[Federal Register Volume 73, Number 182 (Thursday, September 18, 2008)]
[Rules and Regulations]
[Pages 54226-54254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21686]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 417, 422 and 423



Medicare Program; Revisions to the Medicare Advantage and Prescription 
Drug Benefit Programs; Final Rule

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

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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.

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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.

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    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 Sec.  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

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chronic care SNPs, and 89 institutional SNPs.
a. Model of Care (Sec.  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 evidence-based 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 Sec.  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 evidence-based 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 (Sec.  422.107)
    In the May 16, 2008 proposed rule, we proposed in new section Sec.  
422.107 to require, effective January 1, 2010, that MA organizations 
offering a dual-eligible 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 Sec.  422.107, which sought to require a documented 
relationship between MA organizations and State Medicaid agencies for 
dual-eligible SNPs, has been superseded by Section 164 of MIPPA. 
Section 164 of MIPPA adds new requirements to section 1859(f) of the 
Act for dual-eligible 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 Sec.  422.107, with an effective date of 
January 1, 2010.
c. SNPs and Quality Improvement Program (Sec.  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 Sec.  
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 Sec.  422.152(b) 
with requirements in a new Sec.  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

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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 (Sec.  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 dual-
eligible 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 Sec.  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 Sec.  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 (Sec.  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 Sec.  422.114(a)(2)(ii) to reflect this new 
statutory requirement.
b. Requirement for Certain Non-Employer PFFS Plans To Use Contract 
Providers
    Prior to MIPPA, section 1852(d)(4) of the Act and Sec.  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 Sec.  422.114(a)(2). That is, 
the plan has--
    <bullet> Payment rates that are not less than the rates that apply 
under Original Medicare for the provider in question;
    <bullet> Contracts or agreements with a sufficient number and range 
of providers to furnish the services covered under the MA private fee-
for-service plan; or
    <bullet> A combination of the above.
    Section 1852(j)(6) of the Act and Sec.  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

[[Page 54230]]

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 Sec.  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 network-based 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 Sec.  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 network-based 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 network-based 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 Sec.  
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 
Sec.  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 non-network 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 Sec.  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 Sec.  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 Sec.  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.

[[Page 54231]]

    We are revising Sec.  422.114(a) to reflect this statutory change. 
Specifically, Sec.  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 Sec.  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-for-service basis without 
placing the provider at financial risk; does not vary the rates for a 
provider based on the utilization of that provider's services; and does 
not restrict enrollees' choice among providers who are lawfully 
authorized to provide 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 Sec.  422.4 and paragraph 
(a) of Sec.  422.216 to add the clarifications in Section 162(b) of 
MIPPA.
3. Revisions to Quality Improvement Programs Sec.  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 
Sec.  422.152(a).
    We are revising Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Sec.  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 
Sec.  1886(d)(11) of the Act by original Medicare.

[[Page 54232]]

    We are adding a new paragraph (c) to Sec.  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 Sec.  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 (Sec. Sec.  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 Sec.  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 (Sec.  423.505 and Sec.  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 Sec.  423.4. We 
have codified these new requirements in Sec.  423.505 and Sec.  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 Sec.  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 Sec.  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 Sec.  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 
Sec. Sec.  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 non-electronically 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 Sec.  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 Sec. Sec.  
423.520(a)(1)(i) and (ii) of this IFC.
    Under section 1860D-12(b)(4)(D)(ii) of the Act and in Sec.  
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 Sec.  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

[[Page 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 
Sec.  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 Sec.  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 Sec.  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, Sec.  
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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  423.308. 
In other words, the Part D sponsor is fully liable for any interest 
payments for claims not paid timely, consistent with Sec.  423.520(d) 
of this IFC. In accordance with section 1860D-12(b)(4)(C)(ii) of the 
Act and as codified in Sec.  423.520(e)(2) of this IFC, CMS may 
determine that a Part D sponsor will not be charged interest under 
Sec.  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 Sec.  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 Sec.  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 Sec.  423.520(g)(1) of this IFC, the requirements in Sec.  
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 Sec.  
423.520. Further, as provided under section 1860D-12(b)(4)(F)(ii) of 
the Act and Sec.  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 Sec.  423.520(h), any determination that a claim 
submitted by a network pharmacy is a clean claim as defined in Sec.  
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 Sec.  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 Sec.  423.520 to reflect the prompt 
payment requirements of section 1860D-12(b)(4) of the Act, we are 
amending Sec.  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, Sec.  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 Sec.  423.520 of 
this IFC.
    We are also amending Sec.  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 Sec.  423.520. Section 423.505(i)(3)(vi) 
thus requires that sponsors' pharmacy contracts include the prompt 
payment provisions of Sec.  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 Sec.  423.520. 
Thus, the prompt payment provisions at Sec.  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.

[[Page 54234]]

4. Submission of Claims by LTC Pharmacies (Sec.  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 Sec.  
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 Sec.  
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 Sec.  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 Sec.  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 Sec.  423.505(b), we are amending Sec.  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 Sec.  423.505(i)(3)(vii), all 
sponsor contracts with long-term care pharmacies must contain a 
provision that establishes timeframes, consistent with Sec.  
423.505(b)(20), for the submission to the sponsor of claims for 
reimbursement.
5. Regular Update of Prescription Drug Pricing Standard (Sec.  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 Sec.  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 
Sec. Sec.  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 Sec.  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 Sec.  
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 Sec.  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, Sec.  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 Sec.  
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 
Sec.  423.505(b)(21) of this IFC. Thus, the drug pricing standard 
update requirements at Sec.  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 (Sec.  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

[[Page 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 Sec.  423.505(m)(1) of our 
regulations, to omit any reference to ``Congressional oversight 
agencies.'' We are also adding a new paragraph Sec.  423.505(m)(3) 
specifying that the Secretary will make the information collected under 
Sec.  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 Sec.  423.505(m)(3) that we previously used for Congressional 
oversight agencies in the regulation at Sec.  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 (Sec.  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:
    <bullet> Support and maintenance furnished in kind from income; and
    <bullet> 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 Low-Income 
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 Sec.  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.

[[Page 54236]]



                        Table 1--Provisions Affecting Both the Part C and Part D Programs
----------------------------------------------------------------------------------------------------------------
                                                            Part 422 CFR                           Part 423 CFR
             Provision                Part 422- subpart        section       Part 423-- subpart       section
----------------------------------------------------------------------------------------------------------------
Disclosure of plan information....  Subpart C............         422.111  Subpart C............         423.128
Marketing: Standards for MA/Part D  Subpart V............        422.2268  .....................        423.2268
 marketing:
    <bullet> Nominal gifts
    <bullet> Scope of marketing
    <bullet> Co-branding
    <bullet> Including plan type
     in plan name
Marketing: Reporting terminations.  Subpart V............        422.2272  .....................        423.2272
Marketing:                          Subpart V............        422.2274  .....................        423.2274
    <bullet> Broker and agent
     compensation
    <bullet> Training and testing
----------------------------------------------------------------------------------------------------------------

1. Disclosure of Plan Information (Sec. Sec.  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 
Sec.  422.111. The addition requires to require dual-eligible SNPs to 
provide the information specified in Sec. Sec.  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 (Sec. Sec.  422.2268, 423.2268)
    In the May 16, 2008 proposed rule, we proposed several regulatory 
requirements in Sec. Sec.  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 MIPPA-mandated 
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 Sec. Sec.  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 Sec. Sec.  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 
Sec. Sec.  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 Sec. Sec.  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

[[Page 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 Sec. Sec.  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 Sec. Sec.  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, Co-Branding
    As an additional beneficiary protection, in Sec. Sec.  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 Sec. Sec.  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 Sec. Sec.  
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 Sec. Sec.  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 (Sec. Sec.  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, 
Sec. Sec.  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 (Sec. Sec.  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 Sec. Sec.  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

[[Page 54238]]

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, one-twelfth 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 Sec. Sec.  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 
up-front 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

[[Page 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:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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 up-front 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.
    <bullet> 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.
    <bullet> 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-to-plan. 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 (Sec. Sec.  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 Sec. Sec.  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

[[Page 54240]]

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 Sec.  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

[[Page 54241]]

Reduction Act of 1995 requires that we solicit comment on the following 
issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> 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 dual-
eligible 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 Non-Employer 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/Union-Sponsored 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

[[Page 54242]]

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 <greek-i>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 x 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 x 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 x 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 x 
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 Sec.  422.152(h), newly 
applies a general rule for quality improvement programs at Sec.  
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--
    <bullet> (1) Have a chronic care improvement program that meets the 
requirements of paragraph (c) of this section concerning elements of a 
chronic care program;
    <bullet> (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
    <bullet> (3) Encourage its providers to participate in CMS and HHS 
quality improvement initiatives.
    Section 163 of MIPPA, as codified in Sec.  422.152(h), also newly 
applies Sec.  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: Sec.  422.152(e)(2) 
requires that MA organizations offering an MA regional plan or local 
PPO plan as defined in this section--
    <bullet> (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.
    <bullet> (ii) Evaluate the continuity and coordination of care 
furnished to enrollees.
    <bullet> (iii) If the organization uses written protocols for 
utilization review, the organization must--
    <bullet> (A) Base those protocols on current standards of medical 
practice; and
    <bullet> (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 <greek-i> 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 Sec.  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

[[Page 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

[[Page 54244]]

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
----------------------------------------------------------------------------------------------------------------
                                                                     Number of                     Total annual
                OMB No.                       Requirements          respondents    Burden  hours      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 
<a href="/cdn-cgi/l/email-protection#440636212a20251b0523312d282536042b29266a212b346a232b32"><span class="__cf_email__" data-cfemail="afedddcac1cbcef0eec8dac6c3ceddefc0c2cd81cac0df81c8c0d9">[email protected]</span></a>. 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

[[Page 54245]]

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

[[Page 54246]]

requesting comments on additional cost impacts for these provisions.
---------------------------------------------------------------------------

    \1\ The 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).
---------------------------------------------------------------------------

    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:
    <bullet> Developing models of care ($54.98 x 3,350 hours = 
$184,183).
    <bullet> Contracting with States ($54.98 x 16,560 hours = 
$910,469).
    <bullet> Developing dual-eligible written information on both 
Medicare and Medicaid cost-sharing and benefits ($21.73 x 4,600 hours = 
$99,958).
    <bullet> Collecting, analyzing, and reporting data that measures 
health outcomes and indices of quality on its model of care ($54.98 x 
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:
    <bullet> Certain non-employer PFFS plans establishing contracts 
with providers ($54.98 x 600 hours = $32,988).
    <bullet> Employer/union sponsored PFFS plans establishing contracts 
with providers ($54.98 x 1,000 hours = $54,980).
    <bullet> PFFS and MSA plans developing quality improvement programs 
($54.98 x 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:
    <bullet> Training and testing of agents selling Medicare products, 
MA program ($54.98 x 5,360 hours = $294,692).
    <bullet> Training and testing of agents selling Medicare products, 
Part D ($54.98 x 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 2010  CY 2011  CY 2012  CY 2013  CY 2014  CY 2015  CY 2016  CY 2017  CY 2018     2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Prompt payment by prescription drug plans and MA-PD plans          50       50       60       60       70       80       90      100      110       670
 under Part D...............................................
--------------------------------------------------------------------------------------------------------------------------------------------------------


            Table 4--Projected Incurred Savings for Non-Employer and Employer PFFS Network Provision
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                        CY 2011-
                               CY 2011  CY 2012  CY 2013  CY 2014  CY 2015  CY 2016  CY 2017  CY 2018     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      780      870      980    1,070    1,180    1,290    1,430    1,590     9,190
 premium offset).............
Total Medicare (after Part B       690      770      860      950    1,040    1,140    1,260    1,400     8,110
 premium offset).............
----------------------------------------------------------------------------------------------------------------


[[Page 54247]]


     Table 5--Projected Annual Costs to MAOs and PDP Sponsors: Other
                               Provisions
------------------------------------------------------------------------
            Provision                 CY effective      Projected costs
------------------------------------------------------------------------
Special needs plan: developing    2010...............           $184,183
 models of care.
Special needs plan: contracting   2010...............            910,469
 with States.
Special needs plan: developing    2010...............             99,958
 written information on both
 Medicare and Medicaid cost-
 sharing and benefits for dual-
 eligible beneficiaries.
Special needs plan: collecting,   2010...............          2,210,196
 analyzing, and reporting data
 related to model of care
 concerning health outcomes and
 indices of quality.
Training and testing of agents    October 2008.......            332,958
 and brokers (Part C and Part D
 programs).
Certain non-employer PFFS plans   2011...............             32,988
 establishing contracts with
 providers.
Employer/union sponsored PFFS     2011...............             54,980
 plans establishing contracts
 with providers.
PFFS and MSA plans developing     2010...............         22,827,696
 quality improvement programs.
                                                      ------------------
    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    PFFS Plans to the Federal Government.
 from the Federal Government to non-network/network PFFS
 Plans.).
----------------------------------------------------------------------------------------------------------------
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.

[[Page 54248]]

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.

0
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

0
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

0
2. Amend Sec.  417.402 by--
0
A. Revising paragraph (c)(1).
0
B. Revising paragraph (c)(2).
0
C. Revising paragraph (c)(3).
    The revisions read as follows:


Sec.  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

0
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

0
4. Amend Sec.  422.4 by--
0
A. Republishing paragraph (a) introductory text.
0
B. Revising paragraph (a)(3)(ii).
    The revision reads as follows:


Sec.  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 Sec.  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 Sec.  
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

0
5. Amend Sec.  422.101 by adding paragraph (f) to read as follows:


Sec.  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]

0
6. Add new section Sec.  422.107 to read as follows:


Sec.  422.107  Special needs plans and dual-eligibles: 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 dual-eligible 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.

[[Page 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]

0
7.Amend Sec.  422.111 by--
0
A. Redesignating paragraph (b)(2)(iii) as (b)(2)(iv).
0
B. Adding new paragraph (b)(2)(iii) to read as follows:


Sec.  422.111   Disclosure requirements.

* * * * *
    (b) * * *
    (2) * * *
    (iii) For a Special Needs Plan for dual-eligible 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.
* * * * *

0
8. Amend Sec.  422.114 by--
0
A. Revising paragraph (a)(2) introductory text.
0
B. Revising paragraph (a)(2)(ii).
0
C. Adding paragraph (a)(3).
0
D. Adding paragraph (a)(4).
    The revisions and additions read as follows:


Sec.  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-for-service 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 Sec.  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 Sec.  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

0
9. Amend Sec.  422.152 by--
0
A. Revising paragraph (a) introductory text.
0
B. Adding paragraph (g).
0
C. Adding paragraph (h).
    The revisions read as follows:


Sec.  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, dual-eligible, 
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

[[Page 54250]]

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-fee-for-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 Sec.  422.152(e).
    (2) For plan year 2010, MA PFFS and MSA plans are not subject to 
the limitations under Sec.  422.152(e)(1)(i) and must meet the 
requirements using administrative claims data only.

Subpart E--Relationships With Providers

0
10. Revise paragraph (a) of Sec.  422.216 as follows:


Sec.  422.216  Special Rules for MA private-fee-for-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 Sec.  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 Sec.  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-for-service plan must 
receive, and accept as payment in full, at least the amount (less any 
payments under Sec. Sec.  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

0
11. Amend Sec.  422.306 by--
0
A. Revising the introductory text.
0
B. Adding paragraph (c).
    The revisions and additions read as follows:


Sec.  422.306   Annual MA capitation rates.

    Subject to adjustments at Sec.  422.308(b) and Sec.  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 Sec.  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

0
12. Amend Sec.  422.504 by adding paragraph (g)(1)(iii) to read as 
follows:


Sec.  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

0
13. Amend Sec.  422.2268 by--
0
A. Adding paragraph (b)
0
B. Adding paragraph (g).
0
C. Adding paragraph (h).
0
D. Adding paragraph (n).
0
E. Adding paragraph (q).
    The additions to read as follows:


Sec.  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 Sec.  422.2260) that include names 
and/or logos of provider co-branding 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.

0
14. Amend Sec.  422.2272 by adding paragraph (d) to read as follows:


Sec.  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.

0
15. Add Sec.  422.2274 to read as follows:


Sec.  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

[[Page 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 non-pecuniary 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

0
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

0
17. Amend Sec.  423.46 by revising paragraph (a) introductory text to 
read as follows:


Sec.  423.46  Late enrollment penalty.

    (a) General. A Part D eligible individual must pay the late penalty 
described under Sec.  423.286(d)(3), except as described at Sec.  
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

0
18. Amend Sec.  423.322 by revising paragraph (b) to read as follows:


Sec.  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

0
19. Amend Sec.  423.505 by--
0
A. Adding paragraph (b)(19).
0
B. Adding paragraph (b)(20).
0
C. Adding paragraph (b) (21).
0
D. Adding paragraph (i)(3)(iv) through (vi).
0
E. Revising paragraph (m)(1) introductory text.
0
F. Revising (m)(1)(iii)(A).
0
G. Revising paragraph (m)(1)(iv).
0
H. Adding paragraph (m)(3).
    The additions and revisions read as follows.


Sec.  423.505  Contract provisions.

* * * * *
    (b) * * *
    (19) Effective contract year 2010, include the prompt payment 
provisions described in Sec.  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 
Sec.  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 Sec.  423.520.
    (v) A provision that establishes timeframes, consistent with Sec.  
423.505(b)(20), for long-term care

[[Page 54252]]

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 Sec.  
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.

0
20. Add 423.520 to read as follows:


Sec.  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 Sec.  423.308, and will not be 
treated as allowable risk corridor costs, as defined in Sec.  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

[[Page 54253]]

does it offer a defense to any administrative, civil, or criminal 
action with respect to the claim.

Subpart P--Premiums and Cost-Sharing Subsidies for Low-Income 
Individuals

0
21. Amend Sec.  423.772 by revising the definitions of ``income'' and 
``resources'' to read as follows:


Sec.  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.
* * * * *

0
22. Amend Sec.  423.780 by revising paragraph (e) to read as follows:


Sec.  423.780  Premium subsidy.

* * * * *
    (e) Waiver of Late Enrollment Penalty for Subsidy-Eligible 
Individuals. Subsidy eligible individuals, as defined in Sec.  423.773, 
are not subject to a late enrollment penalty, as defined in Sec.  
423.46.
* * * * *

Subpart V--Part D Marketing Requirements

0
23. Amend Sec.  423.2268 by--
0
A. Adding paragraph (b)
0
B. Adding paragraph (g).
0
C. Adding paragraph (h).
0
D. Adding paragraph (n).
0
E. Adding paragraph (q).
    The additions and revisions read as follows:


Sec.  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 Sec.  423.2260) that include names and/or 
logos of provider co-branding 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.

0
24. Amend Sec.  423.2272 by adding new paragraph (d) to read as 
follows:


Sec.  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.

0
25. Add new Sec.  423.2274 to read as follows:


Sec.  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 non-pecuniary 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 MA-only 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

[[Page 54254]]

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


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