54226 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422 and 423 

[CMS 4138–IFC] 

RIN 0938–AP52 

Medicare Program; Revisions to the 

Medicare Advantage and Prescription 

Drug Benefit Programs 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Interim final rule with comment 

period. 

SUMMARY: This interim final rule with 

comment period (IFC) revises the 

regulations governing the Medicare 

Advantage (MA) program (Part C), 

prescription drug benefit program (Part 

D) and section 1876 cost plans. This IFC 

makes conforming changes to the MA 

regulations to reflect new statutory 

requirements regarding special needs 

plans (SNP), private-fee-for-service 

plans (PFFS), regional preferred 

provider organizations (RPPO) plans, 

Medicare medical savings accounts 

(MSA) plans, and new statutory 

provisions governing cost-sharing for 

dual-eligible enrollees in the MA 

program prescription drug pricing, 

coverage, and payment processes in the 

Part D program. In addition, this IFC 

sets forth new requirements governing 

the marketing of Part C and Part D plans 

which by statute must be in place at a 

date specified by the Secretary, but no 

later than November 15, 2008. Both the 

conforming changes to the regulations to 

reflect new statutory provisions and the 

new marketing requirements are based 

on provisions in the Medicare 

Improvements for Patients and 

Providers Act (MIPPA), which became 

law on July 15, 2008. 

DATES: Effective Date: September 18, 

2008. 

Comment Date: To be assured 

consideration, comments must be 

received at one of the addresses 

provided below, no later than 5 p.m. on 

November 17, 2008. 

ADDRESSES: In commenting, please refer 

to file code CMS–4138–IFC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.regulations.gov. Follow the 

instructions for ‘‘Comment or 

Submission’’ and enter the filecode to 

find the document accepting comments. 

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–4138– 

IFC, P.O. Box 8016, Baltimore, MD 

21244–8016. 

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–4138–IFC, 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 either of the 

following addresses: 

a. Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; 

(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.) 

b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by following 

the instructions at the end of the 

‘‘Collection of Information 

Requirements’’ section in this 

document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Private-Fee-For-Service Plans—Sabrina 

Ahmed, 410–786–7499. 

Special Needs Plans—LaVern Baty, 

410–786–5480. 

Cost Plans—Chris McClintick, 410–786– 

4682. 

Medicare Medical Savings Account 

Plans—Anne Manley, 410–786–1096. 

Enrollment—Lynn Orlosky, 410–786– 

9064. 

Payment—Frank Szeflinski, 303–844– 

7119. 

Marketing—Camille Brown, 410–786– 

0274, or Chevell Thomas, 410–786– 

1387. 

Contract provision relating to Part D 

drug benefit—Vanessa Duran, 410– 

786–8697, or Deborah Larwood, 410– 

786–9500. 

Low-income subsidy and late 

enrollment penalties—Deondra 

Moseley, (410) 786–4577 or Meghan 

Elrington, (410) 786–8675. 

SUPPLEMENTARY INFORMATION: 

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://regulations.gov. 

Follow the search instructions on that 

Web site to view public comments. 

Comments received timely will be 

also 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. 

I. Background 

A. Overview of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 

The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173) was 

enacted on December 8, 2003. The 

MMA established the Medicare 

prescription drug benefit program (Part 

D) and made revisions to the provisions 

in Medicare Part C, governing what is 

now called the Medicare Advantage 

(MA) program (formerly 

Medicare+Choice). The MMA directed 

that important aspects of the new 

Medicare prescription drug benefit 

program under Part D be similar to and 

coordinated with regulations for the MA 

program. 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54227 

The MMA also directed 

implementation of the prescription drug 

benefit and revised MA program 

provisions by January 1, 2006. The final 

rules for the MA and Part D prescription 

drug programs appeared in the Federal 

Register on January 28, 2005 (70 FR 

4588 and 70 FR 4194, respectively). 

Many of the provisions relating to 

applications, marketing, contracts, and 

the new bidding process, for the MA 

program, became effective on March 22, 

2005, 60 days after publication of the 

rule, so that the requirements for both 

programs could be implemented by 

January 1, 2006. All of the provisions 

regarding the new Part D prescription 

drug program became effective on 

March 22, 2005. 

As we gained more experience with 

the MA program and the prescription 

drug benefit program, we proposed to 

revise areas of both programs and issued 

a proposed rule on May 16, 2008 (73 FR 

28556) that would have clarified 

existing policies or codified current 

guidance for both programs. Several of 

these proposed regulatory revisions 

have been overtaken by statutory 

provisions enacted in the Medicare 

Improvements for Patients and 

Providers Act (MIPPA) (Pub. L. 110– 

275), enacted on July 15, 2008. These 

MIPPA provisions directly address in 

statute several issues we proposed to 

address through rulemaking, and thus 

supersedes our rulemaking in these 

areas. Comments on our proposals in 

these areas thus are no longer relevant, 

as we have no authority to depart from 

the statutory requirements Congress has 

enacted (these requirements largely 

track the regulatory proposals in the 

May 16 proposed rule). Because the law 

has changed in these areas, however, 

conforming changes must be made to 

the relevant sections of the Code of 

Federal Regulations in order for the 

regulations to accurately reflect the new 

state of the law under MIPPA. This 

interim final rule with comment period 

(IFC) makes these changes. 

MIPPA also called upon the Secretary 

to revise the marketing requirements for 

Part C and Part D plans in several areas 

specified in MIPPA. With the 

exceptions noted in this interim final 

rule, these new rules are to take effect 

at a date specified by the Secretary, but 

no later than November 15, 2008. This 

IFC contains provisions that implement 

these latter MIPPA requirements. Some 

provisions in our May 16 proposed rule 

addressed issues in areas in which 

MIPAA required that we establish 

marketing limits no later than November 

15th. As a result, to the extent our 

policies were informed by these 

comments, we will address them in our 

discussion of the marketing provisions 

we have developed in implementing 

these provisions of MIPPA. In addition 

we will publish in the near future, a 

separate final rule responding to public 

comments on those provisions of the 

May 16, 2008 proposed rule that were 

not addressed in MIPPA. Because 

MIPPA and the May 16, 2008 proposed 

rule often specified requirements in the 

same general areas, we are publishing 

separate regulations in order to clearly 

distinguish between provisions which 

are statutory and those provisions 

which we proposed to promulgate 

through rulemaking and will be 

finalizing based on public notice and 

comment. 

B. Relevant Legislative History and 

Overview 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) established a 

new ‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act)) which 

provided for a Medicare+Choice (M+C) 

program. Under section 1851(a)(1) of the 

Act, every individual entitled to 

Medicare Part A and enrolled under 

Medicare Part B, except for most 

individuals with end-stage renal disease 

(ESRD), could elect to receive benefits 

either through the original Medicare 

program or an M+C plan, if one was 

offered where he or she lived. 

The Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA), Public Law 106–111, 

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. 

As noted above, the MMA was 

enacted on December 8, 2003. Title I of 

the MMA added a new ‘‘Part D’’ to the 

Medicare statute (sections 1860D–1 

through 1860D–42) creating the 

Medicare Prescription Drug Benefit 

Program, the most significant 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 Part C program. Title II of the MMA 

renamed the M+C program the MA 

program and included new payment 

and bidding provisions, new regional 

MA plans and special needs plans, 

reestablished authority for medical 

savings account (MSA) plans that had 

been provided in the BBA on a 

temporary basis, and made other 

changes. Title I of the MMA created 

prescription drug benefits under 

Medicare Part D, and a new retiree drug 

subsidy program. 

Both the MA and prescription drug 

benefit regulations were published 

separately, as proposed and final rules, 

though their development and 

publication were closely coordinated. 

On August 3, 2004, we published in the 

Federal Register proposed rules for the 

MA program (69 FR 46866) and the 

prescription drug benefit program (69 

FR 46632). In response to public 

comments on the proposed rules, we 

made several revisions to the proposed 

policies for both programs. For further 

discussion of these revisions, see the 

respective final rules (70 FR 4588) and 

(70 FR 4194). 

On July 15, 2008, the Medicare 

Improvements for Patients and 

Providers Act became law, leading to 

the revisions to the MA and Part D 

prescription drug benefit programs 

discussed in Section II, Provisions of the 

Interim Final Rule. 

II. Provisions of the Interim Final Rule 

In the sections that follow, we discuss 

the revisions made in this IFC to final 

provisions to the regulations in 42 CFR 

417, 422 and 423 governing, 

respectively, section 1876 cost plans, 

and the MA and prescription drug 

benefit programs. Several of the final 

provisions affect both the MA and Part 

D programs. In our discussion, we note 

when a provision affects both the MA 

and prescription drug benefit and 

include in section II C, a table 

comparing the proposed Part C and Part 

D program changes by specifying each 

issue and the sections of the Code of 

Federal Regulations that we are revising 

for both programs. 

A. Changes to the Regulations in Part 

422—Medicare Advantage Program 

1. Special Needs Plans 

The Congress first authorized special 

needs plans (SNP) to exclusively or 

disproportionately serve individuals 

with special needs. The three types of 

special needs individuals eligible for 

enrollment identified by the Congress 

include (1) institutionalized individuals 

(defined in § 422.2 as an individual 

residing or expecting to reside for 90 

days or longer in a long term care 

facility), (2) individuals entitled to 

medical assistance under a State plan 

under title XIX, and (3) other 

individuals with severe or disabling 

chronic conditions that would benefit 

from enrollment in a SNP. 

The number of SNPs approved as of 

January 2008, is 787. This figure 

includes 442 dual-eligible SNPs, 256 


dwashington3 on PRODPC61 with RULES3
54228 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

chronic care SNPs, and 89 institutional 

SNPs. 

a. Model of Care (§ 422.101(f)) 

Section 164 of MIPPA adds care 

management requirements for all SNPs 

effective January 1, 2010, as set forth in 

section 1859(f)(5) of the Act (42 U.S.C. 

1395w–28(f)). The new mandate 

requires dual-eligible, institutional, and 

chronic condition SNPs to implement 

care management requirements having 

two explicit components. While our 

revisions specifically reflect the MIPPA 

provisions, it should be noted that in 

our May 16, 2008 proposed rule, we 

proposed other, related provisions 

which we will finalize, based on public 

notice and comments, in a final rule to 

be published soon after this IFC. 

The first component is an evidencebased model of care with an appropriate 

network of providers and specialists to 

meet the specialized needs of the SNP 

target population. We do not endorse 

any particular set of evidence-based 

guidelines or protocols but expect that 

SNPs will develop such guidelines and 

protocols through sources such as the 

Agency for Healthcare Research and 

Quality (http://www.ahrq.gov/). The 

AHRQ does not endorse any particular 

set of evidence-based guidelines or 

protocols but its Web site includes 

access to nationally-recognized 

evidence-based practices. The second 

component is a battery of care 

management services that includes (1) a 

comprehensive initial assessment and 

annual reassessments of the individual’s 

physical, psychosocial, and functional 

needs, (2) an individualized plan of care 

having goals and measurable outcomes, 

including specific services and benefits 

to be provided, and (3) an 

interdisciplinary team to manage care. 

In addition, MIPPA mandates the 

periodic audit of SNPs to ensure that 

plans meet the model of care 

requirements. 

In this IFC, we are revising 

§ 422.101(f), effective January 1, 2010, to 

reflect the new MIPPA provisions 

requiring a SNP model of care. 

Specifically, we are revising the 

regulation to reflect the statutory 

components described in the preceding 

paragraph. We also issued guidance on 

the SNP model of care in our 2008 and 

2009 Call Letters. Care coordination and 

a provider network comprised of 

clinical experts pertinent to the target 

population have been the cornerstones 

of the SNP model of care. 

We expect that MA organizations 

having the commitment and resources 

to serve vulnerable special needs 

beneficiaries through SNPs will 

perpetually evaluate their own model of 

care by collecting and analyzing 

performance data to continually 

improve their model of care. Through 

the analysis of SNP performance data 

and monitoring visits, the review of 

scientific research on the efficacy of 

other care models, and feedback from 

beneficiaries, advocacy groups, and 

healthcare professionals, we will 

continue to evaluate models of care. As 

we look longitudinally at evidencebased advancements in care 

coordination, we will also issue 

guidance through our Call Letters and 

informational memoranda to share 

innovations and facilitate improvement 

in the SNP model of care framework. 

b. Dual-Eligible SNPs and Contracts 

With States (§ 422.107) 

In the May 16, 2008 proposed rule, we 

proposed in new section § 422.107 to 

require, effective January 1, 2010, that 

MA organizations offering a dualeligible SNP have a documented 

relationship with the State Medicaid 

agency, and that the arrangements, at a 

minimum, include a means to (1) verify 

enrollees’ eligibility for both Medicare 

and Medicaid, (2) identify and share 

information on Medicaid provider 

participation, and (3) identify Medicaid 

benefits which are not covered by 

Medicare. 

CMS’ proposed § 422.107, which 

sought to require a documented 

relationship between MA organizations 

and State Medicaid agencies for dualeligible SNPs, has been superseded by 

Section 164 of MIPPA. Section 164 of 

MIPPA adds new requirements to 

section 1859(f) of the Act for dualeligible SNPs. Beginning on January 1, 

2010, MA organizations offering new 

dual-eligible SNPs must have a contract 

with the State Medicaid agency to 

provide benefits, or arrange for benefits 

to be provided, for individuals entitled 

to receive medical assistance under title 

XIX. In order to implement the MIPPA 

requirement for a contract, we are 

specifying in this IFC that the contract 

with the state Medicaid agency include 

the category(ies) of eligibility covered 

under the SNP, the service area covered 

under the SNP, and the contract period 

for the SNP. We also specify that MA 

organizations with existing dual-eligible 

SNPs may continue to operate through 

2010 without a State contract provided 

they meet all other statutory 

requirements, that is, care management 

and quality improvement program 

requirements. It should also be noted 

that under MIPPA, States are not 

required to enter into written contracts 

with plans, and plans that do not 

establish contracts with States in 2010 

cannot expand their service areas. 

We are incorporating the above 

MIPPA requirements in a revised 

version of our proposed § 422.107, with 

an effective date of January 1, 2010. 

c. SNPs and Quality Improvement 

Program (§ 422.152) 

Section 164 of MIPPA adds a new 

clause (ii) to section 1852(e)(3)(A) of the 

Act and a new paragraph (6) to section 

1857(d) of the Act. Section 

1852(e)(3)(A)(ii) of the Act now 

mandates that, beginning on a date 

specified by the Secretary (but in no 

case later than January 1, 2010), data 

collected, analyzed, and reported as part 

of the plan’s quality improvement 

program must measure health outcomes 

and other indices of quality at the plan 

level with respect to the model of care 

as required in section 1859(f)(2–5). As a 

Medicare Advantage plan, each SNP 

must implement a documented quality 

improvement program for which all 

information is available for submission 

to CMS or for review during monitoring 

visits. The focus of the SNP quality 

improvement program should be the 

monitoring and evaluation of the 

performance of its model of care (see 

§ 422.101(f)). The program should be 

executed as a three-tier system of 

performance improvement. The first tier 

consists of data on quality and outcomes 

that is collected and analyzed to enable 

beneficiaries to compare and select from 

among health coverage options. In 

calendar year (CY) 2008, CMS required 

the submission of thirteen HEDIS 

measures and three structure and 

process measures to pilot the 

development of comparative measures 

to facilitate beneficiary choice. We 

continue to work on this initiative and 

will issue guidance to SNPs on 

collecting comparative measures for 

submission using CMS required tools in 

CY 2009. 

The second tier of the quality 

improvement program for SNPs, 

effective January 1, 2010 replaces the 

requirements in § 422.152(b) with 

requirements in a new § 422.152(g) that 

reflects the new statutory requirement 

that SNPs collect, analyze, and report 

data that measures the performance of 

their plan-specific model of care 

(section 1852(e)(3)(A)(ii) of the Act). 

This new rule establishes CMS 

requirements for measuring essential 

components of the model of care using 

a variety of plan-determined 

methodologies such as claims data, 

record reviews, administrative data, 

clinical outcomes, and other existing 

valid and reliable measures (ACOVE, 

MDS, HEDIS, CAHPS, HOS, OASIS, 

etc.) at the plan level to evaluate the 

effectiveness of the process of care and 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54229 

clinical outcomes. Specifically, each 

SNP should collect, analyze, and be 

prepared to report data for its 

performance on: Access to care; 

improvement in beneficiary health 

status; care management through its 

staffing structure and processes; 

assessment and stratification of health 

risk; care management through an 

individualized plan of care; provision of 

specialized clinical expertise targeting 

its special needs population; the 

coordination and delivery of services 

and benefits through transitions across 

settings and providers; the coordination 

and delivery of extra services and 

benefits that meet the needs of the most 

vulnerable beneficiaries; the use of 

evidence-based practices and/or 

nationally recognized clinical protocols; 

and the application of integrated 

systems of communication. Each SNP 

must coordinate the systematic 

collection of data using indicators that 

are objective, clearly defined, and based 

on measures having established validity 

and reliability. Indicators should be 

selected from a variety of quality and 

outcome measurement domains such as 

functional status, care transitioning, 

disease management, behavioral health, 

medication management, personal and 

environmental safety, beneficiary 

involvement and satisfaction, and 

family and caregiver support. SNPs 

must document all aspects of the quality 

improvement program including data 

collection and analysis, actions taken to 

improve the performance of the model 

of care, and the participation of the 

interdisciplinary team members and 

network providers in quality 

improvement activities. 

We are developing the third tier of the 

quality improvement program which is 

the required reporting of monitoring 

data. The monitoring data will consist of 

a prescribed sample of data that SNPs 

will already be collecting in tier two to 

measure the performance of their model 

of care. We will draw from a pool of 

measures across several service delivery 

domains, and, whenever possible, use 

valid measures that SNPs have reported 

they currently collect. We are also 

soliciting comments from the public 

regarding the types of monitoring data 

that we should require SNPs to submit. 

We will issue guidance on the 

requirement to report monitoring data 

and the collection methodology after 

reviewing the public comments and 

completing development of the 

initiative for implementation in 

calendar year 2010. 

Section 1857(d)(6) stipulates that 

CMS will conduct reviews of the SNP 

model of care in conjunction with the 

periodic audits of the MA organizations. 

As of January 1, 2010, these reviews will 

focus on how the SNPs have 

operationalized their models of care and 

how their quality improvement 

programs have affected their care 

management as structured by the model 

of care. 

d. Special Needs Plans and Other MA 

Plans With Dual-Eligibles: 

Responsibility for Cost-Sharing 

(§ 422.504(g)(1)) 

Section 165 of MIPPA, which revised 

section 1852(a) of the Act, provides that 

for those persons who are full benefit 

dual-eligible individuals or a qualified 

Medicare beneficiary enrolled in a dualeligible special needs plan, as described 

in section 1859(b)(6)(B)(ii) of the Act, 

the plan may not impose cost-sharing 

that exceeds the amount of cost-sharing 

that would be permitted if the 

individual were under title XIX and 

were not enrolled in a special needs 

plan. The effective date of this provision 

is January 1, 2010. In order to reflect 

this provision, we are updating our 

regulations by updating part 42 by 

adding new paragraph (g)(1)(iii) to 

§ 422.504(g). 

Additionally, section 164 of MIPPA 

requires that the plan provide each 

prospective enrollee, prior to 

enrollment, a comprehensive written 

statement, describing the benefits and 

cost-sharing protections for which the 

individual would be entitled under title 

XIX as well as the MA plan. 

We are reflecting these statutory 

requirements in the regulations at 

§ 422.504(g)(1), effective January 1, 

2010. 

While our revisions specifically 

reflect the MIPPA provisions, it should 

be noted that in our May 16, 2008 

proposed rule, we proposed other, 

related provisions which we will 

finalize, based on public notice and 

comments, in a final rule to be 

published soon after this IFC. 

2. Revisions to Requirements for MA 

PFFS Plans (§ 422.114) 

Section 162 of MIPPA revised the 

requirements for PFFS plans in a 

number of significant ways that will 

affect how employer and non-employer 

PFFS plans can meet access 

requirements. Below we describe each 

of the changes to PFFS plans as a result 

of MIPPA. 

Note: See also section A.3., Revision to 

Quality Improvement Programs, for 

discussion of new requirements related to 

PFFS plans and quality improvement 

features. 

a. Changes in Access Requirements for 

PFFS Plans 

Section 162(a)(3) of MIPPA amended 

section 1852(d)(4)(B) of the Act to 

require, effective January 1, 2010, that 

PFFS plans meeting access standards 

based on signed contracts meet access 

standards with respect to a particular 

category of provider by establishing 

contracts or agreements with a sufficient 

number and range of providers to meet 

the access and availability standards 

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

Act. Section 1852(d)(1) of the Act 

describes the requirements that MA 

organizations offering a ‘‘network’’ MA 

plan must satisfy when selecting 

providers to furnish benefits covered 

under the plan. 

We are revising § 422.114(a)(2)(ii) to 

reflect this new statutory requirement. 

b. Requirement for Certain NonEmployer PFFS Plans To Use Contract 

Providers 

Prior to MIPPA, section 1852(d)(4) of 

the Act and § 422.114(a) described how 

an MA organization that offers an MA 

PFFS plan must demonstrate to CMS 

that it can provide sufficient access to 

services covered under the plan. An MA 

organization was permitted to meet 

access requirements if, with respect to a 

particular category of providers, the 

plan has met one of the conditions in 

§ 422.114(a)(2). That is, the plan has— 

• Payment rates that are not less than 

the rates that apply under Original 

Medicare for the provider in question; 

• Contracts or agreements with a 

sufficient number and range of 

providers to furnish the services 

covered under the MA private fee-forservice plan; or 

• A combination of the above. 

Section 1852(j)(6) of the Act and 

§ 422.216(f) provide that if a provider 

who does not have a contract or 

agreement with a PFFS plan furnishes 

services to an enrollee of that plan that 

are not considered emergency services, 

the provider is deemed to have a 

contract with the PFFS plan if the 

following conditions are met: 

(1) The provider is aware, in advance 

of furnishing health care services, that 

the patient is enrolled in a PFFS plan. 

(2) The provider has reasonable access 

to the plan’s terms and conditions of 

payment. 

(3) The provider furnishes services 

that are covered by the plan. 

Section 162(a)(1) of MIPPA added a 

new paragraph (5) to section 1852(d) of 

the Act. The new paragraph creates a 

requirement for certain non-employer 

MA PFFS plans to establish contracts 


dwashington3 on PRODPC61 with RULES3
54230 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

with providers. Specifically, for plan 

year 2011 and subsequent plan years, 

MIPPA requires that non-employer/ 

union MA PFFS plans (employer/union 

sponsored PFFS plans are addressed in 

a separate provision of MIPPA) that are 

operating in a network area (as defined 

in section 1852(d)(5)(B) of the Act) must 

meet the access standards described in 

section 1852(d)(4). As noted above, in 

order to meet the access standards in 

section 1852(d)(4), PFFS plans must 

have contracts with a sufficient number 

and range of providers to meet the 

access and availability standards 

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

Act. These PFFS plans may no longer 

meet the access standards by paying not 

less than the original Medicare payment 

rate and having providers deemed to be 

contracted, as provided under 

§ 422.216(f). Section 162(a)(1) of MIPPA 

is reflected in regulations at 42 CFR 

422.114(a)(3). 

‘‘Network area’’ is defined in section 

1852(d)(5)(B) of the Act, for a given plan 

year, as the area that the Secretary 

identifies (in the announcement of the 

risk and other factors to be used in 

adjusting MA capitation rates for each 

MA payment area for the previous plan 

year) as having at least two networkbased plans (as defined in section 

1852(d)(5)(C) of the Act) with 

enrollment as of the first day of the year 

in which the announcement is made. 

For plan year 2011, we will inform 

PFFS plans of their network areas in the 

announcement of CY 2010 MA 

capitation rates, which will be 

published on the first Monday of April, 

2009. We will use enrollment data for 

January 1, 2009 to identify the location 

of network areas. 

‘‘Network-based plan’’ is defined in 

section 1852(d)(5)(C) of the Act as (1) an 

MA plan that is a coordinated care plan 

as described in section 1851(a)(2)(A)(i) 

of the Act, excluding non-network 

regional PPOs; (2) a network-based MSA 

plan; or (3) a section 1876 cost plan. 

Types of coordinated care plans that 

meet the definition of a ‘‘network-based 

plan’’ are HMOs, PSOs, local PPOs, as 

well as regional PPOs with respect to 

portions of their service area in which 

access standards are met through 

establishing written contracts or 

agreements with providers. MIPPA 

specifies that the term ‘‘network-based 

plan’’ excludes a regional PPO that 

meets access requirements in its service 

area substantially through the authority 

of § 422.112(a)(1)(ii), rather than 

through written contracts. Section 

422.112(a)(1)(ii) permits regional PPOs 

to meet access requirements using 

methods other than written agreements 

with providers (that is, allowing 

members to see non-contract providers 

at in-network cost sharing in areas 

where the plan does not have 

established a network of contracted 

providers). 

For purposes of determining the 

network area of a PFFS plan, we will 

determine whether any network-based 

plans with enrollment exist in each of 

the counties located within the PFFS 

plan’s service area. Beginning in plan 

year 2011, in counties where there is 

availability of two or more networkbased plans (such as an HMO plan, a 

PSO plan, a local PPO plan, a network 

regional PPO plan, a network-based 

MSA plan, or a section 1876 cost plan), 

a PFFS plan operating in these counties 

must establish a network of contracted 

providers to furnish services in these 

counties in accordance with the 

amended section 1852(d)(4)(B) of the 

Act. In such counties, a PFFS plan 

would no longer be able to meet access 

requirements through providers deemed 

to have a contract with the plan at the 

point of service in these counties. In 

counties where there are no networkbased plan options, or only one other 

network-based plan, the statute allows 

PFFS plans to continue to meet access 

requirements in accordance with section 

1852(d)(4) of the Act and 

§ 422.114(a)(2). Regardless of whether a 

PFFS plan meets access requirements 

through deeming or is subject to the 

requirement that it establish a network 

of providers with signed contracts, 

providers who do not have a contract 

with the PFFS plan may continue to be 

deemed to have a contract with the plan 

if the deeming conditions described in 

§ 422.216(f) are met. 

An existing PFFS plan may have some 

counties in its current service area that 

meet the definition of a network area 

and other counties that do not. In order 

to operationalize section 162(a)(1) of 

MIPPA, CMS will not permit a PFFS 

plan to operate a mixed model where 

some counties in the plan’s service area 

are considered network areas and other 

counties that are non-network areas. 

Beginning in plan year 2011, an MA 

organization offering a PFFS plan will 

be required to create separate plans 

within its existing service areas where it 

is offering PFFS plans based on whether 

the counties located in those service 

areas are considered network areas or 

not. For example, if an existing PFFS 

plan has some counties in its current 

service area that are network areas and 

other counties that are non-network 

areas, then in order to operate in this 

service area in plan year 2011 and 

subsequent plan years, the MA 

organization must establish a unique 

plan with service area consisting of the 

counties that are network areas and 

another plan with service area 

consisting of the counties that are nonnetwork areas. Consequently, the PFFS 

plan operating in the counties that are 

network areas must establish a network 

of contracted providers in these 

counties in accordance with section 

1852(d)(4)(B) of the Act in order to meet 

access requirements. The PFFS plan 

operating in the counties that are not 

network areas can continue to meet 

access requirements under 

§ 422.114(a)(2) by paying rates at least as 

high as rates under Medicare Part A or 

Part B to providers deemed to have a 

contract with the plan if the conditions 

described in § 422.216(f) are met. The 

MA organization must file separate plan 

benefit packages for the PFFS plan that 

will operate in network areas and the 

plan that will operate in non-network 

areas. We recognize that the creation of 

unique plans based on network and 

non-network areas will potentially 

create an artificial increase in the total 

number of PFFS plans offered in plan 

year 2011 and subsequent plan years; 

this would not reflect an actual increase 

in PFFS plan offerings, but rather a 

change in how these PFFS offerings are 

structured and identified. 

For purposes of making the judgment 

of provider network adequacy for PFFS 

plans that will be required to operate 

using a network of contracted providers 

in plan year 2011 and afterwards, we 

will apply the same standards for PFFS 

plans that we apply to coordinated care 

plans. To determine where a PFFS 

plan’s proposed network meets access 

and availability standards, we will 

follow the procedure described in the 

section above on ‘‘changes in access 

requirements for PFFS plans.’’ 

We are revising § 422.114(a)(3) to 

reflect the requirements in section 

162(a)(1) of MIPPA. 

c. Requirement for All Employer/Union 

Sponsored PFFS Plans To Use Contracts 

With Providers 

Section 162(a)(2) of MIPPA amended 

section 1852(d) of the Act by adding a 

new requirement for employer/union 

sponsored PFFS plans. For plan year 

2011 and subsequent plan years, MIPPA 

requires that all employer/union 

sponsored PFFS plans under section 

1857(i) of the Act meet the access 

standards described in section 

1852(d)(4) of the Act only through 

entering into written contracts or 

agreements in accordance with section 

1852(d)(4)(B) of the Act, and not, in 

whole or in part, through establishing 

payment rates meeting the requirements 

under section 1852(d)(4)(A) of the Act. 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54231 

We are revising § 422.114(a) to reflect 

this statutory change. Specifically, 

§ 422.114(a) now sets forth how an MA 

organization that offers a PFFS plan 

must demonstrate to CMS that it can 

provide sufficient access to services 

covered under the plan. In order to meet 

the access requirements beginning plan 

year 2011, an employer/union 

sponsored PFFS plan must establish 

written contracts or agreements with a 

sufficient number and range of health 

care providers in its service area for all 

categories of services in accordance 

with the access and availability 

requirements described in section 

1852(d)(1) of the Act. An employer/ 

union sponsored PFFS plan will not be 

allowed to meet access requirements by 

establishing payment rates for a 

particular category of provider that are 

at least as high as rates under Medicare 

Part A or Part B. While an employer/ 

union-sponsored PFFS plan must meet 

access standards through signed 

contracts with providers, providers that 

have not signed contracts can still be 

deemed to be contractors under the 

deeming procedures in section 

1852(j)(6) that currently apply. 

We are adding paragraph (a)(4) to 

§ 422.114 in order to reflect this new 

statutory requirement for employer/ 

union sponsored PFFS plans. 

d. Variation in Payment Rates to 

Providers 

Section 162(b) of MIPPA added a 

clarification to the definition of an MA 

PFFS plan found at section 1859(b)(2) of 

the Act. Prior to MIPPA, the statute 

defined an MA PFFS plan as an MA 

plan that pays providers at a rate 

determined by the plan on a fee-forservice basis without placing the 

provider at financial risk; does not vary 

the rates for a provider based on the 

utilization of that provider’s services; 

and does not restrict enrollees’ choice 

among providers who are lawfully 

authorized to provide covered services 

and agree to accept the plan’s terms and 

conditions of payment. Section 162(b) of 

MIPPA added that although payment 

rates cannot vary based solely on 

utilization of services by a provider, an 

MA PFFS plan is permitted to vary the 

payment rates for a provider based on 

the specialty of the provider, the 

location of the provider, or other factors 

related to the provider that are not 

related to utilization. 

Furthermore, this section of MIPPA 

also allows MA PFFS plans to increase 

payment rates for a provider based on 

increased utilization of specified 

preventive or screening services. 

Section 162(b) of MIPPA is effective at 

the time of publication of this rule. 

We are revising paragraph (a)(3)(ii) of 

§ 422.4 and paragraph (a) of § 422.216 to 

add the clarifications in Section 162(b) 

of MIPPA. 

3. Revisions to Quality Improvement 

Programs § 422.152 

a. Requirement for MA PFFS and MSA 

Plans To Have a Quality Improvement 

Program 

Section 163(a) of MIPPA repeals, 

effective January 1, 2010, the current 

statutory exemption found at section 

1852(e)(1) of the Act for MA PFFS plans 

and MSA plans from the requirement 

that MA plans have quality 

improvement programs meeting 

specified statutory requirements. 

Beginning plan year 2010, each MA 

PFFS and MSA plan must have an 

ongoing quality improvement program 

that meets the requirements under 

§ 422.152(a). 

We are revising § 422.152(a) to delete 

language exempting PFFS and MSA 

plans from having quality improvement 

programs. 

b. Data Collection Requirements for MA 

PFFS and MSA Plans 

Section 1852(e)(3)(A)(i) of the Act 

amended by Section 163(b)(1) of MIPPA 

by adding that MA PFFS and MSA 

plans must provide for the collection, 

analysis, and reporting of data that 

permits the measurement of health 

outcomes and other indices of quality, 

but these requirements for PFFS and 

MSA plans can not exceed the 

requirements established for MA local 

plans that are PPO plans beginning in 

plan year 2011 and are subject to an 

exception for plan year 2010 (as 

discussed below). We interpret this to 

mean that for plan year 2011 and 

subsequent plan years, similar to MA 

local plans that are PPO plans, PFFS, 

and MSA plans are required to collect, 

analyze, and report health outcomes and 

quality data only to the extent that data 

are furnished by providers who have a 

contract with the PFFS or MSA plan. 

For plan year 2011 and subsequent plan 

years, we are requiring that the data 

collection requirements for MA PFFS 

and MSA plans are not subject to 

requirements that exceed the 

requirements specified in § 422.152(e) 

for MA local plans that are PPO plans. 

The statute provides for a special rule 

that applies for plan year 2010, when 

MA PFFS and MSA plan quality 

requirements are not restricted to the 

data collection requirements established 

for MA local plans that are PPO plans 

under § 422.152(e). Instead, they must, 

for 2010 only, meet the data collection 

requirements with respect to 

administrative claims data, as specified 

in CMS guidance. We interpret this 

exception to mean that for plan year 

2010, MA PFFS and MSA plans are 

required to report quality data based on 

administrative claims data from all 

providers that include contract, deemed 

(applicable to PFFS plans only), and 

non-contract providers. 

c. Data Collection Requirements for MA 

Regional Plans 

Section 163(b)(2) deleted clause (ii) of 

Section 1852(e)(3)(A) of the Act. Section 

1852(e)(3)(A)(ii) had provided for CMS 

to establish separate regulatory 

requirements for MA regional plans 

relating to the collection, analysis, and 

reporting of data that permit the 

measurement of health outcomes and 

other indices of quality and also 

provided that these requirements for 

MA regional plans could not exceed the 

requirements established for MA local 

plans that are PPO plans. Furthermore, 

section 163(b)(3) amended Section 

1852(e)(3)(iii) of the Act by adding that 

MA regional plans are subject to the 

data collection requirements under 

Section 1852(e)(3)(A)(i) of the Act only 

to the extent that data are furnished by 

providers who have a contract with the 

MA regional plan. This provision is 

effective for plan years beginning on or 

after 2010 and allows for consistent data 

collection requirements between MA 

local plans that are PPO plans and MA 

regional plans. 

No change to regulatory text is needed 

since existing language in § 422.152(e) 

describes the requirements for MA local 

plans that are PPO plans as well as MA 

regional plans. 

4. Phase-Out of Indirect Medical 

Education Component of MA Capitation 

Rate (422.306) 

Section 161 of MIPPA adds a new 

paragraph (4) to § 1853(k) of the Act. 

The new paragraph directs the Secretary 

to phase-out indirect medical education 

(IME) amounts from MA capitation 

rates. The maximum adjustment 

percentage per year is .60. 

Implementation of the IME payment 

phase-out begins in plan year 2010. 

Each year after 2010 the maximum 

adjustment percentage will increase up 

to an additional .60 percent until the 

entire IME portion of the MA capitation 

rate in an area is reduced to zero. PACE 

programs are excluded from the IME 

payment phase-out. Payment to teaching 

facilities for indirect medical education 

expenses for MA plan enrollees will 

continue to be made under § 1886(d)(11) 

of the Act by original Medicare. 


dwashington3 on PRODPC61 with RULES3
54232 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

We are adding a new paragraph (c) to 

§ 422.306 to reflect this statutory IME 

phase-out. 

B. Changes to the Part D Prescription 

Drug Benefit Program 

1. Use of Prescription Drug Event Data 

for Purposes of Section 1848(m) 

(423.322(b)) 

Section 132 of MIPPA revises section 

1848(m) of the Act, as added and 

amended by section 131 of MIPPA, to 

provide incentive payments to eligible 

professionals for successful electronic 

prescribing. A successful electronic 

prescriber for a reporting period is one 

who meets the requirements for 

submitting data on electronic 

prescribing quality measures or, if the 

Secretary determines appropriate, 

submitted a sufficient number (as 

determined by the Secretary) of 

prescriptions under Part D during the 

reporting period. Congress added 

paragraph (3)(iv) to section 1848(m) to 

permit the Secretary to use the data 

regarding drug claims (prescription drug 

event data) submitted for payment 

purposes under the authority of section 

1860D–15 of the Act as necessary for 

purposes of carrying out section 

1848(m), notwithstanding the 

limitations set forth under section 

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

Consistent with the authority granted 

to the Secretary regarding the use of the 

prescription drug event data for 

purposes of section 1848(m), we have 

revised § 423.322(b) to remove the 

restriction placed on officers, employees 

and contractors of the Department of 

Health Human Services when using 

these data in accordance with section 

1848(m). 

2. Elimination of Medicare Part D Late 

Enrollment Penalties Paid by Subsidy 

Eligible Individuals (§§ 423.46 and 

423.780) 

Each year since the beginning of the 

Medicare prescription drug program, 

CMS has conducted a Medicare 

payment demonstration entitled 

‘‘Elimination of the 2006 Late 

Enrollment Penalty,’’ such that 

Medicare beneficiaries who qualify for 

the low-income subsidy for Medicare 

prescription drug coverage were able to 

enroll in a Medicare prescription drug 

with no penalty. The demonstration has 

tested the number and characteristics of 

the beneficiaries that benefited from the 

waiver of the LEP, and the cost of the 

waiver to Medicare. Originally, this 

payment demonstration, as announced 

on June 14, 2006, allowed certain 

Medicare beneficiaries to enroll in a 

Medicare prescription drug plan 

through December 31, 2006 with no late 

enrollment penalty. Specifically, CMS 

did not collect the late enrollment 

penalty from beneficiaries who enrolled 

in Medicare Part D in 2006 and were 

either eligible for the low-income 

subsidy or lived in an area affected by 

Hurricane Katrina. This payment 

demonstration was amended to include 

beneficiaries who were eligible for the 

low-income subsidy and enrolled in 

Medicare Part D in 2007 and 2008. 

Section 114 of MIPPA revises the 

statute to incorporate the terms of the 

demonstration into the Part D program. 

We accordingly are revising section 

423.780(e) in order to reflect this MIPPA 

change. Under the revised regulation, 

CMS will not charge subsidy eligible 

individuals (defined in 423.773) a late 

enrollment penalty. This provision will 

become effective January 1, 2009 when 

the current demonstration that is 

supplanted by section 114 of MIPPA 

ends. We also are making a conforming 

change to § 423.46(a) to reflect the fact 

that subsidy eligible individuals may 

enroll in Medicare prescription drug 

plan with no penalty. 

3. Prompt Payment of Clean Claims 

(§ 423.505 and § 423.520) 

Section 171 of MIPPA amended 

sections 1860–12(b) and 1857(f) of the 

Act by adding provisions with regard to 

prompt payment by prescription drug 

plans (PDPs) and Medicare Advantage 

prescription drug (MA–PD) plans, both 

of which are Part D sponsors as defined 

in § 423.4. We have codified these new 

requirements in § 423.505 and § 423.520 

of this IFC. 

In accordance with the new sections 

1860D–12(b)(4) and 1857(f)(3)(A) of the 

Act, and as codified in § 423.520 of this 

IFC, effective January 1, 2010, CMS’ 

contract with Part D sponsors must 

include a provision requiring sponsors 

to issue, mail, or otherwise transmit 

payment for all clean claims submitted 

by network pharmacies—except for 

mail-order and long-term care 

pharmacies—within specified 

timeframes for electronic and all other 

(non-electronically submitted) claims. 

Consistent with section 1860D– 

12(b)(4)(A)(ii) of the Act, a clean claim 

is defined in § 423.520(b) of this IFC as 

a claim that has no defect or 

impropriety—including any lack of any 

required substantiating 

documentation—or particular 

circumstance requiring special 

treatment that prevents timely payment 

of the claim from being made under the 

requirements of § 423.520 of this IFC. 

We note that this definition is consistent 

with the clean claim definitions under 

Parts A, B, and C of Medicare, as 

required under sections 1816(c)(2)(B), 

1842(c)(2)(B), and 1857(f)(1) of the Act, 

respectively. 

As provided in section 1860D– 

12(b)(4)(B) of the Act and codified in 

§§ 423.520(a)(1)(i) and (ii) of this IFC, 

Part D sponsors must make payment for 

clean claims within 14 days of the date 

on which an electronic claim is received 

and within 30 days of the date on which 

non-electronically submitted claims are 

received. Consistent with MIPPA, 

sections 423.520(a)(2)(i) and (ii) of this 

IFC define receipt of an electronic claim 

as the date on which the claim is 

transferred, and receipt of a nonelectronically submitted claim as the 

5th day after the postmark day of the 

claim or the date specified in the time 

stamp of the transmission, whichever is 

sooner. 

Additionally, as provided in section 

1860D–12(b)(4)(D)(i) of the Act and as 

codified in § 423.520(c)(1) of this IFC, a 

claim will be deemed to be a clean 

claim to the extent that the Part D 

sponsor that receives the claim does not 

issue notice to the submitting network 

pharmacy of any deficiency in the claim 

within 10 days after an electronic claim 

is received and within 15 days after a 

non-electronically submitted claim is 

received. A claim deemed to be a clean 

claim must be paid by the sponsor 

within 14 days (for an electronic claim) 

or 30 days (for a non-electronic claim) 

of the date on which the claim is 

received, as provided in 

§§ 423.520(a)(1)(i) and (ii) of this IFC. 

Under section 1860D–12(b)(4)(D)(ii) of 

the Act and in § 423.520(c)(2) of this 

IFC, if the Part D sponsor determines 

that a submitted claim is not a clean 

claim, it is required to notify the 

submitting pharmacy that the claim has 

been determined not to be clean, specify 

all the defects or improprieties 

rendering the claim not a clean claim, 

and list all additional information 

necessary for the sponsor to properly 

process and pay the claim. This 

notification must be provided within 10 

days after an electronic claim is 

received for an electronic claim, and 

within 15 days after a non-electronically 

submitted claim is received. 

Once the submitting pharmacy 

resubmits the original claim with the 

additional information specified by the 

Part D sponsor as necessary for properly 

processing and paying the claim, the 

sponsor has 10 days, consistent with 

section 1860D–12(b)(4)(D)(iii) of the 

Act, and, as specified in § 423.520(c)(3) 

of this IFC to provide notice to the 

submitting pharmacy of any defect or 

impropriety in the resubmitted claim. If 

the sponsor does not provide notice to 

the submitting pharmacy of any defect 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54233 

or impropriety in the resubmitted claim 

within 10 days of the sponsor’s receipt 

of such claim, the resubmitted claim is 

deemed to be a clean claim and must be 

paid consistent with the timeframes 

specified in § 423.520(a)(1) of this IFC 

(within 14 days of the date on which a 

resubmitted electronic claim is received 

and within 30 days of the date on which 

a non-electronically resubmitted claim 

is received). 

To clarify these requirements, we 

provide the following example. Assume 

a Part D sponsor receives an electronic 

claim on January 1, 2010. If the sponsor 

were to find a defect or impropriety in 

that claim, it would be required to 

communicate that defect or impropriety 

to the submitting pharmacy no later 

than January 11, 2010 (within the 10- 

day window established in 

§ 423.520(c)(1)(i) of this IFC). If the 

sponsor received a resubmitted claim on 

January 12, 2010, it would then be 

required to either deem the claim to be 

clean or else provide notice to the 

submitting pharmacy of any defect or 

impropriety with the resubmitted claim 

no later than January 22, 2010 (within 

the 10-day window established in 

§ 423.520(c)(2)(ii) of this IFC). Assuming 

the resubmitted claim contains all 

additional information necessary for the 

sponsor to properly process and pay the 

claim, the sponsor would be required to 

pay the resubmitted claim within 14 

days of receiving it—in this case, not 

later than February 5, 2010. 

In accordance with section 1860D– 

12(b)(4)(D)(iv) of the Act, § 423.520(d) 

this IFC specifies that payment for a 

clean claim is considered to have been 

made on the date payment for an 

electronic claim is transferred and on 

the date a non-electronic claim is 

submitted to the United States Postal 

Service or common carrier, respectively. 

To the extent that a Part D sponsor does 

not issue, mail, or otherwise transmit 

payment for a clean claim within 14 

days of the date on which an electronic 

claim is received and within 30 days of 

the date on which a non-electronically 

submitted claim is received, as specified 

in § 423.520(a)(1) of this IFC, section 

1860D–12(b)(4)(C) of the Act requires 

that the sponsor pay interest to the 

submitting pharmacy. As required 

under section 1860D–12(b)(4)(C)(i) of 

the Act, and as codified in 

§ 423.520(e)(1) of this IFC, the Part D 

sponsor must pay such interest at a rate 

equal to the weighted average of interest 

on 3-month marketable Treasury 

securities determined for such period, 

increased by 0.1 percentage point for the 

period beginning on the day after the 

required payment date and ending on 

the date on which the payment is made 

under § 423.520(d) of this IFC. For 

purposes of CMS payments to Part D 

sponsors for qualified prescription drug 

coverage, any interest amounts paid 

under § 423.520(e)(1) of this IFC do not 

count against the Part D sponsor’s 

administrative costs, nor are they 

treated as allowable risk corridor costs, 

under § 423.308. In other words, the 

Part D sponsor is fully liable for any 

interest payments for claims not paid 

timely, consistent with § 423.520(d) of 

this IFC. In accordance with section 

1860D–12(b)(4)(C)(ii) of the Act and as 

codified in § 423.520(e)(2) of this IFC, 

CMS may determine that a Part D 

sponsor will not be charged interest 

under § 423.520(e)(1) as appropriate, 

including in exigent circumstances such 

as natural disasters and other similar 

unique and unexpected events that 

prevent timely claims processing. CMS 

will make such determinations on a 

case-by-case basis at the sponsor’s 

request. 

Section 1860D–12(b)(4)(E) of the Act 

and § 423.520(f) of this IFC require that 

a Part D sponsor pay all electronically 

submitted clean claims by electronic 

funds transfer (EFT) if the submitting 

network pharmacy requests payment via 

EFT or has previously requested 

payment via EFT. For ease of sponsor 

execution, the requirement that 

payment be provided via EFT if a 

sponsor has previously requested EFT 

payment means that any such previous 

request must have occurred during the 

current contract year. This requirement 

also means that all Part D sponsors must 

have the capacity to pay via EFT so that 

they may pay via EFT any of their 

network pharmacies requesting payment 

for submitted claims in this manner. In 

addition, under § 423.520(f), for any 

payment made via EFT, the Part D 

sponsor may also make remittance 

electronically. 

In accordance with section 1860D– 

12(b)(4)(F)(i) of the Act and as codified 

in § 423.520(g)(1) of this IFC, the 

requirements in § 423.520 do not in any 

way prohibit or limit a claim or action 

that any individual or organization may 

have against a pharmacy, provider, or 

Part D sponsor that is unrelated to the 

new requirements in § 423.520. Further, 

as provided under section 1860D– 

12(b)(4)(F)(ii) of the Act and 

§ 423.520(g)(2) of this IFC, consistent 

with any applicable Federal or State 

law, a Part D sponsor may not retaliate 

against an individual, provider, or 

pharmacy for any such claim or action. 

Finally, as provided under section 

1860d–12(b)(4)(G) of the Act and 

codified in § 423.520(h), any 

determination that a claim submitted by 

a network pharmacy is a clean claim as 

defined in § 423.520(b) of this IFC shall 

not be construed as a positive 

determination regarding the claim’s 

eligibility for payment under Title XVIII 

of the Act. In addition, any 

determination that a claim is a clean 

claim as defined in § 423.520(b) of the 

Act is not an indication that the 

government approves, or acquiesces 

regarding the submitted claim and does 

not relieve any party of civil or criminal 

liability, nor offer defense to any 

administrative, civil, or criminal action, 

with respect to the submitted claim. 

In addition to adding a new § 423.520 

to reflect the prompt payment 

requirements of section 1860D–12(b)(4) 

of the Act, we are amending 

§ 423.505(b) to include the prompt 

payment provisions as one of the 

required elements of the contract 

between CMS and the Part D sponsor. 

Therefore, § 423.505(b)(19) of this IFC 

requires that, effective contract year 

2010, the contract between CMS and the 

Part D sponsor must include the prompt 

payment provisions at § 423.520 of this 

IFC. 

We are also amending § 423.505(i)(3) 

with respect to contracts or written 

arrangements between Part D sponsors 

and pharmacies or other providers, first 

tier, downstream and related entities to 

ensure that Part D sponsors’ contracts 

with these entities include prompt 

payment provisions consistent with 

§ 423.520. Section 423.505(i)(3)(vi) thus 

requires that sponsors’ pharmacy 

contracts include the prompt payment 

provisions of § 423.520. We intend to 

review pharmacy contract templates 

(except for mail-order and LTC 

pharmacy templates) for new applicants 

to ensure the addition of these prompt 

payment provisions. 

We are aware that some pharmacies, 

particularly independent pharmacies, 

work with agents for purposes of 

negotiating and/or signing contracts 

with Part D sponsor, and that these 

agents may receive claim payments from 

Part D sponsors on their participating 

pharmacies’ behalf. To the extent that 

such agents are authorized to receive 

payment on behalf of a participating 

pharmacy for claims submitted to a Part 

D sponsor, there is no distinction 

between a pharmacy and its agent for 

purposes of the prompt payment 

provisions at § 423.520. Thus, the 

prompt payment provisions at § 423.520 

extend to an agent authorized to receive 

payment for claims submitted to a Part 

D sponsor, as long as it is in compliance 

with all Federal and State laws. 

The revisions to the regulations 

reflecting the above-described MIPPA 

prompt payment provisions are all 

effective on January 1, 2010. 


dwashington3 on PRODPC61 with RULES3
54234 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

4. Submission of Claims by LTC 

Pharmacies (§ 423.505) 

Section 172 of MIPPA amended 

sections 1860D–12(b) and 1857(f)(3) of 

the Act to add a provision on the 

submission of claims by pharmacies 

located in or having a contract with a 

long-term care facility. Effective January 

1, 2010, new sections 1860D–12(b)(5) 

and 1867(f)(3)(B) of the Act direct us to 

incorporate into each contract CMS 

enters into with a Part D sponsor a 

provision addressing the submission of 

claims by long-term care pharmacies. 

Specifically, CMS contracts with Part D 

sponsors must provide that long-term 

care pharmacies must have not less than 

30 days, nor more than 90 days, to 

submit claims to the sponsor for 

reimbursement under the plan. We are 

codifying this new statutory contract 

requirement at § 423.505(b)(20). 

Effective January 1, 2010, this provision 

will apply to any claim submitted by a 

long-term care pharmacy, as defined in 

§ 423.100. 

It is important to note that this new 

requirement does not eliminate the 

requirement, specified in a CMS policy 

memorandum dated May 25, 2007 

(available at insert URL) for Part D 

sponsors to provide a new timely claims 

filing period for claims incurred by 

dual-eligible beneficiaries during a 

period of retroactive Part D enrollment. 

The CMS memorandum, entitled 

‘‘Special Transition Period for 

Retroactive Enrollment,’’ requires that 

in retroactive enrollment situations Part 

D sponsors must use the date of 

Medicaid notification to establish a new 

timely claims filing period to ensure 

that dual-eligible beneficiaries and other 

parties, including pharmacies, have the 

opportunity to request reimbursement 

for claims incurred during the 

retroactive period. Therefore, consistent 

with this policy, sponsors must provide 

a new period, as specified in 

§ 423.505(b)(20), for long-term care 

pharmacies to submit claims for 

reimbursement. 

Effective contract year 2010, new 

sections 1860D–12(b)(5) and 

1867(f)(3)(B) of the Act require that CMS 

contracts with Part D sponsors include 

a provision requiring sponsors to 

provide long-term care pharmacies (as 

defined in § 423.100) not less than 30 

days, nor more than 90 days, to submit 

claims for reimbursement under the 

plan. In addition to adding this 

requirement to the contract provisions 

specified in § 423.505(b), we are 

amending § 423.505(i) to specify that 

timeframes for submission of claims by 

long-term care pharmacies must be 

contained in Part D sponsor contracts 

with the long-term care pharmacies. As 

provided in § 423.505(i)(3)(vii), all 

sponsor contracts with long-term care 

pharmacies must contain a provision 

that establishes timeframes, consistent 

with § 423.505(b)(20), for the 

submission to the sponsor of claims for 

reimbursement. 

5. Regular Update of Prescription Drug 

Pricing Standard (§ 423.505) 

Section 173 of MIPPA amended 

sections 1860D–12(b) and 1857(f)(3) of 

the Act, effective January 1, 2009, to add 

a provision on the regular updating of 

prescription drug pricing standards. In 

accordance with new sections 1860D– 

12(b)(6) and 1857(f)(3)(C) of the Act, 

which we are codifying in 

§ 423.505(b)(21) of this IFC effective 

January 1, 2009, CMS’ contracts with 

Part D sponsors must include a 

provision requiring sponsors to 

regularly update any prescription drug 

pricing standard they use to reimburse 

network pharmacies based on the cost of 

the drug (for example, average 

wholesale price, wholesale average cost, 

average manufacturer price, average 

sales price). As codified in 

§§ 423.505(b)(21)(i) and (ii), these 

updates, if applicable, must occur on 

January 1 of each contract year and not 

less frequently than every 7 days 

thereafter. 

We are also amending § 423.505(i)(3) 

with respect to contracts or written 

arrangements between Part D sponsors 

and pharmacies or other providers, first 

tier, downstream and related entities to 

ensure that Part D sponsors’ contracts 

with these entities include provisions 

for regularly updating any prescription 

drug pricing standard used by sponsors 

to reimburse their network pharmacies, 

as provided in § 423.505(b)(21) of this 

IFC. Specifically, section 

423.505(i)(3)(vi)(A) of this IFC requires 

that sponsors’ pharmacy contracts 

include the pricing standard update 

requirements at § 423.505(b)(21) of this 

IFC, if applicable. 

Implicit in the statutory requirement 

that pricing standards be updated is the 

fact that such standards are being used. 

This information is also necessary in 

order to monitor for compliance with 

MIPPA updating requirement. 

Accordingly, § 423.505(i)(3)(viii)(B) of 

this IFC specifies that a Part D sponsor’s 

pharmacy contract must indicate the 

source used by the Part D sponsor for 

making such pricing updates. 

Given the applicability of the pricing 

standard update provisions beginning in 

contract year 2009, Part D sponsors 

must ensure that they amend their 

current pharmacy contracts consistent 

with § 423.505(i)(3)(viii) of this IFC. 

CMS will review pharmacy contract 

templates (except for mail-order and 

LTC pharmacy templates) for new 

applicants beginning for contract year 

2010 to ensure the addition of this 

provision, if applicable. 

We are aware that some pharmacies, 

particularly independent pharmacies, 

work with agents for purposes of 

negotiating and/or signing contracts 

with Part D sponsors, and that these 

agents may receive claim payments from 

Part D sponsors on their participating 

pharmacies’ behalf. To the extent that 

such agents are authorized to receive 

payment on behalf of a participating 

pharmacy for claims submitted to a Part 

D sponsor, there is no distinction 

between a pharmacy and its agent for 

purposes of the drug pricing standard 

update requirements at § 423.505(b)(21) 

of this IFC. Thus, the drug pricing 

standard update requirements at 

§ 423.505(b)(21) of this IFC extend to an 

agent authorized to receive payment for 

claims submitted to a Part D sponsor, as 

long as it is in compliance with all 

Federal and State laws. 

6. Use of Part D Data (§ 423.505(m)) 

On May 28, 2008, prior to the passage 

of MIPPA, CMS published a final 

regulation (73 FR 30664) regarding the 

collection and use of Part D claims data. 

This regulation resolved the statutory 

ambiguity between section 1860D– 

12(b)(3)(D) and section 1860D–15 of the 

Act. One of the incorporated provisions 

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

is section 1857(e)(1) of the Act, which 

provides broad authority for the 

Secretary to add terms to the contracts 

with Part D sponsors, including terms 

that require the sponsor to provide the 

Secretary, ‘‘with such information as the 

Secretary may find necessary and 

appropriate.’’ As we stated in our final 

rule on Part D claims data, we believe 

that the broad authority of section 

1860D–12(b)(3)(D) of the Act authorizes 

CMS to collect the same prescription 

drug event data we currently collect to 

properly pay sponsors under the statute 

for other purposes unrelated to 

payment. However, we acknowledged 

that section 1860D–15 of the Act 

contains provisions that might be 

viewed as limiting such collection, thus 

compelling CMS to clarify the 

Secretary’s broad authority under 

section 1860D–12(b)(3)(D) in our final 

regulation. Accordingly, in the final Part 

D data rule, we implemented the broad 

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

of the Act to permit the Secretary to 

collect claims data that are collected for 

Part D payment purposes for other 

research, analysis, reporting, and public 

health functions. For a complete 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54235 

discussion of this regulation, please see 

the final Part D data rule at 73 FR 30664. 

Section 181 of MIPPA amends section 

1860D–12(b)(3)(D) to make clear that, 

notwithstanding any other provision of 

law, information provided to the 

Secretary under the application of 

section 1857(e)(1) may be used for 

purposes of carrying out Part D, and 

may be used to improve public health 

through research on the utilization, 

safety, effectiveness, quality, and 

efficiency of healthcare services. Thus, 

MIPPA further strengthens CMS’ final 

rule on Part D claims data and confirms 

our authority to use claims data 

collected under 1860D–12 of the Act for 

purposes of reporting to the Congress 

and the public, conducting evaluations 

of the overall Medicare program, making 

legislative proposals to Congress, and 

conducting demonstration projects. 

While MIPPA does not alter our 

ability to collect and use data for 

purposes outlined in our final rule on 

Part D claims data, section 181 of 

MIPPA adds a provision with respect to 

the disclosure of claims data to 

Congressional support agencies. 

Specifically, section 181 of MIPPA adds 

clause (ii) to section 1860D–12(b)(3)(D), 

which requires the Secretary to make 

data collected under section 1860D– 

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

support agencies, in accordance with 

their obligations to support Congress as 

set out in their authorizing statutes, for 

the purposes of conducting 

Congressional oversight, monitoring, 

making recommendations, and analysis 

of the Part D program. In our previously 

issued final rule on Part D claims, we 

specified that we would only release the 

minimum data necessary to 

Congressional oversight agencies in 

accordance with our data sharing 

policies. Section 1860D–12(b)(3)(D), as 

amended, removes the minimum 

necessary data restriction when data are 

requested by a Congressional support 

agency that is requesting the data in 

accordance with its obligation to 

support Congress as set out in its 

authorizing statute. 

Section 423.505(f)(3) of the regulation 

establishes that Part D plan sponsors 

must submit the 37 original data 

elements included as part of their drug 

claims ‘‘for all purposes deemed 

necessary and appropriate by the 

Secretary, including, but not limited 

to,’’ reporting to Congress and the 

public on the operation of the Part D 

program, conducting evaluations of the 

overall Medicare program, making 

legislative proposals, conducting 

demonstrations and pilot projects, 

supporting care coordination and 

disease management programs, 

supporting quality improvement and 

performance measurement activities, 

and populating personal health care 

records. Section 423.505(m)(1) of the 

regulations currently provides that with 

respect to data collected under section 

423.505(f)(3), ‘‘CMS may release the 

minimum data necessary for a given 

purpose to Federal executive branch 

agencies, congressional oversight 

agencies, States, and external entities in 

accordance with the applicable Federal 

laws, CMS data sharing procedures, and 

subject, in certain cases to encryption 

and or aggregation of certain sensitive 

information. MIPPA revised 1860D– 

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

specifically that information collected 

pursuant to this section be made 

available to Congressional support 

agencies, in accordance with their 

obligations to support Congress as set 

out in their authorizing statutes, for the 

purposes of conducting Congressional 

oversight, monitoring, making 

recommendations, and analysis of the 

Medicare Part D program. Consistent 

with this new statutory provision, we 

have revised § 423.505(m)(1) of our 

regulations, to omit any reference to 

‘‘Congressional oversight agencies.’’ We 

are also adding a new paragraph 

§ 423.505(m)(3) specifying that the 

Secretary will make the information 

collected under § 423.505(f)(3) available 

to Congressional support agencies in 

accordance with their obligations to 

support Congress as set out in their 

authorizing statutes. 

We are using the same definition for 

Congressional support agencies in 

§ 423.505(m)(3) that we previously used 

for Congressional oversight agencies in 

the regulation at § 423.505(m)(1)(iv). As 

with the definition of Congressional 

oversight agencies at 423.505(m)(1)(iv), 

we are not including Congressional 

Research Service (CRS) as a 

Congressional support agency unless it 

is requesting the data on behalf of a 

Congressional committee consistent 

with 2 U.S.C. 166(d)(1). As previously 

explained in the preamble to CMS– 

4119–F, when CRS is not acting as the 

agent of a Congressional committee, it 

does not have the same authority to 

request data from departments or 

agencies of the United States, and 

would be restricted in the same manner 

as external entities when requesting 

prescription drug event data. 

7. Exemptions From Income and 

Resources for Determination of 

Eligibility for Low-Income Subsidy 

(§ 423.772) 

Section 1860 D–14 of the Social 

Security Act describes the rules for 

determining financial eligibility for the 

Medicare Part D Low-Income Subsidy 

(LIS). These rules closely conform to the 

Supplemental Security Income (SSI) 

methodology for determining financial 

eligibility. Section 116 of MIPPA 

amended the types of income and 

resources to be taken into consideration 

for determining financial eligibility for 

LIS to deviate from the SSI methodology 

in two areas. Specifically, section 116 of 

MIPPA amended 1860D–14(a)(3) by 

exempting from the determination of 

LIS the following: 

• Support and maintenance furnished 

in kind from income; and 

• Value of any life insurance policy 

from resources. 

Support and maintenance furnished 

in kind is any food or shelter that is 

given to the applicant/spouse or 

received because someone else pays for 

it. This includes room, rent, mortgage 

payments, real property taxes, heating 

fuel, gas, electricity, water, sewage, and 

garbage collection services. 

Life insurance policy includes whole 

life, term, and products that combine 

features of whole life and term policies. 

In general, it is the responsibility of 

the Social Security Administration to 

determine eligibility for LIS. However, 

the Centers for Medicare & Medicaid 

Services (CMS) maintain in regulation 

broad parameters for income and 

resources for the Medicare Part D LowIncome Subsidy. These regulations also 

govern how State Medicaid Agencies 

process LIS applications when 

individuals apply there. In order for 

CMS regulations to conform to the new 

law, CMS is updating its regulations to 

reflect the new exclusions from income 

and resources. 

In order to reflect these changes, we 

are revising the definitions of ‘‘income’’ 

and ‘‘resources’’ in § 423.772. 

The amendments made by this 

provision are effective with respect to 

LIS applications filed on or after January 

1, 2010. 

C. Changes to the MA and Prescription 

Drug Benefit Programs 

In order to assist readers in 

understanding how the final provisions 

we discuss in this section apply to both 

programs, we are including Table 1, 

which highlights the provisions 

affecting both programs and the 

pertinent Part 422 and Part 423 CFR 

sections. 


dwashington3 on PRODPC61 with RULES3
54236 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

TABLE 1—PROVISIONS AFFECTING BOTH THE PART C AND PART D PROGRAMS

Provision Part 422– 

subpart 

Part 422 CFR 

section 

Part 423— 

subpart 

Part 423 CFR 

section 

Disclosure of plan information .............................................. Subpart C .................... 422.111 Subpart C .................... 423.128 

Marketing: Standards for MA/Part D marketing: Subpart V .................... 422.2268 ..................................... 423.2268 

• Nominal gifts 

• Scope of marketing 

• Co-branding 

• Including plan type in plan name 

Marketing: Reporting terminations ....................................... Subpart V .................... 422.2272 ..................................... 423.2272 

Marketing: Subpart V .................... 422.2274 ..................................... 423.2274 

• Broker and agent compensation 

• Training and testing 

1. Disclosure of Plan Information 

(§§ 422.111) 

Section 164 of the Medicare Patients 

and Providers Improvement Act revised 

section 1859(f) of the Act to require, 

effective January 1, 2010, disclosure of 

SNP plan information to beneficiaries. 

In order to reflect the MIPPA changes, 

we are adding new paragraph (b)(iii) to 

§ 422.111. The addition requires to 

require dual-eligible SNPs to provide 

the information specified in 

§§ 422.111(b) and 423.128(b) of the MA 

and Part D program regulations, both 

prior to enrollment to each prospective 

enrollee and at least annually thereafter, 

15 days before the annual coordinated 

election period. CMS plans to develop 

a model comprehensive statement for 

beneficiaries that could be included 

with any description of benefits offered 

by the SNP plan. Note that in a related 

final rule to be published on or about 

the date of publication of this IFC, we 

will be finalizing provisions from the 

May 16, 2008 proposed rule related to 

disclosure of plan information for MA 

organizations. 

2. Medicare Advantage and Prescription 

Drug Program Marketing Requirements 

(New Subparts V) 

a. General 

In a separate final rule (that appears 

in this issue of the Federal Register) 

finalizing several of the marketing 

provisions proposed in our May 16, 

2008 proposed rule we established a 

new marketing subpart V for Parts 422 

and 423. In this IFC, we refer to the 

codification of marketing requirements 

that reflects those changes (revised Code 

of Federal Regulations sections 

established in the final rule). With the 

exception of the provisions relating to 

including plan type in the name of the 

plan, and the reporting by plans of agent 

and broker terminations to States, all of 

the Part C and Part D marketing 

requirements discussed below are 

effective upon publication of this 

interim final rule. 

b. Standards for MA and PDP Marketing 

(§§ 422.2268, 423.2268) 

In the May 16, 2008 proposed rule, we 

proposed several regulatory 

requirements in §§ 422.2268 and 

423.2268, providing additional 

protections to ensure that beneficiaries 

are not the victims of inappropriate 

marketing techniques. Several areas we 

addressed in these proposed regulatory 

marketing requirements were addressed 

by Congress in MIPPA, which required 

in section 103(b)(1)(B) that the Secretary 

‘‘establish limitations with respect to’’ 

five areas specified in statute. With the 

exceptions noted above, these MIPPAmandated marketing limitations are 

required to be in effect ‘‘on a date 

specified by the Secretary, but in no 

case later than November 15, 2008.’’ 

Because this deadline is less than 150 

days after the enactment of MIPPA, 

under section 1871(b)(2)(B) of the Act, 

we may publish rules implementing 

these MIPPA provisions without prior 

notice and comment. Some provisions 

in the May 16, 2008 proposed rule were 

similar to those in MIPPA. As a result, 

to the extent that our policies were 

informed by comments we received on 

the proposed rule, we will discuss the 

public comments in connection with the 

marketing provisions we have 

developed in implementing the MIPPA 

provisions. 

(i) Nominal Gifts 

In our May 16, 2008 NPRM, we 

proposed a new regulatory requirement 

in §§ 422.2268(b) and 423.2268(b) under 

which organizations would be required 

to limit the offering of gifts and other 

promotional items offered to potential 

enrollees at promotional events to gifts 

of ‘‘nominal value’’ that are offered to 

all potential enrollees. This proposed 

paragraph also contained a prohibition 

against offering meals that we are 

addressing in a separate rule. 

In section 103(b)(1)(B) of MIPPA, the 

Secretary was charged with 

‘‘establish[ing] limitations with respect 

to * * * the offering of gifts and other 

promotional items other than those of 

nominal value (as determined by the 

Secretary) to prospective enrollees at 

promotional activities.’’ Section 

103(b)(2) of the MIPPA revises the Act 

to apply these same guidelines to PDP 

sponsors. 

We are implementing this MIPAA 

requirement in a revised version of the 

nominal value gift portion of our 

proposed §§ 422.2268(b) and 

423.2268(b). Commenters on our May 

16, 2008 proposed version asked if the 

requirement that promotional items be 

available to all eligible individuals 

meant that the promotional items had to 

be offered to current members. Other 

commenters recommended that a dollar 

limit approach be adopted to ensure that 

the permitted promotional items were 

truly of nominal value. 

Our revised version of the nominal 

gift portion of our proposed 

§§ 422.2268(b) and 423.2268(b) clarifies 

that the promotional items must be 

available to all potential enrollees at 

promotional events without regard for 

whether or not the beneficiary enrolls. 

With respect to the dollar amount issue, 

the Marketing Guidelines and guidance 

currently specify a dollar limit of $15 to 

ensure that promotional items are of 

nominal value. CMS will update this 

number as necessary to account for 

inflation and other relevant factors. 

Examples of nominal gifts include pens, 

pencils, and calendars. 

(ii) Limiting the Scope of Health Care 

Products To Be Discussed 

In §§ 422.2268(g) and 423.2268(g) of 

the May 16, 2008, rule, we proposed to 

limit any appointment with a 

beneficiary involving marketing of 

health care related products (for 

example, whether Medicare 

supplement, Medicare Advantage, 

stand-alone PDP will be discussed) to 

the scope agreed upon by the 

beneficiary. We further proposed to 

require, that, in advance of any 

marketing appointment, the beneficiary 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54237 

must have the opportunity to agree to 

the range of choices that will be 

discussed, and that agreement would 

have to be documented by the plan. 

Under proposed §§ 422.2268(h) and 

423.2268(h), additional lines of plan 

business (for example, MA, MA–PD, 

PDP or Medigap) not identified prior to 

the in-home appointment would require 

a separate appointment that could not 

be re-scheduled until 48 hours after the 

initial appointment. 

In section 103(b)(1)(B) of MIPPA, the 

Secretary was charged with 

‘‘establish[ing] limitations with respect 

to * * * the scope of any appointment 

with respect to the marketing of a 

Medicare Advantage plan.’’ Section 

103(b)(2) of MIPPA revises the Act to 

apply these same guidelines to PDP 

sponsors. The statute further provides 

that ‘‘[s]uch limitation shall require 

advance agreement with a prospective 

enrollee on the scope of the marketing 

appointment and documentation of 

such agreement by the Medicare 

Advantage organization. In the case 

where the marketing appointment is in 

person, such documentation shall be in 

writing.’’ 

We are here adopting our proposed 

version of §§ 422.2268(g) and (h) and 

423.2268(g) and (h) to implement these 

MIPPA provisions, and in light of a 

comment on the proposed rule 

expressing confusion about what a line 

of business is, we clarify here that ‘‘lines 

of business’’ are considered Prescription 

Drug Plans, Medicare Advantage 

Prescription Drugs Plans or Medicare 

Advantage only and Medigap. 

(iii) Use of Names and Logos, CoBranding 

As an additional beneficiary 

protection, in §§ 422.2268(n) and 

423.2268(n) of the May 16 proposed 

rule, we proposed to limit the use of 

names and/or logos of co-branded 

network providers on member 

information and marketing materials 

including plan membership 

identification cards. We also proposed 

to codify existing policies that MA 

organizations may include on plan 

membership cards, provider names/ 

logos that are specific to the members 

selection of providers or provider 

organizations. In addition, all member 

information and marketing materials 

except for plan identification cards 

should indicate that other providers are 

available in the network. We believed 

that this requirement would reduce the 

tendency of members to mistakenly 

believe they must use the co-branded 

network provider in order to obtain plan 

benefits. 

In section 103(b)(1)(B) of MIPPA, the 

Secretary was charged with 

‘‘establish[ing] limitations with respect 

to * * * ‘‘[t]he use of the name or logo 

of a co-branded provider on Medicare 

Advantage plan membership and 

marketing materials.’’ Section 103(b)(2) 

of MIPPA revises the Act to apply these 

same guidelines to PDP sponsors. 

We are implementing this 

requirement through a modified version 

of our proposed §§ 422.2268(n) and 

423.2268(n). Specifically, as a result of 

comments on the May 16, 2008 

proposed rule, we are revising the 

proposed version of these rules to 

clarify that MA organizations may 

include provider names/logos on the 

member identification card related to 

the member selection of specific 

providers or provider organizations. We 

further clarify here that ‘‘other 

marketing materials’’ requiring the 

statement that other providers are 

available in the network, are marketing 

materials as defined in §§ 422.2260 and 

423.2260. 

(iv) Inclusion of Plan Type in Plan 

Name 

Section 103(c)(1) of MIPPA requires 

that MA organizations and PDP 

sponsors include the plan type within 

the name of each plan being offered for 

plan years beginning on or after January 

1, 2010. We are adding new paragraph 

(q) in §§ 422.2268 and 423.2268 to 

reflect this requirement. For consistency 

across plans, it will be required that the 

plan type is included at the end of the 

plan name. For example, a plan 

previously submitted as ‘‘Medicare 

ABCXYZ Gold’’ could be submitted as 

‘‘Medicare ABCXYZ Gold HMO’’ or 

‘‘Medicare ABCWYZ Gold HMO Plan.’’ 

c. Reporting Agent and Broker 

Terminations (§§ 422.2272 and 

423.2272) 

Section 103 of the Medicare 

Improvements for Patients and 

Providers Act (MIPPA), requires us to 

expand our proposed requirements on 

plans that use licensed agents and 

brokers. In accordance with MIPPA, 

§§ 422.2272(d) and 423.2272(d) 

implement the requirement, effective 

January 1, 2009, that MA organizations 

and Part D sponsors are required to 

report to the State in which the MAO or 

Part D sponsor appoints an agent or 

broker, the termination of any such 

agent or broker, including the reasons 

for the termination if State law requires 

that the reasons for the termination be 

reported. 

d. Broker and Agent Compensation 

(§§ 422.2274, 423.2274) 

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

the Act to charge the Secretary with 

establishing guidelines to ‘‘ensure that 

the use of compensation creates 

incentives for agents and brokers to 

enroll individuals in the Medicare 

Advantage plan that is intended to best 

meet their health care needs.’’ Section 

103(b)(2) of MIPPA revises the Act to 

apply these same guidelines to PDP 

sponsors. 

This is another area that we addressed 

in proposals set forth in the May 16 

proposed rule. Our proposed rules were 

based on our program experience 

showing that the current compensation 

structure permitted under the Marketing 

Guidelines had the potential to create a 

financial incentive for agents to only 

market and enroll beneficiaries in some 

plan products and not others. This 

compensation structure has led some 

agents to encourage beneficiaries to 

enroll in products that may not meet the 

beneficiaries’ health needs but pays the 

agents the highest commission. In 

addition, there is a potential financial 

incentive for agents to encourage 

beneficiaries to change plans each year. 

Therefore, in order to prevent agents 

from unnecessarily moving beneficiaries 

from plan to plan and to ensure that 

beneficiaries are receiving the 

information and counseling necessary to 

select the best plan based on their 

health care needs, CMS proposed in the 

May 16 proposed rule to add new rules 

regarding compensation at 

§§ 422.2274(a)(1) and (a)(2) and 

423.2274(a)(1) and (a)(2). 

In developing our policy for 

implementing the MIPPA changes to the 

Act regarding agent and broker 

compensation, we benefited from public 

comments we received on our proposal 

in our May 16 proposed rule. 

For example, several commenters on 

that proposal wanted clarification on 

the definition of ‘‘independent broker or 

agent,’’ and whether the changes apply 

to both independent agents selling 

Medicare products and plan employees 

or to the employer retiree group market. 

There was a strong feeling among the 

commenters on the May 16 proposed 

rule that the nature of compensation for 

employees was very different than that 

of independent agents, and that it would 

be difficult to develop a level 

compensation structure for both groups. 

Several commenters wanted 

clarification on the distinction between 

compensation and commission. Also, 

commenters had questions specifically 

about bonuses. Some recommended that 

prizes, awards, trips, and similar 


dwashington3 on PRODPC61 with RULES3
54238 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

bonuses and incentives be excluded 

from the proposed provisions. Some 

commenters felt that these incentives 

should be prohibited. Others felt there 

should be exceptions made for 

convention credits, exceptions for 

incentives that reward high member 

retention, or one-time bonuses for 

administrative efficiency (for example, 

encourage electronic submission of 

applications). 

Several commenters recommended a 

new provision that level commissions 

be advanced to agents, but have to be 

earned at a level rate (for example, onetwelfth of the annual amount per month 

as long as the member is active with the 

plan sponsor). Along with the new 

provision, the commenters requested 

that CMS continue to require plans to 

charge back all commissions for 

applications that result in rapid 

disenrollments within 60 days. One of 

the commenters asked that the period 

for charge back be expanded to 6 

months. There was one commenter who 

wanted to know how the proposed 

structure would work with mid-year 

plan changes or renewals (for example, 

with full duals). 

The comments we received through 

the public notice and comment process 

helped us implement the MIPPA 

changes to the Act regarding agent and 

broker compensation. As a result, the 

structure we are implementing in this 

IFC, while directed to Medicare 

Advantage organizations and Part D 

sponsors that market ‘‘through 

independent brokers or agents,’’ 

includes compensation paid to 

employees that is based on volume of 

sales. By ‘‘independent brokers or 

agents’’ we mean contracted brokers or 

agents, whether they sell for one plan, 

multiple plans, or work through a Field 

Marketing Organization (FMO), general 

agent (GA), or other similar 

subcontracted marketing organizations. 

The proposal in the May 16 proposed 

rule defined commission to include 

other compensation. Based on the 

comments received on that proposed 

rule, our definition of compensation 

under our rule implementing MIPPA 

includes pecuniary or non-pecuniary 

remuneration of any kind relating to the 

sale or renewal of the policy (for 

example, commissions, bonuses, gifts, 

prizes, awards, and finders’ fees). Salary 

or other benefits related to employment 

are excluded from this definition 

(except if related to volume of sales). 

The payment of fees to comply with 

State appointment laws, training, 

certification, and testing costs; and 

reimbursement for mileage to and from 

appointments with beneficiaries and 

reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials are also not 

considered compensation. We have 

clarified our proposal by revising 

paragraph (a)(1) of §§ 422.2274 and 

423.2274 to clarify what is considered 

compensation. 

We also include in this IFC a 

provision that compensation for a sale is 

earned in months 4 through 12 of the 

enrollment year as long as the member 

is active with the plan. If an enrollee 

leaves the plan prior to month 4, no 

compensation is earned. If an enrollee 

leaves the plan after month 3, 

compensation is paid on a prorated 

basis only for the months in which the 

enrollee was actually a member of the 

plan. 

We also received comments on our 

proposal in the proposed rule that the 

commission an agent received in the 

first year after an enrollment could not 

exceed the commission the agent 

receives in all subsequent years. Many 

commenters recommended that CMS 

follow the industry standard practice for 

Medicare supplements or modify the 

provision to allow for a higher 

commission in the first year because 

there is a significantly greater amount of 

work done in the initial year than in 

subsequent ones. They requested that 

the subsequent years be limited to five 

years. They also wanted clarification on 

what was meant by ‘‘all subsequent 

years.’’ 

Based in part on these comments, in 

developing our policy implementing 

MIPPA’s changes to the Act regarding 

agent and broker compensation, this IFC 

provides that an agent’s aggregate first 

year compensation can not exceed 200 

percent of the aggregate compensation 

in each individual subsequent renewal 

year, of which there must be a total of 

5 renewal years. This creates a 6-year 

compensation cycle. This means that in 

the first year, the compensation paid 

can be no more than 200 percent of the 

compensation paid in the second year or 

any individual subsequent renewal year, 

up to a total of 5 renewal years (6-year 

total compensation cycle). The agent 

will receive renewal compensation for 

the 5-year renewal period (years 2 

through 6) based on this compensation 

structure as long as the member remains 

active in a like-plan type (for example, 

PDP, MA plan, or cost plan). We believe 

that this provision places limits on 

compensation paid to agents. It also 

encourages agents to establish longer 

term relationships with their clients, 

rather than short term relationships. 

This provision eliminates the incentive 

for agents to move their clients from 

plan to plan since the compensation 

that agents receive for a replacement 

plan will be nearly the same as if the 

client had stayed in the original plan. 

Additionally, since most plan changes 

occur in the first three months of the 

plan year and agents typically are paid 

for the entire year in the first three 

months, we are requiring that agents 

and brokers earn compensation for 

months four through twelve and that 

they be paid by a given plan only for 

months in which the beneficiary is 

enrolled in that plan. This means that 

plans may pay agents and brokers upfront or prorate compensation payments 

over 12 months or over months 4 

through 12, but when a beneficiary 

disenrolls from the plan, the plan must 

recover all compensation paid-for 

months in which the beneficiary is not 

enrolled, and during months 1 through 

3 if the beneficiary disenrolls during the 

first 3 months and compensation was 

paid in advance. 

Several commenters on the proposal 

in the May 16 proposed rule expressed 

concern about our proposal in 

422.2274(a)(2) and 423.2274(a)(2) that 

commissions must be the same for all 

plan and plan product types offered by 

plan’s parent organization. These 

commenters wanted ‘‘parent 

organization’’ defined. They were also 

concerned about how this would apply 

to field marketing organizations (FMOs) 

and general agents (GA), organizations 

composed of various levels of agents 

and that provide additional services 

beyond selling insurance products (for 

example, training, document 

management and storage, office space, 

supplies, and equipment). The 

questions about FMOs centered around 

whether the commission was paid at the 

‘‘street level’’, meaning directly to the 

agent, or at the FMO level, where the 

FMO would then be responsible for 

paying the agent. One commenter 

suggested that plans could include a 

term in their contracts with FMOs 

stating that the FMO would receive a fee 

from the plan and out of that fee, the 

agent would be paid the specified 

amount in accordance with CMS’ rules. 

The statement could be detailed enough 

to address the prohibition against 

prizes, awards, trips and other types of 

incentives. One commenter suggested 

that CMS should consider evaluating 

fees paid to FMOs for future regulation. 

There were many comments about 

variable commissions. Several 

addressed the problems that a national 

plan would face in developing a 

commission that would apply across the 

country because the average may be too 

high for some areas and too low for 

others. They recommended that 

commissions should be based on local 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54239 

geographic areas. One commenter stated 

that basic drug plans should have 

reduced commissions or not have 

commissions at all because leveling 

them with commissions for enhanced 

plans would create additional costs that 

would make it difficult for them to meet 

the regional low-income benchmarks. 

Several commenters felt that there 

should be a different commission for 

MA plans and PDPs. Some suggested 

that there should be different 

commissions for all MA types. One 

commenter asked whether the level 

commission applied to other products 

(for example, Medicare supplements, 

dental, vision, auto, etc). 

Several commenters suggested ways 

to design a variable commission 

including—commissions based on 

percent of premium amount; tiered 

commission structure based on volume 

of sales; commissions based on amount 

of work required to sell product; 

commissions based on education, 

experience, tenure, or services provided; 

commissions based on performance; 

establishing a cap on commissions, 

separate commissions for agents that 

only provide leads; or special 

commissions for SNPs. 

Based in part on the issues raised by 

the above comments received on the 

May 16 proposed rule, CMS is adopting 

a different approach to compensation 

structure that focuses on creating 

incentives for agents and brokers to 

enroll beneficiaries in MA and Part D 

plans that best meet beneficiaries’ 

health care needs. This shifts the focus 

from specific dollar values, as proposed 

in the May 16 proposed rule, to 

guidelines specifying how 

compensation is disbursed, whether an 

agent receives a new or renewal 

compensation, and what qualifies as 

compensation. However, CMS still 

expects that plans will set compensation 

at levels that are reasonable and reflect 

fair market value for the services. 

Accordingly, under this IFC, 

compensation can vary (for example, by 

geographic area, plan type, agent 

experience), but is subject to the 

requirements that renewal 

compensation be paid for five renewal 

years (6-year total compensation cycle), 

that compensation for a change in plans 

during that five-year period be the same 

as the renewal compensation, and the 

initial compensation may not exceed 

200 percent of the renewal 

compensation. CMS encourages plans to 

keep compensation as level as possible 

across plan types and among agents 

providing similar services. As discussed 

above, we define ‘‘compensation’’ as 

including pecuniary or non-pecuniary 

remuneration of any kind relating to the 

sale or renewal of the policy (for 

example, commissions, bonuses, gifts, 

prizes, awards, and finders’ fees). Salary 

or other benefits related to employment 

are excluded from this definition 

(except if related to volume of sales). 

The payment of fees to comply with 

State appointment laws, training and 

testing, certification, and reimbursement 

for mileage to and from appointments 

with beneficiaries and reimbursement 

for actual costs associated with 

beneficiary sales appointments such as 

venue rent, snacks, and materials are 

also not considered compensation. 

Specifically, under the rule set forth in 

this IFC implementing our charge under 

MIPPA, MA organizations and PDP 

sponsors must adopt a compensation 

structure according to the following: 

• The aggregate first year 

compensation is no more than 200 

percent of the aggregate compensation 

paid for selling or servicing the enrollee 

in each individual subsequent year, of 

which there must be five total renewal 

years creating a 6-year compensation 

cycle. 

• If compensation is paid in the first 

year, renewal compensation must be 

paid for no fewer than 5 renewal years 

(6-year compensation cycle), provided 

that the enrollee remains enrolled in the 

plan. 

• No entity may provide and no agent 

or broker may receive aggregate 

compensation greater than the renewal 

compensation payable by the replacing 

plan on renewal policies if an existing 

policy is replaced with a like plan type 

during the first year and 5 renewal years 

(6-year compensation cycle). ‘‘Like plan 

type’’ refers to PDP, MA or MA–PD, or 

cost plan. Examples of replacements 

with like plan type are—PDP replace 

with another PDP, MA or MA–PD 

replaced with another MA or MA–PD, 

and cost plan replaced with another cost 

plan. If a PDP is added to an MA-only 

plan, then a new compensation is paid 

for enrollment in the PDP. 

• Compensation (for both first-year 

and renewals) is to be earned for months 

4 through 12 of the enrollment year. 

Plans may pay agents and brokers upfront or prorate compensation payments 

over 12 months or over months 4 

through 12, but when a beneficiary 

disenrolls voluntarily or involuntarily 

from the plan, the plan must recover all 

compensation paid-for months in which 

the beneficiary is not enrolled, and for 

months 1 through 3 if the beneficiary 

disenrolls during the first 3 months and 

compensation was paid in advance. 

• Organizations and sponsors must 

establish a compensation structure for 

new and replacement enrollments and 

renewals effective in a given plan year. 

Compensation structures must be in 

place by the beginning of the plan 

marketing period, October 1. 

• Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

The compensation structure is 

designed to help prevent inappropriate 

moves of beneficiaries from plan-toplan. Parties remain responsible, 

however, for compliance with fraud and 

abuse laws, including the anti-kickback 

statute. Depending on the 

circumstances, agent and broker 

relationships can be problematic under 

the anti-kickback statute if they involve, 

by way of example only, compensation 

in excess of fair market value, 

compensation structures tied to the 

health status of the beneficiary (for 

example, cherry-picking), or 

compensation that varies based on the 

attainment of certain enrollment targets. 

We note that the Office of the Inspector 

General (OIG) advisory opinion process 

is available to parties seeking OIG’s 

opinion as to the legality of a particular 

arrangement. Information about this 

process is available on the OIG’s Web 

site at http://oig.hhs.gov/fraud/ 

advisoryopinions.html. 

e. Agent and Broker Training 

(§§ 422.2274 and 423.2274) 

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

the Act to charge the Secretary with 

establishing ‘‘limitations with respect to 

the use by a Medicare Advantage 

organization of any individual as an 

agent, broker, or other third party 

representing the organization that has 

not completed an initial training and 

testing program and does not complete 

an annual retraining and testing 

program.’’ Section 103(b)(2) of MIPPA 

revises the Act to apply these same 

limitations to PDP sponsors. 

In our May 16 proposed rule, we 

proposed rules establishing a 

requirement for training of agents that 

we hereby adopt under this IFC to 

implement the above MIPPA language. 

These rules are set forth in this IFC at 

§§ 422.2274 and 423.2274. 

In 422.2274(b) and 423.2274(b), MA 

organizations and PDP sponsors are 

required to train all agents selling 

Medicare products on Medicare rules, 

regulations and compliance-related 

information annually. 

In 422.2274(c) and 423.2274(c), agents 

selling Medicare products are required 

annually to pass written or electronic 

tests on Medicare rules, regulations and 

information on the plan products they 

intend to sell. 

In 422.2274(d) and 423.2274(d), MA 

organizations and PDP sponsors are 


dwashington3 on PRODPC61 with RULES3
54240 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

required to provide to CMS the 

information designated by CMS as 

necessary to conduct oversight of 

marketing activities. 

In 422.2274(e) and 423.2274(e), MA 

organizations and PDP sponsors are 

required to comply with State requests 

for information about the performance 

of licensed agents or brokers as part of 

a State investigation into the 

individual’s conduct. CMS will 

establish and maintain a memorandum 

of understanding (MOU) to share 

compliance and oversight information 

with States that agree to the MOU. 

D. Changes to Section 1876 Cost Plans 

Clarifying the Conditions Under Which 

1876 Cost Plans or Portions of Their 

Service Areas May Be Prohibited 

Section 1876(h)(5)(C) of the Social 

Security Act (the Act) prohibits the 

renewal of a cost plan, or a portion of 

a cost plan’s service area in an area 

where, during the previous year, two or 

more organizations offering a local MA 

plan meet a minimum enrollment test, 

or two or more organizations offering a 

regional MA plan meet the same test. 

The test is that the local or regional plan 

must have at least 5000 enrollees in any 

portion of its service area that includes 

a Metropolitan Statistical Area (MSA) 

with a population over 250,000 

(enrollment in counties contiguous to 

the MSA count toward the 5000) and 

enrollment of at least 1,500 in the other 

portion of its service area. Section 167 

of MIPPA clarified the application of 

minimum enrollment requirements by 

revising paragraphs 1876(h)(5)(C) of the 

Act. 

The MIPPA-based revisions include 

clarifying in 1876(h)(5)(C)(iii) that the 

two plans triggering the prohibition may 

not be offered by the same MA 

organization. 

In addition, by revising 

1876(h)(5)(C)(iii)(I) of the Act, MIPPA 

clarified that if a cost plan’s service area 

falls within more than one MSA with a 

population over 250,000 and the local or 

regional plans have a minimum of 5000 

enrollees, the determination to prohibit 

a plan will be made with respect to each 

MSA and counties contiguous to each 

MSA. 

If a cost plan’s service area or portion 

of a service area falls in one MSA only, 

the determination to prohibit a plan will 

be based on the competing local or 

regional plans’ enrollments in that MSA 

only. 

In order to reflect these changes we 

are revising paragraphs (c)(1)–(3) of 

§ 417.402 of Title 42 of the Code of 

Federal Regulations. 

III. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

IV. Waiver of Proposed Rulemaking 

We ordinarily publish a notice of 

proposed rulemaking in the Federal 

Register and invite public comment on 

the proposed rule. The notice of 

proposed rulemaking includes a 

reference to the legal authority under 

which the rule is proposed, and the 

terms and substances of the proposed 

rule or a description of the subjects and 

issues involved. This procedure can be 

waived, however, if an agency finds 

good cause that a notice-and-comment 

procedure is impracticable, 

unnecessary, or contrary to the public 

interest and incorporates a statement of 

the finding and its reasons in the rule 

issued. Below, we discuss the 

provisions of the rule and our reasons 

for the waiver of notice-and-comment 

procedure and, as specified, waiver of 

effective dates. If we do not specify that 

the effective date for a provision be 

waived, the date noted in the section 

should be considered the effective date. 

A. Waiver of Notice-and-Comment 

Procedure 

1. Marketing Provisions (Several 

Sections, Subpart V) 

All of the marketing sections included 

in this regulation and listed below with 

the exception of the requirement that 

plans must include the plan type in the 

plan’s name, and that plans report the 

termination of agents or brokers to 

States, must be implemented, according 

to MIPPA, by a date specified by the 

Secretary, but no later than November 

15, 2008. Under section 1871(b)(1)(B) of 

the Act, prior notice and comment is not 

required when ‘‘a statute establishes a 

specific deadline for the 

implementation of a provision and the 

deadline is less than 150 days after the 

date of the enactment of the statute in 

which the deadline is contained. The 

deadline for the marketing provisions 

that must be in effect by November 15th 

is less than 150 days after enactment of 

HIPAA, and these provisions thus may 

be published in final form without prior 

notice and comment. 

2. Other Provisions 

The remainder of the provisions in 

this IFC either update or revise existing 

regulations or add new regulations to 

conform to the statutory changes made 

by MIPAA. Since these provisions are 

set in law without regard to what public 

commenters might say, seeking public 

comment is unnecessary and contrary to 

the public interest. 

B. Waiver of Delay of Effective Date 

In addition, for those provisions 

discussed above which were required by 

statute to be in effect by a date specified 

by the Secretary, but in no case later 

than November 15, 2008, we find good 

cause to waive the 30-day delay in 

effective date that would otherwise 

apply under section 1871(e)(1)(B)(i) of 

the Act and section 553(d) of the 

Administrative Procedure Act (APA). 

Section 553(d) of the APA and section 

1871(e)(1)(B)(i) of the Act ordinarily 

require that a regulation be effective no 

earlier than 30 days after publication. 

Under section 553(d)(3) this 

requirement can be waived for good 

cause, and under section 

1871(e)(1)(B)(ii) this requirement can be 

waived if necessary to comply with 

statutory requirements, or if a delay is 

contrary to the public interest. 

As noted above, Congress enacted 

MIPPA on July 15, 2008 and directed 

that many of the marketing provisions 

in this rule be effective on a date 

specified by the Secretary, but in no 

event later than November 15, 2008, so 

that they could be implemented in time 

for this fall’s marketing for the 2009 

plan year. As a result, we find good 

cause to waive the APA delay of 

effective date, and find that a delay 

under section 1871 is contrary to the 

public interest. 

In addition, 5 U.S.C. section 801 

generally requires that agencies submit 

major rules to the Congress 60 days 

before the rules are scheduled to 

become effective. This delay does not 

apply, however, when there has been a 

finding of good cause for waiver of prior 

notice and comment as set forth above. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54241 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs). 

Section 422.101 Requirements 

Relating to Basic Benefits 

Section 422.101(f)(1) states that MA 

organizations offering special needs 

plans must implement a model of care 

with care management as a centerpiece 

designed to meet the specialized needs 

of the plan’s targeted enrollees. 

The burden associated with this 

requirement is the time and effort put 

forth by the special needs plan to 

establish a model that meets the 

requirements under Section 422.101(f). 

In the initial year of development, we 

estimate it would take one special needs 

plan 80 hours per year to meet this 

requirement. In subsequent years, we 

estimate that it would take 10 hours per 

year to revise the model of care based 

on performance data analysis through 

the plan’s quality improvement 

program. Existing SNPs already have 

models of care and will need to revise, 

not develop, models of care. We 

estimate the 335 existing SNPs would 

have a cumulative annual burden of 

3,350 hours to revise their model of 

care. In January 2010, we anticipate that 

CMS will approve 150 new SNPs. We 

estimate the 150 new SNPs would have 

a cumulative initial year burden of 

12,000 hours to develop their model of 

care, and a cumulative annual burden of 

1,500 hours to revise their model of care 

in subsequent years. In summary, we 

project the total annual burden in 

calendar year 2009 to be 3,350 hours. In 

calendar year 2010, we project the total 

annual burden to be 13,500 hours 

(12,000 hours for SNPs approved to 

begin operating January 1, 2010 and 

1,500 hours for SNPs approved prior to 

January 1, 2010). 

Section 422.107 Special Needs Plans 

and Dual-Eligibles: Arrangements With 

States 

Section 422.107(a) requires that an 

MA organization seeking to offer a 

special needs plan serving beneficiaries 

eligible for both Medicare and Medicaid 

(dual-eligible SNPs) must have a 

contract with the State Medicaid 

agency. The MA organization retains 

responsibility under the contract for 

providing benefits, or arranging for 

benefits to be provided, for individuals 

entitled to receive medical assistance 

under Title XIX. Such benefits may 

include long-term care services 

consistent with State policy. 

Section 422.107 also allows MA 

organizations with an existing dualeligible SNP without a State Medicaid 

agency contract to continue to operate 

through 2010 provided they meet all 

other statutory requirements, that is, 

care management and quality 

improvement requirements, and do not 

expand their service areas. 

The burden associated with this 

requirement is the time and effort put 

forth by each dual-eligible special needs 

plan to contract with the State Medicaid 

agency. We estimate it would take one 

special needs plan 18 hours for 6 

months to comply with this 

requirement. We estimate 460 special 

needs plans would be affected annually 

by this requirement; therefore, the total 

annual burden associated with this 

requirement is 16,560 hours. 

Section 422.111 Disclosure 

Requirements 

Section 422.111(b)(2)(iii) states that 

each special needs plan must provide 

for prospective dual-eligible 

individuals, prior to enrollment, a 

comprehensive written statement 

describing cost-sharing protections and 

benefits that the individual is entitled to 

under title XVIII and the State Medicaid 

program under title XIX. This may be 

developed by the special needs plans 

and distributed by the agents selling 

Medicare products. 

The burden associated with this 

requirement is the time and effort put 

forth by each SNP to develop and 

provide such written statement. We 

estimate that it would take one special 

needs plan 10 hours for 6 months to 

comply with this requirement. We 

estimate 460 special needs plans would 

be affected annually by this 

requirement; therefore the total annual 

burden associated with this requirement 

is 4,600 hours. 

Section 422.114 Access to Services 

Under an MA Private Fee-for-Service 

Plan 

a. Clarification Regarding Utilization 

The revised section 

422.114(a)(2)(ii)(A) requires that for 

plan year 2010 and subsequent plan 

years, a PFFS plan that meets access 

requirements, with respect to a 

particular category of provider, by 

establishing contracts or agreements 

with a sufficient number and range of 

providers must meet the network 

accessibility and adequacy requirements 

described in Section 1852(d)(1) of the 

Act. This section of the statute describes 

the network adequacy requirements that 

coordinated care plans currently must 

meet when contracting with providers 

to furnish benefits covered under the 

plan. 

CMS currently uses the network 

adequacy standards established for 

coordinated care plans in order to 

determine whether PFFS plans who 

want to meet access requirements under 

section 422.114(a)(2)(ii) satisfactorily 

meet those requirements. Therefore, we 

believe that there will be no additional 

burden on PFFS plans in order to 

comply with section 

422.114(a)(2)(ii)(A). 

b. Requirement for Certain NonEmployer PFFS Plans To Use Contract 

Providers 

Section 422.114(a)(3) requires that for 

plan year 2011 and subsequent plan 

years, an MA organization that offers a 

PFFS plan that is operating in a network 

area as defined in section 

422.114(a)(3)(i) meets the access 

requirements in section 422.114(a)(1) 

only if the MA organization has 

contracts or agreements with providers 

in accordance with the network 

accessibility and availability 

requirements described in Section 

1852(d)(1) of the Act. 

The burden associated with this 

requirement is that beginning in plan 

year 2011, an MA organization offering 

a PFFS plan will be required to create 

separate plans within its existing service 

area based on whether the counties 

located in that service area are 

considered network areas or not. We 

have 77 MA organizations currently 

offering 838 non-employer MA PFFS 

plans. We estimate that an additional 

300 plans will be created as a result of 

organizations creating separate plan 

benefit packages for their network area 

and non-network area plans. We 

estimate that it will take 2 hours to 

create a new plan benefit package for a 

total of 600 hours to create 300 plan 

benefit packages. 

c. Requirement for all Employer/UnionSponsored PFFS Plans To Use Contracts 

With Providers 

Section 422.114(a)(4) requires that an 

employer/union sponsored PFFS plan 

operating on or after plan year 2011 

must establish written contracts or 

agreements with a sufficient number 


dwashington3 on PRODPC61 with RULES3
54242 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

and range of health care providers in its 

service area for all categories of services 

in accordance with the network 

accessibility and availability 

requirements described in Section 

1852(d)(1) of the Act. 

The burden associated with this 

requirement is the time and effort 

necessary for an organization offering an 

employer/union sponsored PFFS plan to 

submit the required application to CMS 

according to section 422.501. We 

estimate that approximately 100 hours 

would be required to complete an 

application. We project approximately 5 

organizations will submit applications 

for a year, requiring 1000 hours of time 

by all applicants on an annual basis. 

This burden associated with the 

requirement under section 422.501 is 

captured in OMB #0938–0935. 

Section 422.152 Quality Improvement 

Program 

Section 422.152(g) states that MA 

organizations offering special needs 

plans must conduct a quality 

improvement program that (1) provides 

for the collection, analysis, and 

reporting of data that measures health 

outcomes and indices of quality at the 

plan level; (2) measures the 

effectiveness of its model of care; and 

(3) makes available to CMS information 

on quality and outcomes measures that 

will enable (i) beneficiaries to compare 

health coverage options, and (ii) CMS to 

monitor the plan’s model of care 

performance. 

The burden associated with this 

requirement is the time and effort put 

forth by the special needs plan to 

develop, collect, and analyze the quality 

and health outcomes measures that meet 

the requirements under Section 

422.152(g). In the initial year of 

development, we estimate it would take 

one special needs plan 120 hours per 

year to meet this requirement. In 

subsequent years, we estimate that it 

would take 40 hours per year to revise 

the quality and health outcomes 

measures based on performance data 

analysis through the plan’s quality 

improvement program. 

The cumulative burden on SNPs is 

reflected in two parts: The burden on 

existing plans; and the burden on new 

SNPs approved to operate beginning on 

January 1, 2010. First, we estimate that, 

in calendar year 2009, the 335 existing 

SNPs would have a cumulative annual 

burden of 40,200 hours (120 hours × 335 

plans) to develop the quality and health 

outcomes measures needed to evaluate 

their model of care and overall plan 

performance. In calendar year 2010 and 

subsequent years, the existing SNPs 

would have a cumulative annual burden 

of 13,400 hours (40 hours × 335 plans) 

to revise the quality and health 

outcomes measures based on 

performance data analysis through the 

plan’s quality improvement program. 

Second, by January 1, 2010, we 

anticipate that CMS will approve 150 

new SNPs. We estimate the 150 new 

SNPs would have a cumulative initial 

year (calendar year 2010) burden of 

18,000 hours (120 hours × 150 plans) to 

develop their quality and health 

outcomes measures needed to evaluate 

their model of care and overall plan 

performance, and a cumulative annual 

burden of 6,000 hours (40 hours × 150 

plans) to revise their model of care in 

subsequent years. 

In summary, we project the 

cumulative annual burden in calendar 

year 2009 to be 40,200 hours. In 

calendar year 2010, we project the total 

annual burden to be 31,400 hours 

(13,400 hours for existing SNPs revising 

their measures, and 18,000 hours for 

new SNPs developing their measures). 

Section 163 of MIPPA, as codified in 

new § 422.152(h), newly applies a 

general rule for quality improvement 

programs at § 422.152(a) to PFFS and 

MSA plans in 2010. Each MA 

organization that offers one or more MA 

plans must have, for each of those plans, 

an ongoing quality improvement 

program that meets the applicable 

requirements of this section for the 

services it furnishes to its MA enrollees. 

As part of its ongoing quality 

improvement program, a plan must— 

• (1) Have a chronic care 

improvement program that meets the 

requirements of paragraph (c) of this 

section concerning elements of a 

chronic care program; 

• (2) Conduct quality improvement 

projects that can be expected to have a 

favorable effect on health outcomes and 

enrollee satisfaction, and meet the 

requirements of paragraph (d) of this 

section; and 

• (3) Encourage its providers to 

participate in CMS and HHS quality 

improvement initiatives. 

Section 163 of MIPPA, as codified in 

§ 422.152(h), also newly applies 

§ 422.152(e)(2) to PFFS and MSA plans 

in 2011. Section 422.152(e)(2) are 

requirements that are currently 

applicable to local PPO organizations 

with contracted networks: 

§ 422.152(e)(2) requires that MA 

organizations offering an MA regional 

plan or local PPO plan as defined in this 

section— 

• (i) Measure performance under the 

plan using standard measures required 

by CMS and report its performance to 

CMS. The standard measures may be 

specified in uniform data collection and 

reporting instruments required by CMS. 

• (ii) Evaluate the continuity and 

coordination of care furnished to 

enrollees. 

• (iii) If the organization uses written 

protocols for utilization review, the 

organization must— 

• (A) Base those protocols on current 

standards of medical practice; and 

• (B) Have mechanisms to evaluate 

utilization of services and to inform 

enrollees and providers of services of 

the results of the evaluation. 

These requirements relate to 

measuring of performance under the 

plans using standard measures required 

by CMS and to reporting this 

performance to CMS. The standard 

measures may be specified in uniform 

data collection and reporting 

instruments required by CMS and will 

relate to clinical areas including 

effectiveness of care, enrollee 

perception of care, and use of services 

and to non-clinical areas including 

access to and availability of services, 

appeals and grievances, and 

organizational characteristics. 

The burden associated with this new 

reporting provision is the time it takes 

affected MA organizations to gather and 

submit the information. Reporting is 

usually required annually. Currently, 

the standard measures that will be 

required will most likely be those 

already captured in HEDIS and CAHPS, 

approved under OMB # 0938–0701. 

Note that CMS administers the CAHPS 

survey, and so the burden for CAHPS is 

minimal on plans. 

The currently approved annual 

burden, per plan, for § 422.152 is 

estimated to be 400.53 hours. 

Therefore, the total hours burden 

associated with this requirement, as 

estimated based on current numbers for 

each plan type = 400 hours for 1028 

PFFS (employer and non-employer) 

plans and 400 hours for 10 MSA plans 

for 2010 and thereafter for a total of 

415,200 hours. 

Section 422.504 Contract Provisions 

Section 422.504(g)(1) states that each 

MA organization must adopt and 

maintain arrangements satisfactory to 

CMS to protect its enrollees from 

incurring liability for payment of fees 

that are the legal obligation of the MA 

organization. This may be done by the 

establishment of identified liaison staff 

of the MA plan and the State Medicaid 

agency, and by conducting regular 

meetings for the purpose of enrollee 

review. 

The burden associated with this 

requirement is the time and effort put 

forth by the each MA plan to adopt and 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54243 

maintain arrangements. We estimate it 

would take one MA plan 208 hours to 

comply with this requirement. We 

estimate 3400 plans would be affected 

annually by this requirement; therefore, 

the total annual burden associated with 

this requirement is 707,200 hours. 

Section 422.2268 Standards for MA 

Organization Marketing 

Section 422.2268(g) states MA 

organizations cannot market any health 

care related product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to 

document a beneficiary’s signed 

acknowledgement confirming the 

specific types of choices that the 

marketing representative is authorized 

to discuss. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

Section 422.2272 Licensing of 

Marketing Representatives and 

Confirmation of Marketing Resources 

Section 422.2272(d) states that MA 

organizations must report to the State in 

which the MAO appoints an agent or 

broker, the termination of any such 

agent or broker, including the reasons 

for such termination if State law 

requires that the reasons for the 

termination be reported. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to comply 

with the State requests for information. 

While there is burden associated with 

this requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 422.2274 Broker and Agent 

Compensation and Training of Sales 

Agents 

Section 422.2274(b) states that if a 

MA organization markets through 

independent brokers or agents, they 

must train and test agents selling 

Medicare products concerning Medicare 

rules and regulations specific to the 

plan products they intend to sell. 

The burden associated with this 

requirement is the time and effort put 

forth by the MA organization to provide 

training and test agents. While there is 

burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 422.2274(d) states that upon 

CMS’ request, the organization must 

provide to CMS the information 

necessary for it to conduct oversight of 

marketing activities. 

The burden associated with this 

requirement is the time and effort put 

forth by the organization to provide the 

requested information to CMS. We 

anticipate it would take 1 organization 

480 minutes/8 hours to fulfill this 

requirement. We estimate 670 MA 

organizations would be affected 

annually by this requirement, therefore 

the total annual burden associated with 

this requirement is 5360 hours. 

Section 423.520 Prompt Payment for 

Part D Sponsors 

Section 423.520(a)(ii)(2) requires the 

Part D sponsor to notify the submitting 

network pharmacy that a submitted 

claim is not a clean claim. Such 

notification must specify all defects or 

improprieties in the claim and must list 

all additional information necessary for 

the proper processing and payment of 

the claim. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to provide 

proper notification to the network 

pharmacy. While there is burden 

associated with this requirement, we 

believe the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act (PRA) of 1995, as defined 

in 5 CFR 1320.3(b)(2), because the time, 

effort, and financial resources necessary 

to comply with this requirement would 

be incurred by persons in the normal 

course of their activities. 

Section 423.2268 Standards for Part D 

Marketing 

Section 423.2268(g) states Part D 

organizations cannot market any health 

care related product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D organization to 

document a beneficiary’s signed 

acknowledgement confirming the 

specific types of choices that the 

marketing representative is authorized 

to discuss. While there is burden 

associated with this requirement, we 

feel the burden associated with these 

requirements is exempt from the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA) as defined 

in 5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

Section 423.2272 Licensing of 

Marketing Representatives and 

Confirmation of Marketing Resources 

Section 423.2272(d) states that Part D 

sponsors must report to the State in 

which the Part D sponsor appoints an 

agent or broker, the termination of any 

such agent or broker, including the 

reasons for such termination if State law 

requires that the reasons for the 

termination be reported. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to comply 

with the State requests for information. 

While there is burden associated with 

this requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 423.2274 Broker and Agent 

Compensation and Training of Sales 

Agents 

Section 423.2274(b) requires the Part 

D sponsor to ensure agents selling 

Medicare products are trained on 

Medicare rules and regulations specific 

to the plan products they intend to sell. 

The burden associated with this 

requirement is the time and effort put 

forth by the Part D sponsor to provide 

training and test agents. While there is 

burden associated with this 

requirement, we feel the burden 

associated with these requirements is 

exempt from the requirements of the 

Paperwork Reduction Act of 1995 (PRA) 

as defined in 5 CFR 1320.3(b)(2) because 

the time, effort, and financial resources 

necessary to comply with the 


dwashington3 on PRODPC61 with RULES3
54244 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

requirement would be incurred by 

persons in the normal course of their 

activities. 

Section 423.2274(d) states that the 

Part D sponsor provide information for 

it to conduct oversight of marketing 

activities upon CMS’ request. 

The burden associated with this 

requirement is the time and effort put 

forth the by the Part D sponsor to 

provide information to CMS. We 

anticipate it would take 1 Part D 

sponsor 480 minutes/8 hours to fulfill 

this requirement. We estimate 87 Part D 

sponsors would be affected annually by 

this requirement; therefore the total 

annual burden associated with this 

requirement is 696 hours. 

Please note, CMS will revise the 

currently OMB approved PRA packages 

that contain Part 422—Medicare 

Advantage Program and Part 423— 

Voluntary Medicare Prescription Drug 

Benefit to include any new and/or 

revised burden requirements. The OMB 

approval numbers for those PRA 

packages are 0938–0753 and 0938–0964. 

As reflected in the table that follows, 

the aggregate annual burden associated 

with the collection of information 

section for this rule totals 1,194,766. 

TABLE 2—AGGREGATE ANNUAL BURDEN

OMB No. Requirements Number of 

respondents 

Burden 

hours 

Total annual 

burden 

0938–0753 ...................................................... 422.101(f)(1) ................................................... 335 24 1 3,350 

0938–0753 ...................................................... 422.107(a) ...................................................... 460 20 16,560 

0938–0753 ...................................................... 422.111(b)(2) .................................................. 460 10 1 4,600 

0938–0753 ...................................................... 422.114(a)(3) .................................................. 300 2 600 

0938–0753 ...................................................... 422.114(a)(4) .................................................. 10 100 1,000 

0938–0753 ...................................................... 422.152(g) ...................................................... 335 120 1 40,200 

0938–0753 ...................................................... 422.152(h) ...................................................... 1,038 400 415,200 

0938–0753 ...................................................... 422.504(g)(1) .................................................. 3,400 208 1 707,200 

0938–0753 ...................................................... 422.2268(a) .................................................... N/A N/A N/A 

0938–0964 ...................................................... 422.2272(d) .................................................... N/A N/A N/A 

0938–0964 ...................................................... 422.2274(b)(d) ................................................ 670 8 5,360 

0938–0964 ...................................................... 423.520 .......................................................... N/A N/A N/A 

0938–0964 ...................................................... 423.2268(a) .................................................... N/A N/A N/A 

0938–0964 ...................................................... 423.2272(d) .................................................... N/A N/A N/A 

0938–0964 ...................................................... 423.2274(b)(d) ................................................ 87 8 696 

Total Aggregate Burden .......................... ......................................................................... ........................ ........................ 1 1,194,766 

1 = hours. 

If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this rule; or 

2. Mail copies to the address specified 

in the ADDRESSES section of this rule 

and to the Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Room 10235, 

New Executive Office Building, 

Washington, DC 20503, Attn: CMS Desk 

Officer, CMS–4138–IFC 

Brenda_Aguilar@omb.eop.gov. Fax (202) 

395–6974. 

VI. Regulatory Impact Analysis 

A. Overall Impact 

Executive Order 12866 (as amended) 

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). We 

estimate the prompt payment provisions 

to have an impact to the federal budget 

in an amount exceeding $100 million as 

specified in Table 3 which indicates 

$670 million in costs to the Federal 

government associated with these 

provisions from calendar year (CY) 2010 

through CY 2018. Costs for provisions 

not related to prompt payment, which 

are indicated in Table 5, total $26.7 

million, and will affect MA 

organizations and prescription drug 

plan sponsors. In addition, we project 

an incurred savings (before the Part B 

premium offset) ranging from $780 

million in CY 2011 to $1.59 billion in 

CY 2018, representing savings to the 

Federal government of $8.1 billion over 

this period, as the result of the 

requirement for certain non-employer 

and all employer private-fee-for-service 

plans to establish contracts with 

providers (see Table 4). Including both 

the costs and savings to the Federal 

government as a result of the provisions 

in this IFC, we estimate a net savings of 

$7.43 billion to the Federal government 

over the period estimated. As a result, 

this interim final rule meets the 

threshold of being economically 

significant and is consequently a major 

rule. 

B. Regulatory Flexibility Analysis 

1. General 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses, if a rule has significant 

impact on a substantial number of small 

entities. Under the RFA, we are not 

required to conduct an initial regulatory 

flexibility analysis for interim final 

rules. However, it is our longstanding 

policy to provide an analysis whenever 

we believe it would aid understanding 

of the effects of the IFC. As a result, we 

provide, in separate sections below, an 

analysis of the prompt payment 

provisions and other provisions in the 

IFC that are not associated with these. 

For purposes of RFA, a small business 

(as determined by the Small Business 

Administration (SBA)), is a non-profit 

entity of any size that is not dominant 

in its field, or a small government 

jurisdiction. HHS uses an impact change 

of 3 to 5 percent on revenues in its 

threshold measure of a significant 

economic impact on a substantial 

number of small entities. Individuals 

and States are not included in the 

definition of a small entity. Small 

entities affected include small retail 

pharmacies, which we believe will have 

positive cost impacts; pharmacy benefit 

managers, which we believe will have 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54245 

1The hourly rates for the burden requirement 

were developed using the Department of Labor, 

Bureau of Labor Statistics for May 2006 (National 

Occupational Employment and Wage Estimates). 

some additional costs; and MA 

organizations and Part D sponsors, 

which are not typically considered 

small entities. Cost impacts for these 

entities are discussed in further detail 

below. 

2. Prompt Payment Provisions 

The Secretary has determined that 

this rule will have a significant impact 

on a substantial number of small entities 

and that the prompt payment revisions 

will positively impact retail pharmacies 

while adding some additional cost 

impacts to Part D sponsors and 

pharmacy benefit managers (PBMs). 

With respect to the provisions 

contained in this interim final rule, we 

discuss in further detail impacts to retail 

pharmacies, Part D sponsors, and 

pharmacy benefit managers (PBMs). The 

Small Business Administration (SBA) 

considers pharmacies with firm 

revenues less than $6.5 million to be 

small businesses. The 2004 Business 

Census (the latest available detailed 

data) indicated that there were 

approximately 19,443 firms operating 

about 40,115 retail pharmacies and drug 

store establishments (NAICS code 

44611). Of these firms, 17,835 had 

revenues under $6.5 million and 

operated a total of 17,835 

establishments. As a result, we estimate 

that more than 90 percent of retail 

pharmacy firms are small businesses (as 

defined by the SBA size standards). 

Given this assumption, we estimate 

that the prompt payment provisions will 

positively impact a substantial number 

of small retail pharmacies. Our 

conversations with retail pharmacies 

indicate that those pharmacies able to 

provide remittances to wholesalers for 

invoices for drugs within a contractual 

14 day period will receive a rebate of 1– 

3% off the total invoice price. The new 

prompt payment provisions requiring 

the payment by Part D plan sponsors of 

clean claims from pharmacies within 14 

days of electronic submission will 

facilitate the payment of pharmacies’ 

wholesalers for drugs within their 

contractual window and receiving the 

related discount. We do not anticipate 

that there will be any additional costs to 

pharmacies related to this provision. 

The other small businesses that may 

be impacted by the provisions in this 

interim final rule are pharmacy benefit 

managers (PBMs). In our 2005 Part D 

final rule, we estimated approximately 

one hundred PBM firms. Since that time 

we have seen continued consolidation 

in this industry and believe there to be 

even a small number of PBMs, even 

thought there have been a handful of 

new entrants in the industry. We have 

no information on the size of the smaller 

firms in the industry, but it is likely that 

none of them, or at most a very small 

number would fall below the $6.5 

million annual revenue threshold used 

by the SBA for defining ‘‘small entities’’ 

in the insurance industry. We address 

the impact of these provisions on health 

plans and PBMs with revenues greater 

than the $6.5 million dollar threshold in 

section B. However, we do believe that 

the prompt payment provisions may put 

small PBMs at a disadvantage as more 

frequent payments may result in a 

shorter float on cash and a loss of 

investment income. 

Section 1102(b) of the Social Security 

Act requires us to prepare a regulatory 

flexibility 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. This rule will not affect small 

rural hospitals since the program will be 

directed at outpatient prescription 

drugs, not drugs provided during a 

hospital stay. As required by law, 

prescription drugs provided during 

hospital stays are covered under a 

separate Medicare payment system. 

Therefore, we are not providing an 

analysis in this rule. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditure in any one year by 

State, local, or tribal governments, in the 

aggregate, or by the private sector, of 

$110 million. That threshold level is 

currently approximately $130 million. 

We anticipate that this interim final rule 

would not impose costs above the $130 

million UMRA threshold on State, local, 

tribal governments, in the aggregate or 

by the private sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it issues a final rule 

that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

The changes and additions contained in 

this interim final rule do not impose 

new costs on states or local 

governments. Thus, there are no 

anticipated Federalism implications. 

Anticipated Effects on Health Plans and 

Pharmacy Benefit Managers (PBM) 

Part D sponsors and their PBM 

subcontractors will be significantly 

impacted by a number of provisions 

contained in this interim final rule. We 

estimate that the prompt payment 

provisions contained this interim final 

rule will impose significant costs to 

PDPs, MA–PD plans, and their 

subcontractors. The industry expects 

that the shortened payment period will 

likely require sponsors to hold more 

cash reserves and lose the opportunity 

for accumulating interest. We estimate 

the loss of investment income resulting 

from the prompt payment provisions to 

increase the costs of the Part D program 

by $670 million from CY 2010 through 

CY 2018. 

CMS requests comments and 

information on the accuracy and 

completeness of our estimates. 

3. Other Provisions 

Although other provisions of this rule 

do not exceed $100 million, because 

there are costs to plans and sponsors 

associated with several provisions of 

this rule, we indicate in Table 5 general 

areas affected and specify the cost 

impacts associated with these other 

provisions of the rule. For specific 

burden associated with the proposed 

requirements and the bases for our 

estimates, see section IV, Collection of 

Information Requirements, of this rule. 

For the cost impact estimates for 

provisions other than the prompt 

payment provisions, we use, as 

appropriate, the figures of $14.68 (based 

on the United States Department of 

Labor (DOL) statistics for the hourly 

wages of word processors and typists) 

and $37.15 (based on DOL statistics for 

a management analyst) 1 plus the added 

OMB figures of 12 percent for overhead 

and 36 percent for benefits, respectively, 

to represent average costs to plans, 

sponsors and downstream entities for 

the provisions discussed in this 

proposed rule with comment period 

(note that the wages cited for the 

provisions below include the hourly 

wage + an additional 48 percent to 

reflect overhead, benefit costs for total 

wages of $21.73 and $54.98, 

respectively). Also, it should be noted 

that while we believe there may be costs 

for special needs plans to hire medical 

personnel or senior staff not captured 

above for the state contracting and 

model of care provisions, we are unsure 

of the costs for these and thus are 


dwashington3 on PRODPC61 with RULES3
54246 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

requesting comments on additional cost 

impacts for these provisions. 

In the Regulatory Impact Analysis of 

the January 28, 2005 final rule (70 FR 

4695) revising the Medicare Advantage 

program, we noted that costs associated 

with the MA program would be 

approximately $18.3 billion from 2004 

through 2009, 10 percent of which we 

estimated will be administrative costs. 

The rule establishing the prescription 

drug benefit program published on 

January 28, 2005 (70 FR 4194) made a 

similar calculation in its Regulatory 

Impact Statement. Administrative costs 

associated with the provisions of this 

final rule, then, add negligibly to the 

total administrative costs of the MA or 

Part D programs. 

With respect to economic benefits, we 

have no reliable basis for estimating the 

effects of these proposals. Many of the 

proposed changes clarify or codify 

existing policies though such 

clarification could contribute to greater 

plan efficiency and compliance with 

program regulations. Accordingly, we 

estimate that while there could be 

economic benefits associated with these 

proposals, they are difficult to gauge at 

this time. 

Special Needs Plans (Part C) 

Several of our provisions concern 

special needs plans and strengthening 

coordination between plans and States 

to better coordinate care, developing 

models of care, and ensuring that 

enrollees are not charged for costs that 

are the responsibility of the State. A 

breakdown of costs for each provision 

are as follows: 

• Developing models of care ($54.98 

× 3,350 hours = $184,183). 

• Contracting with States ($54.98 × 

16,560 hours = $910,469). 

• Developing dual-eligible written 

information on both Medicare and 

Medicaid cost-sharing and benefits 

($21.73 × 4,600 hours = $99,958). 

• Collecting, analyzing, and reporting 

data that measures health outcomes and 

indices of quality on its model of care 

($54.98 × 40,200 hours = $2,210,196). 

Private Fee-for-Service Plans (Part C) 

CMS estimates an incurred savings 

(before the Part B premium offset) of 

$780 million for CY 2011 to $1.59 

billion in CY 2018 as a result of the 

requirement that certain non-employer 

and all employer PFFS plans establish 

contracts with providers. 

To do the estimates, we considered 

the number of counties that had PFFS 

plans, and the number of members. We 

then saw how many coordinated care 

plans were currently operating in each 

of these counties (excluding regional 

PPOs). This gave us a basis to project 

how many PFFS plans and members 

would be subject to the new 

requirement to set up networks of 

providers by 2011. 

Based on the information, as well as 

the level of payments that these plans 

receive from CMS, we estimated how 

many members would end up in PFFS 

plans that did not need to form 

networks; how many would be in plans 

that converted to network PFFS plans, 

how many would end up in a 

coordinated care plan; and how many 

would switch to original Medicare. We 

used different assumptions for 

individual plans and for group plans. 

However, for both group and individual 

plans, we assumed that most members 

would remain in a PFFS plan (either 

network or non-network). 

For members who stayed in either a 

network or non-network PFFS plan, we 

assumed a higher plan bid and, 

therefore, cost to Medicare. In contrast, 

we assumed a savings for those that we 

estimate will go to a coordinated care 

plan, and a larger savings for those who 

go to original Medicare. 

We indicate the estimated incurred 

savings over this period in Table 4. 

Costs for each provision, as shown in 

Table 5, affecting private fee-for-service 

(PFFS) plans are as follows: 

• Certain non-employer PFFS plans 

establishing contracts with providers 

($54.98 × 600 hours = $32,988). 

• Employer/union sponsored PFFS 

plans establishing contracts with 

providers ($54.98 × 1,000 hours = 

$54,980). 

• PFFS and MSA plans developing 

quality improvement programs ($54.98 

× 415,200 hours) = $22,827,696. 

Marketing (Parts C and D) 

Costs for each marketing provision, in 

the context of each program, are as 

follows: 

• Training and testing of agents 

selling Medicare products, MA program 

($54.98 × 5,360 hours = $294,692). 

• Training and testing of agents 

selling Medicare products, Part D 

($54.98 × 696 hours = $38,266) 

CMS requests comments and 

information on the accuracy and 

completeness of our estimates. 

TABLE 3—PROJECTED PART D (NON-MARKETING) COSTS FOR CY 2010–2018 

[Millions of dollars] 

CY 

2010 

CY 

2011 

CY 

2012 

CY 

2013 

CY 

2014 

CY 

2015 

CY 

2016 

CY 

2017 

CY 

2018 

CY 

2010– 

2018 

Prompt payment by prescription drug plans 

and MA–PD plans under Part D .................. 50 50 60 60 70 80 90 100 110 670 

TABLE 4—PROJECTED INCURRED SAVINGS FOR NON-EMPLOYER AND EMPLOYER PFFS NETWORK PROVISION

[Millions of dollars] 

CY 

2011 

CY 

2012 

CY 

2013 

CY 

2014 

CY 

2015 

CY 

2016 

CY 

2017 

CY 

2018 

CY 

2011– 

2018 

Total HI (MC and FFS) .................................................... 420 470 520 580 640 690 760 830 4,910 

Total SMI (MC and FFS) ................................................. 360 400 460 490 540 600 670 760 4,280 

Total Medicare (before Part B premium offset) ............... 780 870 980 1,070 1,180 1,290 1,430 1,590 9,190 

Total Medicare (after Part B premium offset) .................. 690 770 860 950 1,040 1,140 1,260 1,400 8,110 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54247 

TABLE 5—PROJECTED ANNUAL COSTS TO MAOS AND PDP SPONSORS: OTHER PROVISIONS

Provision CY effective Projected costs 

Special needs plan: developing models of care ...................................................... 2010 ........................................................ $184,183 

Special needs plan: contracting with States ............................................................ 2010 ........................................................ 910,469 

Special needs plan: developing written information on both Medicare and Medicaid cost-sharing and benefits for dual-eligible beneficiaries.2010 ........................................................ 99,958 

Special needs plan: collecting, analyzing, and reporting data related to model of 

care concerning health outcomes and indices of quality.

2010 ........................................................ 2,210,196 

Training and testing of agents and brokers (Part C and Part D programs) ............ October 2008 .......................................... 332,958 

Certain non-employer PFFS plans establishing contracts with providers ............... 2011 ........................................................ 32,988 

Employer/union sponsored PFFS plans establishing contracts with providers ....... 2011 ........................................................ 54,980 

PFFS and MSA plans developing quality improvement programs .......................... 2010 ........................................................ 22,827,696 

Total ................................................................................................................... ................................................................. 26,653,428 

C. Alternatives Considered 

All of the economically significant 

provisions in this interim final rule are 

a result of the recent passage of MIPPA 

and are self-implementing. While we 

had no discretion with these statutory 

provisions, we desired to make our 

resulting regulations available to 

industry and the public as soon as 

possible to facilitate continued, efficient 

operation of the Part C and D programs. 

Regarding the other provisions 

contained in this interim final rule, we 

considered not issuing further guidance 

in these areas, but we believed that in 

order to ensure public awareness of our 

policies, as well as to avoid potential 

confusion regarding them, we should 

codify our policies in this interim final 

rule. 

D. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

index.html), in Table 6 below, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

prompt payment provisions of this final 

rule and the benefits associated with the 

PFFS network provisions. This table 

provides our best estimate of the costs 

and savings as a result of the changes 

presented in this interim final rule. All 

costs are classified as transfers by the 

Federal Government to PDP sponsors or 

MAOs. 

TABLE 6—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

Category Transfers ($ millions) 

Incurred savings for the Non-Employer and Employer PFFS Network Provision, CYs 2011–2018 

Undiscounted Annualized Monetized Transfers ....................................................................................................... $1,013.8. 

Annualized Monetized Transfers Using 7% Discount Rate ...................................................................................... $838.4. 

Annualized Monetized Transfers Using 3% Discount Rate ...................................................................................... $873.9. 

From Whom to Whom? (Represents a reduction of transfers from the Federal Government to non-network/network PFFS Plans.).PFFS Plans to the Federal 

Government. 

Prompt payment by prescription drug plans and MA–PD plans under Part D, CYs 2010–2018 

Undiscounted Annualized Monetized Transfers ....................................................................................................... $74.4. 

Annualized Monetized Transfers Using 7% Discount Rate ...................................................................................... $71.0. 

Annualized Monetized Transfers Using 3% Discount Rate ...................................................................................... $72.9. 

From Whom to Whom? ............................................................................................................................................. Federal Government to Part D 

Sponsors. 

Costs for all other (non-marketing) provisions not related to Part D 

Undiscounted Annualized Monetized Costs ............................................................................................................. $26.7. 

Who Is Affected? ....................................................................................................................................................... MAOs/PDP Sponsors. 

E. Conclusion 

Given that we expect the cost of 

implementing a number of the 

provisions contained in this interim 

final rule, as specified in Table 3, will 

exceed the $100 million threshold 

within a single year between CY 2010 

and CY 2018, we conducted an 

economic impact analysis with regard to 

those entities potentially impacted by 

these provisions. As we stated 

previously, we expect that entities such 

as pharmacies will benefit from these 

changes, whereas other entities, such as 

PBMs and Part D sponsors, will 

experience additional costs which they 

will pass on to CMS through direct 

subsidy payments and beneficiaries 

through additional premiums as 

reflected in their bids. The prompt 

payment provisions account for the 

primary cost impacts associated with 

this IFC, ranging from $50 million in CY 

2010 to $110 million in CY 2018. Cost 

impacts for the other provisions of this 

IFC will total slightly more than $26.7 

million in the years indicated when the 

provisions become effective. As 

discussed, we also estimate a savings 

ranging from $780 million in CY 2011 

to $1.59 billion in CY 2018 as a result 

of the requirement that non-employer 

private-fee-for-service plans have 

networks beginning in 2011. 

In accordance with the provisions of 

Executive Order 12866, this final rule 

was reviewed by the Office of 

Management and Budget. 


dwashington3 on PRODPC61 with RULES3
54248 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs—health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs—health, Medicare, Reporting 

and recordkeeping requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, 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 417—HEALTH MAINTENANCE 

ORGANIZATIONS, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 1. The authority citation for part 417 

continues to read as follows: 

Authority: Sec. 1102 and 1871 of the Social 

Security Act (42 U.S.C. 1302 and 1395hh), 

secs. 1301, 1306, and 1310 of the Public 

Health Service Act (42 U.S.C. 300e, 300e–5, 

and 300e–9), and 31 U.S.C. 9701. 

Subpart J—Qualifying Conditions for 

Medicare Contracts 

■ 2. Amend § 417.402 by— 

■ A. Revising paragraph (c)(1). 

■ B. Revising paragraph (c)(2). 

■ C. Revising paragraph (c)(3). 

The revisions read as follows: 

§ 417.402 Effective date of initial 

regulations. 

* * * * * 

(c) * * * 

(1) There were two or more 

coordinated care plan-model MA 

regional plans not offered by the same 

MA organization in the same service 

area or portion of a service area for the 

entire previous calendar year meeting 

the conditions in paragraph(c)(3) of this 

section; or 

(2) There were two or more 

coordinated care plan-model MA local 

plans not offered by the same MA 

organization in the same service area or 

portion of a service area for the entire 

previous calendar year meeting the 

conditions in paragraph (c)(3) of this 

section. 

(3) Minimum enrollment 

requirements. With respect to any 

service area or portion of a service area 

that is within a Metropolitan Statistical 

Area (MSA) with a population of more 

than 250,000 and counties contiguous to 

the MSA that are not in another MSA 

with a population of more than 250,000, 

5000 enrolled individuals. If the service 

area includes a portion in more than one 

MSA with a population of more than 

250,000, the minimum enrollment 

determination is made with respect to 

each such MSA and counties contiguous 

to the MSA. 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 3. 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 

■ 4. Amend § 422.4 by— 

■ A. Republishing paragraph (a) 

introductory text. 

■ B. Revising paragraph (a)(3)(ii). 

The revision reads as follows: 

§ 422.4 Types of MA plans. 

(a) General rule. An MA plan may be 

a coordinated care plan, a combination 

of an MA MSA plan and a contribution 

into an MA MSA established in 

accordance with § 422.262, or an MA 

private fee-for-service plan. 

(3) * * * 

(ii) Subject to paragraphs (a)(3)(ii)(A) 

and (B) of this section, does not vary the 

rates for a provider based on the 

utilization of that provider’s services; 

and 

(A) May vary the rates for a provider 

based on the specialty of the provider, 

the location of the provider, or other 

factors related to the provider that are 

not related to utilization and do not 

violate § 422.205 of this part. 

(B) May increase the rates for a 

provider based on increased utilization 

of specified preventive or screening 

services. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

■ 5. Amend § 422.101 by adding 

paragraph (f) to read as follows: 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(f) Special Needs Plan Model of Care. 

(1) MA organizations offering special 

needs plans (SNP) must implement an 

evidence-based model of care with 

appropriate networks of providers and 

specialists designed to meet the 

specialized needs of the plan’s targeted 

enrollees. The MA organization must, 

with respect to each individual 

enrolled— 

(i) Conduct a comprehensive initial 

health risk assessment of the 

individual’s physical, psychosocial, and 

functional needs as well as annual 

health risk reassessment, using a 

comprehensive risk assessment tool that 

CMS will review during oversight 

activities. 

(ii) Develop and implement a 

comprehensive individualized plan of 

care through an interdisciplinary care 

team in consultation with the 

beneficiary, as feasible, indentifying 

goals and objectives including 

measurable outcomes as well as specific 

services and benefits to be provided. 

(iii) Use an interdisciplinary team in 

the management of care. 

(2) [Reserved] 

■ 6. Add new section § 422.107 to read 

as follows: 

§ 422.107 Special needs plans and dualeligibles: Contract with State Medicaid 

Agency. 

(a) Definition. For the purpose of this 

section, a contract with a State Medicaid 

agency means a formal written 

agreement between an MA organization 

and the State Medicaid agency 

documenting each entity’s roles and 

responsibilities with regard to dualeligible individuals. 

(b) General rule. MA organizations 

seeking to offer a special needs plan 

serving beneficiaries eligible for both 

Medicare and Medicaid (dual-eligible) 

must have a contract with the State 

Medicaid agency. The MA organization 

retains responsibility under the contract 

for providing benefits, or arranging for 

benefits to be provided, for individuals 

entitled to receive medical assistance 

under title XIX. Such benefits may 

include long-term care services 

consistent with State policy. 

(c) Minimum contract requirements. 

At a minimum, the contract must 

document— 

(1) The MA organization’s 

responsibility, including financial 

obligations, to provide or arrange for 

Medicaid benefits. 

(2) The category(ies) of eligibility for 

dual-eligible beneficiaries to be enrolled 

under the SNP, as described under the 

Statute at sections 1902(a), 1902(f), 

1902(p), and 1905. 

(3) The Medicaid benefits covered 

under the SNP. 

(4) The cost-sharing protections 

covered under the SNP. 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54249 

(5) The identification and sharing of 

information on Medicaid provider 

participation. 

(6) The verification of enrollee’s 

eligibility for both Medicare and 

Medicaid. 

(7) The service area covered by the 

SNP. 

(8) The contract period for the SNP. 

(d) Date of Compliance. (1) Effective 

January 1, 2010— 

(i) MA organizations offering a new 

dual-eligible SNP must have a State 

Medicaid agency contract. 

(ii) MA organizations with an existing 

dual-eligible SNP without a State 

Medicaid agency contract may continue 

to operate through 2010 provided they 

meet all other statutory requirements, 

that is, care management and quality 

improvement program requirements. 

However, they cannot expand their 

service areas during 2010. 

(2) [Reserved] 

■ 7.Amend § 422.111 by— 

■ A. Redesignating paragraph (b)(2)(iii) 

as (b)(2)(iv). 

■ B. Adding new paragraph (b)(2)(iii) to 

read as follows: 

§ 422.111 Disclosure requirements. 

* * * * * 

(b) * * * 

(2) * * * 

(iii) For a Special Needs Plan for dualeligible individuals, prior to enrollment, 

for each prospective enrollee, a 

comprehensive written statement 

describing cost sharing protections and 

benefits that the individual is entitled to 

under title XVIII and the State Medicaid 

program under title XIX. 

* * * * * 

■ 8. Amend § 422.114 by— 

■ A. Revising paragraph (a)(2) 

introductory text. 

■ B. Revising paragraph (a)(2)(ii). 

■ C. Adding paragraph (a)(3). 

■ D. Adding paragraph (a)(4). 

The revisions and additions read as 

follows: 

§ 422.114 Access to services under an MA 

private fee-for-service plan. 

(a) * * * 

(2) Subject to paragraphs (a)(3) and 

(a)(4) of this section, CMS finds that an 

MA organization meets the requirement 

in paragraph (a)(1) of this section if, 

with respect to a particular category of 

health care providers, the MA 

organization has— 

(i) * * * 

(ii) Subject to paragraph (A) of section 

(a)(2)(ii), contracts or agreements with a 

sufficient number and range of 

providers to furnish the services 

covered under the MA private fee-forservice plan; or 

(A) For plan year 2010 and 

subsequent plan years, contracts or 

agreements with a sufficient number 

and range of providers to meet the 

access standards described in section 

1852(d)(1) of the Act. 

(B) [Reserved] 

* * * * * 

(3) For plan year 2011 and subsequent 

plan years, an MA organization that 

offers an MA private fee-for-service plan 

(other than a plan described in section 

1857(i)(1) or (2) of the Act) that is 

operating in a network area (as defined 

in paragraph (a)(3)(i) of this section) 

meets the requirement in paragraph 

(a)(1) of this section only if the MA 

organization has contracts or agreements 

with providers in accordance with 

paragraph (a)(2)(ii)(A) of this section. 

(i) Network area is defined, for a given 

plan year, as the area that the Secretary 

identifies in the announcement of the 

risk and other factors to be used in 

adjusting MA capitation rates for each 

MA payment area for the previous plan 

year as having at least 2 network-based 

plans (as defined in paragraph (a)(3)(ii) 

of this section) with enrollment as of the 

first day of the year in which the 

announcement is made. 

(ii) Network-based plan is defined as 

a coordinated care plan as described in 

§ 422.4(a)(1)(ii), a network-based MSA 

plan, or a section 1876 reasonable cost 

plan. A network-based plan excludes a 

MA regional plan that meets access 

requirements substantially through the 

authority of § 422.112(a)(1)(ii) instead of 

written contracts. 

(4) For plan year 2011 and subsequent 

plan years, an MA organization that 

offers an MA private fee-for-service plan 

that is described in section 1857(i)(1) or 

(2) of the Act meets the requirement in 

paragraph (a)(1) of this section only if 

the MA organization has contracts or 

agreements with providers in 

accordance with paragraph (a)(2)(ii)(A) 

of this section. 

* * * * * 

Subpart D—Quality Improvement 

■ 9. Amend § 422.152 by— 

■ A. Revising paragraph (a) introductory 

text. 

■ B. Adding paragraph (g). 

■ C. Adding paragraph (h). 

The revisions read as follows: 

§ 422.152 Quality improvement program. 

(a) General rule. Each MA 

organization that offers one or more MA 

plans must have, for each of those plans, 

an ongoing quality improvement 

program that meets applicable 

requirements of this section for the 

service it furnishes to its MA enrollees. 

As part of its ongoing quality 

improvement program, a plan must— 

* * * * * 

(g) Special requirements for 

specialized MA Plans for special needs 

individuals. A SNP must conduct a 

quality improvement program that— 

(1) Provides for the collection, 

analysis, and reporting of data that 

measures health outcomes and indices 

of quality pertaining to its targeted 

special needs population (that is, dualeligible, institutionalized, or chronic 

condition) at the plan level. 

(2) Measures the effectiveness of its 

model of care through the collection, 

aggregation, analysis, and reporting of 

data that demonstrate the following: 

(i) Access to care as evidenced by 

measures from the care coordination 

domain (for example, service and 

benefit utilization rates, or timeliness of 

referrals or treatment). 

(ii) Improvement in beneficiary health 

status as evidenced by measures from 

functional, psychosocial, or clinical 

domains (for example, quality of life 

indicators, depression scales, or chronic 

disease outcomes). 

(iii) Staff implementation of the SNP 

model of care as evidenced by measures 

of care structure and process from the 

continuity of care domain (for example, 

National Committee for Quality 

Assurance accreditation measures or 

medication reconciliation associated 

with care setting transitions indicators). 

(iv) Comprehensive health risk 

assessment as evidenced by measures 

from the care coordination domain (for 

example, accuracy of acuity 

stratification, safety indicators, or 

timeliness of initial assessments or 

annual reassessments). 

(v) Implementation of an 

individualized plan of care as evidenced 

by measures from functional, 

psychosocial, or clinical domains (for 

example, rate of participation by IDT 

members and beneficiaries in care 

planning). 

(vi) A provider network having 

targeted clinical expertise as evidenced 

by measures from medication 

management, disease management, or 

behavioral health domains. 

(vii) Delivery of services across the 

continuum of care. 

(viii) Delivery of extra services and 

benefits that meet the specialized needs 

of the most vulnerable beneficiaries as 

evidenced by measures from the 

psychosocial, functional, and end-of-life 

domains. 

(ix) Use of evidence-based practices 

and nationally recognized clinical 

protocols. 

(x) Use of integrated systems of 

communication as evidenced by 


dwashington3 on PRODPC61 with RULES3
54250 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

measures from the care coordination 

domain (for example, call center 

utilization rates, rates of beneficiary 

involvement in care plan development, 

etc.). 

(3) Makes available to CMS 

information on quality and outcomes 

measures that will— 

(i) Enable beneficiaries to compare 

health coverage options; and 

(ii) Enable CMS to monitor the plan’s 

model of care performance. 

(h) Requirements for MA private-feefor-service plans and Medicare medical 

savings account plans. (1) Subject to 

paragraph (h)(2) of this section, MA 

PFFS and MSA plans are subject to 

requirements that may not exceed the 

requirements specified in § 422.152(e). 

(2) For plan year 2010, MA PFFS and 

MSA plans are not subject to the 

limitations under § 422.152(e)(1)(i) and 

must meet the requirements using 

administrative claims data only. 

Subpart E—Relationships With 

Providers 

■ 10. Revise paragraph (a) of § 422.216 

as follows: 

§ 422.216 Special Rules for MA private-feefor-service plans. 

(a) Payment to Providers—(1) 

Payment Rate. (i) The MA organization 

must establish payment rates for plan 

covered items and services that apply to 

deemed providers. The MA organization 

may vary payment rates for providers in 

accordance with § 422.4(a)(3). 

(ii) Providers must be reimbursed on 

a fee-for-service basis. 

(iii) The MA organization must make 

information on its payment rates 

available to providers that furnish 

services that may be covered under the 

MA private fee-for-service plan. 

(2) Noncontract providers. The 

organization pays for services of 

noncontract providers in accordance 

with § 422.100(b)(2). 

(3) Services furnished by providers of 

service. Any provider of services as 

defined in section 1861(u) of the Act 

that does not have in effect a contract 

establishing payment amounts for 

services furnished to a beneficiary 

enrolled in an MA private fee-forservice plan must receive, and accept as 

payment in full, at least the amount 

(less any payments under §§ 412.105(g) 

and 413.76 of this chapter) that it could 

collect if the beneficiary were enrolled 

in original Medicare. 

* * * * * 

Subpart G—Payments to Medicare 

Advantage Organizations 

■ 11. Amend § 422.306 by— 

■ A. Revising the introductory text. 

■ B. Adding paragraph (c). 

The revisions and additions read as 

follows: 

§ 422.306 Annual MA capitation rates. 

Subject to adjustments at § 422.308(b) 

and § 422.308(g), the annual capitation 

rate for each MA local area is 

determined under paragraph (a) of this 

section for 2005 and each succeeding 

year, except for years when CMS 

announces under § 422.312(b) that the 

annual capitation rates will be 

determined under paragraph (b) of this 

section, and is then adjusted to exclude 

the applicable phase-in percentage of 

the standardized costs for payments 

under section 1886(d)(5)(B) of the Act in 

the area for the year under paragraph (c) 

of this section. 

* * * * * 

(c) Phase-out of the indirect costs of 

medical education from MA capitation 

rates. Beginning with 2010, after the 

annual capitation rate for each MA local 

area is determined under paragraph (a) 

or (b), the amount is adjusted in 

accordance with section 1853(k)(4) of 

the Act to exclude from such amount 

the phase-in percentage for the year of 

the estimated costs for payments under 

section 1886(d)(5)(B) of the Act in the 

area for the year. 

Subpart K—Contracts With Medicare 

Advantage Organizations 

■ 12. Amend § 422.504 by adding 

paragraph (g)(1)(iii) to read as follows: 

§ 422.504 Contract provisions. 

* * * * * 

(g) * * * 

(1) * * * 

(iii) For full-benefit dual-eligible 

individuals or qualified Medicare 

beneficiaries, plans may not impose cost 

sharing exceeding the amount that 

would be permitted to the individual 

under title XIX if the individual were 

not enrolled in the SNP. 

* * * * * 

Subpart V—Medicare Advantage 

Marketing Requirements 

■ 13. Amend § 422.2268 by— 

■ A. Adding paragraph (b) 

■ B. Adding paragraph (g). 

■ C. Adding paragraph (h). 

■ D. Adding paragraph (n). 

■ E. Adding paragraph (q). 

The additions to read as follows: 

§ 422.2268 Standards for MA organization 

marketing. 

* * * * * 

(b) Offer gifts to potential enrollees, 

unless the gifts are of nominal (as 

defined in the CMS Marketing 

Guidelines) value, are offered to all 

potential enrollees without regard to 

whether or not the beneficiary enrolls, 

and are not in the form of cash or other 

monetary rebates. 

* * * * * 

(g) Market any health care related 

product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

(h) Market additional health related 

lines of plan business not identified 

prior to an in-home appointment 

without a separate appointment that 

may not be scheduled until 48 hours 

after the initial appointment. 

* * * * * 

(n) Display the names and/or logos of 

co-branded network providers on the 

organization’s member identification 

card, unless the provider names, and/or 

logos are related to the member 

selection of specific provider 

organizations (for example, physicians, 

hospitals). Other marketing materials (as 

defined in § 422.2260) that include 

names and/or logos of provider cobranding partners must clearly indicate 

that other providers are available in the 

network. 

* * * * * 

(q) Use a plan name that does not 

include the plan type. The plan type 

should be included at the end of the 

plan name. 

■ 14. Amend § 422.2272 by adding 

paragraph (d) to read as follows: 

§ 422.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

* * * * * 

(d) Report to the State in which the 

MAO appoints an agent or broker, the 

termination of any such agent or broker, 

including the reasons for such 

termination if State law requires that the 

reasons for the termination be reported. 

■ 15. Add § 422.2274 to read as follows: 

§ 422.2274 Broker and agent requirements. 

If a Medicare Advantage organization 

markets through employed or 

independent brokers or agents— 

(a) Agents and brokers must be 

compensated as follows: 

(1) An MA plan (or other entity on its 

behalf) may provide compensation to a 

broker or agent for the sale of a MA 

product only if the aggregate of the first 

year compensation is no more than 200 

percent of the aggregate of the 

compensation paid for selling or 

servicing the enrollee in each individual 

subsequent renewal year, of which there 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54251 

must be a total of five renewal years 

(creating a 6-year compensation cycle). 

For purposes of this section, 

‘‘compensation’’— 

(i) Includes pecuniary or nonpecuniary remuneration of any kind 

relating to the sale or renewal of the 

policy including but not limited to 

commissions, bonuses, gifts, prizes, 

awards and finders fees. 

(ii) Does not include salary or other 

benefits related to employment, except 

to the extent that the salary or other 

benefits are related to the volume of 

sales. 

(iii) Does not include the payment of 

fees to comply with State appointment 

laws, training, certification, and testing 

costs; and reimbursement for mileage to 

and from appointments with 

beneficiaries and reimbursement for 

actual costs associated with beneficiary 

sales appointments such as venue rent, 

snacks, and materials. 

(2) If compensation is paid in the first 

year, renewal compensation must be 

paid for no fewer than 5 renewal years 

(6-year compensation cycle), provided 

that the enrollee remains enrolled in the 

plan. 

(3) No entity shall provide aggregate 

compensation to its agents or brokers 

and no agent or broker shall receive 

aggregate compensation greater than the 

renewal compensation payable by the 

replacing plan on renewal policies if an 

existing policy is replaced with a like 

plan type during the first year and 5 

renewal years (6-year compensation 

cycle). 

(i) For purposes of this section, ‘‘like 

plan type’’ means PDP replaced with 

another PDP, MA or MA–PD replaced 

with another MA or MA–PD, or cost 

plan replaced with another cost plan. 

(ii) Replacements between different 

plan types (for which a new 

compensation is paid) include—PDP 

and MA–PD, PDP and cost plans, or 

MA–PD and cost plans. 

(4) Compensation shall be earned for 

months 4 through 12 of the enrollment 

year. 

(i) Plans may pay agents and brokers 

up-front or prorate compensation 

payments over 12 months or over 

months 4 through 12, but 

(ii) When a beneficiary disenrolls 

from the plan, the plan must recover all 

compensation paid: for months in 

which the beneficiary is not enrolled; 

and during months 1 through 3 if the 

beneficiary disenrolls during the first 

three months. 

(5) Organizations and sponsors must 

establish a compensation structure for 

new and replacement enrollments and 

renewals effective in a given plan year. 

Compensation structures must be in 

place by the beginning of the plan 

marketing period, October 1. 

(6) Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

(b) It must ensure agents selling 

Medicare products are trained annually 

on Medicare rules and regulations 

specific to the plan products they intend 

to sell. 

(c) It must ensure agents selling 

Medicare products are tested annually, 

as specified in CMS guidance. 

(d) Upon CMS’ request, the 

organization must provide to CMS, in a 

form consistent with current CMS 

guidance, the information necessary for 

it to conduct oversight of marketing 

activities. 

(e) It must comply with State requests 

for information about the performance 

of a licensed agent or broker as part of 

a state investigation into the 

individual’s conduct. CMS will 

establish and maintain a memorandum 

of understanding (MOU) to share 

compliance and oversight information 

with States that agree to the MOU. 

PART 423—VOLUNTARY MEDICARE 

PRESCRIPTION DRUG BENEFIT 

■ 16. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

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

1395w–152, and 1395hh). 

Subpart B—Eligibility and Enrollment 

■ 17. Amend § 423.46 by revising 

paragraph (a) introductory text to read 

as follows: 

§ 423.46 Late enrollment penalty. 

(a) General. A Part D eligible 

individual must pay the late penalty 

described under § 423.286(d)(3), except 

as described at § 423.780(e), if there is 

a continuous period of 63 days or longer 

at any time after the end of the 

individual’s initial enrollment period 

during which the individual meets all of 

the following conditions: 

* * * * * 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

■ 18. Amend § 423.322 by revising 

paragraph (b) to read as follows: 

§ 423.322 Requirement for disclosure of 

information. 

* * * * * 

(b) Restrictions on use of information. 

Officers, employees and contractors of 

the Department of Health and Human 

Services may use the information 

disclosed or obtained in accordance 

with the provisions of this subpart only 

for the purposes of, and to the extent 

necessary in, carrying out this subpart 

including, but not limited to, 

determination of payments, and 

payment-related oversight, and program 

integrity activities. 

(1) This restriction does not limit 

OIG’s authority to fulfill the Inspector 

General’s responsibilities in accordance 

with applicable Federal law. 

(2) This restriction does not limit 

CMS’ ability to use data regarding drug 

claims in accordance with section 

1848(m) of the Act. 

Subpart K—Application Procedures 

and Contracts with Part D Plan 

Sponsors 

■ 19. Amend § 423.505 by— 

■ A. Adding paragraph (b)(19). 

■ B. Adding paragraph (b)(20). 

■ C. Adding paragraph (b) (21). 

■ D. Adding paragraph (i)(3)(iv) through 

(vi). 

■ E. Revising paragraph (m)(1) 

introductory text. 

■ F. Revising (m)(1)(iii)(A). 

■ G. Revising paragraph (m)(1)(iv). 

■ H. Adding paragraph (m)(3). 

The additions and revisions read as 

follows. 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(19) Effective contract year 2010, 

include the prompt payment provisions 

described in § 423.520. 

(20) Effective contract year 2010, 

provide that pharmacies located in, or 

having a contract with, a long-term care 

facility (as defined in § 423.100) must 

have not less than 30 days, nor more 

than 90 days, to submit to the Part D 

sponsor claims for reimbursement under 

the plan. 

(21) Effective contract year 2009, 

update any prescription drug pricing 

standard for reimbursement of network 

pharmacies based on the cost of a drug 

used by the Part D sponsor on— 

(i) January 1 of each contract year; and 

(ii) Not less frequently than once 

every 7 days after the date in paragraph 

(b)(21)(i) of this section. 

* * * * * 

(i) * * * 

(3) * * * 

(iv) A provision requiring prompt 

payment of clean claims by the Part D 

sponsor, consistent with § 423.520. 

(v) A provision that establishes 

timeframes, consistent with 

§ 423.505(b)(20), for long-term care 


dwashington3 on PRODPC61 with RULES3
54252 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

pharmacies to submit claims to the Part 

D sponsor for reimbursement under the 

plan. 

(vi) If applicable, a provision— 

(A) Establishing regular updates of 

any prescription drug pricing standard 

used by the Part D sponsor consistent 

with § 423.505(b)(21); and 

(B) Indicating the source used by the 

Part D sponsor for making any such 

pricing updates. 

* * * * * 

(m)(1) CMS may release the minimum 

data necessary for a given purpose from 

the data collected under paragraph (f)(3) 

of this section to Federal executive 

branch agencies, States, and external 

entities in accordance with the 

following: 

* * * * * 

(iii) * * * 

(A) Subject to the restrictions in this 

paragraph, all elements on the claim are 

available to HHS. 

* * * * * 

(iv) For purposes of paragraph 

(m)(1)(iii) of this section, States and 

executive-branch Federal agencies are 

not considered to be external entities. 

* * * * * 

(3) CMS shall make available to 

Congressional support agencies (the 

Congressional Budget Office, the 

Government Accountability Office, the 

Medicare Payment Advisory 

Commission, and the Congressional 

Research Service when it is acting on 

behalf of a Congressional committee in 

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

information collected under paragraph 

(f)(3) of this section for the purposes of 

conducting congressional oversight, 

monitoring, making recommendations, 

and analysis of the Medicare program. 

■ 20. Add 423.520 to read as follows: 

§ 423.520 Prompt payment by Part D 

sponsors. 

(a) Contract between CMS and the 

Part D sponsor. (1) Effective contract 

year 2010, the contract between the Part 

D sponsor and CMS must provide that 

the Part D sponsor will issue, mail, or 

otherwise transmit payment with 

respect to all clean claims, as defined in 

paragraph (b) of this section, submitted 

by network pharmacies (other than 

mail-order and long-term care 

pharmacies) within— 

(i) 14 days after the date on which the 

claim is received, as defined in 

paragraph (a)(2)(i) of this section, for an 

electronic claim; or 

(ii) 30 days after the date on which 

the claim is received, as defined in 

paragraph (a)(2)(ii) of this section, for 

any other claim. 

(2) Date of receipt of claim. A claim 

is considered to have been received— 

(i) On the date on which the claim is 

transferred, for an electronic claim; or 

(ii) On the 5th day after the postmark 

day of the claim or the date specified in 

the time stamp of the transmission, for 

any other claim, whichever is sooner. 

(b) Clean claim. A clean claim means 

a claim that has no defect or 

impropriety (including any lack of any 

required substantiating documentation) 

or particular circumstance requiring 

special treatment that prevents timely 

payment of the claim from being made 

under this section. 

(c) Procedures involving claims—(1) 

Claims determined to be clean. A claim 

is deemed to be a clean claim if the Part 

D sponsor receiving the claim does not 

provide notice to the submitting 

network pharmacy of any deficiency in 

the claim within— 

(i) 10 days after the date on which the 

claim is received, as defined in 

paragraph (a)(2)(i) of this section, for an 

electronic claim; or 

(ii) 15 days after the date on which 

the claim is received, as defined in 

paragraph (a)(2)(ii) of this section, for 

any other claim. 

(2) Claims determined not to be 

clean—(i) General. If a Part D sponsor 

determines that a submitted claim is not 

a clean claim, as defined in paragraph 

(b) of this section, the Part D sponsor 

must notify the submitting network 

pharmacy of such determination within 

the period described in paragraph (c)(1) 

of this section. Such notification must 

specify all defects or improprieties in 

the claim and must list all additional 

information necessary for the proper 

processing and payment of the claim. 

(ii) Determination after submission of 

additional information. A claim is 

deemed to be a clean claim under 

paragraph (b) of this section if the Part 

D sponsor that receives the claim does 

not provide notice to the submitting 

network pharmacy of any defect or 

impropriety in the claim within 10 days 

of the date on which additional 

information is received under paragraph 

(c)(2)(i) of this section. 

(3) Obligation to pay. A claim 

submitted to a Part D sponsor that is not 

paid or contested by the Part D sponsor 

within the timeframes specified in 

paragraphs (a)(1)(i) and (ii) of this 

section must be deemed to be a clean 

claim and must be paid by the Part D 

sponsor in accordance with paragraph 

(a) of this section. 

(d) Date of payment of claim. 

Payment of a clean claim under 

paragraph (c)(3) of this section is 

considered to have been made on the 

date on which— 

(1) The payment is transferred, for an 

electronic claim; or 

(2) The payment is submitted to the 

United States Postal Service or common 

carrier for delivery, for any other claim. 

(e) Interest payment—(1) General. 

Subject to paragraph (e)(2) of this 

section, if payment is not issued, mailed 

or otherwise transmitted for a clean 

claim as required under paragraph (a) of 

this section, the Part D sponsor must 

pay interest to the network pharmacy 

that submitted the claim at a rate equal 

to the weighted average of interest on 3- 

month marketable Treasury securities 

determined for such period, increased 

by 0.1 percentage point for the period 

beginning on the day after the required 

payment date and ending on the date on 

which the payment is made, as 

determined under paragraph (d). 

Interest amounts paid under this 

paragraph will not count against the 

Part D sponsor’s administrative costs, as 

defined in § 423.308, and will not be 

treated as allowable risk corridor costs, 

as defined in § 423.308. 

(2) Authority not to charge interest. As 

CMS determines appropriate, including 

in exigent circumstances such as natural 

disasters and other unique and 

unexpected events that prevent the 

timely processing of claims, a Part D 

sponsor will not be charged interest 

under paragraph (e)(1) of this section. 

(f) Electronic transfer of funds. A Part 

D sponsor must pay all clean claims 

submitted electronically by electronic 

transfer of funds provided the 

submitting network pharmacy so 

requests or has so requested previously 

that contract year. When such payment 

is made electronically, remittance may 

also be made electronically by the Part 

D sponsor. 

(g) Protecting the rights of the 

claimants. (1) General. Nothing in this 

section may be construed to prohibit or 

limit a claim or action that any 

individual or organization has against a 

pharmacy, provider, or Part D sponsor 

that is not covered by the subject matter 

of this section. 

(2) Anti-retaliation. Consistent with 

applicable Federal or State law, a Part 

D sponsor may not retaliate against an 

individual, pharmacy, or provider for 

exercising a right of action under 

paragraph (g)(1) of this section. 

(h) Construction. A determination 

under this section that a claim 

submitted by a network pharmacy is a 

clean claim shall not be construed as a 

positive determination regarding 

eligibility for payment under title XVIII 

of the Act, nor is it an indication of 

government approval of, or 

acquiescence regarding, the claim 

submitted. The determination does not 

relieve any party of civil or criminal 

liability with respect to the claim, nor 


dwashington3 on PRODPC61 with RULES3
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 54253 

does it offer a defense to any 

administrative, civil, or criminal action 

with respect to the claim. 

Subpart P—Premiums and CostSharing Subsidies for Low-Income 

Individuals 

■ 21. Amend § 423.772 by revising the 

definitions of ‘‘income’’ and ‘‘resources’’ 

to read as follows: 

§ 423.772 Definitions. 

* * * * * 

Income means income as described 

under section 1905(p)(1) of the Act 

without use of any more liberal 

disregards under section 1902(r)(2) of 

the Act (that is defined by section 1612 

of the Act) and exempts support and 

maintenance furnished in kind. This 

definition includes the income of the 

applicant and spouse who is living in 

the same household, if any, regardless of 

whether the spouse is also an applicant. 

* * * * * 

Resources means liquid resources of 

the applicant (and, if married, his or her 

spouse who is living in the same 

household), such as checking and 

savings accounts, stocks, bonds, and 

other resources that can be readily 

converted to cash within 20 days, that 

are not excluded from resources in 

section 1613 of the Act, and real estate 

that is not the applicant’s primary 

residence or the land on which the 

primary residence is located. It exempts 

the value of any life insurance policy. 

* * * * * 

■ 22. Amend § 423.780 by revising 

paragraph (e) to read as follows: 

§ 423.780 Premium subsidy. 

* * * * * 

(e) Waiver of Late Enrollment Penalty 

for Subsidy-Eligible Individuals. 

Subsidy eligible individuals, as defined 

in § 423.773, are not subject to a late 

enrollment penalty, as defined in 

§ 423.46. 

* * * * * 

Subpart V—Part D Marketing 

Requirements 

■ 23. Amend § 423.2268 by— 

■ A. Adding paragraph (b) 

■ B. Adding paragraph (g). 

■ C. Adding paragraph (h). 

■ D. Adding paragraph (n). 

■ E. Adding paragraph (q). 

The additions and revisions read as 

follows: 

§ 423.2268 Standards for Part D marketing. 

* * * * * 

(b) Offer gifts to potential enrollees, 

unless the gifts are of nominal (as 

defined in the CMS Marketing 

Guidelines) value, are offered to all 

potential enrollees without regard to 

whether or not the beneficiary enrolls, 

and are not in the form of cash or other 

monetary rebates. 

* * * * * 

(g) Market any health care related 

product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

(h) Market additional health related 

lines of plan business not identified 

prior to an in-home appointment 

without a separate appointment that 

may not be scheduled until 48 hours 

after the initial appointment. 

* * * * * 

(n) Display the names and/or logos of 

co-branded network providers on the 

organization’s member identification 

card. Other marketing materials (as 

defined in § 423.2260) that include 

names and/or logos of provider cobranding partners must clearly indicate 

that other providers are available in the 

network. 

* * * * * 

(q) Use a plan name that does not 

include the plan type. The plan type 

should be included at the end of the 

plan name. 

■ 24. Amend § 423.2272 by adding new 

paragraph (d) to read as follows: 

§ 423.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

* * * * * 

(d) Report to the State in which the 

MAO appoints an agent or broker, the 

termination of any such agent or broker, 

including the reasons for such 

termination if State law requires that the 

reasons for the termination be reported. 

■ 25. Add new § 423.2274 to read as 

follows: 

§ 423.2274 Broker and agent requirements. 

If a Part D sponsor markets through 

employed or independent brokers or 

agents— 

(a) Agents and brokers must be 

compensated as follows: 

(1) A Part D sponsor (or other entity 

on its behalf) may provide 

compensation to a broker or agent for 

the sale of a Part D plan only if the 

aggregate of the first year compensation 

is no more than 200 percent of the 

aggregate of the compensation paid for 

selling or servicing the enrollee in each 

individual subsequent renewal year, of 

which there must be a total of five 

renewal years (creating a 6-year 

compensation cycle). For purposes of 

this section ‘‘compensation’’— 

(i) Includes pecuniary or nonpecuniary remuneration of any kind 

relating to the sale or renewal of the 

policy including but not limited to 

commissions, bonuses, gifts, prizes, 

awards and finders fees. 

(ii) Does not include salary or other 

benefits related to employment, except 

to the extent that the salary or other 

benefits are related to the volume of 

sales. 

(iii) Does not include the payment of 

fees to comply with State appointment 

laws, training, certification, and testing 

costs; and reimbursement for mileage to 

and from appointments with 

beneficiaries and reimbursement for 

actual costs associated with beneficiary 

sales appointments such as venue rent, 

snacks, and materials. 

(2) If compensation is paid in the first 

year, compensation must be paid for no 

fewer than 5 renewal years (6-year 

compensation cycle), provided that the 

enrollee remains enrolled in the plan. 

(3) No entity shall provide aggregate 

compensation to its agents or brokers 

and no agent or broker shall receive 

aggregate compensation greater than the 

renewal compensation payable by the 

replacing plan on renewal policies if an 

existing policy is replaced with a like 

plan type during the first year and 5 

renewal years (6-year compensation 

cycle). 

(i) For purposes of this section, ‘‘like 

plan type’’ means PDP replaced with 

another PDP, MA or MA–PD replaced 

with another MA or MA–PD, or cost 

plan replaced with another cost plan. 

(ii) Replacements between different 

plan types (for which a new 

compensation is paid) include—PDP 

and MA–PD, PDP and cost plans, or 

MA–PD and cost plans. 

(iii) When a PDP is added to an MAonly plan, a new commission would be 

paid for the enrollment in the PDP 

during the first year. 

(4) Compensation shall be earned for 

months 4 through 12 of the enrollment 

year. 

(i) Plans may pay agents and brokers 

up-front or prorate compensation 

payments over 12 months or over 

months 4 through 12, but 

(ii) When a beneficiary disenrolls 

from the plan, the plan must recover all 

compensation paid: for months in 

which the beneficiary is not enrolled; 

and during months 1 through 3 if the 

beneficiary disenrolls during the first 

three months. 

(5) Organizations and sponsors must 

establish a compensation structure for 

new and replacement enrollments and 

renewals effective in a given plan year. 

Compensation structures must be in 


dwashington3 on PRODPC61 with RULES3
54254 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Rules and Regulations 

place by the beginning of the marketing 

period, October 1. 

(6) Compensation structures must be 

available upon CMS request including 

for audits, investigations, and to resolve 

complaints. 

(b) It must ensure agents selling 

Medicare products are trained annually 

on Medicare rules and regulations 

specific to the plan products they intend 

to sell. 

(c) It must ensure agents selling 

Medicare products are tested annually, 

as specified in CMS guidance. 

(d) Upon CMS’ request, the 

organization must provide to CMS, in a 

form consistent with current CMS 

guidance, the information necessary for 

it to conduct oversight of marketing 

activities. 

(e) It must comply with State requests 

for information about the performance 

of a licensed agent or broker as part of 

a state investigation into the 

individual’s conduct. CMS will 

establish and maintain a memorandum 

of understanding (MOU) to share 

compliance and oversight information 

with States that agree to the MOU. 

Authority: (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: August 19, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: September 2, 2008. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. E8–21686 Filed 9–15–08; 9:00 am] 

BILLING CODE 4120–01–P 


dwashington3 on PRODPC61 with RULES3