68700 Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 422 and 423 

[CMS–4124–FC] 

RIN 0938–AO78 

Medicare Program; Revisions to the 

Medicare Advantage and Part D 

Prescription Drug Contract 

Determinations, Appeals, and 

Intermediate Sanctions Processes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule with comment period. 

SUMMARY: This rule with comment 

period finalizes the Medicare program 

provisions relating to contract 

determinations involving Medicare 

Advantage (MA) organizations and 

Medicare Part D prescription drug plan 

sponsors, including eliminating the 

reconsideration process for review of 

contract determinations, revising the 

provisions related to appeals of contract 

determinations, and clarifying the 

process for MA organizations and Part D 

plan sponsors to complete corrective 

action plans. In this final rule with 

comment period, we also clarify the 

intermediate sanction and civil money 

penalty (CMP) provisions that apply to 

MA organizations and Medicare Part D 

prescription drug plan sponsors, modify 

elements of their compliance plans, 

retain voluntary self-reporting for Part D 

sponsors and implement a voluntary 

self-reporting recommendation for MA 

organizations, and revise provisions to 

ensure HHS has access to the books and 

records of MA organizations and Part D 

plan sponsors’ first tier, downstream, 

and related entities. Although we have 

decided not to finalize the mandatory 

self-reporting provisions that we 

proposed, CMS remains committed to 

adopting a mandatory self-reporting 

requirement. To that end, we are 

requesting comments that will assist 

CMS in crafting a future proposed 

regulation for a mandatory self-reporting 

requirement. 

DATES: Effective date: These regulations 

are effective on January 4, 2008, except 

for the amendments to §§ 422.503, 

422.504, 423.504, and 423.505, which 

are effective January 1, 2009. 

Comment Period: We will consider 

comments on the mandatory selfreporting provisions discussed in 

section II of this final rule with 

comment period at the appropriate 

address, as provided below, no later 

than February 4, 2008. 

ADDRESSES: In commenting, please refer 

to file code CMS–4124–FC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4124– 

FC, P.O. Box 8020, Baltimore, MD 

21244–8020. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4124–FC, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Christine Reinhard, (410) 786–2987. 

Kevin Stansbury, (410) 786–2570. 

Stephanie Kaisler, (410) 786–0957, for 

issues regarding voluntary selfreporting, access to records, and 

compliance. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on 

mandatory self-reporting to assist us in 

fully considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–4124–FC 

and ‘‘self-reporting.’’ 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

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

eRulemaking. Click on the link 

‘‘Electronic Comments on CMS 

Regulations’’ on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

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

appointment to view public comments, 

phone 1–800–743–3951. 

Abbreviations 

Because of the many terms to which 

we refer by abbreviation in this final 

rule with comment period, we are 

listing these abbreviations and their 

corresponding terms in alphabetical 

order below: 

ALJ Administrative Law Judge 

BBA Balanced Budget Act of 1997 

CAP Corrective Action Plan 

CMP Civil Money Penalty 

CMS Centers for Medicare & Medicaid 

Services 

DAB Departmental Appeals Board 

FWA Fraud, Waste, and Abuse 

HHS U.S. Department of Health and Human 

Services 

MA Medicare Advantage 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 

M+C Medicare + Choice 

OIG Office of the Inspector General 

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Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 68701 

PBM Pharmaceutical Benefit Manager 

PDE Prescription Drug Event 

I. Background 

On May 25, 2007, we published a 

proposed rule in the Federal Register 

(72 FR 29368, hereafter referred to as the 

proposed rule), setting forth the 

proposed provisions relating to contract 

determinations involving Medicare 

Advantage (MA) organizations and 

Medicare Part D prescription drug plan 

sponsors, intermediate sanction and 

civil money penalty (CMP) provisions, 

compliance plans, mandatory selfreporting, and provisions to ensure the 

Department of Health and Human 

Services (HHS) has access to the books 

and records of MA organizations and 

Part D plan sponsors’ first tier, 

downstream, and related entities. In this 

final rule with comment period we are 

finalizing the majority of the provisions 

of the proposed rule, with some 

clarifications in response to public 

comments. At this time, we are not 

finalizing the proposed provision for 

mandatory self-reporting of potential 

fraud and abuse, but we intend to issue 

future rulemaking on this topic, as 

discussed below in section II. 

A. Overview of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) 

The President signed the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173) into law on December 8, 

2003. The MMA established the 

Medicare prescription drug benefit 

program and renamed the 

Medicare+Choice (M+C) program the 

Medicare Advantage (MA) program. In 

accordance with the MMA, we revised 

the existing Medicare regulations 

applicable to the MA program at 42 CFR 

part 422 and published regulations 

governing the prescription drug benefit 

program at 42 CFR part 423. 

As we have gained more experience 

with MA organizations and Part D 

prescription drug plan sponsors, we 

proposed clarifications to the Medicare 

program provisions relating to contract 

determinations involving MA 

organizations and Medicare Part D 

prescription drug plan sponsors, 

including eliminating the 

reconsideration process for review of 

contract determinations; revising the 

provisions related to appeals of contract 

determinations and clarifying the 

process for MA organizations and Part D 

plan sponsors to complete corrective 

action plans. We proposed clarifications 

to the intermediate sanction and civil 

money penalty (CMP) provisions that 

apply to MA organizations and 

Medicare Part D prescription drug plan 

sponsors. We also proposed changes in 

both programs to clarify elements of the 

compliance plan requirements, such as 

training and education, and changes to 

clarify our access to the books and 

records of a MA organization or Part D 

sponsor’s first tier, downstream, and 

related entities. Finally, we proposed a 

self-reporting requirement as part of 

both MA organization and Part D 

sponsor’s compliance plans. We have 

decided at this time not to finalize the 

provision requiring mandatory selfreporting of potential fraud and 

misconduct. Until such time as such a 

provision is finalized, we have chosen 

to retain voluntary self-reporting for Part 

D sponsors and implement a 

recommendation for voluntary selfreporting for MA Organizations. 

B. Relevant Legislative History and 

Overview 

The Balanced Budget Act of 1997 

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

M+C program. Under section 1851(a)(1) 

of the Social Security Act (the Act), 

every individual with Medicare Parts A 

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

to receive benefits either through the 

original Medicare program or an M+C 

plan, if one was offered where the 

beneficiary lived. The primary goal of 

the M+C program was to provide 

Medicare beneficiaries with a wider 

range of health plan choices. 

The Medicare, Medicaid, and State 

Children’s Health Insurance Program 

(SCHIP) Balanced Budget Refinement 

Act of 1999 (BBRA) (Pub. L. 106–113), 

amended the M+C provisions of the 

BBA. Further amendments were made 

to the M+C program by the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

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

December 21, 2000. 

The President signed the MMA into 

law on December 8, 2003. Title I of the 

MMA added new sections 1860D–1 

through 1860D–42 to the Act creating 

the Medicare Prescription Drug Benefit 

program, a landmark change to the 

Medicare program since its inception in 

1965. 

Sections 201 through 241 of Title II of 

the MMA made significant changes to 

the M+C program. As directed by Title 

II of the MMA, we renamed the M+C 

program the MA program. We also 

revised our regulations to include new 

payment and bidding provisions based 

largely on risk, to recognize the addition 

of regional Preferred Provider 

Organization (PPO) plans, to address the 

provision of prescription drug benefits 

under the Medicare Part D regulations, 

and to make other changes. 

The MMA, at section 1860D–12(b)(3) 

of the Act, directed that specific aspects 

of the MA contracting requirements 

apply to the prescription drug plan 

benefit program. Consequently, the 

processes for contract determinations 

and the administrative appeal rights in 

the two programs are virtually identical. 

We published the regulations 

implementing the MA and prescription 

drug benefit regulations separately, 

though their development and 

publication were closely coordinated. 

On August 3, 2004, we published 

proposed rules for the MA program (69 

FR 46866) and prescription drug benefit 

program (69 FR 46632). The final 

regulations implementing both the MA 

and prescription drug programs were 

published on January 28, 2005 (70 FR 

4588 and 70 FR 4194, respectively). We 

revised some of our proposed provisions 

in the final rules in response to public 

comments. For further discussion of the 

revisions we made to our proposed 

rules, see the final rules cited above. We 

have not issued previous guidance, 

other than regulatory requirements 

regarding contract determinations, 

corrective action plans, contract 

determination appeals, intermediate 

sanctions, or CMPs. However, we have 

published guidance on how to develop 

an effective fraud, waste and abuse 

(FWA) prevention program. This 

guidance is found in Chapter 9 of the 

Prescription Drug Benefit Manual 

entitled ‘‘Part D Program to Control 

Fraud, Waste and Abuse.’’ This rule 

makes further revisions to the MA and 

prescription drug regulations. 

II. Summary of the Provisions of the 

Proposed Rule and Analysis of and 

Response to Public Comments 

In response to the publication of the 

May 25, 2007 proposed rule, we 

received 58 timely items of 

correspondence from the public. We 

received numerous comments from 

various trade associations and health 

insurance providers. Comments also 

originated from other providers, 

suppliers, and practitioners, health care 

consulting firms, and private citizens. 

Brief summaries of each proposed 

provision, a summary of the public 

comments we received (with the 

exception of specific comments on the 

paperwork burden or the impact 

analysis), and our responses to the 

comments are set forth below. 

Comments related to the paperwork 

burden and the impact analysis are 

addressed in the Collection of 

Information and Impact Analysis 

Sections in this preamble. 

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68702 Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 

A. General Comments on the Proposed 

Rule 

Comment: We received a question 

related to the applicability of the Part 

423 provisions to Medicare cost 

contractors who offer Part D plans. 

Response: Cost plans, per 42 CFR 

417.440(b)(2)(ii), which offer a Part D 

prescription drug program as an 

optional supplemental benefit, must 

offer the benefits ‘‘in accordance with 

applicable requirements under Part 

423.’’ The current proposed revisions do 

not change the existing regulations. 

Therefore, the Part 423 regulations 

would continue to apply to cost plans 

just as they have prior to the publication 

of this rule. 

B. Proposed Changes to the Medicare 

Advantage Program and the 

Prescription Drug Benefit Program 

Our experience involving contract 

determinations, appeals, intermediate 

sanctions, and CMPs since the 

enactment of the BBA of 1997 led us to 

propose changes to our regulations. In 

the proposed rule, we proposed to 

simplify the procedures for contract 

determinations; to clarify the 

procedures regarding submission and 

review of corrective action plans; to 

clarify the procedures for imposition of 

intermediate sanctions and CMPs; and 

to clarify the procedures to appeal CMPs 

imposed under the MA and Part D 

programs. 

In addition, we proposed revisions to 

the appeal procedures for all types of 

contract determinations, which would 

make these procedures identical for 

decisions not to contract, nonrenewals, 

and terminations. We proposed to 

provide for enhanced beneficiary 

protections when we decide to 

terminate a plan on an expedited basis. 

In the proposed rule, we also 

proposed changes and clarifications to 

Subpart K, contract requirements under 

the MA and Part D programs. We 

proposed changes to clarify HHS’ access 

to the books and records of a MA 

organization or Part D sponsor’s first 

tier, downstream, and related entities. 

We also proposed changes to clarify that 

certain elements of the compliance plan 

apply to first tier, downstream, and 

related entities. We also proposed 

mandatory self-reporting in both the MA 

and Part D programs, but we are not 

finalizing the provision at this time. 

Below, we set forth the final 

regulatory changes, and corresponding 

final implementation dates: 

Regulation change Implementation 

date 

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

Requirement to apply Compliance Plan’s training and communication requirements to first tier, downstream, and related 

entities ...................................................................................................................................................................................... 1/1/2009 

Voluntary procedures for MA organizations for self-reporting potential fraud and misconduct .................................................. 1/1/2009 

Requirement to obtain access to Part D sponsor’s first tier, downstream, and related entity’s books and records through 

contractual arrangements ........................................................................................................................................................ 1/1/2009 

Elimination of CMS’ requirement to inform organization of renewal ........................................................................................... 1/4/2008 

Change date of CMS’ notification of non-renewal from May 1 to August 1 ............................................................................... 1/4/2008 

Provide for same administrative appeal rights (including Corrective Action Plans (CAPs)) for all contract determinations 

(non-renewal, expedited termination, termination) .................................................................................................................. 1/4/2008 

Change regarding CAP process may be provided prior to notification of termination, and the imposition of time limits on 

Corrective Action Plans ............................................................................................................................................................ 1/4/2008 

Change immediate termination to expedited termination with CMS setting the effective date of termination ........................... 1/4/2008 

Elimination of Reconsideration Step for contract determination appeals ................................................................................... 1/4/2008 

Implementation of Burden of Proof for contract determinations ................................................................................................. 1/4/2008 

Ability for a hearing officer to issue summary judgment ............................................................................................................. 1/4/2008 

Request for Administrator review, submission of information, and timeframe associated with Administrator review ............... 1/4/2008 

Settlement of Civil Money Penalties ............................................................................................................................................ 1/4/2008 

Appeal procedures for Civil Money Penalties ............................................................................................................................. 1/4/2008 

We did not receive any comments on 

the implementation dates we proposed 

and are generally finalizing the 

implementation dates as we proposed, 

with minor modification to reflect that 

certain provisions will be effective on 

January 4, 2008. However, since we are 

not implementing the proposed 

mandatory self-reporting requirement at 

this time, we have only included a 

reference to an implementation date for 

the voluntary self-reporting 

recommendation for MA organizations 

in the above chart. We are retaining the 

existing voluntary self-reporting 

recommendation for Part D sponsors so 

that recommendation is currently in 

effect and will remain in effect in the 

future. 

C. Distribution Table 

The following crosswalk table 

references the changes we are making to 

the prescription drug and the MA 

programs. We proposed making the 

same changes to 42 CFR parts 422 and 

423 with minimal differences. The 

crosswalk lists the section headings, for 

parts 422 and 423, and indicates if the 

section is being deleted. 

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

Section heading Section references in 

part 422 

Section references 

in part 423 

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

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

Access to Facilities and Records .................................................................................................... 422.504(e) and 

422.503(d)(2)(iii).

423.505(e) 

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

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

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

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Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 68703 

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

Section heading Section references in 

part 422 

Section references 

in part 423 

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

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

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

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

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

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

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

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

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

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

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

Postponement of effective date of a contract determination when a request for a hearing with 

respect to a contract determination is filed timely.

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

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

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

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

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

Reopening of initial contract determination or intermediate sanction or decision of a hearing officer or the Administrator.422.696 ........................ 423.668 

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

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

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

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

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

Determinations regarding the amount of civil money penalties and assessment imposed by 

CMS.

422.760 ........................ 423.760 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Right to request Departmental Appeals Board review of Administrative Law Judge’s decision or 

dismissal.

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

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

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

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

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68704 Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 

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

Section heading Section references in 

part 422 

Section references 

in part 423 

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

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

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

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

Basis, timing, and authority for reopening an Administrative Law Judge or Board decision ......... 422.1090 ...................... 423.1090 

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

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

We did not receive any comments on 

the crosswalk distribution table and 

have made no substantial changes to it. 

We are finalizing the table as proposed. 

D. Proposed Changes to Part 422— 

Medicare Advantage Program and Part 

423—Medicare Prescription Drug 

Benefit Program 

Sections 422.2 and 423.4—Definitions 

We proposed to correct a technical 

oversight in both regulations by 

including the definitions of 

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

and ‘‘related entity,’’ in the overall 

definitions sections of both the MA and 

Part D regulations at § 422.2 and § 423.4 

to ensure that these terms are used 

consistently throughout both programs. 

Since these three terms are only defined 

in Subpart K of parts 422 and 423, we 

proposed to add them to Subpart A, 

General Provisions at § 422.2 and 

§ 423.4. 

Please see page 29372 of the proposed 

rule for a flow chart that provides 

examples of, and describes the 

relationships between, Part D sponsors, 

and first tier, downstream, and related 

entities. 

Comment: A few commenters 

requested more explicit definitions of 

first tier, downstream, and related 

entities. They asked us to provide 

clarification for the terms record 

retention, administrative services, 

written arrangements, acceptable to 

CMS, CMS instructions, and directors. 

We also received a request that we 

clarify the phrase ‘‘a written agreement, 

acceptable to CMS,’’ found in the 

definition of ‘‘downstream entity,’’ and 

a request that we clarify which entities 

are involved in such an arrangement. 

Response: The terms ‘‘first tier 

entity,’’ ‘‘downstream entity,’’ and 

‘‘related entity’’ are already defined in 

Subpart K of parts 422 and 423, and we 

are only including them in Subpart A, 

General Provisions at § 422.2 and 

§ 423.4 for clarity, since these terms 

were originally defined in only Subpart 

K. Examples of downstream entities 

include, but are not limited to, 

pharmacy benefit managers, mail order 

pharmacies, retail pharmacies, firms 

providing agent/broker services, agents, 

brokers, marketing firms, and call center 

firms. We are neither providing 

definitions nor clarifications for the 

terms ‘‘record retention,’’

‘‘administrative services,’’ ‘‘written 

arrangements,’’ ‘‘acceptable to CMS,’’

‘‘CMS instructions,’’ or ‘‘directors,’’

since these terms are longstanding terms 

used by us and the industry. We are 

finalizing the definitions of ‘‘first tier 

entity’’ and ‘‘related entity’’ as 

proposed. 

Based upon an unintentional 

oversight in the proposed regulation, we 

are revising the definition of 

‘‘downstream entity’’ for improved 

clarity, as described below. The 

definition of a Part D ‘‘downstream 

entity’’ at § 423.4 states that a 

‘‘[d]ownstream entity means any party 

that enters into a written arrangement 

acceptable to CMS, below the level of 

the arrangement between a Part D plan 

sponsor (or applicant) and a first tier 

entity.’’ In response to this comment, we 

are modifying the proposed definition to 

address with whom the entity is 

entering into a written arrangement. The 

definition is revised to read: 

‘‘Downstream entity means any party 

that enters into a written arrangement, 

acceptable to CMS, with persons or 

entities involved with the Part D benefit, 

below the level of the arrangement 

between a Part D plan sponsor (or 

applicant) and a first tier entity. These 

written arrangements continue down to 

the level of the ultimate provider of both 

health and administrative services.’’ We 

are making similar changes to the 

definition of ‘‘downstream entity’’ in the 

MA regulation at § 422.2. 

Comment: One commenter questioned 

whether a pharmacist is a downstream 

entity. 

Response: As illustrated in the sample 

flowchart provided on p. 29372 of the 

proposed rule, and below, a pharmacist 

would be considered a downstream 

entity as defined in the regulation. 

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Sections 422.503 and 423.504—General 

Provisions 

The current regulations at § 423.504 

include a requirement that a Part D 

sponsor’s compliance plan consist of 

training and education, and effective 

lines of communication between the 

compliance officer, and the 

organization’s employees, contractors, 

agents, directors, and managers. The 

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

defined in the current regulations, and 

it has been unclear to the industry 

which entities are subject to the training 

and education, and the effective lines of 

communication requirements. In 

response to industry concerns and to 

eliminate the confusion associated with 

using the term ‘‘contractor’’, currently 

used in those sections, we proposed to 

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

(b)(4)(vi)(D) of § 423.504. The proposed 

revision clarified that a compliance plan 

must consist of training and education, 

and effective lines of communication 

between the compliance officer and the 

Part D sponsor’s employees, managers, 

and directors, as well as the Part D 

sponsor’s ‘‘first tier, downstream, and 

related entities’’ which are defined at 

422.500 and 423.501. This change 

clarifies that Part D plan sponsors need 

to apply these training and 

communication requirements to all 

entities they are partnering with to 

provide benefits or services in the Part 

D program, not just to their direct 

employees within their organizations. 

Pursuant to our authority under 

§ 1856(b)(1) of the Act to establish MA 

standards by regulation, we also 

proposed to make the same changes in 

the MA program. We similarly proposed 

to require MA organizations to apply 

their training and education and 

effective lines of communication 

requirements to their first tier, 

downstream, and related entities, in an 

effort to make the compliance plan 

requirements uniform across MA 

organizations, Medicare Advantage 

Prescription Drug Plans (MA–PDs), and 

other Part D sponsors. Additionally, we 

proposed clarifying paragraph (b)(4)(vi) 

in § 422.503 and § 423.504 by removing 

what we believe to be a duplicative and 

confusing ‘‘final element’’ of the 

compliance plan—a comprehensive 

‘‘fraud, waste, and abuse plan to detect, 

correct, and prevent fraud, waste, and 

abuse,’’ at paragraph (b)(4)(vi)(H) of both 

regulations. We proposed to remove this 

element because since the Part D 

program’s inception, we received 

feedback from many Part D sponsors 

indicating that it was not clear whether 

we were requiring a fraud, waste, and 

abuse (FWA) plan separate and distinct 

from a compliance plan. 

In April 2006, we issued Chapter 9 of 

the Prescription Drug Benefit Manual 

(‘‘Part D Program to Control Fraud, 

Waste and Abuse,’’ hereafter referred to 

as ‘‘Chapter 9’’) as best practices 

guidance for Part D sponsors to develop 

an FWA plan. We intend for Chapter 9 

to be similar to the type of best practices 

guidance issued by the Office of the 

Inspector General (OIG) in its 

Compliance Program Guidance for drug 

manufacturers and health care 

providers. While we clarified in Chapter 

9 that Part D sponsors could choose 

whether to incorporate FWA measures 

in a compliance plan, we believe the 

final element continues to cause 

potential confusion to the industry, and 

therefore, proposed to remove this 

element from (b)(4)(vi) of § 422.503 (for 

MA–PDs) and § 423.504 (for Part D 

sponsors). 

We continue to believe an effective 

compliance plan includes procedures 

and policies for preventing fraud, waste, 

and abuse, and so proposed changes to 

the introductory clause of 

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

stance. Congress mandated that Part D 

sponsors have a ‘‘program to control 

fraud, waste, and abuse.’’ See § 1860D–

4(c)(1)(D) of the Act. Therefore, we are 

also clarifying that if Part D plan 

sponsors develop an effective 

compliance plan that incorporates 

measures to detect, prevent, and correct 

fraud, waste, and abuse, this compliance 

plan would also satisfy the statutory 

requirement that sponsors have a FWA 

plan in place. Part D sponsors should 

continue to look to Chapter 9 as 

recommended guidance for the types of 

measures we recommend in detecting 

and preventing fraud, waste, and abuse. 

Chapter 9 can be viewed at: http:// 

www.cms.gov/ 

PrescriptionDrugCovContra/Downloads/ 

PDBManual_Chapter9_FWA.pdf. 

We recognize that Chapter 9 was 

specifically developed for Part D 

sponsors and is not applicable for MA 

organizations that do not offer a 

prescription drug benefit. In the interim, 


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MA organizations should refer to 

Chapter 9 as a reference regarding how 

to incorporate fraud, waste, and abuse 

detection and prevention into their 

compliance plans. We plan to develop 

separate guidelines for MA 

organizations for implementation by 

January 1, 2009. 

Pursuant to our authority under 

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

proposed to make the same change to 

the introductory clause of 

§ 422.503(b)(4)(vi), so that the 

compliance plan requirements for MA 

organizations will be identical to those 

for Part D sponsors. We proposed that 

MA organizations must include 

‘‘measures to detect, correct, and 

prevent fraud, waste, and abuse’’

throughout the 7 elements of the 

compliance plan requirement. Before 

this proposed change, only MA-PDs 

were explicitly required to include 

detection and prevention of fraud, 

waste, and abuse into their compliance 

plans. However, it has always been our 

expectation that fraud, waste, and abuse 

would be addressed through the 

implementation of all 7 elements in a 

MA organization’s compliance plan, 

enumerated at paragraphs (A) through 

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

longstanding policy that an effective 

MA compliance plan addresses the 

detection, correction, and prevention of 

fraud, waste, and abuse in the MA 

program, and we believe that our 

proposed change makes this policy 

explicit in our regulations. As 

previously stated in this final rule with 

comment period, MA organizations may 

refer to Chapter 9 in the interim, and 

further guidance on the types of 

measures we recommend in detecting 

and preventing fraud, waste, and abuse 

will be developed specifically for MA 

organizations. 

Comment: A number of respondents 

requested further clarification regarding 

who must provide training and 

education under the compliance plan 

and who must be trained and educated. 

Response: We did not intend to imply 

that MA organizations and Part D 

sponsors are required to directly 

provide Part D compliance training and 

education to all of their first tier, 

downstream, and related entities. 

Instead, we seek to reaffirm the role and 

responsibilities of the MA organization 

and Part D sponsor in this area. To the 

extent that aspects of the compliance 

plan are delegated, it is important to 

remember that the MA organization’s or 

Part D sponsor’s compliance officer 

must maintain appropriate oversight of 

those delegated activities. The Part D 

sponsor and the MA organization 

maintain ultimate responsibility 

regardless of whether training has been 

delegated to the first tier, downstream, 

or related entities. In accordance with 

the Part D and MA applications, the Part 

D sponsor or MA organization must 

attest it will implement a compliance 

plan that includes effective training and 

education between the compliance 

officer, organization employees, 

contractors, agents and directors. In 

addition, as part of plan audits, CMS 

will verify that all necessary training 

has been provided. Therefore, CMS 

would expect that a Part D sponsor and 

MA organization would have training 

logs and copies of attestations from the 

first tier, downstream or related entities 

to comply with this requirement. As 

previously stated in this final rule with 

comment period, MA organizations may 

refer to Chapter 9 in the interim, and 

further guidance will be developed for 

MA organizations. 

Comment: A few commenters 

questioned ‘‘who would be responsible’’

for implementing the compliance 

program’s fraud, waste, and abuse 

detection and prevention efforts related 

to Part D. 

Response: The MA organization or 

Part D sponsor is ultimately responsible 

for meeting the compliance plan 

requirement to implement measures for 

detecting and preventing fraud, waste, 

and abuse. However, we realize that 

each MA organization and Part D 

sponsor has a unique business model 

and structure, and that some will choose 

to perform certain functions themselves 

while some MA organizations and Part 

D sponsors will subcontract certain 

functions and rely on the expertise and 

operations that first tier, downstream, 

and related entities offer. The job of the 

compliance officer cannot be delegated. 

But MA organizations and Part D 

sponsors have the flexibility to 

determine how, and to what extent, they 

will delegate their compliance activities, 

which may include training and 

education to control fraud, waste, and 

abuse. MA organizations and Part D 

sponsors have the flexibility to 

determine how and to what extent they 

will delegate other aspects of their 

contractual requirements. To the extent 

that any compliance activities are 

delegated to first tier, downstream, and 

related entities, MA organizations and 

Part D sponsors are ultimately 

responsible for compliance plan 

oversight, including monitoring training 

and education, and complying with all 

statutory and regulatory requirements, 

as well as any additional guidance 

identified by us. One option MA 

organizations and Part D sponsors may 

choose is to contractually require their 

first tier, downstream, and related 

entities to train their own workforce on 

delegated activities and establish lines 

of communication to the appropriate 

managers in those entities. We 

recommend that Part D sponsors review 

chapter 9 of the Prescription Drug 

Benefit Manual for further guidance 

regarding accountability and oversight 

of first tier, downstream, and related 

entities. As previously stated in this 

final rule with comment period, MA 

organizations may refer to Chapter 9 in 

the interim, and further guidance will 

be developed specifically for MA 

organizations. 

MA organizations and Part D sponsors 

should consider requiring that any first 

tier, downstream, and related entities 

performing activities on behalf of the 

MA organization or Part D sponsor, 

provide their own training in 

accordance with § 422.504(b)(4)(vi)(C) 

or § 423.504(b)(4)(vi)(C) respectively, or 

where there are sufficient organizational 

similarities, the MA organization or 

sponsor may choose to make its training 

programs available to these entities. 

This will allow the first tier, 

downstream, and related entities the 

choice of accessing the MA organization 

or Part D sponsor’s training and 

education materials, or providing proof 

to them of their compliance with the 

training and education requirement. For 

further guidance, please refer to chapter 

9 of the Prescription Drug Benefit 

Manual. 

Employees with specific 

responsibilities in Medicare Part D 

business areas should receive 

specialized training on issues posing 

compliance risks based on their job 

function (for example, pharmacist, 

statistician, and so on), upon initial 

hire, when requirements change, or 

when an employee works in an area 

previously found to be noncompliant 

with program requirements or 

associated with past misconduct. Such 

training should also be required at least 

annually thereafter as a condition of 

employment. Specialized training 

content may be developed by the 

sponsor or employees may attend 

professional education courses that help 

meet this objective. Further discussion 

related to this subject may be found in 

Chapter 9. 

In Chapter 9, we discuss how 

delegation of training would be 

applicable, if deemed appropriate by the 

sponsor, for General Compliance 

Training and Specialized Compliance 

Training. We did not make any changes 

to our proposed provisions as a result of 

this comment. 

Comment: We received some 

comments suggesting that we should 

work with the industry to develop a 

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standardized training and 

communication plan applicable to all 

stakeholders, and make it available on 

the internet. This way, stakeholders 

would receive one comprehensive 

training and communication package. 

Response: We believe this to be a 

valuable suggestion, and we will take it 

under consideration. 

Comment: Some commenters 

requested that we conduct certifications 

to verify that training and education had 

been completed for Part D plans and 

their first tier, downstream, and related 

entities. 

Response: At this time, we do not 

require a certification process but rather, 

through our audit and review process, 

will determine whether or not the 

training and education requirements 

were fulfilled. We hold the Part D 

sponsor or MA organization responsible 

for fulfilling this requirement regardless 

of whether first tier, downstream, and 

related entities certify to that effect. We 

may revisit the idea of certification in 

the future. 

Comment: One respondent questioned 

who downstream entities should contact 

with ‘‘compliance concerns.’’

Response: We have contracted with 

program integrity contractors who will 

use innovative techniques to monitor 

and analyze data to help identify and 

prevent fraud, waste, and abuse. Any 

person or entity at a first tier, 

downstream, or related entity level that 

wishes to report potential fraud or 

misconduct may contact a program 

integrity contractor and/or the MA 

organization or the Part D sponsor, 

depending on the type of violation. 

Comment: Another respondent 

questioned who would be responsible 

for reporting potential prescription drug 

fraud. 

Response: The Part D sponsor or MA 

organization maintains ultimate 

responsibility regardless of whether 

oversight duties have been delegated. To 

the extent that any of the compliance 

activities for Parts C or D are delegated, 

it is important that the MA or Part D 

compliance officer maintain appropriate 

oversight of those duties that have been 

delegated. The compliance officer is 

responsible for determining whether 

voluntary self-reporting of any potential 

fraud or misconduct related to the MA 

or Part D program is appropriate. In 

addition, first tier, downstream, and 

related entities are encouraged to report 

fraud, waste, or abuse to the program 

integrity contractor and/or the MA 

organization or the Part D sponsor. 

Sections 422.503(b)(4)(vi)(G)(3) and 

423.504(b)(4)(vi)(G)(3)—Mandatory SelfReporting 

At § 422.503(b)(4)(vi)(G)(3) and 

§ 423.504(b)(4)(vi)(G)(3), we proposed 

mandatory self-reporting of potential 

fraud or misconduct in both the MA and 

Part D programs. We believe that it is 

important for the government to have 

information on potential fraud or 

misconduct as soon as possible. The 

comments we received on the May 25, 

2007, proposed rule highlighted the 

challenges in establishing the 

parameters of a mandatory self-reporting 

process in the context of MA and PDP 

plans. Commenters expressed several 

concerns during the public comment 

period, including the need for us to 

better define what constitutes 

‘‘potential’’ fraud and misconduct, the 

process for reporting, and the need to be 

consistent with other agencies’ guidance 

regarding self-reporting. After reviewing 

these comments, we determined that 

additional analysis needs to be 

undertaken and additional information 

sought before implementing a 

mandatory self-reporting requirement. 

In the meantime, we believe that selfreporting is a valuable component of an 

MA organization’s or Part D sponsor’s 

compliance plan. Therefore, in an effort 

to make the compliance plan 

requirements uniform across MA 

organizations, Medicare Advantage 

Prescription Drug Plans (MA-PDs), and 

other Part D sponsors, we will amend 

proposed paragraph (b)(4)(vi)(G)(3) of 

both §§ 422.503 and 423.504 to read: A 

MA organization or Part D sponsor 

‘‘should have procedures for voluntary 

self-reporting of potential fraud or 

misconduct * * *.’’ We are essentially 

retaining the voluntary self-reporting 

recommendation for Part D sponsors, 

but merely moving it within the 

regulatory text to accommodate other 

regulatory changes we are making, and 

implementing a voluntary self-reporting 

recommendation for MA organizations. 

We are strongly recommending that, if 

after conducting a reasonable inquiry, it 

is determined that potential fraud or 

misconduct has occurred, the conduct 

should be promptly referred to the 

program integrity contractor for further 

investigation. While we are not 

requiring mandatory self-reporting in 

this final rule with comment period, 

there may be instances under federal 

criminal and fraud and abuse statutes 

where MA organizations and Part D 

sponsors are potentially subject to 

prosecution if certain issues are not 

properly addressed. We further note that 

our decision not to amend the existing 

MA and PDP requirements further at 

this time does not mean that 

organizations may not be liable under 

other Federal laws or regulations if they 

fail to disclose a violation they have 

discovered. 

We wish to call attention to the 

existing guidance we provide on selfreporting. Key documents include 

Chapter 9 of the Prescription Drug 

Benefit Manual, concerning fraud, 

waste, and abuse (at http:// 

www.cms.hhs.gov/

PrescriptionDrugCovContra/Downloads/ 

PDBManual_Chapter9_FWA.pdf) and 

the Medicare Part D Reporting 

Requirements for Contract Year 2007 (at 

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

PrescriptionDrugCovContra/Downloads/ 

PartDReportingRequirements_

CurrentYear.pdf). While these 

documents are not codified rules, the 

guidance they contain provides clear 

direction to plans as to our expectations. 

We will periodically revise these 

guidelines to reflect additional guidance 

on ways to improve reporting of fraud, 

waste, and abuse. 

We are committed to implementing 

mandatory self-reporting and we intend 

to issue a proposed rule. Finally, we 

believe that it would be valuable to 

obtain additional input at this time, in 

order to inform our evaluative, analytic, 

and guidance efforts. Accordingly, we 

are asking for additional public 

comments on this issue. Specifically, we 

ask for comments regarding the 

following: 

• We proposed requiring MA 

organizations and Part D sponsors to 

report potential ‘‘fraud or misconduct.’’

We seek guidance as to how to define 

what kinds of offenses would constitute 

fraud and misconduct for purposes of 

this reporting requirement. We seek 

specific examples of what constitutes 

potential fraud and misconduct. 

• Alternatively, we seek input as to 

whether there is an alternate 

formulation, rather than ‘‘fraud or 

misconduct’’ that would better describe 

the categories of offenses that should be 

reported to CMS (for example violations 

of administrative, civil and/or criminal 

authorities). 

• Who are the entities that would be 

responsible for reporting to CMS 

(sponsor, first tier, downstream 

entities)? 

• At what point would CMS require 

that a MA or Part D plan report a 

potential issue that could fall into the 

category of offenses that would require 

self-reporting (for example, upon initial 

discovery or after an opportunity for 

reasonable inquiry or due diligence)? 

• How should this information be 

reported to CMS (through the MEDICs, 

disclosure to the CMS plan manager, or 

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CMS central office)? Please provide a 

discussion of the advantages or 

disadvantages of any of these or other 

reporting mechanisms. 

• In addition to the specific questions 

raised above, please provide us with any 

other comments or constructive 

feedback that might assist us in crafting 

a mandatory self-reporting requirement. 

Sections 422.504 and 423.505—General 

Provisions 

We proposed to clarify which entities 

under contract to MA organizations and 

Part D sponsors are subject to the 

contract provisions in the MA and Part 

D programs. Currently, the contract 

provisions at 422.504 and 423.505 refer 

to such entities as the MA organization 

or Part D sponsor’s ‘‘contractors’’ and 

‘‘subcontractors,’’ which as we 

described in the proposed rule, are 

undefined terms in the statute and 

regulations. We proposed, where 

applicable, to delete the term 

‘‘contractor,’’ because of potential 

confusion and redundancy, and replace 

the term ‘‘subcontractor’’ with the terms 

‘‘first tier entity’’ and ‘‘downstream 

entity’’ in 422.504(e) and (i), to clarify 

which entities are subject to the contract 

provisions at 422.504. 

We also proposed, where applicable, 

to delete the term ‘‘contractor,’’ and 

replace the term ‘‘subcontractor’’ with 

the terms ‘‘first tier entity’’ and 

‘‘downstream entity’’ in the Part D 

contract provisions at 423.505(e) and (i) 

for the same reasons. We believed using 

‘‘first tier and downstream, entities’’

instead of ‘‘subcontractor’’ would lessen 

the potential for confusion in the Part D 

program. Please see page 29372 of the 

proposed rule for examples of first tier, 

downstream, and related entities. 

Comment: We received a number of 

technical comments concerning the 

definitions of ‘‘contractor’’ and 

‘‘subcontractor.’’

Response: Based on these comments, 

we are correcting a few typographical 

errors in § 423.505(i)(3)(v) by replacing 

the phrase ‘‘related entity, contractor or 

subcontractor’’ with the phrase ‘‘first 

tier, downstream, and related entities’’

to be consistent with the other parts of 

the regulation. In §§ 423.505(i)(3), and 

§§ 423.505(i)(3)(ii), (i)(4), and (i)(4)(v), 

we are deleting the term ‘‘pharmacy’’ as 

it was included in error and is 

redundant. Section 423.505(i)(4) will 

now read: ‘‘If any of the Part D plan 

sponsor’s activities or responsibilities 

under its contract with CMS is 

delegated to other parties, the following 

requirements apply to any first tier, 

downstream, and related entity,’’ and 

§ 423.505(i)(4)(v) will read: ‘‘All 

contracts or written arrangements must 

specify that the first tier, downstream, 

or related entity must comply with all 

applicable Federal laws, regulations, 

and CMS instructions.’’ We also are 

making similar corrections to 

§ 422.504(i)(3), (i)(3)(ii), and (i)(4) where 

the term ‘‘provider’’ was left in the 

regulations unintentionally. All 

references to ‘‘provider’’ have been 

deleted in the final regulations. 

We proposed to add a provision to the 

contracts and written arrangements 

between sponsors and their first tier, 

downstream, and related entities at 

§ 423.505(i)(3)(iv) to clarify that this 

information can be provided to either 

the Part D sponsor to give to CMS, or 

can be provided directly to CMS or its 

designees. We discussed in the 

proposed rule at page 29373 our existing 

authority under section 1860D–

12(b)(3)(c) of the Act and § 422.504(e) 

and § 423.505(e) to inspect and audit 

any books, contracts, requests, and 

records of a Part D sponsor or MA 

organization relating to the Part D 

program. Because of the proposed 

contract provision, we also proposed to 

redesignate § 423.505(i)(3)(iv) as 

§ 423.505(i)(3)(v). We are finalizing 

these changes as proposed. 

Comment: A few commenters 

questioned our authority to access the 

books and records of first tier, 

downstream and related entities. One 

commenter suggested a need for more 

formal rulemaking on this topic. 

Response: We have existing authority 

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

Act and § 422.504(e)(2) and 

§ 423.505(e)(2) to inspect and audit any 

books, contracts, and records of a Part 

D sponsor or MA organization and its 

first tier, downstream, and related 

entities that pertain to any aspect of 

services performed, reconciliation of 

benefit liabilities, and determination of 

accounts payable under the contract or 

as the Secretary may deem necessary to 

enforce the contract. Therefore, it is not 

necessary, as the commenters suggested, 

to propose a more formal regulation and 

offer another public comment period. 

These third party disclosure 

requirements were finalized in the final 

MA and Part D rules and were approved 

under the Paperwork Reduction Act 

approval under OMB #0938–1004 (Part 

C) and OMB #0938–1000 (Part D). 

Additionally, in the preamble to the Part 

D proposed rule, published on January 

28, 2005 (70 FR 4194), we clearly stated 

our inspection and audit rights with 

respect to a Part D sponsor and its 

contractors, subcontractors, and related 

entities under the section entitled 

‘‘Access to Facilities and Records’’ (69 

FR 46632–46712). In this regulation, we 

have further clarified that our access 

rights apply to ‘‘first tier, downstream, 

and related entities,’’ and not 

‘‘contractors, subcontractors, and related 

entities.’’

The limited rebate and other price 

concession information provided to the 

Part D sponsor by its contracting entities 

may provide some payment information 

to us, but it may not be enough for us 

to determine in all cases whether 

appropriate payments have been made 

to the sponsor. Therefore, it may be 

necessary for us to rely on our authority 

to access books and records to obtain 

more detailed rebate and other price 

concession information in order to 

verify proper payments were made to 

the Part D sponsor. 

Comment: We received a number of 

comments questioning whether books 

and records must be made available to 

us directly or through the Part D 

sponsor. 

Response: We have chosen not to be 

prescriptive regarding whether first tier, 

downstream, and related entities must 

make their books and records available 

to us directly or through the Part D 

Sponsor. It is our opinion that this is 

considered to be part of the negotiation 

process between the Part D sponsor and 

its first tier, downstream, and related 

entities. The provision must be clear as 

to whether or not the requested 

documentation is to be submitted 

through the Part D sponsor to us (or our 

designee(s)), or submitted directly to us 

(or our designee(s)). The parties could 

also decide to have such books and 

records made directly available to us, or 

our designee(s), through onsite access. 

The Part D sponsor must be prepared to 

submit evidence of this agreed upon 

provision in its executed contracts to us. 

To clarify, the ‘‘designee’’ either refers 

to entities under a program integrity 

contract with us, or entities, such as law 

enforcement, working in collaboration 

with us to fight fraud, waste and abuse 

in the Medicare Part D program. 

HHS, the Comptroller General, or its 

designees have the authority to collect 

any information from the first tier, 

downstream, or related entities that is 

related to the Medicare Part D 

prescription drug transaction. Examples 

of the type of information collected are 

provided at § 423.505(e)(2). 

In addition to proposing a new 

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

we also proposed minor regulatory 

changes which clarify the Part D 

sponsor’s CMS contractual 

requirements. While we continue to 

believe our regulations clearly state our 

authority to access the books and 

records of a Part D sponsor’s first tier, 

downstream, and related entities, we 

proposed to add language about these 

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partnering entities to § 423.505(b)(10), 

and proposed to consolidate 

§ 423.505(e)(2) and (3) into one 

provision at (e)(2). We proposed these 

revisions to make explicit the Part D 

plan sponsor’s contractual obligation to 

ensure HHS, the Comptroller General, or 

their designees have access to any books 

and records related to the Part D 

program, including those of a sponsor’s 

first tier, downstream, and related 

entities. These revisions do not impose 

any new requirements on Part D 

sponsors or its partnering entities. We 

are finalizing these proposed provisions 

without change. 

Comment: A few commenters noted 

that the proposed revision to § 422.504 

and § 423.505 has not prescribed 

‘‘typical’’ data sets to be reported within 

the context of our request for books and 

records of first tier, downstream, and 

related entities. Another commenter 

indicated that the information that 

could be collected is too broad. 

Response: We want to clarify that the 

‘‘books and records’’ we are entitled to 

access do not make up a typical data set 

included in the Medicare Part D 

Reporting Requirements. There is no 

report form to be defined, as the format 

will be dependent upon the information 

being requested and the unique 

circumstances upon which the request 

is based. The scope of the information 

collected will be based on the type of 

audit being performed. If upon review of 

the information submitted we, or our 

designee(s), determine that additional 

information or clarification is 

warranted, the scope of the review may 

be expanded. 

Comment: A commenter suggested 

that we should rely on subpoena 

authority, regulation, provider contracts, 

or some other method to collect books 

and records in connection with 

investigations. 

Response: We do not have subpoena 

authority; however, our law 

enforcement partners such as OIG and 

DOJ do. The government may use a 

variety of methods to obtain records and 

books from entities under contract with 

MA organizations and/or Part D 

sponsors. There may be instances where 

we may need to see books and records 

without involving law enforcement. 

These provisions at § 422.504 and 

§ 423.505 only clarify one method we 

may employ to do so. 

We clarified in the preamble to the 

proposed rule that HHS, the 

Comptroller General, or their designees 

have the authority under the statute to 

request records from MA organizations 

and Part D sponsors or their first tier, 

downstream, or related entities. MA 

organizations and Part D plan sponsors 

must maintain, as required by 

§ 423.505(d), ‘‘books, records, 

documents and other evidence of 

accounting procedures and practices,’’

pertaining to determinations of amounts 

payable under the contract, agreements, 

contracts, and subcontracts. Since Part 

D sponsors have delegated many Part D 

functions to their first tier entities, we 

are aware that many of these records 

reside with first tier and downstream 

entities, such as pharmaceutical benefits 

managers (PBMs). We are taking the 

opportunity again, in this final rule with 

comment period, to make explicit that 

we have the authority to request for 

verification of payment purposes, any 

records relating to rebates and any other 

price concessions between PBMs and 

manufacturers that may impact 

payments made to sponsors in the Part 

D program. 

Comment: We received a comment 

addressing the 10-year record retention 

requirement. 

Response: This requirement was 

implemented in a prior regulation and 

is outside the scope of this final rule 

with comment period. 

Comment: A number of commenters 

expressed concern that information 

submitted by first tier, downstream, and 

related entities, especially proprietary 

information, would not be kept 

confidential by us. 

Response: As an agency, we are 

subject to various Federal disclosure 

laws, such as the Trade Secrets Act, the 

Privacy Act, and the Freedom of 

Information Act (FOIA) (5 U.S.C. 552). 

We are also subject to confidentiality 

and disclosure regulations at 42 CFR 

Part 401 Subpart B. In addition, sections 

1860D–15(d)(2)(B) and (f)(2) of the Act 

place restrictions on the Secretary’s 

disclosure of certain payment data 

collected in the Part D program to 

anyone outside of HHS. Therefore, we 

believe there are sufficient legal 

restrictions to protect the disclosure of 

such proprietary data outside of the 

agency. 

Comment: One commenter questioned 

our need to gather information about 

rebate agreements between potential 

first tier and downstream entity 

contracted partners. 

Response: Our proposal to obtain 

rebate and price-concession related 

records is supported by statute. Sections 

1860D–15(d)(2) and 1860D–15(f)(1)(A) 

of the Act authorize us to request any 

information ‘‘necessary’’ to carry out the 

payment provisions in section 1860D–

15 of the Act, which include payments 

of direct subsidies, reinsurance, and risk 

corridor costs to sponsors. While the 

rebate and other price concession 

information reported by the sponsors 

may provide some payment 

information, it may not be enough for us 

to determine in all cases whether 

appropriate payments have been made 

to the sponsor. It may be ‘‘necessary’’ for 

us to obtain more detailed rebate and 

other price concession information from 

first tier, downstream, and related 

entities in order to verify proper 

payments made to the sponsor. For 

example, we must receive accurate and 

complete rebate and other price 

concession information in order to 

determine what was ‘‘actually paid’’ and 

to clearly reflect what was a gross 

prescription drug covered cost, which 

excludes administrative costs. 

As stated in the CMS 2007 

Prescription Drug Sponsor Call Letter, 

‘‘CMS must assume that if a PBM retains 

a portion of the manufacturer rebates it 

negotiates on behalf of the Part D 

sponsors then the direct payment the 

sponsor pays the PBM for its services 

will be less, that is, the sponsor receives 

a price concession from the PBM.’’ If the 

rebates are passed completely through 

to the Plan then the charge from the 

PBM to the Plan would be an 

administrative cost that will need to be 

deducted from the ‘‘gross covered 

prescription drug costs’’ which along 

with the ‘‘actually paid costs’’ are a 

basis for CMS payment to the plans. 

In addition, such rebate and other 

price concession information is critical 

to our oversight efforts in curbing fraud, 

waste, and abuse in the Part D program. 

Under section 1860D–2(d)(3) of the 

MMA, Congress granted us the right to 

conduct periodic audits of a sponsor’s 

financial statements, books, and records 

‘‘to protect against fraud and abuse and 

to ensure proper disclosure and 

accounting’’ in the Part D program. 

Given the history of rebate reporting 

problems the government has 

encountered with PBMs in 

administering the Medicaid Drug Rebate 

Act, we believe we must have the ability 

to evaluate and inspect records relating 

to Part D rebates and other price 

concessions in order to fulfill our 

statutory duty of protecting beneficiaries 

from fraud and abuse and to ensure the 

financial integrity of the Part D program. 

Therefore, we are restating in this final 

rule with comment period that we 

reserve the right to request records 

relating to Part D rebates and price 

concessions from the sponsor’s first tier 

entities, downstream, and related 

entities when appropriate. 

Comment: A commenter questioned 

whether certain contracted partners are 

considered to be downstream entities. 

Response: In Exhibit 1 of the 

proposed rule, on p. 29372, and in this 

final rule with comment period, we 

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provided examples of first tier and 

downstream entities. We encourage you 

to contact the CMS staff listed at the 

beginning of this final rule with 

comment period if you have any 

questions as to whether a contracted 

partner is a downstream entity. 

Sections 422.505 and 423.506—Effective 

Date and Term of Contract 

We proposed removing § 422.505(c)(1) 

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

contracts with MA organizations or Part 

D plan sponsors are only renewed if 

CMS informs the MA organization or 

Part D sponsor that it has authorized a 

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

provides that the contract renews 

automatically, unless CMS or the 

organization notifies the other party of 

its intent to terminate the contract at the 

end of the existing contract term. 

Therefore, we proposed to revise 

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

that in accordance with § 422.506 and 

§ 423.507, contracts are renewed 

annually only if the MA organization or 

Part D plan sponsor has not provided us 

with a notice of intent not to renew and 

we have not provided the MA 

organization or Part D plan sponsor with 

a notice of intent not to renew. This 

change better aligns the regulations with 

the statute and we are finalizing the 

provision as proposed. 

Comment: One commenter asked 

whether contracts needing amendment 

as a result of this final rule with 

comment period could be made at the 

time of contract renewal. 

Response: As indicated in the 

proposed rule and finalized here, the 

implementation date of this provision is 

January 1, 2009. Therefore, all revised 

contracts need to be in place by that 

date. We did not make any changes 

based on this comment and are 

finalizing the provision as proposed. 

Sections 422.506 and § 423.507 

Nonrenewal of a Contract 

We proposed revising the 

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

§ 423.507(b)(2). In addition, we 

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

§ 423.507(b)(2)(i). The existing 

provisions require us to provide plans 

with notice of both renewal and 

nonrenewal decisions by May 1. We 

proposed that a notice only be provided 

if we decide not to renew an MA 

organization or a Part D plan sponsor’s 

contract with us. As discussed in the 

proposed rule, Section 1857(c)(1) of the 

Act provides for an automatically 

renewable contract and does not require 

us to provide notice when we decide to 

renew a plan or sponsor’s contract with 

us. 

We proposed revising the 

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

§ 423.507(b)(2) introductory text to 

clarify that we must provide notice of 

our decision not to authorize renewal 

of a contract. In addition, we proposed 

to revise § 422.506(b)(2)(i) and 

§ 423.507 (b)(2)(i) to require that we 

provide such notice by September 1 of 

the contract year, rather than May 1. If 

an MA organization or Part D sponsor 

receives a nonrenewal notice from CMS, 

we will not provide information 

regarding the MA or Part D plans that 

the organization or sponsor offers in 

certain hard copy materials, such as the 

‘‘Medicare & You’’ handbook. 

Information regarding the plans would 

continue to be available on the CMS 

Web site. For purposes of this final rule 

with comment period, a nonrenewal 

would take effect on January 1 of the 

following contract year (unless a 

nonrenewal is being appealed through 

the administrative appeals process and 

the appeals process is ongoing, or 

additional time is required to comply 

with our requirements with respect to 

providing notice to beneficiaries of the 

nonrenewal, in which case the 

nonrenewal may become effective 

during the following calendar year), 

whereas a termination may take effect at 

any time during the contract year. Our 

proposed provisions make contract 

renewal automatic, without notice, 

unless we notify the MA organization or 

Medicare Part D plan sponsor of our 

intent to nonrenew the contract by 

September 1 of the current contract 

year. Please see the proposed rule for 

our rational for changing the 

nonrenewal notification date to a date 

later than May 1. 

Comment: We received several 

comments concerning the proposed 

September 1 nonrenewal notification 

date. Several commenters believed that 

plans will have to incur significant 

expenditures prior to September 1 to 

prepare for the following calendar year, 

and that a September 1 date would 

require plans to incur expenditures that 

would not have been incurred before the 

existing May 1 nonrenewal notification 

date, in the event that we take action to 

nonrenew a plan. 

Response: We understand that MA 

organizations and Part D sponsors 

expend effort in preparing for the 

following contract year. Therefore, 

while we will not retain the existing 

May 1 nonrenewal notification date, we 

are revising our proposal and finalizing 

a notification date of August 1, instead 

of our proposed September 1 

notification date. 

We understand that MA organizations 

and Part D sponsors expend effort in 

preparing for the following contract 

year. Therefore, while we will not retain 

the existing May 1 nonrenewal 

notification date, we are responding to 

commenters’ concerns and revising our 

proposal and finalizing a notification 

date of August 1, instead of our 

proposed September 1 notification date. 

We believe that this is an appropriate 

compromise. While we appreciate 

commenters’ concerns, we believe we 

have a significant countervailing 

interest in moving the current May 1 

nonrenewal notification date to later in 

the calendar year. As we explained in 

the preamble to the proposed rule, these 

additional months will allow us to have 

access to significantly more information 

about plan performance, which will 

allow for more informed and educated 

decisions about MA organizations and 

Part D sponsors that have serious 

compliance problems and may be the 

subject of a nonrenewal determination. 

We believe that allowing for the 

opportunity to access this data will 

benefit both CMS and the MA 

organizations and Part D sponsors. 

Comment: Another commenter said 

that the September 1 date would not 

provide for enough time for beneficiary 

notification. 

Response: As explained above, we are 

finalizing a nonrenewal notification 

date of August 1, rather than September 

1 as we proposed. We believe this 

change is more likely to result in 

administrative appeals of CMS 

nonrenewal actions being completed in 

time to allow for 90 days notice of the 

nonrenewal to be provided to members 

and the general public prior to the end 

of the calendar year. 

Comment: One commenter requested 

clarification as to whether deficiencies 

could be cured after receiving the notice 

of an intent to nonrenew. The 

commenter stated that a September 1 

date would not give enough time for an 

organization to make necessary changes 

to come into compliance for the next 

contract year. This commenter also 

expressed concern about the inability of 

a plan to participate in the program for 

the following year because of the 

timeframes associated with Corrective 

Action Plans (CAPs) and appeal rights, 

potentially rendering a plan’s appeal 

rights moot. 

Response: We believe comments 

related to plan participation in the 

following calendar year based on CAP 

submission dates reflect a 

misunderstanding of our proposals in 

the proposed rule. We clarified in our 

proposed rule that we will offer plans 

an opportunity to submit an acceptable 

CAP prior to notifying them of our 

intent to nonrenew or terminate their 

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contract. If an acceptable CAP is 

submitted to us, we will not take action 

to nonrenew or terminate the sponsor or 

organization’s contract. Once a sponsor 

or organization receives a nonrenewal 

notification from us (or a termination 

notice), the sponsor or organization is 

not entitled to an additional opportunity 

to submit another CAP. We will not be 

required to provide any additional time 

for a MA organization or Part D sponsor 

to come into compliance or cure 

deficiencies once we have notified a 

sponsor or organization of our intent to 

nonrenew (or terminate) its contract. We 

proposed this clarification in an effort to 

streamline the CAP and nonrenewal 

process. We have added additional 

language at § 422.506, § 422.510, 

§ 423.507, and § 423.509 to expressly 

clarify that the opportunity to submit an 

acceptable CAP is afforded to a MA 

organization or Part D sponsor prior to 

our decision to nonrenew or terminate 

a contract. 

With respect to the comment 

regarding ongoing administrative 

appeals, if a MA organization or Part D 

sponsor is in the process of appealing a 

nonrenewal or termination, and the 

appeal process has not been concluded, 

the organization will be able to 

participate in the program the following 

calendar year until such time during the 

following calendar year as the appeals 

process is concluded and appropriate 

notice is provided to beneficiaries. 

Therefore, appeal rights will not be 

moot. 

Comment: Several commenters 

believed that the September 1 date 

would place an undue burden on 

pharmacies to join plan provider 

networks and the commenters 

recommended that we provide some 

sort of contingent renewal notice for 

organizations and sponsors to send to 

providers for the following year. 

Response: MA organizations and Part 

D sponsors who have not received a 

request for a CAP from us as a result of 

deficiencies are not in jeopardy of 

receiving a nonrenewal notification, 

making the need for a contingent 

nonrenewal notice unnecessary. 

Furthermore, as explained above, we are 

changing the proposed September 1 

nonrenewal notification date to August 

1, affording pharmacies an additional 

month to make network decisions. 

We proposed redesignating 

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

redesignating § 423.507(b)(3) as 

§ 423.507(b)(4). We proposed adding a 

new paragraph at § 422.506(b)(3) and 

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

CAP process for nonrenewals. The Act 

requires us to provide MA organizations 

and Part D plan sponsors with a 

reasonable opportunity to develop a 

CAP prior to terminating a contract, 

either through the termination process 

or the nonrenewal process. The CAP 

process for nonrenewals would be the 

same process as we proposed for 

terminations. We proposed a more 

defined process than currently exists 

and we proposed a process and 

timeframes for the submission and 

review of CAPs. Our proposal clarified 

that, in the future, once we issue a 

nonrenewal notice or a termination 

notice, the MA organization or Part D 

plan sponsor will not be entitled to an 

opportunity to submit a CAP. We will 

provide that opportunity to 

organizations and sponsors prior to 

issuing a notice of intent to nonrenew 

or terminate a contract. MA 

organizations and Part D plan sponsors 

should take very seriously any request 

from us to develop and implement a 

CAP since a failure to fully comply may 

result in a nonrenewal or termination 

action. 

Comment: One commenter questioned 

whether the termination and CAP 

process applied to all contract years and 

if the termination would be retroactive 

to the beginning of a plan contract. 

Response: The most recent finding of 

deficiencies and the request for a CAP 

would be relied upon to support a 

termination or other contract 

determination. Prior CAPs may provide 

additional information to us and 

support for our action if the MA 

organization or Part D sponsor has had 

continued compliance problems that 

have not been resolved, but would not 

be the basis of a contract determination 

if the prior CAPs have been accepted by 

us and implemented to our satisfaction. 

A termination action would affect the 

existing contract with us. Given that we 

have already adopted automatically 

renewable multi-year contracts, failure 

to substantially carry out a contract term 

necessarily would apply to the entire 

term of the contract (that is, the life of 

the contract). Part D and MA contracts 

are evergreen, so the existing contract is 

not just the current calendar year’s 

contract, but is a continuing contract 

that existed during prior calendar years 

(assuming the Part D sponsor or MA 

organization participated in the program 

in prior calendar years). 

We proposed time limits at 

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

the development and implementation of 

a CAP. We proposed to provide the MA 

organization or Part D plan sponsor 45 

days in which to submit a CAP to us. 

If we find that the CAP is unacceptable, 

the MA organization or Part D plan 

sponsor would have an additional 30 

days to revise and resubmit the CAP. If 

we then find the CAP acceptable, we 

would provide the MA organization or 

Part D plan sponsor with a deadline by 

which the CAP must be implemented. If 

we find that the second version of the 

CAP is unacceptable, we would be 

under no obligation to accept further 

revisions to the CAP and would have 

the discretion to proceed directly to 

issuing a notice of nonrenewal to the 

MA organization or Part D plan sponsor. 

Comment: One commenter requested 

clarification on whether the timeframe 

is measured in business or calendar 

days. The commenter requested that we 

leave open lines of communication with 

organizations with respect to working to 

develop acceptable CAPs. The 

commenter was concerned that there 

would only be one chance to provide an 

acceptable CAP. 

Response: We are clarifying here, and 

at §§ 422.506(3) and 423.507(3), that the 

CAP timeframes are measured in 

calendar days. We will provide MA 

organizations and Part D sponsors two 

opportunities to submit acceptable 

CAPs. Prior to requesting a CAP, or 

simultaneous with a request for a CAP, 

we will inform the MA organization or 

Part D sponsor about the deficiencies 

that must be addressed and corrected. If 

the first CAP submission is 

unacceptable to us, we will inform the 

MA organization or Part D sponsor as to 

what is unacceptable. The MA 

organization or Part D sponsor will then 

have a second opportunity to submit an 

acceptable CAP. 

It is our intent to assist plans in 

submitting acceptable CAPs, while 

implementing a limit on the number of 

CAP submissions in order to bring some 

closure to this process when Part D 

sponsors or MA organizations are 

unable or unwilling to bring their 

organizations into compliance with our 

requirements. Aside from the 

clarification explained above regarding 

the use of calendar days, we are 

finalizing our proposed processes and 

timeframes for the submission and 

review of CAPs as proposed. 

Sections 422.510 and 423.509—

Termination of Contract by CMS 

We proposed revising § 422.510(a)(1) 

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

bases for contract termination. The 

existing provision states that we may 

terminate an MA organization or Part D 

plan sponsor’s contract with us if the 

MA organization or Part D plan sponsor 

‘‘failed substantially to carry out the 

terms of its contract with CMS.’’ We 

proposed language to clarify that we 

may terminate an MA organization or 

Part D plan sponsor’s contract if the 

organization substantially failed to carry 

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out the terms of its contract with us 

during the current calendar year or for 

a prior calendar year. This clarification 

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

the Act, which states that a contract 

must be for a period of at least 1 year 

with the contract being automatically 

renewable from term to term (that is, 

calendar year to calendar year), absent 

notice from either party of an intent to 

terminate the contract at the end of the 

current term. Given that we have 

already adopted automatically 

renewable multi-year contracts, failure 

to substantially carry out a contract term 

necessarily would apply to the entire 

term of the contract (that is, the life of 

the contract). 

We have made a minor change to the 

regulatory text at §§ 422.510(a)(1) and 

423.509(a)(1) to clarify our proposal. 

The change is a technical edit to 

accurately reflect the multi-year nature 

of our contracts with MA organizations 

and Part D sponsors. 

We proposed revising § 422.510(b) 

and § 423.509(b) introductory text and 

revising the paragraph heading for 

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

delete the term ‘‘immediate’’ and 

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

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

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

expedited termination would take effect 

on a date specified by us. According to 

the existing regulations, an immediate 

termination takes effect once the MA 

organization or Part D plan sponsor 

receives notice that we intend to 

immediately terminate the plan’s 

contract with us and a plan’s enrollees 

are automatically disenrolled from the 

plan on the date such notice is received. 

The proposed change will provide 

greater protection for Medicare 

beneficiaries because we would have 

time between notifying a plan of an 

expedited termination decision and the 

actual date of termination to provide 

enrollees of the MA or Part D plan with 

enough information to enroll in another 

plan. We are finalizing this proposal 

without change. 

Comment: We received a 

recommendation that we auto-enroll 

beneficiaries into another plan for 

seamless continuity of care, provided 

the beneficiary was able to make 

another health care choice. Another 

commenter felt that the effective date 

should be made in consultation with the 

terminated plan to better meet the needs 

of beneficiaries. 

Response: We will take actions to 

ensure beneficiaries are protected and 

that continuity of care is a priority in 

our planning for all termination actions. 

We are not addressing beneficiary autoenrollment in regulation since it is an 

operational issue. We have considered 

the suggestion that we involve the 

terminated plan in determining the 

effective date of the termination but 

believe that we are in the best position 

to determine the effective date of the 

termination. Determining the effective 

date of an expedited termination is a 

decision that should be made solely by 

us. We are finalizing the provision as 

proposed. 

Comment: A few commenters did not 

believe we should be able to terminate 

a contract based on deficiencies during 

prior years. Commenters also stated that 

deficiencies that have been cured 

should not be the basis for a contract 

termination. 

Response: We clarify here that failure 

to carry out contract terms means the 

MA organization or Part D sponsor is 

not currently in compliance. The failure 

to be in compliance currently may be a 

continuation of a failure to be in 

compliance in the previous year and/or 

the result of an incident(s) that occurred 

during the prior year or years. For 

example, a notice of intent to terminate 

provided to an organization in February 

of the current year might be based on 

the organization failing to provide an 

acceptable CAP for an audit that 

occurred in December of the previous 

year. In addition, the deficiencies found 

in December of the previous year may 

be unresolved deficiencies from a prior 

audit, never having been cured. We 

need the ability to look into previous 

contract terms for uncured deficiencies. 

We proposed the ability to terminate a 

contract based on current, open 

deficiencies, no matter how long they 

have been open deficiencies. It is not 

our intent to terminate a contract based 

on deficiencies that have been, and 

remain, cured. 

Comment: One commenter 

recommended an expedited hearing 

process for expedited terminations. 

Response: The current regulations 

provide for a hearing process to occur 

after an immediate, proposed expedited, 

termination has occurred. Current 

regulations do not provide for an 

expedited appeals process. Our 

proposed changes to the appeals process 

do not provide for an expedited appeals 

process. We do not believe an expedited 

appeals process is warranted. However, 

we note that eliminating the 

reconsideration process for all contract 

determinations, as we have proposed 

and are finalizing, will have the effect 

of accelerating the appeals process for 

all contract determinations. We are 

finalizing this provision as proposed. 

Comment: One commenter requested 

guidance or examples of what we 

consider to be ‘‘imminent and serious 

risk to enrollees.’’

Response: We do not wish to provide 

examples of what ‘‘imminent and 

serious risk to enrollees’’ might entail 

because of the complexities of each and 

every expedited termination that may 

take place. Each case is different and we 

do not feel that past examples will 

necessarily help plans in preventing 

future expedited terminations. 

We also proposed to clarify that we 

are able to invoke the expedited 

termination process when a 

determination regarding an MA 

organization is made according to 

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

state that we invoke the current 

immediate termination process when a 

determination is made according to 

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

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

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

basis for an expedited termination for 

MA organizations, the grounds for 

expedited terminations would be 

identical for the MA and Part D 

programs. The addition of 

§ 422.510(a)(5) would provide 

consistency between the Part C 

regulations and the Part D regulations. 

Comment: One commenter did not 

agree that expedited terminations 

should be based on instances where an 

MA organization or Part D sponsor 

provides ‘‘false’’ data without any 

fraudulent intent or knowledge that 

false data was provided. The commenter 

believes that expedited terminations 

should be reserved for instances of 

beneficiary harm and intentional fraud. 

Response: We proposed in the Part C 

regulations, at 422.510, that the 

submission of false data may serve as 

the basis for an immediate termination 

(proposed name change to expedited 

termination) to correlate with existing 

Part D regulations. Our ability to 

immediately terminate based on the 

submission of false data has already 

been subject to notice and comment 

during the comment period for the 

existing Part D regulations. We now 

proposed this change to the Part C 

regulations to ensure that the Part C and 

Part D regulations mirror each other 

where appropriate. We believe that this 

change is necessary to ensure the 

integrity of the Part C program and to 

continue to ensure that conduct under 

both the Part C and Part D programs is 

handled similarly. Therefore, we are 

finalizing our proposal without 

modification. 

We proposed to amend our 

procedures at § 422.510(c) and 

§ 423.509(c) to more clearly define the 

process for the submission and review 

of CAPs prior to a termination action. 

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The Act requires us to provide MA 

organizations and Part D plan sponsors 

with a reasonable opportunity to 

develop and implement a CAP before 

we terminate the organization or 

sponsor’s contract. The CAP process we 

proposed is the same process for 

nonrenewals outlined above and which 

we proposed at § 422.506 and § 423.507, 

providing for a more structured process 

and timeframes for the development and 

implementation of a CAP. We received 

comments concerning CAPs as applied 

to terminations, and have addressed 

them above in §§ 422.506 and 423.507, 

given that the CAP process is identical 

for nonrenewals and terminations. 

Subpart N—Medicare Contract 

Determinations and Appeals 

We proposed revisions to subpart N of 

42 CFR part 422 and 42 CFR part 423 

to coordinate and improve the contract 

determination and appeals processes for 

MA organizations and Part D plan 

sponsors. We proposed eliminating the 

reconsideration process for appeals of 

all types of contract determinations. We 

also proposed to make the appeals 

process consistent for all three types of 

contract determinations (terminations, 

nonrenewals, and decisions by us not to 

enter into a contract with an applicant). 

In addition, we proposed that the MA 

organization or Part D plan sponsor 

have the burden of proof in appealing a 

contract determination. Please see the 

proposed rule for a more detailed 

explanation of our proposals. 

Sections 422.644 and 423.642—Notice 

of Contract Determination 

We proposed to make conforming 

changes to § 422.644(b)(2) and 

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

we are making to the immediate 

termination process. Consistent with the 

proposed revisions we have previously 

described, we proposed to revise 

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

that we would determine the effective 

date of an expedited termination. We 

also proposed adding § 422.510(a)(4) as 

a basis for which we may undertake an 

expedited termination. We are finalizing 

these provisions as proposed. 

We also proposed to revise the 

provisions at § 422.644(d) and 

§ 423.642(d) to conform to the proposed 

change previously described whereby 

we would provide notice of nonrenewal 

to MA organizations or Part D plan 

sponsors by September 1, rather than 

the current May 1. Please see above for 

a discussion of nonrenewal notification 

dates. We are finalizing these proposals 

with a modification to reflect the fact 

that we are finalizing the nonrenewal 

notification date as August 1, rather 

than September 1 as we proposed. 

Sections 422.646 and 423.643—Effect of 

Contract Determination 

We proposed making conforming 

changes to the provisions at § 422.646 

and § 423.643 to reflect our proposal to 

eliminate the reconsideration process. 

The current regulations state that a 

contract determination is final unless an 

MA organization or Part D plan sponsor 

requests reconsideration. Since we 

proposed eliminating the 

reconsideration process, we also 

proposed a conforming change to 

indicate that a contract determination 

would be a final decision unless a 

timely request for a hearing is filed. 

Comment: One commenter felt that 

eliminating a step for ‘‘informal 

collaboration’’ with us would create a 

process that is not in the best interest of 

beneficiaries. The commenter stated that 

by eliminating the reconsideration 

process, we appear to be eliminating 

opportunities to remedy potential 

problems prior to taking a formal 

contract action. 

Response: We have reviewed the 

comment and have decided to finalize 

our proposal without modification. The 

commenter seems to be under the 

impression that the existing 

reconsideration process is an informal, 

collaborative process which provides 

the organization with another 

opportunity to come into compliance 

with our requirements. The commenter 

is misinformed about the nature of the 

current reconsideration process. The 

reconsideration is the first formal step 

in the administrative appeals process for 

organizations. The time for informal 

collaboration is prior to the 

commencement of an appeal, and prior 

to the seeking of reconsideration. 

Sections 422.660 and 423.650—Right to 

a Hearing and Burden of Proof 

We proposed conforming changes to 

the provisions at § 422.660(a) and 

423.650(a) to reflect our proposal to 

eliminate the reconsideration process. 

These provisions would state that if we 

determine that an applicant is not 

qualified to enter into a contract with us 

and the applicant chooses to appeal the 

determination, a hearing before a CMS 

hearing officer would be the first step in 

the appeal process. We proposed to 

make similar conforming changes to 

§ 422.660(b) and § 423.650(b), to 

indicate that a hearing before a CMS 

hearing officer would be the first step in 

appealing a nonrenewal determination 

or a termination decision. We did not 

receive any comments on these 

provisions and are revising them as 

proposed. 

We proposed to add a new provision 

at § 422.660(c) and at § 423.650(c) to 

clarify that the burden of proof would 

be on the MA organization or Part D 

plan sponsor at a hearing appealing a 

CMS contract determination. The MA 

organization or Part D plan sponsor 

must demonstrate that they were in 

compliance at the stated time by a 

preponderance of the evidence. We 

believe case law supports our decision 

to place the burden of proof on the 

affected party in an administrative 

hearing on a contract determination 

involving a Part D plan sponsor or MA 

organization. See Hillman 

Rehabilitation Center, DAB No.1611 

(1999), aff’d Hillman Rehabilitation 

Center v. U.S. No.98–3789 (GEB) (D.N.J. 

May 13, 1999). 

Comment: We received comments 

related to our effort to clarify that 

burden of proof is on the MA 

Organization or Part D sponsor. 

Commenters stated that the burden of 

proof should be on us, and not the 

organization or sponsor, since we are 

taking the contract action and that 

imposing the burden of proof on the 

organization or sponsor is contrary to 

traditional principles of jurisprudence 

and is unfair. One commenter suggested 

that if the burden is on the organization 

or sponsor, then there should be a 

rebuttable presumption of noncompliance with the organization or 

sponsor assuming the burden of proof to 

rebut the presumption on a going 

forward basis. The commenter stated 

that if the organization or sponsor 

submits at least colorable evidence of 

substantial compliance the burden of 

persuasion should shift to CMS to prove 

non-compliance by clear and 

convincing evidence. 

Another commenter stated that 

putting the burden of proof on the 

organization or sponsor effectively 

removes the organization or sponsor’s 

ability to self-regulate and come into 

compliance once the compliance issue 

has been identified. The commenter 

stated that the date of compliance must 

allow for entities to fix identified 

deficiencies and cure the deficiencies. 

Response: We have considered these 

comments and have determined that the 

proposed provision should be finalized 

without modification. Plans, following 

an audit, receive a report notifying the 

plan of any non-compliance. Following 

the report, plans have an opportunity to 

dispute the findings. For those 

compliance issues not related to formal 

audits, we continue to notify the plan 

about deficiencies of which we become 

aware, giving the plan an opportunity to 

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dispute the allegation. Whenever a plan 

is found to be non-compliant, we will 

request a CAP to cure the deficiencies. 

We are finalizing regulations that will 

provide a MA organization of Part D 

sponsor with an opportunity to submit 

an acceptable CAP before we decide to 

take contract action. It is important to 

understand that the date we notify an 

organization of our intent to take a 

termination or nonrenewal action is not 

the first time the organization learns 

that it is out of compliance with our 

requirements. 

In addition, we also proposed that the 

MA organization or Part D sponsor must 

demonstrate substantial compliance 

with the relevant MA or Part D plan 

requirements as of the earliest of the 

following dates: (1) The date the 

organization or sponsor received written 

notice of the contract determination; (2) 

the date of the most recent on-site audit 

conducted as the basis of the 

termination; (3) or the date of the 

alleged breach of the current contract or 

past substantial noncompliance as 

determined by CMS. 

Comment: We received a comment 

stating that the date of compliance 

should be the hearing date, not the 

earliest of the three dates proposed in 

the regulation. The commenter stated 

that using the earliest of the three dates 

violates due process. 

Response: We have reviewed the 

comment and do not believe requiring 

compliance at the earliest of the three 

dates violates due process. MA 

organizations and Part D sponsors are 

required to be in compliance at all 

times. If we used the hearing date as the 

date by which we measured 

compliance, we would have absolutely 

no way of disputing a MA organizations 

or Part D sponsor’s assertion that they 

are currently in compliance. Under no 

circumstance to we believe that the date 

for determining compliance should be 

after the date of termination 

notification. We are finalizing the 

proposal without modification. 

Sections 422.662 and 423.651—Request 

for a Hearing 

We proposed to revise § 422.662(b) 

and § 423.651(b) to conform to our 

proposed change to eliminate the 

reconsideration process. These 

provisions specify that a request for a 

hearing must be filed within 15 days 

after the date of the initial 

determination. We did not receive any 

comments on this provision and are 

adopting it as proposed. 

Sections 422.664 and 423.652—

Postponement of Effective Date of a 

Contract Determination When a Request 

for a Hearing Is Filed Timely 

We proposed to revise § 422.664 and 

§ 423.652 to postpone the effective date 

of a contract determination when an MA 

organization or Part D sponsor timely 

requests a hearing to appeal the contract 

determination. However, the 

postponement would not override the 

requirement that any final decision in 

favor of the plan or sponsor must be 

issued by July 15 for an initial contract 

to be effective for the upcoming year. 

Thus, if an organization’s application is 

not approved and the hearing officer’s 

decision is not provided until August, 

the applicant would not be able to have 

a contract for the next year. This is 

consistent with our current process. We 

do not currently postpone the effective 

date of termination in cases of 

immediate termination, and did not 

propose any change in policy with 

respect to expedited terminations. We 

did not receive any comments on this 

provision and are adopting it as 

proposed. 

Sections 422.670 and 423.655—Time 

and Place of Hearing 

We proposed revising § 422.670(a) 

and § 423.655(a), to require the hearing 

officer to send written notice to the 

parties specifying the general and 

specific issues to be resolved at the 

hearing, outlining the burden of proof 

and providing any information about 

the hearing procedures. In addition, the 

notice would inform the parties that 

they may conduct formal discovery. We 

did not receive any comments on this 

provision and are adopting it as 

proposed. 

Sections 422.682 and 423.661—

Discovery 

We proposed revising § 422.682 and 

§ 423.661, to clarify the scope of 

permissible discovery, and to require 

the hearing officer to conclude 

discovery and provide all documents to 

both the hearing officer and the 

opposing party at least 10 days prior to 

the hearing. We did not receive any 

comments on this provision and are 

adopting it as proposed. 

Sections 422.684 and 423.662—

Prehearing and Summary Judgment 

We proposed to amend the provisions 

at § 422.684 and § 423.662 (and revise 

the section heading accordingly) to 

permit the hearing officer to rule on a 

motion for summary judgment filed by 

either of the parties to the hearing. In 

ruling on such a motion, we propose 

that the hearing officer would be bound 

by CMS regulations and general 

instructions. Where no factual dispute 

exists, the hearing officer may make a 

decision on the papers, without the 

need for a hearing. We did not receive 

any comments on this provision and are 

adopting it as proposed. 

Sections 422.692 and 423.666—Review 

by the Administrator 

The existing regulations only 

explicitly permit Administrator review 

of a hearing officer’s decision in appeals 

of a contract termination. We clarify that 

this review is available for all appeals of 

CMS contract terminations, including 

decisions not to contract with an 

applicant and nonrenewals. 

We proposed revising the provisions 

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

us to request Administrator review of a 

hearing officer’s decision regarding a 

contract determination. The existing 

regulations permit only the MA 

organization or Part D sponsor to 

request Administrator review. In 

addition, we proposed to amend the 

same provisions to permit both the 

parties to submit written arguments to 

the Administrator. 

Comment: One commenter did not 

feel that we should be able to request an 

appeal to the Administrator. 

Response: We believe that we should 

have the right to request a review by the 

Administrator. We feel that appeal 

rights should be provided to both 

parties to provide for an equal 

opportunity to be heard by the 

Administrator. Therefore, we are not 

making any changes to the proposed 

regulations based on these comments. 

We proposed revising the provisions 

at § 422.692(b) and § 423.666(b), to 

permit the Administrator, upon receipt 

of a request for Administrator review, to 

accept or decline to review the hearing 

decision. The existing regulations 

require the Administrator to review the 

decision when a request for review is 

received. We believe that providing the 

Administrator with the discretion to 

accept or decline the request for review 

would lead to a more expeditious 

resolution of appeals of contract 

determinations. 

Comment: We received a comment 

stating that the Administrator failing to 

take action within 30 days authorizes an 

unstructured, unrecorded exercise of the 

Administrators decision that can hide 

unequal treatment which evades review. 

The commenter stated that the 

Administrator taking no action does not 

afford the plan the level of review of 

other plans in which the Administrator 

reviews the appeal. 

Response: We believe the 

Administrator has the authority to either 

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accept to review Hearing Officer 

decisions or to decline to review 

Hearing Officer decisions. This right is 

well-founded in current Provider 

Reimbursement Review Board policy. 

We are not making any changes to the 

proposed regulation as a result of this 

comment. 

We proposed redesignating 

§ 422.692(c) as § 422.692(e) and 

redesignating § 423.666(c) as 

§ 423.666(e). We proposed adding a new 

§ 422.692(c) and § 423.666(c), to require 

the Administrator to make a 

determination as to whether to accept or 

decline the request for review within 30 

days of the request of the review. The 

failure of the Administrator to make a 

determination within 30 days of the 

request would be treated as a decision 

to decline the request for review. We 

believe that providing this timeline 

assists all parties in reaching a final 

decision in an expeditious manner. We 

did not receive any comments on this 

provision and are adopting it as 

proposed. 

In addition, we proposed amending 

our existing regulations to add a new 

paragraph at § 422.692(d) and 

§ 423.666(d) which specifies that 

Administrator review is based on the 

hearing record and any written 

arguments submitted by the parties. 

However, review would not be based on 

any new evidence, such as evidence that 

was not before the hearing officer. We 

believe the specified sources provide a 

sufficient basis for the Administrator to 

make a determination. 

Comment: A commenter stated that 

Administrator review should not be 

limited to the record but should accept 

additional evidence. 

Response: The Administrator review 

does allow for each party to submit 

additional arguments, but the current 

regulation does not provide for 

additional evidence to be submitted. We 

feel that the hearing record is sufficient, 

with enough information provided for 

the Administrator to make a 

determination. Therefore, we are not 

making any changes to the proposed 

regulations based on these comments. 

Sections §§ 422.696 and 423.668—

Reopening of Initial Contract 

Determination or Intermediate Sanction 

or Decision of a Hearing Officer of the 

Administrator 

We proposed to revise the section 

headings for § 422.696 and § 423.668 

from ‘‘Reopening of a contract or 

reconsidered determination or decision 

of a hearing officer or the 

Administrator’’ to ‘‘Reopening of an 

initial contract determination or 

decision of a hearing officer or the 

Administrator’’ to conform to our 

proposed elimination of the 

reconsideration process described 

above. We did not receive any 

comments on this provision and are 

adopting it as proposed. 

Sections §§ 422.698 and 423.669—Effect 

of Revised Determination 

We proposed a conforming change to 

reflect our proposed elimination of the 

reconsideration process by removing in 

its entirety § 422.698 and § 423.669, 

‘‘Effect of revised determination.’’ We 

did not receive any comments on this 

provision and are adopting it as 

proposed. 

Subpart O—Intermediate Sanctions 

We proposed several changes to our 

regulations in Subpart O—Intermediate 

Sanctions in 42 CFR Part 422 and 42 

CFR Part 423, to clarify our policies and 

procedures for imposing intermediate 

sanctions and Civil Money Penalties 

(CMPs) on MA organizations and Part D 

sponsors. Specifically, we proposed to 

modify the appeals procedures for 

intermediate sanctions and clarify 

which set of procedures affected parties 

should use to appeal a CMP. 

General Comments: 

Comment: We received a few 

comments concerning bifurcated 

hearings for intermediate sanctions and/ 

or CMPs. The commenters felt that one 

hearing should be used for both CMS 

imposed intermediate sanctions or 

CMPs and OIG imposed CMPs. 

Another commenter expressed 

concern that there is no explanation as 

to when both CMS and OIG may impose 

CMPs based upon the same set of facts. 

The commenter stated that only in the 

most egregious cases should both CMS 

and the OIG impose CMPs. 

Response: Appeals of CMS 

intermediate sanctions or CMPs and 

OIG imposed CMPs are governed by 

different regulatory processes and 

therefore cannot be combined in one 

hearing. In addition, CMS and OIG may 

impose sanctions/CMPs under different 

and independent authorities. The 

regulations currently provide for both 

OIG and CMS to impose sanctions on 

the same set of facts. We have 

considered the comment and are not 

making any changes to the regulations. 

Sections §§ 422.750 and 423.750—

Types of Intermediate Sanctions and 

Civil Monetary Penalties 

We proposed reorganizing § 422.750 

and § 423.750, to distinguish the three 

different types of intermediate sanctions 

from CMPs. We also proposed to clarify 

that each of the three intermediate 

sanctions, (suspension of enrollment, 

suspension of payment, and suspension 

of marketing) would remain in effect 

until we are satisfied that the reasons for 

the initial suspensions have been 

corrected and are not likely to reoccur. 

This revision reflects our current policy 

and practice. 

Comment: We received a comment 

stating that the suspension of all 

marketing activities is too severe for 

‘‘noncompliant behavior.’’ The 

commenter stated that the suspension 

should only be for the particular MA or 

Part D plan that is non-compliant. 

Response: We are revising 

§ 422.750(a) and § 423.750(a) to clarify 

that the marketing sanctions will be 

imposed only on CMS-specified plans. 

We did not intend to expand the scope 

of the sanction with our proposed 

change. Therefore, we have changed the 

proposed regulatory language to be 

consistent with the existing provisions. 

For clarity, we proposed specifying at 

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

may impose CMPs in the dollar amounts 

specified in § 422.760 and § 423.760. We 

proposed to remove the prior reference 

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

the range of CMPs because it is 

confusing. We did not receive any 

comments on this provision and are 

adopting it as proposed. 

Sections §§ 422.752 and 423.752—Basis 

for Imposing Intermediate Sanctions 

and Civil Money Penalties 

At § 422.752 and § 423.752, we 

proposed to reorganize the regulation to 

clarify the breakdown of responsibility 

between CMS and the OIG for imposing 

intermediate sanctions and CMPs based 

on the type of violation involved. 

Specifically, we clarify that CMS may 

impose a suspension of enrollment, 

payment, or marketing on an MA 

organization or Part D sponsor for 

violations specified in § 422.752(a)(1) 

through (a)(8) and for violations 

specified in § 423.752(a)(1) through 

(a)(6). 

As part of the reorganization to the 

regulation, we also proposed to add a 

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

clarify that in addition to the 

intermediate sanctions, we continue to 

have authority to impose CMPs for 

contract determinations made under 

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

as specified in § 422.752(c)(2) and 

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

have sole authority to impose CMPs for 

any determinations concerning the MA 

organization or the Part D sponsor 

committing or participating in false, 

fraudulent, or abusive activities 

affecting the Medicare program, 

including the submission of false or 

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fraudulent data, as stated in 

§ 422.510(a)(4) and § 423.509(a)(4). We 

did not receive any comments on this 

provision and are adopting it as 

proposed. 

Sections §§ 422.756 and 423.756—

Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

At § 422.756 and § 423.756, we 

proposed to eliminate the existing 

informal reconsideration process used 

for review of a decision by CMS to 

impose an intermediate sanction, and 

allow an MA organization or Part D 

sponsor to proceed directly to a hearing, 

pursuant to the same procedures used to 

appeal contract determinations in 

Subpart N. (See § 422.660 through 

§ 422.698 and § 423.650 through 

§ 423.669.) We believe it would be more 

efficient and effective to allow the MA 

organization or Part D sponsor to 

proceed to a hearing in appealing an 

intermediate sanction. We note that a 

request to appeal an intermediate 

sanction before a hearing officer does 

not delay the intermediate sanction 

from taking effect on the date specified 

in the sanction notice. We did not 

receive any comments on this provision 

and are adopting it as proposed. 

Because we proposed to eliminate the 

informal reconsideration process, we 

proposed that an MA organization or 

Part D sponsor have an opportunity to 

present information to us that may affect 

our decision to impose an intermediate 

sanction prior to the sanction taking 

effect. We recognize there may be 

occasions when we receive information 

that we previously did not have when 

making a decision to impose an 

intermediate sanction. Therefore, we 

proposed that MA organizations and 

Part D sponsors have an opportunity to 

submit a written rebuttal statement as 

specified at § 422.756(a)(2) and 

§ 423.756(a)(2), and to require the 

rebuttal statement be provided to us 

within ten (10) calendar days after the 

MA organization or sponsor receives 

notice of the intermediate sanction. The 

10 calendar days begin the day after the 

notice of intermediate sanction is 

mailed to the plan. A notice of 

intermediate sanction is sent by 

overnight mail and by e-mail or fax. 

In some cases we may decide to take 

multiple actions, for example, contract 

termination, intermediate sanction, or 

CMP, against an MA organization or 

Part D sponsor. We proposed to have the 

appeals of CMPs go to an ALJ while the 

appeals of other actions, such as an 

intermediate sanction or a termination, 

will be before a CMS hearing official. 

Although the same underlying conduct 

may be the basis for both actions we 

believe that the separate processes 

would result in more consistent 

decision making by hearing officers and 

ALJs. We did not receive any comments 

on this provision and are adopting as 

proposed. 

In addition, in preparing this final 

rule with comment period, we 

recognized that we inadvertently 

omitted some corresponding revisions 

to the existing regulatory text. These 

changes are necessary to implement the 

policies that we articulated in the 

proposed rule and are finalizing here. 

Specifically, we are revising 

§ 422.756(c) and § 423.756(c) to reflect 

the fact that we have eliminated the 

reconsideration process and that an 

intermediate sanction imposed by CMS 

will go into effect on the date specified 

in the notice (15 days after the date of 

notification) and a reconsideration, or 

now an appeal to a hearing officer, will 

not delay the effective date of the 

sanction. See page 29379 of the 

proposed rule. We are also revising 

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

the fact that we have eliminated the 

reconsideration process, that an appeal 

will not delay the effective date of the 

sanction, and that where the exception 

at § 422.756(d)(2) or § 423.756(d)(2) 

applies, CMS may make the sanction 

effective on a specified date prior to 15 

days after the date of notification. The 

changes to § 422.756(d)(2) and 

§ 423.756(d)(2) are consistent with our 

existing authority. We interpret the 

existing provisions to allow us to make 

a sanction effective at any time when 

there is a serious threat to an enrollee’s 

health and safety, including prior to 15 

days after notification. It is critical that 

we continue to have the ability to 

protect the interests of Part C and D 

enrollees by taking immediate action in 

some cases. 

In addition, upon review, we realized 

that some typographical corrections to 

the proposed regulatory text at 

§ 423.756(f) were necessary. 

Specifically, in the proposed rule, we 

realized that we had typographical 

errors at § 423.756(f)(2) and (f)(2)(v). We 

have corrected the cross-reference to 

§ 423.509(c)(1) and replaced it with a 

cross-reference to § 423.752(c)(1). We 

have also replaced the reference at 

(f)(2)(v) to § 423.650 with a reference to 

Subpart T since those are now the 

appeals provisions that govern appeals 

of CMPs. 

Sections §§ 422.758 and 423.758—

Collection of Civil Money Penalties 

Imposed by CMS 

At § 422.758 and § 423.758 we 

proposed to revise the section heading 

‘‘Maximum amount of civil money 

penalties imposed by CMS’’ to read 

‘‘Collection of civil money penalties 

imposed by CMS.’’ In addition, we 

proposed to revise § 422.758 and 

§ 423.758. Specifically, we proposed 

that we would initiate collection of the 

CMPs if the MA organization or Part D 

sponsor does not timely request a 

hearing, or if our decision to impose a 

CMP is upheld by an ALJ. We did not 

receive any comments on this provision 

and are adopting as proposed. 

Sections §§ 422.760 and 423.760—

Determinations Regarding the Amount 

of Civil Money Penalties and 

Assessment Imposed By CMS 

We proposed redesignating the 

existing § 422.760 as § 422.764 and 

redesignating the existing § 423.760 as 

§ 423.764 because in this rule we have 

explicitly outlined the CMP appeals 

procedures in proposed subpart T in 

parts 422 and 423. 

We proposed adding a new § 422.760 

and § 423.760 to clarify that we use the 

statutory factors in section 1128(A) of 

the Act in determining the appropriate 

amount of civil money penalties or 

assessments to impose on an MA 

organization or Part D sponsor. These 

factors, if applicable, include the nature 

of the conduct, the degree of culpability, 

the prior history of offenses, the 

financial condition of the MA 

organization or Medicare Part D sponsor 

presenting the claims, and other matters 

as fair administration may require. 

These factors are based on the same 

statutory factors used in other Medicare 

enforcement programs, including the 

nursing facility enforcement context. 

We also proposed to clarify, in 

§ 422.760(b) and § 423.760(b), the 

amounts that may be assessed for CMPs 

that we impose. 

Comment: We received a comment 

stating that we should provide for 

additional mitigating factors that would 

affect the penalty determination as a 

result of the MA organization or Part D 

sponsor’s noncompliance/deficiencies. 

The commenter suggested that we 

review mitigating factors such as the 

corrective action that the organization 

has taken and the nature and extent to 

which the organization has cooperated 

with CMS. 

Response: We have reviewed the 

comment and believe that consideration 

of mitigating factors is already included 

in the proposed provision. We state that 

factors that may be reviewed include the 

degree of culpability of the MA 

organization, the history of the prior 

offenses by the organization and other 

matters as justice may require. We 

believe these proposed factors provide 

sufficient opportunity for us to adjust 

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sanctions as warranted. We are 

finalizing our proposal without 

modification. 

Sections §§ 422.762 and 423.762—

Settlement of Penalties 

We proposed to add a new § 422.762 

and § 423.762 to clarify that in 

accordance with section 1128A(f) of the 

Act, we have the authority to settle 

CMPs imposed by us. This provision 

would make it explicit that the parties 

may agree to settle the dispute instead 

of litigating an appeal. We did not 

receive any comments on this provision 

and are adopting as proposed. 

Sections §§ 422.764 and 423.764—Other 

Applicable Provisions 

We proposed to redesignate § 422.760 

and § 423.760 as § 422.764 and 

§ 423.764 respectively to conform to the 

changes proposed at the new § 422.760 

and § 423.760. No substantive changes 

to the text were proposed. We did not 

receive any comments on this provision 

and are adopting it as proposed. 

Subpart T—Appeal Procedures for Civil 

Money Penalties 

We proposed to reserve subparts P, Q, 

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

proposed to add a new subpart T in Part 

422 and Part 423, respectively. These 

new subparts would outline the CMP 

appeal procedures for MA organizations 

and Part D sponsors. 

Our current MA and Part D 

regulations do not specify which 

procedures an MA organization or Part 

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

two programs. The regulations at 42 

CFR part 422.760 and 42 CFR part 

423.760 state only that the provisions of 

section 1128A of the Act (except 

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

under this subpart to the same extent 

that they apply to a CMP or procedure 

under section 1128A of the Act. Nor 

have we issued any guidance directing 

parties to the appropriate appeals 

procedures for MA and Part D CMPs. 

Therefore, to ensure a consistent 

approach in this area, we proposed 

incorporating appeals procedures for 

parties to use when appealing a CMP 

imposed under the MA or Part D 

program in a new subpart T in Parts 422 

and 423 respectively. 

Based on certain statutory 

requirements and policy considerations, 

we proposed to adopt CMP appeals 

procedures almost identical to those in 

part 498 of Title 42, which are used by 

certain Medicare providers and 

suppliers to challenge adverse agency 

enforcement decisions. Part 498 sets 

forth the rules for administrative and 

judicial review of CMS determinations 

that affect participation in the Medicare 

and Medicaid programs for a wide array 

of medical providers of services. These 

rules, issued on June 12, 1987 (52 FR 

22446), have been used by CMS for 

more than 20 years and provide 

established appeals procedures for 

various types of adverse agency 

determinations, including civil money 

penalties imposed on nursing facilities. 

For numerous reasons laid out in the 

proposed rule, we believe the part 498 

appeals procedures are the most 

appropriate procedures to use for 

hearing disputes involving a wide range 

of violations. We did not receive any 

comments on this provision and are 

generally adopting it as proposed. We 

are making a technical revision to 

remove proposed paragraphs 

§ 422.1004(a)(2) and (a)(3), and 

§ 423.1004(a)(2) and (a)(3) because they 

were inadvertently retained from the 

part 498 procedures. 

While the statute authorizing CMPs in 

the MA and Part D programs requires 

the provisions of section 1128A of the 

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

to apply to MA and Part D CMP 

proceedings, it does not require that 

section 1128A’s provisions apply to 

other CMP appeals procedures in the 

exact same manner, or without some 

consideration for the MA or Part D 

program’s unique characteristics. In fact, 

section 1857(g)’s ‘‘same manner’’

language appears throughout the Act 

and serves as the statutory basis for 

several different types of CMP 

enforcement and appeals procedures. 

Because program violations may vary by 

the type and nature of the violation, we 

have modified our CMP appeal 

procedures when necessary. Since the 

MA and Part D programs differ from the 

nursing facility program, we proposed 

modifying certain sections of part 498 to 

take into account some of these 

differences. 

For example, we proposed removing 

the reconsideration step in the MA and 

Part D CMP appeals procedures since 

this step in part 498 only applies to 

initial determinations made for 

prospective providers entering the 

Medicare or Medicaid program and is 

not applicable to CMP appeals. 

Removing the reconsideration step in 

subpart T would also help expedite the 

CMP appeals process. 

Since it is not clearly stated in part 

498’s regulations, we proposed to make 

explicit in our regulations that in a 

hearing of a CMP appeal before an ALJ 

or the Departmental Appeals Board 

(DAB), the ultimate burden of 

persuasion would rest on the MA 

organization or Part D sponsor. See the 

proposed rule for instances when the 

DAB has held that in a provider 

termination proceeding by the 

Secretary, the facility bears the ultimate 

burden of proving it is in compliance 

with program requirements (Hillman 

Rehabilitation Center, DAB No.1611 

(1999), aff’d Hillman Rehabilitation 

Center v. U.S. No.98–3789 (GEB) (D.N.J. 

May 13, 1999)). We believe the 

administrative caselaw supports our 

decision to place the burden of proof on 

the affected party in an administrative 

hearing on the imposition of MA and 

Part D CMPs. We did not receive any 

comments on this provision and are 

finalizing it as proposed. 

III. Provisions of the Final Rule With 

Comment Period 

In this final rule with comment 

period, we are adopting the provisions 

as set forth in the May 25, 2007 

proposed rule with the following 

revisions: 

Amend § 422.2, ‘‘Definitions,’’ by—

• Revising the proposed definition of 

the term ‘‘downstream entity’’ to read as 

follows: Downstream entity means any 

party that enters into a written 

arrangement, acceptable to CMS, with 

persons or entities involved with the 

MA benefit, below the level of the 

arrangement between an a MA 

organization (or applicant) and a first 

tier entity. These written arrangements 

continue down to the level of the 

ultimate provider of both health and 

administrative services. 

Amend § 422.503 ‘‘General 

Provisions’’ by—

• Revising proposed paragraph 

(b)(4)(vi)(G)(3) to read as follows: The 

MA organization should have 

procedures to voluntarily self-report 

potential fraud or misconduct related to 

the MA program to CMS or its designee. 

Amend § 422.504 ‘‘Contract 

provisions’’ by—

• Revising proposed paragraph (e)(2) 

for clarity. 

• Revising proposed paragraph 

(i)(2)(i) for clarity. 

• Revising paragraphs (i)(3) 

introductory text, (i)(3)(ii), and (i)(3)(iii) 

for clarity, and by deleting the term 

‘‘providers.’’

• Revising paragraph (i)(4) 

introductory text by deleting the phrase 

‘‘provider or.’’

Amend § 422.506 by—

• Revising proposed paragraph 

(b)(2)(i) to make the date of notice of 

nonrenewal by CMS August 1. 

• Revising proposed paragraph 

(b)(3)(i) to clarify that a MA organization 

will have an opportunity to submit a 

corrective action plan (CAP) prior to 

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68718 Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 

CMS providing a notice of intent to 

nonrenew. 

• Revising proposed paragraphs 

(b)(3)(i) and (b)(3)(ii) to clarify that CAP 

submission deadlines are measured in 

calendar days. 

Amend § 422.510 ‘‘Termination of 

contract by CMS’’ by—

• Revising proposed paragraph (a)(1) 

for clarity. 

• Revising proposed paragraph (c)(1) 

to clarify that MA organizations will 

have the opportunity to submit a CAP 

before CMS notifies them of an intent to 

terminate. 

Amend § 422.644 by—

• Revising proposed paragraph (d) to 

clarify that a CMS notice of an intent to 

nonrenew will be sent to a MA 

organization by August 1. 

Amend § 422.750 by—

• Revising proposed paragraph (a)(3) 

to clarify that suspension of all 

marketing activities to Medicare 

beneficiaries by an MA organization 

applies only to specified MA plans. 

Amend § 422.752 by—

• Revising proposed paragraph (c)(2) 

to reference section 1003 of chapter V of 

this title. 

Amend § 422.756 by—

• Revising paragraph (c) to reflect the 

fact that we have eliminated the 

reconsideration process, and that an 

intermediate sanction imposed by CMS 

will go into effect on the date specified 

by the notice, and that an appeal will 

not delay the effective date of the 

sanction. 

• Revising paragraph (d) to reflect the 

fact we have eliminated the 

reconsideration process, that an appeal 

will not delay the effective date of the 

sanction, and that where the exception 

at § 422.756(d)(2) applies, CMS may 

make the sanction effective on a 

specified date prior to 15 days after the 

date of notification. 

Amend § 422.1004 by—

• Deleting proposed paragraphs (a)(2) 

and (a)(3). 

• Redesignating paragraph (a)(1) as 

paragraph (a). 

Amend § 422.1070, ‘‘Removal of 

hearing to Departmental Appeals 

Board,’’ by—

• Revising paragraph (a) to correct a 

typographical error. The revised 

paragraph now reads: ‘‘At any time 

before the ALJ receives oral testimony, 

the Board may remove to itself any 

pending request for a hearing.’’

Amend § 423.4, ‘‘Definitions,’’ by—

• Revising the proposed definition of 

the term ‘‘downstream entity’’ to read as 

follows: Downstream entity means any 

party that enters into a written 

arrangement, acceptable to CMS, with 

persons or entities involved with the 

Part D benefit, below the level of the 

arrangement between a Part D plan 

sponsor (or applicant) and a first tier 

entity. These written arrangements 

continue down to the level of the 

ultimate provider of both health and 

administrative services. 

Amend § 423.504, ‘‘General 

Provisions’’ by—

• Revising paragraph (b)(4)(vi)(C) for 

clarity. 

• Revising proposed paragraph 

(b)(4)(vi)(G)(3) to read: The Part D plan 

sponsor should have procedures to 

voluntarily self-report potential fraud or 

misconduct related to the Part D 

program to CMS or its designee. 

Amend § 423.505, ‘‘Contract 

Provisions,’’ by—

• Revising proposed paragraph (e)(2) 

for clarity. 

• Revising proposed paragraph 

(i)(2)(i) for clarity. 

• Revising proposed paragraph (i)(3) 

introductory text to read as follows: All 

contracts or written arrangements 

between Part D sponsors and first tier, 

downstream, and related entities must 

contain the following: 

• Revising proposed paragraph 

(i)(3)(ii) to read as follows: 

Accountability provisions that indicate 

that the Part D sponsor may delegate 

activities or functions to a first tier, 

downstream, or related entity, only in a 

manner consistent with requirements 

set forth at paragraph (i)(4) of this 

section. 

• Revising proposed paragraph 

(i)(3)(iv) to read as follows: A provision 

requiring the Part D sponsor’s first tier, 

downstream, and related entities to 

produce upon request by CMS or its 

designees any books, contracts, records, 

including medical records and 

documentation of the MA organization, 

relating to the Part D program to either 

the sponsor to provide to CMS, or 

directly to CMS or its designees. 

• Revise proposed paragraph (i)(3)(v) 

to read as follows: All contracts or 

written arrangements must specify that 

the first tier, downstream, and related 

entities must comply with all applicable 

Federal laws, regulations, and CMS 

instructions. 

• Revise proposed paragraph (i)(4) 

introductory text and paragraph (i)(4)(v) 

to remove the word pharmacy. 

Amend § 423.507 ‘‘Nonrenewal of 

Contract’’ by—

• Revising proposed paragraph 

(b)(2)(i) to make the date of notice of 

nonrenewal by CMS August 1. 

• Revising proposed paragraph (b)(3) 

to clarify that a Part D sponsor will have 

an opportunity to submit a CAP prior to 

receiving a letter of intent to nonrenew. 

• Revise proposed paragraphs 

(b)(3)(ii) and (b)(3)(iii) to clarify that 

CAP submission deadlines are measured 

in calendar days. 

Amend § 423.509 ‘‘Termination of 

contract by CMS’’ by—

• Revising proposed paragraph (a)(1) 

for clarity. 

• Correcting a typographical error in 

paragraph (a)(9) by replacing the 

reference to § 423.128 with a reference 

to § 423.50. 

• Revising proposed paragraph (b) 

introductory text for clarity. 

• Revising paragraph (c)(1) to clarify 

that before providing an intent to 

terminate, CMS will provide a Part D 

sponsor with an opportunity to submit 

a CAP. 

• Correcting a typographical error in 

paragraph (c)(1) by replacing the term 

‘‘MA organization’’ with the term ‘‘Part 

D plan sponsor.’’

Amend § 423.642 by—

• Revising proposed paragraph (d) to 

clarify that a CMS notice of an intent to 

nonrenew will be sent to a MA 

organization by August 1. 

Amend § 423.750 by—

• Revising proposed paragraph (a)(3) 

to clarify that suspension of all 

marketing activities to Medicare 

beneficiaries by a Part D plan sponsor 

applies only to specified Part D plans. 

Amend § 422.752 by—

• Revising proposed paragraph (c)(2) 

to reference section 1003 of Chapter V 

of this title. 

Amend § 423.756 by—

• Revising paragraph (c) to reflect the 

fact that we have eliminated the 

reconsideration process, and that an 

intermediate sanction imposed by CMS 

will go into effect on the date specified 

by the notice, and that an appeal will 

not delay the effective date of the 

sanction. 

• Revising paragraph (d) to reflect the 

fact we have eliminated the 

reconsideration process, that an appeal 

will not delay the effective date of the 

sanction, and that where the exception 

at § 423.756(d)(2) applies, CMS may 

make the sanction effective on a 

specified date prior to 15 days after the 

date of notification. 

• Revising paragraph (f) to correct 

typographical errors. 

Amend § 423.1004 by—

• Deleting proposed paragraphs (a)(2) 

and (a)(3). 

• Redesignating paragraph (a)(1) as 

paragraph (a). 

Amend § 423.1070, ‘‘Removal of 

hearing to Departmental Appeals 

Board,’’ by—

• Revising paragraph (a) to correct a 

typographical error. The revised 

paragraph now reads: ‘‘At any time 

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before the ALJ receives oral testimony, 

the Board may remove to itself any 

pending request for a hearing.’’

IV. Collection of Information 

Requirements 

We received no public comments 

concerning the collection of information 

requirements of the proposed rule. 

Under the Paperwork Reduction Act of 

1995 (PRA), we are required to provide 

60-day notice in the Federal Register 

and solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the PRA requires that 

we solicit comment on the following 

issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The following information collection 

requirements included in this proposed 

rule and their associated burdens are 

subject to the PRA. 

We solicited public comment on each 

of the issues for the following sections 

of this document that contain 

information collection requirements and 

are not currently approved by the OMB. 

Section § 422.503 General Provisions 

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

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

to have a compliance plan, which 

includes measures to detect, correct, 

and prevent fraud, waste, and abuse. 

The compliance plan shall include 

effective training and education 

between the compliance officer and the 

MA organization’s employees, managers 

and directors, the MA organization’s 

first tier, downstream, and related 

entities; and, effective lines of 

communication between the compliance 

officer, members of the compliance 

committee, the MA organization’s 

employees, managers and directors, and 

the MA organization’s first tier, 

downstream, and related entities. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to prepare 

a compliance plan that meets the 

requirements of this section. While this 

requirement is subject to the PRA, it is 

currently approved under OMB #0938–

1004. 

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

recommends a MA organization to have 

procedures in place for voluntary selfreporting of potential fraud or 

misconduct related to the MA program 

to the appropriate government 

authority. We recommend that the MA 

organization report potential fraud or 

misconduct related to the MA program 

to the appropriate government 

authority. 

The burden associated with this 

recommendation is the time and effort 

put forth by the MA organization to 

implement procedures for voluntary 

self-reporting. We estimate it would take 

one MA organization 40 hours to fulfill 

this recommendation. The total number 

of MA organizations affected by this 

recommendation is 393. The total onetime burden for this recommendation 

would be 15,720 hours. We cannot 

anticipate how many plans will report 

any potentially fraudulent activities to 

CMS. However, based on historical 

evidence, we believe that less than 10 

MA organizations will self-report 

potential fraud or misconduct related to 

the MA program. While this burden is 

subject to the PRA, we expect that less 

than 10 entities will be affected. 

Therefore, we believe these collection 

recommendations are exempt as 

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

Section 422.504 Contract Provisions 

Section 422.504(e)(2) requires MA 

organizations to agree to allow HHS, the 

Comptroller General, or their designees 

to audit, evaluate, and inspect any 

books, contracts, records, including 

medical records and documentation of 

the MA organization, its first tier, 

downstream, related entity, or its 

transferee that pertain to any aspect of 

services performed, reconciliation of 

benefit liabilities, and determination of 

amounts payable under the contract, or 

as the Secretary may deem necessary to 

enforce the contract. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to 

maintain appropriate records and 

documentation. While this requirement 

is subject to the PRA, it is currently 

approved under OMB #0938–1004. 

Section 422.504(i)(2) requires the MA 

organization to require all first tier, 

downstream, and related entities to 

agree that HHS, the Comptroller 

General, or their designees have the 

right to audit, evaluate, and inspect any 

books, contracts, records, including 

medical records and documentation of 

the first tier, downstream, and related 

entities involving transactions related to 

CMS’ contract with the MA 

organization. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization’s first tier, 

downstream, and related entities to 

maintain appropriate records and 

documentation. While the burden 

associated with this requirement is 

subject to the PRA, it is currently 

approved under OMB #0938–1004. 

Section 422.505 Effective Date and 

Term of Contract 

Section 422.505(c) requires MA 

organizations who wish not to renew 

their contract to submit a notice of 

intent to CMS. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to prepare 

the notice and submit it to CMS. While 

this requirement is subject to the PRA, 

it is currently approved under OMB 

#0938–0753. 

Section 422.506 Nonrenewal of 

Contract 

Section 422.506 provides a MA 

organization an opportunity to develop 

and submit a CAP to correct the 

deficiencies that are the basis of the 

termination decision. The MA 

organization must submit the CAP 

within 45 days of receiving notice of 

termination. 

The burden associated with this 

requirement is the time and effort it 

would take for the MA organization to 

develop and submit a CAP. While this 

requirement is subject to the PRA, we 

expect less than 10 entities will be 

affected by receiving a notice of intent 

to nonrenew. Therefore, we believe 

these collection requirements are 

exempt as specified at 5 CFR 

1320.3(c)(4). 

Section 423.504 General Provisions 

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

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

have a compliance plan, which includes 

measures to detect, correct, and prevent 

fraud, waste, and abuse. The 

compliance plan shall include effective 

training and education between the 

compliance officer and the Part D 

sponsor’s employees, managers and 

directors, and the Part D plan sponsor’s 

first tier, downstream, and related 

entities; and, effective lines of 

communication between the compliance 

officer, members of the compliance 

committee, the Part D sponsor’s 

employees, managers and directors, and 

the Part D sponsor’s first tier, 

downstream, and related entities. 

The burden associated with this 

requirement is the time and effort put 

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forth by the Part D sponsor to prepare 

a compliance plan that meets the 

requirements of this section. While this 

requirement is subject to the PRA, it is 

currently approved under OMB #0938–

1000. 

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

recommends a Part D sponsor have 

procedures in place for voluntary selfreporting of potential fraud or 

misconduct related to the Part D 

program to the appropriate government 

authority. We recommend that the Part 

D sponsor report potential fraud or 

misconduct related to the Part D 

program to the appropriate government 

authority. 

The burden associated with this 

recommendation is the time and effort 

put forth by the Part D sponsor to 

implement procedures for voluntary 

self-reporting. We estimate it will take 

one Part D sponsor 40 hours annually to 

fulfill this recommendation. The total 

number of Part D sponsors affected by 

this recommendation is 91. The total 

one-time burden would be 3,640 hours. 

We cannot anticipate how many plans 

will report any potentially fraudulent 

activities to CMS. However, in the event 

a Part D sponsor self-reports potential 

fraud or misconduct related to the Part 

D sponsor the total burden would be 5 

hours annually. If every sponsor reports 

potential fraud or misconduct, the total 

burden would be 455 annual hours. 

Section 423.505 Contract Provisions 

Section 423.505(e)(2) requires Part D 

sponsors to make available its premises, 

physical facilities, equipment, and 

records that relate to its Medicare 

enrollees, and any additional relevant 

information that CMS may require. The 

Part D sponsor also agrees to make 

available any books, contracts, records, 

including medical records and 

documentation of its first tier, 

downstream, and related entities 

involving transactions related to CMS’

contract with the Part D sponsor. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to make 

available records that relate to its 

Medicare enrollees. The burden 

associated with this requirement is 

currently approved under OMB #0938–

1000. 

Section 423.505(i)(2) requires the Part 

D sponsor to require all first tier, 

downstream, and related entities to 

agree that HHS, the Comptroller 

General, or their designees have the 

right to inspect, evaluate, and audit any 

books, contracts, records, including 

medical records and documentation of 

the first tier, downstream, and related 

entities involving transactions related to 

CMS’ contract with the Part D sponsor. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor’s first tier, 

downstream, and related entities to 

maintain appropriate records and 

documentation. While this requirement 

is subject to the PRA, it is currently 

approved under OMB #0938–1000. 

However, we have prepared the 

following analysis of the costs and 

burden associated with our proposal to 

require sponsors to include a provision 

in their contracts requiring their first 

tier and downstream entities to produce 

or make available their books and 

records. 

In the January 28, 2005 final rule that 

implemented the Medicare Prescription 

Drug Program (70 FR 4194), we noted 

that ‘‘The administrative cost estimates 

are based on taking into account the 

normal fixed costs associated with 

administering a prescription drug 

benefit, for example, such functions as 

claims processing, responding to 

customer inquiries, information, 

dissemination, appeals processes, 

pharmacy network negotiations, and 

contracting. The other factor taken into 

account when developing our estimate 

is that Prescription Drug Plans (PDPs) 

and Medicare Advantage Prescription 

Drug Plans (MA–PDs) will likely incur 

slightly higher administrative costs 

during the initial few years of the Part 

D benefit due to start-up costs related to 

implementation and initial operation for 

a new benefit.’’ The narrative explains 

that the average administrative costs 

associated with insurance products are 

typically expressed as a percentage 

relative to net standard benefit expenses 

and that the administrative load is 

expected to decline slightly over time. 

For purposes of this analysis, the impact 

is presented in burden hours and broken 

out into requests for purposes of: 

1. Provision in contracts; 

2. BI Audit; and 

3. Investigation of complaints. 

1. Provision in Contracts 

Ultimately, this additional provision 

would have to be discussed like all 

other provisions of a contract between a 

Part D sponsor and its first tier, 

downstream, and related entities. Since 

we have the authority to request this 

information and the Part D sponsor has 

attested to providing this data, we do 

not believe that this issue would be 

contentious or constitute negotiation 

discussion. We believe that, at the most, 

this provision would require 1 hour of 

attorney time to draft and discuss the 

provision. 

2. BI Audit 

Currently, there are a total of 650 Part 

D contracts (90 of those contracts 

represent PDPs and the remainder, 560 

contracts, represents MA–PDs and 

employer groups). A further breakdown 

of those numbers out to the plan level 

would be: 4,927 total MA–PDs and PDP 

plans (including employer groups). We 

note that if employer groups are 

excluded, the actual number drops to 

4,191. 

Based on this information, it is 

believed that 16 percent of the plans 

will be audited during the course of a 

contract year. Of the plans audited, it is 

estimated that approximately 10 percent 

of the plans will be required to produce 

evidence or other supporting 

documentation related to ‘‘first tier, 

downstream and other related entities.’’

It is further asserted that the labor hours 

required to produce the required 

documentation for those entities would 

be estimated at 10 hours per plan. 

Therefore, based on the number of Part 

D plans, the percentage of organizations 

that might be required to produce 

documentation for ‘‘first tier, 

downstream, and other related entities’’

and the number of labor hours required 

to produce this documentation we 

expect that the total impact would be 

140 hours in administrative costs. The 

following table summarizes our 

calculation of the burden estimate for 

Part D plans: 

Total number of Part D plans (PDP, 

MA–PD & Employer Groups) ........ 650 

Percentage of plans to be audited 

(16%) .............................................. 104 

Percentage of plans audited that 

would be required to produce additional documentation for ‘‘first 

tier, downstream and related entities’’ (10%) ..................................... 10 

Burden hours required to assemble 

documentation and submit to 

CMS (10 hours/plan) ..................... 100 

3. Investigation of Complaints 

Based on the past 18 months, we 

assume that investigation of complaints 

that require contacting a Part D plan to 

request documentation from first tier, 

downstream, and related entities would 

be approximately six instances. In the 

following table, we show our estimate of 

burden hours for downstream entities: 

Total number of Part D plans 

(PDP, MA–PD & Employer 

Groups) ................................... 650 

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

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1The hourly rate of $37.50 for the burden 

requirement was developed using the Department 

of Labor May 2006 National Average wage for 

management analysts. The May 2006 rate for this 

Continued 

Percentage of plans audited that 

would be required to produce 

additional documentation for 

‘‘first tier, downstream and 

related entities’’ (10%) ........... 10 

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

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

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

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

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

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

Total burden hours required for 

downstream entities to assemble and submit documentation to the Part D organizations (hours/organization) 

at 3 hrs/downstream entity ... 166,440 

Section 423.506 Effective Date and 

Term of Contract. 

This section states that an entity is 

determined qualified to renew its 

contract annually only if the Part D 

sponsor has not provided CMS with a 

notice of intention not to renew and 

CMS has not provided the Part D 

sponsor with a notice of intention not to 

renew. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to prepare 

a notice of intent not to renew and 

submit it to CMS. While this 

requirement is subject to the PRA, it is 

currently approved under OMB #0938–

0964. 

Section 423.507 Nonrenewal of 

Contract. 

Section 423.507 provides a Part D 

Plan Sponsor an opportunity to develop 

and submit a corrective action plan 

(CAP) to correct the deficiencies that are 

the basis of the termination decision. 

The Part D Sponsor must submit the 

CAP within 45 days of receiving notice 

of termination. 

The burden associated with this 

requirement is the time and effort it 

would take for the Part D Sponsor to 

develop and submit a CAP. While this 

requirement is subject to the PRA, we 

expect less than 10 entities will be 

affected by receiving a notice of an 

intent to nonrenew; therefore, we 

believe these collection requirements 

are exempt as specified at 5 CFR 

1320.3(c)(4). 

As reflected in the table that follows, 

the aggregate annual burden associated 

with the collection of information 

section totals 73,236 hours. 

OMB No. Requirements Number of respondents Burden hours Total annual burden 

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

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

422.504(i)(2).

393 ................................ 96 hours ........................ 12,576 hours (based on 

131 responses per 

year). 

None-requesting OMB 

approval.

422.503(b)(4)(vi)(G)(3) ..................... 393 ................................ 40 hours ........................ 15,720 hours (based on 

every plan reporting 

fraud or misconduct). 

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

using 10 respondents). 

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

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

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

423.505(i)(2).

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

None-requesting OMB 

approval.

423.504(b)(4)(vi)(G)(3) ..................... 91 .................................. 40 hours ........................ 3,640 hours. 

Exemption mentioned in 

0938–0964.

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

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

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

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

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

which have not previously been approved. 

If you comment on any of these 

information collection and 

recordkeeping requirements, please mail 

copies directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development Group, 

Attn.: Melissa Musotto, CMS–4124–F, 

Room C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–

1850; and 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 

20503, Attn: Carolyn Lovett, CMS 

Desk Officer, (CMS–4124–P), 

carolyn_lovett@omb.eop.gov. Fax 

(202) 395–6974. 

V. Regulatory Impact Statement 

We have examined the impact of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 19, 

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

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This rule does not reach 

the economic threshold and thus is not 

considered a major rule. The provisions 

of this final rule with comment period 

would require MA and Part D sponsors 

to spend a total of approximately 

186,000 additional hours on the 

functions addressed in this proposed 

rule. This includes our reestimates of 

burden. The details behind these 

estimates are presented in the preceding 

Paperwork Reduction Act section. 

Assuming an average cost to plans 

and downstream entities of $37.50 1 an 

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occupation was $37.15. The $37.50 rate accounts 

for an increase of approximately 1%. 

hour for staff time spent on auditing and 

related functions covered by this final 

rule with comment period, the total net 

incremental cost of this proposal would 

be approximately $7 million ($37.50 × 

185,000 hours), far below the $100 

million threshold for a major rule. This 

cost will be spread more or less evenly 

across participating plans, and hence 

would impose negligible burden on any 

plan in relation to existing 

administrative costs. 

In the Regulatory Impact Analysis of 

the January 28, 2005 final rule that 

implemented the Medicare Prescription 

Drug Program (70 FR 4194), we noted 

that ‘‘The administrative cost estimates 

are based on taking into account the 

normal fixed costs associated with 

administering a prescription drug 

benefit, for example, such functions as 

claims processing, responding to 

customer inquiries, information, 

dissemination, appeals processes, 

pharmacy network negotiations, and 

contracting.’’ This estimate included 

audit and related costs. The estimate 

was that administrative costs would 

constitute about one tenth of the cost of 

the program, or about $5 billion a year. 

(Similar estimates were prepared for the 

Medicare Advantage program’s final 

rule.) Accordingly, the estimated cost of 

this final rule with comment period 

adds negligibly to the total 

administrative costs of these programs. 

With respect to economic benefits, we 

have no reliable basis for estimating the 

effects of these proposals. It is important 

to understand that MA and Part D 

sponsors—not the government—bear the 

direct consequences of all their program 

costs, including unnecessary costs 

created by downstream entities. These 

plans are paid on a capitated basis and 

the amounts paid are not adjusted for 

realized costs. Hence, these plans 

already have strong incentives to 

prevent all forms of waste, including 

fraud and abuse. Accordingly, we 

estimate the benefits of these proposals 

as likely to be small, though larger than 

the costs involved. These benefits will 

accrue primarily to the plans themselves 

and, over time, to the participants who 

pay lower premiums as a result of plans’

cost-reducing incentives. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $6 million to $29 million in any 1 

year. For details, see the Small Business 

Administration’s regulation that set 

forth the current size standards for 

health care industries (65 FR 69432). 

Individuals and States are not included 

in the definition of a small entity. As 

explained above, this final rule with 

comment period will not impose 

consequential costs on affected entities. 

Accordingly, we have determined that 

this final rule with comment period will 

not have a significant economic impact 

on a substantial number of small 

entities, and are not preparing an initial 

regulatory flexibility analysis. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. We are not 

preparing an analysis for section 1102(b) 

of the Act because we have determined 

that this rule will not have a significant 

impact on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

That threshold level is currently 

approximately $120 million. This rule 

will have no consequential effect on 

State, local, or tribal governments or on 

the private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

List of Subjects 

42 CFR Part 422 

Administrative practice and 

procedure, Grant programs-health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs-health, Medicare, Reporting 

and recordkeeping requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Medicare, 

Penalties, Privacy, Reporting and 

recordkeeping. 

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 1. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

Subpart A—General Provisions 

■ 2. Section 422.2 is amended by adding 

the definitions ‘‘Downstream entity’’, 

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

to read as follows: 

§ 422.2 Definitions. 

* * * * * 

Downstream entity means any party 

that enters into a written arrangement, 

acceptable to CMS, with persons or 

entities involved with the MA benefit, 

below the level of the arrangement 

between an MA organization (or 

applicant) and a first tier entity. These 

written arrangements continue down to 

the level of the ultimate provider of both 

health and administrative services. 

First tier entity means any party that 

enters into a written arrangement, 

acceptable to CMS, with an MA 

organization or applicant to provide 

administrative services or health care 

services for a Medicare eligible 

individual under the MA program. 

* * * * * 

Related entity means any entity that is 

related to the MA organization by 

common ownership or control and 

(1) Performs some of the MA 

organization’s management functions 

under contract or delegation; 

(2) Furnishes services to Medicare 

enrollees under an oral or written 

agreement; or 

(3) Leases real property or sells 

materials to the MA organization at a 

cost of more than $2,500 during a 

contract period. 

* * * * * 

Subpart K—Contracts With Medicare 

Advantage Organizations 

■ 3. Amend § 422.503 by—

■ A. Revising paragraph (b)(4)(vi) 

introductory text. 

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

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

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

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

The revisions and additions read as 

follows: 

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§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) A compliance plan, which must 

include measures to detect, correct, and 

prevent fraud, waste, and abuse, shall 

include the following elements: 

* * * * * 

(C) Effective training and education 

between the compliance officer and the 

MA organization’s employees, managers 

and directors, and the MA 

organization’s first tier, downstream, 

and related entities. 

(D) Effective lines of communication 

between the compliance officer, 

members of the compliance committee, 

the MA organization’s employees, 

managers and directors, and the MA 

organization’s first tier, downstream, 

and related entities. 

* * * * * 

(G) * * * 

(3) The MA organization should have 

procedures to voluntarily self-report 

potential fraud or misconduct related to 

the MA program to CMS or its designee. 

* * * * * 

■ 4. Amend § 422.504 by—

■ A. Republishing paragraph (e) 

introductory text. 

■ B. Revising paragraph (e)(1) 

introductory text. 

■ C. Revising paragraph (i) heading and 

(i)(1). 

■ D. Revising paragraph (i)(2) 

introductory text. 

■ E. Revising paragraph (i)(2)(i). 

■ F. Revising paragraph (i)(3) 

introductory text. 

■ G. Revising paragraph (i)(3)(ii). 

■ H. Revising paragraph (i)(3)(iii). 

■ I. Revising paragraph (i)(4) 

introductory text. 

The revisions and additions read as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(e) Access to facilities and records. 

The MA organization agrees to the 

following: 

(1) HHS, the Comptroller General, or 

their designee may evaluate, through 

inspection, audit, or other means—

* * * * * 

(2) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, and inspect any books, 

contracts, records, including medical 

records and documentation of the MA 

organization, its first tier, downstream, 

related entity(s), or its transferee that 

pertain to any aspect of services 

performed, reconciliation of benefit 

liabilities, and determination of 

amounts payable under the contract, or 

as the Secretary may deem necessary to 

enforce the contract. 

* * * * * 

(i) MA organization relationship with 

first tier, downstream, and related 

entities. (1) Notwithstanding any 

relationship(s) that the MA organization 

may have with first tier, downstream, 

and related entities, the MA 

organization maintains ultimate 

responsibility for adhering to and 

otherwise fully complying with all 

terms and conditions of its contract with 

CMS. 

(2) The MA organization agrees to 

require all first tier, downstream, and 

related entities to agree that—

(i) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, and inspect any books, 

contracts, records, including medical 

records and documentation of the first 

tier, downstream, and related entities 

involving transactions related to CMS’

contract with the MA organization. 

* * * * * 

(3) All contracts or written 

arrangements between MA 

organizations and first tier, downstream, 

and related entities must contain the 

following: 

* * * * * 

(ii) Accountability provisions that 

indicate that the MA organization may 

only delegate activities or functions to a 

first tier, downstream, or related entity, 

in a manner consistent with the 

requirements set forth at paragraph (i)(4) 

of this section. 

(iii) A provision requiring that any 

services or other activity performed by 

a first tier, downstream, or related entity 

in accordance with a contract or written 

agreement are consistent and comply 

with the MA organization’s contractual 

obligations. 

(4) If any of the MA organizations’

activities or responsibilities under its 

contract with CMS are delegated to 

other parties, the following 

requirements apply to any first tier, 

downstream and related entity: 

* * * * * 

■ 5. Amend § 422.505 by revising 

paragraph (c) to read as follows: 

§ 422.505 Effective date and term of 

contract. 

* * * * * 

(c) Renewal of contract. In accordance 

with § 422.506, contracts are renewed 

annually only if the MA organization 

has not provided CMS with a notice of 

intention not to renew and CMS has not 

provided the MA organization with a 

notice of intention not to renew. 

* * * * * 

■ 6. Amend § 422.506 by—

■ A. Revising paragraph (b)(2) 

introductory text. 

■ B. Revising paragraph (b)(2)(i). 

■ C. Redesignating paragraph (b)(3) as 

(b)(4). 

■ D. Adding a new paragraph (b)(3). 

The revisions and additions read as 

follows: 

§ 422.506 Nonrenewal of contract. 

* * * * * 

(b) * * * 

(2) Notice of non-renewal. CMS 

provides notice of its decision not to 

authorize renewal of a contract as 

follows: 

(i) To the MA organization by August 

1 of the contract year. 

* * * * * 

(3) Corrective action plan. 

(i) Before providing a notice of intent 

to non-renew the contract, CMS will 

provide the MA organization with a 

reasonable opportunity to develop and 

submit a corrective action plan (CAP). 

(ii) The MA organization must 

develop and submit the CAP within 45 

calendar days of receiving a request for 

a CAP. 

(iii) If CMS determines the CAP is 

unacceptable, CMS will provide the MA 

organization with an additional 30 

calendar days to submit a revised CAP. 

(iv) If CMS determines the CAP is 

acceptable, CMS will notify the MA 

organization of a deadline by which the 

CAP must be fully implemented. CMS 

has sole discretion on whether the CAP 

is fully implemented. 

(v) Failure to develop and implement 

a CAP within the timeframes specified 

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

of this section may result in the nonrenewal of the MA contract. 

* * * * * 

■ 7. Amend § 422.510 by—

■ A. Republishing paragraph (a) 

introductory text. 

■ B. Revising paragraph (a)(1). 

■ C. Revising paragraph (b) introductory 

text. 

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

■ E. Revising paragraph (b)(2)(i). 

■ F. Revising paragraph (c). 

The revisions read as follows: 

§ 422.510 Termination of contract by CMS. 

(a) Termination by CMS. CMS may 

terminate a contract for any of the 

following reasons: 

(1) The MA organization has failed 

substantially to carry out the terms of its 

current or previous contract terms with 

CMS. 

* * * * * 

(b) Notice. If CMS decides to 

terminate a contract for reasons other 

than the grounds specified in 

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

gives notice of the termination as 

follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. 

(i) For terminations based on 

violations prescribed in § 422.510(a)(4) 

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

organization in writing that its contract 

will be terminated on a date specified 

by CMS. If termination is effective in the 

middle of a month, CMS has the right 

to recover the prorated share of the 

capitation payments made to the MA 

organization covering the period of the 

month following the contract 

termination. 

* * * * * 

(c) Corrective action plan. 

(1) General. Before providing a notice 

of an intent to terminate a contract for 

reasons other than the grounds specified 

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

section, CMS will provide the MA 

organization with a reasonable 

opportunity to develop and submit a 

corrective action plan (CAP). 

(i) The MA organization must develop 

and submit the CAP within 45 days of 

receiving a request for a CAP. 

(ii) If CMS determines the CAP is 

unacceptable, CMS will provide the MA 

organization with an additional 30 days 

to submit a revised CAP. 

(iii) If CMS determines the CAP is 

acceptable, CMS will notify the MA 

organization of a deadline by which the 

CAP must be fully implemented. CMS 

has sole discretion on whether the CAP 

is fully implemented. 

(iv) Failure to develop and implement 

a CAP within the timeframes specified 

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

may result in the termination of the MA 

contract. 

(2) Exceptions. If a contract is 

terminated under § 422.510(a)(4) or 

§ 422.510(a)(5), the MA organization 

will not have the opportunity to submit 

a CAP. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

■ 8. Amend § 422.644 by—

■ A. Republishing paragraph (b) 

introductory text. 

■ B. Revising paragraph (b)(2). 

■ C. Revising paragraph (c). 

■ D. Revising paragraph (d). 

The revisions read as follows: 

§ 422.644 Notice of contract determination. 

* * * * * 

(b) The notice specifies—

* * * * * 

(2) The MA organization’s right to 

request a hearing. 

(c) For CMS-initiated terminations, 

CMS mails notice to the MA 

organization 90 calendar days before the 

anticipated effective date of the 

termination. For terminations based on 

determinations described at 

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

notifies the MA organization of the date 

that it will terminate the organization’s 

MA contract. 

(d) When CMS determines that it will 

not authorize a contract renewal, CMS 

mails the notice to the MA organization 

by August 1 of the current contract year. 

■ 9. Section 422.646 is revised to read 

as follows: 

§ 422.646 Effect of contract determination. 

The contract determination is final 

and binding unless a timely request for 

a hearing is filed under § 422.662. 

§ 422.648 [Removed] 

■ 10. Section 422.648 is removed. 

§ 422.650 [Removed] 

■ 11. Section 422.650 is removed. 

§ 422.652 [Removed] 

■ 12. Section 422.652 is removed. 

§ 422.654 [Removed] 

■ 13. Section 422.654 is removed. 

§ 422.656 [Removed] 

■ 14. Section 422.656 is removed. 

§ 422.658 [Removed] 

■ 15. Section 422.658 is removed. 

■ 16. Revise § 422.660 to read as 

follows: 

§ 422.660 Right to a hearing and burden of 

proof. 

(a) The following parties are entitled 

to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS under Part C 

of Title XVIII of the Act pursuant to 

§ 422.501. 

(2) An MA organization whose 

contract has been terminated pursuant 

to § 422.510. 

(3) An MA organization whose 

contract has not been renewed pursuant 

to § 422.506. 

(4) An MA organization who has had 

an intermediate sanction imposed 

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

(b) The MA organization bears the 

burden of proof to demonstrate that it 

was in substantial compliance with the 

requirements of the MA program on the 

earliest of the following three dates: 

(1) The date the organization received 

written notice of the contract 

determination or intermediate sanction. 

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

audit conducted by CMS. 

(3) The date of the alleged breach of 

the current contract or past substantial 

noncompliance as determined by CMS. 

(c) Notice of any decision favorable to 

the MA organization appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by July 15 for the contract in 

question to be effective on January 1 of 

the following year. 

■ 17. Amend § 422.662 by revising 

paragraph (b) to read as follows: 

§ 422.662 Request for hearing. 

* * * * * 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

calendar days from the date CMS 

notifies the MA organization of its 

determination. 

* * * * * 

■ 18. Revise § 422.664 to read as 

follows: 

§ 422.664 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

(a) Hearing. When a request for a 

hearing is timely filed, CMS will 

postpone the proposed effective date of 

the contract determination listed at 

§ 422.641 until a hearing decision is 

reached and affirmed by the 

Administrator following review 

according to § 422.692 in instances 

where an MA organization or CMS 

requests Administrator review and the 

Administrator accepts the matter for 

review. 

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

is not reached on CMS’ determination 

for an initial contract by July 15, CMS 

will not enter into a contract with the 

applicant for the following year. 

(2) A contract terminated in 

accordance with § 422.510(a)(4) or 

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

date specified by CMS and will not be 

postponed if a hearing is requested. 

■ 19. Amend § 422.670 by revising 

paragraph (a) to read as follows: 

§ 422.670 Time and place of hearing. 

(a) The hearing officer fixes a time 

and place for the hearing, which is not 

to exceed 30 calendar days from the 

receipt of request for the hearing, and 

sends written notice to the parties. The 

notice informs the parties of—

(1) The general and specific issues to 

be resolved, the burden of proof, and 

information about the hearing 

procedure, and 

(2) The ability to conduct formal 

discovery. 

* * * * * 

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■ 20. Revise § 422.682 to read as 

follows: 

§ 422.682 Discovery. 

(a) Either party may make a request to 

another party for the production of 

documents for inspection and copying 

which are relevant and material to the 

issues before the hearing officer. 

(b) The hearing officer will provide 

the parties with a reasonable time for 

inspection and reproduction of 

documents, provided that discovery is 

concluded at least 10 calendar days 

prior to the hearing. 

(c) The hearing officer’s order on 

discovery matters is final. 

■ 21. Revise § 422.684 to read as 

follows: 

§ 422.684 Prehearing and summary 

judgment. 

(a) Prehearing. The hearing officer 

may schedule a prehearing conference if 

he or she believes that a conference 

would more clearly define the issues. 

(b) Summary judgment. Either party 

to the hearing may ask the hearing 

officer to rule on a motion for summary 

judgment. 

■ 22. Amend § 422.692 by—

■ A. Revising paragraph (a). 

■ B. Revising paragraph (b). 

■ C. Redesignating paragraph (c) as 

paragraph (e). 

■ D. Adding a new paragraph (c). 

■ E. Adding a new paragraph (d). 

The revisions and additions read as 

follows: 

§ 422.692 Review by Administrator. 

(a) Request for review by 

Administrator. CMS or an MA 

organization that has received a hearing 

decision regarding a contract 

determination may request review by 

the Administrator within 15 calendar 

days of receiving the hearing decision as 

provided under § 422.690(b). Both the 

MA organization and CMS may provide 

written arguments to the Administrator 

for review. 

(b) Decision to review the hearing 

decision. After receiving a request for 

review, the Administrator has the 

discretion to elect to review the hearing 

decision in accordance with paragraph 

(d) of this section or to decline to review 

the hearing decision. 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days of receiving the request for review. 

If the Administrator declines to review 

the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

hearing officer is final. 

(d) Review by the Administrator. If the 

Administrator elects to review the 

hearing decision regarding a contract 

determination, the Administrator shall 

review the hearing officer’s decision and 

determine, based upon this decision, the 

hearing record, and any written 

arguments submitted by the MA 

organization or CMS, whether the 

determination should be upheld, 

reversed, or modified. 

* * * * * 

■ 23. Amend § 422.696 by—

■ A. Revising the section heading. 

■ B. Revising paragraph (a). 

The revisions read as follows: 

§ 422.696 Reopening of an initial contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Initial determination. CMS may 

reopen and revise an initial 

determination upon its own motion. 

* * * * * 

§ 422.698 [Removed] 

■ 24. Section 422.698 is removed. 

Subpart O—Intermediate Sanctions 

■ 25. Revise § 422.750 to read as 

follows: 

§ 422.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiency on which the 

determination was based has been 

corrected and is not likely to reoccur: 

(1) Suspension of enrollment of 

Medicare beneficiaries. 

(2) Suspension of payment to the MA 

organization for Medicare beneficiaries 

who are enrolled in the MA plan. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by 

an MA organization for specified MA 

plans. 

(b) CMS may impose civil money 

penalties as specified in § 422.760. 

■ 26. Amend § 422.752 by—

■ A. Revising the section heading. 

■ B. Revising paragraph (a) introductory 

text. 

■ C. Revising paragraph (b). 

■ D. Adding a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 422.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph, CMS 

may impose one or more of the 

sanctions as specified in § 422.750(a) on 

any MA organization that has a contract 

in effect. The MA organization may also 

be subject to other applicable remedies 

available under law. 

* * * * * 

(b) Suspension of enrollment and 

marketing. If CMS makes a 

determination that could lead to a 

contract termination under § 422.510(a), 

CMS may impose the intermediate 

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

(c) Civil Money Penalties. 

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

any intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in § 422.760 for any 

of the determinations at § 422.510(a), 

except § 422.510(a)(4). 

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

any intermediate sanctions imposed by 

CMS, the OIG, in accordance with part 

1003 of Chapter V of this title, may 

impose civil money penalties for the 

following: 

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

(ii) Determinations made pursuant to 

§ 422.510(a)(4). 

■ 27. Amend § 422.756 by—

■ A. Revising the section heading. 

■ B. Revising paragraph (a). 

■ C. Revising paragraph (b). 

■ D. Revising paragraph (c). 

■ E. Revising paragraph (d). 

■ F. Revising paragraph (f). 

The revisions read as follows: 

§ 422.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(a) Notice of intermediate sanction 

and opportunity to respond. 

(1) Notice of intent. Before imposing 

the intermediate sanction, CMS—

(i) Sends a written notice to the MA 

organization stating the nature and basis 

of the proposed intermediate sanction 

and the MA organization’s right to a 

hearing as specified in paragraph (b) of 

this section; and 

(ii) Sends the OIG a copy of the 

notice. 

(2) Opportunity to respond. CMS 

allows the MA organization 10 calendar 

days from receipt of the notice to 

provide a written rebuttal. CMS 

considers receipt of notice as the day 

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

submitted for overnight mail. 

(b) Hearing. The MA organization 

may request a hearing before a CMS 

hearing officer. A written request must 

be received by CMS within 15 calendar 

days of the MA organization receiving 

the notice of intent to impose an 

intermediate sanction. A request for a 

hearing under § 422.660 does not delay 

the date specified by CMS when the 

sanction becomes effective. The MA 

organization must follow the right to a 

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hearing procedure as specified at 

§ 422.660 through § 422.684. 

(c) If CMS determines that a MA 

organization has acted or failed to act as 

specified in § 422.752, CMS may—

(1) Require the MA organization to 

suspend acceptance of applications 

made by Medicare beneficiaries for 

enrollment in the sanctioned MA plan 

during the sanction period; 

(2) In the case of a violation under 

§ 422.752, suspend payments to the MA 

organization for Medicare beneficiaries 

enrolled in the sanctioned MA plan 

during the sanction period; and 

(3) Require the MA organization to 

suspend all marketing activities for the 

sanctioned MA 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 

calendar days after the date that the 

organization is notified of the decision 

to impose the sanction. 

(2) Exception. If CMS determines that 

the MA organization’s conduct poses a 

serious threat to an enrollee’s health and 

safety, CMS may make the sanction 

effective on an earlier date that CMS 

specifies. 

* * * * * 

(f) Notice to impose civil money 

penalties. 

(1) CMS notice to OIG. If CMS 

determines that an MA organization has 

failed to comply with a requirement as 

described in § 422.752, CMS notifies the 

OIG of this determination. OIG may 

impose a civil money penalty upon an 

MA organization as specified at 

§ 422.752(c)(2). 

(2) CMS notice of civil money 

penalties to MA organizations. If CMS 

makes a determination to impose a CMP 

as described in § 422.752(c)(1), CMS 

will send a written notice of the 

Agency’s decision to impose a civil 

money penalty to include—

(i) A description of the basis for the 

determination. 

(ii) The basis for the penalty. 

(iii) The amount of the penalty. 

(iv) The date the penalty is due. 

(v) The MA organization’s right to a 

hearing under subpart T of this part. 

(vi) Information about where to file 

the request for hearing. 

■ 28. Revise § 422.758 to read as 

follows: 

§ 422.758 Collection of civil money 

penalties imposed by CMS. 

(a) When an MA organization does 

not request a hearing, CMS initiates 

collection of the civil money penalty 

following the expiration of the 

timeframe for requesting an ALJ hearing 

as specified in Subpart T of this part. 

(b) If an MA organization requests a 

hearing and CMS’ decision to impose a 

civil money penalty is upheld, CMS 

may initiate collection of the civil 

money penalty once the administrative 

decision is final. 

§ 422.760 [Redesignated as § 422.764] 

■ 29. Amend § 422.760 by—

■ A. Redesignate § 422.760 as § 422.764. 

■ B. Add a new § 422.760 to read as 

follows: 

§ 422.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) Determining the appropriate 

amount of any penalty. In determining 

the amount of penalty imposed under 

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

appropriate: 

(1) The nature of the conduct; 

(2) The degree of culpability of the 

MA organization; 

(3) The harm which resulted or could 

have resulted from the conduct of MA 

organization; 

(4) The financial condition of the MA 

organization; 

(5) The history of prior offenses by the 

MA organization or principals of the 

MA organization; and, 

(6) Such other matters as justice may 

require. 

(b) Amount of penalty. CMS may 

impose civil money penalties in the 

following amounts: 

(1) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more MA enrollees—up to $25,000 for 

each determination. 

(2) For each week that a deficiency 

remains uncorrected after the week in 

which the MA organization receives 

CMS’ notice of the determination—up to 

$10,000. 

(3) If CMS makes a determination that 

a MA organization has terminated its 

contract other than in a manner 

described under § 422.512 and that the 

MA organization has therefore failed to 

substantially carry out the terms of the 

contract—$250 per Medicare enrollee 

from the terminated MA plan or plans 

at the time the MA organization 

terminated its contract, or $100,000, 

whichever is greater. 

■ 30. Add a new § 422.762 to read as 

follows: 

§ 422.762 Settlement of penalties. 

For civil money penalties imposed by 

CMS, CMS may settle civil money 

penalty cases at any time before a final 

decision is rendered. 

Subpart P [Added and Reserved] 

■ 31. Subpart P is added and reserved. 

Subpart Q [Added and Reserved] 

■ 32. Subpart Q is added and reserved. 

Subpart R [Added and Reserved] 

■ 33. Subpart R is added and reserved. 

Subpart S [Added and Reserved] 

■ 34. Subpart S is added and reserved. 

■ 35. A new subpart T is added to read 

as follows: 

Subpart T—Appeal Procedures for 

Civil Money Penalties 

Sec. 

422.1000 Basis and scope. 

422.1002 Definitions. 

422.1004 Scope and applicability. 

422.1006 Appeal rights. 

422.1008 Appointment of representatives. 

422.1010 Authority of representatives. 

422.1012 Fees for services of 

representatives. 

422.1014 Charge for transcripts. 

422.1016 Filing of briefs with the 

Administrative Law Judge or 

Departmental Appeals Board, and 

opportunity for rebuttal. 

422.1018 Notice and effect of initial 

determinations. 

422.1020 Request for hearing. 

422.1022 Parties to the hearing. 

422.1024 Designation of hearing official. 

422.1026 Disqualification of Administrative 

Law Judge. 

422.1028 Prehearing conference. 

422.1030 Notice of prehearing conference. 

422.1032 Conduct of prehearing conference. 

422.1034 Record, order, and effect of 

prehearing conference. 

422.1036 Time and place of hearing. 

422.1038 Change in time and place of 

hearing. 

422.1040 Joint hearings. 

422.1042 Hearing on new issues. 

422.1044 Subpoenas. 

422.1046 Conduct of hearing. 

422.1048 Evidence. 

422.1050 Witnesses. 

422.1052 Oral and written summation. 

422.1054 Record of hearing. 

422.1056 Waiver of right to appear and 

present evidence. 

422.1058 Dismissal of request for hearing. 

422.1060 Dismissal for abandonment. 

422.1062 Dismissal for cause. 

422.1064 Notice and effect of dismissal and 

right to request review. 

422.1066 Vacating a dismissal of request for 

hearing. 

422.1068 Administrative Law Judge’s 

decision. 

422.1070 Removal of hearing to 

Departmental Appeals Board. 

422.1072 Remand by the Administrative 

Law Judge. 

422.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

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422.1076 Request for Departmental Appeals 

Board review. 

422.1078 Departmental Appeals Board 

action on request for review. 

422.1080 Procedures before the 

Departmental Appeals Board on review. 

422.1082 Evidence admissible on review. 

422.1084 Decision or remand by the 

Departmental Appeals Board. 

422.1086 Effect of Departmental Appeals 

Board Decision. 

422.1088 Extension of time for seeking 

judicial review. 

422.1090 Basis, timing, and authority for 

reopening an Administrative Law Judge 

or Board decision. 

422.1092 Revision of reopened decision. 

422.1094 Notice and effect of revised 

decision. 

Subpart T—Appeal procedures for 

Civil Money Penalties 

§ 422.1000 Basis and scope. 

(a) Statutory basis. 

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

provides that the Secretary may not 

collect a civil money penalty until the 

affected party has had notice and 

opportunity for a hearing. 

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

that, for MA organizations out of 

compliance with the requirements in 

part 422 specified remedies may be 

imposed instead of, or in addition to, 

termination of the MA organization’s 

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

makes certain provisions of section 

1128A of the Act applicable to civil 

money penalties imposed on MA 

organizations. 

(b) [Reserved] 

§ 422.1002 Definitions. 

As used in this subpart—

Affected party means an MA 

organization impacted by an initial 

determination or if applicable, by any 

subsequent determination or decision 

issued under this part. For this 

definition, ‘‘party’’ means the affected 

party or CMS, as appropriate. 

ALJ stands for Administrative Law 

Judge. 

Departmental Appeals Board or Board 

means a Board established in the Office 

of the Secretary to provide impartial 

review of disputed decisions made by 

the operating components of the 

Department. 

MA organization has the meaning 

given the term in § 422.2. 

§ 422.1004 Scope and applicability. 

(a) Scope. This subpart sets forth 

procedures for reviewing initial 

determinations that CMS makes with 

respect to the matters specified in 

paragraph (b) of this section. 

(b) Initial determinations by CMS. 

CMS makes initial determinations with 

respect to the imposition of civil money 

penalties in accordance with part 422, 

subpart O. 

§ 422.1006 Appeal rights. 

(a) Appeal rights of MA organizations. 

(1) Any MA organization dissatisfied 

with an initial determination as 

specified in § 422.1004, has a right to a 

hearing before an ALJ in accordance 

with this subpart and may request 

Departmental Appeals Board review of 

the ALJ decision. 

(2) MA organizations may request 

judicial review of the Departmental 

Appeals Board’s decision that imposes a 

CMP. 

(b) [Reserved] 

§ 422.1008 Appointment of 

representatives. 

(a) An affected party may appoint as 

its representative anyone not 

disqualified or suspended from acting as 

a representative in proceedings before 

the Secretary or otherwise prohibited by 

law. 

(b) If the representative appointed is 

not an attorney, the party must file 

written notice of the appointment with 

the ALJ or the Departmental Appeals 

Board. 

(c) If the representative appointed is 

an attorney, the attorney’s statement 

that he or she has the authority to 

represent the party is sufficient. 

§ 422.1010 Authority of representatives. 

(a) A representative appointed and 

qualified in accordance with § 422.1008 

may, on behalf of the represented 

party—

(1) Give and accept any notice or 

request pertinent to the proceedings set 

forth in this part; 

(2) Present evidence and allegations 

as to facts and law in any proceedings 

affecting that party to the same extent as 

the party; and 

(3) Obtain information to the same 

extent as the party. 

(b) A notice or request may be sent to 

the affected party, to the party’s 

representative, or to both. A notice or 

request sent to the representative has 

the same force and effect as if it had 

been sent to the party. 

§ 422.1012 Fees for services of 

representatives. 

Fees for any services performed on 

behalf of an affected party by an 

attorney appointed and qualified in 

accordance with § 422.1008 are not 

subject to the provisions of section 206 

of Title II of the Act, which authorizes 

the Secretary to specify or limit those 

fees. 

§ 422.1014 Charge for transcripts. 

A party that requests a transcript of 

prehearing or hearing proceedings or 

Board review must pay the actual or 

estimated cost of preparing the 

transcript unless, for good cause shown 

by that party, the payment is waived by 

the ALJ or the Departmental Appeals 

Board, as appropriate. 

§ 422.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

(a) Filing of briefs and related 

documents. If a party files a brief or 

related document such as a written 

argument, contention, suggested finding 

of fact, conclusion of law, or any other 

written statement, it must submit an 

original and 1 copy to the ALJ or the 

Departmental Appeals Board, as 

appropriate. The material may be filed 

by mail or in person and must include 

a statement certifying that a copy has 

been furnished to the other party. 

(b) Opportunity for rebuttal. (1) The 

other party will have 20 days from the 

date of mailing or personal service to 

submit any rebuttal statement or 

additional evidence. If a party submits 

a rebuttal statement or additional 

evidence, it must file an original and 1 

copy with the ALJ or the Board and 

furnish a copy to the other party. 

(2) The ALJ or the Board will grant an 

opportunity to reply to the rebuttal 

statement only if the party shows good 

cause. 

§ 422.1018 Notice and effect of initial 

determinations. 

(a) Notice of initial determination.—

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

mails notice of an initial determination 

to the affected party, setting forth the 

basis or reasons for the determination, 

the effect of the determination, and the 

party’s right to a hearing, and 

information about where to file the 

request for hearing. 

(b) Effect of initial determination. An 

initial determination is binding unless—

(1) The affected party requests a 

hearing; or 

(2) CMS revises its decision. 

§ 422.1020 Request for hearing. 

(a) Manner and timing of request. 

(1) An MA organization is entitled to 

a hearing as specified in § 422.1006 and 

may file a request for a hearing with the 

Departmental Appeals Board office 

specified in the initial determination. 

(2) The MA organization or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days from 

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receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

(b) Content of request for hearing. The 

request for hearing must—

(1) Identify the specific issues, and 

the findings of fact and conclusions of 

law with which the affected party 

disagrees; and 

(2) Specify the basis for each 

contention that the finding or 

conclusion of law is incorrect. 

§ 422.1022 Parties to the hearing. 

The parties to the hearing are the 

affected party and CMS, as appropriate. 

§ 422.1024 Designation of hearing official. 

(a) The Chair of the Departmental 

Appeals Board, or his or her delegate 

designates an ALJ or a member or 

members of the Departmental Appeals 

Board to conduct the hearing. 

(b) If appropriate, the Chair or the 

delegate may substitute another ALJ or 

another member or other members of 

the Departmental Appeals Board to 

conduct the hearing. 

(c) As used in this part, ‘‘ALJ’’

includes a member or members of the 

Departmental Appeals Board who are 

designated to conduct a hearing. 

§ 422.1026 Disqualification of 

Administrative Law Judge. 

(a) An ALJ may not conduct a hearing 

in a case in which he or she is 

prejudiced or partial to the affected 

party or has any interest in the matter 

pending for decision. 

(b) A party that objects to the ALJ 

designated to conduct the hearing must 

give notice of its objections at the 

earliest opportunity. 

(c) The ALJ will consider the 

objections and decide whether to 

withdraw or proceed with the hearing. 

(1) If the ALJ withdraws, another ALJ 

will be designated to conduct the 

hearing. 

(2) If the ALJ does not withdraw, the 

objecting party may, after the hearing, 

present its objections to the 

Departmental Appeals Board as reasons 

for changing, modifying, or reversing 

the ALJ’s decision or providing a new 

hearing before another ALJ. 

§ 422.1028 Prehearing conference. 

(a) At any time before the hearing, the 

ALJ may call a prehearing conference 

for the purpose of delineating the issues 

in controversy, identifying the evidence 

and witnesses to be presented at the 

hearing, and obtaining stipulations 

accordingly. 

(b) On the request of either party or 

on his or her own motion, the ALJ may 

adjourn the prehearing conference and 

reconvene at a later date. 

§ 422.1030 Notice of prehearing 

conference. 

(a) Timing of notice. The ALJ will fix 

a time and place for the prehearing 

conference and mail written notice to 

the parties at least 10 calendar days 

before the scheduled date. 

(b) Content of notice. The notice will 

inform the parties of the purpose of the 

conference and specify what issues are 

sought to be resolved, agreed to, or 

excluded. 

(c) Additional issues. Issues other 

than those set forth in the notice of 

determination or the request for hearing 

may be considered at the prehearing 

conference if—

(1) Either party gives timely notice to 

that effect to the ALJ and the other 

party; or 

(2) The ALJ raises the issues in the 

notice of prehearing conference or at the 

conference. 

§ 422.1032 Conduct of prehearing 

conference. 

(a) The prehearing conference is open 

to the affected party or its 

representative, to the CMS 

representatives and their technical 

advisors, and to any other persons 

whose presence the ALJ considers 

necessary or proper. 

(b) The ALJ may accept the agreement 

of the parties as to the following: 

(1) Facts that are not in controversy. 

(2) Questions that have been resolved 

favorably to the affected party after the 

determination in dispute. 

(3) Remaining issues to be resolved. 

(c) The ALJ may request the parties to 

indicate the following: 

(1) The witnesses that will be present 

to testify at the hearing. 

(2) The qualifications of those 

witnesses. 

(3) The nature of other evidence to be 

submitted. 

§ 422.1034 Record, order, and effect of 

prehearing conference. 

(a) Record of prehearing conference. 

(1) A record is made of all agreements 

and stipulations entered into at the 

prehearing conference. 

(2) The record may be transcribed at 

the request of either party or the ALJ. 

(b) Order and opportunity to object. 

(1) The ALJ issues an order setting 

forth the results of the prehearing 

conference, including the agreements 

made by the parties as to facts not in 

controversy, the matters to be 

considered at the hearing, and the issues 

to be resolved. 

(2) Copies of the order are sent to all 

parties and the parties have 10 calendar 

days to file objections to the order. 

(3) After the 10 calendar days have 

elapsed, the ALJ settles the order. 

(c) Effect of prehearing conference. 

The agreements and stipulations entered 

into at the prehearing conference are 

binding on all parties, unless a party 

presents facts that, in the opinion of the 

ALJ, would make an agreement 

unreasonable or inequitable. 

§ 422.1036 Time and place of hearing. 

(a) The ALJ fixes a time and place for 

the hearing and gives the parties written 

notice at least 10 calendar days before 

the scheduled date. 

(b) The notice informs the parties of 

the general and specific issues to be 

resolved at the hearing. 

§ 422.1038 Change in time and place of 

hearing. 

(a) The ALJ may change the time and 

place for the hearing either on his or her 

own initiative or at the request of a 

party for good cause shown, or may 

adjourn or postpone the hearing. 

(b) The ALJ may reopen the hearing 

for receipt of new evidence at any time 

before mailing the notice of hearing 

decision. 

(c) The ALJ gives the parties 

reasonable notice of any change in time 

or place or any adjournment or 

reopening of the hearing. 

§ 422.1040 Joint hearings. 

When two or more affected parties 

have requested hearings and the same or 

substantially similar matters are at 

issue, the ALJ may, if all parties agree, 

fix a single time and place for the 

prehearing conference or hearing and 

conduct all proceedings jointly. If joint 

hearings are held, a single record of the 

proceedings is made and a separate 

decision issued with respect to each 

affected party. 

§ 422.1042 Hearing on new issues. 

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

limits specified in paragraph (b) of this 

section, the ALJ may, at the request of 

either party, or on his or her own 

motion, provide a hearing on new issues 

that impinge on the rights of the affected 

party. 

(2) The ALJ may consider new issues 

even if CMS has not made initial 

determinations on them, and even if 

they arose after the request for hearing 

was filed or after a prehearing 

conference. 

(3) The ALJ may give notice of hearing 

on new issues at any time after the 

hearing request is filed and before the 

hearing record is closed. 

(b) Notice and conduct of hearing on 

new issues. 

(1) Unless the affected party waives 

its right to appear and present evidence, 

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notice of the time and place of hearing 

on any new issue will be given to the 

parties in accordance with § 422.1036. 

(2) After giving notice, the ALJ will, 

except as provided in paragraph (c) of 

this section, proceed to hearing on new 

issues in the same manner as on an 

issue raised in the request for hearing. 

(c) Remand to CMS. At the request of 

either party, or on his or her own 

motion, in lieu of a hearing under 

paragraph (b) of this section, the ALJ 

may remand the case to CMS for 

consideration of the new issue and, if 

appropriate, a determination. If 

necessary, the ALJ may direct CMS to 

return the case to the ALJ for further 

proceedings. 

§ 422.1044 Subpoenas. 

(a) Basis for issuance. The ALJ, upon 

his or her own motion or at the request 

of a party, may issue subpoenas if they 

are reasonably necessary for the full 

presentation of a case. 

(b) Timing of request by a party. The 

party must file a written request for a 

subpoena with the ALJ at least 5 

calendar days before the date set for the 

hearing. 

(c) Content of request. The request 

must: 

(1) Identify the witnesses or 

documents to be produced; 

(2) Describe their addresses or 

location with sufficient particularity to 

permit them to be found; and 

(3) Specify the pertinent facts the 

party expects to establish by the 

witnesses or documents, and indicate 

why those facts could not be established 

without use of a subpoena. 

(d) Method of issuance. Subpoenas 

are issued in the name of the Secretary. 

§ 422.1046 Conduct of hearing. 

(a) Participants in the hearing. The 

hearing is open to the parties and their 

representatives and technical advisors, 

and to any other persons whose 

presence the ALJ considers necessary or 

proper. 

(b) Hearing procedures. (1) The ALJ 

inquires fully into all of the matters at 

issue, and receives in evidence the 

testimony of witnesses and any 

documents that are relevant and 

material. 

(2) If the ALJ believes that there is 

relevant and material evidence available 

which has not been presented at the 

hearing, he may, at any time before 

mailing of notice of the decision, reopen 

the hearing to receive that evidence. 

(3) The ALJ decides the order in 

which the evidence and the arguments 

of the parties are presented and the 

conduct of the hearing. 

(4) CMS has the burden of coming 

forward with evidence related to 

disputed findings that is sufficient 

(together with any undisputed findings 

and legal authority) to establish a prima 

facie case that CMS has a legally 

sufficient basis for its determination. 

(5) The affected party has the burden 

of coming forward with evidence 

sufficient to establish the elements of 

any affirmative argument or defense 

which it offers. 

(6) The affected party bears the 

ultimate burden of persuasion. To 

prevail, the affected party must prove by 

a preponderance of the evidence on the 

record as a whole that there is no basis 

for the determination. 

(c) Review of the penalty. When an 

administrative law judge finds that the 

basis for imposing a civil money penalty 

exists, as specified in § 422.752, the 

administrative law judge may not—

(1) Set a penalty of zero or reduce a 

penalty to zero, or 

(2) Review the exercise of discretion 

by CMS to impose a civil money 

penalty. 

§ 422.1048 Evidence. 

Evidence may be received at the 

hearing even though inadmissible under 

the rules of evidence applicable to court 

procedure. The ALJ rules on the 

admissibility of evidence. 

§ 422.1050 Witnesses. 

Witnesses at the hearing testify under 

oath or affirmation. The representative 

of each party is permitted to examine 

his or her own witnesses subject to 

interrogation by the representative of 

the other party. The ALJ may ask any 

questions that he or she deems 

necessary. The ALJ rules upon any 

objection made by either party as to the 

propriety of any question. 

§ 422.1052 Oral and written summation. 

The parties to a hearing are allowed 

a reasonable time to present oral 

summation and to file briefs or other 

written statements of proposed findings 

of fact and conclusions of law. Copies 

of any briefs or other written statements 

must be sent in accordance with 

§ 422.1016. 

§ 422.1054 Record of hearing. 

A complete record of the proceedings 

at the hearing is made and transcribed 

in all cases. 

§ 422.1056 Waiver of right to appear and 

present evidence. 

(a) Waiver procedures. (1) If an 

affected party wishes to waive its right 

to appear and present evidence at the 

hearing, it must file a written waiver 

with the ALJ. 

(2) If the affected party wishes to 

withdraw a waiver, it may do so, for 

good cause, at any time before the ALJ 

mails notice of the hearing decision. 

(b) Effect of waiver. If the affected 

party waives the right to appear and 

present evidence, the ALJ need not 

conduct an oral hearing except in one of 

the following circumstances: 

(1) The ALJ believes that the 

testimony of the affected party or its 

representatives or other witnesses is 

necessary to clarify the facts at issue. 

(2) CMS shows good cause for 

requiring the presentation of oral 

evidence. 

(c) Dismissal for failure to appear. If, 

despite the waiver, the ALJ sends notice 

of hearing and the affected party fails to 

appear, or to show good cause for the 

failure, the ALJ will dismiss the appeal 

in accordance with § 422.1060. 

(d) Hearing without oral testimony. 

When there is no oral testimony, the 

ALJ will—

(1) Make a record of the relevant 

written evidence that was considered in 

making the determination being 

appealed, and of any additional 

evidence submitted by the parties; 

(2) Furnish to each party copies of the 

additional evidence submitted by the 

other party; and 

(3) Give both parties a reasonable 

opportunity for rebuttal. 

(e) Handling of briefs and related 

statements. If the parties submit briefs 

or other written statements of evidence 

or proposed findings of facts or 

conclusions of law, those documents 

will be handled in accordance with 

§ 422.1016. 

§ 422.1058 Dismissal of request for 

hearing. 

(a) The ALJ may, at any time before 

mailing the notice of the decision, 

dismiss a hearing request if a party 

withdraws its request for a hearing or 

the affected party asks that its request be 

dismissed. 

(b) An affected party may request a 

dismissal by filing a written notice with 

the ALJ. 

§ 422.1060 Dismissal for abandonment. 

(a) The ALJ may dismiss a request for 

hearing if it is abandoned by the party 

that requested it. 

(b) The ALJ may consider a request for 

hearing to be abandoned if the party or 

its representative—

(1) Fails to appear at the prehearing 

conference or hearing without having 

previously shown good cause for not 

appearing; and 

(2) Fails to respond, within 10 

calendar days after the ALJ sends a 

‘‘show cause’’ notice, with a showing of 

good cause. 

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§ 422.1062 Dismissal for cause. 

On his or her own motion, or on the 

motion of a party to the hearing, the ALJ 

may dismiss a hearing request either 

entirely or as to any stated issue, under 

any of the following circumstances: 

(a) Res judicata. There has been a 

previous determination or decision with 

respect to the rights of the same affected 

party on the same facts and law 

pertinent to the same issue or issues 

which has become final either by 

judicial affirmance or, without judicial 

consideration, because the affected 

party did not timely request 

reconsideration, hearing, or review, or 

commence a civil action with respect to 

that determination or decision. 

(b) No right to hearing. The party 

requesting a hearing is not a proper 

party or does not otherwise have a right 

to a hearing. 

(c) Hearing request not timely filed. 

The affected party did not file a hearing 

request timely and the time for filing 

has not been extended. 

§ 422.1064 Notice and effect of dismissal 

and right to request review. 

(a) Notice of the ALJ’s dismissal 

action is mailed to the parties. The 

notice advises the affected party of its 

right to request that the dismissal be 

vacated as provided in § 422.1066. 

(b) The dismissal of a request for 

hearing is binding unless it is vacated 

by the ALJ or the Departmental Appeals 

Board. 

§ 422.1066 Vacating a dismissal of request 

for hearing. 

An ALJ may vacate any dismissal of 

a request for hearing if a party files a 

request to that effect within 60 calendar 

days from receipt of the notice of 

dismissal and shows good cause for 

vacating the dismissal. 

§ 422.1068 Administrative Law Judge’s 

decision. 

(a) Timing, basis and content. As soon 

as practical after the close of the 

hearing, the ALJ issues a written 

decision in the case. The decision is 

based on the evidence of record and 

contains separate numbered findings of 

fact and conclusions of law. 

(b) Notice and effect. A copy of the 

decision is mailed to the parties and is 

binding on them unless—

(1) A party requests review by the 

Departmental Appeals Board within the 

time period specified in § 422.846, and 

the Board reviews the case; 

(2) The Departmental Appeals Board 

denies the request for review and the 

party seeks judicial review by filing an 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; 

(3) The decision is revised by an ALJ 

or the Departmental Appeals Board; or 

(4) The decision is a recommended 

decision directed to the Board. 

§ 422.1070 Removal of hearing to 

Departmental Appeals Board. 

(a) At any time before the ALJ receives 

oral testimony, the Board may remove to 

itself any pending request for a hearing. 

(b) Notice of removal is mailed to 

each party. 

(c) The Board conducts the hearing in 

accordance with the rules that apply to 

ALJ hearings under this subpart. 

§ 422.1072 Remand by the Administrative 

Law Judge. 

(a) If CMS requests remand, and the 

affected party concurs in writing or on 

the record, the ALJ may remand any 

case properly before him or her to CMS 

for a determination satisfactory to the 

affected party. 

(b) The ALJ may remand at any time 

before notice of hearing decision is 

mailed. 

§ 422.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

Either of the parties has a right to 

request Departmental Appeals Board 

review of the ALJ’s decision or 

dismissal order, and the parties are so 

informed in the notice of the ALJ’s 

action. 

§ 422.1076 Request for Departmental 

Appeals Board review. 

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

party that is dissatisfied with an ALJ’s 

decision or dismissal of a hearing 

request, may file a written request for 

review by the Departmental Appeals 

Board. 

(2) The requesting party or its 

representative or other authorized 

official must file the request with the 

DAB within 60 calendar days from 

receipt of the notice of decision or 

dismissal, unless the Board, for good 

cause shown by the requesting party, 

extends the time for filing. 

(b) Content of request for review. A 

request for review of an ALJ decision or 

dismissal must specify the issues, the 

findings of fact or conclusions of law 

with which the party disagrees, and the 

basis for contending that the findings 

and conclusions are incorrect. 

§ 422.1078 Departmental Appeals Board 

action on request for review. 

(a) Request by CMS. The Departmental 

Appeals Board may dismiss, deny, or 

grant a request made by CMS for review 

of an ALJ decision or dismissal. 

(b) Request by the affected party. The 

Board may deny or grant the affected 

party’s request for review or may 

dismiss the request for one of the 

following reasons: 

(1) The affected party requests 

dismissal of its request for review. 

(2) The affected party did not file 

timely or show good cause for late 

filing. 

(3) The affected party does not have 

a right to review. 

(4) A previous determination or 

decision, based on the same facts and 

law, and regarding the same issue, has 

become final through judicial 

affirmance or because the affected party 

failed to timely request reconsideration, 

hearing, Board review, or judicial 

review, as appropriate. 

(c) Effect of dismissal. The dismissal 

of a request for Departmental Appeals 

Board review is binding and not subject 

to further review. 

(d) Review panel. If the Board grants 

a request for review of the ALJ’s 

decision, the review will be conducted 

by a panel of three members of the 

Board, designated by the Chair or 

Deputy Chair. 

§ 422.1080 Procedures before the 

Departmental Appeals Board on review. 

The parties are given, upon request, a 

reasonable opportunity to file briefs or 

other written statements as to fact and 

law, and to appear before the 

Departmental Appeals Board to present 

evidence or oral arguments. Copies of 

any brief or other written statement 

must be sent in accordance with 

§ 422.1016. 

§ 422.1082 Evidence admissible on review. 

(a) The Departmental Appeals Board 

may admit evidence into the record in 

addition to the evidence introduced at 

the ALJ hearing, (or the documents 

considered by the ALJ if the hearing was 

waived), if the Board considers that the 

additional evidence is relevant and 

material to an issue before it. 

(b) If it appears to the Board that 

additional relevant evidence is 

available, the Board will require that it 

be produced. 

(c) Before additional evidence is 

admitted into the record—

(1) Notice is mailed to the parties 

(unless they have waived notice) stating 

that evidence will be received regarding 

specified issues; and 

(2) The parties are given a reasonable 

time to comment and to present other 

evidence pertinent to the specified 

issues. 

(d) If additional evidence is presented 

orally to the Board, a transcript is 

prepared and made available to any 

party upon request. 

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§ 422.1084 Decision or remand by the 

Departmental Appeals Board. 

(a) When the Departmental Appeals 

Board reviews an ALJ’s decision or 

order of dismissal, or receives a case 

remanded by a court, the Board may 

either issue a decision or remand the 

case to an ALJ for a hearing and 

decision or a recommended decision for 

final decision by the Board. 

(b) In a remanded case, the ALJ 

initiates additional proceedings and 

takes other actions as directed by the 

Board in its order of remand, and may 

take other action not inconsistent with 

that order. 

(c) Upon completion of all action 

called for by the remand order and any 

other consistent action, the ALJ 

promptly makes a decision or, as 

specified by the Board, certifies the case 

to the Board with a recommended 

decision. 

(d) The parties have 20 calendar days 

from the date of a notice of a 

recommended decision to submit to the 

Board any exception, objection, or 

comment on the findings of fact, 

conclusions of law, and recommended 

decision. 

(e) After the 20-calendar day period, 

the Board issues its decision adopting, 

modifying or rejecting the ALJ’s 

recommended decision. 

(f) If the Board does not remand the 

case to an ALJ, the following rules 

apply: 

(1) The Board’s decision—

(i) Is based upon the evidence in the 

hearing record and any further evidence 

that the Board receives during its 

review; 

(ii) Is in writing and contains separate 

numbered findings of fact and 

conclusions of law; and 

(iii) May modify, affirm, or reverse the 

ALJ’s decision. 

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

mailed to each party. 

§ 422.1086 Effect of Departmental Appeals 

Board Decision. 

(a) General rule. The Board’s decision 

is binding unless—

(1) The affected party has a right to 

judicial review and timely files a civil 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; or 

(2) The Board reopens and revises its 

decision in accordance with § 422.862. 

(b) Right to judicial review. Section 

422.1006 specifies the circumstances 

under which an affected party has a 

right to seek judicial review. 

(c) Special Rules: Civil Money 

Penalty—Finality of Board’s decision. 

When CMS imposes a civil money 

penalty, notice of the Board’s decision 

(or denial of review) is the final 

administrative action that initiates the 

60-day period for seeking judicial 

review. 

§ 422.1088 Extension of time for seeking 

judicial review. 

(a) Any affected party that is 

dissatisfied with a Departmental 

Appeals Board decision and is entitled 

to judicial review must commence civil 

action within 60 calendar days from 

receipt of the notice of the Board’s 

decision, unless the Board extends the 

time in accordance with paragraph (c) of 

this section. 

(b) The request for extension must be 

filed in writing with the Board before 

the 60-calendar day period ends. 

(c) For good cause shown, the Board 

may extend the time for commencing 

civil action. 

§ 422.1090 Basis, timing, and authority for 

reopening an Administrative Law Judge or 

Board decision. 

(a) Basis and timing for reopening. An 

ALJ of Departmental Appeals Board 

decision may be reopened, within 60 

calendar days from the date of the 

notice of decision, upon the motion of 

the ALJ or the Board or upon the 

petition of either party to the hearing. 

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

of the Departmental Appeals Board may 

be reopened only by the Departmental 

Appeals Board. 

(2) A decision of an ALJ may be 

reopened by that ALJ, by another ALJ if 

that one is not available, or by the 

Departmental Appeals Board. For 

purposes of this paragraph, an ALJ is 

considered to be unavailable if the ALJ 

has died, terminated employment, or 

been transferred to another duty station, 

is on leave of absence, or is unable to 

conduct a hearing because of illness. 

§ 422.1092 Revision of reopened decision. 

(a) Revision based on new evidence. If 

a reopened decision is to be revised on 

the basis of new evidence that was not 

included in the record of that decision, 

the ALJ or the Departmental Appeals 

Board—

(1) Notifies the parties of the proposed 

revision; and 

(2) Unless the parties waive their right 

to hearing or appearance—

(i) Grants a hearing in the case of an 

ALJ revision; and 

(ii) Grants opportunity to appear in 

the case of a Board revision. 

(b) Basis for revised decision and right 

to review. 

(1) If a revised decision is necessary, 

the ALJ or the Departmental Appeals 

Board, as appropriate, renders it on the 

basis of the entire record. 

(2) If the decision is revised by an 

ALJ, the Departmental Appeals Board 

may review that revised decision at the 

request of either party or on its own 

motion. 

§ 422.1094 Notice and effect of revised 

decision. 

(a) Notice. The notice mailed to the 

parties states the basis or reason for the 

revised decision and informs them of 

their right to Departmental Appeals 

Board review of an ALJ revised 

decision, or to judicial review of a Board 

reviewed decision. 

(b) Effect—(1) ALJ revised decision. 

An ALJ revised decision is binding 

unless it is reviewed by the 

Departmental Appeals Board. 

(2) Departmental Appeals Board 

revised decision. A Board revised 

decision is binding unless a party files 

a civil action in a district court of the 

United States within the time frames 

specified in § 422.858. 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

■ 36. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

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

1395w–152, and 1395hh). 

Subpart A—General Provisions 

■ 37. Section 423.4 is amended by 

adding the definitions of ‘‘Downstream 

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

entities’’ to read as follows: 

§ 423.4 Definitions. 

* * * * * 

Downstream entity means any party 

that enters into a written arrangement, 

acceptable to CMS, with persons or 

entities involved with the Part D benefit, 

below the level of the arrangement 

between a Part D plan sponsor (or 

applicant) and a first tier entity. These 

written arrangements continue down to 

the level of the ultimate provider of both 

health and administrative services. 

* * * * * 

First tier entity means any party that 

enters into a written arrangement, 

acceptable to CMS, with a Part D plan 

sponsor or applicant to provide 

administrative services or health care 

services for a Medicare eligible 

individual under Part D. 

* * * * * 

Related entity means any entity that is 

related to the Part D sponsor by 

common ownership or control and 

(1) Performs some of the Part D plan 

sponsor’s management functions under 

contract or delegation; 

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(2) Furnishes services to Medicare 

enrollees under an oral or written 

agreement; or 

(3) Leases real property or sells 

materials to the Part D plan sponsor at 

a cost of more than $2,500 during a 

contract period. 

* * * * * 

Subpart K—Application Procedures 

and Contracts With Part D Plan 

Sponsors 

■ 39. Amend § 423.504 by—

■ A. Revising paragraph (b)(4)(vi) 

introductory text. 

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

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

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

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

The revisions and additions read as 

follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) A compliance plan, which must 

include measures to detect, correct, and 

prevent fraud, waste, and abuse, shall 

include the following elements: 

* * * * * 

(C) Effective training and education 

between the compliance officer and the 

Part D plan sponsor’s employees, 

managers and directors, and the Part D 

plan sponsor’s first tier, downstream, 

and related entities. 

(D) Effective lines of communication 

between the compliance officer, 

members of the compliance committee, 

the Part D plan sponsor’s employees, 

managers and directors, and the Part D 

plan sponsor’s first tier, downstream, 

and related entities. 

* * * * * 

(G) * * * 

(3) The Part D plan sponsor should 

have procedures to voluntarily selfreport potential fraud or misconduct 

related to the Part D program to CMS or 

its designee. 

* * * * * 

■ 40. Amend § 423.505 by—

■ A. Republishing paragraph (b) 

introductory text. 

■ B. Revising paragraph (b)(10). 

■ C. Republishing paragraph (e) 

introductory text. 

■ D. Revising paragraph (e)(1) 

introductory text. 

■ E. Revising paragraph (e)(2). 

■ F. Revising paragraph (i) heading and 

(i)(1). 

■ G. Revising paragraph (i)(2) 

introductory text. 

■ H. Revising paragraph (i)(2)(i). 

■ I. Revising paragraph (i)(3) 

introductory text. 

■ J. Revising paragraph (i)(3)(ii). 

■ K. Revising paragraph (i)(3)(iii). 

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

(v). 

■ M. Revising paragraph (i)(4) 

introductory text. 

■ N. Revising paragraph (i)(4)(iv). 

The revisions and additions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) Requirements for contracts. The 

Part D plan sponsor agrees to—

* * * * * 

(10) Allow CMS to inspect and audit 

any books and records of a Part D plan 

sponsor and its delegated first tier, 

downstream and related entities, that 

pertain to the information regarding 

costs provided to CMS under paragraph 

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

entity, the information submitted under 

subpart Q of this part. 

* * * * * 

(e) Access to facilities and records. 

The Part D plan sponsor agrees to the 

following: 

(1) HHS, the Comptroller General, or 

their designee may evaluate, through 

audit, inspection, or other means—

* * * * * 

(2) The Part D plan sponsor agrees to 

make available to HHS, the Comptroller 

General, or their designees, for the 

purposes specified in paragraph (d) of 

this section, its premises, physical 

facilities and equipment, records 

relating to its Medicare enrollees, and 

any additional relevant information that 

CMS may require. The Part D plan 

sponsor also agrees to make available 

any books, contracts, records and 

documentation of the Part D plan 

sponsor, first tier, downstream and 

related entity(s), or its transferee that 

pertain to any aspect of services 

performed, reconciliation of benefit 

liabilities, and determination of 

amounts payable under the contract, or 

as the Secretary may deem necessary to 

enforce the contract. 

* * * * * 

(i) Relationship with first tier, 

downstream, and related entities. (1) 

Notwithstanding any relationship(s) that 

the Part D plan sponsor may have with 

first tier, downstream, and related 

entities, the Part D sponsor maintains 

ultimate responsibility for adhering to 

and otherwise fully complying with all 

terms and conditions of its contract with 

CMS. 

(2) The Part D sponsor agrees to 

require all first tier, downstream, and 

related entities to agree that—

(ii) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, and inspect any books, 

contracts, records including medical 

records, and documentation of the first 

tier, downstream, and related entities 

involving transactions related to CMS’

contract with the Part D sponsor. 

* * * * * 

(3) All contracts or written 

arrangements between Part D sponsors 

and first tier, downstream, and related 

entities, must contain the following: 

* * * * * 

(ii) Accountability provisions that 

indicate that the Part D sponsor may 

delegate activities or functions to a first 

tier, downstream, or related entity only 

in a manner consistent with 

requirements set forth at paragraph (i)(4) 

of this section. 

(iii) A provision requiring that any 

services or other activity performed by 

a related entity, first tier, downstream, 

and related entity in accordance with a 

contract or written agreement are 

consistent and comply with the Part D 

plan sponsor’s contractual obligations. 

(iv) A provision requiring the Part D 

sponsor’s first tier, downstream, and 

related entities to produce upon request 

by CMS or its designees any books, 

contracts, records, including medical 

records and documentation of the MA 

organization, relating to the Part D 

program to either the sponsor to provide 

to CMS, or directly to CMS or its 

designees. 

(v) All contracts or written 

arrangements must specify that first tier, 

downstream, and related entities must 

comply with all applicable Federal 

laws, regulations, and CMS instructions. 

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

activities or responsibilities under its 

contract with CMS is delegated to other 

parties, the following requirements 

apply to any first tier, downstream, and 

related entity: 

* * * * * 

(iv) All contracts or written 

arrangements must specify that the first 

tier, downstream, or related entity must 

comply with all applicable Federal 

laws, regulations, and CMS instructions. 

* * * * * 

■ 41. Amend § 423.506 by revising 

paragraph (c) to read as follows: 

§ 423.506 Effective date and term of 

contract 

* * * * * 

(c) Qualification to renew a contract. 

In accordance with § 423.507, an entity 

is determined qualified to renew its 

contract annually only if the Part D plan 

sponsor has not provided CMS with a 

notice of intention not to renew and 

CMS has not provided the Part D 

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organization with a notice of intention 

not to renew. 

* * * * * 

■ 42. Amend § 423.507 by—

■ A. Revising paragraph (b)(2) 

introductory text. 

■ B. Revising paragraph (b)(2)(i). 

■ C. Redesignating paragraph (b)(3) as 

(b)(4). 

■ D. Adding a new paragraph (b)(3). 

The revisions and additions read as 

follows: 

§ 423.507 Nonrenewal of contract. 

* * * * * 

(b) * * * 

(2) Notice of non-renewal. CMS 

provides notice of its decision not to 

authorize renewal of a contract as 

follows: 

(i) To the Part D plan sponsor by 

August 1 of the contract year. 

* * * * * 

(3) Corrective action plan. (i) Before 

providing a notice of an intent to 

nonrenew a contract, CMS will provide 

the Part D sponsor with a reasonable 

opportunity to develop and submit a 

corrective action plan (CAP). 

(ii) The Part D sponsor must develop 

and submit the CAP within 45 calendar 

days of receiving a request for a CAP. 

(iii) If CMS determines the CAP is 

unacceptable, CMS will provide the Part 

D sponsor with an additional 30 

calendar days to submit a revised CAP. 

(iv) If CMS determines the CAP is 

acceptable, CMS will notify the Part D 

sponsor of a deadline by which the CAP 

must be fully implemented. CMS has 

sole discretion on whether the CAP is 

fully implemented. 

(v) Failure to develop and implement 

a CAP within the timeframes specified 

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

of this section may result in the 

nonrenewal of the Part D contract. 

* * * * * 

■ 43. Section 423.509 is amended by—

■ A. Revising paragraph (a)(1). 

■ B. Revising paragraph (a)(9). 

■ C. Revising paragraph (b) introductory 

text. 

■ D. Revising paragraph (b)(2)(i). 

■ E. Revising paragraph (c). 

The revisions read as follows: 

§ 423.509 Termination of contract by CMS. 

(a) * * * 

(1) The Part D plan sponsor has failed 

substantially to carry out the terms of its 

current or previous contract terms with 

CMS. 

* * * * * 

(9) Substantially fails to comply with 

the marketing requirements in § 423.50; 

* * * * * 

(b) Notice. If CMS decides to 

terminate a contract for reasons other 

than the grounds specified in 

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

gives notice of the termination as 

follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. (i) For terminations based on 

violations prescribed in § 423.509(a)(4) 

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

D plan sponsor in writing that its 

contract will be terminated on a date 

specified by CMS. If termination is 

effective in the middle of a month, CMS 

has the right to recover the prorated 

share of the capitation payments made 

to the Part D plan sponsor covering the 

period of the month following the 

contract termination. 

* * * * * 

(c) Corrective action plan—(1) 

General. Before providing an intent to 

terminate a contract for reasons other 

than the grounds specified in 

paragraphs (a)(4) or (a)(5) of this section, 

CMS will provide the Part D plan 

sponsor with a reasonable opportunity 

to develop and submit a corrective 

action plan (CAP). 

(i) The Part D plan sponsor must 

develop and submit the CAP within 45 

calendar days of receiving a request for 

a CAP. 

(ii) If CMS determines the CAP is 

unacceptable to CMS, the Part D plan 

sponsor will have an additional 30 

calendar days to submit a revised CAP. 

(iii) If CMS determines the CAP is 

acceptable, CMS will notify the Part D 

plan sponsor of a deadline by which the 

CAP must be fully implemented. CMS 

has sole discretion on whether the CAP 

is fully implemented. 

(iv) Failure to develop and implement 

a CAP within the timeframes specified 

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

of this section, may result in the 

termination of the Part D contract. 

(2) Exceptions. If a contract is 

terminated under § 423.509(a)(4) or 

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

will not have the opportunity to submit 

a CAP. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

■ 44. Amend § 423.642 by—

■ A. Republishing paragraph (b) 

introductory text. 

■ B. Revising paragraph (b)(2). 

■ C. Revising paragraph (c). 

■ D. Revising paragraph (d). 

The revisions read as follows: 

§ 423.642 Notice of contract determination 

* * * * * 

(b) The notice specifies the—

* * * * * 

(2) The Part D sponsor’s right to 

request a hearing. 

(c) For CMS-initiated terminations, 

CMS mails notice to the Part D sponsor 

90 calendar days before the anticipated 

effective date of the termination. For 

terminations based on determinations 

described at § 423.509(a)(4) or 

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

sponsor of the date that it will terminate 

the organization’s Part D contract. 

(d) When CMS determines that it will 

not authorize a contract renewal, CMS 

mails the notice to the Part D sponsor 

by August 1 of the current contract year. 

■ 45. Section 423.643 is revised to read 

as follows: 

§ 423.643 Effect of contract determination. 

The contract determination is final 

and binding unless a timely request for 

a hearing is filed under § 423.651. 

§ 423.644 [Removed] 

■ 46. Section 423.644 is removed. 

§ 423.645 [Removed] 

■ 47. Section 423.645 is removed. 

§ 423.646 [Removed] 

■ 48. Section 423.646 is removed. 

§ 423.647 [Removed] 

■ 49. Section 423.647 is removed. 

§ 423.648 [Removed] 

■ 50. Section 423.648 is removed. 

§ 423.649 [Removed] 

■ 51. Section 423.649 is removed. 

■ 52. Revise § 423.650 to read as 

follows: 

§ 423.650 Right to a hearing and burden of 

proof. 

(a) The following parties are entitled 

to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS pursuant to 

§ 423.503. 

(2) A Part D sponsor whose contract 

has been terminated pursuant to 

§ 423.509. 

(3) A Part D sponsor whose contract 

has not been renewed pursuant to 

§ 423.507. 

(4) A Part D sponsor who has had an 

intermediate sanction imposed 

according to § 423.752(a) and 

§ 423.752(b). 

(b) The Part D sponsor bears the 

burden of proof to demonstrate that it 

was in substantial compliance with the 

requirements of the Part D program on 

the earliest of the following three dates: 

(1) The date the sponsor received 

written notice of the contract 

determination or intermediate sanction. 

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

audit conducted by CMS. 

(3) The date of the alleged breach of 

the current contract or past substantial 

noncompliance as determined by CMS. 

(c) Notice of any decision favorable to 

the Part D sponsor appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by July 15 for the contract in 

question to be effective on January 1 of 

the following year. 

■ 53. Amend § 423.651 by revising 

paragraph (b) to read as follows: 

§ 423.651 Request for hearing. 

* * * * * 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

calendar days from the date CMS 

notifies the Part D sponsor of its 

determination. 

* * * * * 

■ 54. Revise § 423.652 to read as 

follows: 

§ 423.652 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

(a) Hearing. When a request for a 

hearing is timely filed, CMS will 

postpone the proposed effective date of 

the contract determination listed at 

§ 423.641 until a hearing decision is 

reached and affirmed by the 

Administrator following review 

pursuant to § 423.666 in instances 

where a Part D sponsor or CMS requests 

Administrator review and the 

Administrator accepts the matter for 

review. 

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

is not reached on CMS’ determination 

for an initial contract by July 15, CMS 

will not enter into a contract with the 

applicant for the following year. 

(2) A contract terminated in 

accordance with § 423.509(a)(4) or 

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

date specified by CMS and will not be 

postponed if a hearing is requested. 

■ 55. Amend § 423.655 by revising 

paragraph (a) to read as follows: 

§ 423.655 Time and place of hearing. 

(a) The hearing officer fixes a time 

and place for the hearing, which is not 

to exceed 30 calendar days from the 

receipt of request for the hearing, and 

sends written notice to the parties. The 

notice informs the parties of—

(1) The general and specific issues to 

be resolved, the burden of proof, and 

information about the hearing 

procedure, and 

(2) The ability to conduct formal 

discovery. 

* * * * * 

■ 56. Revise § 423.661 to read as 

follows: 

§ 423.661 Discovery. 

(a) Either party may make a request to 

another party for the production of 

documents for inspection and copying 

which are relevant and material to the 

issues before the hearing office. 

(b) The hearing officer will provide 

the parties with a reasonable time for 

inspection and reproduction of 

documents, provided that discovery 

concluded at least 10 calendar days 

prior to the hearing. 

(c) The hearing officer’s order on 

discovery matters is final. 

■ 57. Revise § 423.662 to read as 

follows: 

§ 423.662 Prehearing and summary 

judgment. 

(a) Prehearing. The hearing officer 

may schedule a prehearing conference if 

he or she believes that a conference 

would more clearly define the issues. 

(b) Summary judgment. Either party 

to the hearing, may ask the hearing 

officer to rule on a motion for summary 

judgment. 

■ 58. Amend § 423.666 by—

■ A. Revising paragraph (a). 

■ B. Revising paragraph (b). 

■ C. Redesignating paragraph (c) as 

paragraph (e). 

■ D. Adding a new paragraph (c). 

■ E. Adding a new paragraph (d). 

The revisions and additions read as 

follows: 

§ 423.666 Review by Administrator. 

(a) Request for review by 

Administrator. CMS or a Part D sponsor 

that has received a hearing decision 

regarding a contract determination may 

request review by the Administrator 

within 15 calendar days of receiving the 

hearing decision as provided under 

§ 423.665(b). Both the Part D sponsor 

and CMS may provide written 

arguments to the Administrator for 

review. 

(b) Decision to review the hearing 

decision. After receiving a request for 

review, the Administrator has the 

discretion to elect to review the hearing 

determination in accordance with 

paragraph (d) of this section or to 

decline to review the hearing decision. 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days of receiving the request for review. 

If the Administrator declines to review 

the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

hearing officer is final. 

(d) Review by the Administrator. If the 

Administrator elects to review the 

hearing decision regarding a contract 

determination, the Administrator shall 

review the hearing officer’s decision and 

determine, based upon this decision, the 

hearing record, and any written 

arguments submitted by the Part D 

sponsor or CMS, whether the 

determination should be upheld, 

reversed, or modified. 

* * * * * 

■ 59. Amend § 423.668 by—

■ A. Revising the section heading. 

■ B. Revising paragraph (a). 

The revisions read as follows: 

§ 423.668 Reopening of an initial contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Initial determination. CMS may 

reopen and revise an initial 

determination upon its own motion. 

* * * * * 

§ 423.669 [Removed] 

■ 60. Section 423.669 is removed. 

Subpart O—Intermediate Sanctions 

■ 61. Revise § 423.750 to read as 

follows: 

§ 423.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiency on which the 

determination was based has been 

corrected and is not likely to reoccur. 

(1) Suspension of enrollment of 

Medicare beneficiaries. 

(2) Suspension of payment to the Part 

D plan sponsor for Medicare 

beneficiaries who are enrolled in the 

Part D plan. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by a 

Part D plan sponsor for specified Part D 

plans. 

(b) CMS may impose civil money 

penalties as specified in § 423.760. 

■ 62. Amend § 423.752 by—

■ A. Revising the section heading. 

■ B. Revising paragraph (a) introductory 

text. 

■ C. Revising paragraph (b). 

■ D. Adding a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 423.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph (a), 

CMS may impose one, or more, of the 

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sanctions as specified in § 423.750(a) on 

any Part D plan sponsor that has a 

contract in effect. The Part D plan 

sponsor may also be subject to other 

applicable remedies available under 

law. 

* * * * * 

(b) Suspension of enrollment and 

marketing. If CMS makes a 

determination that could lead to a 

contract termination under § 423.509(a), 

CMS may impose the intermediate 

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

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

addition to, or in place of, any 

intermediate sanctions, CMS may 

impose civil money penalties in the 

amounts specified in § 423.760, for any 

of the determinations at § 423.509(a), 

except § 423.509(a)(4). 

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

any intermediate sanctions imposed by 

CMS, the OIG, in accordance with part 

1003 of Chapter V of this title, may 

impose civil money penalties for the 

following: 

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

(ii) Determinations made pursuant to 

§ 423.509(a)(4). 

■ 63. Amend § 423.756 by—

■ A. Revising the section heading. 

■ B. Revising paragraph (a). 

■ C. Revising paragraph (b). 

■ D. Revising paragraph (c). 

■ E. Revising paragraph (d). 

■ F. Revising paragraph (f) 

The revisions read as follows: 

§ 423.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(a) Notice of intermediate sanction 

and opportunity to respond—(1) Notice 

of intent. Before imposing the 

intermediate sanctions, CMS—

(i) Sends a written notice to the Part 

D plan sponsor stating the nature and 

basis of the proposed intermediate 

sanction, and the Part D plan sponsor’s 

right to a hearing as specified in 

paragraph (b) of this section; and 

(ii) Sends the OIG a copy of the 

notice. 

(2) Opportunity to respond. CMS 

allows the Part D plan sponsor 10 

calendar days from receipt of the notice 

to provide a written rebuttal. CMS 

considers receipt of notice as the day 

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

submitted for overnight mail. 

(b) Hearing. The Part D sponsor may 

request a hearing before a CMS hearing 

officer. A written request must be 

received by CMS within 15 calendar 

days of the Part D sponsor receiving the 

notice of intent to impose an 

intermediate sanction. A request for a 

hearing under § 423.650 does not delay 

the date specified by CMS when the 

sanction becomes effective. The Part D 

sponsor must follow the right to a 

hearing procedure as specified at 

§ 423.650 through § 423.662. 

(c) If CMS determines that a Part D 

sponsor has acted or failed to act as 

specified in § 423.752, CMS may—

(1) Require the Part D sponsor to 

suspend acceptance of applications 

made by Medicare beneficiaries for 

enrollment in the sanctioned Part D 

plan during the sanction period: 

(2) In the case of a violation under 

§ 423.752, suspend payments to the Part 

D sponsor for Medicare beneficiaries 

enrolled in the sanctioned Part D plan 

during the sanction period; and 

(3) Require the Part D sponsor to 

suspend all marketing activities for the 

sanctioned Part D 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 

calendar days after the date that the 

organization is notified of the decision 

to impose the sanction. 

(2) Exception. If CMS determines that 

the Part D sponsor’s conduct poses a 

serious threat to an enrollee’s health and 

safety, CMS may make the sanction 

effective on an earlier date that CMS 

specifies. 

* * * * * 

(f) Notice to impose civil money 

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

determines that a Part D sponsor has 

committed an act or failed to comply 

with a requirement as described in 

§ 423.752, CMS notifies the OIG of this 

determination. OIG may impose a civil 

money penalty upon a Part D sponsor as 

specified at § 423.752(c)(2). 

(2) CMS notice of civil money 

penalties to Part D plan sponsors. If 

CMS makes a determination to impose 

a CMP described in § 423.752(c)(1), 

CMS will send a written notice of the 

Agency’s decision to impose a civil 

money penalty to include—

(i) A description of the basis for the 

determination. 

(ii) The basis for the penalty. 

(iii) The amount of the penalty. 

(iv) The date the penalty is due. 

(v) The Part D sponsor’s right to a 

hearing as specified under Subpart T of 

this part. 

(vi) Information about where to file 

the request for hearing. 

■ 64. Revise § 423.758 to read as 

follows: 

§ 423.758 Collection of civil money 

penalties imposed by CMS. 

(a) When a Part D plan sponsor does 

not request a hearing CMS initiates 

collection of the civil money penalty 

following the expiration of the 

timeframe for requesting an ALJ hearing 

as specified in Subpart T. 

(b) If a Part D sponsor requests a 

hearing and CMS’ decision to impose a 

civil money penalty is upheld, CMS 

may initiate collection of the civil 

money penalty once the administrative 

decision is final. 

■ 65. Amend § 423.760 by—

■ A. Redesignating § 423.760 as 

§ 423.764. 

■ B. Adding a new § 423.760 to read as 

follows: 

§ 423.760 Determinations regarding the 

amount of civil money penalties and 

assessment imposed by CMS. 

(a) Determining the appropriate 

amount of any penalty. In determining 

the amount of penalty imposed under 

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

appropriate: 

(1) The nature of the conduct; 

(2) The degree of culpability of the 

Part D sponsor; 

(3) The harm which resulted or could 

have resulted from the conduct of the 

Part D sponsor; 

(4) The financial condition of the Part 

D sponsor; 

(5) The history of prior offenses by the 

Part D sponsor or principals of the Part 

D sponsor; and, 

(6) Such other matters as justice may 

require. 

(b) Amount of penalty. CMS may 

impose civil money penalties in the 

following amounts: 

(1) If the deficiency on which the 

determination is based has directly 

adversely affected (or has the substantial 

likelihood of adversely affecting) one or 

more Part D enrollees—up to $25,000 

for each determination. 

(2) For each week that a deficiency 

remains uncorrected after the week in 

which the Part D sponsor receives CMS’

notice of the determination—up to 

$10,000. 

(3) If CMS makes a determination that 

a Part D sponsor has terminated its 

contract other than in a manner 

described under § 423.510 and that the 

Part D sponsor has therefore failed to 

substantially carry out the terms of the 

contract, $250 per Medicare enrollee 

from the terminated Part D sponsor or 

plans at the time the Part D sponsor 

terminated its contract, or $100,000, 

whichever is greater. 

■ 66. Add a new § 423.762 to read as 

follows: 

§ 423.762 Settlement of penalties. 

For civil money penalties imposed by 

CMS, CMS may settle civil money 

penalty cases at any time before a final 

decision is rendered. 

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■ 67. A new subpart T is added to read 

as follows: 

Subpart T—Appeal Procedures for 

Civil Money Penalties 

Sec. 

423.1000 Basis and scope. 

423.1002 Definitions. 

423.1004 Scope and applicability. 

423.1006 Appeal rights. 

423.1008 Appointment of representatives. 

423.1010 Authority of representatives. 

423.1012 Fees for services of representative. 

423.1014 Charge for transcripts. 

423.1016 Filing of briefs with the 

Administrative Law Judge or 

Departmental Appeals Board, and 

opportunity for rebuttal. 

423.1018 Notice and effect of initial 

determinations. 

423.1020 Request for hearing. 

423.1022 Parties to the hearing. 

423.1024 Designation of hearing official. 

423.1026 Disqualification of Administrative 

Law Judge. 

423.1028 Prehearing conference. 

423.1030 Notice of prehearing conference. 

423.1032 Conduct of prehearing conference. 

423.1034 Record, order, and effect of 

prehearing conference. 

423.1036 Time and place of hearing. 

423.1038 Change in time and place of 

hearing. 

423.1040 Joint hearings. 

423.1042 Hearing on new issues. 

423.1044 Subpoenas. 

423.1046 Conduct of hearing. 

423.1048 Evidence. 

423.1050 Witnesses. 

423.1052 Oral and written summation. 

423.1054 Record of hearing. 

423.1056 Waiver of right to appear and 

present evidence. 

423.1058 Dismissal of request for hearing. 

423.1060 Dismissal for abandonment. 

423.1062 Dismissal for cause. 

423.1064 Notice and effect of dismissal and 

right to request review. 

423.1066 Vacating a dismissal of request for 

hearing. 

423.1068 Administrative Law Judge’s 

decision. 

423.1070 Removal of hearing to 

Departmental Appeals Board. 

423.1072 Remand by the Administrative 

Law Judge. 

423.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

423.1076 Request for Departmental Appeals 

Board review. 

423.1078 Departmental Appeals Board 

action on request for review. 

423.1080 Procedures before the 

Departmental Appeals Board on review. 

423.1082 Evidence admissible on review. 

423.1084 Decision or remand by the 

Departmental Appeals Board. 

423.1086 Effect of Departmental Appeals 

Board Decision. 

423.1088 Extension of time for seeking 

judicial review. 

423.1090 Basis, timing, and authority for 

reopening an Administrative Law Judge 

or Board decision. 

423.1092 Revision of reopened decision. 

423.1094 Notice and effect of revised 

decision. 

Subpart T—Appeal Procedures for 

Civil Money Penalties 

§ 423.1000 Basis and scope. 

(a) Statutory basis. (1) Section 

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

Secretary may not collect a civil money 

penalty until the affected party has had 

notice and opportunity for a hearing. 

(2) Section 1857 (g) of the Act 

provides that, for Part D sponsors found 

to be out of compliance with the 

requirements in part 423, specified 

remedies may be imposed instead of, or 

in addition to, termination of the Part D 

sponsor’s contract. Section 1857(g)(4) of 

the Act makes certain provisions of 

section 1128A of the Act applicable to 

civil money penalties imposed on Part 

D sponsors. 

(b) [Reserved] 

§ 423.1002 Definitions. 

As used in this subpart—

Affected party means any Part D 

sponsor impacted by an initial 

determination or if applicable, by any 

subsequent determination or decision 

issued under this part, and ‘‘party’’

means the affected party or CMS, as 

appropriate. 

ALJ stands for Administrative Law 

Judge. 

Departmental Appeals Board or Board 

means a Board established in the Office 

of the Secretary to provide impartial 

review of disputed decisions made by 

the operating components of the 

Department. 

Part D sponsor has the meaning given 

the term in § 423.4. 

§ 423.1004 Scope and applicability. 

(a) Scope. This subpart sets forth 

procedures for reviewing initial 

determinations that CMS makes with 

respect to the matters specified in 

paragraph (b) of this section. 

(b) Initial determinations by CMS. 

CMS makes initial determinations with 

respect to the imposition of civil money 

penalties in accordance with part 423, 

subpart O. 

§ 423.1006 Appeal rights. 

(a) Appeal rights of Part D sponsors. 

(1) Any Part D sponsor dissatisfied with 

an initial determination as specified in 

§ 423.1004, has a right to a hearing 

before an ALJ in accordance with this 

subpart and may request Departmental 

Appeals Board review of the ALJ 

decision. 

(2) Part D sponsors may request 

judicial review of the Departmental 

Appeals Board’s decision that imposes a 

CMP. 

(b) [Reserved] 

§ 423.1008 Appointment of 

representatives. 

(a) An affected party may appoint as 

its representative anyone not 

disqualified or suspended from acting as 

a representative in proceedings before 

the Secretary or otherwise prohibited by 

law. 

(b) If the representative appointed is 

not an attorney, the party must file 

written notice of the appointment with 

the ALJ or the Departmental Appeals 

Board. 

(c) If the representative appointed is 

an attorney, the attorney’s statement 

that he or she has the authority to 

represent the party is sufficient. 

§ 423.1010 Authority of representatives. 

(a) A representative appointed and 

qualified in accordance with § 423.1008 

may, on behalf of the represented 

party—

(1) Give and accept any notice or 

request pertinent to the proceedings set 

forth in this part; 

(2) Present evidence and allegations 

as to facts and law in any proceedings 

affecting that party to the same extent as 

the party; and 

(3) Obtain information to the same 

extent as the party. 

(b) A notice or request may be sent to 

the affected party, to the party’s 

representative, or to both. A notice or 

request sent to the representative has 

the same force and effect as if it had 

been sent to the party. 

§ 423.1012 Fees for services of 

representatives. 

Fees for any services performed on 

behalf of an affected party by an 

attorney appointed and qualified in 

accordance with § 423.1008 are not 

subject to the provisions of section 206 

of Title II of the Act, which authorizes 

the Secretary to specify or limit those 

fees. 

§ 423.1014 Charge for transcripts. 

A party that requests a transcript of 

prehearing or hearing proceedings or 

Board review must pay the actual or 

estimated cost of preparing the 

transcript unless, for good cause shown 

by that party, the payment is waived by 

the ALJ or the Departmental Appeals 

Board, as appropriate. 

§ 423.1016 Filing of briefs with the 

Administrative Law Judge or Departmental 

Appeals Board, and opportunity for 

rebuttal. 

(a) Filing of briefs and related 

documents. If a party files a brief or 

related document such as a written 

argument, contention, suggested finding 

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of fact, conclusion of law, or any other 

written statement, it must submit an 

original and 1 copy to the ALJ or the 

Departmental Appeals Board, as 

appropriate. The material may be filed 

by mail or in person and must include 

a statement certifying that a copy has 

been furnished to the other party. 

(b) Opportunity for rebuttal. (1) The 

other party will have 20 calendar days 

from the date of mailing or personal 

service to submit any rebuttal statement 

or additional evidence. If a party 

submits a rebuttal statement or 

additional evidence, it must file an 

original and 1 copy with the ALJ or the 

Board and furnish a copy to the other 

party. 

(2) The ALJ or the Board will grant an 

opportunity to reply to the rebuttal 

statement only if the party shows good 

cause. 

§ 423.1018 Notice and effect of initial 

determinations. 

(a) Notice of initial determination—(1) 

General rule. CMS, as required under 

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

determination to the affected party, 

setting forth the basis or reasons for the 

determination, the effect of the 

determination, the party’s right to a 

hearing, and information about where to 

file the request for a hearing. 

(b) Effect of initial determination. An 

initial determination is binding unless—

(1) The affected party requests a 

hearing; or 

(2) CMS revises its decision. 

§ 423.1020 Request for hearing. 

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

A Part D sponsor is entitled to a hearing 

as specified in § 423.1006 and may file 

a request with the Departmental 

Appeals Board office specified in the 

initial determination. 

(2) The Part D sponsor or its legal 

representative or other authorized 

official must file the request, in writing, 

to the appropriate Departmental 

Appeals Board office, with a copy to 

CMS, within 60 calendar days from 

receipt of the notice of initial 

determination, to request a hearing 

before an ALJ to appeal any 

determination by CMS to impose a civil 

money penalty. 

(b) Content of request for hearing. The 

request for hearing must—

(1) Identify the specific issues, and 

the findings of fact and conclusions of 

law with which the affected party 

disagrees; and 

(2) Specify the basis for each 

contention that a CMS finding or 

conclusion of law is incorrect. 

§ 423.1022 Parties to the hearing. 

The parties to the hearing are the 

affected party and CMS, as appropriate. 

§ 423.1024 Designation of hearing official. 

(a) The Chair of the Departmental 

Appeals Board, or his or her delegate, 

designates an ALJ or a member or 

members of the Departmental Appeals 

Board to conduct the hearing. 

(b) If appropriate, the Chair or the 

delegate may substitute another ALJ or 

another member or other members of 

the Departmental Appeals Board to 

conduct the hearing. 

(c) As used in this part, ‘‘ALJ’’

includes a member or members of the 

Departmental Appeals Board who are 

designated to conduct a hearing. 

§ 423.1026 Disqualification of 

Administrative Law Judge. 

(a) An ALJ may not conduct a hearing 

in a case in which he or she is 

prejudiced or partial to the affected 

party or has any interest in the matter 

pending for decision. 

(b) A party that objects to the ALJ 

designated to conduct the hearing must 

give notice of its objections at the 

earliest opportunity. 

(c) The ALJ will consider the 

objections and decide whether to 

withdraw or proceed with the hearing. 

(1) If the ALJ withdraws, another ALJ 

will be designated to conduct the 

hearing. 

(2) If the ALJ does not withdraw, the 

objecting party may, after the hearing, 

present its objections to the 

Departmental Appeals Board as reasons 

for changing, modifying, or reversing 

the ALJ’s decision or providing a new 

hearing before another ALJ. 

§ 423.1028 Prehearing conference. 

(a) At any time before the hearing, the 

ALJ may call a prehearing conference 

for the purpose of delineating the issues 

in controversy, identifying the evidence 

and witnesses to be presented at the 

hearing, and obtaining stipulations 

accordingly. 

(b) On the request of either party or 

on his or her own motion, the ALJ may 

adjourn the prehearing conference and 

reconvene at a later date. 

§ 423.1030 Notice of prehearing 

conference. 

(a) Timing of notice. The ALJ will fix 

a time and place for the prehearing 

conference and mail written notice to 

the parties at least 10 calendar days 

before the scheduled date. 

(b) Content of notice. The notice will 

inform the parties of the purpose of the 

conference and specify what issues are 

sought to be resolved, agreed to, or 

excluded. 

(c) Additional issues. Issues other 

than those set forth in the notice of 

determination or the request for hearing 

may be considered at the prehearing 

conference if—

(1) Either party gives timely notice to 

that effect to the ALJ and the other 

party; or 

(2) The ALJ raises the issues in the 

notice of prehearing conference or at the 

conference. 

§ 423.1032 Conduct of prehearing 

conference. 

(a) The prehearing conference is open 

to the affected party or its 

representative, to the CMS 

representatives and their technical 

advisors, and to any other persons 

whose presence the ALJ considers 

necessary or proper. 

(b) The ALJ may accept the agreement 

of the parties as to the following: 

(1) Facts that are not in controversy. 

(2) Questions that have been resolved 

favorably to the affected party after the 

determination in dispute. 

(3) Remaining issues to be resolved. 

(c) The ALJ may request the parties to 

indicate the following: 

(1) The witnesses that will be present 

to testify at the hearing. 

(2) The qualifications of those 

witnesses. 

(3) The nature of other evidence to be 

submitted. 

§ 423.1034 Record, order, and effect of 

prehearing conference. 

(a) Record of prehearing conference. 

(1) A record is made of all agreements 

and stipulations entered into at the 

prehearing conference. 

(2) The record may be transcribed at 

the request of either party or the ALJ. 

(b) Order and opportunity to object. 

(1) The ALJ issues an order setting forth 

the results of the prehearing conference, 

including the agreements made by the 

parties as to facts not in controversy, the 

matters to be considered at the hearing, 

and the issues to be resolved. 

(2) Copies of the order are sent to all 

parties and the parties have 10 calendar 

days to file objections to the order. 

(3) After the 10 calendar days have 

elapsed, the ALJ settles the order. 

(c) Effect of prehearing conference. 

The agreements and stipulations entered 

into at the prehearing conference are 

binding on all parties, unless a party 

presents facts that, in the opinion of the 

ALJ, would make an agreement 

unreasonable or inequitable. 

§ 423.1036 Time and place of hearing. 

(a) The ALJ fixes a time and place for 

the hearing and gives the parties written 

notice at least 10 calendar days before 

the scheduled date. 

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(b) The notice informs the parties of 

the general and specific issues to be 

resolved at the hearing. 

§ 423.1038 Change in time and place of 

hearing. 

(a) The ALJ may change the time and 

place for the hearing either on his or her 

own initiative or at the request of a 

party for good cause shown, or may 

adjourn or postpone the hearing. 

(b) The ALJ may reopen the hearing 

for receipt of new evidence at any time 

before mailing the notice of hearing 

decision. 

(c) The ALJ gives the parties 

reasonable notice of any change in time 

or place or any adjournment or 

reopening of the hearing. 

§ 423.1040 Joint hearings. 

When two or more affected parties 

have requested hearings and the same or 

substantially similar matters are at 

issue, the ALJ may, if all parties agree, 

fix a single time and place for the 

prehearing conference or hearing and 

conduct all proceedings jointly. If joint 

hearings are held, a single record of the 

proceedings is made and a separate 

decision issued with respect to each 

affected party. 

§ 423.1042 Hearing on new issues. 

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

limits specified in paragraph (b) of this 

section, the ALJ may, at the request of 

either party, or on his or her own 

motion, provide a hearing on new issues 

that impinge on the rights of the affected 

party. 

(2) The ALJ may consider new issues 

even if CMS has not made initial 

determinations on them, and even if 

they arose after the request for hearing 

was filed or after a prehearing 

conference. 

(3) The ALJ may give notice of hearing 

on new issues at any time after the 

hearing request is filed and before the 

hearing record is closed. 

(b) Notice and conduct of hearing on 

new issues. 

(1) Unless the affected party waives 

its right to appear and present evidence, 

notice of the time and place of hearing 

on any new issue will be given to the 

parties in accordance with § 423.1036. 

(2) After giving notice, the ALJ will, 

except as provided in paragraph (c) of 

this section, proceed to hearing on new 

issues in the same manner as on an 

issue raised in the request for hearing. 

(c) Remand to CMS. At the request of 

either party, or on his or her own 

motion, in lieu of a hearing under 

paragraph (b) of this section, the ALJ 

may remand the case to CMS for 

consideration of the new issue and, if 

appropriate, a determination. If 

necessary, the ALJ may direct CMS to 

return the case to the ALJ for further 

proceedings. 

§ 423.1044 Subpoenas. 

(a) Basis for issuance. The ALJ, upon 

his or her own motion or at the request 

of a party, may issue subpoenas if they 

are reasonably necessary for the full 

presentation of a case. 

(b) Timing of request by a party. The 

party must file a written request for a 

subpoena with the ALJ at least 5 

calendar days before the date set for the 

hearing. 

(c) Content of request. The request 

must: 

(1) Identify the witnesses or 

documents to be produced; 

(2) Describe their addresses or 

location with sufficient particularity to 

permit them to be found; and 

(3) Specify the pertinent facts the 

party expects to establish by the 

witnesses or documents, and indicate 

why those facts could not be established 

without use of a subpoena. 

(d) Method of issuance. Subpoenas 

are issued in the name of the Secretary. 

§ 423.1046 Conduct of hearing. 

(a) Participants in the hearing. The 

hearing is open to the parties and their 

representatives and technical advisors, 

and to any other persons whose 

presence the ALJ considers necessary or 

proper. 

(b) Hearing procedures. (1) The ALJ 

inquires fully into all of the matters at 

issue, and receives in evidence the 

testimony of witnesses and any 

documents that are relevant and 

material. 

(2) If the ALJ believes that there is 

relevant and material evidence available 

which has not been presented at the 

hearing, he may, at any time before 

mailing of notice of the decision, reopen 

the hearing to receive that evidence. 

(3) The ALJ decides the order in 

which the evidence and the arguments 

of the parties are presented and the 

conduct of the hearing. 

(4) CMS has the burden of coming 

forward with evidence related to 

disputed findings that is sufficient 

(together with any undisputed findings 

and legal authority) to establish a prima 

facie case that CMS has a legally 

sufficient basis for its determination. 

(5) The affected party has the burden 

of coming forward with evidence 

sufficient to establish the elements of 

any affirmative argument or defense 

which it offers. 

(6) The affected party bears the 

ultimate burden of persuasion. To 

prevail, the affected party must prove by 

a preponderance of the evidence on the 

record as a whole that there is no basis 

for the determination. 

(c) Review of the penalty. When an 

ALJ finds that the basis for imposing a 

civil money penalty exists, as specified 

in § 423.752, the ALJ may not—

(1) Set a penalty of zero or reduce a 

penalty to zero, or 

(2) Review the exercise of discretion 

by CMS to impose a civil money 

penalty. 

§ 423.1048 Evidence. 

Evidence may be received at the 

hearing even though inadmissible under 

the rules of evidence applicable to court 

procedure. The ALJ rules on the 

admissibility of evidence. 

§ 423.1050 Witnesses. 

Witnesses at the hearing testify under 

oath or affirmation. The representative 

of each party is permitted to examine 

his or her own witnesses subject to 

interrogation by the representative of 

the other party. The ALJ may ask any 

questions that he or she deems 

necessary. The ALJ rules upon any 

objection made by either party as to the 

propriety of any question. 

§ 423.1052 Oral and written summation. 

The parties to a hearing are allowed 

a reasonable time to present oral 

summation and to file briefs or other 

written statements of proposed findings 

of fact and conclusions of law. Copies 

of any briefs or other written statements 

must be sent in accordance with 

§ 423.1016. 

§ 423.1054 Record of hearing. 

A complete record of the proceedings 

at the hearing is made and transcribed 

in all cases. 

§ 423.1056 Waiver of right to appear and 

present evidence. 

(a) Waiver procedures. (1) If an 

affected party wishes to waive its right 

to appear and present evidence at the 

hearing, it must file a written waiver 

with the ALJ. 

(2) If the affected party wishes to 

withdraw a waiver, it may do so, for 

good cause, at any time before the ALJ 

mails notice of the hearing decision. 

(b) Effect of waiver. If the affected 

party waives the right to appear and 

present evidence, the ALJ need not 

conduct an oral hearing except in one of 

the following circumstances: 

(1) The ALJ believes that the 

testimony of the affected party or its 

representatives or other witnesses is 

necessary to clarify the facts at issue. 

(2) CMS shows good cause for 

requiring the presentation of oral 

evidence. 

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(c) Dismissal for failure to appear. If, 

despite the waiver, the ALJ sends notice 

of hearing and the affected party fails to 

appear, or to show good cause for the 

failure, the ALJ will dismiss the appeal 

in accordance with § 423.1058. 

(d) Hearing without oral testimony. 

When there is no oral testimony, the 

ALJ will—

(1) Make a record of the relevant 

written evidence that was considered in 

making the determination being 

appealed, and of any additional 

evidence submitted by the parties; 

(2) Furnish to each party copies of the 

additional evidence submitted by the 

other party; and 

(3) Give both parties a reasonable 

opportunity for rebuttal. 

(e) Handling of briefs and related 

statements. If the parties submit briefs 

or other written statements of evidence 

or proposed findings of facts or 

conclusions of law, those documents 

will be handled in accordance with 

§ 423.1016. 

§ 423.1058 Dismissal of request for 

hearing. 

(a) The ALJ may, at any time before 

mailing the notice of the decision, 

dismiss a hearing request if a party 

withdraws its request for a hearing or 

the affected party asks that its request be 

dismissed. 

(b) An affected party may request a 

dismissal by filing a written notice with 

the ALJ. 

§ 423.1060 Dismissal for abandonment. 

(a) The ALJ may dismiss a request for 

hearing if it is abandoned by the party 

that requested it. 

(b) The ALJ may consider a request for 

hearing to be abandoned if the party or 

its representative—

(1) Fails to appear at the prehearing 

conference or hearing without having 

previously shown good cause for not 

appearing; and 

(2) Fails to respond, within 10 

calendar days after the ALJ sends a 

‘‘show cause’’ notice, with a showing of 

good cause. 

§ 423.1062 Dismissal for cause. 

On his or her own motion, or on the 

motion of a party to the hearing, the ALJ 

may dismiss a hearing request either 

entirely or as to any stated issue, under 

any of the following circumstances: 

(a) Res judicata. There has been a 

previous determination or decision with 

respect to the rights of the same affected 

party on the same facts and law 

pertinent to the same issue or issues 

which has become final either by 

judicial affirmance or, without judicial 

consideration, because the affected 

party did not timely request 

reconsideration, hearing, or review, or 

commence a civil action with respect to 

that determination or decision. 

(b) No right to hearing. The party 

requesting a hearing is not a proper 

party or does not otherwise have a right 

to a hearing. 

(c) Hearing request not timely filed. 

The affected party did not file a hearing 

request timely and the time for filing 

has not been extended. 

§ 423.1064 Notice and effect of dismissal 

and right to request review. 

(a) Notice of the ALJ’s dismissal 

action is mailed to the parties. The 

notice advises the affected party of its 

right to request that the dismissal be 

vacated as provided in § 423.1066. 

(b) The dismissal of a request for 

hearing is binding unless it is vacated 

by the ALJ or the Departmental Appeals 

Board. 

§ 423.1066 Vacating a dismissal of request 

for hearing. 

An ALJ may vacate any dismissal of 

a request for hearing if a party files a 

request to that effect within 60 calendar 

days from receipt of the notice of 

dismissal and shows good cause for 

vacating the dismissal. 

§ 423.1068 Administrative Law Judge’s 

decision. 

(a) Timing, basis and content. As soon 

as practical after the close of the 

hearing, the ALJ issues a written 

decision in the case. The decision is 

based on the evidence of record and 

contains separate numbered findings of 

fact and conclusions of law. 

(b) Notice and effect. A copy of the 

decision is mailed to the parties and is 

binding on them unless—

(1) A party requests review by the 

Departmental Appeals Board within the 

time period specified in § 423.1076, and 

the Board reviews the case; 

(2) The Departmental Appeals Board 

denies the request for review and the 

party seeks judicial review by filing an 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; 

(3) The decision is revised by an ALJ 

or the Department Appeals Board; or 

(4) The decision is a recommended 

decision directed to the Board. 

§ 423.1070 Removal of hearing to 

Departmental Appeals Board. 

(a) At any time before the ALJ receives 

oral testimony, the Board may remove to 

itself any pending request for a hearing. 

(b) Notice of removal is mailed to 

each party. 

(c) The Board conducts the hearing in 

accordance with the rules that apply to 

ALJ hearings under this subpart. 

§ 423.1072 Remand by the Administrative 

Law Judge. 

(a) If CMS requests remand, and the 

affected party concurs in writing or on 

the record, the ALJ may remand any 

case properly before him or her to CMS 

for a determination satisfactory to the 

affected party. 

(b) The ALJ may remand at any time 

before notice of hearing decision is 

mailed. 

§ 423.1074 Right to request Departmental 

Appeals Board review of Administrative 

Law Judge’s decision or dismissal. 

Either of the parties has a right to 

request Departmental Appeals Board 

review of the ALJ’s decision or 

dismissal order, and the parties are so 

informed in the notice of the ALJ’s 

action. 

§ 423.1076 Request for Departmental 

Appeals Board review. 

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

party that is dissatisfied with an ALJ’s 

decision or dismissal of a hearing 

request, may file a written request for 

review by the Departmental Appeals 

Board. 

(2) The requesting party or its 

representative or other authorized 

official must file the request with the 

DAB within 60 calendar days from 

receipt of the notice of decision or 

dismissal, unless the Board, for good 

cause shown by the requesting party, 

extends the time for filing. 

(b) Content of request for review. A 

request for review of an ALJ decision or 

dismissal must specify the issues, the 

findings of fact or conclusions of law 

with which the party disagrees, and the 

basis for contending that the findings 

and conclusions are incorrect. 

§ 423.1078 Departmental Appeals Board 

action on request for review. 

(a) Request by CMS. The Departmental 

Appeals Board may dismiss, deny, or 

grant a request made by CMS for review 

of an ALJ decision or dismissal. 

(b) Request by the affected party. The 

Board may deny or grant the affected 

party’s request for review or may 

dismiss the request for one of the 

following reasons: 

(1) The affected party requests 

dismissal of its request for review. 

(2) The affected party did not file 

timely or show good cause for late 

filing. 

(3) The affected party does not have 

a right to review. 

(4) A previous determination or 

decision, based on the same facts and 

law, and regarding the same issue, has 

become final through judicial 

affirmance or because the affected party 

failed to timely request reconsideration, 

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hearing, Board review, or judicial 

review, as appropriate. 

(c) Effect of dismissal. The dismissal 

of a request for Departmental Appeals 

Board review is binding and not subject 

to further review. 

(d) Review panel. If the Board grants 

a request for review of the ALJ’s 

decision, the review will be conducted 

by a panel of three members of the 

Board, designated by the Chair or 

Deputy Chair. 

§ 423.1080 Procedures before the 

Departmental Appeals Board on review. 

The parties are given, upon request, a 

reasonable opportunity to file briefs or 

other written statements as to fact and 

law, and to appear before the 

Departmental Appeals Board to present 

evidence or oral arguments. Copies of 

any brief or other written statement 

must be sent in accordance with 

§ 423.1016. 

§ 423.1082 Evidence admissible on review. 

(a) The Departmental Appeals Board 

may admit evidence into the record in 

addition to the evidence introduced at 

the ALJ hearing, (or the documents 

considered by the ALJ if the hearing was 

waived), if the Board considers that the 

additional evidence is relevant and 

material to an issue before it. 

(b) If it appears to the Board that 

additional relevant evidence is 

available, the Board will require that it 

be produced. 

(c) Before additional evidence is 

admitted into the record—

(1) Notice is mailed to the parties 

(unless they have waived notice) stating 

that evidence will be received regarding 

specified issues; and 

(2) The parties are given a reasonable 

time to comment and to present other 

evidence pertinent to the specified 

issues. 

(d) If additional evidence is presented 

orally to the Board, a transcript is 

prepared and made available to any 

party upon request. 

§ 423.1084 Decision or remand by the 

Departmental Appeals Board. 

(a) When the Departmental Appeals 

Board reviews an ALJ’s decision or 

order of dismissal, or receives a case 

remanded by a court, the Board may 

either issue a decision or remand the 

case to an ALJ for a hearing and 

decision or a recommended decision for 

final decision by the Board. 

(b) In a remanded case, the ALJ 

initiates additional proceedings and 

takes other actions as directed by the 

Board in its order of remand, and may 

take other action not inconsistent with 

that order. 

(c) Upon completion of all action 

called for by the remand order and any 

other consistent action, the ALJ 

promptly makes a decision or, as 

specified by the Board, certifies the case 

to the Board with a recommended 

decision. 

(d) The parties have 20 calendar days 

from the date of a notice of a 

recommended decision to submit to the 

Board any exception, objection, or 

comment on the findings of fact, 

conclusions of law, and recommended 

decision. 

(e) After the 20-calendar day period, 

the Board issues its decision adopting, 

modifying or rejecting the ALJ’s 

recommended decision. 

(f) If the Board does not remand the 

case to an ALJ, the following rules 

apply: 

(1) The Board’s decision—

(i) Is based upon the evidence in the 

hearing record and any further evidence 

that the Board receives during its 

review; 

(ii) Is in writing and contains separate 

numbered findings of fact and 

conclusions of law; and 

(iii) May modify, affirm, or reverse the 

ALJ’s decision. 

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

mailed to each party. 

§ 423.1086 Effect of Departmental Appeals 

Board Decision. 

(a) General rule. The Board’s decision 

is binding unless—

(1) The affected party has a right to 

judicial review and timely files a civil 

action in a United States District Court 

or, in the case of a civil money penalty, 

in a United States Court of Appeals; or 

(2) The Board reopens and revises its 

decision in accordance with § 423.1092. 

(b) Right to judicial review. Section 

423.1006 specifies the circumstances 

under which an affected party has a 

right to seek judicial review. 

(c) Special rules: Civil money penalty. 

Finality of Board’s decision. When CMS 

imposes a civil money penalty, notice of 

the Board’s decision (or denial of 

review) is the final administrative action 

that initiates the 60-calendar day period 

for seeking judicial review. 

§ 423.1088 Extension of time for seeking 

judicial review. 

(a) Any affected party that is 

dissatisfied with an Departmental 

Appeals Board decision and is entitled 

to judicial review must commence civil 

action within 60 calendar days from 

receipt of the notice of the Board’s 

decision, unless the Board extends the 

time in accordance with paragraph (c) of 

this section. 

(b) The request for extension must be 

filed in writing with the Board before 

the 60-calendar day period ends. 

(c) For good cause shown, the Board 

may extend the time for commencing 

civil action. 

§ 423.1090 Basis, timing, and authority for 

reopening an Administrative Law Judge or 

Board decision. 

(a) Basis and timing for reopening. An 

ALJ of Departmental Appeals Board 

decision may be reopened, within 60 

calendar days from the date of the 

notice of decision, upon the motion of 

the ALJ or the Board or upon the 

petition of either party to the hearing. 

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

of the Departmental Appeals Board may 

be reopened only by the Departmental 

Appeals Board. 

(2) A decision of an ALJ may be 

reopened by that ALJ, by another ALJ if 

that one is not available, or by the 

Departmental Appeals Board. For 

purposes of this paragraph, an ALJ is 

considered to be unavailable if the ALJ 

has died, terminated employment, or 

been transferred to another duty station, 

is on leave of absence, or is unable to 

conduct a hearing because of illness. 

§ 423.1092 Revision of reopened decision. 

(a) Revision based on new evidence. 

If a reopened decision is to be revised 

on the basis of new evidence that was 

not included in the record of that 

decision, the ALJ or the Departmental 

Appeals Board—

(1) Notifies the parties of the proposed 

revision; and 

(2) Unless the parties waive their right 

to hearing or appearance—

(i) Grants a hearing in the case of an 

ALJ revision; and 

(ii) Grants opportunity to appear in 

the case of a Board revision. 

(b) Basis for revised decision and right 

to review. 

(1) If a revised decision is necessary, 

the ALJ or the Departmental Appeals 

Board, as appropriate, renders it on the 

basis of the entire record. 

(2) If the decision is revised by an 

ALJ, the Departmental Appeals Board 

may review that revised decision at the 

request of either party or on its own 

motion. 

§ 423.1094 Notice and effect of revised 

decision. 

(a) Notice. The notice mailed to the 

parties states the basis or reason for the 

revised decision and informs them of 

their right to Departmental Appeals 

Board review of an ALJ revised 

decision, or to judicial review of a Board 

reviewed decision. 

(b) Effect—(1) ALJ revised decision. 

An ALJ revised decision is binding 

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Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / Rules and Regulations 68741 

unless it is reviewed by the 

Departmental Appeals Board. 

(2) Departmental Appeals Board 

revised decision. A Board revised 

decision is binding unless a party files 

a civil action in a district court of the 

United States within the time frames 

specified in § 423.858. 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: September 14, 2007. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: October 26, 2007. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. 07–5946 Filed 11–30–07; 5:10 pm] 

BILLING CODE 4120–01–P 

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