitlement to Part A or

Part B benefits. If an individual is no

longer entitled to Part A or Part B

benefits, HCFA notifies the M+C

organization that the disenrollment is

effective the first day of the calendar

month following the last month of

entitlement to Part A or Part B benefits.

(6) Death of the individual. If the

individual dies, disenrollment is

effective the first day of the calendar

month following the month of death.

(7) Plan termination or area

reduction. (i) If the plan terminates or is

terminated or the service area or

continuation area are reduced with

respect to all M+C enrollees in the area

in which they reside, the M+C

organization must give each Medicare

enrollee a written notice of the effective

date of the plan termination or area

reduction and a description of

alternatives for obtaining benefits under

the M+C program.

(ii) The notice must be sent before the

effective date of the plan termination or

area reduction.

(e) Consequences of disenrollment—

(1) Disenrollment for non-payment of

premiums, disruptive behavior, fraud or

abuse, loss of Part A or Part B. An

individual who is disenrolled under

paragraph (b)(1)(i), (b)(1)(ii), (b)(1)(iii),

or paragraph (b)(2)(ii) of this section is

deemed to have elected original

Medicare.

(2) Disenrollment based on plan

termination, area reduction, or

individual moves out of area. (i) An

individual who is disenrolled under

paragraph (b)(2)(i) or (b)(3) of this

section has a special election period in

which to make a new election as

provided in § 422.62(b)(1) and (b)(2).

(ii) An individual who fails to make

an election during the special election

period is deemed to have elected

original Medicare.

§ 422.80 Approval of marketing materials

and election forms.

(a) HCFA review of marketing

materials. An M+C organization may

not distribute any marketing materials

(as defined in paragraph (b)), or election

forms, or make such materials or forms

available to individuals eligible to elect

an M+C plan, unless—

(1) At least 45 days before the date of

distribution the M+C organization has

submitted the material or form to HCFA

for review under the guidelines in

paragraph (c); and

(2) HCFA has not disapproved the

distribution of the material or form.

(b) Definition of marketing materials.

Marketing materials include any

informational materials targeted to

Medicare beneficiaries which:

(1) Promote the M+C organization, or

any M+C plan offered by the M+C

organization;

(2) Inform Medicare beneficiaries that

they may enroll, or remain enrolled in,

an M+C plan offered by the M+C

organization;

(3) Explain the benefits of enrollment

in an M+C plan, or rules that apply to

enrollees;

(4) Explain how Medicare services are

covered under an M+C plan, including

conditions that apply to such coverage;

(5) Examples of marketing materials

include, but are not limited to:

(i) General audience materials such as

general circulation brochures,

newspapers, magazines, television,

radio, billboards, yellow pages, or the

internet.

(ii) Marketing representative materials

such as scripts or outlines for

telemarketing or other presentations.

(iii) Presentation materials such as

slides and charts.

(iv) Promotional materials such as

brochures or leaflets, including

materials for circulation by third parties

(e.g., physicians or other providers).

(v) Membership communication

materials such as membership rules,

subscriber agreements (evidence of

coverage), member handbooks, and

newsletters.

(vi) Letters to members about

contractual changes; changes in

providers, premiums, benefits, plan

procedures etc.

(vii) Membership or claims processing

activities (e.g., materials on rules

involving non-payment of premiums,

confirmation of enrollment or

disenrollment, or annual notification

information).

(c) Guidelines for HCFA Review. In

reviewing marketing material or election

forms under paragraph (a) of this

section, HCFA determines that the

marketing materials:

(1) Provide, in a format (and, where

appropriate, print size), and using

standard terminology that may be

specified by HCFA, the following

information to Medicare beneficiaries

interested in enrolling:

(i) Adequate written description of

rules (including any limitations on the

providers from whom services can be

obtained), procedures, basic benefits

and services, and fees and other charges.

(ii) Adequate written description of

any supplemental benefits and services.

(iii) Adequate written explanation of

the grievance and appeals process,

including differences between the two,

and when it is appropriate to use each.

(iv) Any other information necessary

to enable beneficiaries to make an

informed decision about enrollment.

(2) Notify the general public of its

enrollment period (whether timelimited or continuous) in an appropriate

manner, through appropriate media,

throughout its service and continuation

area.

(3) Include in the written materials

notice that the organization is

authorized by law to refuse to renew its

contract with HCFA, that HCFA also

may refuse to renew the contract, and

that termination or non-renewal may

result in termination of the beneficiary’s

enrollment in the plan.

(4) Contain no statements that are

inaccurate or misleading or otherwise

make misrepresentations.

(5) For markets with a significant nonEnglish speaking population, provide

materials in the language of these

individuals.

(d) Deemed approval (one-stop

shopping). If HCFA has not disapproved

the distribution of marketing material or

forms submitted by an M+C

organization with respect to an M+C

plan in an area, HCFA is deemed not to

have disapproved the distribution in all

other areas covered by the M+C plan

and organization except with regard to

any portion of the material or form that

is specific to the particular area.

(e) Standards for M+C organization

marketing.

(1) In conducting marketing activities,

M+C organizations may not:

(i) Provide for cash or other monetary

rebates as an inducement for enrollment

or otherwise. This does not prohibit

explanation of any legitimate benefits

the beneficiary might obtain as an

enrollee of the M+C plan, such as

eligibility to enroll in a supplemental

benefit plan that covers deductibles and

coinsurance, or preventive services.

(ii) Engage in any discriminatory

activity such as, for example, attempts

to recruit Medicare beneficiaries from

higher income areas without making

comparable efforts to enroll Medicare

beneficiaries from lower income areas.

(iii) Solicit door-to-door for Medicare

beneficiaries.

(iv) Engage in activities that could

mislead or confuse Medicare

beneficiaries, or misrepresent the M+C

organization, the M+C organization may

not claim that it is recommended or

endorsed by HCFA or Medicare or that

HCFA or Medicare recommends that the

beneficiary enroll in the M+C plan. It

may, however, explain that the

organization is approved for

participation in Medicare.

(v) Distribute marketing materials for

which, before expiration of the 45-day
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35077

period, the M+C organization receives

from HCFA written notice of

disapproval because it is inaccurate or

misleading, or misrepresents the M+C

organization, its marketing

representatives, or HCFA.

(2) In its marketing, the M+C

organization must:

(i) Demonstrate the HCFA’s

satisfaction that marketing resources are

allocated to marketing to the disabled

Medicare population as well as

beneficiaries age 65 and over.

(ii) Establish and maintain a system

for confirming that enrolled

beneficiaries have in fact, enrolled in

the M+C plan, and understand the rules

applicable under the plan.

(f) Employer group retiree Marketing.

HCFA may permit M+C organizations to

develop marketing materials designed

for members of an employer group who

are eligible for employer-sponsored

benefits through the M+C organization,

and to furnish these materials only to

such group members. While such

materials must be submitted for

approval under paragraph (a) of this

section, HCFA will only review potions

of these materials that related to M+C

plan benefits.

BILLING CODE 4120–01–M

Subpart C—Benefits and Beneficiary

Protections

§ 422.100 General requirements.

(a) Basic rule. Subject to the

conditions and limitations set forth in

this subpart, an M+C organization

offering an M+C plan must provide

enrollees in that plan with coverage of

the basic benefits described in § 422.101

(and, to the extent applicable, the

benefits described in § 422.102) by

furnishing the benefits directly or

through arrangements, or by paying for

the benefits. HCFA reviews these

benefits subject to the requirements of

§ 422.100(g) and the requirements in

subpart G of this part.

(b) Services of noncontracting

providers and suppliers. (1) An M+C

organization must make timely and

reasonable payment to or on behalf of

the plan enrollee for the following

services obtained from a provider or

supplier that does not contract with the

M+C organization to provide services

covered by the M+C plan:

(i) Emergency services as defined in

§ 422.2.

(ii) Urgently needed services as

defined § 422.2.

(iii) Renal dialysis services provided

while the enrollee was temporarily

outside the plan’s service area.

(iv) Post-stabilization care services

that were—

(A) Pre-approved by the organization;

or

(B) Were not pre-approved by the

organization because the organization

did not respond to the provider of poststabilization care services’ request for

pre-approval within 1 hour after being

requested to approve such care, or could

not be contacted for pre-approval.

(v) Services for which coverage has

been denied by the M+C organization

and found (upon appeal under subpart

M of this part) to be services the

enrollee was entitled to have furnished,

or paid for, by the M+C organization.

(2) An M+C plan (other than an M+C

MSA plan) offered by an M+C

organization satisfies paragraph (a) of

this section with respect to benefits for

services furnished by a noncontracting

provider if that M+C plan provides

payment in an amount the provider

would have received under original

Medicare (including balance billing

permitted under Medicare Part A and

Part B).

(c) Types of benefits. An M+C plan

may include two types of benefits:

(1) Basic benefits as defined in

§ 422.2.

(2) Supplemental benefits, which

consist of—

(i) Mandatory supplemental benefits

as defined in § 422.2; and

(ii) Optional supplemental benefits as

defined in § 422.2.

(d) Availability and structure of plans.

An M+C organization offering an M+C

plan must offer it—

(1) To all Medicare beneficiaries

residing in the service area of the M+C

plan;

(2) At a uniform premium; and

(3) With a uniform level of costsharing, as defined in § 422.2.

(e) Terms of M+C plans. Terms of

M+C plans described in instructions to

beneficiaries, as required by § 422.111,

will include basic and supplemental

benefits and terms of coverage for those

benefits.

(f) Multiple plans in one service area.

An M+C organization may offer more

than one M+C plan in the same service

area subject to the conditions and

limitations set forth in this subpart for

each M+C plan.

(g) HCFA review and approval of M+C

plans. HCFA reviews and approves each

M+C plan to ensure that the plan does

not—

(1) Promote discrimination;

(2) Discourage enrollment;

(3) Steer specific subsets of Medicare

beneficiaries to particular M+C plans; or

(4) Inhibit access to services.

(h) Benefits affecting screening

mammography, influenza vaccine, and

pneumococcal vaccine. (1) Enrollees of

M+C organizations may directly access

(through self-referral) screening

mammography and influenza vaccine.

(2) M+C organizations may not

impose cost-sharing for influenza

vaccine and pneumococcal vaccine.

(i) Requirements relating to Medicare

conditions of participation. Basic

benefits must be provided through

providers meeting the requirements in

§ 422.204(a)(3).

(j) Choice of practitioners. Consistent

with the requirements of § 422.204

relating to the prohibition of

discrimination against providers, if

more than one type of practitioner is

qualified to furnish a particular service,

the M+C organization may select the

type of practitioner to be used.

§ 422.101 Requirements relating to basic

benefits.

Except as specified in § 422.264 (for

entitlement that begins or ends during a

hospital stay) and § 422.266 (with

respect to hospice care), each M+C

organization must—

(a) Provide coverage of, through the

provision of or payment for, all services

that are covered by Part A and Part B of

Medicare (if the enrollee is entitled to

benefits under both parts) or by

Medicare Part B (if entitled only under

Part B) and that are available to

beneficiaries residing in the geographic

area in which services are covered

under the M+C plan (or to Part A and

Part B services obtained outside the

geographic area if it is common practice

to refer patients to sources outside that

geographic area); and

(b) Comply with—

(1) HCFA’s national coverage

decisions; and

(2) Written coverage decisions of local

carriers and intermediaries with

jurisdiction for claims in the geographic

area in which services are covered

under the M+C plan.

§ 422.102 Supplemental benefits.

(a) Mandatory supplemental benefits.

(1) Subject to HCFA’s approval, an M+C

organization may require Medicare

enrollees of an M+C plan other than an

MSA plan to accept and pay for services

in addition to those included in the

basic benefits described in § 422.101.

(2) If the M+C organization imposes

mandatory supplemental benefits, it

must impose them on all Medicare

beneficiaries enrolled in the M+C plan.

(3) HCFA approves mandatory

supplemental benefits if it determines

that imposition of the mandatory

benefits will not substantially

discourage Medicare beneficiaries from

enrolling in the M+C plan.

(b) Optional supplemental benefits.

Except as provided in § 422.104 in the
35078 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

case of MSA plans, each M+C

organization may offer (for election by

the enrollee and without regard to

health status) services that are in

addition to those included in the basic

benefits described in § 422.101 and any

mandatory supplemental benefits

described in paragraph (a) of this

section. Optional supplemental benefits

must be offered to all Medicare

beneficiaries enrolled in the M+C plan.

(c) Payment for supplemental

services. All supplemental benefits are

paid for directly by (or on behalf of) the

enrollee of the M+C plan.

§ 422.103 Benefits under an M+C MSA

plan.

(a) General rule. An M+C organization

offering an M+C MSA plan must make

available to an enrollee, or provide

reimbursement for, at least the services

described under in § 422.101 after the

enrollee incurs countable expenses

equal to the amount of the plan’s annual

deductible.

(b) Countable expenses. An M+C

organization offering an M+C MSA plan

must count toward the annual

deductible at least all amounts that

would be paid for the particular service

under original Medicare, including

amounts that would be paid by the

enrollee as deductibles or coinsurance.

(c) Services after the deductible. For

services received by the enrollee after

the annual deductible is satisfied, an

M+C organization offering an M+C MSA

plan must pay, at a minimum, the lesser

of the following amounts:

(1) 100 percent of the expense of the

services.

(2) 100 percent of the amounts that

would have been paid for the services

under original Medicare, including

amounts that would be paid by the

enrollee as deductibles and coinsurance.

(d) Annual deductible. The annual

deductible for an M+C MSA plan—

(1) For contract year 1999, may not

exceed $6,000; and

(2) For subsequent contract years may

not exceed the deductible for the

preceding contract year, increased by

the national per capita growth

percentage determined under

§ 422.252(b).

§ 422.104 Special rules on supplemental

benefits for M+C MSA plans.

(a) An M+C organization offering an

M+C MSA plan may not provide

supplemental benefits that cover

expenses that count towards the

deductible specified in § 422.103(d).

(b) In applying the limitation of

paragraph (a) of this section, the

following kinds of policies are not

considered as covering the deductible:

(1) A policy that provides coverage

(whether through insurance or

otherwise) for accidents, disability,

dental care, vision care, or long-term

care.

(2) A policy of insurance in which

substantially all of the coverage relates

to liabilities incurred under workers’

compensation laws, tort liabilities,

liabilities relating to use or ownership of

property, and any other similar

liabilities that HCFA may specify by

regulation.

(3) A policy of insurance that

provides coverage for a specified disease

or illness or pays a fixed amount per

day (or other period) of hospitalization.

§ 422.105 Special rules for point of service

option.

(a) A POS benefit is an option that an

M+C organization may offer in an M+C

coordinated care plan or network M+C

MSA plan to provide enrollees with

additional choice in obtaining specified

health care services from individuals or

entities that do not have a contract with

the M+C organization to provide service

through the M+C coordinated care plan

or network M+C MSA plan offering the

POS option. The plan may offer a POS

option—

(1) Under a coordinated care plan

only as an additional benefit as

described in § 422.312;

(2) Under a coordinated care plan

only as a mandatory supplemental

benefit as described in § 422.102(a); or

(3) Under a coordinated care plan or

network MSA plan as an optional

supplemental benefit as described in

§ 422.102(b).

(b) Approval required. An M+C

organization may not implement a POS

benefit until it has been approved by

HCFA.

(c) Ensuring availability and

continuity of care. An M+C network

plan that includes a POS benefit must

continue to provide all benefits and

ensure access as required under this

subpart.

(d) Enrollee information and

disclosure. The disclosure requirements

specified in § 422.111 apply in addition

to the following requirements:

(1) Written rules. M+C organizations

must maintain written rules on how to

obtain health benefits through the POS

benefit.

(2) Evidence of coverage document.

The M+C organization must provide to

beneficiaries enrolling in a plan with a

POS benefit an ‘‘evidence of coverage’’

document, or otherwise provide written

documentation, that specifies all costs

and possible financial risks to the

enrollee, including—

(i) Any premiums and cost-sharing for

which the enrollee is responsible;

(ii) Annual limits on benefits and on

out-of-pocket expenditures;

(iii) Potential financial responsibility

for services for which the plan denies

payment because they were not covered

under the POS benefit, or exceeded the

dollar limit for the benefit; and

(iv) The annual maximum out-ofpocket expense an enrollee could incur.

(e) Prompt payment. Health benefits

payable under the POS benefit are

subject to the prompt payment

requirements in § 422.520.

(f) POS Related Data. An M+C

organization that offers a POS benefit

must report data on the POS benefit in

the form and manner prescribed by

HCFA.

§ 422.106 Special arrangements with

employer groups.

An M+C organization may negotiate

with an employer group to provide

benefits to members of the employer

group who are enrolled in an M+C plan

offered by the organization. While these

negotiated employer group benefits may

be designed to complement the benefits

available to Medicare beneficiaries

enrolled in the M+C plan, they are

offered by the employer group

independently as the product of private

negotiation. Examples of such

employer-benefits include the

following:

(a) Reductions in the portion of the

premium that the M+C organization

charges to the beneficiary.

(b) Reductions in portion of other cost

sharing amounts the M+C organization

charges to the beneficiary.

(c) The addition of benefits that may

require additional premium and cost

sharing. The addition of benefits and the

charges for those benefits are not subject

to HCFA review or approval.

§ 422.108 Medicare secondary payer (MSP)

procedures.

(a) Basic rule. HCFA does not pay for

services to the extent that Medicare is

not the primary payer under section

1862(b) of the Act and part 411 of this

chapter.

(b) Responsibilities of the M+C

organization. The M+C organization

must, for each M+C plan—

(1) Identify payers that are primary to

Medicare under section 1862(b) of the

Act and part 411 of this chapter;

(2) Determine the amounts payable by

those payers; and

(3) Coordinate its benefits to Medicare

enrollees with the benefits of the

primary payers.

(c) Charges to other entities. The M+C

organization may charge, or authorize a

provider to charge, other individuals or

entities for covered Medicare services
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35079

for which Medicare is not the primary

payer, as specified in paragraphs (d) and

(e) of this section.

(d) Charge to other insurers or the

enrollee. If a Medicare enrollee receives

from an M+C organization covered

services that are also covered under

State or Federal workers’ compensation,

any no-fault insurance, or any liability

insurance policy or plan, including a

self-insured plan, the M+C organization

may charge, or authorize a provider to

charge any of the following—

(1) The insurance carrier, the

employer, or any other entity that is

liable for payment for the services under

section 1862(b) of the Act and part 411

of this chapter.

(2) The Medicare enrollee, to the

extent that he or she has been paid by

the carrier, employer, or entity for

covered medical expenses.

(e) Charge to group health plans

(GHPs) and large group health plans

(LGHPs). An M+C organization may

charge a GHP or LGHP for services it

furnishes to a Medicare enrollee who is

also covered under the GHP or LGHP

and may charge the Medicare enrollee to

the extent that he or she has been paid

by the GHP or LGHP.

§ 422.109 Effect of national coverage

determinations (NCDs).

(a) If HCFA determines and

announces that an NCD meets the

criteria for ‘‘significant cost’’ described

in paragraph (c) of this section, an M+C

organization is not required to assume

risk for the costs of that service until the

contract year for which the annual M+C

capitation rate is determined on a basis

that includes the cost of the NCD

service.

(b) The M+C organization must

furnish, arrange or pay for an NCD

‘‘significant cost’’ service prior to the

adjustment of the annual M+C

capitation rate. The following rules

apply to such services:

(1) Medicare payment for the service

is:

(i) In addition to the capitation

payment to the M+C organization; and

(ii) Made directly by the fiscal

intermediary and carrier to the M+C

organization in accordance with original

Medicare payment rules, methods, and

requirements.

(2) NCD costs for which HCFA

intermediaries and carriers will not

make payment and are the

responsibility of the M+C organization

are—

(i) Services necessary to diagnose a

condition covered by the NCD;

(ii) Most services furnished as followup care to the NCD service;

(iii) Any service that is already a

Medicare-covered service and included

in the annual M+C capitation rate; and

(iv) Any service, including the costs

of the NCD service itself, to the extent

the M+C organization is already

obligated to cover it as an additional

benefit under § 422.312 or supplemental

benefit under § 422.102.

(3) NCD costs for which HCFA

intermediaries and carriers make

payment are—

(i) Costs relating directly to the

provision of services related to the NCD

that were noncovered services prior to

the issuance of the NCD; and

(ii) A service that is not included in

the M+C per capita payment rate.

(4) If the M+C organization does not

provide or arrange for the service

consistent with HCFA’s NCD, enrollees

may obtain the services through

qualified providers not under contract

to the M+C organization, and the

organization will pay for the services

consistent with § 422.109(c).

(5) Beneficiaries are liable for Part A

deductible and any applicable

coinsurance amounts.

(c) The term ‘‘significant cost’’ as it

relates to a particular NCD means either

of the following:

(1) The average cost of furnishing a

single service exceeds a cost threshold

that—

(i) For calendar years 1998 and 1999,

is $100,000;

(ii) For calendar year 2000 and

subsequent calendar years, is the

preceding year’s dollar threshold

adjusted to reflect the national per

capita growth percentage described in

§ 422.254(b).

(2) The estimated cost of all of

Medicare services furnished nationwide

as a result of a particular NCD

represents at least 0.1 percent of the

national standardized annual capitation

rate (see § 422.254(f)), multiplied by the

total number of Medicare beneficiaries

nationwide for the applicable calendar

year.

§ 422.110 Discrimination against

beneficiaries prohibited.

(a) General prohibition. Except as

provided in paragraph (b) of this

section, an M+C organization may not

deny, limit, or condition the coverage or

furnishing of benefits to individuals

eligible to enroll in an M+C plan offered

by the organization on the basis of any

factor that is related to health status,

including, but not limited to the

following:

(1) Medical condition, including

mental as well as physical illness.

(2) Claims experience.

(3) Receipt of health care.

(4) Medical history.

(5) Genetic information.

(6) Evidence of insurability, including

conditions arising out of acts of

domestic violence.

(7) Disability.

(b) Exception. An M+C organization

may not enroll an individual who has

been medically determined to have endstage renal disease. However, an

enrollee who develops end-stage renal

disease while enrolled in a particular

M+C organization may not be

disenrolled for that reason. An

individual who is an enrollee of a

particular M+C organization, and

resides in the M+C plan service area at

the time he or she first becomes M+C

eligible, is considered to be ‘‘enrolled’’

in the M+C organization for purposes of

the preceding sentence.

(c) Plans are required to observe the

provisions of the Civil Rights Act, Age

Discrimination Act, and Americans with

Disabilities Act (see § 422.501(h)).

§ 422.111 Disclosure requirements.

(a) Detailed description of plan

provisions. An M+C organization must

disclose the information specified in

§ 422.64 and in paragraph (b) of this

section—

(1) To each enrollee electing an M+C

plan it offers;

(2) In clear, accurate, and

standardized form; and

(3) At the time of enrollment and at

least annually thereafter.

(b) Content of plan description. The

description must include the following

information:

(1) Service area. The M+C plan’s

service area and any enrollment

continuation area.

(2) Benefits. The benefits offered

under the plan, including applicable

conditions and limitations, premiums

and cost-sharing (such as copayments,

deductibles, and coinsurance) and any

other conditions associated with receipt

or use of benefits; and for purposes of

comparison—

(i) The benefits offered under original

Medicare, including the content

specified in § 422.64(c);

(ii) For an M+C MSA plan, the

benefits under other types of M+C

plans; and

(iii) The availability of the Medicare

hospice option and any approved

hospices in the service area, including

those the M+C organization owns,

controls, or has a financial interest in.

(3) Access. The number, mix, and

distribution (addresses) of providers

from whom enrollees may obtain

services; any out-of network coverage;

any point-of-service option, including

the supplemental premium for that
35080 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

option; and how the M+C organization

meets the requirements of §§ 422.112

and 422.114 for access to services

offered under the plan.

(4) Out-of-area coverage. Out-of-area

coverage provided by the plan.

(5) Emergency coverage. Coverage of

emergency services, including—

(i) Explanation of what constitutes an

emergency, referencing the definitions

of emergency services and emergency

medical condition at § 422.2;

(ii) The appropriate use of emergency

services, stating that prior authorization

cannot be required;

(iii) The process and procedures for

obtaining emergency services, including

use of the 911 telephone system or its

local equivalent; and

(iv) The locations where emergency

care can be obtained and other locations

at which contracting physicians and

hospitals provide emergency services

and post-stabilization care included in

the M+C plan.

(6) Supplemental benefits. Any

mandatory or optional supplemental

benefits and the premium for those

benefits.

(7) Prior authorization and review

rules. Prior authorization rules and

other review requirements that must be

met in order to ensure payment for the

services. The M+C organization must

instruct enrollees that, in cases where

noncontracting providers submit a bill

directly to the enrollee, the enrollee

should not pay the bill, but submit it to

the M+C organization for processing and

determination of enrollee liability, if

any.

(8) Grievance and appeals

procedures. All grievance and appeals

rights and procedures.

(9) Quality assurance program. A

description of the quality assurance

program required under § 422.152.

(10) Disenrollment rights and

responsibilities.

(c) Disclosure upon request. Upon

request of an individual eligible to elect

an M+C plan, an M+C organization must

provide to the individual the following

information:

(1) The information required under

§ 422.64(c).

(2) The procedures the organization

uses to control utilization of services

and expenditures.

(3) The number of disputes, and the

disposition in the aggregate, in a manner

and form described by the Secretary.

Such disputes shall be categorized as

(i) Grievances according to § 422.564;

and

(ii) Appeals according to § 422.578 et.

seq.

(4) A summary description of the

method of compensation for physicians.

(5) Financial condition of the M+C

organization, including the most

recently audited information regarding,

at least, a description of the financial

condition of the M+C organization

offering the plan.

(d) Changes in rules. If an M+C

organization intends to change its rules

for an M+C plan, it must—

(1) Submit the changes for HCFA

review under the procedures of

§ 422.80; and

(2) Give notice to all enrollees 30 days

before the intended effective date of the

changes.

(e) Changes to provider network. The

M+C organization must make a good

faith effort to provide written notice of

a termination of a contracted provider

within 15 working days of receipt or

issuance of a notice of termination, as

described in § 422.204(c)(4), to all

enrollees who are patients seen on a

regular basis by the provider whose

contract is terminating, irrespective of

whether the termination was for cause

or without cause. When a contract

termination involves a primary care

professional, all enrollees who are

patients of that primary care

professional must also be notified.

§ 422.112 Access to services.

(a) Rules for coordinated care plans

and network M+C MSA plans. An M+C

organization that offers an M+C

coordinated care plan or network M+C

MSA plan may specify the networks of

providers from whom enrollees may

obtain services if the following

conditions are met:

(1) The M+C organization ensures that

all covered services, including

additional or supplemental services

contracted for by (or on behalf of) the

Medicare enrollee, are available and

accessible under the plan. To do this,

the M+C organization must do the

following:

(i) Maintain and monitor a network of

appropriate providers that is supported

by written agreements and is sufficient

to provide adequate access to covered

services to meet the needs of the

population served. These providers are

typically utilized in the network as

primary care providers (PCPs),

specialists, hospitals, skilled nursing

facilities, home health agencies,

ambulatory clinics, and other providers.

(ii) Select the panel of PCPs from

which the enrollee selects a PCP.

(iii) Provide or arrange for necessary

specialty care, and in particular—

(A) Women enrollees may choose

direct access to a women’s health

specialist within the network for

women’s routine and preventive health

care services provided as basic benefits

(as defined in § 422.2) while the plan

maintains a PCP or some other means

for continuity of care; and

(B) Plans must have procedures

approved by HCFA for—

(1) Identification of individuals with

complex or serious medical conditions;

(2) Assessment of those conditions,

including medical procedures to

diagnose and monitor them on an

ongoing basis; and

(3) Establishment and implementation

of a treatment plan appropriate to those

conditions, with an adequate number of

direct access visits to specialists to

accommodate the treatment plan.

Treatment plans must be time-specific

and updated periodically by the PCP.

(2) In the case of involuntary

termination of an M+C plan or

specialist(s) for a reason other than for

cause, the M+C organization must do

the following:

(i) Inform beneficiaries, at the time of

termination, of their right to maintain

access to specialists.

(ii) Provide the names of other M+C

plans in the area that contract with

specialists of the beneficiary’s choice, as

well as an explanation of the process the

beneficiary would need to follow should

he or she decide to return to original

Medicare.

(iii) If seeking a service area

expansion for an M+C plan,

demonstrate that the number and type

of providers available to plan enrollees

are sufficient to meet projected needs of

the population to be served.

(iv) Demonstrate to HCFA that its

providers in an M+C plan are

credentialed through the process set

forth at § 422.204(a).

(v) Establish written standards for—

(A) Timeliness of access to care and

member services that meet or exceed

standards established by HCFA. Timely

access to care and member services

within a plan’s provider network must

be continuously monitored to ensure

compliance with these standards, and

the M+C organization must take

corrective action as necessary;

(B) Policies and procedures (coverage

rules, practice guidelines, payment

policies, and utilization management)

that allow for individual medical

necessity determinations; and

(C) Provider consideration of

beneficiary input into the provider’s

proposed treatment plan.

(vi) Ensure that the hours of operation

of its M+C plan providers are

convenient to the population served by

the plan and do not discriminate against

Medicare enrollees.

(vii) Ensure services are provided in

a culturally competent manner to all

enrollees, including those with limited
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35081

English proficiency or reading skills,

diverse cultural and ethnic

backgrounds, and physical or mental

disabilities.

(viii) Make plan services available 24

hours a day, 7 days a week, when

medically necessary.

(ix) Provide coverage for emergency

and urgent care services in accordance

with paragraph (b) of this section.

(3) The M+C organization must ensure

continuity of care and integration of

services through arrangements that

include, but are not limited to—

(i) Use of a practitioner who is

specifically designated as having

primary responsibility for coordinating

the enrollee’s overall health care;

(ii) Policies that specify whether

services are coordinated by the

enrollee’s primary care practitioner or

through some other means;

(iii) An ongoing source of primary

care, regardless of the mechanism

adopted for coordination of services;

(iv) Programs for coordination of care

that coordinate services with

community and social services generally

available through contracting or

noncontracting providers in the area

served by the M+C plan, including

nursing home and community-based

services;

(v) Procedures to ensure that the M+C

organization and its provider network

have the information required for

effective and continuous patient care

and quality review, including

procedures to ensure that—

(A) An initial assessment of each

enrollee’s health care needs is

completed within 90 days of the

effective date of enrollment.

(B) Each provider, supplier, and

practitioner furnishing services to

enrollees maintains an enrollee health

record in accordance with standards

established by the M+C organization,

taking into account professional

standards; and

(C) Appropriate and confidential

exchange of information among

provider network components;

(vi) Procedures to ensure that

enrollees are informed of specific health

care needs that require follow-up and

receive, as appropriate, training in selfcare and other measures they may take

to promote their own health; and

(vii) Systems to address barriers to

enrollee compliance with prescribed

treatments or regimens.

(b) Special rules for all M+C

organizations for emergency and

urgently needed services. (1) The M+C

organization covers emergency and

urgently needed services—

(i) Regardless of whether the services

are obtained within or outside the

organization; and

(ii) Without required prior

authorization.

(2) The M+C organization may not

deny payment for a condition that—

(i) Is an emergency medical condition

as defined in § 422.2; or

(ii) A plan provider or other M+C

organization representative instructs an

enrollee to seek emergency services

within or outside the plan.

(3) The physician treating the enrollee

must decide when the enrollee may be

considered stabilized for transfer or

discharge, and that decision is binding

on the M+C organization.

(4) For emergency services obtained

outside the M+C plan’s provider

network, the organization may not

charge the enrollee more than $50 or

what it would charge the enrollee if he

or she obtained the services through the

organization, whichever is less.

§ 422.114 Access to services under an

M+C private fee-for-service plan.

(a) Sufficient access. (1) An M+C

organization that offers an M+C private

fee-for-service plan must demonstrate to

HCFA that it has sufficient number and

range of providers willing to furnish

services under the plan.

(2) HCFA finds that an M+C

organization meets the requirement in

paragraph (a)(1) of this section if, with

respect to a particular category of health

care providers, the M+C organization

has—

(i) Payment rates that are not less than

the rates that apply under original

Medicare for the provider in question;

(ii) Contracts or agreements with a

sufficient number and range of

providers to furnish the services

covered under the M+C private fee-forservice plan; or

(iii) A combination of paragraphs

(a)(2)(i) and (a)(2)(ii) of this section.

(b) Freedom of choice. M+C fee-forservice plans must permit enrollees to

obtain services from any entity that is

authorized to provide services under

Medicare Part A and Part B and agrees

to provide services under the terms of

the plan.

§ 422.118 Confidentiality and accuracy of

enrollee records.

For any medical records or other

health and enrollment information it

maintains with respect to enrollees, an

M+C organization must establish

procedures to do the following:

(a) Safeguard the privacy of any

information that identifies a particular

enrollee. Information from, or copies of,

records may be released only to

authorized individuals, and the M+C

organization must ensure that

unauthorized individuals cannot gain

access to or alter patient records.

Original medical records must be

released only in accordance with

Federal or State laws, court orders, or

subpoenas.

(b) Maintain the records and

information in an accurate and timely

manner.

(c) Ensure timely access by enrollees

to the records and information that

pertain to them.

(d) Abide by all Federal and State

laws regarding confidentiality and

disclosure for mental health records,

medical records, other health

information, and enrollee information.

§ 422.128 Information on advance

directives.

(a) Each M+C organization must

maintain written policies and

procedures that meet the requirements

for advance directives, as set forth in

subpart I of part 489 of this chapter. For

purposes of this part, advance directive

has the meaning given the term in

§ 489.100 of this chapter.

(b) An M+C organization must

maintain written policies and

procedures concerning advance

directives with respect to all adult

individuals receiving medical care by or

through the M+C organization.

(1) An M+C organization must

provide written information to those

individuals with respect to the

following:

(i) Their rights under the law of the

State in which the organization

furnishes services (whether statutory or

recognized by the courts of the State) to

make decisions concerning their

medical care, including the right to

accept or refuse medical or surgical

treatment and the right to formulate

advance directives. Providers may

contract with other entities to furnish

this information but remain legally

responsible for ensuring that the

requirements of this section are met.

The information must reflect changes in

State law as soon as possible, but no

later than 90 days after the effective date

of the State law.

(ii) The M+C organization’s written

policies respecting the implementation

of those rights, including a clear and

precise statement of limitation if the

M+C organization cannot implement an

advance directive as a matter of

conscience. At a minimum, this

statement must do the following:

(A) Clarify any differences between

institution-wide conscientious

objections and those that may be raised

by individual physicians.
35082 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

(B) Identify the state legal authority

permitting such objection.

(C) Describe the range of medical

conditions or procedures affected by the

conscience objection.

(D) Provide the information specified

in paragraph (a)(1) of this section to

each enrollee at the time of initial

enrollment. If an enrollee is

incapacitated at the time of initial

enrollment and is unable to receive

information (due to the incapacitating

condition or a mental disorder) or

articulate whether or not he or she has

executed an advance directive, the M+C

organization may give advance directive

information to the enrollee’s family or

surrogate in the same manner that it

issues other materials about policies and

procedures to the family of the

incapacitated enrollee or to a surrogate

or other concerned persons in

accordance with State law. The M+C

organization is not relieved of its

obligation to provide this information to

the enrollee once he or she is no longer

incapacitated or unable to receive such

information. Follow-up procedures

must be in place to ensure that the

information is given to the individual

directly at the appropriate time.

(E) Document in a prominent part of

the individual’s current medical record

whether or not the individual has

executed an advance directive.

(F) Not condition the provision of care

or otherwise discriminate against an

individual based on whether or not the

individual has executed an advance

directive.

(G) Ensure compliance with

requirements of State law (whether

statutory or recognized by the courts of

the State) regarding advance directives.

(H) Provide for education of staff

concerning its policies and procedures

on advance directives.

(I) Provide for community education

regarding advance directives that may

include material required in paragraph

(a)(1)(i) of this section, either directly or

in concert with other providers or

entities. Separate community education

materials may be developed and used, at

the discretion of the M+C organization.

The same written materials are not

required for all settings, but the material

should define what constitutes an

advance directive, emphasizing that an

advance directive is designed to

enhance an incapacitated individual’s

control over medical treatment, and

describe applicable State law

concerning advance directives. An M+C

organization must be able to document

its community education efforts.

(2) The M+C organization—

(i) Is not required to provide care that

conflicts with an advance directive; and

(ii) Is not required to implement an

advance directive if, as a matter of

conscience, the M+C organization

cannot implement an advance directive

and State law allows any health care

provider or any agent of the provider to

conscientiously object.

(3) The M+C organization must

inform individuals that complaints

concerning noncompliance with the

advance directive requirements may be

filed with the State survey and

certification agency.

§ 422.132 Protection against liability and

loss of benefits.

Enrollees of M+C organizations are

entitled to the protections specified in

§ 422.502(g).

Subpart D—Quality Assurance

§ 422.152 Quality assessment and

performance improvement program.

(a) General rule. Each M+C

organization that offers one or more

M+C plans must have, for each of those

plans, an ongoing quality assessment

and performance improvement program

that meets the applicable requirements

of this section for the services it

furnishes to its M+C enrollees.

(b) Requirements for M+C coordinated

care plans and network M+C MSA

plans. An organization offering an M+C

coordinated care plan or M+C network

MSA plan must do the following:

(1) Meet the requirements in

paragraph (c)(1) of this section

concerning performance measurement

and reporting. With respect to an M+C

coordinated care plan, an organization

must also meet the requirements of

paragraph (c)(2) of this section

concerning the achievement of

minimum performance levels. The

requirements of paragraph (c)(2) of this

section do not apply with respect to an

M+C MSA plan.

(2) Conduct performance

improvement projects as described in

paragraph (d) of this section. These

projects must achieve, through ongoing

measurement and intervention,

demonstrable and sustained

improvement in significant aspects of

clinical care and nonclinical care areas

that can be expected to have a favorable

effect on health outcomes and enrollee

satisfaction.

(3) In processing requests for initial or

continued authorization of services,

follow written policies and procedures

that reflect current standards of medical

practice.

(4) Have in effect mechanisms to

detect both underutilization and

overutilization of services.

(5) Make available to HCFA

information on quality and outcomes

measures that will enable beneficiaries

to compare health coverage options and

select among them, as provided in

§ 422.64(c)(10).

(c) Performance measurement and

reporting. The organization offering the

plan must do the following:

(1) Measure performance under the

plan, using standard measures required

by HCFA, and report its performance to

HCFA. The standard measures may be

specified in uniform data collection and

reporting instruments required by

HCFA, and will relate to—

(i) Clinical areas including

effectiveness of care, enrollee

perception of care, and use of services;

and

(ii) Nonclinical areas including access

to and availability of services, appeals

and grievances, and organizational

characteristics.

(2) Achieve any minimum

performance levels that HCFA

establishes locally, regionally, or

nationally with respect to the standard

measures.

(i) In establishing minimum

performance levels, HCFA considers

historical plan and original Medicare

performance data and trends.

(ii) HCFA establishes the minimum

performance levels prospectively upon

contract initiation and renewal.

(iii) The organization must meet the

minimum performance levels by the end

of the contract year.

(iv) In accordance with § 422.506,

HCFA may decline to renew the

organization’s contract in the year that

HCFA determines that it did not meet

the minimum performance levels.

(d) Performance improvement

projects. (1) Performance improvement

projects are organization initiatives that

focus on specified clinical and

nonclinical areas and that involve the

following:

(i) Measurement of performance.

(ii) System interventions, including

the establishment or alteration of

practice guidelines.

(iii) Improving performance.

(iv) Systematic follow-up on the effect

of the interventions.

(2) Each project must address the

entire population to which the

measurement specified in paragraph

(d)(1)(i) of this section is relevant.

(3) HCFA establishes M+C

organization and M+C plan-specific

obligations for the number and

distribution of projects among the

required clinical and nonclinical areas,

in accordance with paragraphs (d)(4)

and (d)(5) of this section, to ensure that

the projects are representative of the

entire spectrum of clinical and

nonclinical care areas associated with a

plan.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35083

(4) The required clinical areas

include:

(i) Prevention and care of acute and

chronic conditions.

(ii) High-volume services.

(iii) High-risk services.

(iv) Continuity and coordination of

care.

(5) The required nonclinical areas

include:

(i) Appeals, grievances, and other

complaints.

(ii) Access to, and availability of,

services.

(6) In addition to requiring that the

organization initiate its own

performance improvement projects,

HCFA may require that the

organization—

(i) Conduct particular performance

improvement projects that are specific

to the organization; and

(ii) Participate in national or

statewide performance improvement

projects.

(7) For each project, the organization

must assess performance under the plan

using quality indicators that are—

(i) Objective, clearly and

unambiguously defined, and based on

current clinical knowledge or health

services research; and

(ii) Capable of measuring outcomes

such as changes in health status,

functional status and enrollee

satisfaction, or valid proxies of those

outcomes.

(8) Performance assessment on the

selected indicators must be based on

systematic ongoing collection and

analysis of valid and reliable data.

(9) Interventions must achieve

improvement that is significant and

sustained over time.

(10) The organization must report the

status and results of each project to

HCFA as requested.

(e) Requirements for non-network

M+C MSA plans and M+C private feefor-service plans. An organization

offering an M+C non-network MSA plan

or an M+C private fee-for-service plan

must do the following:

(1) Measure performance under the

plan using standard measures required

by HCFA and report its performance to

HCFA. The standard measures may be

specified in uniform data collection and

reporting instruments required by HCFA

and will relate to—

(i) Prevention and care of acute and

chronic conditions;

(ii) High-volume services;

(iii) High-risk services; and

(iv) Enrollee satisfaction.

(2) Evaluate the continuity and

coordination of care furnished to

enrollees.

(3) If the organization uses written

protocols for utilization review, the

organization must—

(i) Base those protocols on current

standards of medical practice; and

(ii) Have mechanisms to evaluate

utilization of services and to inform

enrollees and providers of services of

the results of the evaluation.

(f) Requirements for all types of

plans—(1) Health information. For all

types of plans that it offers, an

organization must—

(i) Maintain a health information

system that collects, analyzes, and

integrates the data necessary to

implement its quality assessment and

performance improvement program;

(ii) Ensure that the information it

receives from providers of services is

reliable and complete; and

(iii) Make all collected information

available to HCFA.

(2) Program review. For each plan,

there must be in effect a process for

formal evaluation, at least annually, of

the impact and effectiveness of its

quality assessment and performance

improvement program.

§ 422.154 External review.

(a) Basic rule. Except as provided in

paragraph (c) of this section, each M+C

organization must, for each M+C plan it

operates, have an agreement with an

independent quality review and

improvement organization (review

organization) approved by HCFA to

perform functions of the type described

in part 466 of this chapter.

(b) Terms of the agreement. The

agreement must be consistent with

HCFA guidelines and include the

following provisions:

(1) Require that the organization—

(i) Allocate adequate space for use of

the review organization whenever it is

conducting review activities; and

(ii) Provide all pertinent data,

including patient care data, at the time

the review organization needs the data

to carry out the reviews and make its

determinations.

(2) Except in the case of complaints

about quality, exclude review activities

that HCFA determines would duplicate

review activities conducted as part of an

accreditation process or as part of HCFA

monitoring.

(c) Exceptions. The requirement of

paragraph (a) of this section does not

apply for an M+C private fee-for-service

plan or a non-network M+C MSA plan

if the organization does not carry out

utilization review with respect to the

plan.

§ 422.156 Compliance deemed on the

basis of accreditation.

(a) General rule. An M+C organization

may be deemed to meet any of the

requirements of paragraph (b) of this

section if—

(1) The M+C organization is fully

accredited (and periodically

reaccredited) by a private, national

accreditation organization approved by

HCFA; and

(2) The accreditation organization

used the standards approved by HCFA

for the purposes of assessing the M+C

organization’s compliance with

Medicare requirements.

(b) Deeming requirements. The

following requirements are deemable:

(1) The quality assessment and

performance improvement requirements

of § 422.152.

(2) The confidentiality and accuracy

of enrollee records requirements of

§ 422.118.

(c) Effective date of deemed status.

The date on which the organization is

deemed to meet the applicable

requirements is the later of the

following:

(1) The date on which the

accreditation organization is approved

by HCFA.

(2) The date the M+C organization is

accredited by the accreditation

organization.

(d) Obligations of deemed M+C

organizations. An M+C organization

deemed to meet Medicare requirements

must—

(1) Submit to surveys by HCFA to

validate its accreditation organization’s

accreditation process; and

(2) Authorize its accreditation

organization to release to HCFA a copy

of its most recent accreditation survey,

together with any survey-related

information that HCFA may require

(including corrective action plans and

summaries of unmet HCFA

requirements).

(e) Removal of deemed status. HCFA

removes part or all of an M+C

organization’s deemed status for any of

the following reasons:

(1) HCFA determines, on the basis of

its own survey or the results of the

accreditation survey, that the M+C

organization does not meet the Medicare

requirements for which deemed status

was granted.

(2) HCFA withdraws its approval of

the accreditation organization that

accredited the M+C organization.

(3) The M+C organization fails to meet

the requirements of paragraph (d) of this

section.

(f) Enforcement authority. HCFA

retains the authority to initiate

enforcement action against any M+C
35084 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

organization that it determines, on the

basis of its own survey or the results of

an accreditation survey, no longer meets

the Medicare requirements for which

deemed status was granted.

§ 422.157 Accreditation organizations.

(a) Conditions for approval. HCFA

may approve an accreditation

organization with respect to a given

standard under this part if it meets the

following conditions:

(1) In accrediting M+C organizations,

it applies and enforces standards that

are at least as stringent as Medicare

requirements with respect to the

standard or standards in question.

(2) It complies with the application

and reapplication procedures set forth

in § 422.158.

(3) It is not controlled, as defined in

§ 413.17 of this chapter, by the entities

it accredits.

(b) Notice and comment—(1)

Proposed notice. HCFA publishes a

proposed notice in the Federal Register

whenever it is considering granting an

accreditation organization’s application

for approval. The notice—

(i) Specifies the basis for granting

approval;

(ii) Describes how the accreditation

organization’s accreditation program

meets or exceeds all of the Medicare

requirements for which HCFA would

deem compliance on the basis of the

organization’s accreditation; and

(iii) Provides opportunity for public

comment.

(2) Final notice. (i) After reviewing

public comments, HCFA publishes a

final Federal Register notice indicating

whether it has granted the accreditation

organization’s request for approval.

(ii) If HCFA grants the request, the

final notice specifies the effective date

and the term of the approval, which

may not exceed 6 years.

(c) Ongoing responsibilities of an

approved accreditation organization.

An accreditation organization approved

by HCFA must undertake the following

activities on an ongoing basis:

(1) Provide to HCFA in written form

and on a monthly basis all of the

following:

(i) Copies of all accreditation surveys,

together with any survey-related

information that HCFA may require

(including corrective action plans and

summaries of unmet HCFA

requirements).

(ii) Notice of all accreditation

decisions.

(iii) Notice of all complaints related to

deemed M+C organizations.

(iv) Information about any M+C

organization against which the

accrediting organization has taken

remedial or adverse action, including

revocation, withdrawal or revision of

the M+C organization’s accreditation.

(The accreditation organization must

provide this information within 30 days

of taking the remedial or adverse

action.)

(v) Notice of any proposed changes in

its accreditation standards or

requirements or survey process. If the

organization implements the changes

before or without HCFA approval,

HCFA may withdraw its approval of the

accreditation organization.

(2) Within 30 days of a change in

HCFA requirements, submit to HCFA—

(i) An acknowledgment of HCFA’s

notification of the change;

(ii) A revised cross-walk reflecting the

new requirements; and

(iii) An explanation of how the

accreditation organization plans to alter

its standards to conform to HCFA’s new

requirements, within the time-frames

specified in the notification of change it

receives from HCFA.

(3) Permit its surveyors to serve as

witnesses if HCFA takes an adverse

action based on accreditation findings.

(4) Within 3 days of identifying, in an

accredited M+C organization, a

deficiency that poses immediate

jeopardy to the organization’s enrollees

or to the general public, give HCFA

written notice of the deficiency.

(5) Within 10 days of HCFA’s notice

of withdrawal of approval, give written

notice of the withdrawal to all

accredited M+C organizations.

(d) Continuing Federal oversight of

approved accreditation organizations.

This paragraph establishes specific

criteria and procedures for continuing

oversight and for withdrawing approval

of an accreditation organization.

(1) Equivalency review. HCFA

compares the accreditation

organization’s standards and its

application and enforcement of those

standards to the comparable HCFA

requirements and processes when—

(i) HCFA imposes new requirements

or changes its survey process;

(ii) An accreditation organization

proposes to adopt new standards or

changes in its survey process; or

(iii) The term of an accreditation

organization’s approval expires.

(2) Validation review. HCFA or its

agent may conduct a survey of an

accredited organization, examine the

results of the accreditation

organization’s own survey, or attend the

accreditation organization’s survey, in

order to validate the organization’s

accreditation process. At the conclusion

of the review, HCFA identifies any

accreditation programs for which

validation survey results—

(i) Indicate a 20 percent rate of

disparity between certification by the

accreditation organization and

certification by HCFA or its agent on

standards that do not constitute

immediate jeopardy to patient health

and safety if unmet;

(ii) Indicate any disparity between

certification by the accreditation

organization and certification by HCFA

or its agent on standards that constitute

immediate jeopardy to patient health

and safety if unmet; or

(iii) Indicate that, irrespective of the

rate of disparity, there are widespread or

systematic problems in an

organization’s accreditation process

such that accreditation no longer

provides assurance that the Medicare

requirements are met or exceeded.

(3) Onsite observation. HCFA may

conduct an onsite inspection of the

accreditation organization’s operations

and offices to verify the organization’s

representations and assess the

organization’s compliance with its own

policies and procedures. The onsite

inspection may include, but is not

limited to, reviewing documents,

auditing meetings concerning the

accreditation process, evaluating survey

results or the accreditation status

decision making process, and

interviewing the organization’s staff.

(4) Notice of intent to withdraw

approval. If an equivalency review,

validation review, onsite observation, or

HCFA’s daily experience with the

accreditation organization suggests that

the accreditation organization is not

meeting the requirements of this

subpart, HCFA gives the organization

written notice of its intent to withdraw

approval.

(5) Withdrawal of approval. HCFA

may withdraw its approval of an

accreditation organization at any time if

HCFA determines that—

(i) Deeming based on accreditation no

longer guarantees that the M+C

organization meets the M+C

requirements, and failure to meet those

requirements could jeopardize the

health or safety of Medicare enrollees

and constitute a significant hazard to

the public health; or

(ii) The accreditation organization has

failed to meet its obligations under this

section or under § 422.156 or § 422.158.

(6) Reconsideration of withdrawal of

approval. An accreditation organization

dissatisfied with a determination to

withdraw HCFA approval may request a

reconsideration of that determination in

accordance with subpart D of part 488

of this chapter.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35085

§ 422.158 Procedures for approval of

accreditation as a basis for deeming

compliance.

(a) Required information and

materials. A private, national

accreditation organization applying for

approval must furnish to HCFA all of

the following information and materials.

(When reapplying for approval, the

organization need furnish only the

particular information and materials

requested by HCFA.)

(1) The types of M+C plans that it

would review as part of its accreditation

process.

(2) A detailed comparison of the

organization’s accreditation

requirements and standards with the

Medicare requirements (for example, a

crosswalk).

(3) Detailed information about the

organization’s survey process,

including—

(i) Frequency of surveys and whether

surveys are announced or unannounced.

(ii) Copies of survey forms, and

guidelines and instructions to

surveyors.

(iii) Descriptions of—

(A) The survey review process and the

accreditation status decision making

process;

(B) The procedures used to notify

accredited M+C organizations of

deficiencies and to monitor the

correction of those deficiencies; and

(C) The procedures used to enforce

compliance with accreditation

requirements.

(4) Detailed information about the

individuals who perform surveys for the

accreditation organization, including—

(i) The size and composition of

accreditation survey teams for each type

of plan reviewed as part of the

accreditation process;

(ii) The education and experience

requirements surveyors must meet;

(iii) The content and frequency of the

in-service training provided to survey

personnel;

(iv) The evaluation systems used to

monitor the performance of individual

surveyors and survey teams; and

(v) The organization’s policies and

practice with respect to the

participation, in surveys or in the

accreditation decision process by an

individual who is professionally or

financially affiliated with the entity

being surveyed.

(5) A description of the organization’s

data management and analysis system

with respect to its surveys and

accreditation decisions, including the

kinds of reports, tables, and other

displays generated by that system.

(6) A description of the organization’s

procedures for responding to and

investigating complaints against

accredited organizations, including

policies and procedures regarding

coordination of these activities with

appropriate licensing bodies and

ombudsmen programs.

(7) A description of the organization’s

policies and procedures with respect to

the withholding or removal of

accreditation for failure to meet the

accreditation organization’s standards or

requirements, and other actions the

organization takes in response to

noncompliance with its standards and

requirements.

(8) A description of all types (for

example, full, partial) and categories (for

example, provisional, conditional,

temporary) of accreditation offered by

the organization, the duration of each

type and category of accreditation and a

statement identifying the types and

categories that would serve as a basis for

accreditation if HCFA approves the

accreditation organization.

(9) A list of all currently accredited

M+C organizations and the type,

category, and expiration date of the

accreditation held by each of them.

(10) A list of all full and partial

accreditation surveys scheduled to be

performed by the accreditation

organization as requested by HCFA.

(11) The name and address of each

person with an ownership or control

interest in the accreditation

organization.

(b) Required supporting

documentation. A private, national

accreditation organization applying or

reapplying for approval must also

submit the following supporting

documentation:

(1) A written presentation that

demonstrates its ability to furnish HCFA

with electronic data in HCFA

compatible format.

(2) A resource analysis that

demonstrates that its staffing, funding,

and other resources are adequate to

perform the required surveys and

related activities.

(3) A statement acknowledging that,

as a condition for approval, it agrees to

comply with the ongoing responsibility

requirements of § 422.157(c).

(c) Additional information. If HCFA

determines that it needs additional

information for a determination to grant

or deny the accreditation organization’s

request for approval, it notifies the

organization and allows time for the

organization to provide the additional

information.

(d) Onsite visit. HCFA may visit the

accreditation organization’s offices to

verify representations made by the

organization in its application,

including, but not limited to, review of

documents, and interviews with the

organization’s staff.

(e) Notice of determination. HCFA

gives the accreditation organization a

formal notice that—

(1) States whether the request for

approval has been granted or denied;

(2) Gives the rationale for any denial;

and

(3) Describes the reconsideration and

reapplication procedures.

(f) Withdrawal. An accreditation

organization may withdraw its

application for approval at any time

before it receives the formal notice

specified in paragraph (e) of this

section.

(g) Reconsideration of adverse

determination. An accreditation

organization that has received notice of

denial of its request for approval may

request reconsideration in accordance

with subpart D of part 488 of this

chapter.

(h) Request for approval following

denial. (1) Except as provided in

paragraph (h)(2) of this section, an

accreditation organization that has

received notice of denial of its request

for approval may submit a new request

if it—

(i) Has revised its accreditation

program to correct the deficiencies on

which the denial was based;

(ii) Can demonstrate that the M+C

organizations that it has accredited meet

or exceed applicable Medicare

requirements; and

(iii) Resubmits the application in its

entirety.

(2) An accreditation organization that

has requested reconsideration of

HCFA’s denial of its request for

approval may not submit a new request

until the reconsideration is

administratively final.

Subpart E—Relationships with

Providers.

422.200 Basis and scope.

This subpart is based on sections

1852(a)(1), (a)(2), (b)(2), (c)(2)(D), (j), and

(k) of the Act; section 1859(b)(2)(A) of

the Act; and the general authority under

1856(b) of the Act requiring the

establishment of standards. It sets forth

the requirements and standards for the

M+C organization’s relationships with

providers including physicians, other

health care professionals, institutional

providers and suppliers, under contracts

or arrangements or deemed contracts

under M+C private fee-for-service plans.

This subpart also contains some

requirements that apply to

noncontracting providers.
35086 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

§ 422.202 Participation procedures.

(a) Notice and appeal rights. An M+C

organization that operates a coordinated

care plan or network MSA plan must

provide for the participation of

individual health care professionals,

and the management and members of

groups of health care professionals,

through reasonable procedures that

include the following:

(1) Written notice of rules of

participation such as terms for payment,

utilization review, quality improvement

programs, credentialing, data reporting,

confidentiality, guidelines or criteria for

the furnishing of particular services, and

other rules related to administrative

policy.

(2) Written notice of material changes

in participation rules before the changes

are put into effect.

(3) Written notice of participation

decisions that are adverse to health care

professionals.

(4) A process for appealing adverse

decisions, including the right of

physicians and other health care

professionals to present information and

their views on the decision. In the case

of a termination of a provider contract

by the M+C organization, this process

must conform to the rules in

§ 422.204(c).

(b) Consultation. The M+C

organization must consult with the

physicians, and other health care

professionals who have agreed to

provide services under an M+C plan

offered by the organization, regarding

the organization’s medical policy,

quality assurance program, and medical

management procedures and ensure that

the following standards are met:

(1) Practice guidelines and utilization

management guidelines—

(i) Are based on reasonable medical

evidence or a consensus of health care

professionals in the particular field;

(ii) Consider the needs of the enrolled

population;

(iii) Are developed in consultation

with contracting health care

professionals; and

(iv) Are reviewed and updated

periodically.

(2) The guidelines are communicated

to providers and, as appropriate, to

enrollees.

(3) Decisions with respect to

utilization management, enrollee

education, coverage of services, and

other areas in which the guidelines

apply are consistent with the guidelines.

(c) An M+C organization that operates

an M+C plan through subcontracted

physician groups or other subcontracted

networks of health care professionals

must provide that the participation

procedures in this section apply equally

to physicians and other health care

professionals within those

subcontracted groups.

§ 422.204 Provider credentialing and

provider rights.

(a) Basic requirements. An M+C

organization must follow a documented

process with respect to providers and

suppliers who have signed contracts or

participation agreements that—

(1) For providers (other than

physicians and other health care

professionals) requires determination,

and redetermination at specified

intervals, that each provider—

(i) Licensed to operate in the State,

and in compliance with any other

applicable State or Federal

requirements; and

(ii) Reviewed and approved by an

accrediting body, or meets the standards

established by the organization itself;

(2) For physicians and other health

care professionals, including members

of physician groups, covers—

(i) Initial credentialing that includes

written application, verification of

licensure and other information from

primary sources, disciplinary status,

eligibility for payment under Medicare,

and site visits as appropriate. The

application must be signed and dated

and include an attestation by the

applicant of the correctness and

completeness of the application and

other information submitted in support

of the application;

(ii) Recredentialing at least every 2

years that updates information obtained

during initial credentialing and

considers performance indicators such

as those collected through quality

assurance programs, utilization

management systems, handling of

grievances and appeals, enrollee

satisfaction surveys, and other plan

activities, and that includes an

attestation of the correctness and

completeness of the new information;

and

(iii) A process for receiving advice

from contracting health care

professionals with respect to criteria for

credentialing and recredentialing; and

(iv) Requiring that, to the extent

applicable, the requirements in

paragraphs (a)(2)(i) and (a)(2)(iii) of this

section are satisfied; and

(3)(i) Specify that basic benefits must

be provided through, or payments must

be made to, providers that meet

applicable requirements of title XVIII

and part A of title XI of the Act. In the

case of providers meeting the definition

of ‘‘provider of services’’ in section

1861(u), basic benefits may only be

provided through such providers if they

have a provider agreement with HCFA

permitting them to provide services

under original Medicare.

(ii) Ensures compliance with the

requirements at § 422.752(a)(8) that

prohibit employment or contracts with

individuals (or with an entity that

employs or contracts with such an

individual) excluded from participation

under Medicare and with the

requirements at § 422.220 regarding

physicians and practitioners who opt

out of Medicare.

(b) Discrimination prohibited—(1)

General rule. An M+C organization may

not discriminate, in terms of

participation, reimbursement, or

indemnification, against any health care

professional who is acting within the

scope of his or her license or

certification under State law, solely on

the basis of the license or certification.

(2) Construction. The prohibition in

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

preclude any of the following by the

M+C organization:

(i) Refusal to grant participation to

health care professionals in excess of

the number necessary to meet the needs

of the plan’s enrollees (except for M+C

private-fee-for-service plans, which may

not refuse to contract on this basis).

(ii) Use of different reimbursement

amounts for different specialties.

(iii) Implementation of measures

designed to maintain quality and

control costs consistent with its

responsibilities.

(c) Denial, suspension, or termination

of contract. The requirements in this

paragraph (c) apply to an M+C

organization that operates a coordinated

care plan or network MSA plan

providing benefits through contracting

providers.

(1) Notice to health care professional.

An M+C organization that denies,

suspends, or terminates an agreement

under which the health care

professional provides services to M+C

plan enrollees must give the affected

individual written notice of the

following:

(i) The reasons for the action.

(ii) The standards and the profiling

data the organization used to evaluate

the health care professional.

(iii) The numbers and mix of health

care professionals the organization

needs.

(iv) The affected health care

professional’s right to appeal the action

and the process and timing for

requesting a hearing.

(2) Composition of hearing panel. The

M+C organization must ensure that the

majority of the hearing panel members

are peers of the affected health care

professional.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35087

(3) Notice to licensing or disciplinary

bodies. An M+C organization that

suspends or terminates a contract with

a health care professional because of

deficiencies in the quality of care must

give written notice of that action to

licensing or disciplinary bodies or to

other appropriate authorities.

(4) Timeframes. An M+C organization

and a contracting provider must provide

at least 60 days written notice to each

other before terminating the contract

without cause.

§ 422.206 Interference with health care

professionals’ advice to enrollees

prohibited.

(a) General rule. (1) An M+C

organization may not prohibit or

otherwise restrict a health care

professional, acting within the lawful

scope of practice, from advising, or

advocating on behalf of, an individual

who is a patient and enrolled under an

M+C plan about—

(i) The patient’s health status, medical

care, or treatment options (including

any alternative treatments that may be

self-administered), including the

provision of sufficient information to

the individual to provide an

opportunity to decide among all

relevant treatment options;

(ii) The risks, benefits, and

consequences of treatment or nontreatment; or

(iii) The opportunity for the

individual to refuse treatment and to

express preferences about future

treatment decisions.

(2) Health care professionals must

provide information regarding treatment

options in a culturally-competent

manner, including the option of no

treatment. Health care professionals

must ensure that individuals with

disabilities have effective

communications with participants

throughout the health system in making

decisions regarding treatment options.

(b) Conscience protection. The general

rule in paragraph (a) of this section does

not require the M+C plan to cover,

furnish, or pay for a particular

counseling or referral service if the M+C

organization that offers the plan—

(1) Objects to the provision of that

service on moral or religious grounds;

and

(2) Through appropriate written

means, makes available information on

these policies as follows:

(i) To HCFA, with its application for

a Medicare contract, or within 10 days

of submitting its ACR proposal, as

appropriate.

(ii) To prospective enrollees, before or

during enrollment.

(iii) With respect to current enrollees,

the organization is eligible for the

exception provided in paragraph (a)(1)

of this section if it provides notice

within 90 days after adopting the policy

at issue; however, under § 422.111(d),

notice of such a change must be given

in advance.

(c) Construction. Nothing in

paragraph (b) of this section may be

construed to affect disclosure

requirements under State law or under

the Employee Retirement Income

Security Act of 1974.

(d) Sanctions. An M+C organization

that violates the prohibition of

paragraph (a) of this section or the

conditions in paragraph (b) of this

section is subject to intermediate

sanctions under subpart O of this part.

§ 422.208 Physician incentive plans:

requirements and limitations.

(a) Definitions. In this subpart, the

following definitions apply:

Bonus means a payment made to a

physician or physician group beyond

any salary, fee-for-service payments,

capitation, or returned withhold.

Capitation means a set dollar payment

per patient per unit of time (usually per

month) paid to a physician or physician

group to cover a specified set of services

and administrative costs without regard

to the actual number of services

provided. The services covered may

include the physician’s own services,

referral services, or all medical services.

Physician group means a partnership,

association, corporation, individual

practice association, or other group of

physicians that distributes income from

the practice among members. An

individual practice association is

defined as a physician group for this

section only if it is composed of

individual physicians and has no

subcontracts with physician groups.

Physician incentive plan means any

compensation arrangement to pay a

physician or physician group that may

directly or indirectly have the effect of

reducing or limiting the services

provided to any plan enrollee.

Potential payments means the

maximum payments possible to

physicians or physician groups

including payments for services they

furnish directly, and additional

payments based on use and costs of

referral services, such as withholds,

bonuses, capitation, or any other

compensation to the physician or

physician group. Bonuses and other

compensation that are not based on use

of referrals, such as quality of care

furnished, patient satisfaction or

committee participation, are not

considered payments in the

determination of substantial financial

risk.

Referral services means any specialty,

inpatient, outpatient, or laboratory

services that a physician or physician

group orders or arranges, but does not

furnish directly.

Risk threshold means the maximum

risk, if the risk is based on referral

services, to which a physician or

physician group may be exposed under

a physician incentive plan without

being at substantial financial risk. This

is set at 25 percent risk.

Substantial financial risk, for

purposes of this section, means risk for

referral services that exceeds the risk

threshold.

Withhold means a percentage of

payments or set dollar amounts

deducted from a physician’s service fee,

capitation, or salary payment, and that

may or may not be returned to the

physician, depending on specific

predetermined factors.

(b) Applicability. The requirements in

this section apply to an M+C

organization and any of its

subcontracting arrangements that utilize

a physician incentive plan in their

payment arrangements with individual

physicians or physician groups.

Subcontracting arrangements may

include an intermediate entity, which

includes but is not limited to, an

individual practice association that

contracts with one or more physician

groups or any other organized group

such as those specified in § 422.4.

(c) Basic requirements. Any physician

incentive plan operated by an M+C

organization must meet the following

requirements:

(1) The M+C organization makes no

specific payment, directly or indirectly,

to a physician or physician group as an

inducement to reduce or limit medically

necessary services furnished to any

particular enrollee. Indirect payments

may include offerings of monetary value

(such as stock options or waivers of

debt) measured in the present or future.

(2) If the physician incentive plan

places a physician or physician group at

substantial financial risk (as determined

under paragraph (d) of this section) for

services that the physician or physician

group does not furnish itself, the M+C

organization provides aggregate or perpatient stop-loss protection in

accordance with paragraph (f) of this

section, and conducts periodic surveys

in accordance with paragraph (g) of this

section.

(3) For all physician incentive plans,

the M+C organization provides to HCFA

the information specified in § 422.210.

(d) Determination of substantial

financial risk—(1) Basis. Substantial

financial risk occurs when risk is based

on the use or costs of referral services,
35088 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

and that risk exceeds the risk threshold.

Payments based on other factors, such

as quality of care furnished, are not

considered in this determination.

(2) Risk threshold. The risk threshold

is 25 percent of potential payments.

(3) Arrangements that cause

substantial financial risk. The following

incentive arrangements cause

substantial financial risk within the

meaning of this section, if the

physician’s or physician group’s patient

panel size is not greater than 25,000

patients, as shown in the table at

paragraph (f)(2)(iii) of this section:

(i) Withholds greater than 25 percent

of potential payments.

(ii) Withholds less than 25 percent of

potential payments if the physician or

physician group is potentially liable for

amounts exceeding 25 percent of

potential payments.

(iii) Bonuses that are greater than 33

percent of potential payments minus the

bonus.

(iv) Withholds plus bonuses if the

withholds plus bonuses equal more than

25 percent of potential payments. The

threshold bonus percentage for a

particular withhold percentage may be

calculated using the formula—Withhold

% = ¥0.75 (Bonus %) +25%.

(v) Capitation arrangements, if—

(A) The difference between the

maximum potential payments and the

minimum potential payments is more

than 25 percent of the maximum

potential payments;

(B) The maximum and minimum

potential payments are not clearly

explained in the contract with the

physician or physician group.

(vi) Any other incentive arrangements

that have the potential to hold a

physician or physician group liable for

more than 25 percent of potential

payments.

(e) An M+C fee-for-service plan may

not operate a physician incentive plan.

(f) Stop-loss protection requirements.

(1) Basic rule. The M+C organization

must assure that all physicians and

physician groups at substantial financial

risk have either aggregate or per-patient

stop-loss protection in accordance with

the following requirements:

(2) Specific requirements. (i)

Aggregate stop-loss protection must

cover 90 percent of the costs of referral

services that exceed 25 percent of

potential payments.

(ii) For per-patient stop-loss

protection if the stop-loss protection

provided is on a per-patient basis, the

stop-loss limit (deductible) per patient

must be determined based on the size of

the patient panel and may be a

combined policy or consist of separate

policies for professional services and

institutional services. In determining

patient panel size, the patients may be

pooled in accordance with paragraph (g)

of this section.

(iii) Stop-loss protection must cover

90 percent of the costs of referral

services that exceed the per patient

deductible limit. The per-patient stoploss deductible limits are as follows:

Panel size Single combined

deductible

Separate institutional deductibleSeparate professional deductible

1–1,000 ....................................................................................................................... $6,000 $10,000 $3,000

1,001–5,000 ................................................................................................................ 30,000 40,000 10,000

5,001–8,000 ................................................................................................................ 40,000 60,000 15,000

8,001–10,000 .............................................................................................................. 75,000 100,000 20,000

10,001–25,000 ............................................................................................................ 150,000 200,000 25,000

>25,000 ...................................................................................................................... (1) (1) (1)

1 None.

(g) Pooling of patients. Any entity that

meets the pooling conditions of this

section may pool commercial, Medicare,

and Medicaid enrollees or the enrollees

of several M+C organizations with

which a physician or physician group

has contracts. The conditions for

pooling are as follows:

(1) It is otherwise consistent with the

relevant contracts governing the

compensation arrangements for the

physician or physician group.

(2) The physician or physician group

is at risk for referral services with

respect to each of the categories of

patients being pooled.

(3) The terms of the compensation

arrangements permit the physician or

physician group to spread the risk

across the categories of patients being

pooled.

(4) The distribution of payments to

physicians from the risk pool is not

calculated separately by patient

category.

(5) The terms of the risk borne by the

physician or physician group are

comparable for all categories of patients

being pooled.

(h) Periodic surveys of current and

former enrollees. An M+C organization

must conduct periodic surveys of

current and former enrollees where

substantial financial risk exists. These

periodic surveys must—

(1) Include either a sample of, or all,

current Medicare/Medicaid enrollees in

the M+C organization and individuals

disenrolled in the past 12 months for

reasons other than—

(i) The loss of Medicare or Medicaid

eligibility;

(ii) Relocation outside the M+C

organization’s service area;

(iii) For failure to pay premiums or

other charges;

(iv) For abusive behavior; and

(v) Retroactive disenrollment.

(2) Be designed, implemented, and

analyzed in accordance with commonly

accepted principles of survey design

and statistical analysis;

(3) Measure the degree of enrollees/

disenrollees’ satisfaction with the

quality of the services provided and the

degree to which the enrollees/

disenrollees have or had access to the

services provided under the M+C

organization; and

(4) Be conducted no later than 1 year

after the effective date of the M+C

organization’s contract and at least

annually thereafter.

(i) Sanctions. An M+C organization

that fails to comply with the

requirements of this section is subject to

intermediate sanctions under subpart O

of this part.

§ 422.210 Disclosure of physician

incentive plans

(a) Disclosure to HCFA—(1) Basic

requirement. Each M+C organization

must provide to HCFA descriptive

information about its physician

incentive plan in sufficient detail to

enable HCFA to determine whether that

plan complies with the requirements of

§ 422.208. Reporting should be on the

HCFA PIP Disclosure Form (OMB No.

0938–0700).

(2) Content. The information must

include at least the following:

(i) Whether services not furnished by

the physician or physician group are

covered by the incentive plan.

(ii) The type or types of incentive

arrangements, such as, withholds,

bonus, capitation.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35089

(iii) The percent of any withhold or

bonus the plan uses.

(iv) Assurance that the physicians or

physician group has adequate stop-loss

protection, and the amount and type of

stop-loss protection.

(v) The patient panel size and, if the

plan uses pooling, the pooling method.

(vi) If the M+C organization is

required to conduct enrollee surveys, a

summary of the survey results.

(3) When disclosure must be made to

HCFA. An M+C organization must

disclose annually to HCFA the

physician incentive arrangements that

are effective at the start of each year. In

addition, HCFA does not approve an

M+C organization’s application for a

contract unless the M+C organization

discloses the physician incentive

arrangements effective for that contract.

(b) Disclosure to Medicare

beneficiaries—Basic requirement. An

M+C organization must provide the

following information to any Medicare

beneficiary who requests it:

(1) Whether the M+C organization

uses a physician incentive plan that

affects the use of referral services.

(2) The type of incentive arrangement.

(3) Whether stop-loss protection is

provided.

(4) If the M+C organization was

required to conduct a survey, a

summary of the survey results.

§ 422.212 Limitations on provider

indemnification.

An M+C organization may not

contract or otherwise provide, directly

or indirectly, for any of the following

individuals, organizations, or entities to

indemnify the organization against any

civil liability for damage caused to an

enrollee as a result of the M+C

organization’s denial of medically

necessary care:

(a) A physician or health care

professional.

(b) Provider of services.

(c) Other entity providing health care

services.

(d) Group of such professionals,

providers, or entities.

§ 422.214 Special rules for services

furnished by noncontract providers.

(a) Services furnished to enrollees of

coordinated care plans by providers. (1)

Any provider (other than a provider of

services as defined in section 1861(u) of

the Act) that does not have in effect a

contract establishing payment amounts

for services furnished to a beneficiary

enrolled in an M+C coordinated care

plan must accept, as payment in full,

the amounts that the provider could

collect if the beneficiary were enrolled

in original Medicare.

(2) Any statutory provisions

(including penalty provisions) that

apply to payment for services furnished

to a beneficiary not enrolled in an M+C

plan also apply to the payment

described in paragraph (a)(1) of this

section.

(b) Services furnished by providers of

service. Any provider of services as

defined in section 1861(u) of the Act

that does not have in effect a contract

establishing payment amounts for

services furnished to a beneficiary

enrolled in an M+C coordinated care

plan must accept as payment in full the

amounts (less any payments under

§§ 412.105(g) and 413.86(d)) that it

could collect if the beneficiary were

enrolled in original Medicare.

§ 422.216 Special rules for M+C private

fee-for-service plans.

(a) Payment to providers—(1)

Payment rate. (i) The M+C organization

must establish uniform payment rates

for items and services that apply to all

contracting providers, regardless of

whether the contract is signed or

deemed under paragraph (f) of this

section.

(ii) Contracting providers must be

reimbursed on a fee-for-service basis.

(iii) The M+C organization must make

information on its payment rates

available to providers that furnish

services that may be covered under the

M+C private fee-for-service plan.

(2) Payment to contract providers. For

each service, the M+C organization pays

a contract provider (including one

deemed to have a contract) an amount

that is equal to the payment rate under

paragraph (a)(1) of this section minus

any applicable cost-sharing.

(3) Noncontract providers. The

organization pays for services of

noncontract providers in accordance

with § 422.100(b)(2).

(4) Service furnished by providers of

service. Any provider of services as

defined in section 1861(u) of the Act

that does not have in effect a contract

establishing payment mounts for

services furnished to a beneficiary

enrolled in an M+C private fee-forservice plan must accept as payment in

full the amounts (less any payments

under §§ 412.109(g) and 413.86(d) of

this chapter) that it could collect if the

beneficiary were enrolled in original

Medicare.

(b) Charges to enrollees—(1) Contract

providers. (i) Contract providers and

‘‘deemed’’ contract providers may

charge enrollees no more than the costsharing and, subject to the limit in

paragraph (b)(1)(ii) of this section,

balance billing amounts that are

permitted under the plan, and these

amounts must be the same for

‘‘deemed’’ contract providers as for

those that have signed contracts in

effect.

(ii) The organization may permit

balance billing no greater than 15

percent of the payment rate established

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

(iii) The M+C organization must

specify the amount of cost-sharing and

balance billing in its contracts with

providers and these amounts must be

the same for ‘‘deemed’’ contract

providers as for those that have signed

contracts in effect.

(iv) The M+C organization is subject

to intermediate sanctions under

§ 422.752(a)(7), under the rules in

subpart O of this part, if it fails to

enforce the limit specified in paragraph

(b)(1)(i) of this section.

(2) Noncontract providers. A

noncontract provider may not collect

from an enrollee more than the costsharing established by the M+C private

fee-for-service plan as specified in

§ 422.308(b).

(c) Enforcement of limit—(1) Contract

providers. An M+C organization that

offers an M+C fee-for-service plan must

enforce the limit specified in paragraph

(b)(1) of this section.

(2) Noncontract providers. An M+C

organization that offers an M+C private

fee-for-service plan must monitor the

amount collected by noncontract

providers to ensure that those amounts

do not exceed the amounts permitted to

be collected under paragraph (b)(2) of

this section. The M+C organization must

develop and document violations

specified in instructions and must

forward documented cases to HCFA.

(d) Information on enrollee liability—

(1) General information. An M+C

organization that offers an M+C fee-forservice plan must provide to plan

enrollees, for each claim filed by the

enrollee or the provider that furnished

the service, an appropriate explanation

of benefits. The explanation must

include a clear statement of the

enrollee’s liability for deductibles,

coinsurance, copayment, and balance

billing.

(2) Advance notice for hospital

services. In its terms and conditions of

payment to hospitals, the M+C

organization must require the hospital,

if it imposes balance billing, to provide

to the enrollee, before furnishing any

services for which balance billing could

amount to not less than $500—

(i) Notice that balance billing is

permitted for those services;

(ii) A good faith estimate of the likely

amount of balance billing, based on the

enrollees presenting condition; and
35090 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

(iii) The amount of any deductible,

coinsurance, and copayment that may

be due in addition to the balance billing

amount.

(e) Coverage determinations. The

M+C organization must make coverage

determinations in accordance with

subpart M of this part.

(f) Rules describing deemed contract

providers. Any provider furnishing

health services to an enrollee in an M+C

private fee-for-service plan, and who

has not previously entered into a

contract or agreement to furnish services

under the plan, is treated as having a

contract in effect and is subject to the

limitations of this section that apply to

contract providers if the following

conditions are met:

(1) The services are covered under the

plan and are furnished—

(i) To an enrollee of an M+C fee-forservice plan; and

(ii) Provided by a provider including

a provider of services (as defined in

section 1861(u) of the Act) that does not

have in effect a signed contract with the

M+C organization.

(2) Before furnishing the services, the

provider—

(i) Was informed of the individual’s

enrollment in the plan; and

(ii) Was informed (or given a

reasonable opportunity to obtain

information) about the terms and

conditions of payment under the plan,

including the information described in

§ 422.202(a)(1).

(3) The information was provided in

a manner that was reasonably designed

to effect informed agreement and met

the requirements of paragraphs (g) and

(h) of this section.

(g) Enrollment information.

Enrollment information was provided

by one of the following methods or a

similar method:

(1) Presentation of an enrollment card

or other document attesting to

enrollment.

(2) Notice of enrollment from HCFA,

a Medicare intermediary or carrier, or

the M+C organization itself.

(h) Information on payment terms and

conditions. Information on payment

terms and conditions was made

available through either of the following

methods:

(1) The M+C organization used postal

service, electronic mail, FAX, or

telephone to communicate the

information to one of the following:

(i) The provider.

(ii) The employer or billing agent of

the provider.

(iii) A partnership of which the

provider is a member.

(iv) Any party to which the provider

makes assignment or reassigns benefits.

(2) The M+C organization has in effect

a procedure under which—

(i) Any provider furnishing services to

an enrollee in an M+C private fee-forservice plan, and who has not

previously entered into a contract or

agreement to furnish services under the

plan, can receive instructions on how to

request the payment information;

(ii) The organization responds to the

request before the entity furnishes the

service; and

(iii) The information the organization

provides includes the following:

(A) Billing procedures.

(B) The amount the organization will

pay towards the service.

(C) The amount the provider is

permitted to collect from the enrollee.

(D) The information described in

§ 422.202(a)(1).

(3) Announcements in newspapers,

journals, or magazines or on radio or

television are not considered

communication of the terms and

conditions of payment.

(i) Provider credentialing

requirements. Contracts with providers

must provide that, in order to be paid

to provide services to plan enrollees,

providers must meet the requirements

specified in § 422.204(a)(1) and

(a)(1)(iii).

§ 422.220 Exclusion of services furnished

under a private contract.

An M+C organization may not pay,

directly or indirectly, on any basis, for

services (other than emergency or

urgently needed services as defined in

§ 422.2) furnished to a Medicare

enrollee by a physician (as defined in

section 1861(r)(1) of the Act) or other

practitioner (as defined in section

1842(b)(18)(C) of the Act) who has filed

with the Medicare carrier an affidavit

promising to furnish Medicare-covered

services to Medicare beneficiaries only

through private contracts under section

1802(b) of the Act with the

beneficiaries. An M+C organization

must pay for emergency or urgently

needed services furnished by a

physician or practitioner who has not

signed a private contract with the

beneficiary.

Subpart F—Payments to

Medicare+Choice Organizations

§ 422.249 Terminology.

In this subpart—

(a) The terms ‘‘per capita rate’’ and

‘‘capitation rate’’ (see § 422.252) are

used interchangeably; and

(b) In the term ‘‘area-specific,’’ ‘‘area’’

refers to any of the payment areas

described in § 422.250(c).

§ 422.250 General provisions.

(a) Monthly payments—(1) General

rule. Except as provided in paragraph

(a)(2) of this section, HCFA makes

advance monthly payments equal to

1⁄12th of the annual M+C capitation rate

for the payment area described in

paragraph (c) of this section adjusted for

such demographic risk factors as an

individual’s age, disability status, sex,

institutional status, and other such

factors as it determines to be

appropriate to ensure actuarial

equivalence. Effective January 1, 2000,

HCFA adjusts for health status as

provided in § 422.256(c). When the new

risk adjustment is implemented, 1⁄12th of

the annual capitation rate for the

payment area described in paragraph (c)

of this section will be adjusted by the

risk adjustment methodology under

§ 422.256(d).

(2) Special rules. (i) Enrollees with

end-stage renal disease. (A) For

enrollees determined to have end-stage

renal disease (ESRD), HCFA establishes

special rates that are determined under

an actuarially equivalent approach to

that used in establishing the rates under

original Medicare.

(B) HCFA reduces the payment rate by

the equivalent of 50 cents per renal

dialysis treatment. These funds will be

used to help pay for the ESRD network

program in the same manner as similar

reductions are used in original

Medicare.

(ii) MSA enrollees. For MSA

enrollees, HCFA makes advanced

monthly payments as described in

paragraph (a)(1) less the amount (if any)

identified in § 422.262(c)(1)(ii) to be

deposited in the M+C MSA. In addition,

HCFA deposits in the M+C MSA the

lump sum amounts (if any) determined

in accordance with § 422.262(c).

(iii) RFB plan enrollees. For RFB plan

enrollees, HCFA adjusts the capitation

payments otherwise determined under

this subpart to ensure that the payment

level is appropriate for the actuarial

characteristics and experience of these

enrollees. Such adjustment can be made

on an individual or organization basis.

(b) Adjustment of payments to reflect

number of Medicare enrollees—General

rule. HCFA adjusts payments

retroactively to take into account any

difference between the actual number of

Medicare enrollees and the number on

which HCFA based an advance monthly

payment.

(c) Payment areas—(1) General rule.

Except as provided in paragraph (e) of

this section, the M+C payment area is a

county or an equivalent geographic area

specified by HCFA.

(2) Special rule for ESRD enrollees.

For ESRD enrollees, the M+C payment
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35091

area is a State or other geographic area

specified by HCFA.

(d) Terminology. As used in

paragraph (e) of this section,

‘‘metropolitan statistical area,’’

‘‘consolidated metropolitan statistical

area,’’ and ‘‘primary metropolitan

statistical area’’ mean any areas so

designated by the Secretary of

Commerce.

(e) Geographic adjustment of payment

areas. For contract years beginning after

1999—

(1) State request. A State’s chief

executive may request, no later than

February 1 of any year, a geographic

adjustment of the State’s payment areas

for the following calendar year. The

chief executive may request any of the

following adjustments to the payment

area specified in paragraph (c)(1) of this

section:

(i) A single Statewide M+C payment

area.

(ii) A metropolitan-based system in

which all nonmetropolitan areas within

the State constitute a single payment

area and any of the following constitutes

a separate M+C payment area:

BILLING CODE 4120–01–P

(A) All portions of each single

metropolitan statistical area within the

State.

(B) All portions of each primary

metropolitan statistical area within each

consolidated metropolitan statistical

area within the State.

(iii) A consolidation of noncontiguous

counties.

(2) HCFA response. In response to the

request, HCFA makes the payment

adjustment requested by the chief

executive.

(3) Budget neutrality adjustment for

geographically adjusted payment areas.

If HCFA adjusts a State’s payment areas

in accordance with paragraph (e)(2) of

this section, HCFA at that time, and

each year thereafter, adjusts the

capitation rates so that the aggregate

Medicare payments do not exceed the

aggregate Medicare payments that

would have been made to all the State’s

payments areas, absent the geographic

adjustment.

(f) Determination and applicability of

payment rates. (1) All payment rates are

annual rates, determined and

promulgated no later than March 1st, for

the following calendar year.

(2) For purposes of paragraphs (b) and

(c) of § 422.252, except as provided in

§ 422.254(e)(4), the ‘‘capitation payment

rate for 1997’’ is the rate determined

under section 1876(a)(1)(c) of the Act.

§ 422.252 Annual capitation rates.

Subject to the adjustments specified

in this subpart, the annual capitation

rate for a particular payment area is

equal to the largest of the following:

(a) Blended capitation rate. The

blended capitation rate is the sum of—

(1) The area-specific percentage

(specified in § 422.254(a)) for the year

multiplied by the annual area-specific

capitation rate for the payment area as

determined under § 422.254(e) for the

year, and

(2) The national percentage (specified

in § 422.254(a)) for the year multiplied

by the national input-price-adjusted

capitation rate for the payment area as

determined under § 422.254(g) for the

year.

(3) Multiplied by the budget

neutrality adjustment factor determined

under § 422.254(d).

(b) Minimum amount rate. (1) For

1998—

(i) For the 50 States and the District

of Columbia, the minimum amount rate

is 12 times $367.

(ii) For all other jurisdictions the

minimum amount rate is the lesser of

the rate described in (b)(1)(i) or 150

percent of the capitation payment rate

for 1997.

(2) For each succeeding year, the

minimum amount rate is the minimum

amount rate for the preceding year,

increased by the national per capita

growth percentage (specified in

§ 422.254(b)) for the year.

(c) Minimum percentage increase rate.

(1) For 1998, the minimum percentage

increase rate is 102 percent of the

annual capitation rate for 1997.

(2) For each succeeding year, the

minimum percentage increase rate is

102 percent of the annual capitation rate

for the preceding year.

§ 422.254 Calculation and adjustment

factors.

The following are the factors used in

calculating the per capita payment rates:

(a) Area-specific and national

percentages. For purposes of

§ 422.252(a)(1), the area-specific

percentage and the national percentage,

for each year, are as follows:

Areaspecific National

For 1998 ................ 90 10

For 1999 ................ 82 18

For 2000 ................ 74 26

For 2001 ................ 66 34

For 2002 ................ 58 42

For years after

2002 ................... 50 50

(b) National per capita growth

percentage. For purposes of

§ 422.252(a)(2),

(1) The national per capita growth

percentage for a year is HCFA’s estimate

of the rate of growth in per capita

expenditures, reduced by the percentage

points specified in paragraph (b)(2) of

this section for the year. HCFA may

make separate estimates for aged

enrollees, disabled enrollees, and

enrollees who have ESRD.

(2) The percentage points that HCFA

uses to reduce its estimates are as

follows:

(i) For 1998, 0.8 percentage points.

(ii) For years 1999–2002, 0.5

percentage points.

(iii) For years after 2002, 0 percentage

points.

(c) Medical education payment

adjustments. For purposes of paragraph

(e)(2) the medical education payment

adjustments are amounts that HCFA

estimates were payable to teaching

hospitals during 1997 for—

(1) the indirect costs of medical

education under section 1886(d)(5)(B) of

the Act; and

(2) The direct costs of graduate

medical education under section

1886(h) of the Act.

(d) General budget neutrality factor.

For each year, HCFA applies a budget

neutrality factor to the blended

capitation rates under § 422.252(a) so

that the estimated aggregate payments

made under this part equal the

estimated aggregate payments that

would have been made if based entirely

on area-specific capitation rates.

(e) Annual Area-specific capitation

rate (1) Basic rule. Subject to the

provisions of paragraphs (e)(2) and (e)(3)

of this section, the annual area-specific

capitation rate for a particular payment

area is—

(i) For 1998, subject to paragraph

(e)(4) of this section, the per capita rate

determined for that area for 1997 under

section 1876(a)(1)(c) of the Act,

increased by the national per capita

growth percentage for 1998; and

(ii) For a subsequent year, the areaspecific capitation rate determined for

the previous year, increased by the

national per capita growth percentage

for the year.

(2) Exclusion of medical education

costs. In calculating the area-specific

capitation rates, the following

percentages of the amounts estimated by

HCFA under § 422.254(c) as medical

education payment adjustments to

hospitals, are excluded:

For 1998 ................................. 20 percent.

For 1999 ................................. 40 percent.

For 2000 ................................. 60 percent.

For 2001 ................................. 80 percent.

For years after 2001 .............. 100 percent.

(3) Payments under the State hospital

reimbursement system. To the extent

that HCFA estimates that a 1997 per
35092 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

capita rate reflects payments to

hospitals under section 1814(b)(3) of the

Act, HCFA makes a payment adjustment

that is comparable to the adjustment

that would have been made under

paragraph (e)(2) of this section if the

hospitals had not been reimbursed

under section 1814(b)(3) of the Act.

(4) Areas with highly variable per

capita rates. With respect to a payment

area for which the per capita rate for

1997 varies by more than 20 percent

from the per capita rate for 1996, HCFA

may substitute for the 1997 rate a rate

that is more representative of the costs

of the enrollees in the area.

(f) National standardized annual

capitation rate. The national

standardized annual capitation rate is

equal to—

(1) The sum, for all payment areas, of

the products of—

(i) The annual area-specific capitation

rate and

(ii) The average number of Medicare

beneficiaries residing in the area

multiplied by the average of the riskfactor weights used to adjust payments

under § 422.256(c);

(2) Divided by the sum, for all

payment areas, of the products specified

in paragraph (f)(1)(ii) of this section for

all payment areas.

(g) The input-price-adjusted annual

national capitation rate—(1) General

rule. The input-price-adjusted annual

national capitation rate for a M+C

payment area for a year is equal to the

sum, for all the types of Medicare

services (as classified by HCFA), of the

product (for each service) of—

(i) The national standardized annual

M+C capitation rate (determined under

paragraph (f) of this section) for the

year;

(ii) The proportion of such rates for

the year which is attributable to such

type of services; and

(iii) An index that reflects (for that

year and that type of services) the

relative input price of such services in

the area compared to the national

average input price for such services.

(2) HCFA may, subject to the special

rules for 1988, use indices that are used

in applying or updating national

payment rates for particular areas and

localities.

(3) Special rules for 1988. In applying

this paragraph for 1998—

(i) Medicare services are classified as

Part A and Part B services;

(ii) The proportion attributable to Part

A services is the ratio (expressed as a

percentage) of the national average per

capita rate of payment for Part A

services for 1997 to the national average

per capita rate of payment for Part A

and Part B services for that year;

(iii) The proportion attributed to part

B services is 100 percent minus the ratio

described in paragraph (g)(3)(ii) of this

section;

(iv) For Part A services, 70 percent of

the payments attributable to those

services are adjusted by the index used

under section 1886(d)(3)(E) of the Act to

adjust payment rates for relative

hospital wage levels for hospitals

located in the particular payment area;

and

(v) For part B services—

(A) 66 percent of payments

attributable to those services are

adjusted by the index of the geographic

area factors under section 1848(e) of the

Act used to adjust payment rates for

physician services in the particular

payment area; and

(B) Of the remaining 34 percent, 40

percent is adjusted by the index

specified in paragraph (g)(3)(iv) of this

section.

§ 422.256 Adjustments to capitation rates

and aggregate payments.

(a) Adjustment for over or under

projection of national per capita growth

percentages. (1) Beginning with rates for

1999, HCFA adjusts all area-specific and

national capitation rates for the previous

year to reflect any differences between

the projected national per capita growth

percentages for that year and previous

years, and the current estimates of those

percentages for such years.

(2) Beginning with rates for 2000,

HCFA also adjusts the minimum

amount rate (calculated under

§ 422.252(b)) in the same manner.

(b) Adjustment for national coverage

determination (NCD) services. If HCFA

determines that the cost of furnishing an

NCD service is ‘‘significant,’’ HCFA

adjusts capitation rates for the next

calendar year to take account of the cost

of that service. Until the new capitation

rates are in effect, the M+C organization

is paid for the ‘‘significant cost’’ service

on a fee-for-service basis as provided

under section 422.105(b).

(c) Risk adjustment: General rule.

Capitation payments are adjusted for

age, gender, institutional status, and

other appropriate factors, including

health status.

(d) Risk adjustment: Health status—

(1) Data collection. To adjust for health

status, HCFA applies a risk factor based

on data obtained in accordance with

§ 422.257.

(2) Initial implementation. HCFA

applies this adjustment factor to

payments beginning January 1, 2000.

(3) Uniform application. Except as

provided for M+C RFB plans under

§ 422.250(a)(2)(iii), HCFA applies this

adjustment factor to all types of plans.

§ 422.257 Encounter data.

(a) Data collection: Basic rule. Each

M+C organization must submit to HCFA

(in accordance with HCFA instructions)

all data necessary to characterize the

context and purposes of each encounter

between a Medicare enrollee and a

provider, supplier, physician, or other

practitioner.

(b) Types of service and timing of

submittal. M+C organizations must

submit data as follows:

(1) Beginning on a date determined by

HCFA, inpatient hospital care data for

all discharges that occur on or after July

1, 1997.

(2) HCFA will provide advance notice

to M+C organizations to collect and

submit data for services that occur on or

after July 1, 1998, as follow:

(i) Physician, outpatient hospital,

SNF, and HHA data beginning no earlier

than October 1, 1999; and

(ii) All other data HCFA deems

necessary beginning no earlier than

October 1, 2000.

(c) Sources and extent of data. (1) To

the extent required by HCFA, the data

must account for services covered under

the original Medicare program, for

Medicare covered services for which

Medicare is not the primary payor, or

for other additional or supplemental

benefits that the M+C organization may

provide.

(2) The data must account separately

for each provider, supplier, physician,

or other practitioner that would be

permitted to bill separately under the

Medicare fee-for-service program, even

if they participate jointly in the same

encounter.

(d) Other data requirements. The data

must—

(1) Conform to the requirements for

equivalent data for Medicare fee-forservice when appropriate, and to all

relevant national standards; and

(2) Be submitted electronically to the

appropriate HCFA contractor.

(e) Validation of data. M+C

organizations and their providers and

practitioners will be required to submit

medical records for the validation of

encounter data, as prescribed by HCFA.

(f) Use of data. HCFA uses the data

obtained under this section to determine

the risk adjustment factor that it applies

to annual capitation rates under

§ 422.256(c). HCFA may also use the

data for other purposes.

§ 422.258 Announcement of annual

capitation rates and methodology changes.

(a) Capitation rates. (1) No later than

March 1 of each year, HCFA announces

to M+C organizations and other

interested parties the capitation rates for

the following calendar year.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35093

(2) HCFA includes in the

announcement a description of the risk

and other factors and explains the

methodology in sufficient detail to

enable M+C organizations to compute

monthly adjusted capitation rates for

individuals in each of its payment areas.

(b) Advance notice of changes in

methodology. (1) No later than January

15 of each year, HCFA notifies M+C

organizations of changes it proposes to

make in the factors and the

methodology it used in the previous

determination of capitation rates.

(2) The M+C organizations have 15

days to comment on the proposed

changes.

§ 422.262 Special rules for beneficiaries

enrolled in M+C MSA plans.

(a) Establishment and designation of

medical savings account (MSA). A

beneficiary who elects coverage under

an M+C MSA plan—

(1) Must establish an M+C MSA with

a trustee that meets the requirements of

paragraph (b) of this section; and

(2) If he or she has more than one

M+C MSA, designate the particular

account to which payments under the

M+C MSA plan are to be made.

(b) Requirements for MSA trustees. An

entity that acts as a trustee for an M+C

MSA must—

(1) Register with HCFA;

(2) Certify that it is a licensed bank,

insurance company, or other entity

qualified, under sections 408(a)(2) or

408(h) of the IRS Code, to act as a

trustee of individual retirement

accounts;

(3) Agree to comply with the M+C

MSA provisions of section 138 of the

IRS Code of 1986; and

(4) Provide any other information that

HCFA may require.

(c) Deposit in the M+C MSA. (1) The

payment is calculated as follows:

(i) The monthly M+C MSA premium

is compared with 1⁄12 of the annual

capitation rate for the area determined

under § 422.252.

(ii) If the monthly M+C MSA

premium is less than 1⁄12 of the annual

capitation rate, the difference is the

amount to be deposited in the M+C

MSA for each month for which the

beneficiary is enrolled in the MSA plan.

(2) HCFA deposits the full amount to

which a beneficiary is entitled under

paragraph (c)(1)(ii) of this section for the

calendar year, beginning with the month

in which M+C MSA coverage begins.

(3) If the beneficiary’s coverage under

the M+C MSA plan ends before the end

of the calendar year, HCFA recovers the

amount that corresponds to the

remaining months of that year.

§ 422.264 Special rules for coverage that

begins or ends during an inpatient hospital

stay.

(a) Applicability. This section applies

to inpatient services in a ‘‘subsection (d)

hospital’’ as defined in section

1886(d)(1)(B) of the Act.

(b) Coverage that begins during an

inpatient hospital stay. If coverage

under an M+C plan offered by an M+C

organization begins while the

beneficiary is an inpatient in a

subsection (d) hospital—

(1) Payment for inpatient services

until the date of the beneficiary’s

discharge is made by the previous M+C

organization or original Medicare, as

appropriate.

(2) The M+C organization offering the

newly-elected M+C plan is not

responsible for the inpatient services

until the date after the beneficiary’s

discharge; and

(3) The M+C organization offering the

newly-elected M+C plan is paid the full

amount otherwise payable under this

subpart.

(c) Coverage that ends during an

inpatient hospital stay. If coverage

under an M+C plan offered by an M+C

organization ends while the beneficiary

is an inpatient in a subsection (d)

hospital—

(1) The M+C organization is

responsible for the inpatient services

until the date of the beneficiary’s

discharge;

(2) Payment for those services during

the remainder of the stay is not made by

original Medicare or by any succeeding

M+C organization offering a newlyelected M+C plan; and

(3) The M+C organization that no

longer provides coverage receives no

payment for the beneficiary for the

period after coverage ends.

§ 422.266 Special rules for hospice care.

(a) Information. An M+C organization

that has a contract under subpart K of

this part must inform each Medicare

enrollee eligible to elect hospice care

under section 1812(d)(1) of the Act

about the availability of hospice care (in

a manner that objectively presents all

available hospice providers, including a

statement of any ownership interest in

a hospice held by the M+C organization

or a related entity) if—

(1) A Medicare hospice program is

located within the plan’s service area; or

(2) It is common practice to refer

patients to hospice programs outside

that area.

(b) Enrollment Status. Unless the

enrollee disenrolls from the M+C plan,

a beneficiary electing hospice continues

his or her enrollment in the M+C plan

and is entitled to receive, through the

M+C plan, any benefits other than those

that are the responsibility of the

Medicare hospice.

(c) Payment. During the time the

hospice election is in effect, HCFA’s

monthly capitation payment to the M+C

organization is reduced to an amount

equal to the adjusted excess amount

determined under § 422.312. In

addition, HCFA pays through the

original Medicare program (subject to

the usual rules of payment)—

(1) The hospice program for hospice

care furnished to the Medicare enrollee;

and

(2) The M+C organization, provider or

supplier for other Medicare-covered

services furnished to the enrollee.

§ 422.268 Source of payment and effect of

election of the M+C plan election on

payment.

(a) Source of payments. Payments

under this subpart, to M+C

organizations or M+C MSAs, are made

from the Federal Hospital Insurance

Trust Fund or the Supplementary

Medical Insurance Trust Fund. HCFA

determines the proportions to reflect the

relative weight that benefits under Part

A, and benefits under Part B represents

of the actuarial value of the total

benefits under title XVIII of the Act.

(b) Payments to the M+C organization.

Subject to §§ 412.105(g) and 413.86(d) of

this chapter and §§ 422.105, 422.264,

and 422.266, HCFA’s payments under a

contract with an M+C organization

(described in § 422.250) with respect to

an individual electing an M+C plan

offered by the organization are instead

of the amounts which (in the absence of

the contract) would otherwise be

payable under original Medicare for

items and services furnished to the

individual.

(c) Only the M+C organization

entitled to payment. Subject to

§ 422.262, 422.264, 422.266, and

422.520 of this part and sections

1886(d)(11) and 1886(h)(3)(D) of the

Act, only the M+C organization is

entitled to receive payment from HCFA

under title XVIII of the Act for items and

services furnished to the individual.

BILLING CODE 4120–01–M

Subpart G—Premiums and CostSharing

§ 422.300 Basis and scope.

(a) General. This subpart is based on

section 1854 of the Act. It sets forth the

requirements and limitations for

payments by and on behalf of Medicare

beneficiaries who elect an M+C plan.

(b) Transition period. For contract

periods beginning before January 1,
35094 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

2002, HCFA applies the following

special rules.

(1) M+C organizations may, with

HCFA’s agreement, modify an M+C plan

offered prior to January 1, 2002 by—

(i) Adding benefits at no additional

cost to the M+C plan enrollee; and

(ii) Lowering the premiums approved

through the ACR process;

(iii) Lowering other cost-sharing

amounts approved through the ACR

process.

(2) For contracts beginning on a date

other than January 1 (according to

§ 422.504(d)), M+C organizations may

submit ACRs on a date other than May

1 approved by HCFA.

§ 422.302 Terminology.

As used in this subpart, unless

specified otherwise—

Additional revenues are revenues

collected or expected to be collected

from charges for M+C plans offered by

an M+C organization in excess of costs

actually incurred or expected to be

incurred. Additional revenues would

include such things as revenues in

excess of expenses of an M+C plan,

profits, contribution to surplus, risk

margins, contributions to risk reserves,

assessments by a related entity that do

not represent a direct medical or related

administrative cost, and any other

premium component not reflected in

direct medical care costs and

administrative costs.

APR stands for the M+C plan’s

average per capita rates of payment. The

APR is the average amount the M+C

organization estimates HCFA will pay

(without any needed offsets or

reductions, such as, those required by

§ 422.250(a)(2)(ii) for M+C MSA plan

enrollees) for the period covered by the

ACR for all of the Medicare beneficiaries

electing the M+C plan.

M+C monthly basic beneficiary

premium means, with respect to an M+C

coordinated care plan, the amount

authorized to be charged under

§ 422.308(a)(1) for the plan, or, with

respect to a M+C private fee-for-service

plan, the amount filed under

§ 422.306(d)(1).

M+C monthly supplemental

beneficiary premium means, with

respect to an M+C coordinated care

plan, the amount authorized to be

charged under § 422.308(a)(2) for the

M+C plan, or, with respect to an MSA

or an M+C private fee-for-service plan,

the amount filed under § 422.306(c)(2)

or § 422.306(d)(2).

M+C monthly MSA premium means,

with respect to an M+C plan, the

amount of such premium filed under

§ 422.306(c)(1).

§ 422.304 Rules governing premiums and

cost-sharing.

(a) Monthly premiums. The monthly

premium charged to the beneficiary is—

(1) For an individual enrolled in an

M+C plan (other than an M+C MSA

plan) offered by an M+C organization,

the sum of the M+C monthly basic

beneficiary premium plus the M+C

monthly supplemental beneficiary

premium (if any); or

(2) For an individual enrolled in an

M+C MSA plan offered by an M+C

organization, the M+C monthly

supplemental beneficiary premium (if

any).

(b) Uniformity. The M+C monthly

basic beneficiary premium, the M+C

monthly supplemental beneficiary

premiums, and the M+C monthly MSA

premium of an M+C organization may

not vary among individuals enrolled in

the M+C plan. In addition, the M+C

organization may not vary the level of

copayments, coinsurance, or

deductibles charged for basic benefits or

supplemental benefits (if any), among

individuals enrolled in the M+C plan.

(c) Timing of payments. The M+C

organization must permit payments of

M+C monthly basic and supplemental

beneficiary premium on a monthly basis

and may not terminate coverage for

failure to make timely payments except

as provided in § 422.74(b)(1).

(d) Monetary inducements prohibited.

An M+C organization may not provide

for cash or other monetary rebates as an

inducement for enrollment or for any

other reason or purpose.

§ 422.306 Submission of proposed

premiums and related information.

(a) General rule. (1) Not later than

May 1 of each year, each M+C

organization and any organization

intending to contract as an M+C

organization in the subsequent year

must submit to HCFA, in the manner

and form prescribed by HCFA, for each

M+C plan it intends to offer in the

following year—

(i) The information specified in

paragraph (b), (c), or paragraph (d) of

this section for the type of M+C plan

involved; and

(ii) The service area and enrollment

capacity (if any).

(2) If the submission is not complete,

timely, or accurate, HCFA has the

authority to impose sanctions under

Subpart O of this part or may choose not

to renew the contract.

(b) Information required for

coordinated care plans—(1) Basic

benefits. For basic benefits, the

following information is required:

(i) The ACR as specified in § 422.310.

(ii) The M+C monthly basic

beneficiary premium.

(iii) A description of cost-sharing to

be imposed under the plan, and its

actuarial value.

(iv) A description of any additional

benefits to be provided pursuant to

§ 422.312 and the actuarial value

determined for those benefits.

(v) Amounts collected in the previous

contract period for basic benefits.

(2) Supplemental benefits. For

supplemental benefits, the following

information is required:

(i) The ACR.

(ii) The M+C monthly supplemental

beneficiary premium.

(iii) A description of supplemental

benefits being offered, the cost sharing

to be imposed, and their actuarial value.

(iv) Amounts collected in the

previous contract period for

supplemental benefits.

(c) Information required for MSA

plans. (1) The monthly MSA premium

for basic benefits.

(2) The M+C monthly supplementary

beneficiary premium for supplemental

benefits.

(3) A description of all benefits

offered under the M+C MSA plan.

(4) The amount of the deductible

imposed under the plan.

(5) Amounts collected in the previous

contract period for supplemental

benefits.

(d) Information required for M+C

private fee-for-service plans. (1) The

information specified under paragraph

(b)(1) of this section.

(2) The amount of the M+C monthly

supplemental beneficiary premium.

(3) A description of all benefits

offered under the plan.

(4) Amounts collected in the previous

contract period for basic and

supplemental benefits.

(e) HCFA review—(1) Basic rule.

Except as specified in paragraph (e)(2)

of this section, HCFA reviews and

approves or disapproves the information

submitted under this section.

(2) Exception. HCFA does not review

or approve or disapprove the following

information:

(i) Any amounts submitted with

respect to M+C MSA plans.

(ii) The M+C monthly basic and

supplementary beneficiary premiums

for M+C private fee-for-service plans.

§ 422.308 Limits on premiums and cost

sharing amounts.

(a) Rules for coordinated care plans—

(1) For basic benefits, the M+C monthly

basic beneficiary premium (multiplied

by 12) charged, plus the actuarial value

of the cost-sharing applicable, on

average, to beneficiaries enrolled under

this part may not exceed the annual

actuarial value of the deductibles and
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35095

coinsurance that would be applicable,

on average, to beneficiaries entitled to

Medicare Part A and enrolled in

Medicare Part B if they were not

enrollees of an M+C organization as

determined in the ACR under § 422.310.

For those M+C plan enrollees that are

enrolled in Medicare Part B only, the

M+C monthly basic beneficiary

premium (multiplied by 12) charged,

plus the actuarial value of the

deductibles, coinsurance and

copayments applicable, on average, to

those beneficiaries enrolled under this

part may not exceed the annual

actuarial value of the deductibles and

coinsurance that would be applicable,

on average, to beneficiaries enrolled in

Medicare Part B if they were not

enrollees of an M+C organization as

determined in the ACR under § 422.310.

(2) For supplemental benefits, the

M+C monthly supplemental beneficiary

premium (multiplied by 12) charged,

plus the actuarial value of its costsharing, may not exceed the amounts

approved in the ACR for those benefits,

as determined under § 422.310 on an

annual basis.

(3) Coverage of Part A services for Part

B-only Medicare enrollees. If an M+C

organization furnishes coverage of

Medicare Part A-type services to a

Medicare enrollee entitled to Part B

only, the M+C plan’s premium plus the

actuarial value of its cost-sharing for

these services may not exceed the lesser

of—

(i) The APR that is payable for these

services for those beneficiaries entitled

to Part A plus the actuarial value of

Medicare deductibles and Coinsurance

for the services;

(ii) or the ACR for such services.

(b) Rule for M+C private fee-forservice plans. The average actuarial

value of the cost-sharing for basic

benefits may not exceed the actuarial

value of the cost-sharing that would

apply, on average, to beneficiaries

entitled to Medicare Part A and enrolled

in Medicare Part B if they were not

enrolled in an M+C plan as determined

in the ACR under § 422.310.

(c) Special rules for determination of

actuarial value. If HCFA determines that

adequate data are not available to

determine actuarial value under

paragraph (a) or (b) of this section,

HCFA may make the determination with

respect to all M+C eligible individuals

in the same geographic area or State or

in the United States, or on the basis of

other appropriate data.

§ 422.309 Incorrect collections of

premiums and cost-sharing.

(a) Definitions. As used in this

section—

(1) Amounts incorrectly collected

(i) Means amounts that:

(A) Exceed the limits imposed by

§ 422.308;

(B) In the case of a M+C private feefor-service plan, exceed the M+C

monthly basic beneficiary premium or

the M+C monthly supplemental

premium submitted under § 422.306;

and

(C) In the case of a M+C MSA plan,

exceed the M+C monthly supplemental

premium submitted under § 422.306

and the deductible for basic benefits;

and

(ii) Includes amounts collected from

an enrollee who was believed not

entitled to Medicare benefits but was

later found to be entitled.

(2) Other amounts due are amounts

due for services that were—

(i) Emergency, urgently needed

services, or other services obtained

outside the M+C plan; or

(ii) Initially denied but, upon appeal,

found to be services the enrollee was

entitled to have furnished by the M+C

organization.

(b) Basic commitments. An M+C

organization must agree to refund all

amounts incorrectly collected from its

Medicare enrollees, or from others on

behalf of the enrollees, and to pay any

other amounts due the enrollees or

others on their behalf.

(c) Refund methods—(1) Lump-sum

payment. The M+C organization must

use lump-sum payments for the

following:

(i) Amounts incorrectly collected that

were not collected as premiums.

(ii) Other amounts due.

(iii) All amounts due if the M+C

organization is going out of business or

terminating its M+C contract for an M+C

plan(s).

(2) Premium adjustment or lump-sum

payment, or both. If the amounts

incorrectly collected were in the form of

premiums, or included premiums as

well as other charges, the M+C

organization may refund by adjustment

of future premiums or by a combination

of premium adjustment and lump-sum

payments.

(3) Refund when enrollee has died or

cannot be located. If an enrollee has

died or cannot be located after

reasonable effort, the M+C organization

must make the refund in accordance

with State law.

(d) Reduction by HCFA. If the M+C

organization does not make the refund

required under this section by the end

of the contract period following the

contract period during which an amount

was determined to be due an enrollee,

HCFA reduces the premium the M+C

organization is allowed to charge an

M+C plan enrollee by the amounts

incorrectly collected or otherwise due.

In addition, the M+C organization

would be subject to sanction under

Subpart O for failure to refund amounts

incorrectly collected from M+C plan

enrollees.

§ 422.310 Adjusted community rate (ACR)

approval process.

(a) General rule. (1) Except with

respect to M+C MSA plans, each M+C

organization must compute a separate

ACR for each M+C coordinated care or

private fee-for-service plan offered to

Medicare beneficiaries. In computing

the ACR, the M+C organization

calculates an initial rate (for years after

1999, using the methods described in

paragraph (b), for 1999, under

§ 417.594(b)) that represents the

‘‘commercial premium’’ the M+C

organization would charge its general

non-Medicare eligible enrollment

population for the basic benefits, and

any mandatory supplemental benefits

covered under the M+C plan. The M+C

organization should also calculate a

separate initial rate (using the same

approach) for each optional

supplemental benefit package it offers

under an M+C plan. For years after 1999

the M+C organization then either

adjusts that rate by the factors specified

in paragraph (c) of this section or

requests that HCFA adjust the rate in

accordance with the procedures

specified in paragraph (c)(6) of this

section. For 1999, adjustments are made

under section 417.594(c). All data

submitted as part of the ACR process is

subject to audit by HCFA or any person

or organization designated by HCFA.

(2) To calculate the adjusted excess

described in section 422.312, the M+C

organization or HCFA further reduces

the rate for Medicare-covered services

by the actuarial value of applicable

Medicare coinsurance and deductibles.

(3) Separate ACRs must be calculated

for Part A and Part B enrollees and Part

B-only enrollees for each M+C plan

offered, and for each optional

supplemental benefit option.

(4) In calculating its initial rate, the

M+C organization must identify and

take into account anticipated revenue

collectible from other payers for those

services for which Medicare is not the

primary payer as described in § 422.108.

(5) Except as provided in paragraph

(a)(6) of this section, the M+C

organization must have an adequate

accounting system that is accrual based

and uses generally-accepted accounting

principles to develop its ACR.

(6) For M+C organizations that are

part of a government entity that uses a

cash basis of accounting, ACR cost data
35096 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

developed on this basis is acceptable.

However, only depreciation on capital

assets, rather than the expenditure for

the asset, is acceptable.

(b) Initial rate calculation for years

after 1999. (1) The M+C organization’s

initial rate for each M+C plan is

calculated on a 12-month basis for nonMedicare enrollees, using either, at the

M+C organization’s election—

(i) A community rating system (as

defined in section 1308(8) of the PHS

Act, other than subparagraph (C)); or

(ii) A system, approved by HCFA,

under which the M+C organization

develops an aggregate premium for each

M+C plan for all enrollees of that M+C

plan that is weighted by the size of the

various enrolled groups and individuals

that compose the M+C organization’s

enrollment in that M+C plan. For

purposes of this section, enrolled groups

are defined as employee groups or other

bodies of subscribers (including

individual subscribers) that enroll in the

M+C plan on a premium basis.

(2) Regardless of which method the

M+C organization uses to calculate its

initial rate, the initial rate must be equal

to the premium the M+C organization

would charge its non-Medicare

enrollees on a yearly basis for services

included in the M+C plan.

(3) Except as provided in paragraph

(b)(4) of this section, the M+C

organization must identify in its initial

rate calculation for an M+C plan, the

following components whose rates must

be consistent with rates used by the

M+C organization in calculating

premiums for non-Medicare enrollees:

(i) Direct medical care.

(ii) Administration.

(iii) Additional Revenues.

(iv) Enrollee cost sharing (for

example, deductibles, coinsurance, or

copayments) for Medicare-covered

services and for additional and

supplemental benefits.

(4) An M+C organization that does not

usually separate its premium

components as described in paragraph

(b)(3) of this section may calculate its

initial rate with the methods it uses for

its other enrolled groups if the M+C

organization provides HCFA with the

documentation necessary to support any

adjustments the M+C organization

makes to the initial rate in accordance

with paragraph (c)(5) of this section.

(5) The initial rate calculation must

not carry forward any losses

experienced by the M+C organization

during prior contract periods. The M+C

organization must submit supporting

documentation to assure HCFA that

ACR values do not include past losses

but only premiums for covered services,

additional services, and supplemental

benefits for the upcoming 12-month

period.

(c) Adjustment factors for years after

1999. Adjustment factors are designed

to adjust on a component basis the

initial rate calculated under paragraph

(b) of this section to reflect differences

in utilization characteristics of the M+C

organization’s Medicare enrollees

electing an M+C plan using a relative

cost ratio. Adjustment factors are as

follows:

(1) Direct medical care. The relative

cost ratio for direct medical care for an

M+C plan is determined by comparing

the direct medical care costs actually

incurred on an accrual basis during the

most recently ended calendar year prior

to submission of the ACR for Medicare

enrollees that elected the M+C plan to

the direct medical care costs of nonMedicare enrollees incurred over the

same period. The non-Medicare

enrollees included in this computation

must be consistent with the nonMedicare enrollees included in the

initial rate computation.

(2) Administration. The relative cost

ratio for Administration for an M+C

plan is determined by comparing the

administrative costs actually incurred

on an accrual basis during the most

recently ended calendar year prior to

submission of the ACR for Medicare

enrollees that elected the M+C plan to

the administrative costs of nonMedicare enrollees incurred over the

same period. The non-Medicare

enrollees included in this computation

must be consistent with the nonMedicare enrollees included in the

initial rate computation.

(3) Additional revenues. The relative

cost ratio for additional revenues for an

M+C plan is determined by comparing

the additional revenues collected on an

accrual basis during the most recently

ended calendar year prior to submission

of the ACR for Medicare enrollees that

elected the M+C plan to the additional

revenues of non-Medicare enrollees

collected over the same period. The

non-Medicare enrollees included in this

computation must be consistent with

the non-Medicare enrollees included in

the initial rate computation.

(4) Additional adjustments.

Additional adjustments may be

necessary if the M+C organization, with

agreement of HCFA, determines that the

adjustment of the initial rate by the

relative cost ratios does not represent an

accurate ACR value of the initial rate

component. Adjustments will be

allowed that are designed to reduce

ACR values to equal the actuarial value

of the M+C plan charge structure.

(5) Supporting documentation. All

adjustments made by the M+C

organization must be accompanied by

adequate supporting data. If an M+C

organization does not have sufficient

enrollment experience to develop this

data, it may, during its initial contract

period use reasonable estimates

acceptable to HCFA to establish its ACR

values.

(6) Adjustment by HCFA. If it is

determined that the M+C organization

does not have adequate data to adjust

the initial rate calculated under

paragraph (b) of this section to reflect

the utilization characteristics of

Medicare enrollees, HCFA adjusts the

initial rate. HCFA adjusts the rate on the

basis of differences in the utilization

characteristics of—

(i) Medicare and non-Medicare

enrollees in other M+C plans; or

(ii) Medicare beneficiaries in the M+C

organization’s area, State, or the United

States who are eligible to elect an M+C

plan and other individuals in that same

area, State, or the United States.

(d) Special rules for certain

organizations. An M+C organization

that does not have non-Medicare

enrollees or sufficient Medicare

enrollment experience to adequately

calculate ACR values may calculate its

ACR using estimates described in

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

section as an additional adjustment

described in paragraph (c)(4) of this

section.

(1) The M+C organization may use an

estimate of the ACR value for the direct

medical and administrative components

of a service or services offered using

generally-accepted accounting

principles.

(2) The M+C organization may use an

estimate of the ACR value for the

additional revenue component of a

service or services offered based on the

lesser of (if the information is

available)—

(i) The average of additional revenues

received through risk payments for

health services contracted to be

furnished to an enrolled population of

other organizations;

(ii) The average of additional revenues

received for health services furnished;

or

(iii) A reasonable estimate of

additional revenues of other M+C

organizations in the general

marketplace.

(e) Adjustment by HCFA. If HCFA

finds that there is insufficient

enrollment experience to determine the

APR or ACR for a M+C plan at the

beginning of a contract period, HCFA

may—

(1) Determine the APR based on the

enrollment experience of other M+C

organizations;
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35097

(2) Determine ACR using data in the

general commercial marketplace; or

(3) Determine either or both rates

using the best available information,

which may include enrollment

experience of other M+C organizations

and section 1876 risk contractors.

(f) HCFA review. (1) The M+C

organization’s methodology and

computation of its ACR are subject to

review and approval by HCFA. When

the M+C organization submits the ACR

computation, it must include adequate

supporting data. Except as provided in

§ 422.306(e)(2), HCFA authorizes the

M+C organization to collect premiums

and other cost sharing amounts

described in § 422.306 that are equal to

the amounts calculated in the ACR.

(2) If the M+C organization is

dissatisfied with an HCFA

determination that the M+C

organization’s computation is not

acceptable, the M+C organization may

within 2 weeks after the date of receipt

of notification of this determination, file

a request for a hearing with HCFA. The

request must state why the M+C

organization believes the determination

is incorrect and must be accompanied

by any supporting evidence the M+C

organization wishes to submit. The

hearing is conducted by a hearing

officer designated by HCFA under the

hearing procedures described in subpart

N.

§ 422.312 Requirement for additional

benefits.

(a) Definitions. As used in this

section—

(1) Excess amount is the amount by

which the APR exceeds the actuarial

value of the Medicare covered services

required under § 422.101(a), as

determined on the basis of the ACR

determined under § 422.310, as reduced

for the actuarial value of the costsharing under Medicare Parts A and B.

A separate excess amount must be

determined for Part B-only enrollees.

(2) Adjusted excess amount is the

excess amount minus any amount

withheld and reserved for the

organization in a stabilization fund, as

provided in paragraph (c) of this

section.

(b) Requirement for additional

benefits. If there is an adjusted excess

amount for the plan it offers, the M+C

organization must—

(1) Provide additional benefits with

an actuarial value (less the actuarial

value of any copayment or coinsurance

associated with the benefit) which

HCFA determines is at least equal to the

adjusted excess amount; and

(2) Provide those benefits uniformly

for all Medicare enrollees electing the

plan.

(c) Stabilization fund. (1) An M+C

organization may request for part of an

excess amount to be withheld and

reserved, for a specified number of

contract periods, in the Federal Hospital

Insurance Trust Fund, or the Federal

Supplementary Insurance Trust Fund in

the proportions that HCFA determines

to be appropriate.

(2) The reserved funds are to be used

to stabilize and prevent undue

fluctuations in the additional benefits

that are required under this section and

are provided during subsequent contract

periods.

(3) Any amounts not provided as

additional benefits during the period

specified by the M+C organization for

which the stabilization fund is

established, reverts for the use of the

trust funds.

(4) Establishment of a stabilization

fund. An M+C organization’s request to

have monies withheld in a stabilization

fund for a specific M+C plan must be

made when the M+C organization

notifies HCFA under § 422.306 of its

proposed premiums, other cost-sharing

amounts, and related information in

preparation for its next contract period.

(i) Limit per contract period. Except as

provided in paragraph (c)(4)(iii) of this

section, HCFA does not withhold in a

stabilization fund more than 15 percent

of the excess amount for a given

contract period.

(ii) Cumulative limit. If HCFA has

established a stabilization fund for an

M+C plan, it does not approve a request

for withholding made by that M+C

organization for a subsequent contract

period that would cause the total value

of the stabilization fund to exceed 25

percent of the excess amount applicable

to the M+C plan for that subsequent

contract period.

(iii) Exception. HCFA may grant an

exception to the limit described in

paragraph (c)(3)(i) of this section if the

M+C organization can demonstrate to

HCFA’s satisfaction that the value of the

additional benefits it provides to its

Medicare enrollees electing this M+C

plan fluctuates substantially in excess of

15 percent from one contract period to

another.

(iv) Interest. The amounts withheld in

a stabilization fund are accounted for by

HCFA in accounts for which interest

does not accrue to the M+C

organization.

(5) Withdrawal from a stabilization

fund. An M+C organization’s request to

make a withdrawal from the

stabilization fund established for an

M+C plan to be used during a contract

period must be made when the M+C

organization notifies HCFA under

§ 422.306 of its proposed premiums,

cost-sharing amounts, and related

information in preparation for its next

contract period.

(i) Notification requirements. An M+C

organization must—

(A) Indicate how it intends to use the

withdrawn amounts;

(B) Justify the need for the withdrawal

in terms of stabilizing the additional

benefits it provides to Medicare

enrollees;

(C) Document the M+C plan’s

experience with fluctuations of revenue

requirements relative to the additional

benefits it provides to Medicare

enrollees; and

(D) Document its experience during

the contract period previous to the one

for which it requests withdrawal to

ensure that the M+C organization will

not be using the withdrawn amounts to

refinance losses suffered during that

previous contract period.

(ii) Criteria for HCFA approval. HCFA

approves a request for a withdrawal

from a benefit stabilization fund for use

during the next contract period only if—

(A) The average of the APR for the

M+C plan’s next contract period of the

M+C plan is less than that of the

previous contract period;

(B) The M+C plan’s ACR for the next

contract period is significantly higher

than that of the previous contract

period;

(C) The M+C plan’s revenue

requirements for the next contract

period for providing the additional

benefits it provided during the previous

contract period is significantly higher

than the requirements for that previous

period; or

(D) The ACR for the next contract

period results in additional benefits that

are significantly less in total value than

that of the previous contract period.

(iii) Basis for denial. HCFA does not

approve a request for a withdrawal from

a stabilization fund if the withdrawal

would allow the M+C organization to

refinance prior contract period losses or

to avoid losses in the upcoming contract

period.

(iv) Form of payment. Payment of

monies withdrawn from a stabilization

fund is made, in equal parts, as an

additional amount to the monthly

advance payment made to the M+C

organization for Medicare beneficiaries

electing the M+C plan during the period

of the contract.

(d) Construction. Nothing in this

section may be construed as preventing

an M+C organization from providing

supplemental benefits in addition to

those required under this section and
35098 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

from imposing a premium for those

supplemental benefits.

Subpart H—Provider-Sponsored

Organizations

3. Nomenclature change. Throughout

subpart H, ‘‘Medicare+Choice’’,

wherever it appears, is revised to read

‘‘M+C’’.

4. Nomenclature change. Throughout

subpart H, ‘‘items and services’’,

wherever it appears, is revised to read

‘‘services’’.

§ 422.350 [Amended]

5. In § 422.350, the following changes

are made:

a. In paragraph (a)(1), ‘‘hereinafter

referred to as PSOs’’ is revised to read

‘‘(PSOs)’’.

b. The definition of ‘‘capitated basis’’

is removed and a definition of

‘‘capitation payment’’ is added in its

place, to read as set forth below.

c. In the definition of ‘‘cash

equivalent’’, ‘‘accounts receivables,

which’’ is revised to read ‘‘accounts

receivable that’’.

d. The definition of ‘‘health care

provider’’ and the statement for ‘‘M+C’’

are removed.

e. In the definition of ‘‘insolvency’’,

‘‘where’’ is revised to read ‘‘in which’’.

f. The definition of ‘‘providersponsored organization is revised to

read as set forth below.

§ 422.350 Basis, scope, and definitions.

* * * * *

Capitation payment means a fixed per

enrollee per month amount paid for

contracted services without regard to

the type, cost, or frequency of services

furnished.

* * * * *

Provider-sponsored organization

(PSO) means a public or private entity

that—

(1) Is established or organized, and

operated, by a health care provider or

group of affiliated health care providers;

(2) Provides a substantial proportion

(as defined in § 422.352) of the health

care services under the M+C contract

directly through the provider or

affiliated group of providers; and

(3) When it is a group, is composed

of affiliated providers who—

(i) Share, directly or indirectly,

substantial financial risk, as determined

under § 422.356, for the provision of

services that are the obligation of the

PSO under the M+C contract; and

(ii) Have at least a majority financial

interest in the PSO.

§ 422.352 [Amended]

6. In § 422.352, the following changes

are made:

a. In paragraph (a)(1) ‘‘such licensure’’

is revised to read ‘‘State licensure’’, and

‘‘section 1855(a)(2) of the Act’’ is

revised to read ‘‘§ 422.370’’.

b. In paragraph (b)(2), ‘‘as defined in

§ 422.354’’ is removed.

c. Paragraph (c) is revised to read as

follows:

§ 422.352 Basic requirements.

* * * * *

(c) Rural PSO. To qualify as a rural

PSO, a PSO must—

(1) Demonstrate to HCFA that—

(i) It has available in the rural area, as

defined in § 412.62(f) of this chapter,

routine services including but not

limited to primary care, routine

specialty care, and emergency services;

and

(ii) The level of use of providers

outside the rural area is consistent with

general referral patterns for the area; and

(2) Enroll Medicare beneficiaries, the

majority of which reside in the rural

area the PSO serves.

§ 422.354 [Amended]

7. In § 422.354, the following changes

are made:

a. In the introductory text, ‘‘of by two

or more’’ is revised to read ‘‘of two or

more’’.

b. In paragraphs (a)(1), (a)(2), and (c),

the parenthetical phrases are removed.

c. Paragraph (b) is revised to read as

follows:

§ 422.354 Requirements for affiliated

providers.

* * * * *

(b) Each affiliated provider of the PSO

shares, directly or indirectly, substantial

financial risk for the furnishing of

services the PSO is obligated to provide

under the contract.

* * * * *

§ 422.356 [Amended]

8. In § 422.356, in paragraph (a)(3)(ii),

‘‘Agreement by the affiliated provider’’

is revised to read ‘‘Affiliated providers

agree’’.

§ 422.370 [Amended]

9. In § 422.370 the following changes

are made:

a. In the introductory text, the word

‘‘as’’ is revised to read ‘‘to offer’’.

b. Paragraphs (1) and (2) are

redesignated as paragraphs (a) and (b).

10. § 422.372 is revised to read as

follows:

§ 422.372 Basis for waiver of State

licensure.

(a) General rule. Subject to this

section and to paragraphs (a) and (e) of

§ 422.374, HCFA may waive the State

licensure requirement if the

organization has applied (except as

provided in paragraph (b)(4) of this

section) for the most closely appropriate

State license or authority to conduct

business as an M+C plan.

(b) Basis for waiver of State licensure.

Any of the following may constitute a

basis for HCFA’s waiver of State

licensure.

(1) Failure to act timely on

application. The State failed to

complete action on the licensing

application within 90 days of the date

the State received a substantially

complete application.

(2) Denial of application based on

discriminatory treatment. The State

has—

(i) Denied the license application on

the basis of material requirements,

procedures, or standards (other than

solvency requirements) not generally

applied by the State to other entities

engaged in a substantially similar

business; or

(ii) Required, as a condition of

licensure that the organization offer any

product or plan other than an M+C plan.

(3) Denial of application based on

different solvency requirements. (i) The

State has denied the application, in

whole or in part, on the basis of the

organization’s failure to meet solvency

requirements that are different from

those set forth in §§ 422.380 through

422.390; or

(ii) HCFA determines that the State

has imposed, as a condition of

licensure, any documentation or

information requirements relating to

solvency or other material requirements,

procedures, or standards relating to

solvency that are different from the

requirements, procedures, or standards

set forth by HCFA to implement,

monitor, and enforce §§ 422.380 through

422.390.

(4) State declines to accept licensure

application. The appropriate State

licensing authority has given the

organization written notice that it will

not accept its licensure application.

11. In § 422.374, paragraph (b) is

revised to read as follows:

§ 422.374 Waiver request and approval

process.

* * * * *

(b) HCFA gives the organization

written notice of granting or denial of

waiver within 60 days of receipt of a

substantially complete waiver request.

* * * * *

12. In § 422.384, paragraph (b)(3) is

revised to read as follows:

§ 422.384 Financial plan requirement.

* * * * *

(b) * * *
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35099

(3) Cash-flow statements;

* * * * *

13. Nomenclature change:

Throughout subpart H, the phrase

‘‘health care provider’’, wherever it

appears, is revised to read ‘‘provider’’.

14. Subpart I is added as follows:

Subpart I—Organization Compliance with

State Law and Preemption by Federal Law

Sec.

422.400 State licensure requirement.

422.402 Federal preemption of State law.

422.404 State premium taxes prohibited.

Subpart I—Organization Compliance

with State Law and Preemption by

Federal Law

§ 422.400 State licensure requirement.

Except in the case of a PSO granted

a waiver under subpart H of this part,

each M+C organization must—

(a) Be licensed under State law, or

otherwise authorized to operate under

State law, as a risk-bearing entity (as

defined in § 422.2) eligible to offer

health insurance or health benefits

coverage in each State in which it offers

one or more M+C plans;

(b) If not commercially licensed,

obtain certification from the State that

the organization meets a level of

financial solvency and such other

standards as the State may require for it

to operate as an M+C organization; and

(c) Demonstrate to HCFA that—

(1) The scope of its license or

authority allows the organization to

offer the type of M+C plan or plans that

it intends to offer in the State; and

(2) If applicable, it has obtained the

State certification required under

paragraph (b) of this section.

§ 422.402 Federal preemption of State law.

(a) General preemption. Except as

provided in paragraph (b) of this

section, the rules, contract

requirements, and standards established

under this part supersede any State

laws, regulations, contract requirements,

or other standards that would otherwise

apply to M+C organizations and their

M+C plans only to the extent that such

State laws are inconsistent with the

standards established under this part.

This preemption of State laws and other

standards applies only to coverage

pursuant to an M+C contract, and does

not extend to benefits outside of such

contract or to individuals who are not

M+C enrollees of an organization with

an M+C contract.

(b) Specific preemption. As they

might otherwise apply to the M+C plans

of an M+C organization in a State, State

laws and regulations pertaining to the

following areas are specifically

preempted by this part:

(1) Benefit requirements, such as

mandating the inclusion in an M+C plan

of a particular service, or specifying the

scope or duration of a service (for

example, length of hospital stay,

number of home health visits). State

cost-sharing standards with respect to

any benefits are preempted only if they

are inconsistent with this part, as

provided for in paragraph (a) of this

section.

(2) Requirements relating to inclusion

or treatment of providers and suppliers.

(3) Coverage determinations

(including related appeal and grievance

processes for all benefits included under

an M+C contract). Determinations on

issues other than whether a service is

covered under an M+C contract, and the

extent of enrollee liability under the

M+C plan for such a service, are not

considered coverage determinations for

purposes of this paragraph.

(c) Except as provided in paragraphs

(a) and (b) of this section, nothing in

this section may be construed to affect

or modify the provisions of any other

law or regulation that imposes or

preempts a specific State authority.

§ 422.404 State premium taxes prohibited.

(a) Basic rule. No premium tax, fee, or

other similar assessment may be

imposed by any State, the District of

Columbia, the Commonwealth of Puerto

Rico, the Virgin Islands, Guam, and

American Samoa, or any of their

political subdivision or other

governmental authorities with respect to

any payment HCFA makes on behalf of

M+C enrollees under subpart F of this

part.

(b) Construction. Nothing in this

section shall be construed to exempt

any M+C organization from taxes, fees,

or other monetary assessments related to

the net income or profit that accrues to,

or is realized by, the organization from

business conducted under this part, if

that tax, fee, or payment is applicable to

a broad range of business activity.

Subpart J [Reserved]

15. Subpart J is reserved.

16. Subpart K is added as follows:

Subpart K—Contracts With

Medicare+Choice Organizations

Sec.

422.500 Definitions.

422.501 General provisions.

422.502 Contract provisions.

422.504 Effective date and term of contract.

422.506 Nonrenewal of contract.

422.508 Modification or termination of

contract by mutual consent.

422.510 Termination of contract by HCFA.

422.512 Termination of contract by the

M+C organization.

422.514 Minimum enrollment

requirements.

422.516 Reporting requirements.

422.520 Prompt payment by M+C

organization.

422.524 Special rules for RFB societies.

Subpart K—Contracts With

Medicare+Choice Organizations

§ 422.500 Definitions.

For purposes of this subpart, the

following definitions apply:

Business transaction means any of the

following kinds of transactions:

(1) Sale, exchange, or lease of

property.

(2) Loan of money or extension of

credit.

(3) Goods, services, or facilities

furnished for a monetary consideration,

including management services, but not

including—

(i) Salaries paid to employees for

services performed in the normal course

of their employment; or

(ii) Health services furnished to the

M+C organization’s enrollees by

hospitals and other providers, and by

M+C organization staff, medical groups,

or independent practice associations, or

by any combination of those entities.

Clean Claim means a claim that has

no defect, impropriety, lack of any

required substantiating documentation,

or particular circumstance requiring

special treatment that prevents timely

payment.

Party in interest includes the

following:

(1) Any director, officer, partner, or

employee responsible for management

or administration of an M+C

organization.

(2) Any person who is directly or

indirectly the beneficial owner of more

than 5 percent of the organization’s

equity; or the beneficial owner of a

mortgage, deed of trust, note, or other

interest secured by and valuing more

than 5 percent of the organization.

(3) In the case of an M+C organization

organized as a nonprofit corporation, an

incorporator or member of such

corporation under applicable State

corporation law.

(4) Any entity in which a person

described in paragraph (1), (2), or (3) of

this definition:

(i) Is an officer, director, or partner; or

(ii) Has the kind of interest described

in paragraphs (1), (2), or (3) of this

definition.

(5) Any person that directly or

indirectly controls, is controlled by, or

is under common control with, the M+C

organization.

(6) Any spouse, child, or parent of an

individual described in paragraph (1),

(2), or (3) of this definition.

Related entity means any entity that is

related to the M+C organization by

common ownership or control and—
35100 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

(1) Performs some of the M+C

organization’s management functions

under contract or delegation;

(2) Furnishes services to Medicare

enrollees under an oral or written

agreement; or

(3) Leases real property or sells

materials to the M+C organization at a

cost of more than $2,500 during a

contract period.

Significant business transaction

means any business transaction or series

of transactions of the kind specified in

the above definition of ‘‘business

transaction’’ that, during any fiscal year

of the M+C organization, have a total

value that exceeds $25,000 or 5 percent

of the M+C organization’s total

operating expenses, whichever is less.

§ 422.501 General provisions.

(a) Basic rule. In order to qualify as an

M+C organization, enroll beneficiaries

in any M+C plans it offers, and be paid

on behalf of Medicare beneficiaries

enrolled in those plans, an M+C

organization must enter into a contract

with HCFA.

(b) Conditions necessary to contract

as an M+C organization. Any entity

seeking to contract as an M+C

organization must:

(1) Be licensed by the State as a risk

bearing entity in each State in which it

seeks to offer an M+C plan as defined

in § 422.2.

(2) Meet the minimum enrollment

requirements of § 422.514, unless

waived under § 422.514(b).

(3) Have administrative and

management arrangements satisfactory

to HCFA, as demonstrated by at least the

following:

(i) A policy making body that

exercises oversight and control over the

M+C organization’s policies and

personnel to ensure that management

actions are in the best interest of the

organization and its enrollees.

(ii) Personnel and systems sufficient

for the M+C organization to organize,

plan, control, and evaluate financial and

marketing activities, the furnishing of

services, the quality assurance program,

and the administrative and management

aspects of the organization.

(iii) At a minimum, an executive

manager whose appointment and

removal are under the control of the

policy making body.

(iv) A fidelity bond or bonds,

procured and maintained by the M+C

organization, in an amount fixed by its

policymaking body but not less than

$100,000 per individual, covering each

officer and employee entrusted with the

handling of its funds. The bond may

have reasonable deductibles, based

upon the financial strength of the M+C

organization.

(v) Insurance policies or other

arrangements, secured and maintained

by the M+C organization and approved

by HCFA to insure the M+C

organization against losses arising from

professional liability claims, fire, theft,

fraud, embezzlement, and other casualty

risks.

(vi) A compliance plan that consists

of the following:

(A) Written policies, procedures, and

standards of conduct that articulate the

organization’s commitment to comply

with all applicable Federal and State

standards.

(B) The designation of a compliance

officer and compliance committee that

are accountable to senior management.

(C) Effective training and education

between the compliance officer and

organization employees.

(D) Effective lines of communication

between the compliance officer and the

organization’s employees.

(E) Enforcement of standards through

well-publicized disciplinary guidelines.

(F) Provision for internal monitoring

and auditing.

(G) Ensures prompt response to

detected offenses and development of

corrective action initiatives.

(H) An adhered-to process for

reporting to HCFA and/or the OIG

credible information of violations of law

by the M+C organization, plan,

subcontractors or enrollees for a

determination as to whether criminal,

civil, or administrative action may be

appropriate. With respect to enrollees,

this reporting requirement shall be

restricted to credible information on

violations of law with respect to

enrollment in the plan, or the provision

of, or payment for, health services.

(4) Not accept new enrollees under a

section 1876 reasonable cost contract in

any area in which it seeks to offer an

M+C plan.

(5) The M+C organization’s contract

must not have been terminated by

HCFA under § 422.510 within the past

5 years.

(c) Contracting authority. Under the

authority of section 1857(c)(5) of the

Act, HCFA may enter into contracts

under this part without regard to

Federal and Departmental acquisition

regulations set forth in title 48 of the

CFR and provisions of law or other

regulations relating to the making,

performance, amendment, or

modification of contracts of the United

States if HCFA determines that those

provisions are inconsistent with the

efficient and effective administration of

the Medicare program.

(d) Protection against fraud and

beneficiary protections. (1) HCFA

annually audits the financial records

(including data relating to Medicare

utilization, costs, and computation of

the ACR) of at least one-third of the

M+C organizations offering M+C plans.

These auditing activities are subject to

monitoring by the Comptroller General.

(2) Each contract under this section

must provide that HCFA, or any person

or organization designated by HCFA has

the right to:

(i) Inspect or otherwise evaluate the

quality, appropriateness, and timeliness

of services performed under the M+C

contract;

(ii) Inspect or otherwise evaluate the

facilities of the organization when there

is reasonable evidence of some need for

such inspection; and

(iii) Audit and inspect any books,

contracts, and records of the M+C

organization that pertain to—

(A) The ability of the organization to

bear the risk of potential financial

losses, or

(B) Services performed or

determinations of amounts payable

under the contract.

(e) Severability of contracts. The

contract must provide that, upon

HCFA’s request—

(1) The contract will be amended to

exclude any M+C plan or State-licensed

entity specified by HCFA; and

(2) A separate contract for any such

excluded plan or entity will be deemed

to be in place when such a request is

made.

§ 422.502 Contract provisions.

The contract between the M+C

organization and HCFA must contain

the following provisions:

(a) Agreement to comply with

regulations and instructions. The M+C

organization agrees to comply with all

the applicable requirements and

conditions set forth in this part and in

general instructions. An M+C

organization’s compliance with

paragraphs (a)(1) through (a)(13) of this

section is material to performance of the

contract. The M+C organization agrees—

(1) To accept new enrollments, make

enrollments effective, process voluntary

disenrollments, and limit involuntary

disenrollments, as provided in subpart

B of this part.

(2) That it will comply with the

prohibition in § 422.108 on

discrimination in beneficiary

enrollment.

(3) To provide—

(i) The basic benefits as required

under § 422.100 and, to the extent

applicable, supplemental benefits under

§ 422.101; and
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35101

(ii) Access to benefits as required

under subpart C of this part;

(iii) In a manner consistent with

professionally recognized standards of

health care, all benefits covered by

Medicare.

(4) To disclose information to

beneficiaries in the manner and the

form prescribed by HCFA as required

under § 422.110;

(5) To operate a quality assurance and

performance improvement program and

have an agreement for external quality

review as required under subpart D of

this part;

(6) To comply with all applicable

provider requirements in subpart E of

this part, including provider

certification requirements, antidiscrimination requirements, provider

participation and consultation

requirements, the prohibition on

interference with provider advice, limits

on provider indemnification, rules

governing payments to providers, and

limits on physician incentive plans;

(7) To comply with all requirements

in subpart M of this part governing

coverage determinations, grievances,

and appeals;

(8) To comply with the reporting

requirements in § 422.516 and the

requirements in § 422.257 for submitting

encounter data to HCFA;

(9) That it will be paid under the

contract in accordance with the

payment rules in subpart F of this part;

(10) To develop its annual ACR, and

submit all required information on

premiums, benefits, and cost-sharing by

May 1, as provided in subpart G of this

part;

(11) That its contract may not be

renewed or may be terminated in

accordance with this subpart and

subpart N of this part.

(12) To comply will all requirements

that are specific to a particular type of

M+C plan, such as the special rules for

private fee-for-service plans in

§§ 422.114 and 422.216 and the MSA

requirements in §§ 422.56, 422.103, and

422.262; and

(13) To comply with the

confidentiality and enrollee record

accuracy requirements in § 422.118.

(14) An M+C organization’s

compliance with paragraphs (a)(1)

through (a)(13) and (c) of this section is

material to performance of the contract.

(b) Communication with HCFA. The

M+C organization must have the

capacity to communicate with HCFA

electronically.

(c) Prompt payment. The M+C

organization must comply with the

prompt payment provisions of § 422.520

and with instructions issued by HCFA,

as they apply to each type of plan

included in the contract.

(d) Maintenance of records. The M+C

organization agrees to maintain for 6

years books, records, documents, and

other evidence of accounting procedures

and practices that—

(1) Are sufficient to do the following:

(i) Accommodate periodic auditing of

the financial records (including data

related to Medicare utilization, costs,

and computation of the ACR) of M+C

organizations.

(ii) Enable HCFA to inspect or

otherwise evaluate the quality,

appropriateness and timeliness of

services performed under the contract,

and the facilities of the organization.

(iii) Enable HCFA to audit and inspect

any books and records of the M+C

organization that pertain to the ability of

the organization to bear the risk of

potential financial losses, or to services

performed or determinations of amounts

payable under the contract.

(iv) Properly reflect all direct and

indirect costs claimed to have been

incurred and used in the preparation of

the ACR proposal.

(v) Establish component rates of the

ACR for determining additional and

supplementary benefits.

(vi) Determine the rates utilized in

setting premiums for State insurance

agency purposes and for other

government and private purchasers; and

(2) Include at least records of the

following:

(i) Ownership and operation of the

M+C organization’s financial, medical,

and other record keeping systems.

(ii) Financial statements for the

current contract period and six prior

periods.

(iii) Federal income tax or

informational returns for the current

contract period and six prior periods.

(iv) Asset acquisition, lease, sale, or

other action.

(v) Agreements, contracts, and

subcontracts.

(vi) Franchise, marketing, and

management agreements.

(vii) Schedules of charges for the M+C

organization’s fee-for-service patients.

(viii) Matters pertaining to costs of

operations.

(ix) Amounts of income received by

source and payment.

(x) Cash flow statements.

(xi) Any financial reports filed with

other Federal programs or State

authorities.

(e) Access to facilities and records.

The M+C organization agrees to the

following:

(1) HHS, the Comptroller General, or

their designee may evaluate, through

inspection or other means—

(i) The quality, appropriateness, and

timeliness of services furnished to

Medicare enrollees under the contract;

(ii) The facilities of the M+C

organization; and

(iii) The enrollment and

disenrollment records for the current

contract period and six prior periods.

(2) HHS, the Comptroller General, or

their designees may audit, evaluate, or

inspect any books, contracts, medical

records, patient care documentation,

and other records of the M+C

organization, related entity, contractor,

subcontractor, or its transferee that

pertain to any aspect of services

performed, reconciliation of benefit

liabilities, and determination of

amounts payable under the contract, or

as the Secretary may deem necessary to

enforce the contract.

(3) The M+C organization agrees to

make available, for the purposes

specified in paragraph (d) of this

section, its premises, physical facilities

and equipment, records relating to its

Medicare enrollees, and any additional

relevant information that HCFA may

require.

(4) HHS, the Comptroller General, or

their designee’s right to inspect,

evaluate, and audit extends through 6

years from the final date of the contract

period or completion of audit,

whichever is later unless—

(i) HCFA determines there is a special

need to retain a particular record or

group of records for a longer period and

notifies the M+C organization at least 30

days before the normal disposition date;

(ii) There has been a termination,

dispute, or fraud or similar fault by the

M+C organization, in which case the

retention may be extended to 6 years

from the date of any resulting final

resolution of the termination, dispute,

or fraud or similar fault; or

(iii) HCFA determines that there is a

reasonable possibility of fraud, in which

case it may inspect, evaluate, and audit

the M+C organization at any time.

(f) Disclosure of information. The

M+C organization agrees to submit—

(1) To HCFA, certified financial

information that must include the

following:

(i) Such information as HCFA may

require demonstrating that the

organization has a fiscally sound

operation.

(ii) Such information as HCFA may

require pertaining to the disclosure of

ownership and control of the M+C

organization.

(2) To HCFA, all information that is

necessary for HCFA to administer and

evaluate the program and to

simultaneously establish and facilitate a

process for current and prospective
35102 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

beneficiaries to exercise choice in

obtaining Medicare services. This

information includes, but is not limited

to:

(i) The benefits covered under an

M+C plan;

(ii) The M+C monthly basic

beneficiary premium and M+C monthly

supplemental beneficiary premium, if

any, for the plan or in the case of an

MSA plan, the M+C monthly MSA

premium.

(iii) The service area and continuation

area, if any, of each plan and the

enrollment capacity of each plan;

(iv) Plan quality and performance

indicators for the benefits under the

plan including —

(A) Disenrollment rates for Medicare

enrollees electing to receive benefits

through the plan for the previous 2

years;

(B) Information on Medicare enrollee

satisfaction;

(C) Information on health outcomes;

(D) The recent record regarding

compliance of the plan with

requirements of this part, as determined

by HCFA; and

(E) Other information determined by

HCFA to be necessary to assist

beneficiaries in making an informed

choice among M+C plans and

traditional Medicare;

(v) Information about beneficiary

appeals and their disposition;

(vi) Information regarding all formal

actions, reviews, findings, or other

similar actions by States, other

regulatory bodies, or any other

certifying or accrediting organization;

(vii) For M+C organizations offering

an MSA plan, information specified by

HCFA for HCFA’s use in preparing its

report to the Congress on the MSA

demonstration, including data specified

by HCFA in the areas of selection, use

of preventative care, and access to

services.

(viii) To HCFA, any other information

deemed necessary by HCFA for the

administration or evaluation of the

Medicare program.

(3) To its enrollees all informational

requirements under § 422.64 and, upon

an enrollee’s, request the financial

disclosure information required under

§ 422.516.

(g) Beneficiary Financial Protection.

The M+C organization agrees to comply

with the following requirements:

(1) Each M+C organization must adopt

and maintain arrangements satisfactory

to HCFA to protect its enrollees from

incurring liability for payment of any

fee that are the legal obligation of the

M+C organization. To meet this

requirement the M+C organization

must—

(i) Ensure that all contractual or other

written arrangements with providers

prohibit the organization’s providers

from holding any beneficiary enrollee

liable for payment of any such fees; and

(ii) Indemnify the beneficiary enrollee

for payment of any fees that are the legal

obligation of the M+C organization for

services furnished by providers that do

not contract, or that have not otherwise

entered into an agreement with the M+C

organization, to provide services to the

organization’s beneficiary enrollees.

(2) The M+C organization must

provide for continuation of enrollee

health care benefits—

(i) For all enrollees, for the duration

of the contract period for which HCFA

payments have been made; and

(ii) For enrollees who are hospitalized

on the date its contract with HCFA

terminates, or, in the event of an

insolvency, through discharge.

(3) In meeting the requirements of this

paragraph (g), other than the provider

contract requirements specified in

paragraph (g)(1) of this section, the M+C

organization may use—

(i) Contractual arrangements;

(ii) Insurance acceptable to HCFA;

(iii) Financial reserves acceptable to

HCFA; or

(iv) Any other arrangement acceptable

to HCFA.

(h) Requirements of other laws and

regulations. (1) The M+C organization

agrees to comply with—

(i) Title VI of the Civil Rights Act of

1964 as implemented by regulations at

45 CFR part 84;

(ii) The Age Discrimination Act of

1975 as implemented by regulations at

45 CFR part 91;

(iii) The Americans With Disabilities

Act; and

(iv) Other laws applicable to

recipients of Federal funds; and

(v) All other applicable laws and

rules.

(2) M+C organizations receiving

Federal payments under M+C contracts,

and related entities, contractors, and

subcontractors paid by an M+C

organization to fulfill its obligations

under its M+C contract are subject to

certain laws that are applicable to

individuals and entities receiving

Federal funds. M+C organizations must

inform all related entities, contractors

and subcontractors that payments that

they receive are, in whole or in part,

from Federal funds.

(i) M+C organization relationship with

related entities, contractors, and

subcontractors. (1) Notwithstanding any

relationship(s) that the M+C

organization may have with related

entities, contractors, or subcontractors,

the M+C organization maintains

ultimate responsibility for adhering to

and otherwise fully complying with all

terms and conditions of its contract with

HCFA.

(2) The M+C organization agrees to

require all related entities, contractors,

or subcontractors to agree that—

(i) HHS, the Comptroller General, or

their designees have the right to inspect,

evaluate, and audit any pertinent

contracts, books, documents, papers,

and records of the related entity(s),

contractor(s), or subcontractor(s)

involving transactions related to the

M+C contract; and

(ii) HHS’, the Comptroller General’s,

or their designee’s right to inspect,

evaluate, and audit any pertinent

information for any particular contract

period will exist through 6 years from

the final date of the contract period or

from the date of completion of any

audit, whichever is later.

(3) All contracts or written

arrangements between M+C

organizations and providers, related

entities, contractors, or subcontractors

must contain the following:

(i) Enrollee protection provisions that

provide—

(A) Consistent with paragraph (g)(1) of

this section, arrangements that prohibit

providers from holding an enrollee

liable for payment of any fees that are

the obligation of the M+C Organization;

and

(B) Consistent with paragraph (g)(2) of

this section, provision for the

continuation of benefits.

(ii) Accountability provisions that

indicate that—

(A) The M+C organization oversees

and is accountable to HCFA for any

functions or responsibilities that are

described in these standards; and

(B) The M+C organization may only

delegate activities or functions to a

provider, related entity, contractor, or

subcontractor in a manner consistent

with requirements set forth at paragraph

(i)(4) of this section.

(iii) A provision requiring that any

services or other activity performed by

a related entity, contractor or

subcontractor in accordance with a

contract or written agreement will be

consistent and comply with the M+C

organization’s contractual obligations.

(4) If any of the M+C organizations’

activities or responsibilities under its

contract with HCFA are delegated to

other parties, the following

requirements apply to any related

entity, contractor, subcontractor, or

provider:

(i) Written arrangements must specify

delegated activities and reporting

responsibilities.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35103

(ii) Written arrangements must either

provide for revocation of the delegation

activities and reporting requirements or

specify other remedies in instances

where HCFA or the M+C organization

determine that such parties have not

performed satisfactorily.

(iii) Written arrangements must

specify that the performance of the

parties is monitored by the M+C

organization on an ongoing basis.

(iv) Written arrangements must

specify that either—

(A) The credentials of medical

professionals affiliated with the party or

parties will be either reviewed by the

M+C organization; or

(B) The credentialing process will be

reviewed and approved by the M+C

organization and the M+C organization

must audit the credentialing process on

an ongoing basis.

(v) All contracts or written

arrangements must specify that the

related entity, contractor, or

subcontractor must comply with all

applicable Medicare laws, regulations,

and HCFA instructions.

(5) If the M+C organization delegates

selection of the providers, contractors,

or subcontractor to another

organization, the M+C organization’s

written arrangements with that

organization must state that the HCFAcontracting M+C organization retains

the right to approve, suspend, or

terminate any such arrangement.

(j) Additional contract terms. The

M+C organization agrees to include in

the contract such other terms and

conditions as HCFA may find necessary

and appropriate in order to implement

requirements in this part.

(k) Severability of contracts. The

contract must provide that, upon

HCFA’s request—

(1) The contract will be amended to

exclude any M+C plan or State-licensed

entity specified by HCFA; and

(2) A separate contract for any such

excluded plan or entity will be deemed

to be in place when such a request is

made.

(l) Certification of data that determine

payment. As a condition for receiving a

monthly payment under subpart F of

this part, the M+C organization agrees

that its chief executive officer (CEO) or

chief financial officer (CFO) must

request payment under the contract on

a document that certifies the accuracy,

completeness, and truthfulness of

relevant data that HCFA requests. Such

data include specified enrollment

information, encounter data, and other

information that HCFA may specify.

(1) The CEO or CFO must certify that

each enrollee for whom the organization

is requesting payment is validly

enrolled in an M+C plan offered by the

organization and the information relied

upon by HCFA in determining payment

is accurate.

(2) The CEO or CFO must certify that

the encounter data it submits under

§ 422.257 are accurate, complete, and

truthful.

(3) If such encounter data are

generated by a related entity, contractor,

or subcontractor of an M+C

organization, such entity, contractor, or

subcontractor must similarly certify the

accuracy, completeness, and

truthfulness of the data.

(m) Certification of accuracy of ACR.

The M+C organization agrees, as a

condition for retaining (and not

providing additional benefits with)

payment amounts below the amount of

its ACR, that the information in its ACR

submission is accurate and fully

conforms to the requirements in

§ 422.310.

§ 422.504 Effective date and term of

contract.

(a) Effective date. The contract is

effective on the date specified in the

contract between the M+C organization

and HCFA and, for a contract that

provides for coverage under an MSA

plan, not earlier than January 1999.

(b) Term of contract. Except as

provided in paragraph (d) of this

section, each contract is for a period of

12 months beginning on January 1 and

ending on December 31.

(c) Renewal of contract. In accordance

with § 422.506, contracts are renewed

annually only if—

(1) HCFA informs the M+C

organization that it authorizes a

renewal; and

(2) The M+C organization has not

provided HCFA with a notice of

intention not to renew.

(d) Exception. Prior to January 1,

2002, at HCFA’s discretion, a contract

may be for a term longer than 12 months

and may begin on a date specified by

HCFA other than January 1.

§ 422.506 Nonrenewal of contract.

(a) Nonrenewal by an M+C

organization. (1) An M+C organization

may elect not to renew its contract with

HCFA as of the end of the term of the

contract for any reason provided it

meets the timeframes for doing so set

forth in paragraphs (a)(2) and (a)(3) of

this section.

(2) If an M+C organization does not

intend to renew its contract, it must

notify—

(i) HCFA in writing, by May 1 of the

year in which the contract would end;

(ii) Each Medicare enrollee, at least 90

days before the date on which the

nonrenewal is effective. This notice

must include a written description of

alternatives available for obtaining

Medicare services within the service

area, including alternative M+C plans,

Medigap options, and original Medicare

and must receive HCFA approval.

(iii) The general public, at least 90

days before the end of the current

calendar year, by publishing a notice in

one or more newspapers of general

circulation in each community located

in the M+C organization’s service area.

(3) HCFA may accept a nonrenewal

notice submitted after May 1 if—

(i) The M+C organization notifies its

Medicare enrollees and the public in

accordance with paragraph (a)(2)(ii) and

(a)(2)(iii) of this section; and

(ii) Acceptance is not inconsistent

with the effective and efficient

administration of the Medicare program.

(4) If an M+C organization does not

renew a contract under this paragraph

(a), HCFA will not enter into a contract

with the organization for 5 years unless

there are special circumstances that

warrant special consideration, as

determined by HCFA.

(b) HCFA decision not to renew. (1)

HCFA may elect not to authorize

renewal of a contract for any of the

following reasons:

(i) The M+C organization has not fully

implemented or shown discernable

progress in implementing quality

improvement projects as defined in

§ 422.152(d).

(ii) The M+C organization’s level of

enrollment or growth in enrollment is

determined by HCFA to threaten the

viability of the organization under the

M+C program and or be an indicator of

beneficiary dissatisfaction with the M+C

plan(s) offered by the organization.

(iii) For any of the reasons listed in

§ 422.510(a), which would also permit

HCFA to terminate the contract.

(iv) The M+C organization has

committed any of the acts in

§ 422.752(a) that would support the

imposition of intermediate sanctions or

civil money penalties under subpart O

of this part.

(2) Notice. HCFA provides notice of

its decision whether to authorize

renewal of the contract as follows:

(i) To the M+C organization by May

1 of the contract year.

(ii) If HCFA decides not to authorize

a renewal of the contract, to the M+C

organization’s Medicare enrollees by

mail at least 90 days before the end of

the current calendar year.

(iii) If HCFA decides not to authorize

a renewal of the contract, to the general

public at least 90 days before the end of

the current calendar year, by publishing

a notice in one or more newspapers of
35104 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

general circulation in each community

or county located in the M+C

organization’s service area.

(3) Notice of appeal rights. HCFA

gives the M+C organization written

notice of its right to appeal the decision

not to renew in accordance with

§ 422.644.

§ 422.508 Modification or termination of

contract by mutual consent.

(a) A contract may be modified or

terminated at any time by written

mutual consent.

(1) If the contract is terminated by

mutual consent, except as provided in

paragraph (b) of this section, the M+C

organization must provide notice to its

Medicare enrollees and the general

public as provided in § 422.512(b)(2)

and (b)(3).

(2) If the contract is modified by

mutual consent, the M+C organization

must notify its Medicare enrollees of

any changes that HCFA determines are

appropriate for notification within

timeframes specified by HCFA.

(b) If the contract terminated by

mutual consent is replaced the day

following such termination by a new

M+C contract, the M+C organization is

not required to provide the notice

specified in paragraph (a)(1) of this

section.

§ 422.510 Termination of contract by

HCFA.

(a) Termination by HCFA. HCFA may

terminate a contract for any of the

following reasons:

(1) The M+C organization has failed

substantially to carry out the terms of its

contract with HCFA.

(2) The M+C organization is carrying

out its contract with HCFA in a manner

that is inconsistent with the effective

and efficient implementation of this

part.

(3) HCFA determines that the M+C

organization no longer meets the

requirements of this part for being a

contracting organization.

(4) The M+C organization commits or

participates in fraudulent or abusive

activities affecting the Medicare

program, including submission of

fraudulent data.

(5) The M+C 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.

(6) The M+C organization

substantially fails to comply with the

requirements in subpart M of this part

relating to grievances and appeals.

(7) The M+C organization fails to

provide HCFA with valid encounter

data as required under § 422.257.

(8) The M+C organization fails to

implement an acceptable quality

assessment and performance

improvement program as required under

subpart D of this part.

(9) The M+C organization

substantially fails to comply with the

prompt payment requirements in

§ 422.520.

(10) The M+C organization

substantially fails to comply with the

service access requirements in § 422.112

or § 422.114.

(11) The M+C organization fails to

comply with the requirements of

§ 422.208 regarding physician incentive

plans.

(b) Notice. If HCFA decides to

terminate a contract for reasons other

than the grounds specified in

§ 422.510(a)(5), it gives notice of the

termination as follows:

(1) Termination of contract by HCFA.

(i) HCFA notifies the M+C organization

in writing 90 days before the intended

date of the termination.

(ii) The M+C organization notifies its

Medicare enrollees of the termination by

mail at least 30 days before the effective

date of the termination.

(iii) The M+C organization notifies the

general public of the termination at least

30 days before the effective date of the

termination by publishing a notice in

one or more newspapers of general

circulation in each community or

county located in the M+C

organization’s service area.

(2) Immediate termination of contract

by HCFA. (i) For terminations based on

violations prescribed in § 422.510(a)(5),

HCFA notifies the M+C organization in

writing that its contract has been

terminated effective the date of the

termination decision by HCFA. If

termination is effective in the middle of

a month, HCFA has the right to recover

the prorated share of the capitation

payments made to the M+C organization

covering the period of the month

following the contract termination.

(ii) HCFA notifies the M+C

organization’s Medicare enrollees in

writing of HCFA’s decision to terminate

the M+C organization’s contract. This

notice occurs no later than 30 days after

HCFA notifies the plan of its decision to

terminate the M+C contract. HCFA

simultaneously informs the Medicare

enrollees of alternative options for

obtaining Medicare services, including

alternative M+C organizations in a

similar geographic area and original

Medicare.

(iii) HCFA notifies the general public

of the termination no later than 30 days

after notifying the plan of HCFA’s

decision to terminate the M+C contract.

This notice is published in one or more

newspapers of general circulation in

each community or county located in

the M+C organization’s service area.

(c) Corrective action plan—(1)

General. Before terminating a contract

for reasons other than the grounds

specified in paragraph (a)(5) of this

section, HCFA provides the M+C

organization with reasonable

opportunity, not to exceed timeframes

specified at subpart N of this part, to

develop and receive HCFA approval of

a corrective action plan to correct the

deficiencies that are the basis of the

proposed termination.

(2) Exception. If a contract is

terminated under § 422.510(a)(5), the

M+C organization will not have the

opportunity to submit a corrective

action plan.

(d) Appeal rights. If HCFA decides to

terminate a contract, it sends written

notice to the M+C organization

informing it of its termination appeal

rights in accordance with subpart N of

this part.

§ 422.512 Termination of contract by the

M+C organization.

(a) Cause for termination. The M+C

organization may terminate the M+C

contract if HCFA fails to substantially

carry out the terms of the contract.

(b) Notice. The M+C organization

must give advance notice as follows:

(1) To HCFA, at least 90 days before

the intended date of termination. This

notice must specify the reasons why the

M+C organization is requesting contract

termination.

(2) To its Medicare enrollees, at least

60 days before the termination effective

date. This notice must include a written

description of alternatives available for

obtaining Medicare services within the

services area, including alternative M+C

plans, Medigap options, original

Medicare and must receive HCFA

approval.

(3) To the general public at least 60

days before the termination effective

date by publishing an HCFA-approved

notice in one or more newspapers of

general circulation in each community

or county located in the M+C

organization’s geographic area.

(c) Effective date of termination. The

effective date of the termination is

determined by HCFA and is at least 90

days after the date HCFA receives the

M+C organization’s notice of intent to

terminate.

(d) HCFA’s liability. HCFA’s liability

for payment to the M+C organization

ends as of the first day of the month
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35105

after the last month for which the

contract is in effect.

(e) Effect of termination by the

organization. HCFA does not enter into

an agreement with an organization that

has terminated its contract within the

preceding 5 years unless there are

circumstances that warrant special

consideration, as determined by HCFA.

§ 422.514 Minimum enrollment

requirements.

(a) Basic rule. Except as provided in

paragraph (b) of this section, HCFA does

not enter into a contract under this

subpart unless the organization meets

the following minimum enrollment

requirement—

(1) At least 5,000 individuals (or 1,500

individuals if the organization is a PSO)

are enrolled for the purpose of receiving

health benefits from the organization; or

(2) At least 1,500 individuals (or 500

individuals if the organization is a PSO)

are enrolled for purposes of receiving

health benefits from the organization

and the organization primarily serves

individuals residing outside of

urbanized areas as defined in § 412.62(f)

(or, in the case of a PSO, the PSO meets

the requirements in § 422.352(c)).

(3) Except as provided for in

paragraph (b) of this section, an M+C

organization must maintain a minimum

enrollment as defined in paragraphs

(a)(1) and (a)(2) of this section for the

duration of its contract.

(b) Minimum Enrollment Waiver. (1)

For an organization that does not meet

the applicable requirement of paragraph

(a) of this section at application for an

M+C contract or during the first 3 years

of such contract, HCFA may waive the

minimum enrollment requirement as

provided for below. To receive a waiver,

an organization must demonstrate to

HCFA’s satisfaction that it is capable to

administering and managing an M+C

contract and is able to manage the level

of risk required under the contract.

Factors that HCFA will take into

consideration in making this evaluation

include the extent to which—

(i) The organization management and

providers have previous experience in

managing and providing health care

services under a risk-based payment

arrangement to at least as many

individuals as the applicable minimum

enrollment for the entity as described in

paragraph (a) of this section, or

(ii) The organization has the financial

ability to bear financial risk under an

M+C contract. In determining whether

an organization is capable of bearing

risk, HCFA considers factors such as the

organization’s management experience

as described in paragraph (b)(1)(i) of this

section and stop-loss insurance that is

adequate and acceptable to HCFA; and,

(iii) The organization is able to

establish a marketing and enrollment

process that will allow it to meet the

applicable enrollment requirement

specified in paragraph (a) of this section

prior to completion of the third contract

year.

(2) If an M+C organization fails to

meet the enrollment requirement in the

first year, HCFA may waive the

minimum requirements for another year

provided that the organization—

(i) Requests an additional minimum

enrollment waiver no later than 120

days before the end of the first year;

(ii) Continues to demonstrate it is

capable of administering and managing

an M+C contract and is able to manage

the level of risk; and,

(iii) Demonstrates an acceptable

marketing and enrollment process.

Enrollment projections for the second

year of the waiver will become the

organization’s transitional enrollment

standard.

(3) If an M+C organization fails to

meet the enrollment requirement in the

second year, HCFA may waive the

minimum requirements for the third

year only if the organization has

attained the transitional enrollment

standard as described in paragraph

(b)(2)(iii) of this section.

(c) Failure to meet enrollment

requirements. HCFA may elect not to

renew its contract with an M+C

organization that fails to meet the

applicable enrollment requirement in

paragraph (a) of this section

§ 422.516 Reporting requirements.

(a) Required information. Each M+C

organization must have an effective

procedure to develop, compile,

evaluate, and report to HCFA, to its

enrollees, and to the general public, at

the times and in the manner that HCFA

requires, and while safeguarding the

confidentiality of the doctor-patient

relationship, statistics and other

information with respect to the

following:

(1) The cost of its operations.

(2) The patterns of utilization of its

services.

(3) The availability, accessibility, and

acceptability of its services.

(4) To the extent practical,

developments in the health status of its

enrollees.

(5) Information demonstrating that the

M+C organization has a fiscally sound

operation.

(6) Other matters that HCFA may

require.

(b) Significant business transactions.

Each M+C organization must report to

HCFA annually, within 120 days of the

end of its fiscal year (unless for good

cause shown, HCFA authorizes an

extension of time), the following:

(1) A description of significant

business transactions (as defined in

§ 422.500) between the M+C

organization and a party in interest.

(2) With respect to those

transactions—

(i) A showing that the costs of the

transactions listed in paragraph (c) of

this section do not exceed the costs that

would be incurred if these transactions

were with someone who is not a party

in interest; or

(ii) If they do exceed, a justification

that the higher costs are consistent with

prudent management and fiscal

soundness requirements.

(3) A combined financial statement

for the M+C organization and a party in

interest if either of the following

conditions is met:

(i) Thirty-five percent or more of the

costs of operation of the M+C

organization go to a party in interest.

(ii) Thirty-five percent or more of the

revenue of a party in interest is from the

M+C organization.

(c) Requirements for combined

financial statements. (1) The combined

financial statements required by

paragraph (b)(3) of this section must

display in separate columns the

financial information for the M+C

organization and each of the parties in

interest.

(2) Inter-entity transactions must be

eliminated in the consolidated column.

(3) The statements must have been

examined by an independent auditor in

accordance with generally accepted

accounting principles and must include

appropriate opinions and notes.

(4) Upon written request from an M+C

organization showing good cause, HCFA

may waive the requirement that the

organization’s combined financial

statement include the financial

information required in this paragraph

(c) with respect to a particular entity.

(d) Reporting and disclosure under

ERISA. (1) For any employees’ health

benefits plan that includes an M+C

organization in its offerings, the M+C

organization must furnish, upon

request, the information the plan needs

to fulfill its reporting and disclosure

obligations (with respect to the

particular M+C organization) under the

Employee Retirement Income Security

Act of 1974 (ERISA).

(2) The M+C organization must

furnish the information to the employer

or the employer’s designee, or to the

plan administrator, as the term

‘‘administrator’’ is defined in ERISA.
35106 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

(e) Loan information. Each

organization must notify HCFA of any

loans or other special financial

arrangements it makes with contractors,

subcontractors and related entities.

(f) Enrollee access to Information.

Each M+C organization must make the

information reported to HCFA under

§ 422.502(f)(1) available to its enrollees

upon reasonable request.

§ 422.520 Prompt payment by M+C

organization.

(a) Contract between HCFA and the

M+C organization.

(1) The contract between HCFA and

the M+C organization must provide that

the M+C organization will pay 95

percent of the ‘‘clean claims’’ within 30

days of receipt if they are submitted by,

or on behalf of, an enrollee of an M+C

private fee-for-service plan or are claims

for services that are not furnished under

a written agreement between the

organization and the provider.

(2) The M+C organization must pay

interest on clean claims that are not

paid within 30 days in accordance with

sections 1816(c)(2)(B) and 1842(c)(2)(B).

(3) All other claims must be approved

or denied within 60 calendar days from

the date of the request.

(b) Contracts between M+C

organizations and providers and

suppliers. Contracts or other written

agreements between M+C organizations

and providers must contain a prompt

payment provision, the terms of which

are developed and agreed to by both the

M+C organization and the relevant

provider.

(c) Failure to comply. If HCFA

determines, after giving notice and

opportunity for hearing, that an M+C

organization has failed to make

payments in accordance with paragraph

(a) of this section, HCFA may provide—

(1) For direct payment of the sums

owed to providers, or M+C private feefor-service plan enrollees; and

(2) For appropriate reduction in the

amounts that would otherwise be paid

to the organization, to reflect the

amounts of the direct payments and the

cost of making those payments.

§ 422.524 Special rules for RFB societies.

In order to participate as an M+C

organization, an RFB society—

(a) May not impose any limitation on

membership based on any factor related

to health status; and

(b) Must offer, in addition to the M+C

RFB plan, health coverage to

individuals who are members of the

church or convention or group of

churches with which the society is

affiliated, but who are not entitled to

receive benefits from the Medicare

program.

Subpart L—Effect of Change of

Ownership or Leasing of Facilities

During Term of Contract

17. Nomenclature change.

Throughout newly designated subpart L,

‘‘HMO or CMP’’ is revised to read ‘‘M+C

organization’’ wherever it appears.

18. Nomenclature change.

Throughout newly designated subpart L,

‘‘HMO’s or CMP’s’’ are revised to read

‘‘M+C organization’’ and ‘‘M+C

organization’s’’ respectively.

§ 422.550 [Amended]

19. In § 422.550, the following

changes are made:

a. In paragraph (b), the following

sentence is added at the end: ‘‘The M+C

organization must also provide updated

financial information and a discussion

of the financial and solvency impact of

the change of ownership on the

surviving organization.’’

b. In paragraphs (c)(2) and (e),

‘‘§ 417.522’’ is revised to read

‘‘§ 422.552’’.

c. In paragraph (d)(2), ‘‘subpart L’’ is

revised to read ‘‘subpart K’’.

§ 422.552 [Amended]

20. In § 422.552, in paragraph (a)(1),

the following sentence is added at the

end: ‘‘The M+C organization also

provides HCFA with updated financial

information and a discussion of the

financial and solvency impact of the

change of ownership on the surviving

organization.’’

§ 422.553 [Amended]

21. In § 422.553, ‘‘subpart J’’ is revised

to read ‘‘subpart K’’.

22. Subparts M through O are added

to read as follows:

Subpart M—Grievances, Organization

Determinations and Appeals

Sec.

422.560 Basis and scope.

422.561 Definitions.

422.562 General provisions.

422.564 Grievance procedures.

422.566 Organization determinations.

422.568 Standard timeframes and notice

requirements for organization

determinations.

422.570 Expediting certain organization

determinations.

422.572 Timeframes and notice

requirements for expedited organization

determinations.

422.574 Parties to the organization

determination.

422.576 Effect of an organization

determination.

422.578 Right to a reconsideration.

422.580 Reconsideration defined.

422.582 Request for a standard

reconsideration.

422.584 Expediting certain

reconsiderations.

422.586 Opportunity to submit evidence.

422.590 Timeframes and responsibility for

reconsiderations.

422.592 Reconsideration by an independent

entity.

422.594 Notice of reconsidered

determination by the independent entity.

422.596 Effect of a reconsidered

determination.

422.600 Right to a hearing.

422.602 Request for an ALJ hearing.

422.608 Departmental Appeals Board

review.

422.612 Judicial review.

422.616 Reopening and revising

determinations and decisions.

422.618 How an M+C organization must

effectuate reconsidered determinations

or decisions.

422.620 How M+C organizations must

notify enrollees of noncoverage of

inpatient hospital care.

422.622 Requesting immediate PRO review

of noncoverage of inpatient hospital care.

Subpart N—Medicare Contract Appeals

422.641 Contract determinations.

422.644 Notice of contract determination.

422.646 Effect of contract determination.

422.648 Reconsideration: Applicability.

422.650 Request for reconsideration.

422.652 Opportunity to submit evidence.

422.654 Reconsidered determination.

422.656 Notice of reconsidered

determination.

422.658 Effect of reconsidered

determination.

422.660 Right to a hearing.

422.662 Request for hearing.

422.664 Postponement of effective date of

contract determination when a request

for a hearing with respect to a contract

determination is filed timely.

422.666 Designation of hearing officer.

422.668 Disqualification of hearing officer.

422.670 Time and place of hearing.

422.672 Appointment of representatives.

422.674 Authority of representatives.

422.676 Conduct of hearing.

422.678 Evidence.

422.680 Witnesses.

422.682 Discovery.

422.684 Prehearing.

422.686 Record of hearing.

422.688 Authority of hearing officer.

422.690 Notice and effect of hearing

decision.

422.692 Review by the Administrator.

422.694 Effect of Administrator’s decision.

422.696 Reopening of contract or

reconsidered determination or decision

of a hearing officer or the Administrator.

422.698 Effect of revised determination.

Subpart O—Intermediate Sanctions

422.750 Kinds of sanctions.

422.752 Basis for imposing sanctions.

422.756 Procedures for imposing sanctions.

422.758 Maximum amount of civil money

penalties imposed by HCFA.

422.760 Other applicable provisions.
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35107

Subpart M—Grievances, Organization

Determinations and Appeals

§ 422.560 Basis and scope.

(a) Statutory basis. (1) Section 1852(f)

of the Act provides that an M+C

organization must establish meaningful

grievance procedures.

(2) Section 1852(g) of the Act

establishes requirements that an M+C

organization must meet concerning

organization determinations and

appeals.

(b) Scope. This subpart sets forth—

(1) Requirements for M+C

organizations with respect to grievance

procedures, organization

determinations, and appeal procedures.

(2) The rights of M+C enrollees with

respect to organization determinations,

and grievance and appeal procedures.

(3) The rules concerning notice of

noncoverage of inpatient hospital care.

(4) The rules that apply when an M+C

enrollee requests immediate PRO review

of a determination that he or she no

longer needs inpatient hospital care.

§ 422.561 Definitions.

As used in this subpart, unless the

context indicates otherwise—

Appeal means any of the procedures

that deal with the review of adverse

organization determinations on the

health care services an enrollee is

entitled to receive or any amounts the

enrollee must pay for a service, as

defined under § 422.566(b). These

procedures include reconsiderations by

the M+C organization, and if necessary,

an independent review entity, hearings

before ALJs, review by the Departmental

Appeals Board (DAB), and judicial

review.

Authorized representative means an

individual authorized by an enrollee to

act on his or her behalf in obtaining an

organization determination or in dealing

with any of the levels of the appeal

process, subject to the rules described in

20 CFR part 404, subpart R, unless

otherwise stated in this subpart.

Enrollee means an M+C eligible

individual who has elected an M+C

plan offered by an M+C organization, or

his or her authorized representative.

Grievance means any complaint or

dispute other than one involving an

organization determination, as defined

in § 422.566(b).

Physician has the meaning given the

term in section 1861(r) of the Act.

§ 422.562 General provisions.

(a) Responsibilities of the M+C

organization. (1) An M+C organization,

with respect to each M+C plan that it

offers, must establish and maintain—

(i) A grievance procedure as described

in § 422.564 for addressing issues that

do not involve organization

determinations;

(ii) A procedure for making timely

organization determinations; and

(iii) Appeal procedures that meet the

requirements of this subpart for issues

that involve organization

determinations; and

(2) An M+C organization must ensure

that all enrollees receive written

information about the—

(i) Grievance and appeal procedures

that are available to them through the

M+C organization; and

(ii) Complaint process available to the

enrollee under the PRO process as set

forth under section 1154(a)(14) of the

Act.

(3) In accordance with subpart K of

this part, if the M+C organization

delegates any of its responsibilities

under this subpart to another entity or

individual through which the

organization provides health care

services, the M+C organization is

ultimately responsible for ensuring that

the entity or individual satisfies the

relevant requirements of this subpart.

(b) Rights of M+C enrollees. In

accordance with the provisions of this

subpart, enrollees have the following

rights:

(1) The right to have grievances

between the enrollee and the M+C

organization heard and resolved, as

described in § 422.564.

(2) The right to a timely organization

determination, as provided under

§ 422.566.

(3) The right to request an expedited

organization determination, as provided

under § 422.570.

(4) If dissatisfied with any part of an

organization determination, the

following appeal rights:

(i) The right to a reconsideration of

the adverse organization determination

by the M+C organization, as provided

under § 422.578.

(ii) The right to request an expedited

reconsideration, as provided under

§ 422.584.

(iii) If, as a result of a reconsideration,

an M+C organization affirms, in whole

or in part, its adverse organization

determination, the right to an automatic

reconsidered determination made by an

independent, outside entity contracted

by HCFA, as provided in § 422.592.

(iv) The right to an ALJ hearing if the

amount in controversy is $100 or more,

as provided in § 422.600.

(v) The right to request DAB review of

the ALJ hearing decision, as provided in

§ 422.608.

(vi) The right to judicial review of the

hearing decision if the amount in

controversy is $1000 or more, as

provided in § 422.612.

(c) Limits on when this subpart

applies. (1) If an enrollee receives

immediate PRO review (as provided in

§ 422.622) of a determination of

noncoverage of inpatient hospital care—

(i) The enrollee is not entitled to

review of that issue by the M+C

organization; and

(ii) The PRO review decision is

subject only to the appeal procedures

set forth in part 473 of this chapter.

(2) If an enrollee has no further

liability to pay for services that were

furnished by an M+C organization, a

determination regarding these services

is not subject to appeal.

(d) When other regulations apply.

Unless this subpart provides otherwise,

the regulations in 20 CFR, part 404,

subparts J and R (covering, respectively,

the administrative review and hearing

process and representation of parties

under title II of the Act), apply under

this subpart to the extent they are

appropriate.

§ 422.564 Grievance procedures.

(a) General rules. (1) Each M+C

organization must provide meaningful

procedures for timely hearing and

resolution of grievances between

enrollees and the organization or any

other entity or individual through

which the organization provides health

care services under any M+C plan it

offers.

(2) Grievance procedures must meet

any guidelines established by HCFA.

(b) Distinguished from organization

determinations and appeals. Grievance

procedures are separate and distinct

from organization determinations and

appeal procedures, which address

organization determinations.

(c) Distinguished from the PRO

complaint process. Under section

1154(a)(14) of the Act, the PRO must

review beneficiaries’ written complaints

about the quality of services they have

received under the Medicare program;

this process is separate and distinct

from the grievance procedures of the

M+C organization.

§ 422.566 Organization determinations.

(a) Responsibilities of the M+C

organization. Each M+C organization

must have a procedure for making

timely organization determinations (in

accordance with the requirements of

this subpart) regarding the benefits an

enrollee is entitled to receive under an

M+C plan, including basic benefits as

described under § 422.100(c)(1) and

mandatory and optional supplemental

benefits as described under § 422.102,

and the amount, if any, that the enrollee

is required to pay for a health service.

The M+C organization must have a
35108 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

standard procedure for making

determinations, in accordance with

§ 422.568, and an expedited procedure

for situations in which applying the

standard procedure could seriously

jeopardize the enrollee’s life, health, or

ability to regain maximum function, in

accordance with §§ 422.570 and

422.572.

(b) Actions that are organization

determinations. An organization

determination is any determination

made by an M+C organization with

respect to any of the following:

(1) Payment for emergency services,

post-stabilization care, or urgently

needed services.

(2) Payment for any other health

services furnished by a provider other

than the M+C organization that the

enrollee believes—

(i) Are covered under Medicare; or

(ii) If not covered under Medicare,

should have been furnished, arranged

for, or reimbursed by the M+C

organization.

(3) The M+C organization’s refusal to

provide services that the enrollee

believes should be furnished or

arranged for by the M+C organization

when the enrollee has not received the

services outside the M+C organization.

(4) Discontinuation of a service, if the

enrollee disagrees with the

determination that the service is no

longer medically necessary.

(c) Who can request an organization

determination. Any of the parties listed

in § 422.574 can request an organization

determination, with the exception that

only the parties listed in § 422.570(a)

can request an expedited determination.

§ 422.568 Standard timeframes and notice

requirements for organization

determinations.

(a) Timeframe for requests for service.

When a party has made a request for a

service, the M+C organization must

notify the enrollee of its determination

as expeditiously as the enrollee’s health

condition requires, but no later than 14

calendar days after the date the

organization receives the request for a

standard organization determination.

The M+C organization may extend the

timeframe by up to 14 calendar days if

the enrollee requests the extension or if

the organization justifies a need for

additional information and how the

delay is in the interest of the enrollee

(for example, the receipt of additional

medical evidence from noncontract

providers may change an M+C

organization’s decision to deny). The

M+C organization must notify the

enrollee of its determination as

expeditiously as the enrollee’s health

condition requires, but no later than

upon expiration of the extension.

(b) Timeframe for requests for

payment. The M+C organization must

process requests for payment according

to the ‘‘prompt payment’’ provisions set

forth in § 422.520.

(c) Written notification for denials. If

an M+C organization decides to deny

service or payment in whole or in part,

it must give the enrollee written notice

of the determination.

(d) Content of the notice. The notice

of any denial under paragraph (c) of this

section must—

(1) State the specific reasons for the

denial in understandable language;

(2) Inform the enrollee of his or her

right to a reconsideration;

(3) Describe both the standard and

expedited reconsideration processes,

including the enrollee’s right to and

conditions for obtaining an expedited

reconsideration for service requests, and

the rest of the appeal process; and

(4) Comply with any other

requirements specified by HCFA.

(e) Effect of failure to provide timely

notice. If the M+C organization fails to

provide the enrollee with timely notice

of an organization determination as

specified in this section, this failure

itself constitutes an adverse

organization determination and may be

appealed.

§ 422.570 Expediting certain organization

determinations.

(a) Request for expedited

determination. An enrollee or a

physician (regardless of whether the

physician is affiliated with the M+C

organization) may request that an M+C

organization expedite an organization

determination involving the issues

described in § 422.566(b)(3) and (b)(4).

(This does not include requests for

payment.)

(b) How to make a request. (1) To ask

for an expedited determination, an

enrollee or a physician must submit an

oral or written request directly to the

M+C organization or, if applicable, to

the entity responsible for making the

determination, as directed by the M+C

organization.

(2) A physician may provide oral or

written support for a request for an

expedited determination.

(c) How the M+C organization must

process requests. The M+C organization

must establish and maintain the

following procedures for processing

requests for expedited determinations:

(1) Establish an efficient and

convenient means for individuals to

submit oral or written requests. The

M+C organization must document all

oral requests in writing and maintain

the documentation in the case file.

(2) Promptly decide whether to

expedite a determination, based on the

following requirements:

(i) For a request made by an enrollee

the M+C organization must provide an

expedited determination if it determines

that applying the standard timeframe for

making a determination could seriously

jeopardize the life or health of the

enrollee or the enrollee’s ability to

regain maximum function.

(ii) For a request made or supported

by a physician, the M+C organization

must provide an expedited

determination if the physician indicates

that applying the standard timeframe for

making a determination could seriously

jeopardize the life or health of the

enrollee or the enrollee’s ability to

regain maximum function.

(d) Actions following denial. If an

M+C organization denies a request for

expedited determination, it must take

the following actions:

(1) Automatically transfer a request to

the standard timeframe and make the

determination within the 14-day

timeframe established in § 422.568 for a

standard determination. The 14-day

period begins with the day the M+C

organization receives the request for

expedited determination.

(2) Give the enrollee prompt oral

notice of the denial and follow up,

within 2 working days, with a written

letter that—

(i) Explains that the M+C organization

will process the request using the 14-

day timeframe for standard

determinations;

(ii) Informs the enrollee of the right to

file a grievance if he or she disagrees

with the M+C organization’s decision

not to expedite; and

(iii) Provides instructions about the

grievance process and its timeframes.

(e) Action on accepted request for

expedited determination. If an M+C

organization grants a request for

expedited determination, it must make

the determination and give notice in

accordance with § 422.572.

(f) Prohibition of punitive action. An

M+C organization may not take or

threaten to take any punitive action

against a physician acting on behalf or

in support of an enrollee in requesting

an expedited determination.

§ 422.572 Timeframes and notice

requirements for expedited organization

determinations.

(a) Timeframe. Except as provided in

paragraph (b) of this section, an M+C

organization that approves a request for

expedited determination must make its

determination and notify the enrollee

(and the physician involved, as

appropriate) of its decision, whether
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35109

adverse or favorable, as expeditiously as

the enrollee’s health condition requires,

but no later than 72 hours after

receiving the request.

(b) Extensions. The M+C organization

may extend the 72-hour deadline by up

to 14 calendar days if the enrollee

requests the extension or if the

organization justifies a need for

additional information and how the

delay is in the interest of the enrollee

(for example, the receipt of additional

medical evidence from noncontract

providers may change an M+C

organization’s decision to deny). The

M+C organization must notify the

enrollee of its determination as

expeditiously as the enrollee’s health

condition requires, but no later than

upon expiration of the extension.

(c) Confirmation of oral notice. If the

M+C organization first notifies an

enrollee of its expedited determination

orally, it must mail written confirmation

to the enrollee within 2 working days of

the oral notification.

(d) How information from noncontract

providers affects timeframes for

expedited determinations. If an M+C

organization must receive medical

information from noncontract providers,

the 72-hour period begins when the

organization receives that information.

Noncontract providers must make

reasonable and diligent efforts to

expeditiously gather and forward all

necessary information in order to

receive timely payment.

(e) Content of the notice of expedited

determination. (1) The notice of any

expedited determination must state the

specific reasons for the determination in

understandable language.

(2) If the determination is not

completely favorable to the enrollee, the

notice must—

(i) Inform the enrollee of his or her

right to a reconsideration;

(ii) Describe both the standard and

expedited reconsideration processes,

including the enrollee’s right to request,

and conditions for obtaining, an

expedited reconsideration, and the rest

of the appeal process; and

(iii) Comply with any other

requirements specified by HCFA.

(f) Effect of failure to provide a timely

notice. If the M+C organization fails to

provide the enrollee with timely notice

of an expedited organization

determination as specified in this

section, this failure itself constitutes an

adverse organization determination and

may be appealed.

§ 422.574 Parties to the organization

determination.

The parties to the organization

determination are—

(a) The enrollee (including his or her

authorized representative);

(b) An assignee of the enrollee (that is,

a physician or other provider who has

furnished a service to the enrollee and

formally agrees to waive any right to

payment from the enrollee for that

service);

(c) The legal representative of a

deceased enrollee’s estate; or

(d) Any other provider or entity (other

than the M+C organization) determined

to have an appealable interest in the

proceeding.

§ 422.576 Effect of an organization

determination.

The organization determination is

binding on all parties unless it is

reconsidered under §§ 422.578 through

422.596 or is reopened and revised

under § 422.616.

§ 422.578 Right to a reconsideration.

Any party to an organization

determination (including one that has

been reopened and revised as described

in § 422.616) may request that the

determination be reconsidered under

the procedures described in § 422.582,

which address requests for a standard

reconsideration. An enrollee or

physician (acting on behalf of an

enrollee) may request an expedited

reconsideration as described in

§ 422.584.

§ 422.580 Reconsideration defined.

A reconsideration consists of a review

of an adverse organization

determination, the evidence and

findings upon which it was based, and

any other evidence the parties submit or

the M+C organization or HCFA obtains.

§ 422.582 Request for a standard

reconsideration.

(a) Method and place for filing a

request. A party to an organization

determination must ask for a

reconsideration of the determination by

filing a written request with—

(1) The M+C organization that made

the organization determination;

(2) An SSA office; or

(3) In the case of a qualified railroad

retirement beneficiary, an RRB office.

(b) Timeframe for filing a request.

Except as provided in paragraph (c) of

this section, a party must file a request

for a reconsideration within 60 calendar

days from the date of the notice of the

organization determination. If the SSA

or RRB receives a request, it forwards

the request to the M+C organization for

its reconsideration. The timeframe

within which the organization must

conduct its review begins when it

receives the request.

(c) Extending the time for filing a

request.

(1) General rule. If a party shows good

cause, the M+C organization may extend

the timeframe for filing a request for

reconsideration.

(2) How to request an extension of

timeframe. If the 60-day period in which

to file a request for a reconsideration has

expired, a party to the organization

determination may file a request for

reconsideration with the M+C

organization, SSA, or an RRB office. If

SSA or RRB receives a request, it

forwards the request to the M+C

organization for its reconsideration. The

request for reconsideration and to

extend the timeframe must—

(i) Be in writing; and

(ii) State why the request for

reconsideration was not filed on time.

(d) Parties to the reconsideration. The

parties to the reconsideration are the

parties to the organization

determination, as described in

§ 422.574, and any other provider or

entity (other than the M+C organization)

whose rights with respect to the

organization determination may be

affected by the reconsideration, as

determined by the entity that conducts

the reconsideration.

(e) Withdrawing a request. The party

who files a request for reconsideration

may withdraw it by filing a written

request for withdrawal at one of the

places listed in paragraph (a) of this

section.

§ 422.584 Expediting certain

reconsiderations.

(a) Who may request an expedited

reconsideration. An enrollee or a

physician (regardless of whether he or

she is affiliated with the M+C

organization) may request that an M+C

organization expedite a reconsideration

of a determination that involves the

issues described in § 422.566(b)(3) and

(b)(4). (This does not include requests

for payment.) A physician that requests

an expedited reconsideration must be

acting on behalf of the enrollee as an

authorized representative.

(b) How to make a request. (1) To ask

for an expedited reconsideration, an

enrollee or a physician acting on behalf

of an enrollee must submit an oral or

written request directly to the M+C

organization or, if applicable, to the

entity responsible for making the

reconsideration, as directed by the M+C

organization.

(2) A physician may provide oral or

written support for a request for an

expedited reconsideration.

(c) How the M+C organization must

process requests. The M+C organization

must establish and maintain the
35110 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

following procedures for processing

requests for expedited reconsiderations:

(1) Handling of requests. The M+C

organization must establish an efficient

and convenient means for individuals to

submit oral or written requests,

document all oral requests in writing,

and maintain the documentation in the

case file.

(2) Prompt decision. Promptly decide

on whether to expedite the

reconsideration or follow the timeframe

for standard reconsideration based on

the following requirements:

(i) For a request made by an enrollee,

the M+C organization must provide an

expedited reconsideration if it

determines that applying the standard

timeframe for reconsidering a

determination could seriously

jeopardize the life or health of the

enrollee or the enrollee’s ability to

regain maximum function.

(ii) For a request made or supported

by a physician, the M+C organization

must provide an expedited

reconsideration if the physician

indicates that applying the standard

timeframe for conducting a

reconsideration could seriously

jeopardize the life or health of the

enrollee or the enrollee’s ability to

regain maximum function.

(d) Actions following denial. If an

M+C organization denies a request for

expedited reconsideration, it must take

the following actions:

(1) Automatically transfer a request to

the standard timeframe and make the

determination within the 30-day

timeframe established in § 422.590(a).

The 30-day period begins the day the

M+C organization receives the request

for expedited reconsideration.

(2) Give the enrollee prompt oral

notice, and follow up, within 2 working

days, with a written letter that—

(i) Explains that the M+C organization

will process the enrollee’s request using

the 30-day timeframe for standard

reconsiderations;

(ii) Informs the enrollee of the right to

file a grievance if he or she disagrees

with the organization’s decision not to

expedite; and

(iii) Provides instructions about the

grievance process and its timeframes.

(e) Action following acceptance of a

request. If an M+C organization grants a

request for expedited reconsideration, it

must conduct the reconsideration and

give notice in accordance with

§ 422.590(d).

(f) Prohibition of punitive action. An

M+C organization may not take or

threaten to take any punitive action

against a physician acting on behalf or

in support of an enrollee in requesting

an expedited reconsideration.

§ 422.586 Opportunity to submit evidence.

The M+C organization must provide

the parties to the reconsideration with a

reasonable opportunity to present

evidence and allegations of fact or law,

related to the issue in dispute, in person

as well as in writing. In the case of an

expedited reconsideration, the

opportunity to present evidence is

limited by the short timeframe for

making a decision. Therefore, the M+C

organization must inform the parties of

the conditions for submitting the

evidence.

§ 422.590 Timeframes and responsibility

for reconsiderations.

(a) Standard reconsideration: Request

for services.

(1) If the M+C organization makes a

reconsidered determination that is

completely favorable to the enrollee, the

M+C organization must issue the

determination (and effectuate it in

accordance with § 422.618(a)) as

expeditiously as the enrollee’s health

condition requires, but no later than 30

calendar days from the date it receives

the request for a standard

reconsideration. The M+C organization

may extend the timeframe by up to 14

calendar days if the enrollee requests

the extension or if the organization

justifies a need for additional

information and how the delay is in the

interest of the enrollee (for example, the

receipt of additional medical evidence

from noncontract providers may change

an M+C organization’s decision to

deny). For extensions, the M+C

organization must issue and effectuate

its determination as expeditiously as the

enrollee’s health condition requires, but

no later than upon expiration of the

extension.

(2) If the M+C organization makes a

reconsidered determination that affirms,

in whole or in part, its adverse

organization determination, it must

prepare a written explanation and send

the case file to the independent entity

contracted by HCFA as expeditiously as

the enrollee’s health condition requires,

but no later than 30 calendar days from

the date it receives the request for a

standard reconsideration (or no later

than the expiration of an extension

described in paragraph (a)(1) of this

section). The organization must make

reasonable and diligent efforts to assist

in gathering and forwarding information

to the independent entity.

(b) Standard reconsideration: Request

for payment. (1) If the M+C organization

makes a reconsidered determination

that is completely favorable to the

enrollee, the M+C organization must

issue its reconsidered determination to

the enrollee (and effectuate it in

accordance with § 422.618(a)) no later

than 60 calendar days from the date it

receives the request for a standard

reconsideration.

(2) If the M+C organization affirms, in

whole or in part, its adverse

organization determination, it must

prepare a written explanation and send

the case file to the independent entity

contracted by HCFA no later than 60

calendar days from the date it receives

the request for a standard

reconsideration. The organization must

make reasonable and diligent efforts to

assist in gathering and forwarding

information to the independent entity.

(c) Effect of failure to meet timeframe

for standard reconsideration. If the M+C

organization fails to provide the enrollee

with a reconsidered determination

within the timeframes specified in

paragraph (a) or paragraph (b) of this

section, this failure constitutes an

affirmation of its adverse organization

determination, and the M+C

organization must submit the file to the

independent entity in the same manner

as described under paragraphs (a)(2) and

(b)(2) of this section.

(d) Expedited reconsideration—(1)

Timeframe. Except as provided in

paragraph (d)(2) of this section, an M+C

organization that approves a request for

expedited reconsideration must

complete its reconsideration and give

the enrollee (and the physician

involved, as appropriate) notice of its

decision as expeditiously as the

enrollee’s health condition requires but

no later than 72 hours after receiving the

request.

(2) Extensions. The M+C organization

may extend the 72-hour deadline by up

to 14 calendar days if the enrollee

requests the extension or if the

organization justifies a need for

additional information and how the

delay is in the interest of the enrollee

(for example, the receipt of additional

medical evidence from noncontract

providers may change an M+C

organization’s decision to deny). The

M+C organization must notify the

enrollee of its determination as

expeditiously as the enrollee’s health

condition requires but no later than

upon expiration of the extension.

(3) Confirmation of oral notice. If the

M+C organization first notifies an

enrollee orally of a completely favorable

expedited reconsideration, it must mail

written confirmation to the enrollee

within 2 working days.

(4) How information from noncontract

providers affects timeframes for

expedited reconsiderations. If the M+C

organization must receive medical

information from noncontract providers,

the 72-hour period begins when the
Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations 35111

organization receives the information.

Noncontract providers must make

reasonable and diligent efforts to

expeditiously gather and forward all

necessary information in order to

receive timely payment.

(5) Affirmation of an adverse

expedited organization determination.

If, as a result of its reconsideration, the

M+C organization affirms, in whole or

in part, its adverse expedited

organization determination, the M+C

organization must submit a written

explanation and the case file to the

independent entity contracted by HCFA

as expeditiously as the enrollee’s health

condition requires, but not later than

within 24 hours of its affirmation. The

organization must make reasonable and

diligent efforts to assist in gathering and

forwarding information to the

independent entity.

(e) Notification of enrollee. If the M+C

organization refers the matter to the

independent entity as described under

this section, it must concurrently notify

the enrollee of that action.

(f) Failure to meet timeframe for

expedited reconsideration. If the M+C

organization fails to provide the enrollee

with the results of its reconsideration

within the timeframe described in

paragraph (d) of this section, this failure

constitutes an adverse reconsidered

determination, and the M+C

organization must submit the file to the

independent entity within 24 hours of

expiration of the timeframe set forth in

paragraph (d) of this section.

(g) Who must reconsider an adverse

organization determination. (1) A

person or persons who were not

involved in making the organization

determination must conduct the

reconsideration.

(2) When the issue is the M+C

organization’s denial of coverage based

on a lack of medical necessity, the

reconsidered determination must be

made by a physician with expertise in

the field of medicine that is appropriate

for the services at issue.

§ 422.592 Reconsideration by an

independent entity.

(a) When the M+C organization

affirms, in whole or in part, its adverse

organization determination, the issues

that remain in dispute must be reviewed

and resolved by an independent,

outside entity that contracts with HCFA.

(b) The independent outside entity

must conduct the review as

expeditiously as the enrollee’s health

condition requires but must not exceed

the deadlines specified in the contract.

(c) When the independent entity

conducts a reconsideration, the parties

to the reconsideration are the same

parties listed in § 422.582(d) who

qualified during the M+C organization’s

reconsideration, with the addition of the

M+C organization.

§ 422.594 Notice of reconsidered

determination by the independent entity.

(a) Responsibility for the notice. When

the independent entity makes the

reconsidered determination, it is

responsible for mailing a notice of its

reconsidered determination to the

parties and for sending a copy to HCFA.

(b) Content of the notice. The notice

must—

(1) State the specific reasons for the

entity’s decisions;

(2) If the reconsidered determination

is adverse (that is, does not completely

reverse the M+C organization’s adverse

organization determination), inform the

parties of their right to an ALJ hearing

if the amount in controversy is $100 or

more;

(3) Describe the procedures that a

party must follow to obtain an ALJ

hearing; and

(4) Comply with any other

requirements specified by HCFA.

§ 422.596 Effect of a reconsidered

determination.

A reconsidered determination is final

and binding on all parties unless a party

files a request for a hearing under the

provisions of § 422.602, or unless the

reconsidered determination is revised

under § 422.616.

§ 422.600 Right to a hearing.

(a) If the amount remaining in

controversy is $100 or more, any party

to the reconsideration (except the M+C

organization) who is dissatisfied with

the reconsidered determination has a

right to a hearing before an ALJ. The

M+C organization does not have the

right to request a hearing before an ALJ.

(b) The amount remaining in

controversy, which can include any

combination of Part A and Part B

services, is computed in accordance

with § 405.740 of this chapter for Part A

services and § 405.817 of this chapter

for Part B services.

(c) If the basis for the appeal is the

M+C organization’s refusal to provide

services, HCFA uses the projected value

of those services to compute the amount

remaining in controversy.

§ 422.602 Request for an ALJ hearing.

(a) How and where to file a request.

A party must file a written request for

a hearing at one of the places listed in

§ 422.582(a) or with the independent,

outside entity. The organizations listed

in § 422.582(a) forward the request to

the independent, outside entity, which

is responsible for transferring the case to

the appropriate ALJ hearing office.

(b) When to file a request. Except

when an ALJ extends the timeframe as

provided in 20 CFR 404.933(c), a party

must file a request for a hearing within

60 days of the date of the notice of a

reconsidered determination.

(c) Parties to a hearing. The parties to

a hearing are the parties to the

reconsideration, the M+C organization,

and any other person or entity whose

rights with respect to the

reconsideration may be affected by the

hearing, as determined by the ALJ.

(d) When the amount in controversy is

less than $100. (1) If a request for a

hearing clearly shows that the amount

in controversy is less than $100, the ALJ

dismisses the request.

(2) If, after a hearing is initiated, the

ALJ finds that the amount in

controversy is less than $100, he or she

discontinues the hearing and does not

rule on the substantive issues raised in

the appeal.

§ 422.608 Departmental Appeals Board

(DAB) review.

Any party to the hearing, including

the M+C organization, who is

dissatisfied with the ALJ hearing

decision, may request that the DAB

review the ALJ’s decision or dismissal.

Regulations located at 20 CFR 404.967

through 404.984 regarding SSA Appeals

Council Review apply to DAB review

for matters addressed by this subpart.

§ 422.612 Judicial review.

(a) Review of ALJ’s decision. Any

party, including the M+C organization,

may request judicial review (upon

notifying the other parties) of an ALJ’s

decision if—

(1) The DAB denied the party’s

request for review; and

(2) The amount in controversy is

$1,000 or more.

(b) Review of DAB decision. Any

party, including the M+C organization,

may request judicial review (upon

notifying the other parties) of the DAB

decision if—

(1) It is the final decision of HCFA;

and

(2) The amount in controversy is

$1,000 or more.

(c) How to request judicial review. A

party must file a civil action in a district

court of the United States in accordance

with section 205(g) of the Act (see 20

CFR 422.210 for a description of the

procedures to follow in requesting

judicial review).

§ 422.616 Reopening and revising

determinations and decisions.

(a) An organization or reconsidered

determination made by an M+C
35112 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

organization, a reconsidered

determination made by the independent

entity described in § 422.592, or the

decision of an ALJ or the DAB that is

otherwise final and binding may be

reopened and revised by the entity that

made the determination or decision,

under the rules in § 405.750 of this

chapter.

(b) Reopening may be at the

instigation of any party.

(c) The filing of a request for

reopening does not relieve the M+C

organization of its obligation to make

payment or provide services as specified

in § 422.618.

(d) Once an entity issues a revised

determination or decision, any party

may file an appeal.

§ 422.618 How an M+C organization must

effectuate reconsidered determinations or

decisions.

(a) Reversals by the M+C

organization—(1) Requests for service.

If, on reconsideration of a request for

service, the M+C organization

completely reverses its organization

determination, the organization must

authorize or provide the service under

dispute as expeditiously as the

enrollee’s health condition requires, but

no later than 30 calendar days after the

date the M+C organization receives the

request for reconsideration (or no later

than upon expiration of an extension

described in § 422.590(a)(1)).

(2) Requests for payment. If, on

reconsideration of a request for

payment, the M+C organization

completely reverses its organization

determination, the organization must

pay for the service no later than 60

calendar days after the date the M+C

organization receives the request for

reconsideration.

(b) Reversals other than by the M+C

organization. If the M+C organization’s

organization determination is reversed

in whole or in part by the independent

outside entity or at a higher level of

appeal, the M+C organization must pay

for, authorize, or provide the service

under dispute as expeditiously as the

enrollee’s health condition requires, but

no later than 60 calendar days from the

date it receives notice reversing the

organization determination. The M+C

organization must also inform the

independent, outside entity that the

organization has effectuated the

decision.

§ 422.620 How M+C organizations must

notify enrollees of noncoverage of inpatient

hospital care.

(a) Enrollee’s entitlement. Where an

M+C organization has authorized

coverage of the inpatient admission of

an enrollee, either directly or by

delegation (or the admission constitutes

emergency or urgently needed care, as

described in §§ 422.2 and 422.112(b)),

the enrollee remains entitled to

inpatient hospital care until he or she

receives notice of noncoverage of that

care.

(b) Physician concurrence required.

Before the M+C organization gives

notice of noncoverage as described in

paragraph (c) of this section, the

physician who is responsible for the

enrollee’s hospital care must concur.

(c) Notice to the enrollee. The M+C

organization must give the enrollee

written notice that includes the

following:

(1) The reason why inpatient hospital

care is no longer needed.

(2) The effective date of the enrollee’s

liability for continued inpatient care.

(3) The enrollee’s appeal rights.

(4) Comply with any other

requirements specified by HCFA.

(d) Physician concurrence when a

hospital determines if care is necessary.

If the M+C organization allows the

hospital to determine whether inpatient

care is necessary, the hospital obtains

the concurrence of the contracting

physician responsible for the enrollee’s

hospital care or of another physician as

authorized by the M+C organization,

and notifies the enrollee, following the

procedures set forth in § 412.42(c)(3) of

this chapter.

§ 422.622 Requesting immediate PRO

review of noncoverage of inpatient hospital

care.

(a) Enrollee’s right to review or

reconsideration. (1) An enrollee who

wishes to appeal a determination by an

M+C organization or hospital that

inpatient care is no longer necessary

must request immediate PRO review of

the determination in accordance with

paragraph (b) of this section. An

enrollee who requests immediate PRO

review may remain in the hospital with

no additional financial liability as

specified in paragraph (c) of this

section.

(2) An enrollee who fails to request

immediate PRO review in accordance

with the procedures in paragraph (b) of

this section may request expedited

reconsideration by the M+C

organization as described in § 422.584,

but the financial liability rules of

paragraph (c) of this section do not

apply.

(b) Procedures enrollee must follow.

For the immediate PRO review process,

the following rules apply:

(1) The enrollee must submit the

request for immediate review—

(i) To the PRO that has an agreement

with the hospital under § 466.78 of this

chapter;

(ii) In writing or by telephone; and

(iii) By noon of the first working day

after he or she receives written notice

that the M+C organization or hospital

has determined that the hospital stay is

no longer necessary.

(2) On the date it receives the

enrollee’s request, the PRO must notify

the M+C organization that the enrollee

has filed a request for immediate

review.

(3) The M+C organization must

supply any information that the PRO

requires to conduct its review and must

make it available, by phone or in

writing, by the close of business of the

first full working day immediately

following the day the enrollee submits

the request for review.

(4) In response to a request from the

M+C organization, the hospital must

submit medical records and other

pertinent information to the PRO by

close of business of the first full working

day immediately following the day the

organization makes its request.

(5) The PRO must solicit the views of

the enrollee who requested the

immediate PRO review.

(6) The PRO must make a

determination and notify the enrollee,

the hospital, and the M+C organization

by close of business of the first working

day after it receives all necessary

information from the hospital, or the

organization, or both.

(c) Liability for hospital costs—(1)

When the M+C organization determines

that hospital services are not, or are no

longer, covered. (i) Except as provided

in paragraph (c)(1)(ii) of this section, if

the M+C organization authorized

coverage of the inpatient admission

directly or by delegation (or the

admission constitutes emergency or

urgently needed care, as described in

§§ 422.2 and 422.112(b)), the

organization continues to be financially

responsible for the costs of the hospital

stay when a timely appeal is filed under

paragraph (a)(1) of this section until

noon of the calendar day following the

day the PRO notifies the enrollee of its

review determination. If coverage of the

hospital admission was never approved

by the M+C organization (or the

admission does not constitute

emergency or urgently needed care, as

described in §§ 422.2 and 422.112(b)),

the M+C organization is liable for the

hospital costs only if it is determined on

appeal that the hospital stay should

have been covered under the M+C plan.

(ii) The hospital may not charge the

M+C organization (or the enrollee) if—
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(A) It was the hospital (acting on

behalf of the enrollee) that filed the

request for immediate PRO review; and

(B) The PRO upholds the noncoverage

determination made by the M+C

organization.

(2) When the hospital determines that

hospital services are no longer required.

If the hospital determines that inpatient

hospital services are no longer

necessary, and the enrollee could not

reasonably be expected to know that the

services would not be covered, the

hospital may not charge the enrollee for

inpatient services received before noon

of the calendar day following the day

the PRO notifies the enrollee of its

review determination.

Subpart N—Medicare Contract

Determinations and Appeals

§ 422.641 Contract determinations.

This subpart establishes the

procedures for making and reviewing

the following contract determinations:

(a) A determination that an entity is

not qualified to enter into a contract

with HCFA under Part C of title XVIII

of the Act.

(b) A determination to terminate a

contract with an M+C organization in

accordance with § 422.510(a).

(c) A determination not to authorize a

renewal of a contract with an M+C

organization in accordance with

§ 422.506(b).

§ 422.644 Notice of contract determination.

(a) When HCFA makes a contract

determination, it gives the M+C

organization written notice.

(b) The notice specifies—

(1) The reasons for the determination;

and

(2) The M+C organization’s right to

request reconsideration.

(c) For HCFA-initiated terminations,

HCFA mails notice 90 days before the

anticipated effective date of the

termination. For terminations based on

initial determinations described at

§ 422.510(a)(5), HCFA immediately

notifies the M+C organization of its

decision to terminate the organization’s

M+C contract.

(d) When HCFA determines that it

will not authorize a contract renewal,

HCFA mails the notice to the M+C

organization by May 1 of the current

contract year.

§ 422.646 Effect of contract determination.

The contract determination is final

and binding unless—

(a) The determination is reconsidered

in accordance with §§ 422.648 through

422.658;

(b) A timely request for a hearing is

filed under § 422.662; or

(c) The reconsideration decision is

revised as a result of a reopening under

§ 422.696.

§ 422.648 Reconsideration: Applicability.

(a) Reconsideration is the first step for

appealing a contract determination

specified in § 422.641.

(b) HCFA reconsiders the specified

determinations if the M+C organization

files a written request in accordance

with § 422.650.

§ 422.650 Request for reconsideration.

(a) Method and place for filing a

request. A request for reconsideration

must be made in writing and filed with

any HCFA office.

(b) Time for filing a request. The

request for reconsideration must be filed

within 15 days from the date of the

notice of the initial determination.

(c) Proper party to file a request. Only

an authorized official of the entity or

M+C organization that was the subject

of a contract determination may file the

request for reconsideration.

(d) Withdrawal of a request. The M+C

organization or M+C contract applicant

who filed the request for a

reconsideration may withdraw it at any

time before the notice of the

reconsidered determination is mailed.

The request for withdrawal must be in

writing and filed with HCFA.

§ 422.652 Opportunity to submit evidence.

HCFA provides the M+C organization

or M+C contract applicant and the

HCFA official or officials who made the

contract determination reasonable

opportunity to present as evidence any

documents or written statements that

are relevant and material to the matters

at issue.

§ 422.654 Reconsidered determination.

A reconsidered determination is a

new determination that—

(a) Is based on a review of the contract

determination, the evidence and

findings upon which that was based,

and any other written evidence

submitted before notice of the

reconsidered determination is mailed,

including facts relating to the status of

the M+C organization subsequent to the

contract determination; and

(b) Affirms, reverses, or modifies the

initial determination.

§ 422.656 Notice of reconsidered

determination.

(a) HCFA gives the M+C organization

or M+C contract applicant written

notice of the reconsidered

determination.

(b) The notice—

(1) Contains findings with respect to

the M+C organization’s qualifications to

enter into or remain under a contract

with HCFA pursuant to Part C of title

XVIII of the Act;

(2) States the specific reasons for the

reconsidered determination; and

(3) Informs the M+C organization or

M+C contract applicant of its right to a

hearing if it is dissatisfied with the

determination.

§ 422.658 Effect of reconsidered

determination.

A reconsidered determination is final

and binding unless a request for a

hearing is filed in accordance with

§ 422.662 or it is revised in accordance

with § 422.696.

§ 422.660 Right to a hearing.

The following parties are entitled to a

hearing:

(a) An applicant entity that has been

determined in a reconsidered

determination to be unqualified to enter

into a contract with HCFA under Part C

of the Act.

(b) An M+C organization whose

contract with HCFA has been

terminated or has not been renewed as

a result of a contract determination as

provided in § 422.641.

§ 422.662 Request for hearing.

(a) Method and place for filing a

request. A request for a hearing must be

made in writing and filed by an

authorized official of the applicant

entity or M+C organization that was the

party to the determination under appeal.

The request for a hearing must be filed

with any HCFA office.

(b) Time for filing a request. A request

for a hearing must be filed within 15

days after the date of the notice of

contract or reconsidered determination.

(c) Parties to a hearing. The parties to

a hearing must be—

(1) The parties described in § 422.660;

(2) At the discretion of the hearing

officer, any interested parties who make

a showing that their rights may be

prejudiced by the decision to be

rendered at the hearing; and

(3) HCFA.

§ 422.664 Postponement of effective date

of a contract determination when a request

for a hearing with respect to a contract

determination is filed timely.

(a) HCFA postpones the proposed

effective date of the contract

determination to terminate a contract

with an M+C organization until a

hearing decision is reached and

affirmed by the Administrator following

review under § 422.692 in instances

where an M+C organization requests

review by the Administrator; and

(b) HCFA extends the current contract

at the end of the contract period (in the
35114 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

case of a determination not to renew)

only—

(1) If HCFA finds that an extension of

the contract will be consistent with the

purpose of this part; and

(2) For such period as HCFA and the

M+C organization agree.

(c) Exception: A contract terminated

in accordance with § 422.510(a)(5) will

be immediately terminated and will not

be postponed if a hearing is requested.

§ 422.666 Designation of hearing officer.

HCFA designates a hearing officer to

conduct the hearing. The hearing officer

need not be an ALJ.

§ 422.668 Disqualification of hearing

officer.

(a) A hearing officer may not conduct

a hearing in a case in which he or she

is prejudiced or partial to any party or

has any interest in the matter pending

for decision.

(b) A party to the hearing who objects

to the designated hearing officer must

notify that officer in writing at the

earliest opportunity.

(c) The hearing officer must consider

the objections, and may, at his or her

discretion, either proceed with the

hearing or withdraw.

(1) If the hearing officer withdraws,

HCFA designates another hearing officer

to conduct the hearing.

(2) 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 HCFA.

§ 422.670 Time and place of hearing.

(a) The hearing officer fixes a time

and place for the hearing, which is not

to exceed 30 days from the receipt of the

request for the hearing, and sends

written notice to the parties. The notice

also informs the parties of the general

and specific issues to be resolved and

information about the hearing

procedure.

(b) The hearing officer may, on his or

her own motion, or at the request of a

party, change the time and place for the

hearing. The hearing officer may

adjourn or postpone the hearing.

(c) The hearing officer will give the

parties reasonable notice of any change

in time or place of hearing, or of

adjournment or postponement.

§ 422.672 Appointment of representatives.

A party may appoint as its

representative at the hearing anyone not

disqualified or suspended from acting as

a representative before the Secretary or

otherwise prohibited by law.

§ 422.674 Authority of representatives.

(a) A representative appointed and

qualified in accordance with § 422.672

may, on behalf of the represented

party—

(1) Gives or accepts any notice or

request pertinent to the proceedings set

forth in this subpart;

(2) Presents evidence and allegations

as to facts and law in any proceedings

affecting that party; and

(3) Obtains information to the same

extent as the party.

(b) A notice or request sent to the

representative has the same force and

effect as if it had been sent to the party.

§ 422.676 Conduct of hearing.

(a) The hearing is open to the parties

and to the public.

(b) The hearing officer inquires fully

into all the matters at issue and receives

in evidence the testimony of witnesses

and any documents that are relevant

and material.

(c) The hearing officer provides the

parties an opportunity to enter any

objection to the inclusion of any

document.

(d) The hearing officer decides the

order in which the evidence and the

arguments of the parties are presented

and the conduct of the hearing.

§ 422.678 Evidence.

The hearing officer rules on the

admissibility of evidence and may

admit evidence that would be

inadmissible under rules applicable to

court procedures.

§ 422.680 Witnesses.

(a) The hearing officer may examine

the witnesses.

(b) The parties or their representatives

are permitted to examine their witnesses

and cross-examine witnesses of other

parties.

§ 422.682 Discovery.

(a) Prehearing discovery is permitted

upon timely request of a party.

(b) A request is timely if it is made

before the beginning of the hearing.

(c) A reasonable time for inspection

and reproduction of documents is

provided by order of the hearing officer.

(d) The hearing officer’s order on all

discovery matters is final.

§ 422.684 Prehearing.

The hearing officer may schedule a

prehearing conference if he or she

believes that a conference would more

clearly define the issues.

§ 422.686 Record of hearing.

(a) A complete record of the

proceedings at the hearing is made and

transcribed and made available to all

parties upon request.

(b) The record may not be closed until

a hearing decision has been issued.

§ 422.688 Authority of hearing officer.

In exercising his or her authority, the

hearing officer must comply with the

provisions of title XVIII and related

provisions of the Act, the regulations

issued by the Secretary, and general

instructions issued by HCFA in

implementing the Act.

§ 422.690 Notice and effect of hearing

decision.

(a) As soon as practical after the close

of the hearing, the hearing officer issues

a written decision that—

(1) Is based upon the evidence of

record; and

(2) Contains separately numbered

findings of fact and conclusions of law.

(b) The hearing officer provides a

copy of the hearing decision to each

party.

(c) The hearing decision is final and

binding unless it is reversed or modified

by the Administrator following review

under § 422.692, or reopened and

revised in accordance with § 422.696.

§ 422.692 Review by the Administrator.

(a) Request for Review by

Administrator. An M+C organization

that has received a hearing decision

upholding a contract termination

determination may request review by

the Administrator within 15 days of

receiving the hearing decision as

provided under § 422.690(b).

(b) Review by the Administrator. The

Administrator shall review the hearing

officer’s decision, and determine, based

upon this decision, the hearing record,

and any written arguments submitted by

the M+C organization, whether the

termination decision should be upheld,

reversed, or modified.

(c) Decision by the Administrator. The

Administrator issues a written decision,

and furnishes the decision to the M+C

organization requesting review.

§ 422.694 Effect of Administrator’s

decision.

A decision by the Administrator

under section 422.692 is final and

binding unless it is reopened and

revised in accordance with § 422.696.

§ 422.696 Reopening of contract or

reconsidered determination or decision of a

hearing officer or the Administrator.

(a) Initial or reconsidered

determination. HCFA may reopen and

revise an initial or reconsidered

determination upon its own motion

within one year of the date of the notice

of determination.

(b) Decision of hearing officer. A

decision of a hearing officer that is
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unfavorable to any party and is

otherwise final may be reopened and

revised by the hearing officer upon the

officer’s own motion within one year of

the notice of the hearing decision.

Another hearing officer designated by

HCFA may reopen and revise the

decision if the hearing officer who

issued the decision is unavailable.

(c) Decision of Administrator. A

decision by the Administrator that is

otherwise final may be reopened and

revised by the Administrator upon the

Administrator’s own motion within one

year of the notice of the Administrator’s

decision.

(d) Notices. (1) The notice of

reopening and of any revisions

following the reopening is mailed to the

parties.

(2) The notice of revision specifies the

reasons for revisions.

§ 422.698 Effect of revised determination.

The revision of a contract or

reconsidered determination is binding

unless a party files a written request for

hearing of the revised determination in

accordance with § 422.662.

Subpart O—Intermediate Sanctions

§ 422.750 Kinds of sanctions.

(a) The following intermediate

sanctions and civil money penalties

may be imposed:

(1) Civil money penalties ranging

from $10,000 to $100,000 depending

upon the violation.

(2) Suspension of enrollment of

Medicare beneficiaries.

(3) Suspension of payment to the M+C

organization for Medicare beneficiaries

who enroll.

(4) Require the M+C organization to

suspend all marketing activities to

Medicare beneficiaries for the M+C plan

subject to the intermediate sanctions.

(b) The enrollment, payment, and

marketing sanctions continue in effect

until HCFA is satisfied that the

deficiency on which the determination

was based has been corrected and is not

likely to recur.

§ 422.752 Basis for imposing sanctions.

(a) All intermediate sanctions. For the

violations listed below, HCFA may

impose any of the sanctions specified in

§ 422.750 on any M+C organization that

has a contract in effect. The M+C

organization may also be subject to

other applicable remedies available

under law.

(1) Fails substantially to provide, to

an M+C enrollee, medically necessary

services that the organization is required

to provide (under law or under the

contract) to an M+C enrollee, and that

failure adversely affects (or is

substantially likely to adversely affect)

the enrollee.

(2) Imposes on M+C enrollees

premiums in excess of the monthly

basic and supplemental beneficiary

premiums permitted under section 1854

of the Act and Subpart G of this part.

(3) Expels or refuses to reenroll a

beneficiary in violation of the

provisions of this part.

(4) 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.

(5) Misrepresents or falsifies

information that it furnishes—

(i) To HCFA; or

(ii) To an individual or to any other

entity.

(6) Fails to comply with the

requirements of § 422.204, which

prohibits interference with

practitioners’ advice to enrollees.

(7) Fails to comply with § 422.216,

which requires the organization to

enforce the limit on balance billing

under a private fee-for service plan.

(8) Employs or contracts with an

individual who is excluded from

participation in Medicare under section

1128 or 1128A of the Act (or with an

entity that employs or contracts with

such an individual) for the provision of

any of the following:

(i) Health care.

(ii) Utilization review.

(iii) Medical social work.

(iv) Administrative services.

(b) Suspension of enrollment and

marketing. If HCFA makes a

determination under § 422.510(a), HCFA

may impose the intermediate sanctions

in § 422.756(c)(1) and (c)(3).

§ 422.756 Procedures for imposing

sanctions.

(a) Notice of Sanction and

opportunity to respond—(1) Notice of

sanction. Before imposing the

intermediate sanctions specified in

paragraph (c) of this section HCFA—

(i) Sends a written notice to the M+C

organization stating the nature and basis

of the proposed sanction; and

(ii) Sends the OIG a copy of the

notice.

(2) Opportunity to respond. HCFA

allows the M+C organization 15 days

from receipt of the notice to provide

evidence that it has not committed an

act or failed to comply with the

requirements described in § 422.752, as

applicable. HCFA may allow a 15-day

addition to the original 15 days upon

receipt of a written request from the

M+C organization. To be approved, the

request must provide a credible

explanation of why additional time is

necessary and be received by HCFA

before the end of the 15-day period

following the date of receipt of the

sanction notice. HCFA does not grant an

extension if it determines that the M+C

organization’s conduct poses a threat to

an enrollee’s health and safety.

(b) Informal reconsideration. If,

consistent with paragraph (a)(2) of this

section the M+C organization submits a

timely response to HCFA’s notice of

sanction, HCFA conducts an informal

reconsideration that:

(1) Consists of a review of the

evidence by an HCFA official who did

not participate in the initial decision to

impose a sanction; and

(2) Gives the M+C organization a

concise written decision setting forth

the factual and legal basis for the

decision that affirms or rescinds the

original determination.

(c) Specific sanctions. If HCFA

determines that an M+C organization

has acted or failed to act as specified in

§ 422.752 and affirms this determination

in accordance with paragraph (b) of this

section, HCFA may—

(1) Require the M+C organization to

suspend acceptance of applications

made by Medicare beneficiaries for

enrollment in the sanctioned M+C plan

during the sanction period;

(2) In the case of a violation under

§ 422.752(a), suspend payments to the

M+C organization for Medicare

beneficiaries enrolled in the sanctioned

M+C plan during the sanction period;

and

(3) Require the M+C organization to

suspend all marketing activities for the

sanctioned M+C plan to Medicare

enrollees.

(d) Effective date and duration of

sanctions—(1) Effective date. Except as

provided in paragraph (d)(2) of this

section, a sanction is effective 15 days

after the date that the organization is

notified of the decision to impose the

sanction or, if the M+C organization

timely seeks reconsideration under

paragraph (b) of this section, on the date

specified in the notice of HCFA’s

reconsidered determination.

(2) Exception. If HCFA determines

that the M+C organization’s conduct

poses a serious threat to an enrollee’s

health and safety, HCFA may make the

sanction effective on a date before

issuance of HCFA’s reconsidered

determination.

(3) Duration of sanction. The sanction

remains in effect until HCFA notifies

the M+C organization that HCFA is

satisfied that the basis for imposing the
35116 Federal Register / Vol. 63, No. 123 / Friday, June 26, 1998 /Rules and Regulations

sanction has been corrected and is not

likely to recur.

(e) Termination by HCFA. In addition

to or as an alternative to the sanctions

described in paragraph (c) of this

section, HCFA may decline to authorize

the renewal of an organization’s contract

in accordance with § 422.506(b)(2) and

(b)(3), or terminate the contract in

accordance with § 422.510.

(f) Civil Money Penalties. (1) If HCFA

determines that an M+C organization

has committed an act or failed to

comply with a requirement described in

§ 422.752, HCFA notifies the OIG of this

determination, and also notifies OIG

when HCFA reverses or terminates a

sanction imposed under this part.

(2) In the case of a violation described

in paragraph (a) of § 422.752, or a

determination under paragraph (b) of

§ 422.752 based upon a violation under

§ 422.510(a)(4) (involving fraudulent or

abusive activities), in accordance with

the provisions of 42 CFR parts 1003 and

1005, the OIG may impose civil money

penalties on the M+C organization in

accordance with parts 1003 and 1005 of

this title in addition to, or in place of,

the sanctions that HCFA may impose

under paragraph (c) of this section.

(3) In the case of a determination

under paragraph (b) of § 422.752 other

than a determination based upon a

violation under § 422.510(a)(4), in

accordance with the provisions of 42

CFR parts 1003 and 1005, HCFA may

impose civil money penalties on the

M+C organization in the amounts

specified in § 422.758 in addition to, or

in place of, the sanctions that HCFA

may impose under paragraph (c) of this

section.

§ 422.758 Maximum amount of civil money

penalties imposed by HCFA.

If HCFA makes a determination under

§ 422.752(b), based on any

determination under § 422.510(a) except

a determination under § 422.510(a)(4),

HCFA may impose civil money

penalties in the following amounts:

(a) If the deficiency on which the

determination is based has directly

adversely affected (or has the substantial

likelihood of adversely affecting) one or

more M+C enrollees—$25,000 for each

determination.

(b) For each week that a deficiency

remains uncorrected after the week in

which the M+C organization receives

HCFA’s notice of the determination—

$10,000.

§ 422.760 Other applicable provisions.

The provisions of section 1128A of

the Act (except subsections (a) and (b))

apply to civil money penalties under

this subpart to the same extent that they

apply to a civil money penalty or

procedure under section 1128A of the

Act.

(Catalog of Federal Domestic Assistance

Program No. 93.773, Medicare—Hospital

Insurance; and Program No. 93.774,

Medicare—Supplementary Medical

Insurance Program)

Dated: June 17, 1998.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing

Administration.

Dated: June 18, 1998.

Donna E. Shalala,

Secretary.

[FR Doc. 98–16731 Filed 6–19–98; 11:35 am]

BILLING CODE 4120–01–P