On August 7, 1992, OGE published the OGE Standards. See 57 FR 35006-35067, as corrected at 57 FR 48557, 57 FR 52483, and 60 FR 51167, with additional grace period extensions for certain existing provisions at 59 FR 4779-4780, 60 FR 6390-6391, and 60 FR 66857-66858. The OGE Standards, codified at 5 CFR part 2635, effective February 3, 1993, established uniform standards of ethical conduct that apply to all executive branch personnel.

Section 2635.105 of the OGE Standards authorizes an agency, with the concurrence of OGE, to adopt agency-specific supplemental regulations that are necessary to properly implement its ethics program. The FMCS, with OGE's concurrence, has determined that the following supplemental regulations are necessary for successful implementation of its ethics program in light of the FMCS' unique programs and operations.

In accordance with 5 CFR 2635.803, FMCS has determined it is necessary for the purpose of administering its ethics program to require its employees, other than special government employees, to obtain approval before engaging in certain outside employment and outside activities. The FMCS's mission is to promote labor-management peace and cooperation. FMCS has a large and broad range of clients external to the Government. Given the volume of public and private sector clients, there is a greater likelihood that conflicts of interest, impartiality, or other concerns may arise that employees may not be aware of and therefore it is necessary for FMCS to screen for such conflicts. The approval requirement will help to ensure that potential ethics conflicts of interest, impartiality, or others concerns are resolved before certain employees begin outside employment or outside activities. Requiring prior approval ensures the neutrality and integrity of FMCS services.

Paragraph (a) explains that the regulation applies to all FMCS employees, other than special government employees, and supplements the OGE Standards.

Paragraph (b) notes that employees must comply with ethics guidance and procedures issued by FMCS and should contact an FMCS ethics official if an ethics question arises. This paragraph also includes cross-references to other OGE ethics related regulations.

This section defines terms and phrases used throughout this supplemental regulation.

Paragraph (a) sets forth that an employee of the FMCS, other than a special government employee, is required to seek prior written approval before engaging in certain outside employment and outside activities.

Paragraph (b) sets out the standards and procedures for requesting approval to engage in certain outside employment and outside activities.

Paragraph (c) sets forth the requirement for submitting a revised request when there is a significant change in the nature, duties or scope of the outside employment or activity or to the employee's official duties or responsibilities.

Paragraph (d) provides that the DAEO may issue agency wide-policies, handbooks, or other written guidance governing the submission of requests for approval of outside employment and activities, which may exempt categories of employment and activities from the prior approval requirement of this section based on a determination that employment or activities within those categories would generally be approved and is not likely to involve conduct prohibited by statute or Federal regulation, including 5 CFR part 2635.

Under 5 U.S.C. 553(a)(2), rules relating to agency management or personnel are exempt from the notice and comment rulemaking requirements of the Administrative Procedure Act (APA). In addition, under 5 U.S.C. 553(b)(3)(A), notice and comment rulemaking requirements do not apply to rules concerning matters of agency organization, procedure, or practice. Given that the rule concerns matters of agency management or personnel, and organization, procedure, or practice, the notice and comment requirements of the APA do not apply here. Nor is a public hearing required under 45 U.S.C. 160a. In issuing a proposed rule on this matter, FMCS, will consider all written comments on this proposed rule that are submitted by the August 17, 2023 due date.

This rule is not a significant rule for purposes of Executive Order 12866 and has not been reviewed by the Office of Management and Budget.

FMCS has determined under the Regulatory Flexibility Act, 5 U.S.C. chapter 6, that this proposed rule would not have a significant economic impact on a substantial number of small entities because it would primarily affect FMCS employees.

The Paperwork Reduction Act, 44 U.S.C. chapter 35, does not apply to this proposed rule because it does not contain any information collection requirements that would require the approval of the Office of Management and Budget.

FMCS has determined that this proposed rule does not meet the definition of a rule, as defined by the Congressional Review Act, 5 U.S.C. chapter 8, and thus does not require review by Congress.

For the reasons set forth in the preamble, the FMCS, with the concurrence of OGE, amends title 5 of the Code of Federal Regulations by adding a new chapter CIII, consisting of part 10300, to read as follows:

Please refer to Docket ID NRC-2022-0218 when contacting the NRC about the availability of information for this action. You may obtain publicly available information related to this action by any of the following methods:

• Federal Rulemaking Website: Go to https://www.regulations.gov and search for Docket ID NRC-2022-0218.

• NRC's Agencywide Documents Access and Management System (ADAMS): You may obtain publicly available documents online in the ADAMS Public Documents collection at https://www.nrc.gov/reading-rm/adams.html. To begin the search, select “Begin Web-based ADAMS Search.” For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, at 301-415-4737, or by email to PDR.Resource@nrc.gov. The ADAMS accession number for each document referenced (if it is available in ADAMS) is provided the first time that it is mentioned in this document.

• NRC's PDR: The PDR, where you may examine and order copies of publicly available documents, is open by appointment. To make an appointment to visit the PDR, please send an email to PDR.Resource@nrc.gov or call 1-800-397-4209 or 301-415-4737, between 8 a.m. and 4 p.m. eastern time, Monday through Friday, except Federal holidays.

The NRC encourages electronic comment submission through the Federal Rulemaking Website ( https://www.regulations.gov ). Please include Docket ID NRC-2022-0218 in your comment submission.

The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at https://www.regulations.gov as well as enter the comment submissions into ADAMS. The NRC does not routinely edit comment submissions to remove identifying or contact information.

If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.

On April 19, 2023, the NRC solicited feedback on the preliminary proposed rule language for a rulemaking on the reporting of nuclear medicine injection extravasations as medical events. To inform this rulemaking, the NRC also posed specific questions to obtain input from stakeholders. The public comment period was originally scheduled to close on July 18, 2023. By email dated July 10, 2023 (ADAMS Accession No. ML23193A202), the Organization of Agreement States Board requested that the NRC extend the comment period by 45 days. The NRC has decided to grant this request and extend the public comment period on this document until September 1, 2023, to allow more time for members of the public to submit their comments.

The NRC may post materials related to this document, including public comments, on the Federal rulemaking website at https://www.regulations.gov under Docket ID NRC-2022-0218. In addition, the Federal rulemaking website allows members of the public to receive alerts when changes or additions occur in a docket folder. To subscribe: (1) navigate to the docket folder (NRC-2022-0218); (2) click the “Subscribe” link; and (3) enter an email address and click on the “Subscribe” link.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority, as it would amend Class D and Class E airspace in Palm Coast, FL. An airspace evaluation determined that this update is necessary to support IFR operations in the area.

The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should submit only once if comments are filed electronically, or commenters should send only one copy of written comments if comments are filed in writing.

The FAA will file in the docket all comments it receives and a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, the FAA will consider all comments it receives on or before the closing date for comments. The FAA will consider comments filed after the comment period has closed if it is possible without incurring expense or delay. The FAA may change this proposal in light of the comments it receives.

Privacy: In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without editing, including any personal information the commenter provides, to www.regulations.gov, as described in the system of records notice (DOT/ALL-14 FDMS), which can be reviewed at www.dot.gov/privacy.

An electronic copy of this document may be downloaded through the internet at www.regulations.gov. Recently published rulemaking documents can be accessed through the FAA's web page at www.faa.gov/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Operations office (see ADDRESSES section for address, phone number, and hours of operations). An informal docket may also be examined during normal business hours at the office of the Eastern Service Center, Federal Aviation Administration, Room 210, 1701 Columbia Ave., College Park, GA, 30337.

Class D and Class E airspace designations are published in Paragraphs 5000 and 6005, respectively, of FAA Order JO 7400.11, Airspace Designations and Reporting Points, which is incorporated by reference in 14 CFR 71.1 annually. This document proposes to amend the current version of that order, FAA Order JO 7400.11G, Airspace Designations and Reporting Points, dated August 19, 2022, and effective September 15, 2022. These updates would be published in the next FAA Order JO 7400.11 update. FAA Order JO 7400.11G is publicly available as listed in the ADDRESSES section of this document. FAA Order JO 7400.11G lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA proposes an amendment to 14 CFR part 71 to amend Class D airspace and Class E airspace extending upward from 700 feet above the surface for Flagler Executive Airport, Palm Coast, FL, by increasing the Class D radius to 4.2 miles (previously 4.0 miles), and the Class E airspace extending upward from 700 feet above the surface to 6.7 miles (previously 6.5 miles), and by updating the geographic coordinates for this airport to coincide with the FAA's database. This action would also update the airport name to Flagler Executive Airport (previously Flagler County Airport) and the city name to Palm Coast (previously Bunnell), as well as replacing the terms Notice to Airmen with Notice to Air Missions and Airport/Facility Directory with Chart Supplement in the Class D airspace description. Controlled airspace is necessary for the area's safety and management of instrument flight rules (IFR) operations.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore: (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures prior to any FAA final regulatory action.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act  1 (Dodd-Frank Act) amended the Commodity Exchange Act (CEA)  2 to establish a comprehensive regulatory framework to reduce risk, increase transparency, and promote market integrity within the financial system by, among other things, providing for the registration and comprehensive regulation of swap dealers (SDs)  3 and major swap participants (MSPs), 4 and enhancing the rulemaking and enforcement authorities of the CFTC with respect to all registered entities and intermediaries subject to its oversight, including, among others, futures commission merchants (FCMs). 5 Added by the Dodd-Frank Act, CEA section 4s(j) outlines the duties with which SDs must comply. 6 Specifically, CEA section 4s(j)(2) requires SDs to establish robust and professional risk management systems adequate for managing the day-to-day business of the registrant. 7 CEA section 4s(j)(7) directs the Commission to prescribe rules governing the duties of SDs, including the duty to establish risk management procedures. 8 In April 2012, the Commission adopted Regulation 23.600, 9 which established requirements for the development, approval, implementation, and operation of SD risk management programs (RMPs). 10

Following two FCM insolvencies involving the misuse of customer funds in 2011 and 2012, the Commission proposed and adopted a series of regulatory amendments designed to enhance the protection of customers and customer funds held by FCMs. 11 The Commission adopted Regulation 1.11 in 2013 to establish risk management requirements for those FCMs that accept customer funds. Regulation 1.11 is largely aligned with the SD risk management requirements in Regulation 23.600 (together with Regulation 1.11, the RMP Regulations). 12 The Commission concluded at that time that it could mitigate the risks of misconduct and an FCM's failure to maintain required funds in segregation  13 with more robust risk management systems and controls. 14

The Commission is issuing this ANPRM for several reasons. After Regulation 23.600 was initially adopted in 2012, the Commission received a number of questions from SDs concerning compliance with these requirements, particularly those concerning governance (for example, questions regarding who is properly designated as “senior management,” as well as issues relating to the reporting lines within the risk management unit). 15 The intervening decade of examination findings and ongoing requests for staff guidance from SDs with respect to Regulation 23.600 warrant consideration of the Commission's rules and additional public discourse on this topic.

The Commission has further identified the enumerated areas of risk that RMPs are required to take into account, and the quarterly risk exposure reports (RERs), as other areas of potential confusion and inconsistency in the RMP Regulations for SDs and FCMs. Commission staff has observed significant variance among SD and FCM RERs with respect to how they define and report on the enumerated areas of risk ( e.g., market risk, credit risk, liquidity risk, etc.), making it difficult for the Commission to gain a clear understanding of how specific risk exposures are being monitored and managed by individual SDs and FCMs over time, as well as across SDs and FCMs during a specified time period. Furthermore, the Commission's implementation experiences and certain market events over the last decade indicate that it may be appropriate to consider whether to include additional enumerated areas of risk in the RMP Regulations.

The Commission has observed inefficiencies with respect to the RER requirements in the RMP Regulations. Currently, Regulations 23.600(c)(2) and 1.11(e)(2)  16 prescribe neither the format of the RER nor its exact filing schedule. 17 As a result, the Commission frequently receives RERs in inconsistent formats containing stale information, in some cases data that is at least 90 days out-of-date. Furthermore, a number of SDs have indicated that the quarterly RERs are not relied upon for their internal risk management purposes, but rather, they are created solely to comply with Regulation 23.600, indicating to the Commission that additional consideration of the RER requirement is warranted.

Finally, the Commission also reminds SDs and FCMs that their RMPs may require periodic updates to reflect and keep pace with technological innovations that have developed or evolved since the Commission first promulgated the RMP Regulations. 18 The Commission is seeking information regarding any risk areas that may exist in the RMP Regulations that the Commission should consider with respect to notable product or technological developments.

Therefore, the Commission is issuing this Notice to seek industry and public comment on these aforementioned specific aspects of the existing RMP Regulations, as discussed further below.

In responding to each of the following questions, please provide a detailed response, including the rationale for such response, cost and benefit considerations, and relevant supporting information. The Commission encourages commenters to include the subsection title and the assigned number of the specific request for information in their submitted responses to facilitate the review of public comments by Commission staff.

Regulations 23.600(a) and (b) set out the parameters by which an SD must structure and govern its RMPs. Regulation 23.600(a) sets forth certain definitions, including “business trading unit,”  19 “governing body,”  20 and “senior management,”  21 whereas Regulation 23.600(b) requires an SD to memorialize its RMP through written policies and procedures, which the SD's governing body must approve. 22 Regulation 23.600(b) further requires an SD to create a risk management unit (RMU) that: (1) is charged with carrying out the SD's RMP; (2) has sufficient authority, qualified personnel, and resources to carry out the RMP; (3) reports directly to senior management; and (4) is independent from the business trading unit. 23

Similar to Regulation 23.600, Regulation 1.11 contains specific requirements with respect to the risk governance structure. 24 Regulation 1.11(b) defines “business unit,”  25 “governing body,”  26 and “senior management,”  27 while Regulation 1.11(c) requires the FCM to establish the RMP through written policies and procedures, which the FCM's governing body must approve. 28 Regulation 1.11(d) requires that an FCM establish and maintain an RMU with sufficient authority; qualified personnel; and financial, operational, and other resources to carry out the RMP, that is independent from the business unit and reports directly to senior management. 29

The Commission seeks comment generally on the RMP structure and related governance requirements currently found in the RMP Regulations for SDs and FCMs. In addition, commenters should seek to address the following questions:

1. Do the definitions of “governing body” in the RMP Regulations encompass the variety of business structures and entities used by SDs and FCMs?

a. Should the Commission consider expanding the definition of “governing body” in Regulation 23.600(a)(4) to include other officers in addition to an SD's CEO, or other bodies other than an SD's board of directors (or body performing a similar function)?

b. Are there any other amendments to the “governing body” definition in Regulation 23.600(a)(4) that the Commission should consider?

c. Should similar amendments be considered for the “governing body” definition applicable to FCMs in Regulation 1.11(b)(3)?

2. Should the Commission consider amending the definitions of “senior management” in the RMP Regulations? Are there specific roles or functions within an SD or FCM that the Commission should consider including in the RMP Regulations' “senior management” definitions?

3. Should the RMP Regulations specifically address or discuss reporting lines within an SD's or FCM's RMU?

4. Should the Commission propose and adopt standards for the qualifications  30 of certain RMU personnel ( e.g., model validators)?  31

5. Should the RMP Regulations further clarify RMU independence and/or freedom from undue influence, other than the existing general requirement that the RMU be independent of the business unit or business trading unit?  32

6. Are there other regulatory regimes the Commission should consider in a holistic review of the RMP Regulations? For instance, should the Commission consider harmonizing the RMP Regulations with the risk management regimes of prudential regulators?  33

7. Are there other portions of the RMP Regulations concerning governance that are not addressed above that the Commission should consider changing? Please explain.

The RMP Regulations specify certain enumerated risks that SDs' and FCMs' RMPs must consider. Specifically, Regulation 23.600(c)(1)(i) identifies specific areas of enumerated risk that an SD's RMP must take into account: market risk, credit risk, liquidity risk, foreign currency risk, legal risk, operational risk, and settlement risk. 34 Though not identical, Regulation 1.11(e)(1)(i) similarly lists specific areas of enumerated risk that an FCM's RMP must take into account: market risk, credit risk, liquidity risk, foreign currency risk, legal risk, operational risk, settlement risk, segregation risk, technological risk, and capital risk. 35

Regulation 23.600(c)(4) requires that an SD's RMP include, but not be limited to, policies and procedures necessary to monitor and manage all of the risks enumerated in Regulation 23.600(c)(1)(i), as well as requiring that the policies and procedures for each such risk take into account specific risk management considerations. 36 In contrast, Regulation 1.11(e)(3) requires that an FCM's RMP include, but not be limited to, policies and procedures that monitor and manage segregation risk, operational risk, and capital risk, along with enumerating specific risk management considerations that are required to be included and/or addressed in the policies and procedures for these risks. 37 Unlike Regulation 23.600(c)(4), Regulation 1.11(e)(3) does not explicitly require policies and procedures, or enumerate attendant specific risk considerations, for all of the types of risk that must be taken into account by an FCM's RMP pursuant to Regulation 1.11(e)(1)(i), focusing instead on segregation, operational, and capital risks.

The Commission requests comment on SDs' and FCMs' enumerated risks generally, including: (a) whether specific risk considerations that must be taken into account with respect to certain enumerated risks should be amended; (b) whether definitions should be added for each enumerated risk; and finally, (c) whether the Commission should enumerate and define any additional types of risk in the RMP Regulations. In particular:

1. Should the Commission amend Regulation 1.11(e)(3) to require that FCMs' RMPs include, but not be limited to, policies and procedures necessary to monitor and manage all of the enumerated risks identified in Regulation 1.11(e)(1) that an FCM's RMP is required to take into account, not just segregation, operational, or capital risk ( i.e., market risk, credit risk, liquidity risk, foreign currency risk, legal risk, settlement risk, and technological risk)? If so, should the Commission adopt specific risk management considerations for each enumerated risk, similar to those described in Regulation 23.600(c)(4)?

2. Regulation 23.600(c)(4)(i) requires SDs to establish policies and procedures necessary to monitor and manage market risk. 38 These policies and procedures must consider, among other things, “timely and reliable valuation data derived from, or verified by, sources that are independent of the business trading unit, and if derived from pricing models, that the models have been independently validated by qualified, independent external or internal persons.”  39

a. Does this validation requirement in Regulation 23.600(c)(4)(i)(B) warrant clarification?

b. Should validation, as it is currently required in Regulation 23.600(c)(4)(i)(B), align more closely with the validation of margin models discussed in Regulation 23.154(b)(5)?  40

3. The policies and procedures mandated by Regulations 23.600(c)(4)(i) and (ii) to monitor and manage market risk and credit risk must take into account, among other considerations, daily measurement of market exposure, including exposure due to unique product characteristics and volatility of prices, and daily measurement of overall credit exposure to comply with counterparty credit limits. 41 To manage their risk exposures, SDs employ various financial risk management tools, including the exchange of initial margin for uncleared swaps. In that regard, the Commission has set forth minimum initial margin requirements for uncleared swaps, 42 which can be calculated using either a standardized table or a proprietary risk-based model. 43 An SD's risk exposures to certain products and underlying asset classes may, however, warrant the collection and posting of initial margin above the minimum regulatory requirements set forth in the standardized table. Should the Commission expand the specific risk management considerations listed in Regulations 23.600(c)(4)(i)-(ii) to add that an SD's RMP policies and procedures designed to manage market risk and/or credit risk must also take into account whether the collection or posting of initial margin above the minimum regulatory requirements set forth in the standardized table is warranted?

4. The RMP Regulations enumerate, but do not define, the specific risks that SDs' and FCMs' RMPs must take into account. Should the Commission consider adding definitions for any or all of these enumerated risks? If so, should the enumerated risk definitions be identical for both SDs and FCMs?

5. The Federal Reserve and Basel III define “operational risk” as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. 44 Would adding a definition of “operational risk” to the RMP Regulations that is closely aligned with this definition increase clarity and/or efficiencies for SD and FCM risk management practices, or otherwise be helpful? Should the Commission consider identifying specific sub-types of operational risk for purposes of the SD and FCM RMP requirements?

6. Technological risk is identified in Regulation 1.11(e)(1)(i) as a type of risk that an FCM's RMP must take into account; however, technological risk is not similarly included in Regulation 23.600(c)(1)(i) as an enumerated risk that an SD's RMP must address. Should the Commission amend Regulation 23.600(c)(1)(i) to add technological risk as a type of risk that SDs' RMPs must take into account?

a. Should technological risk, if added for SDs, be identified as a specific risk consideration within operational risk, as described by Regulation 23.600(c)(4)(vi), or should it be a standalone, independently enumerated area of risk?

b. If technological risk is added as its own enumerated area of risk, what risk considerations should an SD's RMP policies and procedures address, as required by Regulation 23.600(c)(4)?

c. Relatedly, although technological risk is included in the various types of risk that an FCM's RMP must take into account, no specific risk considerations for technological risk are further outlined in Regulation 1.11(e)(3). 45 What, if any, specific risk considerations for technological risk should be added to Regulation 1.11(e)(3)? Should the Commission categorize any additional specific risk considerations for technological risk as a subset of the existing “operational risk” considerations in Regulation 1.11(e)(3)(ii), or should “technological risk” have its own independent category of specific risk considerations in Regulation 1.11(e)(3)?

d. Should the Commission define “technological risk” in the RMP Regulations? For example, Canada's Office of the Superintendent of Financial Institutions (OSFI) defines “technology risk” as “the risk arising from the inadequacy, disruption, destruction, failure, damage from unauthorized access, modifications, or malicious use of information technology assets, people or processes that enable and support business needs and can result in financial loss and/or reputational damage.”  46 If the Commission were to add a definition of “technological risk” to the RMP Regulations, should it be identical or similar to that recently finalized by OSFI?  47 If not, how should it otherwise be defined? Should the Commission consider different definitions of “technological risk” for SDs and FCMs? Should the Commission consider providing examples of “information technology assets” to incorporate risks that may arise from the use of certain emerging technologies, such as artificial intelligence and machine learning technology, distributed ledger technologies ( e.g., blockchains), digital asset and smart contract-related applications, and algorithmic and other model-based technology applications?

7. Are there any other types of risk that the Commission should consider enumerating in the RMP Regulations as risks required to be monitored and managed by SDs' and FCMs' RMPs? Geopolitical risk? Environmental, social and governance (ESG) risk? Climate-related financial risk, including physical risk and transition risk such as the energy transition? Reputational risk? Funding risk? Collateral risk? Concentration risk? Model risk? Cybersecurity risk? Regulatory and compliance risk arising from conduct in foreign jurisdictions? Contagion risk?

a. Should these potential new risks be defined in the RMP Regulations?

b. With respect to each newly suggested enumerated risk, what, if any, specific risk considerations should an SD's or FCM's RMP policies and procedures be required to include?

c. Are there international standards for risk management with which the Commission should consider aligning the RMP Regulations?

In accordance with Regulation 23.600(c)(2), an SD must provide to its senior management and governing body a quarterly RER containing specific information on the SD's risk exposures and the current state of its RMP; the RER shall also be provided to the SD's senior management and governing body immediately upon the detection of any material change in the risk exposure of the SD. 48 SDs are required to furnish copies of all RERs to the Commission within five (5) business days of providing such RERs on a quarterly basis to their senior management. 49 Likewise, Regulation 1.11(e)(2) has an identical RER requirement for FCMs. 50

This Notice seeks comment generally on how the current RER regime for SDs and FCMs could be improved, as well as specific responses to the questions listed below:

1. At what frequency should the Commission require SDs and FCMs to furnish copies of their RERs to the Commission?

2. Should the Commission consider changing the RER filing requirements to require filing with the Commission by a certain day ( e.g., a week, month, or other specific timeframe after the quarter-end), rather than tying the filing requirement to when the RER is furnished to senior management?

3. Should the Commission consider harmonizing or aligning, in whole or in part, the RER content requirements in the RMP Regulations with those of the National Futures Association (NFA)'s SD monthly risk data filings?  51

a. If so, should the Commission consider any changes or additions to the data metrics currently collected by NFA as could be required in the RMP Regulations?

b. For FCMs who are not currently required to file monthly risk data filings with NFA, were the Commission to adopt a monthly risk exposure reporting requirement, are there different risk data metrics for FCMs that it should consider including? If so, what are they?

4. Are there additional SD or FCM-specific data metrics or risk management issues that the Commission should consider adding to the content requirements of the RER?

5. Should the Commission consider prescribing the format of the RERs? For instance, should the Commission consider requiring the RER to be a template or form that SDs and FCMs fill out?

6. In furtherance of the RER filing requirement, should the Commission consider allowing SDs and FCMs to furnish to the Commission the internal risk reporting they already create, maintain, and/or use for their risk management program?

a. If so, how often should these reports be required to be filed with the Commission?

b. If the Commission allowed an SD or FCM to provide the Commission with its own risk reporting, should the Commission prescribe certain minimum content and/or format requirements?

7. Should the Commission consider prescribing the standard SDs and FCMs use when determining whether they have experienced a material change in risk exposure, pursuant to Regulations 23.600(c)(2)(i) and 1.11(e)(2)(i)? Alternatively, should the Commission continue to allow SDs and FCMs to use their own internally-developed standards for determining when such a material change in risk exposure has occurred?

8. Should the Commission clarify the requirements in Regulations 23.600(c)(2)(i) and 1.11(e)(2)(i) that RERs shall be provided to the senior management and the governing body immediately upon detection of any material change in the risk exposure of the SD or FCM?

9. Should the Commission consider setting a deadline for when an SD or FCM must notify the Commission of any material changes in risk exposure? If so, what should be the deadline?

10. Should the Commission consider additional governance requirements in connection with the provision of the quarterly RER to the senior management and the governing body of a SD, or of an FCM, respectively?

11. Should the Commission require the RERs to report on risk at the registrant level, the enterprise level (in cases where the registrant is a subsidiary of, affiliated with, or guaranteed by a corporate family), or both? What data metrics are relevant for each level?

12. Should the Commission require that RERs contain information related to any breach of risk tolerance limits described in Regulations 23.600(c)(1)(i) and 1.11(e)(1)(i)? Alternatively, should the Commission require prompt notice, outside of the RER requirement, of any breaches of the risk tolerance limits that were approved by an SD's or FCM's senior management and governing body? Should there be a materiality standard for inclusion of breaches in RERs or requiring notice to the Commission?

13. Should the Commission require that RERs contain information related to material violations of the RMP policies or procedures required in Regulations 23.600(b)(1) and 1.11(c)(1)?

14. Should the Commission require that RERs additionally discuss any known issues, defects, or gaps in the risk management controls that SDs and FCMs employ to monitor and manage the specific risk considerations under Regulations 23.600(c)(4) and 1.11(e)(3), as well as including a discussion of their progress toward mitigation and remediation?

Recent market, credit, operational, and geopolitical events have highlighted the critical importance of risk management and the need to periodically review risk management practices. Therefore, the Commission is interested in feedback and comment on other RMP-related topics, specifically: (1) the segregation of customer funds and safeguarding of counterparty collateral, and (2) risks posed by affiliates, lines of business, and other trading activity. The Commission continues to have confidence in its regulations governing the segregation of customer funds in traditional derivatives markets. The questions below are intended to assist the Commission in its ongoing evaluation of whether and how RMP regulations and practices at FCMs and SDs adequately and comprehensively address risks arising from new or evolving market structures, products, and registrants.

The segregation of customer funds and safeguarding of counterparty collateral are cornerstones of the Commission's FCM and SD regulatory regimes, respectively. Currently, the existing RMP Regulations address the management of segregation risk and the safeguarding of counterparty collateral in different ways, given the differing business models between FCMs and SDs. Regulation 1.11(e)(3)(i) requires an FCM's RMP to include written policies and procedures reasonably designed to ensure segregated funds are separately accounted for and segregated or secured as belonging to customers. 52 This requirement further lists several subjects that must, “at a minimum,” be addressed by an FCM's RMP policies and procedures, including the evaluation and monitoring process for approved depositories, the treatment of related residual interest, transfers, and withdrawals, and permissible investments.

Although Regulation 23.600(c)(6) of the SD RMP Regulations requires compliance with all capital and margin requirements, Regulation 23.600 does not explicitly require an SD's RMP to include written policies and procedures to safeguard counterparty collateral. Rather, the Commission chose to adopt Regulations 23.701 through 23.703 for the purpose of establishing a separate framework for the elected segregation of assets held as collateral in uncleared swap transactions. 53 Additionally, the Commission requires certain initial margin to be held through custodial arrangements in accordance with Regulation 23.157. 54

The Commission seeks comment generally on the risks attendant to the segregation of customer funds and the safeguarding of counterparty collateral. In addition, commenters should seek to address the following questions:

1. Do the current RMP Regulations for FCMs adequately and comprehensively require them to identify, monitor, and manage the risks associated with the segregation of customer funds and the protection of customer property? Are there other Commission regulations that address these risks for FCMs?

2. Currently, the Commission understands that no FCM holds customer property in the form of virtual currencies or other digital assets such as stablecoins. To the extent that FCMs may consider engaging in this activity in the future, would the current RMP Regulations for FCMs adequately and comprehensively require them to identify, monitor, and manage the risks associated with that activity, including custody with a third-party entity?

3. Do the current RMP Regulations for SDs adequately and comprehensively require them to identify, monitor, and manage all of the risks associated with the collection, posting, and custody of counterparty collateral and the protection of such assets? Are there any other risks that should be addressed by the RMP Regulations for SDs related to the collection, posting, and custody of counterparty collateral?

4. Do the Commission's RMP Regulations adequately address risks to customer funds or counterparty collateral that may be associated with SDs and FCMs that have multiple business lines and registrations? Although the Commission understands that SDs and FCMs currently engage in limited activities with respect to digital assets, should the Commission consider additional RMP requirements applicable to SDs and FCMs that are or may become involved in, or affiliated with, the provision of digital asset financial services or products ( e.g., digital asset lending arrangements or derivatives)?

In light of increasing market volatility and recent market disruptions, as well as the growth of digital asset markets, the Commission generally seeks comment on the risks posed by SDs' and FCMs' affiliates and related trading activity. Generally, the RMP Regulations require SD and FCM RMPs to take into account risks posed by affiliates and related trading activity. Specifically, Regulation 23.600(c)(1)(ii) requires an SD's RMP to take into account “risks posed by affiliates” with the RMP integrated into risk management functions at the “consolidated entity level.”  55 Similarly, Regulation 1.11(e)(1)(ii) requires an FCM's RMP to take into account risks posed by affiliates, all lines of business of the FCM, and all other trading activity engaged in by the FCM.”  56

Some SDs and FCMs are subject to regulatory requirements designed to mitigate certain risks arising from certain affiliate activities. For example, SDs and FCMs that are affiliates or subsidiaries of a banking entity may have to comply with certain restrictions and requirements on inter-affiliate activities. Further, those SDs and FCMs that are subject to the Volcker Rule, codified and implemented in part 75 of the Commission's regulations, and incorporated into other requirements, such as Regulation 3.3, are subject to the Volcker Rule's risk management program and compliance program requirements. 57

The Commission seeks comment generally on the requirements related to risks posed by affiliates and related trading activity found within the RMP Regulations for SDs and FCMs, including non-bank affiliated SDs or non-bank affiliated FCMs. In addition, commenters should seek to address the following questions:

1. What risks do affiliates (including, but not limited to, parents and subsidiaries) pose to SDs and FCMs? Are there risks posed by an affiliate trading in physical commodity markets, trading in digital asset markets, or relying on affiliated parties to meet regulatory requirements or obligations? Are there contagion risks posed by the credit exposures of affiliates? Are there risks posed by other lines of business of an SD, or of an FCM, respectively, that are not adequately or comprehensively addressed by the Commission's regulations, including, as applicable, the Volcker Rule regulations found in 17 CFR part 75?

2. Do the current RMP Regulations adequately and comprehensively address the risks associated with the activities of affiliates (whether such affiliates are unregulated, less regulated, or subject to alternative regulatory regimes), or of other lines of business, of an SD or of an FCM, respectively, that could affect SD or FCM operations? Alternatively, to what extent are the risks posed by affiliates discussed in this section adequately addressed through other regulatory requirements (for example, the Volcker Rule or other prudential regulations, or applicable non-U.S. laws, regulations, or standards)?

3. Should the Commission further expand on how SD and FCM RMPs should address risks posed by affiliates in the RMP Regulations, including any specific risks? Should the Commission consider enumerating any specific risks posed by affiliates or related trading activities within the RMP Regulations, either as a separate enumerated risk, or as a subset of an existing enumerated area of risk ( e.g., operational risk, credit risk, etc.)?

Risk has emerged from the evolution of technology. Distributed ledger networks are being used or considered in certain markets; cloud data storage and computing has gone mainstream; and artificial intelligence hold the power to transform businesses. Many firms are also integrating, or are interested in integrating, digital assets into their businesses, or plan to do so. All of these emerging or evolving technologies carry risks.

Digital assets carry risks—something that has become all too clear in the past year. Silvergate Bank, which recently failed, was almost exclusively known for providing services to digital asset firms. 8 According to FDIC Chairman Gruenberg, “Following the collapse of digital asset exchange FTX in November 2022, Silvergate Bank released a statement indicating that it had $11.9 billion in digital asset-related deposits, and that FTX represented less than 10 percent of total deposits in an effort to explain that its exposure to the digital asset exchange was limited. Nevertheless, in the fourth quarter of 2022, Silvergate Bank experienced an outflow of deposits from digital asset customers that, combined with the FTX deposits, resulted in a 68 percent loss in deposits—from $11.9 billion in deposits to $3.8 billion. That rapid loss of deposits caused Silvergate Bank to sell debt securities to cover deposit withdrawals, resulting in a net earnings loss of $1 billion. On March 1, 2023, Silvergate Bank announced it would be delaying issuance of its 2022 financial statements and indicated that recent events raised concerns about its ability to operate as a going concern, which resulted in a steep drop in Silvergate Bank's stock price. On March 8, 2023, Silvergate Bank announced that it would self-liquidate.”  9

Chairman Gruenberg further testified, “Like Silvergate Bank, Signature Bank had also focused a significant portion of its business model on the digital asset industry. . . . Silvergate Bank operated a similar platform that was also used by digital asset firms. . . . In the second and third quarters of 2022, Signature Bank, like Silvergate, experienced deposit withdrawals and a drop in its stock price as a consequence of disruptions in the digital asset market due to failures of several high profile digital asset companies.”  10

These technological advancements, with their accompanying risks, necessitate the Commission revisiting our regulatory oversight, including our risk management requirements. This is similar to other regulators revisiting their oversight in this area. According to Vice Chair Barr, the Federal Reserve “recently decided to establish a dedicated novel activity supervisory group, with a team of experts focused on risks of novel activities, which should help improve oversight of banks like SVB in the future.”  11

The Commission is proposing amendments to:

Pursuant to section 15(c)(3)(A) of the Securities Exchange Act of 1934 (“Exchange Act”), 1 the Commission is proposing to amend the broker-dealer customer protection rule. 2 As discussed in more detail below, 3 the rule requires broker-dealers that maintain custody of customer securities and cash (“carrying broker-dealers”) to have a special reserve account at a bank that must hold cash and/or qualified securities in an amount determined by a computation of the net cash owed to the broker-dealer's customers. Generally, carrying broker-dealers are required to perform the customer reserve computation and make any required deposits into the customer reserve bank account weekly. Rule 15c3-3 also permits carrying broker-dealers to perform the customer reserve computation more frequently than weekly ( e.g., daily), and, in certain limited circumstances, to perform a monthly computation. Rule 15c3-3 also addresses the manner in which a carrying broker-dealer holds proprietary securities and cash in accounts of other broker-dealers, known as PAB accounts. “PAB account” generally means a proprietary securities account of a broker-dealer. 4 For example, a broker-dealer that is not a carrying broker-dealer ( e.g., an introducing broker-dealer) may hold its proprietary cash and securities at a carrying broker-dealer. In this case, the securities account of the introducing broker-dealer held at the carrying broker-dealer would be a PAB account and the introducing broker-dealer would be a PAB account holder of the carrying broker-dealer. While broker-dealers are not treated as customers under Rule 15c3-3, the rule requires a carrying broker-dealer to have a separate special reserve account at a bank for PAB account holders; such special reserve bank account must hold cash and/or qualified securities in an amount determined by a computation of the net cash owed to PAB account holders. Generally, carrying broker-dealers are required to perform the PAB reserve computation and make any required deposits into the PAB reserve bank account weekly, similar to the requirements for the customer reserve bank account.

The proposed amendments would require carrying broker-dealers that had large amounts of cash owed to customer and PAB accounts holders ( i.e., large total credits), measured by both their customer and PAB reserve computations for the previous twelve month ends ( i.e., a rolling twelve month average), to perform those computations and make any required deposits into their respective customer and PAB reserve bank accounts daily (rather than weekly). Cash owed to customers and PAB account holders may include cash proceeds received from sales of securities, cash deposited by customers and PAB account holders for the purposes of purchasing securities, and monthly or quarterly dividends received on behalf of customers and PAB account holders. These carrying broker-dealers—because they have owed large amounts of cash to their customers and PAB account holders—can incur large deposit requirements from time to time. This can lead to situations where—for a period of days—the net amount of cash owed to customers and PAB account holders is substantially greater than the amounts held in their combined customer and PAB reserve bank accounts. The proposed daily computation would shorten the period during which this mismatch between the net amount owed and the amount on deposit exists. The objective of the proposal is to reduce the risk caused by this mismatch for carrying broker-dealers where the difference between the net amount owed and the amount on deposit potentially is substantial. Large mismatches can lead to correspondingly large shortfalls in the amounts available in the customer and PAB reserve bank accounts to make customers and PAB account holders whole if the carrying broker-dealer fails financially. As explained below, these potential shortfalls could lead to large-scale harm ( e.g., delayed satisfaction of customer or PAB account holder claims for securities and cash) or substantial losses (the inability to satisfy those claims in full) if a carrying broker-dealer with a large mismatch is liquidated in a formal proceeding under the Securities Investor Protection Act of 1970 (“SIPA”). 5

Rule 15c3-3 is designed to give specific protection to customer funds and securities, in effect forbidding broker-dealers from using customer assets to finance any part of their businesses unrelated to servicing securities customers. For example, a broker-dealer is “virtually” precluded from using customer funds to buy securities for its own account. 6 To meet this objective, Rule 15c3-3 requires a carrying broker-dealer to take two primary steps to safeguard these assets, as described in this section below. The steps are designed to protect customers by segregating their securities and cash from the carrying broker-dealer's proprietary business activities. If the carrying broker-dealer fails financially, the customer securities and cash should be readily available to be returned to the customers. In addition, if the failed carrying broker-dealer is liquidated under SIPA, the customer securities and cash should be isolated and readily identifiable as “customer property” and, consequently, available to be distributed to customers ahead of other creditors. 7

The first step required by Rule 15c3-3 is that a carrying broker-dealer must maintain physical possession or control over customers' fully paid and excess margin securities. 8 Control means the carrying broker-dealer must hold these securities in one of several locations specified in Rule 15c3-3 and free of liens or any other interest that could be exercised by a third-party to secure an obligation of the carrying broker-dealer. 9 Permissible locations include a clearing corporation and a “bank,” as defined in section 3(a)(6) of the Exchange Act. 10

The second step is that a carrying broker-dealer must maintain a reserve of funds or qualified securities in an account at a bank that is at least equal in value to the net cash owed to customers. 11 The account must be titled “Special Reserve Bank Account for the Exclusive Benefit of Customers” (“customer reserve bank account”). 12 The amount of net cash owed to customers is computed weekly as of the close of the last business day of the week pursuant to a formula set forth in Exchange Act Rule 15c3-3a (“Rule 15c3-3a”) (“customer reserve computation”). 13 Under the customer reserve computation, the carrying broker-dealer adds up customer credit items and then subtracts from that amount customer debit items. 14 The credit items include credit balances in customer accounts ( i.e., cash owed to customers) and funds obtained through the use of customer securities ( e.g., a loan from a bank collateralized with customer margin securities). 15 The debit items include money owed by customers ( e.g., from margin lending), securities borrowed by the carrying broker-dealer to effectuate customer short sales, and margin required and on deposit with certain clearing agencies as a consequence of customer securities transactions. 16 If credit items exceed debit items, the net amount must be on deposit in the customer reserve bank account in the form of cash and/or qualified securities. 17 The carrying broker-dealer must make a deposit into the customer reserve bank account by 10 a.m. of the second business day following the “as of” date of the new computation if the computation shows the amount required to be on deposit in the customer reserve bank account is greater than the amount currently on deposit in the account. 18 Conversely, if the computation shows the amount required to be on deposit in the customer reserve bank account is less than the amount currently on deposit in the account, the carrying broker-dealer can withdraw the difference. 19 A carrying broker-dealer also is required to make and maintain a record of each computation. 20

The customer reserve computation permits the carrying broker-dealer to offset customer credit items only with customer debit items. 21 This means the carrying broker-dealer can use customer cash to facilitate customer transactions such as financing customer margin loans and borrowing securities to make deliveries of securities customers have sold short. 22 The broker-dealer margin rules require securities customers to maintain a minimum level of equity in their securities accounts ( i.e., the customer's ownership interest in the account, computed by adding the current market value of long securities and the amount of any credit balance and subtracting the current market value of all short securities and the amount of any debit balance). 23 In other words, the cash and the market value of the customer's securities in the account must be sufficiently larger than the sum of the cash borrowed by the customer and market value of the securities sold short by the customer. In addition to protecting the carrying broker-dealer from the consequences of a customer default, this equity serves to over-collateralize customers' obligations to the broker-dealer. This buffer protects the customers whose cash was used to facilitate the carrying broker-dealer's financing of securities transactions of other customers ( i.e., margin loans and short sales). For example, if the carrying broker-dealer fails, the customer debits—because they generally are over-collateralized—should be attractive assets for another broker-dealer to purchase or, if not purchased by another broker-dealer, they should be able to be liquidated to a net positive equity. 24 The proceeds of the debits sale or liquidation can be used to repay the customer cash used to finance customer obligations. This cash plus the cash and/or qualified securities held in the customer reserve bank account should equal or exceed the total amount of customer credit items as of the customer reserve computation date ( e.g., as of the close of business on Friday). 25 However, as discussed below, activity subsequent to the customer reserve computation date can result in the carrying broker-dealer having large amounts of additional credit items that do not get accounted for until the next customer reserve computation and do not get reserved for until the next deposit into the customer reserve bank account. 26 This can lead to a mismatch between the net amount of cash owed to customers and the amount currently on deposit in the customer reserve bank account.

Carrying broker-dealers also may carry accounts that hold proprietary securities and cash of other broker-dealers, known as PAB accounts. 27 Broker-dealers are not within the definition of “customer” for purposes of Rule 15c3-3. 28 The definition of “customer” in SIPA, however, is broader than the definition in Rule 15c3-3 in that the SIPA definition includes broker-dealers. 29 As discussed in more detail below, broker-dealers—as customers under SIPA—have the right to a pro rata share of customer property in a SIPA liquidation. 30

Current HUD regulations at 24 CFR part 202, subpart A, establish minimum standards and requirements for approval by the Secretary of lenders and mortgagees to participate in FHA's Title I and Title II programs. Subpart B identifies the classes of lender and mortgagee eligible to participate in FHA's Title I and Title II programs and outlines additional class-specific requirements for participation in FHA's Title I and Title II programs.

In 2010, HUD amended 24 CFR part 202, subpart A, to include investing lenders and investing mortgagees as a class of lender and mortgagee subject to HUD's net worth requirements currently found at § 202.5(n). At the time the investing lender and investing mortgagee net worth requirement change was made in 2010, HUD also incorporated new financial reporting, audit, and quality control plan requirements for investing lenders and investing mortgagees into various HUD handbooks; however, no corresponding updates were made to 24 CFR part 202, subpart B, to reflect these investing lender and investing mortgagee requirements. Additionally, in 2010, FHA increased the minimum net worth requirements applicable to certain classes of lenders and mortgagees in 24 CFR part 202. These new net worth requirements were phased in over a period of three years, beginning on May 20, 2010, and becoming fully phased in by May 20, 2013. The net worth requirements during that three-year transition period are now obsolete, but the phased-in net worth requirements language remains in HUD's regulations.

Current HUD regulations in § 202.10 also identify the class of lenders and mortgagees that qualify as governmental institutions, Government-Sponsored Enterprises, public housing agencies, and State housing agencies. Currently, the various GSEs  1 are included in the same definition as Federal, State, or municipal governmental agencies and Federal Reserve Banks at § 202.10(a). For several years, certain GSEs have contended that they do not have the infrastructure that other lenders and mortgagees listed in § 202.10 have in place to ensure compliance with FHA requirements related to loan and mortgage origination because they cannot originate loans or mortgages. FHA has reviewed the mission and structure of the GSEs and determined that they should not be subject to FHA requirements specific to loan and mortgage origination because the GSEs do not originate loans or mortgages.

Through this proposed rule, HUD proposes to make multiple changes to 24 CFR part 202. HUD's proposed changes are described more fully in each of the below sections.

HUD proposes to state that investing lenders and investing mortgagees must comply with applicable audit and financial statement requirements by adding language to § 202.9 that incorporates audit report, financial statement, and other financial information requirements, similar to the requirements for supervised and nonsupervised lenders and mortgagees found in §§ 202.6(b)(4) and 202.7(b)(3), respectively. These proposed audit and financial statement requirements would also include adding investing lenders and investing mortgagees as types of lenders and mortgagees that must comply with HUD's uniform financial reporting standards, as described in § 5.801(a)(5).

HUD is also proposing to make explicit that investing lenders and investing mortgagees must comply with FHA's annual certification requirements at § 202.5(m). Currently, FHA's annual certification regulation contains language primarily directed at lenders and mortgagees that originate insured mortgages or Title I loans. HUD proposes to update the annual certification requirement language in § 202.5(m) to reference any lender or mortgagee, including investing lenders and investing mortgagees, that originates, purchases, holds, sells, or services insured mortgages or Title I loans.

HUD is also proposing to clarify at § 202.5(h) that investing lenders and investing mortgagees without servicing authority do not have to implement a written quality control plan.

HUD proposes to separately define the GSEs from other Federal, State, or municipal governmental agencies and Federal Reserve Banks as described in § 202.10(a). This proposed change is appropriate because, unlike the other governmental-type institutions listed in § 202.10(a), the GSEs do not originate loans or mortgages. By separately defining the GSEs, it would be clear that the GSEs do not perform loan or mortgage origination activities and therefore are not subject to FHA requirements specific to loan or mortgage origination.

Specifically, HUD proposes to individually define the term GSE by creating a separate paragraph (b) in § 202.10. The GSEs would be identified as the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac), and the Federal National Mortgage Association (commonly known as Fannie Mae). The proposed GSE definition would make clear that GSE lenders or mortgagees may purchase, service, or sell, but not originate, loans and mortgages. The proposed GSE definition would also make explicit that the GSE lenders or mortgagees must meet the general approval requirements in § 202.5, but that GSE lenders or mortgagees are not required to meet the net worth requirement provided in § 202.5.

The phased-in net worth requirements for 2010 and 2011 currently found at § 202.5(n)(2) expired in 2013. HUD proposes to delete paragraph (n)(2) because the language is now obsolete.

As part of HUD's review of 24 CFR part 202 and in proposing the changes described above, HUD identified several technical or non-substantive edits to 24 CFR part 202 that would improve the clarity and readability of the part. HUD proposes the following edits to 24 CFR part 202 to improve its clarity and readability:

1. In § 202.5(n)(1), HUD is proposing to update the paragraph to change the word “section” to “this section (n).” This change would make it more clear to which text the paragraph is referring. Additionally, HUD proposes to update paragraph (n)(1) to change the word “entities” to “institutions.” This change would make the text of the paragraph more consistent because the term “institutions” is used in an earlier sentence in the paragraph.

2. In § 202.5(n)(3)(i)-(ii), 2 HUD is proposing minor grammatical changes intended to improve the readability of the paragraphs and does not make any changes to the substantive meaning of the text. Additionally, HUD proposes to update paragraph (n)(3)(ii) to remove the phrases “minimum” and “is required” from the paragraph. These changes are proposed because the quoted terms are duplicative in meaning of other phrases in the paragraph.

3. In § 202.9(b)(3), HUD is proposing to add the phrase “investing lender or investing mortgagee” to the text to make explicit that the paragraph applies to both investing lenders and investing mortgagees.

4. In § 202.10(c), 3 HUD is proposing to update the citations of §§ 200.40 and 200.69 listed in the paragraph to 2 CFR 200.1. This change is appropriate because the identified section numbers from 2 CFR part 200 have been updated. This change will direct the reader to the appropriate citation.

Pursuant to Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a regulatory action is significant and therefore, subject to review by the Office of Management and Budget (OMB) in accordance with the requirements of the order. Executive Order 13563 (Improving Regulations and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The order also directs executive agencies to analyze regulations that are “outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.” Executive Order 13563 further directs that, where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, agencies are to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. As discussed above, this proposed rule, if finalized, would be limited to defining GSEs under a separate definition within 24 CFR 202.10; clarifying the audit, financial statement, and certification requirements of investing lenders and investing mortgagees; and eliminating obsolete language within 24 CFR part 202 regarding lenders and mortgagees net worth requirements. OMB has reviewed this proposed rule and determined that it is not significant under Executive Orders 12866 and 13563.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The changes proposed in this rule are limited to defining GSEs under a separate definition within § 202.10; clarifying the audit, financial statement, and certification requirements of investing lenders and investing mortgagees; and eliminating obsolete language within 24 CFR part 202 regarding lenders and mortgagees net worth requirements. HUD anticipates that this proposed rule, if finalized, will have no economic impact.

Accordingly, the undersigned certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Notwithstanding HUD's determination that this rule will not have a significant impact on a substantial number of small entities, HUD specifically invites comments regarding any less burdensome alternatives to this rule that will meet HUD's objectives as described in the preamble to this rule.

A Finding of No Significant Impact (FONSI) with respect to the environment has been made in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is available for public inspection during regular business hours in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street SW, Room 10276, Washington, DC 20410. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the FONSI by calling the Regulations Division at (202) 708-3055 (this is not a toll-free number). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either: (i) imposes substantial direct compliance costs on State and local governments and is not required by statute, or (ii) preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive Order.

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments, and on the private sector. This proposed rule would not impose any Federal mandates on any State, local, or Tribal governments, or on the private sector, within the meaning of the UMRA.

For the reasons stated above, HUD proposes to amend 24 CFR parts 5 and 202 as follows:

The revisions read as follows:

The revisions and additions read as follows:

The revisions and additions read as follows:

The CHEF was established by section 202 of the IHCIA, Public Law 94-437 (25 U.S.C. 1621a). The Patient Protection and Affordable Care Act, Public Law 111-148 as amended by the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (collectively, the Affordable Care Act or “the ACA”), reauthorized the IHCIA and amended the CHEF, directing the Secretary to promulgate regulations governing the administration of the CHEF.

The purpose of the CHEF is to meet the extraordinary medical costs associated with the treatment of victims of disasters or catastrophic illnesses who are within the responsibility of the Service. The IHS administers the CHEF to reimburse certain IHS and Tribal purchased/referred care (PRC) costs that exceed the cost threshold. Although the CHEF was first established in 1988, a similar fund was authorized by Public Law 99-591, a Joint Resolution continuing appropriations for fiscal year (FY) 1987. The IHS developed operating guidelines for the management of the CHEF in August of 1987, which were approved by the Office of Management and Budget (OMB). Those guidelines were developed with input from Tribal Organizations and the IHS personnel who work with the daily processing and management of Contract Health Services (CHS), now known as the Purchased/Referred Care (PRC) Program. Congress passed the Indian Health Care Improvement Reauthorization and Extension Act of 2009, S. 1790, 111th Cong. (2010) (IHCIREA), as section 10221(a) of the Patient Protection and Affordable Care Act, Public Law 111-148. Through IHCIREA, Congress permanently reauthorized and amended the IHCIA, Public Law 94-437. Section 202 of the IHCIA (25 U.S.C. 1621a) establishes the CHEF and directs the IHS to promulgate regulations for its administration. The operating guidelines and twenty-eight (28) years of experience (FYs 1987-2015) contributed to the design of the proposed rule published January 26, 2016, (81 FR 4239). Following additional consultation and additional years of experience, the IHS is issuing this new notice of proposed rulemaking (NPRM). This NPRM supersedes and replaces the proposed rule published January 26, 2016, (81 FR 4239); as such, the 2016 NPRM is hereby rescinded.

This regulation proposes to (1) establish definitions governing the CHEF, including definitions of disasters and catastrophic illnesses; (2) establish that a Service Unit shall not be eligible for reimbursement for the cost of treatment from the CHEF until its cost of treating any victim of such catastrophic illness or disaster has reached a certain threshold cost; (3) establish a procedure for reimbursement of the portion of the costs for authorized services that exceed such threshold costs; (4) establish a procedure for payment from the CHEF for cases in which the exigencies of the medical circumstances warrant treatment prior to the authorization of such treatment; and, (5) establish a procedure that will ensure no payment will be made from the CHEF to a Service Unit to the extent the provider of services is eligible to receive payment for the treatment from any other Federal, state, local, or private source of reimbursement for which the patient is eligible.

No part of the CHEF, or its administration, shall be subject to contract or grant under any law, including the Indian Self-Determination and Education Assistance Act (ISDEAA), Public Law 93-638 (25 U.S.C. 5301 et seq. ) and may not be allocated, apportioned, or delegated to a Service Unit, Area Office, or any other IHS organizational unit. Accordingly, the IHS Division of Contract Care within ORAP, IHS, shall remain responsible for administration of the CHEF.

The proposed regulation also incorporates provisions on severability. Congress has specifically directed the promulgation of these rules for the administration of the CHEF, which is administered by the Secretary, Department of Health and Human Services (HHS) (“the Secretary”) acting through the Headquarters of the Indian Health Service (IHS) (“the Service”). The sole purpose of the CHEF is meeting extraordinary medical costs associated with treatment of victims of disasters or catastrophic illnesses who are within the responsibility of the Service. In the event that any portion of the proposed regulation is declared invalid, the Secretary, acting through the IHS, will continue to be responsible for the administration of the CHEF. The IHS anticipates that the remainder of the regulation could function sensibly and continue to govern the administration of the CHEF. For these reasons, if any portion of the proposed regulation is declared invalid, the IHS intends that the remaining provisions be severable.

The IHS proposes establishing the following definitions for governing the CHEF, including definitions of disasters and catastrophic illnesses:

1. Alternate Resources—health care resources other than those of the IHS. Such resources include health care providers and institutions and health care programs for the payment of health services including but not limited to programs under titles XVIII or XIX of the Social Security Act ( i.e., Medicare, Medicaid), state or local health care programs, and private insurance.

2. Catastrophic Health Emergency Fund (CHEF)—the fund established by Congress to reimburse extraordinary medical expenses incurred for catastrophic illnesses and disasters paid by a PRC program of the IHS, whether such program is carried out by the IHS or an Indian Tribe or Tribal Organization under the ISDEAA.

3. Catastrophic Illness—a medical condition that is costly by virtue of the intensity and/or duration of its treatment. Examples of conditions that frequently require multiple hospital stays and extensive treatment are cancer, burns, premature births, cardiac disease, end-stage renal disease, strokes, trauma-related cases such as automobile accidents and gunshot wounds, and certain mental disorders. The CHEF is intended to insulate the IHS and Tribal PRC operations from financial disruption caused by the intensity of expenses incurred as a result of high cost illnesses and/or disasters.

4. Disasters—situations that pose a significant level of threat to life or health or cause loss of life or health stemming from events such as tornadoes, earthquakes, floods, catastrophic accidents, epidemics, fires, and explosions. The CHEF is intended to insulate the IHS and Tribal PRC operations from financial disruption caused by the intensity of expenses incurred as a result of high cost illnesses and/or disasters.

5. Episode of Care—the period of consecutive days for a discrete health condition during which reasonable and necessary medical services related to the condition occur.

6. Purchased/Referred Care (PRC)—any health service that is—

(a) delivered based on a referral by, or at the expense of, an Indian health program; and

(b) provided by a public or private medical provider or hospital that is not a provider or hospital of the IHS health program.

7. Service Unit—an administrative entity of the Service or a Tribal health program through which services are provided, directly or by contract, to eligible Indians within a defined geographic area.

8. Threshold Cost—the annual designated amount above which incurred medical costs will be considered for the CHEF reimbursement after a review of the authorized expenses and diagnosis.

The IHCIA section 202 provides that a Service Unit shall not be eligible for reimbursement from the CHEF until its cost of treating any victim of a catastrophic illness or event has reached a certain threshold cost. The Secretary is directed to establish the initial CHEF threshold at—

(1) the FY 2000 level of $19,000; and

(2) for any subsequent year, the threshold will not be less than the threshold cost of the previous year increased by the percentage increase in the medical care expenditure category of the Consumer Price Index (CPI) for all urban consumers (United States city average) for the 12-month period ending with December of the previous year.

The IHS intends to set the initial threshold governed by this rule at $19,000 for FY 2023. In reaching this determination, the IHS adopted the recommendation of the IHS Director's Workgroup on Improving PRC (Workgroup). The Workgroup, composed of Tribal leaders and Tribal and Federal representatives, voted 18-2 to recommend $19,000 as the initial threshold. For this recommendation, the Workgroup considered several factors, including (1) Tribal concerns regarding the lower threshold and the potential to exhaust the CHEF earlier in the fiscal year leaving PRC programs without the ability to recover costs for treating victims of catastrophic illnesses or disasters; and, (2) Tribal concerns about setting the threshold at the FY 2000 level and then applying the CPI-U Medical for each year since FY 2000, which would have resulted in a $30,000 plus threshold requirement by FY 2013. At this higher level, PRC programs with limited budgets would be unable to access the CHEF to seek recovery for extraordinary medical costs. Accordingly, the IHS intends to set the initial threshold at $19,000 for FY 2023, with increases in subsequent years based on the annual CPI-U Medical factor. The IHS will publish the revised threshold costs yearly in the Federal Register .

The IHS proposes to follow PRC regulations 42 Code of Federal Regulations (CFR) part 136 for payment from the CHEF. For example, payment or reimbursement from the CHEF may be made for the costs of treating persons eligible for PRC in accordance with 42 CFR 136.23 and authorized for PRC in accordance with 42 CFR 136.24. In cases where the exigencies of the medical circumstances warrant treatment prior to the authorization of such treatment by the Service Unit, authorization must be obtained in accordance with 42 CFR 136.24(c). For example, claims for reimbursement of services provided that do not meet the 72 hour emergency notification requirements found at 42 CFR 136.24(c) will be denied. The applicable Area PRC program shall review the CHEF requests for CHEF reimbursement to ensure consistency with PRC regulations. The IHS seeks comment on whether payments by PRC programs to patients, or other individuals/entities that are not PRC providers, should be included as eligible for CHEF reimbursement under these regulations and if so, under what circumstances.

In accordance with section 202(d)(5) of the IHCIA [25 U.S.C. 1621a (d)(5)], alternate resources must be exhausted before reimbursement is made from the CHEF. No reimbursement shall be made from the CHEF to any Service Unit to the extent that the provider of treatment is eligible to receive payment for the treatment from any other Federal, state, local, or private source of reimbursement for which the patient is eligible. Medical expenses incurred for catastrophic illnesses and events will not be considered eligible for reimbursement if they are payable by alternate resources, as determined by the IHS. The IHS is the payor of last resort and, if the provider of services is eligible to receive payment from other resources, the medical expenses are only payable by PRC and reimbursable by the CHEF to the extent the IHS would not consider the other resources to be “alternate resources” under the applicable regulations and the IHS policy. Expenses paid by alternate resources are not eligible for payment by PRC or reimbursement by the CHEF. However, if the patient is found to have been eligible for alternate resources at the time of service, the Service Unit shall promptly return all funds reimbursed from the CHEF to the Headquarters CHEF account.

A patient must be eligible for PRC services and the Service Unit must adhere to regulations (42 CFR 136.23(a) through (f)) governing the PRC program to be reimbursed for catastrophic cases from the CHEF. Once the catastrophic case meets the threshold requirement and the Service Unit has authorized PRC resources exceeding the threshold requirement, the Service Unit may qualify for reimbursement from the CHEF. Reimbursable costs are those costs that exceed the threshold requirement after payment has been made by all alternate resources such as Federal, state, local, private insurance, and other resources. Reimbursement of PRC expenditures incurred by the Service Unit and approved by the PRC program at Headquarters will be processed through the respective IHS Area Office. Reimbursement from the CHEF shall be subject to availability of funds.

In the event a PRC program has been reimbursed from the CHEF for an episode of care and that same episode of care becomes eligible for and is paid by any Federal, state, local, or private source (including third party insurance), the PRC program shall return all the CHEF funds received for that episode of care to the CHEF at the IHS Headquarters. These recovered CHEF funds will be used to reimburse other approved CHEF requests.

Prior to implementing the rule, the IHS may be required to develop new information collection forms that would require approval from the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995, 44 United States Code 3507(d).

Because of the large number of public comments normally received on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments received by the date and time specified in the DATES section of the preamble of this proposed rule, and, when we proceed with a final rule, we will respond to the comments in the preamble to that rule.

We have examined the impacts of this rule as required by Executive Order (E.O.) 12866 on Regulatory Planning and Review (September 30, 1993); section 603 of the Regulatory Flexibility Act (RFA), Public Law 96-354 [5 U.S.C. 601-612], as amended by subtitle D of the Small Business Regulatory Fairness Act of 1996, Public Law 104-121; the Unfunded Mandates Reform Act (UMRA) of 1995, Public Law 104-4; E.O. 13132 on Federalism (August 4, 1999); and E.O. 13175 Consultation and Coordination with Indian Tribal Governments.

Executive Order 12866, as amended by Executive Order 14094, 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). Section 3(f) of Executive Order 12866, as amended, defines a “significant regulatory action” as one that is likely to result in a rule that may: (1) have an annual effect on the economy of $200 million or more in any one year (adjusted every three years by the Administrator of OIRA for changes in gross domestic product), or adversely affect in a material way a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, territorial, or tribal governments or communities (2) create a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise legal or policy issues for which centralized review would meaningfully further the President's priorities or the principles set forth in Executive Order 12866. While the Office of Information and Regulatory Affairs has determined that this is a significant regulatory action as defined by Executive Order 12866, they have also determined that it does not confer significant costs and does not warrant a regulatory impact analysis.

RFA requires analysis of regulatory options that minimize any significant economic impact of a rule on small entities, unless it is certified that the proposed rule is not expected to have a significant economic impact on small entities. This rule is not expected to have a significant economic impact on small entities, because the rule only governs reimbursements of certain expenditures made by Service Units under Purchased/Referred Care (PRC) authorities. Many PRC programs are operated by the Federal Government, through the Indian Health Service (IHS). The remaining PRC programs are operated by Tribes and tribal organizations under Indian Self-Determination and Education Assistance Act (ISDEAA) agreements with the IHS. Presently, there are 62 federally operated PRC programs and 188 tribally operated PRC programs. Some of the entities operating PRC programs may be small entities, but the rule does not directly impact a substantial number of small entities and the rule is not expected to reduce their revenues or raise their costs.

Section 202 of UMRA (Pub. L. 104-4) requires an assessment of anticipated costs and benefits before proposing any rule that may result in expenditure by state, local, and Tribal Governments, in aggregate, or by the private sector of $100 million or more (adjusted annually for inflation) in any one year. The current threshold after adjustment for inflation is $165 million, using the most current (2021) Implicit Price Deflator for the Gross Domestic Product. We have determined that this rule is consistent with the principles set forth in the executive orders and in these statutes and find that this rule will not have an effect on the economy that exceeds the UMRA threshold in any one year. The IHS FY 2022 annual appropriation for the CHEF was $53 million. This final rule is not anticipated to have an effect on state, local, or Tribal Governments in the aggregate, or by the private sector of $165 million or more. This rule does not impose any new costs on small entities, and it will not result in a significant economic impact on a substantial number of small entities. Thus, no further analysis is required.

E.O. 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local Governments, preempts state law, or otherwise has federalism implications. We have reviewed this proposed rule under the threshold criteria of E.O. 13132 and have determined that this proposed rule would not have substantial direct effect on the states, on the relationship between the Federal Government and the states, or on the distribution of power and governmental responsibilities among the various levels of the Government(s). As this rule has no Federal implications, a federalism summary impact statement is not required.

This rule has Tribal implications under E.O. 13175, Consultation and Coordination with Indian Tribal Governments, because it would have a substantial direct and positive effect on one or more Indian Tribes.

The first proposed CHEF rule, published in January 2016 (81 FR 4239), was developed with input from Tribes and the IHS personnel who work with the daily processing and management of PRC resources. Specifically, the IHS Director's Workgroup on Improving PRC met and discussed the CHEF guidelines on October 12-13, 2010, and June 1-2, 2011, in Denver, Colorado, and on January 11-12, 2012, in Albuquerque, New Mexico. In addition, the IHS issued “Dear Tribal Leader” letters related to the development of these regulations on February 9, 2011, and May 6, 2013.

The IHS has sought additional Tribal input throughout the development of this new proposed rule. Specifically, Tribal consultation sessions were held in the fall of 2016. At meetings of the Workgroup in 2015 and 2018, the Workgroup recommended establishing a $19,000 CHEF threshold. Moreover, in November 2020, the Workgroup recommended that the IHS promulgate new regulations based on Workgroup input. Based on the recommendation of the Workgroup, the threshold amount of $19,000 is proposed to be established for the current fiscal year. This proposed rule serves as additional Tribal consultation with affected Tribes by giving interested Tribes the opportunity to comment on the regulation before it is finalized. The IHS intends to consult as fully as possible with Tribes prior to the publication of a final rule.

For the reasons set out in the preamble, the IHS proposes to amend 42 CFR chapter I as set forth below:

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 website as soon as possible after they have been received: https://www.regultions.gov. Follow the search instructions on that website to view public comments. CMS will not post on Regulations.gov public comments that make threats to individuals or institutions or suggest that the commenter will take actions to harm an individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments.

In 2021, the Innovation Center announced a strategic refresh with a vision of having a health care system that achieves equitable outcomes through high quality, affordable, person-centered care. 1 To guide this updated vision, the Innovation Center intends to design, implement, and evaluate future episode-based payment models with a focus on five strategic objectives, including advancing health equity and driving accountable care. 2 With a bold goal of having 100 percent of Medicare fee-for-service (FFS) beneficiaries and the vast majority of Medicaid beneficiaries in an accountable care relationship by 2030, we acknowledge that additional opportunities for accountable care relationships with specialists are needed. 3

One approach to support accountable care and to create an avenue for specialists to participate in value-based care initiatives is through episode-based payment models. The Innovation Center has launched several episode-based payment models (also known as bundled-payment models), four of which are either ongoing or being implemented in 2023. 4 These models help to address the inefficiencies in traditional Medicare FFS, where providers are paid for each item or service, which may drive volume over value and fragment care. By bundling items and services into an episode of care, providers are better incentivized to coordinate patient care and to avoid duplicative or unnecessary services.

Early episode-based payment demonstrations were narrow in scope and assessed particular design aspects, such as the use of gainsharing mechanisms or bundled payments for inpatient stays. 5 Current models build upon early tests by examining condition-specific or acute inpatient/outpatient episodes with accountability usually extending 90-days beyond the triggering event. Generally, these episode-based payment models have demonstrated reductions in gross Medicare spending, driven in large part by reductions in post-acute care (PAC) spending or utilization, with minimal to no change on quality of care. 6

The Innovation Center is utilizing lessons learned from our experience with the Bundled Payments for Care Improvement (BPCI), Bundled Payments for Care Improvement Advanced (BPCI Advanced), and the Comprehensive Care for Joint Replacement (CJR) models to design and implement a new episode-based payment model focused on accountability for quality and cost, health equity, and specialty integration. To further inform development of the potential new model, we are soliciting input from those with additional insight and frontline experience with bundled payments. This request for information (RFI) is not seeking feedback on models which address particular conditions over a longer period of time, such as the Enhancing Oncology Model and the Kidney Care Choices Model. Specifically, we are requesting input on a broader set of questions related to care delivery and incentive structure alignment and six foundational components:

In addition to maintaining or improving quality of care and reducing Medicare spending (two requirements articulated in the Innovation Center statute  7 ), CMS intends to test an episode-based payment model with goals to:

• Improve care transitions for the beneficiary; and

• Increase engagement of specialists within value-based, accountable care.

We recognize that for these goals to be realized, there must be a change in how episode-based payment models coexist with population-based Medicare Accountable Care Organizations (ACOs). In theory, ACOs and episode-based payment models should be complementary, as ACOs are well situated to prevent unnecessary care, while episode-based payment model participants focus on controlling the cost of acute, high-cost episodes. However, these value-based care approaches have not consistently been complementary and, in some cases, have complicated health care operations.

The Innovation Center strategic refresh provides an opportunity to better align episodes of care and population-based models to improve the beneficiary experience and reduce health care inefficiencies. 8 Furthermore, coordination capitalizes on the strengths of each provider, allowing them to manage and influence the outcomes that they control. Unfortunately, the current ACO and episode-based payment environment has created the perception that certain providers and suppliers are striving for the same cost savings, and uncertainty with respect to who manages a beneficiary's care. This issue is further exacerbated by complex model overlap policies that have changed as models and initiatives have evolved over time. These unintended consequences may discourage providers from participating in alternative payment models (APMs), leading to fewer beneficiaries under accountable care relationships. In order for the Innovation Center to achieve its strategic policy goals, episode-based payment incentives must be aligned across models to encourage intentional overlap, promote coordination, and facilitate seamless transition back to primary care.

The Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (Innovation Center) seeks feedback regarding a potential new episode-based payment model that would be designed with a goal to improve beneficiary care and lower Medicare expenditures by reducing fragmentation and increasing care coordination across health care settings. The Innovation Center is releasing this request for information (RFI) to gather feedback on testing a new model design, built on previous experience with episode-based payment models, and to further the goals of improved outcomes and reduced Medicare spending. Whenever possible, respondents are requested to draw their responses from objective, empirical, and actionable evidence and to cite this evidence within their responses.

We anticipate this model would require participation by certain entities, such as Medicare providers or suppliers or both located in certain geographic regions, to ensure that a broad and representative group of beneficiaries and participants are included. Further, requiring participation would also help to overcome voluntary model challenges such as clinical episode selection bias and participant attrition. Therefore, any such model would be implemented via notice and comment rulemaking, with ample opportunity for public input. We expect this episode-based payment model to be implemented no earlier than 2026, ensuring participants have sufficient time to prepare for the model.

Interested parties and experts have requested that CMS align specialty care incentives with population-based model initiatives to improve coordination across the continuum of care. 9 In November 2022, the Innovation Center released its comprehensive specialty strategy to test models and innovations supporting access to high-quality, integrated specialty care across the patient journey—both longitudinally and for procedural or acute services. 10 One element of the strategy is to maintain momentum established by episode-based payment models.

To date, the Innovation Center's episode-based payment models have focused largely on acute inpatient and hospital outpatient episodes, through CJR, BPCI, and BPCI Advanced. These model tests have successfully driven essential care delivery changes to transform how patients transition between hospitals and post-acute care providers. 11 Through this next model, CMS will build on those care improvements to better align episodic and longitudinal, population-based incentives, thereby strengthening communication, collaboration, and coordination across providers at all points of a patient's journey through the health care system. This will be achieved through design features such as considering a shorter, 30-day episode to support coordination, while limiting overlap.

To maintain momentum among providers and health systems, CMS extended the original CJR model for an additional 3 performance years (October 1, 2021-December 31, 2024), with modifications to certain elements such as the episode definition and the payment methodology. Subsequently, CMS extended BPCI Advanced for 2 years (January 1, 2024-December 31, 2025), with technical changes to the pricing methodology to balance participation incentives with statutory requirements. The extension requires new convener participants to be Medicare-enrolled providers or suppliers or ACOs, which will support increasing ACO management of specialty conditions and primary care integration. In addition, the future data transparency initiatives of the specialty strategy will provide ACOs tools to better manage specialty care for patients within their population. 12

The Innovation Center acknowledges that the role of clinical episodes will grow and evolve as more patients are cared for by providers in accountable care arrangements. To help us ensure all accountable entities provide patients with the highest value care, we seek input on the following questions:

• How can CMS structure episodes of care to increase specialty and primary care integration and improve patient experience and clinical outcomes?

• How can CMS support providers who may be required to participate in this episode-based payment model?

• How can CMS ensure patient choice and rights will not be compromised as they transition between health care settings and providers?

• How can CMS promote person-centered care in episodes, which includes mental health, behavioral health, and non-medical determinants of health?

• How can CMS support multi-payer alignment for providers and suppliers in episode-based and population-based models?

• For population-based entities currently engaging specialists in episodic care management, what are the key factors driving improvements in cost, quality, and outcomes?

• How does the nature of the relationship (that is, employment, affiliation, etc.) between a population-based entity and a specialist influence integration?

• What should CMS consider in the design of this model to effectively incorporate health information technology (health IT) standards and functionality, including interoperability, to support the aims of the model?

• How can CMS include home and community-based interventions during episode care transitions that provide connections to primary care or behavioral health and support patient independence in home and community settings?  13