[Title 42 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 2006 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

          42


          Parts 414 to 429

                         Revised as of October 1, 2006


          Public Health
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of October 1, 2006
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

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As of October 1, 2006

Title 42, Parts 400 to 429

Revised as of October 1, 2005

Is Replaced by

Title 42, Parts 400 to 413

and

Parts 413 to 429



[[Page v]]





                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 42:
          Chapter IV--Centers for Medicare & Medicaid 
          Services, Department of Health and Human Services          3
  Finding Aids:
      Material Approved for Incorporation by Reference........     525
      Table of CFR Titles and Chapters........................     527
      Alphabetical List of Agencies Appearing in the CFR......     545
      List of CFR Sections Affected...........................     555

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 42 CFR 414.1 refers 
                       to title 42, part 414, 
                       section 1.

                     ----------------------------

[[Page vii]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
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name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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OMB CONTROL NUMBERS

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collection request.

[[Page viii]]

Many agencies have begun publishing numerous OMB control numbers as 
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    (b) The matter incorporated is in fact available to the extent 
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    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
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the revision dates of the 50 CFR titles.

[[Page ix]]


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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 2006.

[[Page xi]]



                               THIS TITLE

    Title 42--Public Health is composed of four volumes. The parts in 
these volumes are arranged in the following order: Parts 1-399, parts 
400-413, parts 414-429, and part 430 to end. The first volume (parts 1-
399) contains current regulations issued under chapter I--Public Health 
Service (HHS). The second and third volumes (parts 400-413 and parts 
414-429) include regulations issued under chapter IV--Centers for 
Medicare & Medicaid Services (HHS) and the fourth volume (part 430 to 
end) contains the remaining regulations in chapter IV and the 
regulations issued under chapter V by the Office of Inspector General-
Health Care (HHS). The contents of these volumes represent all current 
regulations codified under this title of the CFR as of October 1, 2006.

    The OMB control numbers for the Centers for Medicare & Medicaid 
Services appear in Sec.  400.310 of chapter IV. For the convenience of 
the user, subpart C consisting of Sec. Sec.  400.300-400.310 is 
reprinted in the Finding Aids section of the third and fourth volumes.

    For this volume, Robert J. Sheehan was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Frances D. McDonald, assisted by Kenneth R. Payne.


[[Page 1]]



                         TITLE 42--PUBLIC HEALTH




                  (This book contains parts 414 to 429)

  --------------------------------------------------------------------
                                                                    Part

chapter iv--Centers for Medicare & Medicaid Services, 
  Department of Health and Human Services...................         414

[[Page 3]]



                    CHAPTER IV--CENTERS FOR MEDICARE
                          & MEDICAID SERVICES,
                        DEPARTMENT OF HEALTH AND
                             HUMAN SERVICES




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter IV appear at 62 FR 
46037, Aug. 29, 1997; 66 FR 39452, July 31, 2001; and 67 FR 36540, May 
24, 2002.

                    SUBCHAPTER A--GENERAL PROVISIONS
Part                                                                Page
414             Payment for Part B medical and other health 
                    services................................           5
415             Services furnished by physicians in 
                    providers, supervising physicians in 
                    teaching settings, and residents in 
                    certain settings........................          57
416             Ambulatory surgical services................          74
417             Health maintenance organizations, 
                    competitive medical plans, and health 
                    care prepayment plans...................          85
418             Hospice care................................         171
419             Prospective payment system for hospital 
                    outpatient department services..........         192
420             Program integrity: Medicare.................         205
421             Intermediaries and carriers.................         216
422             Medicare advantage program..................         228
423             Voluntary medicare prescription drug benefit         346
424             Conditions for Medicare payment.............         452
426             Review of national coverage determinations 
                    and local coverage determinations.......         495

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                     SUBCHAPTER A_GENERAL PROVISIONS



PART 414_PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES--Table of Contents




                      Subpart A_General Provisions

Sec.
414.1 Basis and scope.
414.2 Definitions.
414.4 Fee schedule areas.

              Subpart B_Physicians and Other Practitioners

414.20 Formula for computing fee schedule amounts.
414.21 Medicare payment basis.
414.22 Relative value units (RVUs).
414.24 Review, revision, and addition of RVUs for physician services.
414.26 Determining the GAF.
414.28 Conversion factors.
414.30 Conversion factor update.
414.32 Determining payments for certain physicians' services furnished 
          in facility settings.
414.34 Payment for services and supplies incident to a physician's 
          service.
414.36 Payment for drugs incident to a physician's service.
414.39 Special rules for payment of care plan oversight.
414.40 Coding and ancillary policies.
414.42 Adjustment for first 4 years of practice.
414.44 Transition rules.
414.46 Additional rules for payment of anesthesia services.
414.48 Limits on actual charges of nonparticipating suppliers.
414.50 Physician billing for purchased diagnostic tests.
414.52 Payment for physician assistants' services.
414.54 Payment for certified nurse-midwives' services.
414.56 Payment for nurse practitioners' and clinical nurse specialists' 
          services.
414.58 Payment of charges for physician services to patients in 
          providers.
414.60 Payment for the services of CRNAs.
414.62 Fee schedule for clinical psychologist services.
414.63 Payment for outpatient diabetes self-management training.
414.64 Payment for medical nutrition therapy.
414.65 Payment for telehealth services.
414.66 Incentive payments for physician scarcity areas.
414.67 Incentive payments for Health Professional Shortage Areas.

   Subpart C_Fee Schedules for Parenteral and Enteral Nutrition (PEN) 
                    Nutrients, Equipment and Supplies

414.100 Purpose.
414.102 General payment rules.
414.104 PEN Items and Services.

   Subpart D_Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices

414.200 Purpose.
414.202 Definitions.
414.210 General payment rules.
414.220 Inexpensive or routinely purchased items.
414.222 Items requiring frequent and substantial servicing.
414.224 Customized items.
414.226 Oxygen and oxygen equipment.
414.228 Prosthetic and orthotic devices.
414.229 Other durable medical equipment--capped rental items.
414.230 Determining a period of continuous use.
414.232 Special payment rules for transcutaneous electrical nerve 
          stimulators (TENS).

  Subpart E_Determination of Reasonable Charges Under the ESRD Program

414.300 Scope of subpart.
414.310 Determination of reasonable charges for physician services 
          furnished to renal dialysis patients.
414.313 Initial method of payment.
414.314 Monthly capitation payment method.
414.316 Payment for physician services to patients in training for self-
          dialysis and home dialysis.
414.320 Determination of reasonable charges for physician renal 
          transplantation services.
414.330 Payment for home dialysis equipment, supplies, and support 
          services.
414.335 Payment for EPO furnished to a home dialysis patient for use in 
          the home.

  Subpart F_Competitive Bidding for Certain Durable Medical Equipment, 
              Prosthetics, Orthotics, and Supplies (DMEPOS)

414.400-414.404 [Reserved]
414.406 Implementation of programs.
414.408-414.426 [Reserved]

[[Page 6]]

Subpart G [Reserved]



              Subpart H_Fee Schedule for Ambulance Services

414.601 Purpose.
414.605 Definitions.
414.610 Basis of payment.
414.615 Transition to the ambulance fee schedule.
414.617 Transition from regional to national ambulance fee schedule.
414.620 Publication of the ambulance fee schedule.
414.625 Limitation on review.

               Subpart I_Payment for Drugs and Biologicals

414.701 Purpose.
414.704 Definitions.
414.707 Basis of payment.

     Subpart J_Submission of Manufacturer's Average Sales Price Data

414.800 Purpose.
414.802 Definitions.
414.804 Basis of payment.
414.806 Penalties associated with the failure to submit timely and 
          accurate ASP data.

        Subpart K_Payment for Drugs and Biologicals Under Part B

414.900 Basis and scope.
414.902 Definitions.
414.904 Average sales price as the basis for payment.
414.906 Competitive acquisition program as the basis for payment.
414.908 Competitive acquisition program.
414.910 Bidding process.
414.912 Conflicts of interest.
414.914 Terms of contract.
414.916 Dispute resolution for vendors and beneficiaries.
414.917 Dispute resolution and process for suspension or termination of 
          approved CAP contract.
414.918 Assignment.
414.920 Judicial review.

                 Subpart L_Supplying and Dispensing Fees

414.1000 Purpose.
414.1001 Basis of Payment.

    Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social Security 
Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).

    Source: 55 FR 23441, June 8, 1990, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 414 appear at 60 FR 
50442, Sept. 29, 1995, and 60 FR 53877, Oct. 18, 1995.



                      Subpart A_General Provisions



Sec. 414.1  Basis and scope.

    This part implements the following provisions of the Act:

    1802--Rules for private contracts by Medicare beneficiaries.
    1833--Rules for payment for most Part B services.
    1834(a) and (h)--Amounts and frequency of payments for durable 
medical equipment and for prosthetic devices and orthotics and 
prosthetics.
    1834(l)--Establishment of a fee schedule for ambulance services.
    1834(m)--Rules for Medicare reimbursement for telehealth services.
    1842(o)--Rules for payment of certain drugs and biologicals.
    1847(a) and (b)--Competitive bidding for certain durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS).
    1848--Fee schedule for physician services.
    1881(b)--Rules for payment for services to ESRD beneficiaries.
    1887--Payment of charges for physician services to patients in 
providers.

[67 FR 9132, Feb. 27, 2002, as amended at 69 FR 1116, Jan. 7, 2004; 71 
FR 48409, Aug. 18, 2006]



Sec. 414.2  Definitions.

    As used in this part, unless the context indicates otherwise--
    AA stands for anesthesiologist assistant.
    AHPB stands for adjusted historical payment basis.
    CF stands for conversion factor.
    CRNA stands for certified registered nurse anesthetist.
    CY stands for calendar year.
    FY stands for fiscal year.
    GAF stands for geographic adjustment factor.
    GPCI stands for geographic practice cost index.
    HCPCS stands for CMS Common Procedure Coding System.
    Physician services means the following services to the extent that 
they are covered by Medicare:
    (1) Professional services of doctors of medicine and osteopathy 
(including osteopathic practitioners), doctors of optometry, doctors of 
podiatry, doctors

[[Page 7]]

of dental surgery and dental medicine, and chiropractors.
    (2) Supplies and services covered ``incident to'' physician services 
(excluding drugs as specified in Sec. 414.36).
    (3) Outpatient physical and occupational therapy services if 
furnished by a person or an entity that is not a Medicare provider of 
services as defined in Sec. 400.202 of this chapter.
    (4) Diagnostic x-ray tests and other diagnostic tests (excluding 
diagnostic laboratory tests paid under the fee schedule established 
under section 1833(h) of the Act).
    (5) X-ray, radium, and radioactive isotope therapy, including 
materials and services of technicians.
    (6) Antigens, as described in section 1861(s)(2)(G) of the Act.
    (7) Bone mass measurement.
    RVU stands for relative value unit.
    (8) Screening mammography services.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
58 FR 63686, Dec. 2, 1993; 59 FR 63463, Dec. 8, 1994; 60 FR 63177, Dec. 
8, 1995; 63 FR 34328, June 24, 1998; 66 FR 55322, Nov. 1, 2001]



Sec. 414.4  Fee schedule areas.

    (a) General. CMS establishes physician fee schedule areas that 
generally conform to the geographic localities in existence before 
January 1, 1992.
    (b) Changes. CMS announces proposed changes to fee schedule areas in 
the Federal Register and provides an opportunity for public comment. 
After considering public comments, CMS publishes the final changes in 
the Federal Register.

[59 FR 63463, Dec. 8, 1994]



              Subpart B_Physicians and Other Practitioners

    Source: 56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, 
unless otherwise noted.



Sec. 414.20  Formula for computing fee schedule amounts.

    (a) Participating supplier. The fee schedule amount for a 
participating supplier for a physician service as defined in Sec. 414.2 
is computed as the product of the following amounts:
    (1) The RVUs for the service.
    (2) The GAF for the fee schedule area.
    (3) The CF.
    (b) Nonparticipating supplier. The fee schedule amount for a 
nonparticipating supplier for a physician service as defined in Sec. 
414.2 is 95 percent of the fee schedule amount as calculated in 
paragraph (a) of this section.

[62 FR 59101, Oct. 31, 1997]



Sec. 414.21  Medicare payment basis.

    Medicare payment is based on the lesser of the actual charge or the 
applicable fee schedule amount.

[62 FR 59101, Oct. 31, 1997]



Sec. 414.22  Relative value units (RVUs).

    CMS establishes RVUs for physicians' work, practice expense, and 
malpractice insurance.
    (a) Physician work RVUs--(1) General rule. Physician work RVUs are 
established using a relative value scale in which the value of physician 
work for a particular service is rated relative to the value of work for 
other physician services.
    (2) Special RVUs for anesthesia and radiology services)--(i) 
Anesthesia services. The rules for determining RVUs for anesthesia 
services are set forth in Sec. 414.46.
    (ii) Radiology services. CMS bases the RVUs for all radiology 
services on the relative value scale developed under section 
1834(b)(1)(A) of the Act, with appropriate modifications to ensure that 
the RVUs established for radiology services that are similar or related 
to other physician services are consistent with the RVUs established for 
those similar or related services.
    (b) Practice expense RVUs. (1) Practice expense RVUs are computed 
for each service or class of service by applying average historical 
practice cost percentages to the estimated average allowed charge during 
the 1991 base period.
    (2) The average practice expense percentage for a service or class 
of services is computed as follows:
    (i) Multiply the average practice expense percentage for each 
specialty by the proportion of a particular service or class of service 
performed by that specialty.

[[Page 8]]

    (ii) Add the products for all specialties.
    (3) For services furnished beginning calendar year (CY) 1994, for 
which 1994 practice expense RVUs exceed 1994 work RVUs and that are 
performed in office settings less than 75 percent of the time, the 1994, 
1995, and 1996 practice expense RVUs are reduced by 25 percent of the 
amount by which they exceed the number of 1994 work RVUs. Practice 
expense RVUs are not reduced to less than 128 percent of 1994 work RVUs.
    (4) For services furnished beginning January 1, 1998, practice 
expense RVUs for certain services are reduced to 110 percent of the work 
RVUs for those services. The following two categories of services are 
excluded from this limitation:
    (i) The service is provided more than 75 percent of the time in an 
office setting; or
    (ii) The service is one described in section 1848(c)(2)(G)(v) of the 
Act, codified at 42 U.S.C. 1395w-4(c)(2)(G). Section 1848(c)(2)(G)(v) of 
the Act refers to the 1998 proposed resource-based practice expense RVUs 
(as specified in the June 18, 1997 physician fee schedule proposed rule 
(62 FR 33158)) for the specific site, either in-office or out-of-office, 
increased from its 1997 practice expense RVUs.)
    (5) For services furnished beginning January 1, 1999, the practice 
expense RVUs are based on 75 percent of the practice expense RVUs 
applicable to services furnished in 1998 and 25 percent of the relative 
practice expense resources involved in furnishing the service. For 
services furnished in 2000, the practice expense RVUs are based on 50 
percent of the practice expense RVUs applicable to services furnished in 
1998 and 50 percent of the relative practice expense resources involved 
in furnishing the service. For services furnished in 2001, the practice 
expense RVUs are based on 25 percent of the practice expense RVUs 
applicable to services furnished in 1998 and 75 percent of the relative 
practice expense resources involved in furnishing the service. For 
services furnished in 2002 and subsequent years, the practice expense 
RVUs are based entirely on relative practice expense resources.
    (i) Usually there are two levels of practice expense RVUs that 
correspond to each code.
    (A) Facility practice expense RVUs. The lower facility practice 
expense RVUs apply to services furnished to patients in the hospital, 
skilled nursing facility, community mental health center, or in an 
ambulatory surgical center when the physician performs procedures on the 
ASC approved procedures list. (The facility practice expense RVUs for a 
particular code may not be greater than the non-facility RVUs for the 
code.)
    (B) Non-facility practice expense RVUs. The higher non-facility 
practice expense RVUs apply to services performed in a physician's 
office, a patient's home, an ASC if the physician is performing a 
procedure not on the ASC approved procedures list, a nursing facility, 
or a facility or institution other than a hospital or skilled nursing 
facility, community mental health center, or ASC performing an ASC 
approved procedure.
    (C) Outpatient therapy services. Outpatient therapy services billed 
under the physician fee schedule are paid using the non-facility 
practice expense RVU component.
    (ii) Only one practice expense RVU per code can be applied for each 
of the following services: services that have only technical component 
practice expense RVUs or only professional component practice expense 
RVUs; evaluation and management services, such as hospital or nursing 
facility visits, that are furnished exclusively in one setting; and 
major surgical services.
    (6)(i) CMS establishes criteria for supplemental surveys regarding 
specialty practice expenses submitted to CMS that may be used in 
determining practice expense RVUs.
    (ii) Any CMS-designated specialty group may submit a supplemental 
survey.
    (iii) CMS will consider for use in determining practice expense RVUs 
for the physician fee schedule survey data and related materials 
submitted to CMS by March 1, 2004 to determine CY 2005 practice expense 
RVUs and by March 1, 2005 to determine CY 2006 practice expense RVUs.

[[Page 9]]

    (c) Malpractice insurance RVUs. (1) Malpractice insurance RVUs are 
computed for each service or class of services by applying average 
malpractice insurance historical practice cost percentages to the 
estimated average allowed charge during the 1991 base period.
    (2) The average historical malpractice insurance percentage for a 
service or class of services is computed as follows:
    (i) Multiply the average malpractice insurance percentage for each 
specialty by the proportion of a particular service or class of services 
performed by that specialty.
    (ii) Add all the products for all the specialties.
    (3) For services furnished in the year 2000 and subsequent years, 
the malpractice RVUs are based on the relative malpractice insurance 
resources.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42493, Sept. 15, 1992; 
58 FR 63687, Dec. 2, 1993; 62 FR 59102, Oct. 31, 1997; 63 FR 58910, Nov. 
2, 1998; 64 FR 59441, Nov. 2, 1999; 65 FR 25668, May 3, 2000; 65 FR 
65440, Nov. 1, 2000; 67 43558, June 28, 2002; 68 FR 63261, Nov. 7, 2003]



Sec. 414.24  Review, revision, and addition of RVUs for physician services.

    (a) Interim values for new and revised HCPCS level 1 and level 2 
codes. (1) CMS establishes interim RVUs for new services and for codes 
for which definitions have changed.
    (2) CMS publishes a notice in the Federal Register to announce 
interim RVUs and seek public comment on them. The RVUs are effective 
prospectively for services furnished beginning on the effective date 
specified in the notice.
    (3) After considering public comments, CMS revises, if necessary, 
the interim RVUs and announces those revisions in a final notice 
published in the Federal Register. Any revisions in the RVUs are 
effective prospectively for services furnished beginning on the 
effective date specified in the final notice.
    (b) Revision of RVUs for established HCPCS level 1 and level 2 
codes. (1) CMS publishes a proposed notice in the Federal Register to 
announce changes in RVUs for established codes and provides an 
opportunity for public comment no less often than every 5 years.
    (2) After considering public comments, CMS publishes a final notice 
in the Federal Register to announce revisions to RVUs.
    (3) The RVU revisions are effective prospectively for services 
furnished beginning on the effective date specified in the final notice.
    (c) Values for local codes (HCPCS Level 3). (1) Carriers establish 
relative values for local codes for services not included in HCPCS 
levels 1 or 2.
    (2) Carriers must obtain prior approval from CMS to establish local 
codes for services that meet the definition of ``physician services'' in 
Sec. 414.2.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992]



Sec. 414.26  Determining the GAF.

    CMS establishes a GAF for each service in each fee schedule area.
    (a) Geographic indices. CMS uses the following indices to establish 
the GAF:
    (1) An index that reflects one-fourth of the difference between the 
relative value of physicians' work effort in each of the different fee 
schedule areas as determined under Sec. 414.22(a) and the national 
average of that work effort.
    (2) An index that reflects the relative costs of the mix of goods 
and services comprising practice expenses (other than malpractice 
expenses) in each of the different fee schedule areas as determined 
under Sec. 414.22(b) compared to the national average of those costs.
    (3) An index that reflects the relative costs of malpractice 
expenses in each of the different fee schedule areas as determined under 
Sec. 414.22(c) compared to the national average of those costs.
    (b) Class-specific practice cost indices. If the application of a 
single index to different classes of services would be substantially 
inequitable because of differences in the mix of goods and services 
comprising practice expenses for the different classes of services, more 
than one index may be established under paragraph (a)(2) of this 
section.
    (c) Computation of GAF. The GAF for each fee schedule area is the 
sum of the physicians' work adjustment factor,

[[Page 10]]

the practice expense adjustment factor, and the malpractice cost 
adjustment factor, as defined in this section:
    (1) The geographic physicians' work adjustment factor for a service 
is the product of the proportion of the total relative value for the 
service that reflects the RVUs for the work component and the geographic 
physicians' work index value established under paragraph (a)(1) of this 
section.
    (2) The geographic practice expense adjustment factor for a service 
is the product of the proportion of the total relative value for the 
service that reflects the RVUs for the practice expense component, 
multiplied by the geographic practice cost index (GPCI) value 
established under paragraph (a)(2) of this section.
    (3) The geographic malpractice adjustment factor for a service is 
the product of the proportion of the total relative value for the 
service that reflects the RVUs for the malpractice component, multiplied 
by the GPCI value established under paragraph (a)(3) of this section.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992]



Sec. 414.28  Conversion factors.

    CMS establishes CFs in accordance with section 1848(d) of the Act.
    (a) Base-year CFs. CMS established the CF for 1992 so that had 
section 1848 of the Act applied during 1991, it would have resulted in 
the same aggregate amount of payments for physician services as the 
estimated aggregate amount of these payments in 1991, adjusted by the 
update for 1992 computed as specified in Sec. 414.30.
    (b) Subsequent CFs. For calendar years 1993 through 1995, the CF for 
each year is equal to the CF for the previous year, adjusted in 
accordance with Sec. 414.30. Beginning January 1, 1996, the CF for each 
calendar year may be further adjusted so that adjustments to the fee 
schedule in accordance with section 1848(c)(2)(B)(ii) of the Act do not 
cause total expenditures under the fee schedule to differ by more than 
$20 million from the amount that would have been spent if these 
adjustments had not been made.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
60 FR 53877, Oct. 18, 1995; 60 FR 63177, Dec. 8, 1995]



Sec. 414.30  Conversion factor update.

    Unless Congress acts in accordance with section 1848(d)(3) of the 
Act--
    (a) General rule. The CF update for a CY equals the Medicare 
Economic Index increased or decreased by the number of percentage points 
by which the percentage increase in expenditures for physician services 
(or for a particular category of physician services, such as surgical 
services) in the second preceding FY over the third preceding FY exceeds 
the performance standard rate of increase established for the second 
preceding FY.
    (b) Downward adjustment. The downward adjustment may not exceed the 
following:
    (1) For CYs 1992 and 1993, 2 percentage points.
    (2) For CY 1994, 2.5 percentage points.
    (3) For CYs 1995 and thereafter, 5 percentage points.

[55 FR 23441, June 8, 1990, as amended at 60 FR 63177, Dec. 8, 1995; 61 
FR 42385, Aug. 15, 1996]



Sec. 414.32  Determining payments for certain physicians' services furnished in facility settings.

    (a) Definition. As used in this section, facility settings include 
the following facilities:
    (1) Hospital outpatient departments, including clinics and emergency 
rooms.
    (2) Hospital inpatient departments.
    (3) Comprehensive outpatient rehabilitation facilities.
    (4) Comprehensive inpatient rehabilitation facilities.
    (5) Inpatient psychiatric facilities.
    (6) Skilled nursing facilities.
    (b) General rule. If physicians' services of the type routinely 
furnished in physicians' offices are furnished in facility settings 
before January 1, 1999, the physician fee schedule amount for those 
services is determined by reducing the practice expense RVUs for the 
services by 50 percent. For services furnished on or after January 1, 
1999, the practice expense RVUs are determined in accordance with Sec. 
414.22(b)(5).

[[Page 11]]

    (c) Services covered by the reduction. CMS establishes a list of 
services routinely furnished in physicians' offices nationally. Services 
furnished at least 50 percent of the time in physicians' offices are 
subject to this reduction.
    (d) Services excluded from the reduction. The reduction established 
under this section does not apply to the following:
    (1) Rural health clinic services.
    (2) Surgical services not on the ambulatory surgical center covered 
list of procedures published under Sec. 416.65(c) of this chapter when 
furnished in an ambulatory surgical center.
    (3) Anesthesiology services and diagnostic and therapeutic radiology 
services.

[58 FR 63687, Dec. 2, 1993, as amended at 60 FR 63177, Dec. 8, 1995; 62 
FR 59102, Oct. 31, 1997; 63 FR 58911, Nov. 2, 1998; 64 FR 25457, May 12, 
1999]



Sec. 414.34  Payment for services and supplies incident to a physician's service.

    (a) Medical supplies. (1) Except as otherwise specified in this 
paragraph, office medical supplies are considered to be part of a 
physician's practice expense, and payment for them is included in the 
practice expense portion of the payment to the physician for the medical 
or surgical service to which they are incidental.
    (2) If physician services of the type routinely furnished in 
provider settings are furnished in a physician's office, separate 
payment may be made for certain supplies furnished incident to that 
physician service if the following requirements are met:
    (i) It is a procedure that can safely be furnished in the office 
setting in appropriate circumstances.
    (ii) It requires specialized supplies that are not routinely 
available in physicians' offices and that are generally disposable.
    (iii) It is furnished before January 1, 1999.
    (3) For the purpose of paragraph (a)(2) of this section, provider 
settings include only the following settings:
    (i) Hospital inpatient and outpatient departments.
    (ii) Ambulatory surgical centers.
    (4) For the purpose of paragraph (a)(2) of this section, ``routinely 
furnished in provider settings'' means furnished in inpatient or 
outpatient hospital settings or ambulatory surgical centers more than 50 
percent of the time.
    (5) CMS establishes a list of services for which a separate supply 
payment may be made under this section.
    (6) The fee schedule amount for supplies billed separately is not 
subject to a GPCI adjustment.
    (b) Services of nonphysicians that are incident to a physician's 
service. Services of nonphysicians that are covered as incident to a 
physician's service are paid as if the physician had personally 
furnished the service.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 58911, Nov. 2, 1998]



Sec. 414.36  Payment for drugs incident to a physician's service.

    Payment for drugs incident to a physician's service is made in 
accordance with Sec. 405.517 of this chapter.



Sec. 414.39  Special rules for payment of care plan oversight.

    (a) General. Except as specified in paragraphs (b) and (c) of this 
section, payment for care plan oversight is included in the payment for 
visits and other services under the physician fee schedule. For purposes 
of this section a nonphysician practitioner (NPP) is a nurse 
practitioner, clinical nurse specialist or physician assistant.
    (b) Exception. Separate payment is made under the following 
conditions for physician care plan oversight services furnished to 
beneficiaries who receive HHA and hospice services that are covered by 
Medicare:
    (1) The care plan oversight services require recurrent physician 
supervision of therapy involving 30 or more minutes of the physician's 
time per month.
    (2) Payment is made to only one physician per patient for services 
furnished during a calendar month period. The physician must have 
furnished a service requiring a face-to-face encounter with the patient 
at least once during the 6-month period before the month for which care 
plan oversight payment is first billed. The physician may not

[[Page 12]]

have a significant ownership interest in, or financial or contractual 
relationship with, the HHA in accordance with Sec. 424.22(d) of this 
chapter. The physician may not be the medical director or employee of 
the hospice and may not furnish services under an arrangement with the 
hospice.
    (3) If a physician furnishes care plan oversight services during a 
postoperative period, payment for care plan oversight services is made 
if the services are documented in the patient's medical record as 
unrelated to the surgery.
    (c) Special rules for payment of care plan oversight provided by 
nonphysician practitioners for beneficiaries who receive HHA services 
covered by Medicare. (1) An NPP can furnish physician care plan 
oversight (but may not certify a patient as needing home health 
services) only if the physician who signs the plan of care provides 
regular ongoing care under the same plan of care as does the NPP billing 
for care plan oversight and either--
    (i) The physician and NPP are part of the same group practice; or
    (ii) If the NPP is a nurse practitioner or clinical nurse 
specialist, the physician signing the plan of care also has a 
collaborative agreement with the NPP; or
    (iii) If the NPP is a physician assistant, the physician signing the 
plan of care is also the physician who provides general supervision of 
physician assistant services for the practice.
    (2) Payment may be made for care plan oversight services furnished 
by an NPP when:
    (i) The NPP providing the care plan oversight has seen and examined 
the patient;
    (ii) The NPP providing care plan oversight is not functioning as a 
consultant whose participation is limited to a single medical condition 
rather than multi-disciplinary coordination of care; and
    (iii) The NPP providing care plan oversight integrates his or her 
care with that of the physician who signed the plan of care.

[59 FR 63463, Dec. 8, 1994; 60 FR 49, Jan. 3, 1995; 60 FR 36733, July 
18, 1995 as amended at 69 FR 66423, Nov. 15, 2004; 70 FR 16722, Apr. 1, 
2005]



Sec. 414.40  Coding and ancillary policies.

    (a) General rule. CMS establishes uniform national definitions of 
services, codes to represent services, and payment modifiers to the 
codes.
    (b) Specific types of policies. CMS establishes uniform national 
ancillary policies necessary to implement the fee schedule for physician 
services. These include, but are not limited to, the following policies:
    (1) Global surgery policy (for example, post- and pre-operative 
periods and services, and intra-operative services).
    (2) Professional and technical components (for example, payment for 
services, such as an EEG, which typically comprise a technical component 
(the taking of the test) and a professional component (the 
interpretation)).
    (3) Payment modifiers (for example, assistant-at-surgery, multiple 
surgery, bilateral surgery, split surgical global services, team 
surgery, and unusual services).



Sec. 414.42  Adjustment for first 4 years of practice.

    (a) General rule. For services furnished during CYs 1992 and 1993, 
except as specified in paragraph (b) of this section, the fee schedule 
payment amount or prevailing charge must be phased in as specified in 
paragraph (d) of this section for physicians, physical therapists (PTs), 
occupational therapists (OTs), and all other health care practitioners 
who are in their first through fourth years of practice.
    (b) Exception. The reduction required in paragraph (d) of this 
section does not apply to primary care services or to services furnished 
in a rural area as defined in section 1886(d)(2)(D) of the Act that is 
designated under section 332(a)(1)(A) of the Public Health Service Act 
as a Health Professional Shortage Area.
    (c) Definition of years of practice. (1) The ``first year of 
practice`` is the first full CY during the first 6 months of which the 
physician, PT, OT, or other health care practitioner furnishes 
professional services for which payment may be made under Medicare Part 
B, plus any portion of the prior CY if that prior year does not meet the 
first 6 months test.

[[Page 13]]

    (2) The ``second, third, and fourth years of practice`` are the 
first, second, and third CYs following the first year of practice, 
respectively.
    (d) Amounts of adjustment. The fee schedule payment for the service 
of a new physician, PT, OT, or other health care practitioner is limited 
to the following percentages for each of the indicated years:
    (1) First year--80 percent
    (2) Second year--85 percent
    (3) Third year--90 percent
    (4) Fourth year--95 percent

[57 FR 42493, Sept. 15, 1992, as amended at 58 FR 63687, Dec. 2, 1993]



Sec. 414.44  Transition rules.

    (a) Adjusted historical payment basis--(1) All services other than 
radiology and nuclear medicine services. For all physician services 
other than radiology services, furnished in a fee schedule area, the 
adjusted historical payment basis (AHPB) is the estimated weighted 
average prevailing charge applied in the fee schedule area for the 
service in CY 1991, as determined by CMS without regard to physician 
specialty and as adjusted to reflect payments for services below the 
prevailing charge, adjusted by the update established for CY 1992.
    (2) Radiology services. For radiology services, the AHPB is the 
amount paid for the service in the fee schedule area in CY 1991 under 
the fee schedule established under section 1834(b), adjusted by the 
update established for CY 1992.
    (3) Nuclear medicine services. For nuclear medicine services, the 
AHPB is the amount paid for the service in the fee schedule area in CY 
1991 under the fee schedule established under section 6105(b) of Public 
Law 101-239 and section 4102(g) of Public Law 101-508, adjusted by the 
update established for CY 1992.
    (4) Transition adjustment. CMS adjusts the AHPB for all services by 
5.5 percent to produce budget-neutral payments for 1992.
    (b) Adjustment of 1992 payments for physician services other than 
radiology services. For physician services furnished during CY 1992 the 
following rules apply:
    (1) If the AHPB determined under paragraph (a) of this section is 
from 85 percent to 115 percent of the fee schedule amount for the area 
for services furnished in 1992, payment is at the fee schedule amount.
    (2) If the AHPB determined under paragraph (a) of this section is 
less than 85 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB plus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (3) If the AHPB determined under paragraph (a) of this section is 
greater than 115 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB minus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (c) Adjustment of 1992 payments for radiology services. For 
radiology services furnished during CY 1992 the following rules apply:
    (1) If the AHPB determined under paragraph (a) of this section is 
from 85 percent to 109 percent of the fee schedule amount for the area 
for services furnished in 1992, payment is at the fee schedule amount.
    (2) If the AHPB determined under paragraph (a) of this section is 
less than 85 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB plus 15 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (3) If the AHPB determined under paragraph (a) of this section is 
greater than 109 percent of the fee schedule amount for the area for 
services furnished in 1992, an amount equal to the AHPB minus 9 percent 
of the fee schedule amount is substituted for the fee schedule amount.
    (d) Computation of payments for CY 1993. For physician services 
subject to the transition rules in CY 1992 and furnished during CY 1993, 
the fee schedule is equal to 75 percent of the amount that would have 
been paid in the fee schedule area under the 1992 transition rules, 
adjusted by the amount of the 1993 update, plus 25 percent of the 1993 
fee schedule amount.
    (e) Computation of payments for CY 1994. For physician services 
subject to the transition rules in CY 1993, and furnished during CY 
1994, the fee schedule

[[Page 14]]

is equal to 67 percent of the amount that would have been paid in the 
fee schedule area under the 1993 transition rules, adjusted by the 
amount of the 1994 update, plus 33 percent of the 1994 fee schedule 
amount.
    (f) Computation of payments for CY 1995. For physician services 
subject to the transition rules in CY 1994 and furnished during CY 1995, 
the fee schedule is equal to 50 percent of the amount that would have 
been paid in the fee schedule area under the 1994 transition rules, 
adjusted by the amount of the 1995 update, plus 50 percent of the 1995 
fee schedule amount.



Sec. 414.46  Additional rules for payment of anesthesia services.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Base unit means the value for each anesthesia code that reflects 
all activities other than anesthesia time. These activities include 
usual preoperative and postoperative visits, the administration of 
fluids and blood incident to anesthesia care, and monitoring services.
    (2) Anesthesia practitioner, for the purpose of anesthesia time, 
means a physician who performs the anesthesia service alone, a CRNA who 
is not medically directed who performs the anesthesia service alone, or 
a medically directed CRNA.
    (3) Anesthesia time means the time during which an anesthesia 
practitioner is present with the patient. It starts when the anesthesia 
practitioner begins to prepare the patient for anesthesia services and 
ends when the anesthesia practitioner is no longer furnishing anesthesia 
services to the beneficiary, that is, when the beneficiary may be placed 
safely under postoperative care. Anesthesia time is a continuous time 
period from the start of anesthesia to the end of an anesthesia service. 
In counting anesthesia time, the anesthesia practitioner can add blocks 
of anesthesia time around an interruption in anesthesia time as long as 
the anesthesia practitioner is furnishing continuous anesthesia care 
within the time periods around the interruption.
    (b) Determinations of payment amount--Basic rule. For anesthesia 
services performed, medically directed, or medically supervised by a 
physician, CMS pays the lesser of the actual charge or the anesthesia 
fee schedule amount.
    (1) The carrier bases the fee schedule amount for an anesthesia 
service on the product of the sum of allowable base and time units and 
an anesthesia-specific CF. The carrier calculates the time units from 
the anesthesia time reported by the anesthesia practitioner for the 
anesthesia procedure. The physician who fulfills the conditions for 
medical direction in Sec. 415.110 (Conditions for payment: 
Anesthesiology services) reports the same anesthesia time as the 
medically-directed CRNA.
    (2) CMS furnishes the carrier with the base units for each 
anesthesia procedure code. The base units are derived from the 1988 
American Society of Anesthesiologists' Relative Value Guide except that 
the number of base units recognized for anesthesia services furnished 
during cataract or iridectomy surgery is four units.
    (3) Modifier units are not allowed. Modifier units include 
additional units charged by a physician or a CRNA for patient health 
status, risk, age, or unusual circumstances.
    (c) Physician personally performs the anesthesia procedure. (1) CMS 
considers an anesthesia service to be personally performed under any of 
the following circumstances:
    (i) The physician performs the entire anesthesia service alone.
    (ii) The physician establishes an attending physician relationship 
in one or two concurrent cases involving an intern or resident and the 
service was furnished before January 1, 1994.
    (iii) The physician establishes an attending physician relationship 
in one case involving an intern or resident and the service was 
furnished on or after January 1, 1994 but prior to January 1, 1996. For 
services on or after January 1, 1996, the physician must be the teaching 
physician as defined in Sec. Sec. 415.170 through 415.184 of this 
chapter.
    (iv) The physician and the CRNA or AA are involved in a single case 
and

[[Page 15]]

the services of each are found to be medically necessary.
    (v) The physician is continuously involved in a single case 
involving a student nurse anesthetist.
    (vi) The physician is continuously involved in a single case 
involving a CRNA or AA and the service was furnished prior to January 1, 
1998.
    (2) CMS determines the fee schedule amount for an anesthesia service 
personally performed by a physician on the basis of an anesthesia-
specific fee schedule CF and unreduced base units and anesthesia time 
units. One anesthesia time unit is equivalent to 15 minutes of 
anesthesia time, and fractions of a 15-minute period are recognized as 
fractions of an anesthesia time unit.
    (d) Anesthesia services medically directed by a physician. (1) CMS 
considers an anesthesia service to be medically directed by a physician 
if:
    (i) The physician performs the activities described in Sec. 415.110 
of this chapter.
    (ii) The physician directs qualified individuals involved in two, 
three, or four concurrent cases.
    (iii) Medical direction can occur for a single case furnished on or 
after January 1, 1998 if the physician performs the activities described 
in Sec. 415.110 of this chapter and medically directs a single CRNA or 
AA.
    (2) The rules for medical direction differ for certain time periods 
depending on the nature of the qualified individual who is directed by 
the physician. If more than two procedures are directed on or after 
January 1, 1994, the qualified individuals could be AAs, CRNAs, interns, 
or residents. The medical direction rules apply to student nurse 
anesthetists only if the physician directs two concurrent cases, each of 
which involves a student nurse anesthetist or the physician directs one 
case involving a student nurse anesthetist and the other involving a 
CRNA, AA, intern, or resident.
    (3) Payment for medical direction is based on a specific percentage 
of the payment allowance recognized for the anesthesia service 
personally performed by a physician alone. The following percentages 
apply for the years specified:
    (i) CY 1994--60 percent of the payment allowance for personally 
performed procedures.
    (ii) CY 1995--57.5 percent of the payment allowance for personally 
performed services.
    (iii) CY 1996--55 percent of the payment allowance for personally 
performed services.
    (iv) CY 1997--52.5 percent of the payment allowance for personally 
performed services.
    (v) CY 1998 and thereafter--50 percent of the payment allowance for 
personally performed services.
    (e) Physicians involved with two concurrent cases with residents. 
The physician can bill base units and time units based on the amount of 
time the physician is actually present with the resident during each of 
two concurrent cases furnished on or after January 1, 2004.
    (1) To bill the base units, the physician must be present with the 
resident during the pre- and post-anesthesia care included in the base 
units.
    (2) If the physician is not present with the resident during pre- 
and post-anesthesia care, then the physician may bill the case as a 
medically directed case in accordance with paragraph (d) of this 
section.
    (f) Physician medically supervises anesthesia services. If the 
physician medically supervises more than four concurrent anesthesia 
services, CMS bases the fee schedule amount on an anesthesia-specific CF 
and three base units. This represents payment for the physician's 
involvement in the pre-surgical anesthesia services.
    (g) Payment for medical or surgical services furnished by a 
physician while furnishing anesthesia services. (1) CMS allows separate 
payment under the fee schedule for certain reasonable and medically 
necessary medical or surgical services furnished by a physician while 
furnishing anesthesia services to the patient. CMS makes payment for 
these services in accordance with the general physician fee schedule 
rules in Sec. 414.20. These services are described in program operating 
instructions.
    (2) CMS makes no separate payment for other medical or surgical 
services, such as the pre-anesthetic examination of the patient, pre- or 
post-operative

[[Page 16]]

visits, or usual monitoring functions, that are ordinarily included in 
the anesthesia service.
    (h) Physician involved in multiple anesthesia services. If the 
physician is involved in multiple anesthesia services for the same 
patient during the same operative session, the carrier makes payment 
according to the base unit associated with the anesthesia service having 
the highest base unit value and anesthesia time that encompasses the 
multiple services. The carrier makes payment for add-on anesthesia codes 
according to program operating instructions.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
58 FR 63687, Dec. 2, 1993; 60 FR 63177, Dec. 8, 1995; 64 FR 59441, Nov. 
2, 1999; 67 FR 80041, Dec. 31, 2002; 68 FR 63261, Nov. 7, 2003]



Sec. 414.48  Limits on actual charges of nonparticipating suppliers.

    (a) General rule. A supplier, as defined in Sec. 400.202 of this 
chapter, who is nonparticipating and does not accept assignment may 
charge a beneficiary an amount up to the limiting charge described in 
paragraph (b) of this section.
    (b) Specific limits. For items or services paid under the physician 
fee schedule, the limiting charge is 115 percent of the fee schedule 
amount for nonparticipating suppliers. For items or services CMS 
excludes from payment under the physician fee schedule (in accordance 
with section 1848 (j)(3) of the Act), the limiting charge is 115 percent 
of 95 percent of the payment basis applicable to participating suppliers 
as calculated in Sec. 414.20(b).

[58 FR 63687, Dec. 2, 1993, as amended at 62 FR 59102, Oct. 31, 1997]



Sec. 414.50  Physician billing for purchased diagnostic tests.

    (a) General rule. For services covered under section 1861(s)(3) of 
the Act and paid for under this part 414 subpart A, if a physician bills 
for a diagnostic test performed by an outside supplier, the payment to 
the physician less the applicable deductibles and coinsurance may not 
exceed the lowest of the following amounts:
    (1) The supplier's net charge to the physician.
    (2) The physician's actual charge.
    (3) The fee schedule amount for the test that would be allowed if 
the supplier billed directly.
    (b) Restriction on payment. The physician must identify the supplier 
and indicate the supplier's net charge for the test. If the physician 
fails to provide this information, CMS makes no payment to the physician 
and the physician may not bill the beneficiary.
    (1) Physicians who accept Medicare assignment may bill beneficiaries 
for only the applicable deductibles and coinsurance.
    (2) Physicians who do not accept Medicare assignment may not bill 
the beneficiary more than the payment amount described in paragraph (a) 
of this section.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 34328, June 24, 1998]



Sec. 414.52  Payment for physician assistants' services.

    Allowed amounts for the services of a physician assistant furnished 
beginning January 1, 1992 and ending December 31, 1997, may not exceed 
the limits specified in paragraphs (a) through (c) of this section. 
Allowed amounts for the services of a physician assistant furnished 
beginning January 1, 1998, may not exceed the limits specified in 
paragraph (d) of this section.
    (a) For assistant-at-surgery services, 65 percent of the amount that 
would be allowed under the physician fee schedule if the assistant-at-
surgery service was furnished by a physician.
    (b) For services (other than assistant-at-surgery services) 
furnished in a hospital, 75 percent of the physician fee schedule amount 
for the service.
    (c) For all other services, 85 percent of the physician fee schedule 
amount for the service.
    (d) For services (other than assistant-at-surgery services) 
furnished beginning January 1, 1998, 85 percent of the physician fee 
schedule amount for the service. For assistant-at-surgery services, 85 
percent of the physician fee schedule amount that would be allowed under 
the physician fee schedule if the

[[Page 17]]

assistant-at-surgery service were furnished by a physician.

[56 FR 59624, Nov. 25, 1991; 57 FR 42492, Sept. 15, 1992, as amended at 
63 FR 58911, Nov. 2, 1998]



Sec. 414.54  Payment for certified nurse-midwives' services.

    For services furnished after December 31, 1991, allowed amounts 
under the fee schedule established under section 1833(a)(1)(K) of the 
Act for the payment of certified nurse-midwife services may not exceed 
65 percent of the physician fee schedule amount for the service.



Sec. 414.56  Payment for nurse practitioners' and clinical nurse specialists' services.

    (a) Rural areas. For services furnished beginning January 1, 1992 
and ending December 31, 1997, allowed amounts for the services of a 
nurse practitioner or a clinical nurse specialist in a rural area (as 
described in section 1861(s)(2)(K)(iii) of the Act) may not exceed the 
following limits:
    (1) For services furnished in a hospital (including assistant-at-
surgery services), 75 percent of the physician fee schedule amount for 
the service.
    (2) For all other services, 85 percent of the physician fee schedule 
amount for the service.
    (b) Non-rural areas. For services furnished beginning January 1, 
1992 and ending December 31, 1997, allowed amounts for the services of a 
nurse practitioner or a clinical nurse specialist in a nursing facility 
may not exceed 85 percent of the physician fee schedule amount for the 
service.
    (c) Beginning January 1, 1998. For services (other than assistant-
at-surgery services) furnished beginning January 1, 1998, allowed 
amounts for the services of a nurse practitioner or clinical nurse 
specialist may not exceed 85 percent of the physician fee schedule 
amount for the service. For assistant-at-surgery services, allowed 
amounts for the services of a nurse practitioner or clinical nurse 
specialist may not exceed 85 percent of the physician fee schedule 
amount that would be allowed under the physician fee schedule if the 
assistant-at-surgery service were furnished by a physician.

[63 FR 58911, Nov. 2, 1998]



Sec. 414.58  Payment of charges for physician services to patients in providers.

    (a) Payment under the physician fee schedule. In addition to the 
special conditions for payment in Sec. Sec. 415.100 through 415.130, 
and Sec. 415.190 of this chapter, CMS establishes payment for physician 
services to patients in providers under the physician fee schedule in 
accordance with Sec. Sec. 414.1 through 414.48.
    (b) Teaching hospitals. Services furnished by physicians in teaching 
hospitals may be made on a reasonable cost basis set forth in Sec. 
415.162 of this chapter if the hospital exercises the election described 
in Sec. 415.160 of this chapter.

[56 FR 59624, Nov. 25, 1991, as amended at 57 FR 42492, Sept. 15, 1992; 
60 FR 63189, Dec. 8, 1995]



Sec. 414.60  Payment for the services of CRNAs.

    (a) Basis for payment. The allowance for the anesthesia service 
furnished by a CRNA, medically directed or not medically directed, is 
based on allowable base and time units as defined in Sec. 414.46(a). 
Beginning with CY 1994--
    (1) The allowance for an anesthesia service furnished by a medically 
directed CRNA is based on a fixed percentage of the allowance recognized 
for the anesthesia service personally performed by the physician alone, 
as specified in Sec. 414.46(d)(3); and
    (2) The CF for an anesthesia service furnished by a CRNA not 
directed by a physician may not exceed the CF for a service personally 
performed by a physician.
    (b) To whom payment may be made. Payment for an anesthesia service 
furnished by a CRNA may be made to the CRNA or to any individual or 
entity (such as a hospital, critical access hospital, physician, group 
practice, or ambulatory surgical center) with which the CRNA has an 
employment or contract relationship that provides for payment to be made 
to the individual or entity.
    (c) Condition for payment. Payment for the services of a CRNA may be 
made only on an assignment related basis, and any assignment accepted by 
a CRNA is binding on any other person

[[Page 18]]

presenting a claim or request for payment for the service.

[60 FR 63178, Dec. 8, 1995, as amended at 62 FR 46037, Aug. 29, 1997; 64 
FR 59441, Nov. 2, 1999]



Sec. 414.62  Fee schedule for clinical psychologist services.

    The fee schedule for clinical psychologist services is set at 100 
percent of the amount determined for corresponding services under the 
physician fee schedule.

[62 FR 59102, Oct. 31, 1997]



Sec. 414.63  Payment for outpatient diabetes self-management training.

    (a) Payment under the physician fee schedule. Except as provided in 
paragraph (d) of this section, payment for outpatient diabetes self-
management training is made under the physician fee schedule in 
accordance with Sec. Sec. 414.1 through 414.48.
    (b) To whom payment may be made. Payment may be made to an entity 
approved by CMS to furnish outpatient diabetes self-management training 
in accordance with part 410, subpart H of this chapter.
    (c) Limitation on payment. Payment may be made for training sessions 
actually attended by the beneficiary and documented on attendance 
sheets.
    (d) Payments made to those not paid under the physician fee 
schedule. Payments may be made to other entities not routinely paid 
under the physician fee schedule, such as hospital outpatient 
departments, ESRD facilities, and DME suppliers. The payment equals the 
amounts paid under the physician fee schedule.
    (e) Other conditions for fee-for-service payment. The beneficiary 
must meet the following conditions:
    (1) Has not previously received initial training for which Medicare 
payment was made under this benefit.
    (2) Is not receiving services as an inpatient in a hospital, SNF, 
hospice, or nursing home.
    (3) Is not receiving services as an outpatient in an RHC or FQHC.

[65 FR 83153, Dec. 29, 2000]



Sec. 414.64  Payment for medical nutrition therapy.

    (a) Payment under the physician fee schedule. Medicare payment for 
medical nutrition therapy is made under the physician fee schedule in 
accordance with subpart B of this part. Payment to non-physician 
professionals, as specified in paragraph (b) of this section, is the 
lesser of the actual charges or 80 percent of 85 percent of the 
physician fee schedule amount.
    (b) To whom payment may be made. Payment may be made to a registered 
dietician or nutrition professional qualified to furnish medical 
nutrition therapy in accordance with part 410, subpart G of this 
chapter.
    (c) Effective date of payment. Medicare pays suppliers of medical 
nutrition therapy on or after the effective date of enrollment of the 
supplier at the carrier.
    (d) Limitation on payment. Payment is made only for documented 
nutritional therapy sessions actually attended by the beneficiary.
    (e) Other conditions for fee-for-service payment. Payment is made 
only if the beneficiary:
    (1) Is not an inpatient of a hospital, SNF, nursing home, or 
hospice.
    (2) Is not receiving services in an RHC, FQHC or ESRD dialysis 
facility.

[66 FR 55332, Nov. 1, 2001]



Sec. 414.65  Payment for telehealth services.

    (a) Professional service. Medicare payment for the professional 
service via an interactive telecommunications system is made according 
to the following limitations:
    (1) The Medicare payment amount for office or other outpatient 
visits, consultation, individual psychotherapy, psychiatric diagnostic 
interview examination, pharmacologic management, end stage renal disease 
related services included in the monthly capitation payment (except for 
one visit per month to examine the access site), and individual medical 
nutrition therapy furnished via an interactive telecommunications system 
is equal to the current fee schedule amount applicable for the service 
of the physician or practitioner.

[[Page 19]]

    (2) Only the physician or practitioner at the distant site may bill 
and receive payment for the professional service via an interactive 
telecommunications system.
    (3) Payments made to the physician or practitioner at the distant 
site, including deductible and coinsurance, for the professional service 
may not be shared with the referring practitioner or telepresenter.
    (b) Originating site facility fee. For telehealth services furnished 
on or after October 1, 2001:
    (1) For services furnished on or after October 1, 2001 through 
December 31, 2002, the payment amount to the originating site is the 
lesser of the actual charge or the originating site facility fee of $20. 
For services furnished on or after January 1 of each subsequent year, 
the facility fee for the originating site will be updated by the 
Medicare Economic Index (MEI) as defined in section 1842(i)(3) of the 
Act.
    (2) Only the originating site may bill for the originating site 
facility fee and only on an assignment-related basis. The distant site 
physician or practitioner may not bill for or receive payment for 
facility fees associated with the professional service furnished via an 
interactive telecommunications system.
    (c) Deductible and coinsurance apply. The payment for the 
professional service and originating site facility fee is subject to the 
coinsurance and deductible requirements of sections 1833(a)(1) and (b) 
of the Act.
    (d) Assignment required for physicians, practitioners, and 
originating sites. Payment to physicians, practitioners, and originating 
sites is made only on an assignment-related basis.
    (e) Sanctions. A distant site practitioner or originating site 
facility may be subject to the applicable sanctions provided for in 
chapter IV, part 402 and chapter V, parts 1001, 1002, and 1003 of this 
title if he or she does any of the following:
    (1) Knowingly and willfully bills or collects for services in 
violation of the limitation of this section.
    (2) Fails to timely correct excess charges by reducing the actual 
charge billed for the service in an amount that does not exceed the 
limiting charge for the service or fails to timely refund excess 
collections.
    (3) Fails to submit a claim on a standard form for services provided 
for which payment is made on a fee schedule basis.
    (4) Imposes a charge for completing and submitting the standard 
claims form.

[66 FR 55332, Nov. 1, 2001, as amended at 67 FR 80041, Dec. 31, 2003; 69 
FR 66424, Nov. 15, 2004; 70 FR 70332, Nov. 21, 2005]



Sec. 414.66  Incentive payments for physician scarcity areas.

    (a) Definition. As used in this section, the following definitions 
apply.
    Physician scarcity area is defined as an area with a shortage of 
primary care physicians or specialty physicians to the Medicare 
population in that area.
    Primary care physician is defined as a general practitioner, family 
practice practitioner, general internist, obstetrician or gynecologist.
    (b) Physicians' services furnished to a beneficiary in a Physician 
Scarcity Area (PSA) for primary or specialist care are eligible for a 5 
percent incentive payment.
    (c) Primary care physicians furnishing services in primary care PSAs 
are entitled to an additional 5 percent incentive payment above the 
amount paid under the physician fee schedule for their professional 
services furnished on or after January 1, 2005 and before January 1, 
2008.
    (d) Physicians, as defined in section 1861(r)(1) of the Act, 
furnishing services in specialist care PSAs are entitled to an 
additional 5 percent payment above the amount paid under the physician 
fee schedule for their professional services furnished on or after 
January 1, 2005 and before January 1, 2008.

[69 FR 66424, Nov. 15, 2004]



Sec. 414.67  Incentive payments for Health Professional Shortage Areas.

    (a) Physicians' services furnished to a beneficiary in a geographic-
based Health Professional Shortage Area (HPSA) are eligible for a 10 
percent incentive payment above the amount paid for their professional 
services under the physician fee schedule.

[[Page 20]]

    (b) Physicians furnishing services in a geographic-based primary 
medical care HPSA are entitled to a 10 percent incentive payment above 
the amount paid for their professional services under the physician fee 
schedule.
    (c) Psychiatrists furnishing services in a mental health HPSA are 
entitled to a 10 percent incentive payment above the amount paid for 
their professional services under the physician fee schedule. (The only 
physicians eligible to receive the 10 percent incentive payment in 
mental health HPSAs that do not overlap with primary care HPSAs are 
psychiatrists.)

[69 FR 66424, Nov. 15, 2004]



   Subpart C_Fee Schedules for Parenteral and Enteral Nutrition (PEN) 
                    Nutrients, Equipment and Supplies

    Source: 66 FR 45176, Aug. 28, 2001, unless otherwise noted.



Sec. 414.100  Purpose.

    This subpart implements fee schedules for PEN items and services as 
authorized by section 1842(s) of the Act.



Sec. 414.102  General payment rules.

    (a) General rule. For items and services furnished on or after 
January 1, 2002, Medicare pays for the items and services as described 
in paragraph (b) of this section on the basis of 80 percent of the 
lesser of--
    (1) The actual charge for the item or service; or
    (2) The fee schedule amount for the item or service, as determined 
in accordance with Sec. Sec. 414.104.
    (b) Payment classification. (1) CMS or the carrier determines fee 
schedules for Parenteral and enteral nutrition (PEN) nutrients, 
equipment, and supplies, as specified in Sec. 414.104.
    (2) CMS designates the specific items and services in each category 
through program instructions.
    (c) Updating the fee schedule amounts. For each year subsequent to 
2002, the fee schedule amounts of the preceding year are updated by the 
percentage increase in the CPI-U for the 12-month period ending with 
June of the preceding year.



Sec. 414.104  PEN Items and Services.

    (a) Payment Rules. Payment for PEN items and services is made in a 
lump sum for nutrients and supplies that are purchased and on a monthly 
basis for equipment that is rented.
    (b) Fee schedule amount. The fee schedule amount for payment for an 
item or service furnished in 2002 is the lesser of--
    (i) The reasonable charge from 1995; or
    (ii) The reasonable charge that would have been used in determining 
payment for 2002.



   Subpart D_Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices



Sec. 414.200  Purpose.

    This subpart implements sections 1834 (a) and (h) of the Act by 
specifying how payments are made for the purchase or rental of new and 
used durable medical equipment and prosthetic and orthotic devices for 
Medicare beneficiaries.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.202  Definitions.

    For purposes of this subpart, the following definitions apply:
    Covered item update means the percentage increase in the consumer 
price index for all urban consumers (U.S. city average) (CPI-U) for the 
12-month period ending with June of the previous year.
    Durable medical equipment means equipment, furnished by a supplier 
or a home health agency that--
    (1) Can withstand repeated use;
    (2) Is primarily and customarily used to serve a medical purpose;
    (3) Generally is not useful to an individual in the absence of an 
illness or injury; and
    (4) Is appropriate for use in the home. (See Sec. 410.38 of this 
chapter for a description of when an institution qualifies as a home.)
    Prosthetic and orthotic devices means--
    (1) Devices that replace all or part of an internal body organ, 
including ostomy bags and supplies directly related to ostomy care, and 
replacement of such devices and supplies;

[[Page 21]]

    (2) One pair of conventional eyeglasses or contact lenses furnished 
subsequent to each cataract surgery with insertion of an intraocular 
lens; and
    (3) Leg, arm, back, and neck braces, and artificial legs, arms, and 
eyes, including replacements if required because of a change in the 
beneficiary's physical condition.

The following are neither prosthetic nor orthotic devices--
    (1) Parenteral and enteral nutrients, supplies, and equipment;
    (2) Intraocular lenses;
    (3) Medical supplies such as catheters, catheter supplies, ostomy 
bags, and supplies related to ostomy care that are furnished by an HHA 
as part of home health services under Sec. 409.40(e) of this chapter;
    (4) Dental prostheses.
    Region means those carrier service areas administered by CMS 
regional offices.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.210  General payment rules.

    (a) General rule. For items furnished on or after January 1, 1989, 
except as provided in paragraphs (c) and (d) of this section, Medicare 
pays for durable medical equipment, prosthetics and orthotics, including 
a separate payment for maintenance and servicing of the items as 
described in paragraph (e) of this section, on the basis of 80 percent 
of the lesser of--
    (1) The actual charge for the item;
    (2) The fee schedule amount for the item, as determined in 
accordance with the provisions of Sec. Sec. 414.220 through 414.232.
    (b) Payment classification. (1) The carrier determines fee schedules 
for the following classes of equipment and devices:
    (i) Inexpensive or routinely purchased items, as specified in Sec. 
414.220.
    (ii) Items requiring frequent and substantial servicing, as 
specified in Sec. 414.222.
    (iii) Certain customized items, as specified in Sec. 414.224.
    (iv) Oxygen and oxygen equipment, as specified in Sec. 414.226.
    (v) Prosthetic and orthotic devices, as specified in Sec. 414.228.
    (vi) Other durable medical equipment (capped rental items), as 
specified in Sec. 414.229.
    (vii) Transcutaneous electrical nerve stimulators (TENS), as 
specified in Sec. 414.232.
    (2) CMS designates the items in each class of equipment or device 
through its program instructions.
    (c) Exception for certain HHAs. Public HHAs and HHAs that furnish 
services or items free-of-charge or at nominal prices to a significant 
number of low-income patients, as defined in Sec. 413.13(a) of this 
chapter, are paid on the basis of 80 percent of the fee schedule amount 
determined in accordance with the provision of Sec. Sec. 414.220 
through 414.230.
    (d) Prohibition on special limits. For items furnished on or after 
January 1, 1989 and before January 1, 1991, neither CMS nor a carrier 
may establish a special reasonable charge for items covered under this 
subpart on the basis of inherent reasonableness as described in Sec. 
405.502(g) of this chapter.
    (e) Maintenance and servicing--(1) General rule. Except as provided 
in paragraph (e)(2) of this section, the carrier pays the reasonable and 
necessary charges for maintenance and servicing of purchased equipment. 
Reasonable and necessary charges are those made for parts and labor not 
otherwise covered under a manufacturer's or supplier's warranty. Payment 
is made, as needed, in a lump sum based on the carrier's consideration 
of the item. Payment is not made for maintenance and servicing of a 
rented item other than the maintenance and servicing fee for other 
durable medical equipment, as described in Sec. 414.229(e).
    (2) Exception. For items purchased on or after June 1, 1989, no 
payment is made under the provisions of paragraph (e)(1) of this section 
for the maintenance and servicing of:
    (i) Items requiring frequent and substantial servicing, as defined 
in Sec. 414.222(a);
    (ii) Capped rental items, as defined in Sec. 414.229(a), that are 
not purchased in accordance with Sec. 414.229(d); and
    (iii) Oxygen equipment, as defined in Sec. 414.226.
    (f) Replacement of equipment. Except as provided in Sec. 
414.229(g), if a purchased item of DME or a prosthetic or

[[Page 22]]

orthotic device paid for under this subpart has been in continuous use 
by the patient for the equipment's reasonable useful lifetime or if the 
carrier determines that the item is lost or irreparably damaged, the 
patient may elect to obtain a new piece of equipment.
    (1) The reasonable useful lifetime of DME or prosthetic and orthotic 
devices is determined through program instructions. In the absence of 
program instructions, carriers may determine the reasonable useful 
lifetime of equipment but in no case can it be less than 5 years. 
Computation is based on when the equipment is delivered to the 
beneficiary, not the age of the equipment.
    (2) If the beneficiary elects to obtain replacement equipment, 
payment is made on a purchase basis.

[57 FR 57689, Dec. 7, 1992]



Sec. 414.220  Inexpensive or routinely purchased items.

    (a) Definitions. (1) Inexpensive equipment means equipment the 
average purchase price of which did not exceed $150 during the period 
July 1986 through June 1987.
    (2) Routinely purchased equipment means equipment that was acquired 
by purchase on a national basis at least 75 percent of the time during 
the period July 1986 through June 1987.
    (3) Accessories. Effective January 1, 1994, accessories used in 
conjunction with a nebulizer, aspirator, or ventilator excluded from 
Sec. 414.222 meet the definitions of ``inexpensive equipment'' and 
``routinely purchased equipment'' in paragraphs (a)(1) and (a)(2) of 
this section, respectively.
    (b) Payment rules. (1) Subject to the limitation in paragraph (b)(3) 
of this section, payment for inexpensive and routinely purchased items 
is made on a rental basis or in a lump sum amount for purchase of the 
item based on the applicable fee schedule amount.
    (2) Effective January 1, 1994, payment for ostomy supplies, 
tracheostomy supplies, urologicals, and surgical dressings not furnished 
as incident to a physician's professional service or furnished by an HHA 
is made using the methodology for the inexpensive and routinely 
purchased class.
    (3) The total amount of payments made for an item may not exceed the 
fee schedule amount recognized for the purchase of that item.
    (c) Fee schedule amount for 1989 and 1990. The fee schedule amount 
for payment of purchase or rental of inexpensive or routinely purchased 
items furnished in 1989 and 1990 is the local payment amount determined 
as follows:
    (1) The carrier determines the average reasonable charge for 
inexpensive or routinely purchased items that were furnished during the 
period July 1, 1986 through June 30, 1987 based on the mean of the 
carrier's allowed charges for the item. A separate determination of an 
average reasonable charge is made for rental equipment, new purchased 
equipment, and used purchased equipment.
    (2) The carrier adjusts the amount determined under paragraph (c)(1) 
of this section by the change in the level of the CPI-U for the 6-month 
period ending December 1987.
    (d) Updating the local payment amounts for years after 1990. For 
each year subsequent to 1990, the local payment amounts of the preceding 
year are increased or decreased by the covered item update. For 1991 and 
1992, the covered item update is reduced by 1 percentage point.
    (e) Calculating the fee schedule amounts for years after 1990. For 
years after 1990, the fee schedule amounts are equal to the national 
limited payment amount.
    (f) Calculating the national limited payment amount. The national 
limited payment amount is computed as follows:
    (1) The 1991 national limited payment amount is equal to:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts;
    (ii) The sum of 67 percent of the local payment amount plus 33 
percent of the weighted average of all local payment amounts if the 
local payment amount exceeds the weighted average of all local payment 
amounts; or
    (iii) The sum of 67 percent of the local payment amount plus 33 
percent of 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent

[[Page 23]]

of the weighted average of all local payment amounts.
    (2) The 1992 national limited payment amount is equal to:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts;
    (ii) The sum of 33 percent of the local payment amount plus 67 
percent of the weighted average of all local payment amounts if the 
local payment amount exceeds the weighted average; or
    (iii) The sum of 33 percent of the local payment amount plus 67 
percent of 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average.
    (3) For 1993, the national limited payment amount is equal to one of 
the following:
    (i) 100 percent of the local payment amount if the local payment 
amount is neither greater than the weighted average nor less than 85 
percent of the weighted average of all local payment amounts.
    (ii) 100 percent of the weighted average of all local payment 
amounts if the local payment amount exceeds the weighted average of all 
local payment amounts.
    (iii) 85 percent of the weighted average of all local payment 
amounts if the local payment amount is less than 85 percent of the 
weighted average of all local payment amounts.
    (4) For 1994 and subsequent years, the national limited payment 
amount is equal to one of the following:
    (i) If the local payment amount is not in excess of the median, nor 
less than 85 percent of the median, of all local payment amounts--100 
percent of the local payment amount.
    (ii) If the local payment amount exceeds the median--100 percent of 
the median of all local payment amounts.
    (iii) If the local payment amount is less than 85 percent of the 
median--85 percent of the median of all local payment amounts.
    (g) Payment for surgical dressings. For surgical dressings furnished 
after December 31, 1993, the national limited payment amount is computed 
based on local payment amounts using average reasonable charges for the 
12-month period ending December 31, 1992, increased by the covered item 
updates for 1993 and 1994.

[57 FR 57689, Dec. 7, 1992, as amended at 60 FR 35497, July 10, 1995]



Sec. 414.222  Items requiring frequent and substantial servicing.

    (a) Definition. Items requiring frequent and substantial servicing 
in order to avoid risk to the beneficiary's health are the following:
    (1) Ventilators (except those that are either continuous airway 
pressure devices or respiratory assist devices with bi-level pressure 
capability with or without a backup rate, previously referred to as 
``intermittent assist devices with continuous airway pressure 
devices'').
    (2) Continuous and intermittent positive pressure breathing 
machines.
    (3) Continuous passive motion machines.
    (4) Other items specified in CMS program instructions.
    (5) Other items identified by the carrier.
    (b) Payment rule. Rental payments for items requiring frequent and 
substantial servicing are made on a monthly basis, and continue until 
medical necessity ends.
    (c) Fee schedule amount for 1989 and 1990. The fee schedule amount 
for items requiring frequent and substantial servicing is the local 
payment amount determined as follows:
    (1) The carrier determines the average reasonable charge for rental 
of items requiring frequent and substantial servicing that were 
furnished during the period July 1, 1986 through June 30, 1987 based on 
the mean of the carrier's allowed charges for the item.
    (2) The carrier adjusts the amounts determined under paragraph 
(c)(1) of this section by the change in the level of the CPI-U for the 
6-month period ending December 1987.
    (d) Updating the fee schedule amounts for years after 1990. For 
years after 1990, the fee schedules are determined using the methodology 
contained in paragraphs (d), (e), and (f) of Sec. 414.220.
    (e) Transition to other payment classes. For purposes of calculating 
the 15-

[[Page 24]]

month rental period, beginning January 1, 1994, if an item has been paid 
for under the frequent and substantial servicing class and is 
subsequently paid for under another payment class, the rental period 
begins with the first month of continuous rental, even if that period 
began before January 1, 1994. For example, if the rental period began on 
July 1, 1993, the carrier must use this date as beginning the first 
month of rental. Likewise, for purposes of calculating the 10-month 
purchase option, the rental period begins with the first month of 
continuous rental without regard to when that period started. For 
example, if the rental period began in August 1993, the 10-month 
purchase option must be offered to the beneficiary in May 1994, the 
tenth month of continuous rental.

[57 FR 57690, Dec. 7, 1992, as amended at 60 FR 35497, July 10, 1995; 71 
FR 4525, Jan. 27, 2006]



Sec. 414.224  Customized items.

    (a) Criteria for a customized item. To be considered a customized 
item for payment purposes under paragraph (b) of this section, a covered 
item (including a wheelchair) must be uniquely constructed or 
substantially modified for a specific beneficiary according to the 
description and orders of a physician and be so different from another 
item used for the same purpose that the two items cannot be grouped 
together for pricing purposes.
    (b) Payment rule. Payment is made on a lump sum basis for the 
purchase of a customized item based on the carrier's individual 
consideration and judgment of a reasonable payment amount for each 
customized item. The carrier's individual consideration takes into 
account written documentation on the costs of the item including at 
least the cost of labor and materials used in customizing an item.

[56 FR 65998, Dec. 20, 1991, as amended at 58 FR 34919, June 30, 1993]



Sec. 414.226  Oxygen and oxygen equipment.

    (a) Payment rules. (1) Payment for rental of oxygen equipment and 
purchase of oxygen contents is made based on a monthly fee schedule 
amount.
    (2) Monthly fee schedule payments continue until medical necessity 
ends.
    (b) Monthly fee schedule amount. (1) Monthly fee schedule amounts 
are separately calculated for the following items:
    (i) Stationary oxygen equipment and oxygen contents (stationary and 
portable oxygen contents).
    (ii) Portable oxygen equipment only.
    (iii) Stationary and portable oxygen contents only.
    (iv) Portable oxygen contents only.
    (2) For 1989 and 1990, the monthly fee schedule amounts are the 
local payment amounts determined as follows:
    (i) The carrier determines the base local average monthly payment 
rate equal to the total reasonable charges for the item for the 12-month 
period ending December 1986 divided by the total number of months for 
all beneficiaries receiving the item for the same period. In determining 
the local average monthly payment rate, the following limitations apply:
    (A) Purchase charges for oxygen systems are not included as items 
classified under paragraph (b)(1)(i) of this section.
    (B) Purchase charges for portable equipment are not included as 
items classified under paragraph (b)(1)(ii) of this section.
    (ii) The carrier determines the local monthly payment amount equal 
to 0.95 times the base local average monthly payment amount adjusted by 
the change in the CPI-U for the six-month period ending December 1987.
    (3) For years after 1990, the fee schedule amounts are determined 
using the methodology contained in Sec. 414.220 (d), (e), and (f).
    (c) Application of monthly fee schedule amounts. (1) The fee 
schedule amount for items described in paragraph (b)(1)(i) of this 
section is paid when the beneficiary rents a stationary oxygen system.
    (2) Subject to the limitation set forth in paragraph (d)(2) of this 
section, the fee schedule amount for items described in paragraph 
(b)(1)(ii) of this section is paid when the beneficiary rents a portable 
oxygen system.
    (3) The fee schedule amount for items described in paragraph 
(b)(1)(iii) of this section is paid when the beneficiary

[[Page 25]]

owns a stationary gaseous or liquid oxygen system.
    (4) The fee schedule amount for items described in paragraph 
(b)(1)(iv) of this section is paid when the beneficiary owns or rents a 
portable gaseous or portable liquid oxygen system and uses either a 
stationary oxygen concentrator or no stationary oxygen system.
    (d) Volume adjustments: (1) The fee schedule amount for an item 
described in paragraph (b)(1)(i) of this section is adjusted as follows:
    (i) If the attending physician prescribes an oxygen flow rate 
exceeding four liters per minute, the fee schedule amount is increased 
by 50 percent, subject to the limit in paragraph (d)(2) of this section.
    (ii) If the attending physician prescribes an oxygen flow rate of 
less than one liter per minute, the fee schedule amount is decreased by 
50 percent.
    (2) If portable oxygen equipment is used and the prescribed oxygen 
flow rate exceeds four liters per minute, the total fee schedule amount 
recognized for payment is limited to the higher of--
    (i) The sum of the monthly fee schedule amount for the items 
described in paragraphs (b)(1)(i) and (ii) of this section; or
    (ii) The adjusted fee schedule amount described in paragraph 
(d)(1)(i) of this section.
    (3) In establishing the volume adjustment for those beneficiaries 
whose physicians prescribe varying flow rates, the following rules 
apply:
    (i) If the prescribed flow rate is different for stationary oxygen 
equipment than for portable oxygen equipment, the flow rate for the 
stationary equipment is used.
    (ii) If the prescribed flow rate is different for the patient at 
rest than for the patient at exercise, the flow rate for the patient at 
rest is used.
    (iii) If the prescribed flow rate is different for nighttime use and 
daytime use, the average of the two flow rates is used.

[57 FR 57690, Dec. 7, 1992]



Sec. 414.228  Prosthetic and orthotic devices.

    (a) Payment rule. Payment is made on a lump-sum basis for prosthetic 
and orthotic devices subject to this subpart.
    (b) Fee schedule amounts. The fee schedule amount for prosthetic and 
orthotic devices is determined as follows:
    (1) The carrier determines a base local purchase price equal to the 
average reasonable charge for items purchased during the period July 1, 
1986 through June 30, 1987 based on the mean of the carrier's allowed 
charges for the item.
    (2) The carrier determines a local purchase price equal to the 
following:
    (i) For 1989 and 1990, the base local purchase price is adjusted by 
the change in the level of the CPI-U for the 6-month period ending 
December 1987.
    (ii) For 1991 through 1993, the local purchase price for the 
preceding year is adjusted by the applicable percentage increase for the 
year. The applicable percentage increase is equal to 0 percent for 1991. 
For 1992 and 1993, the applicable percentage increase is equal to the 
percentage increase in the CPI-U for the 12-month period ending with 
June of the previous year.
    (iii) For 1994 and 1995, the applicable percentage increase is 0 
percent.
    (iv) For all subsequent years the applicable percentage increase is 
equal to the percentage increase in the CPI-U for the 12-month period 
ending with June of the previous year.
    (3) CMS determines the regional purchase price equal to the 
following:
    (i) For 1992, the average (weighted by the relative volume of all 
claims among carriers) of the local purchase prices for the carriers in 
the region.
    (ii) For 1993 and subsequent years, the regional purchase price for 
the preceding year adjusted by the applicable percentage increase for 
the year.
    (4) CMS determines a purchase price equal to the following:
    (i) For 1989, 1990 and 1991, 100 percent of the local purchase 
price.
    (ii) For 1992, 75 percent of the local purchase price plus 25 
percent of the regional purchase price.
    (iii) For 1993, 50 percent of the local purchase price plus 50 
percent of the regional purchase price.
    (iv) For 1994 and subsequent years, 100 percent of the regional 
purchase price.

[[Page 26]]

    (5) For 1992 and subsequent years, CMS determines a national average 
purchase price equal to the unweighted average of the purchase prices 
determined under paragraph (b)(4) of this section for all carriers.
    (6) CMS determines the fee schedule amount equal to 100 percent of 
the purchase price determined under paragraph (b)(4) of this section, 
subject to the following limitations:
    (i) For 1992, the amount cannot be greater than 125 percent nor less 
than 85 percent of the national average purchase price determined under 
paragraph (b)(5) of this section.
    (ii) For 1993 and subsequent years, the amount cannot be greater 
than 120 percent of the national average nor less than 90 percent of the 
national average purchase price determined under paragraph (b)(5) of 
this section.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



Sec. 414.229  Other durable medical equipment--capped rental items.

    (a) General payment rule. Subject to the limitation set forth in 
paragraph (b) of this section, payment is made on a rental or purchase 
option basis for other durable medical equipment that is not subject to 
the payment provisions set forth in Sec. Sec. 414.220 through 414.228.
    (b) Fee schedule amounts for rental. (1) For 1989 and 1990, the 
monthly fee schedule amount for rental of other covered durable medical 
equipment equals 10 percent of the purchase price recognized as 
determined under paragraph (c) of this section subject to the following 
limitation: For 1989 and 1990, the fee schedule amount cannot be greater 
than 115 percent nor less than 85 percent of the prevailing charge, as 
determined under Sec. 405.504 of this chapter, established for rental 
of the item in January 1987, as adjusted by the change in the level of 
the CPI-U for the 6-month period ending December 1987.
    (2) For 1991 and subsequent years, the monthly fee schedule amount 
for rental of other covered durable medical equipment equals 10 percent 
of the purchase price recognized as determined under paragraph (c) of 
this section for each of the first 3 months and 7.5 percent of the 
purchase price for each of the remaining months.
    (c) Determination of purchase price. The purchase price of other 
covered durable medical equipment is determined as follows:
    (1) For 1989 and 1990. (i) The carrier determines a base local 
purchase price amount equal to the average of the purchase prices 
submitted on an assignment-related basis of new items supplied during 
the 6-month period ending December 1986.
    (ii) The purchase price is equal to the base local purchase price 
adjusted by the change in the level of the CPI-U for the 6-month period 
ending December 1987.
    (2) For 1991. (i) The local payment amount is the purchase price for 
the preceding year adjusted by the covered item update for 1991 and 
decreased by the percentage by which the average of the reasonable 
charges for claims paid for all other items described in Sec. 414.229, 
is lower than the average of the purchase prices submitted for such 
items during the final 9 months of 1988.
    (ii) The purchase price for 1991 is the national limited payment 
amount as determined using the methodology contained in Sec. 
414.220(f).
    (3) For years after 1991. The purchase price is determined using the 
methodology contained in paragraphs (d) through (f) of Sec. 414.220.
    (d) Purchase option. Suppliers must offer a purchase option to 
beneficiaries during the 10th continuous rental month and, for power-
driven wheelchairs, the purchase option must also be made available at 
the time the equipment is initially furnished.
    (1) Suppliers must offer beneficiaries the option of purchasing 
power-driven wheelchairs at the time the supplier first furnishes the 
item. Payment must be on a lump-sum fee schedule purchase basis if the 
beneficiary chooses the purchase option. The purchase fee is the amount 
established in Sec. 414.229(c).
    (2) Suppliers must offer beneficiaries the option of converting 
capped rental items (including power-driven wheelchairs not purchased 
when initially furnished) to purchased equipment during their 10th 
continuous rental month. Beneficiaries have one month

[[Page 27]]

from the date the supplier makes the offer to accept the purchase 
option.
    (i) If the beneficiary does not accept the purchase option, payment 
continues on a rental basis not to exceed a period of continuous use of 
longer than 15 months. After 15 months of rental payments have been 
paid, the supplier must continue to provide the item without charge, 
other than a charge for maintenance and servicing fees, until medical 
necessity ends or Medicare coverage ceases. A period of continuous use 
is determined under the provisions in Sec. 414.230.
    (ii) If the beneficiary accepts the purchase option, payment 
continues on a rental basis not to exceed a period of continuous use of 
longer than 13 months. On the first day after 13 continuous rental 
months during which payment is made, the supplier must transfer title to 
the equipment to the beneficiary.
    (e) Payment for maintenance and servicing. (1) The carrier 
establishes a reasonable fee for maintenance and servicing for each 
rented item of other durable medical equipment. The fee may not exceed 
10 percent of the purchase price recognized as determined under 
paragraph (c) of this section.
    (2) Payment of the fee for maintenance and servicing of other 
durable medical equipment that is rented is made only for equipment that 
continues to be used after 15 months of rental payments have been made 
and is limited to the following:
    (i) For the first 6-month period, no payments are to be made.
    (ii) For each succeeding 6-month period, payment may be made during 
the first month of that period.
    (3) Payment for maintenance and servicing DME purchased in 
accordance with paragraphs (d)(1) and (d)(2)(ii) of this section, is 
made on the basis of reasonable and necessary charges.
    (f) Transition to the fee schedules. For purposes of computing the 
10-month or 15-month period of continuous use for other durable medical 
equipment, as described in Sec. 414.230, the carrier counts the first 
month that the beneficiary continuously rented the equipment without 
regard to whether that month occurred before January 1, 1989 or after. 
If a beneficiary's 15-month rental period ends prior to January 1, 1989, 
no further purchase or rental payments are to be made except for 
maintenance and servicing of equipment as described in paragraph (e) of 
this section.
    (g) Replacement of equipment. If the item of equipment has been in 
continuous use by the patient on either a rental or purchase basis for 
the equipment's useful lifetime, or if the carrier determines that the 
item is lost or irreparably damaged, the patient may elect to obtain a 
new piece of equipment.
    (1) The reasonable useful lifetime of DME or prosthetic and orthotic 
devices is determined through program instructions. In the absence of 
program instructions, carriers may determine the reasonable useful 
lifetime of equipment but in no case can it be less than 5 years. 
Computation is based on when the equipment is delivered to the 
beneficiary, not the age of the equipment.
    (2) If the beneficiary elects to obtain replacement equipment, 
payment is made on a rental or purchase basis in accordance with 
paragraph (a) of this section or on a lump-sum purchase basis if a 
purchase agreement had been entered into in accordance with paragraph 
(d) of this section.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



Sec. 414.230  Determining a period of continuous use.

    (a) Scope. This section sets forth the rules that apply in 
determining a period of continuous use for rental of durable medical 
equipment.
    (b) Continuous use. A period of continuous use begins with the first 
month of medical need and lasts until a beneficiary's medical need for a 
particular item of durable medical equipment ends.
    (c) Temporary interruption. (1) A period of continuous use allows 
for temporary interruptions in the use of equipment.
    (2) An interruption of not longer than 60 consecutive days plus the 
days remaining in the rental month in which use ceases is temporary, 
regardless of the reason for the interruption.

[[Page 28]]

    (3) Unless there is a break in medical necessity that lasts lnnger 
than 60 consecutive days plus the days remaining in the rental month in 
which use ceases, medical necessity is presumed to continue.
    (d) Criteria for a new rental period. If an interruption in the use 
of equipment continues for more than 60 consecutive days plus the days 
remaining in the rental month in which use ceases, a new rental period 
begins if the supplier submits all of the following information--
    (1) A new prescription.
    (2) New medical necessity documentation.
    (3) A statement describing the reason for the interruption and 
demonstrating that medical necessity in the prior episode ended.
    (e) Beneficiary moves. A permanent or temporary move made by a 
beneficiary does not constitute an interruption in the period of 
continuous use.
    (f) New equipment. If a beneficiary changes equipment or requires 
additional equipment based on a physician's prescription, and the new or 
additional equipment is found to be necessary, a new period of 
continuous use begins for the new or additional equipment. A new period 
of continuous use does not begin for base equipment that is modified by 
an addition.
    (g) New supplier. If a beneficiary changes suppliers, a new period 
of continuous use does not begin.

[56 FR 50823, Oct. 9, 1991, as amended at 57 FR 57111, Dec. 3, 1992]



Sec. 414.232  Special payment rules for transcutaneous electrical nerve stimulators (TENS).

    (a) General payment rule. Except as provided in paragraph (b) of 
this section, payment for TENS is made on a purchase basis with the 
purchase price determined using the methodology for purchase of 
inexpensive or routinely purchased items as described in Sec. 414.220. 
The payment amount for TENS computed under Sec. 414.220(c)(2) is 
reduced according to the following formula:
    (1) Effective April 1, 1990--the original payment amount is reduced 
by 15 percent.
    (2) Effective January 1, 1991--the reduced payment amount in 
paragraph (a)(1) is reduced by 15 percent.
    (3) Effective January 1, 1994--the reduced payment amount in 
paragraph (a)(1) is reduced by 45 percent.
    (b) Exception. In order to permit an attending physician time to 
determine whether the purchase of the TENS is medically appropriate for 
a particular patient, two months of rental payments may be made in 
addition to the purchase price. The rental payments are equal to 10 
percent of the purchase price.

[57 FR 57692, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995]



  Subpart E_Determination of Reasonable Charges Under the ESRD Program



Sec. 414.300  Scope of subpart.

    This subpart sets forth criteria and procedures for payment of the 
following services furnished to ESRD patients:
    (a) Physician services related to renal dialysis.
    (b) Physician services related to renal transplantation.
    (c) Home dialysis equipment, supplies, and support services.
    (d) Epoetin (EPO) furnished by a supplier of home dialysis equipment 
and supplies to a home dialysis patient for use in the home.

[55 FR 23441, June 8, 1990, as amended at 56 FR 43710, Sept. 4, 1991; 59 
FR 1285, Jan. 10, 1994]



Sec. 414.310  Determination of reasonable charges for physician services furnished to renal dialysis patients.

    (a) Principle. Physician services furnished to renal dialysis 
patients are subject to payment if the services are otherwise covered by 
the Medicare program and if they are considered reasonable and medically 
necessary in accordance with section 1862(a)(1)(A) of the Act.
    (b) Scope and applicability--(1) Scope. This section pertains to 
physician services furnished to the following patients:
    (i) Outpatient maintenance dialysis patients who dialyze--

[[Page 29]]

    (A) In an independent or hospital-based ESRD facility, or
    (B) At home.
    (ii) Hospital inpatients for which the physician elects to continue 
payment under the monthly capitation payment (MCP) method described in 
Sec. 414.314.
    (2) Applicability. These provisions apply to routine professional 
services of physicians. They do not apply to administrative services 
performed by physicians, which are paid for as part of a prospective 
payment for dialysis services made to the facility under Sec. 413.170 
of this chapter.
    (c) Definitions. For purposes of this section, the following 
definitions apply:
    Administrative services are physician services that are 
differentiated from routine professional services and other physician 
services because they are supervision, as described in the definition of 
``supervision of staff'' of this section, or are not related directly to 
the care of an individual patient, but are supportive of the facility as 
a whole and of benefit to patients in general. Examples of 
administrative services include supervision of staff, staff training, 
participation in staff conferences and in the management of the 
facility, and advising staff on the procurement of supplies.
    Dialysis session is the period of time that begins when the patient 
arrives at the facility and ends when the patient departs from the 
facility. In the case of home dialysis, the period begins when the 
patient prepares for dialysis and generally ends when the patient is 
disconnected from the machine. In this context, a dialysis facility 
includes only those parts of the building used as a facility. It does 
not include any areas used as a physician's office.
    Medical direction, in contrast to supervision of staff, is a routine 
professional service that entails substantial direct involvement and the 
physical presence of the physician in the delivery of services directly 
to the patient.
    Routine professional services include all physicians' services 
furnished during a dialysis session and all services listed in paragraph 
(d) of this section that meet the following requirements:
    (1) They are personally furnished by a physician to an individual 
patient.
    (2) They contribute directly to the diagnosis or treatment of an 
individual patient.
    (3) They ordinarily must be performed by a physician.
    Supervision of staff, in contrast to medical direction, is an 
administrative service that does not necessarily require the physician 
to be present at the dialysis session. It is a general activity 
primarily concerned with monitoring performance of and giving guidance 
to other health care personnel (such as nurses and dialysis technicians) 
who deliver services to patients.
    (d) Types of routine professional services. Routine professional 
services include at least all of the following services when medically 
appropriate:
    (1) Visits to the patient during dialysis, and review of laboratory 
test results, nurses' notes and any other medical documentation, as a 
basis for--
    (i) Adjustment of the patient's medication or diet, or the dialysis 
procedure;
    (ii) Prescription of medical supplies; and
    (iii) Evaluation of the patient's psychosocial status and the 
appropriateness of the treatment modality.
    (2) Medical direction of staff in delivering services to a patient 
during a dialysis session.
    (3) Pre-dialysis and post-dialysis examinations, or examinations 
that could have been furnished on a pre-dialysis or post-dialysis basis.
    (4) Insertion of catheters for patients who are on peritoneal 
dialysis and do not have indwelling catheters.
    (e) Payment for routine professional services. Beginning August 7, 
1990, routine professional services furnished by physicians may be paid 
under either the ``initial method'' of payment described in Sec. 
414.313, (if all of the physicians at the facility elect the initial 
method) or under the ``physician MCP method'' described in Sec. 
414.314. Physician services furnished after July 31, 1983 and before 
August 6, 1990, are payable only under the MCP method described in Sec. 
414.314.



Sec. 414.313  Initial method of payment.

    (a) Basic rule. Under this method, the intermediary pays the 
facility for routine professional services furnished by

[[Page 30]]

physicians. Payment is in the form of an add-on to the facility's 
composite rate payment, which is described in part 413, subpart H of 
this subchapter.
    (b) Services for which payment is not included in the add-on 
payment. (1) Physician administrative services are considered to be 
facility services and are paid for as part of the facility's composite 
rate.
    (2) The carrier pays the physician or the beneficiary (as 
appropriate) under the reasonable charge criteria set forth in subpart E 
of part 405 of this chapter for the following services:
    (i) Physician services that must be furnished at a time other than 
during the dialysis session (excluding pre-dialysis and post-dialysis 
examinations and examinations that could have been furnished on a pre-
dialysis or post-dialysis basis), such as monthly and semi-annual 
examinations to review health status and treatment.
    (ii) Physician surgical services other than insertion of catheters 
for patients who are on peritoneal dialysis and do not have indwelling 
catheters.
    (iii) Physician services furnished to hospital inpatients who were 
not admitted solely to receive maintenance dialysis.
    (iv) Administration of hepatitis B vaccine.
    (c) Physician election of the initial method. (1) Each physician in 
a facility must submit to the appropriate carrier and intermediary that 
serve the facility a statement of election of the initial method of 
payment for all the ESRD facility patients that he or she attends.
    (2) The initial method of payment applies to dialysis services 
furnished beginning with the second calendar month after the month in 
which all physicians in the facility elect the initial method and 
continues until the effective date of a termination of the election 
described in paragraph (d) of this section.
    (d) Termination of the initial method. (1) Physicians may terminate 
the initial method of payment by written notice to the carrier(s) that 
serves each physician and to the intermediary that serves the facility.
    (2) If the notice terminating the initial method is received by the 
carrier(s) and intermediary--
    (i) On or before November 1, the effective date of the termination 
is January 1 of the year following the calendar year in which the 
termination notice is received by the carrier(s) and intermediary; or
    (ii) After November 1, the effective date of the termination is 
January 1 of the second year after the calendar year in which the notice 
is received by the carrier(s) and intermediary.
    (e) Determination of payment amount. The factors used in determining 
the add-on amount are related to program experience. They are re-
evaluated periodically and may be adjusted, as determined necessary by 
CMS, to maintain the payment at a level commensurate with the prevailing 
charges of other physicians for comparable services.
    (f) Publication of payment amount. Revisions to the add-on amounts 
are published in the Federal Register in accordance with the 
Department's established rulemaking procedures.

[55 FR 23441, June 8, 1990, as amended at 62 FR 43674, Aug. 15, 1997]



Sec. 414.314  Monthly capitation payment method.

    (a) Basic rules. (1) Under the monthly capitation payment (MCP) 
method, the carrier pays an MCP amount for each patient, to cover all 
professional services furnished by the physician, except those listed in 
paragraph (b) of this section.
    (2) The carrier pays the MCP amount, subject to the deductible and 
coinsurance provisions, either to the physician if the physician accepts 
assignment or to the beneficiary if the physician does not accept 
assignment.
    (3) The MCP method recognizes the need of maintenance dialysis 
patients for physician services furnished periodically over relatively 
long periods of time, and the capitation amounts are consistent with 
physicians' charging patterns in their localities.
    (4) Payment of the capitation amount for any particular month is 
contingent upon the physician furnishing to the patient all physician 
services required by the patient during

[[Page 31]]

the month, except those listed in paragraph (b) of this section.
    (5) Payment for physician administrative services (Sec. 414.310) is 
made to the dialysis facility as part of the facility's composite rate 
(part 413, subpart H of this subchapter) and not to the physician under 
the MCP.
    (b) Services not included in the MCP. (1) Services that are not 
included in the MCP and which may be paid in accordance with the 
reasonable charge rules set forth in subpart E of part 405 of this 
chapter are limited to the following:
    (i) Administration of hepatitis B vaccine.
    (ii) Covered physician services furnished by another physician when 
the patient is not available to receive, or the attending physician is 
not available to furnish, the outpatient services as usual (see 
paragraph (b)(3) of this section).
    (iii) Covered physician services furnished to hospital inpatients, 
including services related to inpatient dialysis, by a physician who 
elects not to continue to receive the MCP during the period of inpatient 
stay.
    (iv) Surgical services, including declotting of shunts, other than 
the insertion of catheters for patients on maintenance peritoneal 
dialysis who do not have indwelling catheters.
    (v) Needed physician services that are--
    (A) Furnished by the physician furnishing renal care or by another 
physician;
    (B) Not related to the treatment of the patient's renal condition; 
and
    (C) Not furnished during a dialysis session or an office visit 
required because of the patient's renal condition.
    (2) For the services described in paragraph (b)(1)(v) of this 
section, the following rules apply:
    (i) The physician must provide documentation to show that the 
services are not related to the treatment of the patient's renal 
condition and that additional visits are required.
    (ii) The carrier's medical staff, acting on the basis of the 
documentation and appropriate medical consultation obtained by the 
carrier, determines whether additional payment for the additional 
services is warranted.
    (3) The MCP is reduced in proportion to the number of days the 
patient is--
    (i) Hospitalized and the physician elects to bill separately for 
services furnished during hospitalization; or
    (ii) Not attended by the physician or his or her substitute for any 
reason, including when the physician is not available to furnish patient 
care or when the patient is not available to receive care.
    (c) Determination of payment amount. The amount of payment for the 
MCP is determined under the Medicare physician fee schedule described in 
this part 414.

[55 FR 23441, June 8, 1990, as amended at 59 FR 63463, Dec. 8, 1994; 62 
FR 43674, Aug. 15, 1997]



Sec. 414.316  Payment for physician services to patients in training for self-dialysis and home dialysis.

    (a) For each patient, the carrier pays a flat amount that covers all 
physician services required to create the capacity for self-dialysis and 
home dialysis.
    (b) CMS determines the amount on the basis of program experience and 
reviews it periodically.
    (c) The payment is made at the end of the training course, is 
subject to the deductible and coinsurance provisions, and is in addition 
to any amounts payable under the initial or MCP methods set forth in 
Sec. Sec. 414.313 and 414.314, respectively.
    (d) If the training is not completed, the payment amount is 
proportionate to the time spent in training.



Sec. 414.320  Determination of reasonable charges for physician renal transplantation services.

    (a) Comprehensive payment for services furnished during a 60-day 
period. (1) The comprehensive payment is subject to the deductible and 
coinsurance provisions and is for all surgeon services furnished during 
a period of 60 days in connection with a renal transplantation, 
including the usual preoperative and postoperative care, and for 
immunosuppressant therapy if supervised by the transplant surgeon.
    (2) Additional sums, in amounts established on the basis of program 
experience, may be included in the comprehensive payment for other 
surgery

[[Page 32]]

performed concurrently with the transplant operation.
    (3) The amount of the comprehensive payment may not exceed the lower 
of the following:
    (i) The actual charges made for the services.
    (ii) Overall national payment levels established under the ESRD 
program and adjusted to give effect to variations in physician's charges 
throughout the nation. (These adjusted amounts are the maximum 
allowances in a carrier's service area for renal transplantation surgery 
and related services by surgeons.)
    (4) Maximum allowances computed under these instructions are revised 
at the beginning of each calendar year to the extent permitted by the 
lesser of the following:
    (i) Changes in the economic index as described in Sec. 
405.504(a)(3)(i) of this chapter.
    (ii) Percentage changes in the weighted average of the carrier's 
prevailing charges (before adjustment by the economic index) for--
    (A) A unilateral nephrectomy; or
    (B) Another medical or surgical service designated by CMS for this 
purpose.
    (b) Other payments. Payments for covered medical services furnished 
to the transplant recipient by other specialists, as well as for 
services by the transplant surgeon after the 60-day period covered by 
the comprehensive payment, are made under the reasonable charge criteria 
set forth in Sec. 405.502 (a) through (d) of this chapter. The payments 
for physicians' services in connection with renal transplantations are 
changed on the basis of program experience and the expected advances in 
the medical art for this operation.



Sec. 414.330  Payment for home dialysis equipment, supplies, and support services.

    (a) Equipment and supplies--(1) Basic rule. Except as provided in 
paragraph (a)(2) of this section, Medicare pays for home dialysis 
equipment and supplies only under the prospective payment rates 
established at Sec. 413.170.
    (2) Exception. If the conditions in subparagraphs (a)(2) (i) through 
(iv) of this section are met, Medicare pays for home analysis equipment 
and supplies on a reasonable charge basis in accordance with subpart E 
(Criteria for Determination of Reasonable Charges; Reimbursement for 
Services of Hospital Interns, Residents, and Supervising Physicians) of 
part 405, but the amount of payment may not exceed the limit for 
equipment and supplies in paragraph (c)(2) of this section.
    (i) The patient elects to obtain home dialysis equipment and 
supplies from a supplier that is not a Medicare approved dialysis 
facility.
    (ii) The patient certifies to CMS that he or she has only one 
supplier for all home dialysis equipment and supplies. This 
certification is made on CMS Form 382 (the ``ESRD Beneficiary 
Selection'' form).
    (iii) In writing, the supplier--
    (A) Agrees to receive Medicare payment for home dialysis supplies 
and equipment only on an assignment-related basis; and
    (B) Certifies to CMS that it has a written agreement with one 
Medicare approved dialysis facility or, if the beneficiary is also 
entitled to military or veteran's benefits, one military or Veterans 
Administration hospital, for each patient. (See subpart U of part 405 of 
this chapter for the requirements for a Medicare approved dialysis 
facility.) Under the agreement, the facility or military or VA hospital 
agrees to the following:
    (1) To furnish all home dialysis support services for each patient 
in accordance with subpart U (Conditions for Coverage of Suppliers of 
ESRD Services) of this chapter. (Sec. 410.52 sets forth the scope and 
conditions of Medicare Part B coverage of home dialysis services, 
supplies, and equipment.)
    (2) To furnish institutional dialysis services and supplies. (Sec. 
410.50 sets forth the scope and conditions for Medicare Part B coverage 
of institutional dialysis services and supplies.)
    (3) To furnish dialysis-related emergency services.
    (4) To arrange for a Medicare approved laboratory to perform 
dialysis-related laboratory tests that are covered under the composite 
rate established at Sec. 413.170 and to arrange for the laboratory to 
seek payment from the facility. The facility then includes these 
laboratory services in its claim

[[Page 33]]

for payment for home dialysis support services.
    (5) To arrange for a Medicare approved laboratory to perform 
dialysis-related laboratory tests that are not covered under the 
composite rate established at Sec. 413.170 and for which the laboratory 
files a Medicare claim directly.
    (6) To furnish all other necessary dialysis services and supplies 
(that is, those which are not home dialysis equipment and supplies).
    (7) To satisfy all documentation, recordkeeping and reporting 
requirements in subpart U (Conditions for Coverage of Suppliers of ESRD 
Services) of this chapter. This includes maintaining a complete medical 
record of ESRD related items and services furnished by other parties. 
The facility must report, on the forms required by CMS or the ESRD 
network, all data for each patient in accordance with subpart U.
    (iv) The facility with which the agreement is made must be located 
within a reasonable distance from the patient's home (that is, located 
so that the facility can actually furnish the needed services in a 
practical and timely manner, taking into account variables like the 
terrain, whether the patient's home is located in an urban or rural 
area, the availability of transportation, and the usual distances 
traveled by patients in the area to obtain health care services).
    (b) Support services--(1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, Medicare pays for support services 
only under the prospective payment rates established in Sec. 413.170 of 
this chapter.
    (2) Exceptions. If the patient elects to obtain home dialysis 
equipment and supplies from a supplier that is not an approved ESRD 
facility, Medicare pays for support services, other than support 
services furnished by military or VA hospitals referred to in paragraph 
(a)(2)(iii)(B) of this section, under paragraphs (b)(2) (i) and (ii) of 
this section but in no case may the amount of payment exceed the limit 
for support services in paragraph (c)(1) of this section:
    (i) For support services furnished by a hospital-based ESRD 
facility, Medicare pays on a reasonable cost basis in accordance with 
part 413 of this chapter.
    (ii) For support services furnished by an independent ESRD facility, 
Medicare pays on the basis of reasonable charges that are related to 
costs and allowances that are reasonable when the services are furnished 
in an effective and economical manner.
    (c) Payment limits--(1) Support services. The amount of payment for 
home dialysis support services is limited to the national average 
Medicare-allowed charge per patient per month for home dialysis support 
services, as determined by CMS, plus the median cost per treatment for 
all dialysis facilities for laboratory tests included under the 
composite rate, as determined by CMS, multiplied by the national average 
number of treatments per month.
    (2) Equipment and supplies. Payment for home dialysis equipment and 
supplies is limited to an amount equal to the result obtained by 
subtracting the support services payment limit in paragraph (c)(1) of 
this section from the amount (or, in the case of continuous cycling 
peritoneal dialysis, 130 percent) of the national median payment as 
determined by CMS that would have been made under the prospective 
payment rates established in Sec. 413.170 of this chapter for hospital-
based facilities.
    (3) Notification of changes to the payment limits. Updated data are 
incorporated into the payment limits when the prospective payment rates 
established at Sec. 413.170 of this chapter are updated, and changes 
are announced by notice in the Federal Register without a public comment 
period. Revisions of the methodology for determining the limits are 
published in the Federal Register in accordance with the Department's 
established rulemaking procedures.

[57 FR 54187, Nov. 17, 1992]



Sec. 414.335  Payment for EPO furnished to a home dialysis patient for use in the home.

    (a) Payment for EPO used at home by a home dialysis patient is made 
only to either a Medicare approved ESRD facility or a supplier of home 
dialysis equipment and supplies.

[[Page 34]]

    (b) Payment is made in accordance with the rules set forth in Sec. 
413.170 of this chapter.

[56 FR 43710, Sept. 4, 1991]



  Subpart F_Competitive Bidding for Certain Durable Medical Equipment, 
              Prosthetics, Orthotics, and Supplies (DMEPOS)



Sec. 414.400-Sec. 414.404  [Reserved]



Sec. 414.406  Implementation of programs.

    (a) Implementation contractor. CMS designates one or more 
implementation contractors for the purpose of implementing this subpart.
    (b)-(d) [Reserved]
    (e) Claims processing. The Durable Medical Equipment Medicare 
Administrative Contractor designated to process DMEPOS claims for a 
particular geographic region also processes claims for items furnished 
under a competitive bidding program in the same geographic region.

[71 FR 48409, Aug. 18, 2006]



Sec. 414.408-Sec. 414.426  [Reserved]

Subpart G [Reserved]



              Subpart H_Fee Schedule for Ambulance Services

    Source: 67 FR 9132, Feb. 27, 2002, unless otherwise noted.



Sec. 414.601  Purpose.

    This subpart implements section 1834(l) of the Act by establishing a 
fee schedule for the payment of ambulance services. Section 1834(l) of 
the Act requires that, except for services furnished by certain critical 
access hospitals (see Sec. 413.70(b)(5) of this chapter), payment for 
all ambulance services, otherwise previously payable on a reasonable 
charge basis or retrospective reasonable cost basis, be made under a fee 
schedule.



Sec. 414.605  Definitions.

    As used in this subpart, the following definitions apply to both 
land and water (hereafter collectively referred to as ``ground'') 
ambulance services and to air ambulance services unless otherwise 
specified:
    Advanced life support (ALS) assessment is an assessment performed by 
an ALS crew as part of an emergency response that was necessary because 
the patient's reported condition at the time of dispatch was such that 
only an ALS crew was qualified to perform the assessment. An ALS 
assessment does not necessarily result in a determination that the 
patient requires an ALS level of service.
    Advanced life support (ALS) intervention means a procedure that is, 
in accordance with State and local laws, required to be furnished by ALS 
personnel.
    Advanced life support, level 1 (ALS1) means transportation by ground 
ambulance vehicle, medically necessary supplies and services and either 
an ALS assessment by ALS personnel or the provision of at least one ALS 
intervention.
    Advanced life support, level 2 (ALS2) means either transportation by 
ground ambulance vehicle, medically necessary supplies and services, and 
the administration of at least three medications by intravenous push/
bolus or by continuous infusion, excluding crystalloid, hypotonic, 
isotonic, and hypertonic solutions (Dextrose, Normal Saline, Ringer's 
Lactate); or transportation, medically necessary supplies and services, 
and the provision of at least one of the following ALS procedures:
    (1) Manual defibrillation/cardioversion.
    (2) Endotracheal intubation.
    (3) Central venous line.
    (4) Cardiac pacing.
    (5) Chest decompression.
    (6) Surgical airway.
    (7) Intraosseous line.
    Advanced life support (ALS) personnel means an individual trained to 
the level of the emergency medical technician-intermediate (EMT-
Intermediate) or paramedic. The EMT-Intermediate is defined as an 
individual who is qualified, in accordance with State and local laws, as 
an EMT-Basic and who is also qualified in accordance with State and 
local laws to perform essential advanced techniques and to administer a

[[Page 35]]

limited number of medications. The EMT-Paramedic is defined as 
possessing the qualifications of the EMT-Intermediate and also, in 
accordance with State and local laws, as having enhanced skills that 
include being able to administer additional interventions and 
medications.
    Basic life support (BLS) means transportation by ground ambulance 
vehicle and medically necessary supplies and services, plus the 
provision of BLS ambulance services. The ambulance must be staffed by an 
individual who is qualified in accordance with State and local laws as 
an emergency medical technician-basic (EMT-Basic). These laws may vary 
from State to State. For example, only in some States is an EMT-Basic 
permitted to operate limited equipment on board the vehicle, assist more 
qualified personnel in performing assessments and interventions, and 
establish a peripheral intravenous (IV) line.
    Conversion factor (CF) is the dollar amount established by CMS that 
is multiplied by relative value units to produce ground ambulance 
service base rates.
    Emergency response means responding immediately at the BLS or ALS1 
level of service to a 911 call or the equivalent in areas without a 911 
call system. An immediate response is one in which the ambulance entity 
begins as quickly as possible to take the steps necessary to respond to 
the call.
    Fixed wing air ambulance (FW) means transportation by a fixed wing 
aircraft that is certified as a fixed wing air ambulance and such 
services and supplies as may be medically necessary.
    Geographic adjustment factor (GAF) means the practice expense (PE) 
portion of the geographic practice cost index (GPCI) from the physician 
fee schedule as applied to a percentage of the base rate. For ground 
ambulance services, the PE portion of the GPCI is applied to 70 percent 
of the base rate for each level of service. For air ambulance services, 
the PE portion of the GPCI is applied to 50 percent of the applicable 
base rate.
    Goldsmith modification means the recognition of rural areas within 
certain Standard Metropolitan Statistical Areas wherein a census tract 
is deemed to be rural when located within a large metropolitan county of 
at least 1,225 square miles, but is so isolated from the metropolitan 
core of that county by distance or physical features as to be more rural 
than urban in character.
    Loaded mileage means the number of miles the Medicare beneficiary is 
transported in the ambulance vehicle.
    Paramedic ALS intercept (PI) means EMT-Paramedic services furnished 
by an entity that does not furnish the ground ambulance transport, 
provided the services meet the requirements specified in Sec. 410.40(c) 
of this chapter.
    Point of pick-up means the location of the beneficiary at the time 
he or she is placed on board the ambulance.
    Relative value units (RVUs) means a value assigned to a ground 
ambulance service.
    Rotary wing air ambulance (RW) means transportation by a helicopter 
that is certified as an ambulance and such services and supplies as may 
be medically necessary.
    Rural adjustment factor (RAF) means an adjustment applied to the 
base payment rate when the point of pick-up is located in a rural area.
    Rural area means an area located outside a Metropolitan Statistical 
Area (MSA), or, in New England, a New England County Metropolitan Area 
(NECMA), or an area within an MSA or NECMA that is identified as rural 
by the Goldsmith modification.
    Specialty care transport (SCT) means interfacility transportation of 
a critically injured or ill beneficiary by a ground ambulance vehicle, 
including medically necessary supplies and services, at a level of 
service beyond the scope of the EMT-Paramedic. SCT is necessary when a 
beneficiary's condition requires ongoing care that must be furnished by 
one or more health professionals in an appropriate specialty area, for 
example, nursing, emergency medicine, respiratory care, cardiovascular 
care, or a paramedic with additional training.

[67 FR 9132, Feb. 27, 2002, as amended at 68 FR 67693, Dec. 5, 2003]



Sec. 414.610  Basis of payment.

    (a) Method of payment. Medicare payment for ambulance services is 
based on the lesser of the actual charge or

[[Page 36]]

the applicable fee schedule amount. The fee schedule payment for 
ambulance services equals a base rate for the level of service plus 
payment for mileage and applicable adjustment factors. Except for 
services furnished by certain critical access hospitals or entities 
owned and operated by them, as described in Sec. 413.70(b) of this 
chapter, all ambulance services are paid under the fee schedule 
specified in this subpart (regardless of the vehicle furnishing the 
service).
    (b) Mandatory assignment. Effective with implementation of the 
ambulance fee schedule described in Sec. 414.601 (that is, for services 
furnished on or after April 1, 2002), all payments made for ambulance 
services are made only on an assignment-related basis. Ambulance 
suppliers must accept the Medicare allowed charge as payment in full and 
may not bill or collect from the beneficiary any amount other than the 
unmet Part B deductible and Part B coinsurance amounts. Violations of 
this requirement may subject the provider or supplier to sanctions, as 
provided by law (part 402 of this chapter).
    (c) Formula for computation of payment amounts. The fee schedule 
payment amount for ambulance services is computed according to the 
following provisions:
    (1) Ground ambulance service levels. The CF is multiplied by the 
applicable RVUs for each level of service to produce a service-level 
base rate. For services furnished during the period July 1, 2004 through 
December 31, 2006, ambulance services originating in urban areas (both 
base rate and mileage) are paid based on a rate that is one percent 
higher than otherwise is applicable under this section, and ambulance 
services originating in rural areas (both base rate and mileage) are 
paid based on a rate that is two percent higher than otherwise is 
applicable under this section. The service-level base rate is then 
adjusted by the GAF. Compare this amount to the actual charge. The 
lesser of the actual charge or the GAF adjusted base rate amount is 
added to the lesser of the actual mileage charges or the payment rate 
per mile, multiplied by the number of miles that the beneficiary was 
transported. When applicable, the appropriate RAF is applied to the 
ground mileage rate to determine the appropriate payment rates. The RVU 
scale for the ambulance fee schedule is as follows:

------------------------------------------------------------------------
                                                               Relative
                                                                 value
                        Service level                            units
                                                                (RVUs)
------------------------------------------------------------------------
BLS.........................................................        1.00
BLS-Emergency...............................................        1.60
ALS1........................................................        1.20
ALS1-Emergency..............................................        1.90
ALS2........................................................        2.75
SCT.........................................................        3.25
PI..........................................................        1.75
------------------------------------------------------------------------

    (2) Air ambulance service levels. The base payment rate for the 
applicable type of air ambulance service is adjusted by the GAF and, 
when applicable, by the appropriate RAF to determine the amount of 
payment. Air ambulance services have no CF or RVUs. This amount is 
compared to the actual charge. The lesser of the charge or the adjusted 
GAF rate amount is added to the payment rate per mile, multiplied by the 
number of miles that the beneficiary was transported. When applicable, 
the appropriate RAF is also applied to the air mileage rate.
    (3) Loaded mileage. Payment is based on loaded miles. Payment for 
air mileage is based on loaded miles flown as expressed in statute 
miles. There are three mileage payment rates: a rate for FW services, a 
rate for RW services, and a rate for all levels of ground 
transportation.
    (4) Geographic adjustment factor (GAF). For ground ambulance 
services, the PE portion of the GPCI from the physician fee schedule is 
applied to 70 percent of the base rate for ground ambulance services. 
For air ambulance services, the PE portion of the physician fee schedule 
GPCI is applied to 50 percent of the base rate for air ambulance 
services.
    (5) Rural adjustment factor (RAF). (i) For ground ambulance services 
where the point of pickup is in a rural area, the mileage rate is 
increased by 50 percent for each of the first 17 miles and by 25 percent 
for miles 18 through 50. The standard mileage rate applies to every mile 
over 50 miles. For air ambulance services where the point of pickup is 
in a rural area, the total payment is increased by 50 percent; that is, 
the

[[Page 37]]

rural adjustment factor applies to the sum of the base rate and the 
mileage rate.
    (ii) For services furnished during the period July 1, 2004 through 
December 31, 2009, the payment amount for the ground ambulance base rate 
is increased by 22.6 percent where the point of pickup is in a rural 
area determined to be in the lowest 25 percent of rural population 
arrayed by population density. The amount of this increase is based on 
CMS's estimate of the ratio of the average cost per trip for the rural 
areas in the lowest quartile of population compared to the average cost 
per trip for the rural areas in the highest quartile of population. In 
making this estimate, CMS may use data provided by the GAO.
    (6) Multiple patients. The allowable amount per beneficiary for a 
single ambulance transport when more than one patient is transported 
simultaneously is based on the total number of patients (both Medicare 
and non-Medicare) on board. If two patients are transported 
simultaneously, then the payment allowance for the beneficiary (or for 
each of them if both patients are beneficiaries) is equal to 75 percent 
of the service payment allowance applicable for the level of care 
furnished to the beneficiary, plus 50 percent of the applicable mileage 
payment allowance. If three or more patients are transported 
simultaneously, the payment allowance for the beneficiary (or each of 
them) is equal to 60 percent of the service payment allowance applicable 
for the level of care furnished to the beneficiary, plus the applicable 
mileage payment allowance divided by the number of patients on board.
    (7) Payment rate for mileage greater than 50 miles. For services 
furnished during the period July 1, 2004 through December 31, 2008, each 
loaded ambulance mile greater than 50 (that is, miles 51 and greater) 
for ambulance transports originating in either urban areas or in rural 
areas are paid based on a rate that is 25 percent higher than otherwise 
is applicable under this section.
    (d) Payment. Payment, in accordance with this subpart, represents 
payment in full (subject to applicable Medicare Part B deductible and 
coinsurance requirements as described in subpart G of part 409 of this 
chapter or in subpart I of part 410 of this chapter) for all services, 
supplies, and other costs for an ambulance service furnished to a 
Medicare beneficiary. No direct payment will be made under this subpart 
if billing for the ambulance service is required to be consolidated with 
billing for another benefit for which payment may be made under this 
chapter.
    (e) Point of pick-up. The zip code of the point of pick-up must be 
reported on each claim for ambulance services so that the correct GAF 
and RAF may be applied, as appropriate.
    (f) Updates. The CF, the air ambulance base rates, and the mileage 
rates are updated annually by an inflation factor established by law. 
The inflation factor is based on the consumer price index for all urban 
consumers (CPI-U) (U.S. city average) for the 12-month period ending 
with June of the previous year.
    (g) Adjustments. The Secretary will annually review rates and will 
adjust the CF and air ambulance rates if actual experience under the fee 
schedule is significantly different from the assumptions used to 
determine the initial CF and air ambulance rates. The CF and air 
ambulance rates will not be adjusted solely because of changes in the 
total number of ambulance transports.

[67 FR 9132, Feb. 27, 2002, as amended at 68 FR 67693, Dec. 5, 2003; 69 
FR 40292, July 1, 2004]



Sec. 414.615  Transition to the ambulance fee schedule.

    The fee schedule for ambulance services will be phased in over 5 
years beginning April 1, 2002. Subject to the first sentence in Sec. 
414.610(a), payment for services furnished during the transition period 
is made based on a combination of the fee schedule payment for ambulance 
services and the amount the program would have paid absent the fee 
schedule for ambulance services, as follows:
    (a) 2002 Payment. For services furnished in 2002, the payment for 
the service component, the mileage component and, if applicable, the 
supply component is based on 80 percent of the

[[Page 38]]

reasonable charge for independent suppliers or on 80 percent of 
reasonable cost for providers, plus 20 percent of the ambulance fee 
schedule amount for the service and mileage components. The reasonable 
charge or reasonable cost portion of payment in CY 2002 is equal to the 
supplier's reasonable charge allowance or provider's reasonable cost 
allowance for CY 2001, multiplied by the statutory inflation factor for 
ambulance services.
    (b) 2003 Payment. For services furnished in CY 2003, payment is 
based on 60 percent of the reasonable charge or reasonable cost, as 
applicable, plus 40 percent of the ambulance fee schedule amount. The 
reasonable charge and reasonable cost portion in CY 2003 is equal to the 
supplier's reasonable charge or provider's reasonable cost for CY 2002, 
multiplied by the statutory inflation factor for ambulance services.
    (c) 2004 Payment. For services furnished in CY 2004, payment is 
based on 40 percent of the reasonable charge or reasonable cost, as 
applicable, plus 60 percent of the ambulance fee schedule amount. The 
reasonable charge and reasonable cost portion in CY 2004 is equal to the 
supplier's reasonable charge or provider's reasonable cost for CY 2003, 
multiplied by the statutory inflation factor for ambulance services.
    (d) 2005 Payment. For services furnished in CY 2005, payment is 
based on 20 percent of the reasonable charge or reasonable cost, as 
applicable, plus 80 percent of the ambulance fee schedule amount. The 
reasonable charge and reasonable cost portion in CY 2005 is equal to the 
supplier's reasonable charge or provider's reasonable cost for CY 2004, 
multiplied by the statutory inflation factor for ambulance services.
    (e) 2006 and Beyond Payment. For services furnished in CY 2006 and 
thereafter, the payment is based solely on the ambulance fee schedule 
amount.
    (f) Updates. The portion of the transition payment that is based on 
the existing payment methodology (that is, the non-fee-schedule portion) 
is updated annually for inflation by a factor equal to the percentage 
increase in the CPI-U (U.S. city average) for the 12-month period ending 
with June of the previous year. The CY 2002 inflation update factor used 
to update the 2001 payment amounts is applied to the annualized 
(average) payment amounts for CY 2001. For the period January 1, 2001 
through June 30, 2001, the inflation update factor is 2.7 percent. For 
the period July 1, 2001 through December 31, 2001, the inflation update 
factor is 4.7 percent. The average for the year is 3.7 percent. Thus, 
the annualized (average) CY 2001 payment amounts used to derive the CY 
2002 payment amounts are equivalent to the CY 2001 payment amounts that 
would have been determined had the inflation update factor for the 
entire CY 2001 been 3.7 percent. Both portions of the transition payment 
(that is, the portion that is based on reasonable charge or reasonable 
cost and the portion that is based on the ambulance fee schedule) are 
updated annually for inflation by the inflation factor described in 
Sec. 414.610(f).
    (g) Exception. There will be no blended payment allowance as 
described in paragraphs (a), (b), (c), and (d) of this section for 
ground mileage in those States where the Medicare carrier paid 
separately for all out-of-county ground ambulance mileage, but did not, 
before the implementation of the Medicare ambulance fee schedule, make a 
separate payment for any ground ambulance mileage within the county in 
which the beneficiary was transported. Payment for ground ambulance 
mileage in that State will be made based on the full ambulance fee 
schedule amount for ground mileage. This exception applies only to 
carrier-processed claims and only in those States in which the carrier 
paid separately for out-of-county ambulance mileage, but did not make 
separate payment for any in-county mileage throughout the entire State.



Sec. 414.617  Transition from regional to national ambulance fee schedule.

    For services furnished during the period July 1, 2004 through 
December 31, 2009, the amount for the ground ambulance base rate is 
subject to a floor amount determined by establishing nine fee schedules 
based on each of the nine census divisions using the same methodology as 
used to establish the national fee schedule. If the regional fee 
schedule methodology for a given census division results in an amount

[[Page 39]]

that is less than or equal to the national ground base rate, then it is 
not used, and the national FS amount applies. If the regional fee 
schedule methodology for a given census division results in an amount 
that is greater than the national ground base rate, then the FS portion 
of the base rate for that census division is equal to a blend of the 
national rate and the regional rate in accordance with the following 
schedule:

------------------------------------------------------------------------
                                                     Regional   National
                    Time period                      percent    percent
------------------------------------------------------------------------
7/1/04-12/31/04...................................         80         20
CY 2005...........................................         60         40
CY 2006...........................................         40         60
CY 2007-CY 2009...................................         20         80
CY 2010 and thereafter............................          0        100
------------------------------------------------------------------------


[69 FR 40292, July 1, 2004]



Sec. 414.620  Publication of the ambulance fee schedule.

    Changes in payment rates resulting from incorporation of the annual 
inflation factor described in Sec. 414.610(f) will be announced by 
notice in the Federal Register without opportunity for prior comment. 
CMS will follow applicable rulemaking procedures in publishing revisions 
to the fee schedule for ambulance services that result from any factors 
other than the inflation factor.



Sec. 414.625  Limitation on review.

    There will be no administrative or judicial review under section 
1869 of the Act or otherwise of the amounts established under the fee 
schedule for ambulance services, including the following:
    (a) Establishing mechanisms to control increases in expenditures for 
ambulance services.
    (b) Establishing definitions for ambulance services that link 
payments to the type of services provided.
    (c) Considering appropriate regional and operational differences.
    (d) Considering adjustments to payment rates to account for 
inflation and other relevant factors.
    (e) Phasing in the application of the payment rates under the fee 
schedule in an efficient and fair manner.



               Subpart I_Payment for Drugs and Biologicals

    Source: 69 FR 1116, Jan. 7, 2004, unless otherwise noted.



Sec. 414.701  Purpose.

    This subpart implements section 1842(o) of the Social Security Act 
by specifying the methodology for determining the payment allowance 
limit for drugs and biologicals covered under Part B of Title XVIII of 
the Act (hereafter in this subpart referred to as the ``program'') that 
are not paid on a cost or prospective payment system basis. Examples of 
drugs that are subject to the rules contained in this subpart are: drugs 
furnished incident to a physician's service; durable medical equipment 
(DME) drugs; separately billable drugs at independent dialysis 
facilities not under the ESRD composite rate; statutorily covered drugs, 
for example, influenza, pneumococcal and hepatitis vaccines, antigens, 
hemophilia blood clotting factor, immunosuppressive drugs and certain 
oral anti-cancer drugs.



Sec. 414.704  Definitions.

    As used in this subpart, the following definition applies. Drug 
refers to both drugs and biologicals.



Sec. 414.707  Basis of payment.

    (a) Method of payment. (1) Payment for a drug in calendar year 2004 
is based on the lesser of--
    (i) The actual charge on the claim for program benefits; or
    (ii) 85 percent of the average wholesale price determined as of 
April 1, 2003, subject to the exceptions as specified in paragraphs 
(a)(2) through (a)(8) of this section.
    (2) The payment limits for the following drugs are calculated using 
95 percent of the average wholesale price:
    (i) Blood clotting factors.
    (ii) A drug or biological furnished during 2004 that was not 
available for Medicare payment as of April 1, 2003.
    (iii) Pneumococcal and influenza vaccines as well as hepatitis B 
vaccine that is furnished to individuals at high or intermediate risk of 
contracting

[[Page 40]]

hepatitis B (as determined by the Secretary).
    (iv) A drug or biological furnished during 2004 in connection with 
the furnishing of renal dialysis services if separately billed by renal 
dialysis facilities.
    (3) The payment limits for infusion drugs furnished through a 
covered item of durable medical equipment are calculated using 95 
percent of the average wholesale price in effect on October 1, 2003.
    (4) The payments limits for drugs contained in the following table 
are calculated based on the percentages of the average wholesale price 
determined as of April 1, 2003 that are specified in the table.

------------------------------------------------------------------------
                                                              Percentage
                                                               used to
                                                              calculate
                            Drug                                 2004
                                                               payment
                                                                limit
------------------------------------------------------------------------
EPOETIN ALFA...............................................           87
LEUPROLIDE ACETATE.........................................           81
GOSERELIN ACETATE..........................................           80
RITUXIMAB..................................................           81
PACLITAXEL.................................................           81
DOCETAXEL..................................................           80
CARBOPLATIN................................................           81
IRINOTECAN.................................................           80
GEMCITABINE HCL............................................           80
PAMIDRONATE DISODIUM.......................................           85
DOLASETRON MESYLATE........................................           80
FILGRASTIM.................................................           81
HYLAN G-F 20...............................................           82
MYCOPHENOLATE MOFETIL......................................           86
GRANISETRON HCL............................................           80
ONDANSETRON................................................           87
VINORELBINE TARTATE........................................           81
SARGRAMOSTIM...............................................           80
TOPOTECAN..................................................           84
IPRATROPIUM BROMIDE........................................           80
ALBUTEROL SULFATE..........................................           80
IMMUNE GLOBULIN............................................           80
LEUCOVORIN CALCIUM.........................................           80
DOXORUBICIN HCL............................................           80
DEXAMETHOSONE SODIUM PHOSPHATE.............................           86
HEPARIN SODIUM LOCK-FLUSH..................................           80
CROMOLYN SODIUM............................................           80
ACETYLCYSTEINE.............................................           80
------------------------------------------------------------------------

    (5) The payment limits for imiglucerase and alglucerase are 
calculated using 94 percent of the average wholesale price determined as 
of April 1, 2003.
    (6) Exception. The payment limit for a drug otherwise subject to 
paragraph (a)(1)(ii) or paragraph (a)(4) of this section may be 
calculated using the percentage of the average wholesale price as the 
Secretary deems appropriate based on data and information submitted by 
the drug manufacturer.
    (i) The manufacturer must submit data after October 15, 2003 and 
before January 1, 2004.
    (ii) The percentage only applies for drugs furnished on or after 
April 1, 2004.
    (7) In the case of blood and blood products (other than blood 
clotting factors), the payment limits shall be determined in the same 
manner as such payment limit was determined on October 1, 2003.
    (b) Mandatory assignment. Effective with services furnished on or 
after February 1, 2001, payment for any drug covered under Part B of 
Medicare may be made on an assignment-related basis only. All billers 
must accept the program allowed charge as payment in full and may not 
bill nor collect from the beneficiary any amount other than the unmet 
Part B deductible and Part B coinsurance amounts, if applicable. 
Violations of this requirement may subject the supplier to sanctions, as 
provided by the statute (See Sec. 402 of this chapter).



     Subpart J_Submission of Manufacturer's Average Sales Price Data

    Source: 69 FR 17938, Apr. 6, 2004, unless otherwise noted.



Sec. 414.800  Purpose.

    This subpart implements section 1847A of the Act by specifying the 
requirements for submission of a manufacturer's average sales price data 
for certain drugs and biologicals covered under Part B of Title XVIII of 
the Act that are paid under sections 1842(o)(1)(D), 1847A, and 
1881(b)(13)(A)(ii) of the Act.



Sec. 414.802  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Drug means both drugs and biologicals.
    Manufacturer means any entity that is engaged in the following (This 
term

[[Page 41]]

does not include a wholesale distributor of drugs or a retail pharmacy 
licensed under State law):
    (1) Production, preparation, propagation, compounding, conversion or 
processing of prescription drug products, either directly or indirectly 
by extraction from substances of natural origin, or independently by 
means of chemical synthesis, or by a combination of extraction and 
chemical synthesis.
    (2) The packaging, repackaging, labeling, relabeling, or 
distribution of prescription drug products.
    Unit means the product represented by the 11-digit National Drug 
Code. During the first 3 years of the CAP (as defined in Sec. 414.902), 
the method of counting units excludes units of CAP drugs (as defined in 
Sec. 414.902) sold to an approved CAP vendor (as defined in Sec. 
414.902) for use under the CAP (as defined in Sec. 414.902).

[70 FR 69 FR 17938, Apr. 6, 2004, as amended at 71 FR 48143, Aug. 18, 
2006]



Sec. 414.804  Basis of payment.

    (a) Calculation of manufacturer's average sales price. (1) The 
manufacturer's average sales price for a quarter for a drug or 
biological represented by a particular 11-digit National Drug Code must 
be calculated as the manufacturer's sales to all purchasers in the 
United States for that particular 11-digit National Drug Code (after 
deducting the types of items and transactions listed in paragraph (a)(2) 
of this section and excluding sales referenced in paragraph (a)(4) of 
this section) divided by the total number of units sold by the 
manufacturer in that quarter (after excluding units associated with 
sales referenced in paragraph (a)(4) of this section).
    (2) In calculating the manufacturer's average sales price, a 
manufacturer must deduct the following types of transactions and items:
    (i) Volume discounts.
    (ii) Prompt pay discounts.
    (iii) Cash discounts.
    (iv) Free goods that are contingent on any purchase requirement.
    (v) Chargebacks and rebates (other than rebates under the Medicaid 
drug rebate program).
    (3) To the extent that data on price concessions, as described in 
paragraph (a)(2) of this section, are available on a lagged basis, the 
manufacturer must estimate this amount in accordance with the 
methodology described in paragraphs (a)(3)(i) through (a)(3)(iv) of this 
section.
    (i) For each such National Drug Code, the manufacturer calculates a 
percentage equal to the sum of the price concessions for the most recent 
12-month period available associated with sales subject to the average 
sales price reporting requirement divided by the total in dollars for 
the sales subject to the average sales price reporting requirement for 
the same 12-month period.
    (ii) The manufacturer then multiplies the percentage described in 
paragraph (a)(3)(i) of this section by the total in dollars for the 
sales subject to the average sales price reporting requirement for the 
quarter being submitted. (The manufacturer must carry a sufficient 
number of decimal places in the calculation of the price concessions 
percentage in order to round accurately the net total sales amount for 
the quarter to the nearest whole dollar.) The result of this 
multiplication is then subtracted from the total in dollars for the 
sales subject to the average sales price reporting requirement for the 
quarter being submitted.
    (iii) The manufacturer then uses the result of the calculation 
described in paragraph (a)(3)(ii) of this section as the numerator and 
the number of units sold in the quarter as the denominator to calculate 
the manufacturer's average sales price for the National Drug Code in the 
quarter being submitted.
    (iv) Example. The total lagged price concessions (discounts, 
rebates, etc.) over the most recent 12-month period available associated 
with direct sales for National Drug Code 12345-6789-01 subject to the 
ASP reporting requirement equal $200,000. The total in dollars for the 
sales subject to the average sales price reporting requirement for the 
same period equals $600,000. The lagged price concessions percentage for 
this period equals 200,000/600,000 = .33333. The total in dollars for 
the direct sales subject to the average sales price reporting 
requirement for the quarter being reported equals $50,000 for 10,000 
units sold. Assuming no non-

[[Page 42]]

lagged price concessions apply, the manufacturer's average sales price 
calculation for this National Drug Code for this quarter is: $50,000-
(0.33333 x $50,000) = $33,334 (net total sales amount); $33,334/10,000 = 
$3.33 (average sales price).
    (4) In calculating the manufacturer's average sales price, a 
manufacturer must exclude sales that are exempt from the Medicaid best 
price calculation under sections 1927(c)(1)(C)(i) and 
1927(c)(1)(C)(ii)(III) of the Act.
    (5) The manufacturer's average sales price must be calculated by the 
manufacturer every calendar quarter and submitted to CMS within 30 days 
of the close of the quarter. The first quarter submission must be 
submitted by April 30, 2004. Subsequent reports are due not later than 
30 days after the last day of each calendar quarter.
    (6) Each report must be certified by one of the following:
    (i) The manufacturer's Chief Executive Officer (CEO).
    (ii) The manufacturer's Chief Financial Officer (CFO).
    (iii) An individual who has delegated authority to sign for, and who 
reports directly to, the manufacturer's CEO or CFO.

[69 FR 17938, Apr. 6, 2004, as amended at 69 FR 55764, Sept. 16, 2004; 
70 FR 70332, Nov. 21, 2005]



Sec. 414.806  Penalties associated with the failure to submit timely and accurate ASP data.

    Section 1847A(d)(4) specifies the penalties associated with 
misrepresentations associated with ASP data. If the Secretary determines 
that a manufacturer has made a misrepresentation in the reporting of ASP 
data, a civil money penalty in an amount of up to $10,000 may be applied 
for each price misrepresentation and for each day in which the price 
misrepresentation was applied. Section 1927(b)(3)(C) of the Act, as 
amended by section 303(i)(4) of the MMA, specifies the penalties 
associated with a manufacturer's failure to submit timely information or 
the submission of false information.



        Subpart K_Payment for Drugs and Biologicals Under Part B

    Source: 69 FR 66424, Nov. 15, 2004, unless otherwise noted.



Sec. 414.900  Basis and scope.

    (a) This subpart implements sections 1842(o), 1847A, and 1847B of 
the Act and outlines two payment methodologies applicable to drugs and 
biologicals covered under Medicare Part B that are not paid on a cost or 
prospective payment system basis.
    (b) Examples of drugs that are subject to the requirements specified 
in this subpart are:
    (1) Drugs furnished incident to a physician's service; durable 
medical equipment (DME) drugs.
    (2) Separately billable drugs at independent dialysis facilities not 
under the ESRD composite rate.
    (3) Statutorily covered drugs, for example--
    (i) Influenza.
    (ii) Pneumococcal and Hepatitis B vaccines.
    (iii) Antigens.
    (iv) Hemophilia blood clotting factor.
    (v) Immunosuppressive drugs.
    (vi) Certain oral anti-cancer drugs.

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 39093, July 6, 2005]



Sec. 414.902  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Approved CAP vendor means an entity that has been awarded a contract 
by CMS to participate in the competitive acquisition program under 1847B 
of the Act.
    Bid means an offer to furnish a CAP drug within a category of CAP 
drugs in a competitive acquisition area for a particular price and time 
period.
    CAP drug means a physician-administered drug or biological furnished 
on or after January 1, 2006 described in section 1842(o)(1)(C) of the 
Act and supplied by an approved CAP vendor under the CAP as provided in 
this subpart.
    Competitive acquisition area means a geographic area established by 
the Secretary for purposes of implementing the CAP required by section 
1847B of the Act.

[[Page 43]]

    Competitive acquisition program (CAP) means a program as defined 
under section 1847B of the Act.
    Designated carrier means an entity assigned by CMS to process and 
pay claims for drugs and biologicals under the CAP.
    Drug means both drugs and biologicals.
    Emergency delivery means delivery of a CAP drug within one business 
day in appropriate shipping and packaging, in all areas of the United 
States and its territories, with the exception of the Pacific 
Territories. In the Pacific Territories, emergency delivery means 
delivery of a CAP drug within 5 business days in appropriate shipping 
and packaging. In each case, this timeframe shall be reduced if product 
stability requires it, meaning that the manufacturer's labeling 
instructions, drug compendia, or specialized drug stability references 
indicate that a shorter delivery timeframe is necessary to avoid 
adversely affecting the product's integrity, safety, or efficacy.
    Emergency situation means, for the purposes of the CAP, an 
unforeseen occurrence or situation determined by the participating CAP 
physician, in his or her clinical judgment, to require prompt action or 
attention for purposes of permitting the participating CAP physician to 
use a drug from his or her own stock, if the other requirements of Sec. 
414.906(e) are met.
    Local carrier means an entity assigned by CMS to process and pay 
claims for administration of drugs and biologicals under the CAP.
    Manufacturer's average sales price means the price calculated and 
reported by a manufacturer under part 414, subpart J of this chapter.
    Multiple source drug means a drug described by section 
1847A(c)(6)(C) of the Act.
    Pacific Territories means, for purposes of the CAP, American Samoa, 
Guam, or the Northern Mariana Islands.
    Participating CAP physician means a physician electing to 
participate in the CAP, as described in this subpart. The participating 
CAP physician must complete and sign the participating CAP physician 
election agreement. Physicians who do not participate in Medicare but 
who elect to participate in the CAP must agree to accept assignment for 
CAP drug administration claims.
    Participating CAP physician election agreement means the agreement 
that the physician signs to notify CMS of the physician's election to 
participate in the CAP and to agree to the terms and conditions of CAP 
participation as set forth in this subpart.
    Prescription order means a written order submitted by the 
participating CAP physician to the approved CAP vendor that meets the 
requirements of this subpart.
    Routine delivery means delivery of a drug within 2 business days in 
appropriate shipping and packaging in all areas of the United States and 
its territories, with the exception of the Pacific Territories. In the 
Pacific Territories, routine delivery of drug means delivery of a CAP 
drug within 7 business days in appropriate shipping and packaging. In 
each case, this timeframe will be reduced if product stability requires 
it, meaning that the manufacturer's labeling instructions, drug 
compendia, or specialized drug stability references indicate that a 
shorter delivery timeframe is necessary to avoid adversely affecting the 
product's integrity, safety, or efficacy.
    Single source drug means a drug described by section 1847A(c)(6)(D) 
of the Act.
    Timely delivery means delivery of a CAP drug within the defined 
routine and emergency delivery timeframes. Compliance with timely 
delivery standards is also a factor for evaluation of potential and 
approved CAP vendors.
    Unit is defined as in part 414, subpart J of this chapter.
    Wholesale acquisition cost (WAC) means the price described by 
section 1847A(c)(6)(B) of the Act.

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 39093, July 6, 2005]



Sec. 414.904  Average sales price as the basis for payment.

    (a) Method of payment. Payment for a drug furnished on or after 
January 1, 2005 is based on the lesser of--
    (1) The actual charge on the claim for program benefits; or

[[Page 44]]

    (2) 106 percent of the average sales price, subject to the 
applicable limitations specified in paragraph (d) of this section or 
subject to the exceptions described in paragraph (e) of this section.
    (b) Multiple source drugs--(1) Average sales prices. The average 
sales price for all drug products included within the same multiple 
source drug billing and payment code is the volume-weighted average of 
the manufacturers' average sales prices for those drug products.
    (2) Calculation of the average sales price. The average sales price 
is determined by--
    (i) Computing the sum of the products (for each National Drug Code 
assigned to the drug products) of the manufacturer's average sales price 
and the total number of units sold; and
    (ii) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug products.
    (c) Single source drugs--(1) Average sales price. The average sales 
price is the volume-weighted average of the manufacturers' average sales 
prices for all National Drug Codes assigned to the drug or biological 
product.
    (2) Calculation of the average sales price. The average sales price 
is determined by computing--
    (i) The sum of the products (for each National Drug Code assigned to 
the drug product) of the manufacturer's average sales price and the 
total number of units sold; and
    (ii) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug product.
    (d) Limitations on the average sales price--(1) Wholesale 
acquisition cost for a single source drug. The payment limit for a 
single source drug product is the lesser of 106 percent of the average 
sales price for the product or 106 percent of the wholesale acquisition 
cost for the product.
    (2) Payment limit for a drug furnished to an end-stage renal disease 
patient. (i) Effective for drugs and biologicals furnished in 2005, the 
payment for such drugs and biologicals, including erythropoietin, 
furnished to an end-stage renal disease patient that is separately 
billed by an end-stage renal disease facility and not paid on a cost 
basis is acquisition cost as determined by the Inspector General report 
as required by section 623(c) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 inflated by the percentage 
increase in the Producer Price Index.
    (ii) Except as provided in paragraph (a) of this section, the 
payment for drugs and biologicals, furnished to an end-stage renal 
disease patient that is separately billed by an end-stage renal disease 
facility, is based on 106 percent of the average sales price.
    (iii) Effective for drugs and biologicals furnished in 2006, the 
payment for such drugs and biologicals furnished in connection with 
renal dialysis services and separately billed by freestanding and 
hospital-based renal dialysis facilities not paid on a cost basis is 106 
percent of the average sales price.
    (3) Widely available market price and average manufacturer price. If 
the Inspector General finds that the average sales price exceeds the 
widely available market price or the average manufacturer price by 5 
percent or more in calendar year 2006, the payment limit in the quarter 
following the transmittal of this information to the Secretary is the 
lesser of the widely available market price or 103 percent of the 
average manufacturer price.
    (e) Exceptions to the average sales price--(1) Vaccines. The payment 
limits for hepatitis B vaccine furnished to individuals at high or 
intermediate risk of contracting hepatitis B (as determined by the 
Secretary), pneumococcal vaccine, and influenza vaccine and are 
calculated using 95 percent of the average wholesale price.
    (2) Infusion drugs furnished through a covered item of durable 
medical equipment. The payment limit for an infusion drug furnished 
through a covered item of durable medical equipment is calculated using 
95 percent of the average wholesale price in effect on October 1, 2003 
and is not updated in 2006.
    (3) Blood and blood products. In the case of blood and blood 
products (other than blood clotting factors), the payment limits are 
determined in the same manner as the payment limits were determined on 
October 1, 2003.
    (4) Payment limit in a case where the average sales price during the 
first quarter of sales is unavailable. In the case of

[[Page 45]]

a drug during an initial period (not to exceed a full calendar quarter) 
in which data on the prices for sales of the drug are not sufficiently 
available from the manufacturer to compute an average sales price for 
the drug, the payment limit is based on the wholesale acquisition cost 
or the applicable Medicare Part B drug payment methodology in effect on 
November 1, 2003.
    (f) Except as otherwise specified (see paragraph (e)(2) of this 
section) for infusion drugs, the payment limits are updated quarterly.
    (g) The payment limit is computed without regard to any special 
packaging, labeling, or identifiers on the dosage form or product or 
package.
    (h) The payment amount is subject to applicable deductible and 
coinsurance.

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 70332, Nov. 21, 2005]



Sec. 414.906  Competitive acquisition program as the basis for payment.

    (a) Program payment. Beginning in 2006, as an alternative to payment 
under Sec. 414.904, payment for a CAP drug may be made through the CAP 
if the following occurs:
    (1) The CAP drug is supplied under the CAP by an approved CAP vendor 
as specified in Sec. 414.908(b).
    (2) The claim for the prescribed drug is submitted by the approved 
CAP vendor that supplied the drug, and payment is made only to that 
vendor.
    (3) The approved CAP vendor collects applicable deductible and 
coinsurance with respect to the drug furnished under the CAP only after 
the drug is administered to the beneficiary.
    (4) The approved CAP vendor delivers CAP drugs directly to the 
participating CAP physician in unopened vials or other original 
containers as supplied by the manufacturer or from a distributor that 
has acquired the products directly from the manufacturer and includes 
language with the shipping material stating that the drug was acquired 
in a manner consistent with all statutory requirements. If the approved 
CAP vendor opts to split shipments, the participating CAP physician must 
be notified in writing which can be included with the initial shipment, 
and each incremental shipment must arrive at least 2 business days 
before the anticipated date of administration.
    (5) The approved CAP vendor bills Medicare only for the amount of 
the drug administered to the patient, and the beneficiary's coinsurance 
will be calculated from the quantity of drug that is administered.
    (b) Exceptions to competitive acquisition. Specific CAP drugs, 
including a category of these drugs, may be excluded from the CAP if the 
application of competitive bidding to these drugs--
    (1) Is not likely to result in significant savings; or
    (2) Is likely to have an adverse impact on access to those drugs.
    (c) Computation of payment amount. (1) Except as specified in 
paragraph (c)(2) of this section, payment for CAP drugs is based on bids 
submitted, as a result of the bidding process as described in Sec. 
414.910. Based on these bids, a single payment amount for each CAP drug 
in the competitive acquisition area is determined on the basis of the 
bids submitted and accepted and updated from the bidding period to the 
payment year. This single payment amount is then updated on an annual 
basis based on the approved CAP vendor's reasonable net acquisition 
costs for that category as determined by CMS, based, in part, on 
information disclosed to CMS and limited by the weighted payment amount 
established under section 1847A of the Act across all drugs for which a 
composite bid is required in the category, and limited by the payment 
amount established under section 1847A of the Act for each other drug 
for which the approved CAP vendor submits a bid in accordance with Sec. 
414.910. Adjustment to the payment amounts may be made more often than 
annually, but no more often than quarterly, in any of the following 
cases:
    (i) Introduction of new drugs.
    (ii) Expiration of a drug patent or availability of a generic drug.
    (iii) Material shortage that results in a significant price increase 
for the drug.
    (iv) Withdrawal of a drug from the market.
    (2) The alternative payment amount established under section 1847A 
of the Act may be used to establish payment for a CAP drug if--

[[Page 46]]

    (i) The drug is properly assigned to a category established under 
the CAP; and
    (ii) It is a drug for which a HCPCS code must be established.
    (d) Adjustments. There is an established process for adjustments to 
payments to account for drugs that were billed, but which were not 
administered.
    (e) Resupply of participating CAP physician drug inventory. A 
participating CAP physician may acquire drugs under the CAP to resupply 
his or her private inventory if all of the following requirements are 
met:
    (1) The drugs were required immediately.
    (2) The participating CAP physician could not have anticipated the 
need for the drugs.
    (3) The approved CAP vendor could not have delivered the drugs in a 
timely manner. For purposes of this section, timely manner means 
delivery within the emergency delivery timeframe, as defined in Sec. 
414.902.
    (4) The participating CAP physician administered the drugs in an 
emergency situation, as defined in Sec. 414.902.
    (f) Substitution or addition of drugs on an approved CAP vendor's 
CAP drug list--(1) Short-term substitution of a CAP drug. On an 
occasional basis (for a period of time less than 2 weeks), an approved 
CAP vendor may agree to furnish a substitute NDC within a HCPCS code on 
the approved CAP vendor's CAP drug list if the approved CAP vendor--
    (i) Is willing to accept the payment amount that was established for 
the HCPCS code under this section; and
    (ii) Obtains the participating CAP physician's prior approval.
    (2) Long-term substitution or addition of a CAP drug. An approved 
CAP vendor may submit a request, as specified in paragraph (f)(3) of 
this section, for approval to substitute an NDC supplied by the approved 
CAP vendor for another NDC within the same HCPCS code or to add an NDC 
to the approved CAP vendor's drug list, if at least one of the following 
criteria is met:
    (i) Proposed substitution of an NDC for a period of 2 weeks or 
longer.
    (ii) Proposed addition of one or more NDCs within a HCPCS code 
included in the CAP drug category specified by CMS or on the approved 
CAP vendor's approved CAP drug list.
    (iii) Proposed addition of--
    (A) One or more newly issued HCPCS codes; or
    (B) One of the following single indication orphan drug J codes or 
their updates: J0205, J0256, J9300, J1785, J2355, J3240, J7513, J9010, 
J9015, J9017, J9160, J9216.
    (iv) Beginning January 1, 2007, the proposed addition of a drug(s) 
that has not yet been assigned a HCPCS code, but for which a HCPCS code 
must be established.
    (3) Requesting the addition or substitution of CAP drug. An approved 
CAP vendor that meets the one of the criteria specified in paragraph 
(f)(2) must submit a written request to CMS or its designee. The request 
must--
    (i) Specify the NDC(s) and the respective HCPCS code that is to be 
added or substituted.
    (ii) Address the rationale for the substitution or addition of the 
NDC(s) or the addition of the HCPCS code(s) as applicable; and
    (iii) Address the impact of the substitution of the NDC(s) or the 
addition of the NDC(s) or HCPCS code(s), or both on--
    (A) Patient and drug safety;
    (B) Drug waste; and
    (C) The potential for cost savings.
    (4) Approval of a request(s). CMS or its designee notifies the 
approved CAP vendor of its decision.
    (i) Except as specified in paragraph (f)(4)(ii) of this section, an 
approved request is effective at the beginning of the next calendar 
quarter.
    (ii) Approved substitutions for request based on a drug shortage or 
other exigent circumstance may become effective immediately provided 
that--
    (A) CMS approves the immediate substitution; and
    (B) The approved CAP vendor's notifies its CAP participating 
physicians of the substitution immediately following CMS approval.
    (5) Payment for an approved drug change(s). The payment for--
    (i) Substituted or added CAP drugs that are within a HCPCS code for 
which payment is computed under paragraph (c)(1) of this section is the

[[Page 47]]

single payment for that HCPCS code, as determined and updated in 
accordance with paragraph (c)(1) of this section; or
    (ii) Added CAP drugs that are not within a HCPCS code for which 
payment is computed under paragraph (c)(1) of this section is specified 
under paragraph (c)(2) of this section.

[70 FR 39094, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005; 71 
FR 9460, Feb. 24, 2006]



Sec. 414.908  Competitive acquisition program.

    (a) Participating CAP physician selection of an approved CAP vendor. 
(1) CMS provides the participating CAP physician with a process for the 
selection of an approved CAP vendor on an annual basis, with exceptions 
as specified in Sec. 414.908(a)(2). Participating CAP physicians will 
also receive information about the CAP in the enrollment process for 
Medicare participation set forth in section 1842(h) of the Act.
    (2) A participating CAP physician may select an approved CAP vendor 
outside the annual selection process or opt out of the CAP for the 
remainder of the annual selection period when--
    (i) The selected approved CAP vendor ceases participation in the 
CAP;
    (ii) The physician leaves a group practice participating in CAP;
    (iii) The participating CAP physician relocates to another 
competitive acquisition area; or
    (iv) For other exigent circumstances defined by CMS.
    (3) The physician participating in the CAP--
    (i) Elects to use an approved CAP vendor for the drug category and 
area as set forth in Sec. 414.908(b);
    (ii) Completes and signs the CAP election agreement;
    (iii) Submits a written prescription order to the approved CAP 
vendor with complete patient information for patients new to the 
approved CAP vendor or when information changes. Abbreviated information 
may be sent on all subsequent orders for a patient for which the 
approved CAP vendor has previously received complete information and 
that has no changes to the original information. Prescription orders may 
be initiated by telephone, with a follow-up written order provided 
within 8 hours for routine deliveries and immediately for emergency 
deliveries;
    (iv) Does not receive payment for the CAP drug;
    (v) Except where applicable State pharmacy law prohibits it, 
provides the following information to the approved CAP vendor to 
facilitate collection of applicable deductible and coinsurance as 
described in Sec. 414.906(a)(3):
    (A) Date of order.
    (B) Beneficiary name, address, and phone number.
    (C) Physician identifying information:
    Name, practice location/shipping address, group practice information 
(if applicable), PIN, and UPIN.
    (D) Drug name.
    (E) Strength.
    (F) Quantity ordered.
    (G) Dose.
    (H) Frequency/instructions.
    (I) Anticipated date of administration.
    (J) Beneficiary Medicare information/Health insurance (HIC) number.
    (K) Supplementary insurance information (if applicable).
    (L) Medicaid information (if applicable).
    (M) Additional patient information: date of birth, allergies, 
height/weight, ICD-9-CM (if necessary).
    (vi) Agrees to accept the particular National Drug Codes (NDCs) 
supplied by the approved CAP vendor for the duration of the 
participating CAP physician's enrollment with the approved CAP vendor, 
subject to paragraphs (a)(3)(vii) and (a)(3)(xiv) of this section. By 
electing to participate with an approved CAP vendor, the participating 
CAP physician also agrees to accept the changes to the approved CAP 
vendor's CAP drug list that have been approved in accordance with Sec. 
414.906(f).
    (vii) Agrees to place routine orders for CAP drugs at the HCPCs 
level, except when medical necessity requires a particular formulation 
on the approved CAP vendor's CAP drug list. Medical necessity must be 
documented. When the conditions of this paragraph are met, the 
participating CAP physician may submit a prescription order to the

[[Page 48]]

approved CAP vendor that specifies the NDC.
    (viii) Notifies the approved CAP vendor when a drug is not 
administered or a smaller amount was administered than was originally 
ordered. The participating CAP physician and the approved CAP vendor 
agree on how to handle the unused CAP drug. If it is agreed that the 
participating CAP physician will maintain the CAP drug in his inventory 
for administration at a later date, the participating CAP physician 
submits a new prescription order at that time. This prescription order 
specifies that the CAP drug is being obtained from the participating CAP 
physician's CAP inventory and shipment should not occur;
    (ix) Maintains a separate electronic or paper inventory for each CAP 
drug obtained;
    (x) Agrees to file the Medicare claim within 14 calendar days of the 
date of drug administration;
    (xi) Agrees to submit an appeal accompanied by all required 
documentation (such as medical records or a certification) necessary to 
support payment if the participating CAP physician's drug administration 
claim for a CAP drug is denied;
    (xii) Agrees not to transport CAP drugs from one practice location 
(place of service) to another location;
    (xiii) Agrees to provide the CMS-developed CAP fact sheet to 
beneficiaries; and
    (xiv) May receive payment under the ASP system when medical 
necessity requires a certain brand or formulation of a drug that the 
approved CAP vendor has not been contracted to furnish under the CAP.
    (4) Physician group practices. If a physician group practice using a 
group billing number(s) elects to participate in the CAP, all physicians 
in the group are considered to be participating CAP physicians when 
using the group's billing number(s).
    (5) Additional opt out provision. In addition to the circumstances 
listed in paragraph (a)(2) of this section, if the approved CAP vendor 
refuses to ship to the participating CAP physician because the 
conditions of Sec. 414.914(h) were met, the physician can withdraw from 
the CAP category for the remainder of the year immediately upon notice 
to CMS and the approved CAP vendor.
    (b) Program requirements. (1) CMS selects approved CAP vendors 
through a competition among entities based on the following:
    (i) Submission of the bid prices using the OMB-approved Vendor 
Application and Bid Form for CAP drugs within the category and 
competitive acquisition area that--
    (A) Places the vendor among the qualified bidders with the lowest 
five composite bids; and
    (B) Does not exceed the weighted payment amount established under 
section 1847A of the Act across all drugs in that category.
    (ii) Ability to ensure product integrity.
    (iii) Customer service/Grievance process.
    (iv) At least 3 years experience in furnishing Part B injectable 
drugs.
    (v) Financial performance and solvency.
    (vi) Record of integrity and the implementation of internal 
integrity measures.
    (vii) Internal financial controls.
    (viii) Acquisition of all CAP drugs directly from the manufacturer 
or from a distributor that has acquired the products directly from the 
manufacturer.
    (ix) Maintenance of appropriate licensure to supply CAP drugs in 
States in which they are supplying CAP drugs.
    (x) Cost-sharing assistance as described in Sec. 414.914(g).
    (xi) Other factors as determined by CMS.
    (2) Approved CAP vendors must also meet the contract requirements 
under Sec. 414.914.
    (c) Additional considerations. CMS may refuse to award a contract or 
terminate an approved CAP vendor contract based upon the following:
    (1) Suspension or revocation by the Federal or State government of 
the entity's license for distribution of drugs, including controlled 
substances.
    (2) Exclusion of the entity under section 1128 of the Act from 
participation in Medicare or other Federal health care programs. These 
considerations are in addition to CMS' ability to terminate the approved 
CAP vendor for cause as specified in Sec. 414.914(a).

[[Page 49]]

    (3) Past violations or misconduct related to the pricing, marketing, 
distribution, or handling of drugs provided incident to a physician's 
service.
    (d) Multiple source drugs. In the case of multiple source drugs, 
there must be a competition among entities for the acquisition of at 
least one CAP drug within each billing and payment code within each 
category for each competitive acquisition area.
    (e) Multiple contracts for a category and area. The number of 
bidding qualified entities that are awarded a contract for a given 
category and area may be limited to no fewer than two.

[70 FR 39094, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005]



Sec. 414.910  Bidding process.

    (a) Entities may bid to furnish CAP drugs in all competitive 
acquisition areas of the United States, or one or more specific 
competitive acquisition areas.
    (b) The amount of the bid for any CAP drug for a specific 
competitive acquisition area must be uniform for all portions of that 
competitive acquisition area.
    (c) A submitted bid price must include the following:
    (1) All costs related to the delivery of the drug to the 
participating CAP physician.
    (2) The costs of dispensing (including shipping) of the drug and 
management fees. The costs related to the administration of the drug or 
wastage, spillage, or spoilage may not be included.

[70 FR 39095, July 6, 2005]



Sec. 414.912  Conflicts of interest

    (a) Approved CAP vendors and applicants that bid to participate in 
the CAP are subject to the following:
    (1) The conflict of interest standards and requirements of the 
Federal Acquisition Regulation (FAR) organizational conflict of interest 
guidance, found under FAR subpart 9.5.
    (2) Those requirements and standards contained in each individual 
contract awarded to perform functions under section 1847B of the Act.
    (b) Post-award conflicts of interest. Approved CAP vendors must have 
a code of conduct that establishes policies and procedures for 
recognizing and resolving conflicts of interest between the approved CAP 
vendor and any entity, including the Federal Government, with whom it 
does business. The code of conduct which is submitted as part of the 
application must--
    (1) State the need for management, employees, contractors, and 
agents to comply with the approved CAP vendor's code of conduct, and 
policies and procedures for conflicts of interest; and
    (2) State the approved CAP vendor's expectations for management, 
employees, contractors, and agents to comply with the approved CAP 
vendor's code of conduct, and policies and procedures for detecting, 
preventing, and resolving conflicts of interest.

[70 FR 39094, July 6, 2005]



Sec. 414.914  Terms of contract.

    (a) The contract between CMS and the approved CAP vendor will be for 
a term of 3 years, unless terminated or suspended earlier as provided in 
this section or provided in Sec. 414.917. The contract may be 
terminated--
    (1) By CMS for default if the approved CAP vendor violates any term 
of the contract; or
    (2) In the absence of a contract violation, by either CMS or the 
approved CAP vendor, if the terminating party notifies the other party 
by June 30 for an effective date of termination of December 31 of that 
year.
    (b) The contract will provide for a code of conduct for the approved 
CAP vendor that includes standards relating to conflicts of interest 
standards as set forth at Sec. 414.912.
    (c) The approved CAP vendor will have and implement a compliance 
plan that contains policies and procedures that control program fraud, 
waste, and abuse, and consists of the following minimum elements:
    (1) Written policies, procedures, and standards of conduct 
articulating the organization's commitment to comply with all applicable 
Federal and State laws, regulations, and guidance, including, but not 
limited to, the Prescription Drug Marketing Act (PDMA), the physician 
self-referral (``Stark'') prohibition, the Anti-Kickback statute and the 
False Claims Act.

[[Page 50]]

    (2) The designation of a compliance officer and compliance committee 
accountable to senior management.
    (3) Effective training and education of the compliance officer and 
organization employees, contractors, agents, and directors.
    (4) Enforcement of standards through well publicized disciplinary 
guidelines.
    (5) Procedures for effective internal monitoring and auditing.
    (6) Procedures for ensuring prompt responses to detected offenses 
and development of corrective action initiatives relating to the 
organization's contract as an approved CAP vendor.
    (i) If the approved CAP vendor discovers evidence of misconduct 
related to payment or delivery of drugs or biologicals under the 
contract, it will conduct a timely and reasonable inquiry into that 
conduct.
    (ii) The approved CAP vendor will conduct appropriate corrective 
actions including, but not limited to, repayment of overpayments and 
disciplinary actions against responsible individuals, in response to 
potential violations referenced at paragraph (c)(6)(i) of this section.
    (7) Procedures to voluntarily self-report potential fraud or 
misconduct related to the CAP to the appropriate government agency.
    (d) The contract must provide for disclosure of the approved CAP 
vendor's reasonable, net acquisition costs for a specified period of 
time, not to exceed quarterly.
    (e) The contract must provide for appropriate adjustments as 
described in Sec. 414.906(c)(1).
    (f) Under the terms of the contract, the approved CAP vendor must 
also--
    (1) Have sufficient arrangements to acquire and deliver CAP drugs 
within the category in the competitive acquisition area specified by the 
contract;
    (2) Have arrangements in effect for shipment at least 5 weekdays 
each week of CAP drugs under the contract, including the ability to 
comply with the routine and emergency delivery timeframes defined in 
Sec. 414.902;
    (3) Have procedures in place to address and resolve complaints of 
participating CAP physicians and individuals and inquiries regarding 
shipment of CAP drugs;
    (4) Have a grievance and appeals process for dispute resolution;
    (5) Respond within 2 business days to any inquiry, or sooner if the 
inquiry is related to drug quality;
    (6) Staff a toll-free telephone line from 8:30 a.m. or earlier and 
until 5 p.m. or later for all time zones served in the continental 
United States by the CAP vendor on business days (Monday through Friday 
excluding Federal holidays) to provide customer assistance, and 
establish reasonable hours of operation for Hawaii, Alaska, Puerto Rico, 
and the other U.S. territories;
    (7) Staff an emergency toll-free telephone line for weekend and 
evening access when the call center is closed, and determine what hours 
on Saturday and Sunday the call center is staffed and which hours a 
toll-free emergency line is activated; and
    (8) Include assistance for the disabled, the hearing impaired, and 
Spanish-speaking inquirers in all customer service operations.
    (9) Meet applicable licensure requirements in each State in which it 
supplies drugs under the CAP;
    (10) Be enrolled in Medicare as a participating supplier;
    (11) Comply with all applicable Federal and State laws, regulations 
and guidance related to the prevention of fraud and abuse;
    (12) Supply CAP drugs upon receipt of a prescription order to all 
participating CAP physicians who have selected the approved CAP vendor, 
except when the conditions of Sec. 414.914(h) are met;
    (13) Provide direct notification to participating CAP physicians 
enrolled with them of updates to the approved CAP vendor's CAP drug list 
on a quarterly basis. Changes must be disseminated at least 30 days 
before the approved changes are due to take effect, unless immediate 
notification as described in Sec. 414.906(f)(4) is required. The 
approved CAP vendor's entire CAP drug list must be disseminated at least 
once yearly; and approved CAP vendors must make a complete list that 
incorporates the most recent updates available to physicians on an 
ongoing basis. CMS posts on its web site the updated CAP drug lists for 
each approved CAP vendor.

[[Page 51]]

    (14) Ensure that subcontractors who are involved in providing 
services under the approved CAP contractor's CAP contract meet all 
requirements and comply with all laws and regulations relating to the 
services they provide under the CAP program. Notwithstanding any 
relationship the CAP vendor may have with any subcontractor, the 
approved CAP vendor maintains ultimate responsibility for adhering to 
and otherwise fully complying with all terms and conditions of its 
contract with CMS;
    (15) Comply with product integrity and record keeping requirements 
including but not limited to drug acquisition, handling, storage, 
shipping, drug waste, and return processes; and
    (16) Comply with such other terms and conditions as CMS may specify 
in the CAP contract consistent with section 1847B of the Act.
    (g) Under the terms of the contract, the approved CAP vendor must 
provide assistance to beneficiaries experiencing financial difficulty in 
paying their cost-sharing amounts through any one or all of the 
following:
    (1) Referral to a bona fide and independent charitable organization.
    (2) Implementation of a reasonable payment plan.
    (3) A full or partial waiver of the cost-sharing amount after 
determining in good faith that the individual is in financial need or 
the failure of reasonable collection efforts, provided that the waiver 
meets all of the requirements of section 1128A(i)(6)(A) of the Act and 
the corresponding regulations at paragraph (1) of the definition of 
``Remuneration'' in Sec. 1003.101 of this title. The availability of 
waivers may not be advertised or be made as part of a solicitation. 
Approved CAP vendors must inform beneficiaries that they generally make 
available the categories of assistance described in paragraphs (g)(1), 
(g)(2), and (g)(3) of this section. In no event may the approved CAP 
vendor include or make any statements or representations that promise or 
guarantee that beneficiaries receive cost-sharing waivers.
    (h) The approved CAP vendor must comply with the following 
procedures before it may refuse to make further shipments of CAP drugs 
to a participating CAP physician on behalf of a beneficiary:
    (1) Subsequent to receipt of final payment by Medicare, or the 
verification of drug administration by the participating CAP physician, 
the approved CAP vendor must bill any applicable supplemental insurance 
policies.
    (2) If a balance remains, after the supplemental insurer pays their 
share of the bill, or if there is no supplemental insurance, the 
approved CAP vendor may bill the beneficiary.
    (3) At the time of billing the beneficiary, or the participating CAP 
physician's presentation of the bill on behalf of the approved CAP 
vendor, the approved CAP vendor must inform the beneficiary of any types 
of cost-sharing assistance that may be available consistent with the 
requirements of section 1128A(a)(5) of the Act and Sec. 414.914(g).
    (4) If the beneficiary demonstrates a financial need, the approved 
CAP vendor must follow the conditions outlined in paragraph (g) of this 
section.
    (5) For purposes of paragraph (h) delivery means postmark date, or 
the date the coinsurance bill or notice was presented to the beneficiary 
by the participating CAP physician on behalf of the approved CAP vendor.
    (i) Except as specified in paragraph (h)(5)(ii), if after 45 days 
from delivery of the approved CAP vendor's bill to the beneficiary, the 
beneficiary's cost-sharing obligation remains unpaid, the approved CAP 
vendor may refuse further shipments to the participating CAP physician 
for that beneficiary.
    (ii) If the beneficiary has requested cost-sharing assistance within 
45 days of receiving delivery of the approved CAP vendor's bill, 
provisions of paragraphs (h)(6), (h)(7), or (h)(8) of this section, 
apply.
    (6) If the approved CAP vendor implements a reasonable payment plan, 
as specified in Sec. 414.914(g)(2), the approved CAP vendor must 
continue to ship CAP drugs for the beneficiary, as long as the 
beneficiary remains in compliance with the payment plan and makes an 
initial payment under the plan within 15 days after the delivery of the 
approved CAP vendor's written notice to the beneficiary offering the 
payment plan.

[[Page 52]]

    (7) If the approved CAP vendor has waived the cost-sharing 
obligations in accordance with section 1128A of the Act and Sec. 
414.914(g)(3), the approved CAP vendor may not refuse to ship drugs for 
that beneficiary.
    (8) If the approved CAP vendor refers the beneficiary to a bona fide 
and independent charity in accordance with Sec. 414.914(g)(1), the 
approved CAP vendor may refuse to ship drugs if the past due balance is 
not paid 15 days after the date of delivery of the approved CAP vendor's 
written notice to the beneficiary containing the referral for cost-
sharing assistance.
    (9) The approved CAP vendor may refuse to make further shipments to 
that participating CAP physician on behalf of the beneficiary for the 
lesser of the end of the calendar year or until the beneficiary's 
balance is paid in full.

[70 FR 39096, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005]



Sec. 414.916  Dispute resolution for vendors and beneficiaries.

    (a) General rule. Cases of an approved CAP vendor's dissatisfaction 
with denied drug claims are resolved through a voluntary alternative 
dispute resolution process delivered by the designated carrier, and a 
reconsideration process provided by CMS.
    (b) Dispute resolution. (1) When an approved CAP vendor is not paid 
on claims submitted to the designated carrier, the vendor may appeal to 
the designated carrier to counsel the responsible participating CAP 
physician on his or her agreement to file a clean claim and pursue an 
administrative appeal in accordance with subpart H of part 405 of this 
chapter. If problems persist, the approved CAP vendor may ask the 
designated carrier to--
    (i) Review the participating CAP physician's performance; and
    (ii) Potentially recommend to CMS that CMS suspend the participating 
CAP physician's CAP election agreement.
    (2) The designated carrier--
    (i) Gathers information from the local carrier, the participating 
CAP physician, the beneficiary, and the approved CAP vendor; and
    (ii) Makes a recommendation to CMS on whether the participating CAP 
physician has been filing his or her CAP drug administration claims in 
accordance with the requirements for physician participation in the CAP 
as set forth in Sec. 414.908(a)(3). The recommendation will include 
numbered findings of fact.
    (3) CMS will review the recommendation of the designated carrier and 
gather relevant additional information from the participating CAP 
physician before deciding whether to suspend the participating CAP 
physician's CAP election agreement. A suspension commencing before 
October 1 will conclude on December 31 of the same year. A suspension 
commencing on or after October 1 will conclude on December 31 of the 
next year.
    (4) The participating CAP physician may appeal that suspension by 
requesting a reconsideration of CMS' decision. The reconsideration will 
address whether the participating CAP physician's denied claims and 
appeals were the result of the participating CAP physician's failure to 
participate in accordance with the requirements of Sec. 414.908(a)(3).
    (c) Reconsideration--(1) Right to reconsideration. A participating 
CAP physician dissatisfied with a determination that his or her CAP 
election agreement has been suspended by CMS is entitled to a 
reconsideration as provided in this subpart.
    (2) Eligibility for reconsideration. CMS reconsiders any 
determination to suspend a participating CAP physician's election 
agreement if the participating CAP physician files a written request for 
reconsideration in accordance with paragraphs (c)(3) and (c)(4) of this 
section.
    (3) Manner and timing of request for reconsideration. A 
participating CAP physician who is dissatisfied with a CMS decision to 
suspend his or her CAP election agreement may request a reconsideration 
of the decision by filing a request with CMS. The request must be filed 
within 30 days of receipt of the CMS decision letter notifying the 
participating CAP physician of CMS' decision to suspend his or her CAP 
election agreement. From the date of receipt of the decision letter 
until the day the reconsideration determination is final, the ASP 
payment methodology under

[[Page 53]]

section 1847A of the Act applies to the physician.
    (4) Content of request. The request for reconsideration must 
specify--
    (i) The findings or issues with which the participating CAP 
physician disagrees;
    (ii) The reasons for the disagreement;
    (iii) A recital of the facts and law supporting the participating 
CAP physician's position;
    (iv) Any supporting documentation; and
    (v) Any supporting statements from approved CAP vendors, local 
carriers, or beneficiaries.
    (5) Withdrawal of request for reconsideration. A participating CAP 
physician may withdraw his or her request for reconsideration at any 
time before the issuance of a reconsideration determination.
    (6) Discretionary informal hearing. In response to a request for 
reconsideration, CMS may, at its discretion, provide the participating 
CAP physician the opportunity for an informal hearing that--
    (i) Is conducted by a hearing officer appointed by the director of 
the CMS Center for Medicare Management or his or her designee; and
    (ii) Provides the participating CAP physician the opportunity to 
present, by telephone or in person, evidence to rebut CMS' decision to 
suspend or terminate a participating CAP physician's CAP election 
agreement.
    (7) Informal hearing procedures. (i) CMS provides written notice of 
the time and place of the informal hearing at least 10 days before the 
scheduled date.
    (ii) The informal reconsideration hearing will be conducted in 
accordance with the following procedures:
    (A) The hearing is open to CMS and the participating CAP physician 
requesting the reconsideration, including--
    (1) Authorized representatives;
    (2) Technical advisors (individuals with knowledge of the facts of 
the case or presenting interpretation of the facts);
    (3) Representatives from the local carrier;
    (4) Representatives from the approved CAP vendor; and
    (5) Legal counsel.
    (B) The hearing is conducted by the hearing officer who receives 
relevant testimony;
    (C) Testimony and other evidence may be accepted by the hearing 
officer even though it would be inadmissible under the rules of evidence 
applied in Federal courts;
    (D) Either party may call witnesses from among those individuals 
specified in paragraph (c)(7)(ii)(A) of this section; and
    (E) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Hearing officer's findings. (i) Within 30 days of the hearing 
officer's receipt of the hearing request, the hearing officer presents 
the findings and recommendations to the participating CAP physician who 
requested the reconsideration. If the hearing officer decides to conduct 
an in-person or telephone hearing, the hearing officer will send a 
hearing notice to the participating CAP physician within 10 days of 
receipt of the hearing request, and the findings and recommendations are 
due to the participating CAP physician within 30 days of the hearing's 
conclusion.
    (ii) The written report of the hearing officer includes separate 
numbered findings of fact and the legal conclusions of the hearing 
officer.
    (9) Final reconsideration determination. (i) The hearing officer's 
decision is final unless the director of the CMS Center for Medicare 
Management or his or her designee chooses to review that decision within 
30 days. If the decision is favorable to the participating CAP 
physician, then the participating CAP physician may resume his or her 
participation in CAP. The hearing officer and the CMS official may 
review decisions that are favorable or unfavorable to the participating 
CAP physician.
    (ii) The CMS official may accept, reject, or modify the hearing 
officer's findings.
    (iii) If the CMS official reviews the hearing officer's decision, 
the CMS official issues a final reconsideration determination to the 
participating CAP physician on the basis of the hearing

[[Page 54]]

officer's findings and recommendations and other relevant information.
    (iv) The reconsideration determination of the CMS official is final. 
If the final decision is unfavorable to the participating CAP physician, 
then the participating CAP physician's CAP election agreement is 
terminated.
    (d) The approved CAP vendor may not charge the beneficiary for the 
full drug coinsurance amount if the designated contractor did not pay 
the approved CAP vendor in full, unless a properly executed advance 
beneficiary notice is in place. When a beneficiary receives an 
inappropriate coinsurance bill, the beneficiary may participate in the 
approved CAP vendor's grievance process to request correction of the 
approved CAP vendor's file. If the beneficiary is dissatisfied with the 
result of the approved CAP vendor's grievance process, the beneficiary 
may request intervention from the designated carrier. This is in 
addition to, rather than in place of, any other beneficiary appeal 
rights. The designated carrier will first investigate the facts and then 
facilitate correction to the appropriate claim record and beneficiary 
file.

[70 FR 39097, July 6, 2005]



Sec. 414.917  Dispute resolution and process for suspension or termination of approved CAP contract.

    (a) General rule. If a participating CAP physician finds an approved 
CAP vendor's service, or the quality of a CAP drug supplied by the 
approved CAP vendor to be unsatisfactory, then the physician may address 
the issue first through the approved CAP vendor's grievance process, and 
second through an alternative dispute resolution process administered by 
the designated carrier and CMS. If CMS suspends an approved CAP vendor's 
CAP contract for noncompliance or terminates the CAP contract in 
accordance with Sec. 414.914(a), the approved CAP vendor may request a 
reconsideration in accordance with paragraph (c) of this section.
    (b) Dispute resolution. (1) When a participating CAP physician is 
dissatisfied with an approved CAP vendor's service or the quality of a 
CAP drug supplied by the approved CAP vendor, then the participating CAP 
physician may use the approved CAP vendor's grievance process. If the 
service or quality issues are not resolved through the grievance process 
to the physician's satisfaction, then the participating CAP physician 
may ask the designated carrier to--
    (i) Review the approved CAP vendor's performance; and
    (ii) Potentially recommend termination of the approved CAP vendor's 
CAP contract.
    (2) Responsibility of the designated carrier. The designated 
carrier--
    (i) Gathers information from the local carrier, the participating 
CAP physician, the beneficiary, and the approved CAP vendor; and
    (ii) Makes a recommendation to CMS on whether the approved CAP 
vendor has been meeting the service and quality obligations of its CAP 
contract. This recommendation will include numbered findings of fact.
    (3) CMS will review the recommendation of the designated carrier 
and, gather relevant additional information from the approved CAP 
vendor, the participating CAP physician, the local carrier, and the 
beneficiary before deciding whether to terminate the approved CAP 
vendor's CAP contract.
    (4) The approved CAP vendor may appeal that termination by 
requesting a reconsideration. A determination must be made as to whether 
the approved CAP vendor has been meeting the service and quality 
obligations of its CAP contract.
    (c) Reconsideration--(1) Right to reconsideration. An approved CAP 
vendor dissatisfied with a determination that its CAP contract has been 
suspended or terminated by CMS is entitled to a reconsideration as 
provided in this subpart.
    (2) Eligibility for reconsideration. CMS will reconsider any 
determination to suspend or terminate an approved CAP vendor's contract 
if the approved CAP vendor files a written request for reconsideration 
in accordance with paragraphs (c)(3) and (c)(4) of this section.
    (3) Manner and timing of request for reconsideration. An approved 
CAP vendor that is dissatisfied with a CMS decision to suspend or 
terminate its CAP contract may request a reconsideration of the decision 
by filing a request with CMS. The request must be filed within

[[Page 55]]

30 days of receipt of the CMS decision letter notifying the approved CAP 
vendor of the suspension or termination of its CAP contract.
    (4) Content of request. The request for reconsideration must 
specify--
    (i) The findings or issues with which the approved CAP vendor 
disagrees;
    (ii) The reasons for the disagreement;
    (iii) A recital of the facts and law supporting the approved CAP 
vendor's position;
    (iv) Any supporting documentation; and
    (v) Any supporting statements from participating CAP physicians, the 
local carrier, or beneficiaries.
    (5) Withdrawal of request for reconsideration. An approved CAP 
vendor may withdraw its request for reconsideration at any time before 
the issuance of a reconsideration determination.
    (6) Discretionary informal hearing. In response to a request for 
reconsideration, CMS may, at its discretion, provide the approved CAP 
vendor the opportunity for an informal hearing that--
    (i) Is conducted by a hearing officer appointed by the Director of 
the CMS Center for Medicare Management or his or her designee; and
    (ii) Provides the approved CAP vendor the opportunity to present, by 
telephone or in person, evidence to rebut CMS' decision to suspend or 
terminate the approved CAP vendor's CAP contract.
    (7) Informal hearing procedures. (i) CMS will provide written notice 
of the time and place of the informal hearing at least 10 days before 
the scheduled date.
    (ii) The informal reconsideration hearing will be conducted in 
accordance with the following procedures:
    (A) The hearing is open to CMS and the approved CAP vendor 
requesting the reconsideration, including--
    (1) Authorized representatives;
    (2) Technical advisors (individuals with knowledge of the facts of 
the case or presenting interpretation of the facts);
    (3) Representatives from the local carriers and the designated 
carrier;
    (4) The participating CAP physician who requested the suspension, if 
any; and
    (5) Legal counsel.
    (B) The hearing will be conducted by the hearing officer, who will 
receive relevant testimony;
    (C) Testimony and other evidence may be accepted by the hearing 
officer even though it would be inadmissible under the rules of evidence 
applied in Federal courts;
    (D) Either party may call witnesses from among those individuals 
specified in the paragraph (c)(7)(ii)(A) of this section; and
    (E) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Hearing officer's findings. (i) Within 30 days of the hearing 
officer's receipt of the hearing request, the hearing officer will 
present the findings and recommendations to the approved CAP vendor that 
requested the reconsideration. If the hearing officer conducts a hearing 
in person or by phone, the hearing officer will send a hearing notice to 
the approved CAP vendor within 10 days of receipt of the hearing 
request, and the findings and recommendations are due to the approved 
CAP vendor within 30 days from of the hearing's conclusion.
    (ii) The written report of the hearing officer will include separate 
numbered findings of fact and the legal conclusions of the hearing 
officer.
    (9) Final reconsideration determination. (i) The hearing officer's 
decision is final unless the Director of the CMS Center for Medicare 
Management or his or her designee (CMS official) chooses to review that 
decision within 30 days. If the decision is favorable to the approved 
CAP vendor, then the approved CAP vendor may resume participation in 
CAP. The hearing officer and the CMS official may review decisions that 
are favorable or unfavorable to the approved CAP vendor.
    (ii) The CMS official may accept, reject, or modify the hearing 
officer's findings.
    (iii) If the CMS official reviews the hearing officer's decision, 
the CMS official will issue a final reconsideration determination to the 
approved CAP vendor on the basis of the hearing officer's findings and 
recommendations and other relevant information.

[[Page 56]]

    (iv) The reconsideration determination of the CMS official is final.

[70 FR 39098, July 6, 2005]



Sec. 414.918  Assignment.

    Payment for a CAP drug may be made only on an assignment-related 
basis.

[70 FR 39099, July 6, 2005]



Sec. 414.920  Judicial review.

    The following areas under the CAP are not subject to administrative 
or judicial review:
    (a) The establishment of payment amounts.
    (b) The awarding of vendor contracts.
    (c) The establishment of competitive acquisition areas.
    (d) The selection of CAP drugs.
    (e) The bidding structure.
    (f) The number of vendors selected.

[70 FR 39099, July 6, 2005]



                 Subpart L_Supplying and Dispensing Fees



Sec. 414.1000  Purpose.

    This subpart implements section 1842(o)(2) and section 1842(o)(6) of 
the Act, as added by section 303(e)(2) of the MMA, by specifying a 
supplying fee for drugs and biologicals covered under Part B of Title 
XVIII of the Act that are described in sections 1861(s)(2)(J), 
1861(s)(2)(Q), and 1861(s)(2)(T) of the Act.

[69 FR 66425, Nov. 15, 2004]



Sec. 414.1001  Basis of payment.

    (a) Supplying fees. Beginning in CY 2006--
    (1) A supplying fee of $24 is paid to a pharmacy for the first 
prescription of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act, that the 
pharmacy provided to a beneficiary during a 30-day period.
    (2) A supplying fee of $16 is paid to a pharmacy for each 
prescription following the first prescription (as specified in paragraph 
(a)(1) of this section) of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act, that the 
pharmacy provided to a beneficiary during a 30-day period.
    (3) A separate supplying fee is paid to a pharmacy for each 
prescription of drugs and biologicals described in sections 
1861(s)(2)(J), 1861(s)(2)(Q), and 1861(s)(2)(T) of the Act.
    (b) Supplying fees following transplant. Beginning CY 2006--(1) A 
supplying fee of $50 is paid to pharmacy for the initial supplied 
prescription of drugs and biologicals described in section 1861(s)(2)(J) 
of the Act, that the pharmacy provided to a patient during the first 30-
day period following a transplant.
    (2) A supplying fee of $16 is paid to a pharmacy for each 
prescription following an initial prescription after a transplant (as 
specified in paragraph (b)(1) of this section) of drugs and biologicals 
describe in section 1861(s)(2)(J) of the Act, that the pharmacy provided 
to a beneficiary during a 30-day period.
    (c) 30-day dispensing fees. Beginning CY 2006--(1) A dispensing fee 
of $57 is paid to a supplier to the extent that the prescription is for 
the initial dispensed 30-day supply of inhalation drugs furnished 
through durable medical equipment covered under section 1861(n) of the 
Act, regardless of the number of partial shipments of that 30-day 
supply.
    (2) Except for supplied inhalation drugs that meet criteria 
described in paragraph (c)(1) of this section, a dispensing fee of $33 
is paid for each dispensed 30-day supply of inhalation drugs furnished 
through durable medical equipment covered under section 1861(n) of the 
Act, regardless of the number of partial shipments of that 30-day 
supply.
    (d) 90-day dispensing fee. Beginning CY 2006, a dispensing fee of 
$66 is paid to a supplier for each dispensed 90-day supply of inhalation 
drugs furnished through durable medical equipment covered under section 
1861(n) of the Act, regardless of the number of partial shipments of 
that 90-day supply.

[70 FR 70334, Nov. 21, 2005]

[[Page 57]]



PART 415_SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN CERTAIN SETTINGS--Table of Contents




                      Subpart A_General Provisions

Sec.
415.1 Basis and scope.

   Subpart B_Fiscal Intermediary Payments to Providers for Physician 
                                Services

415.50 Scope.
415.55 General payment rules.
415.60 Allocation of physician compensation costs.
415.70 Limits on compensation for physician services in providers.

      Subpart C_Part B Carrier Payments for Physician Services to 
                       Beneficiaries in Providers

415.100 Scope.
415.102 Conditions for fee schedule payment for physician services to 
          beneficiaries in providers.
415.105 Amounts of payment for physician services to beneficiaries in 
          providers.
415.110 Conditions for payment: Medically directed anesthesia services.
415.120 Conditions for payment: Radiology services.
415.130 Conditions for payment: Physician pathology services.

            Subpart D_Physician Services in Teaching Settings

415.150 Scope.
415.152 Definitions.
415.160 Election of reasonable cost payment for direct medical and 
          surgical services of physicians in teaching hospitals: General 
          provisions.
415.162 Determining payment for physician services furnished to 
          beneficiaries in teaching hospitals.
415.164 Payment to a fund.
415.170 Conditions for payment on a fee schedule basis for physician 
          services in a teaching setting.
415.172 Physician fee schedule payment for services of teaching 
          physicians.
415.174 Exception: Evaluation and management services furnished in 
          certain centers.
415.176 Renal dialysis services.
415.178 Anesthesia services.
415.180 Teaching setting requirements for the interpretation of 
          diagnostic radiology and other diagnostic tests.
415.184 Psychiatric services.
415.190 Conditions of payment: Assistants at surgery in teaching 
          hospitals.

                     Subpart E_Services of Residents

415.200 Services of residents in approved GME programs.
415.202 Services of residents not in approved GME programs.
415.204 Services of residents in skilled nursing facilities and home 
          health agencies.
415.206 Services of residents in nonprovider settings.
415.208 Services of moonlighting residents.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 60 FR 63178, Dec. 8, 1995, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 415.1  Basis and scope.

    (a) Basis. This part is based on the provisions of the following 
sections of the Act: Section 1848 establishes a fee schedule for payment 
for physician services. Section 1861(q) specifies what is included in 
the term ``physician services'' covered under Medicare. Section 
1862(a)(14) sets forth the exclusion of nonphysician services furnished 
to hospital patients under Part B of Medicare. Section 1886(d)(5)(B) 
provides for a payment adjustment under the prospective payment system 
for the operating costs of inpatient hospital services furnished to 
Medicare beneficiaries in cost reporting periods beginning on or after 
October 1, 1983, to account for the indirect costs of medical education. 
Section 1886(h) establishes the methodology for Medicare payment of the 
cost of direct GME activities.
    (b) Scope. This part sets forth rules for fiscal intermediary 
payments to providers for physician services, Part B carrier payments 
for physician services to beneficiaries in providers, physician services 
in teaching settings, and services of residents.



   Subpart B_Fiscal Intermediary Payments to Providers for Physician 
                                Services



Sec. 415.50  Scope.

    This subpart sets forth rules for payment by fiscal intermediaries 
to providers for services furnished by physicians. Payment for covered 
services is

[[Page 58]]

made either under the prospective payment system (PPS) to PPS-
participating providers in accordance with part 412 of this chapter or 
under the reasonable cost method to non-PPS participating providers in 
accordance with part 413 of this chapter.



Sec. 415.55  General payment rules.

    (a) Allowable costs. Except as specified otherwise in Sec. Sec. 
413.102 of this chapter (concerning compensation of owners), 415.60 
(concerning allocation of physician compensation costs), and 415.162 
(concerning payment for physician services furnished to beneficiaries in 
teaching hospitals), costs a provider incurs for services of physicians 
are allowable only if the following conditions are met:
    (1) The services do not meet the conditions in Sec. 415.102(a) 
regarding fee schedule payment for services of physicians to a 
beneficiary in a provider.
    (2) The services include a surgeon's supervision of services of a 
qualified anesthetist, but do not include physician availability 
services, except for reasonable availability services furnished for 
emergency rooms and the services of standby surgical team physicians.
    (3) The provider has incurred a cost for salary or other 
compensation it furnished the physician for the services.
    (4) The costs incurred by the provider for the services meet the 
requirements in Sec. 413.9 of this chapter regarding costs related to 
patient care.
    (5) The costs do not include supervision of interns and residents 
unless the provider elects reasonable cost payment as specified in Sec. 
415.160, or any other costs incurred in connection with an approved GME 
program that are payable under Sec. Sec. 413.75 through 413.83 of this 
chapter.
    (b) Allocation of allowable costs. The provider must follow the 
rules in Sec. 415.60 regarding allocation of physician compensation 
costs to determine its costs of services.
    (c) Limits on allowable costs. The intermediary must apply the 
limits on compensation set forth in Sec. 415.70 to determine its 
payments to a provider for the costs of services.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.60  Allocation of physician compensation costs.

    (a) Definition. For purposes of this subpart, physician compensation 
costs means monetary payments, fringe benefits, deferred compensation, 
and any other items of value (excluding office space or billing and 
collection services) that a provider or other organization furnishes a 
physician in return for the physician services. Other organizations are 
entities related to the provider within the meaning of Sec. 413.17 of 
this chapter or entities that furnish services for the provider under 
arrangements within the meaning of the Act.
    (b) General rule. Except as provided in paragraph (d) of this 
section, each provider that incurs physician compensation costs must 
allocate those costs, in proportion to the percentage of total time that 
is spent in furnishing each category of services, among--
    (1) Physician services to the provider (as described in Sec. 
415.55);
    (2) Physician services to patients (as described in Sec. 415.102); 
and
    (3) Activities of the physician, such as funded research, that are 
not paid under either Part A or Part B of Medicare.
    (c) Allowable physician compensation costs. Only costs allocated to 
payable physician services to the provider (as described in Sec. 
415.55) are allowable costs to the provider under this subpart.
    (d) Allocation of all compensation to services to the provider. 
Generally, the total physician compensation received by a physician is 
allocated among all services furnished by the physician, unless--
    (1) The provider certifies that the compensation is attributable 
solely to the physician services furnished to the provider; and
    (2) The physician bills all patients for the physician services he 
or she furnishes to them and personally receives the payment from or on 
behalf of the patients. If returned directly or indirectly to the 
provider or an organization related to the provider within the meaning 
of Sec. 413.17 of this chapter, these payments are not compensation for 
physician services furnished to the provider.

[[Page 59]]

    (e) Assumed allocation of all compensation to beneficiary services. 
If the provider and physician agree to accept the assumed allocation of 
all the physician services to direct services to beneficiaries as 
described under Sec. 415.102(a), CMS does not require a written 
allocation agreement between the physician and the provider.
    (f) Determination and payment of allowable physician compensation 
costs. (1) Except as provided under paragraph (e) of this section, the 
intermediary pays the provider for these costs only if--
    (i) The provider submits to the intermediary a written allocation 
agreement between the provider and the physician that specifies the 
respective amounts of time the physician spends in furnishing physician 
services to the provider, physician services to patients, and services 
that are not payable under either Part A or Part B of Medicare; and
    (ii) The compensation is reasonable in terms of the time devoted to 
these services.
    (2) In the absence of a written allocation agreement, the 
intermediary assumes, for purposes of determining reasonable costs of 
the provider, that 100 percent of the physician compensation cost is 
allocated to services to beneficiaries as specified in paragraph (b)(2) 
of this section.
    (g) Recordkeeping requirements. Except for services furnished in 
accordance with the assumed allocation under paragraph (e) of this 
section, each provider that claims payment for services of physicians 
under this subpart must meet all of the following requirements:
    (1) Maintain the time records or other information it used to 
allocate physician compensation in a form that permits the information 
to be validated by the intermediary or the carrier.
    (2) Report the information on which the physician compensation 
allocation is based to the intermediary or the carrier on an annual 
basis and promptly notify the intermediary or carrier of any revisions 
to the compensation allocation.
    (3) Retain each physician compensation allocation, and the 
information on which it is based, for at least 4 years after the end of 
each cost reporting period to which the allocation applies.



Sec. 415.70  Limits on compensation for physician services in providers.

    (a) Principle and scope. (1) Except as provided in paragraphs (a)(2) 
and (a)(3) of this section, CMS establishes reasonable compensation 
equivalency limits on the amount of compensation paid to physicians by 
providers. These limits are applied to a provider's costs incurred in 
compensating physicians for services to the provider, as described in 
Sec. 415.55(a).
    (2) Limits established under this section do not apply to costs of 
physician compensation attributable to furnishing inpatient hospital 
services that are paid for under the prospective payment system 
implemented under part 412 of this chapter or to costs of physician 
compensation attributable to approved GME programs that are payable 
under Sec. Sec. 413.75 through 413.83 of this chapter.
    (3) Compensation that a physician receives for activities that may 
not be paid for under either Part A or Part B of Medicare is not 
considered in applying these limits.
    (b) Methodology for establishing limits. CMS establishes a 
methodology for determining annual reasonable compensation equivalency 
limits and, to the extent possible, considers average physician incomes 
by specialty and type of location using the best available data.
    (c) Application of limits. If the level of compensation exceeds the 
limits established under paragraph (b) of this section, Medicare payment 
is based on the level established by the limits.
    (d) Adjustment of the limits. The intermediary may adjust limits 
established under paragraph (b) of this section to account for costs 
incurred by the physician or the provider related to malpractice 
insurance, professional memberships, and continuing medical education.
    (1) For the costs of membership in professional societies and 
continuing medical education, the intermediary may adjust the limit by 
the lesser of--
    (i) The actual cost incurred by the provider or the physician for 
these activities; or

[[Page 60]]

    (ii) Five percent of the appropriate limit.
    (2) For the cost of malpractice expenses incurred by either the 
provider or the physician, the intermediary may adjust the reasonable 
compensation equivalency limit by the cost of the malpractice insurance 
expense related to the physician service furnished to patients in 
providers.
    (e) Exception to limits. An intermediary may grant a provider an 
exception to the limits established under paragraph (b) of this section 
only if the provider can demonstrate to the intermediary that it is 
unable to recruit or maintain an adequate number of physicians at a 
compensation level within these limits.
    (f) Notification of changes in methodologies and payment limits. (1) 
Before the start of a cost reporting period to which limits established 
under this section will be applied, CMS publishes a notice in the 
Federal Register that sets forth the amount of the limits and explains 
how it calculated the limits.
    (2) If CMS proposes to revise the methodology for establishing 
payment limits under this section, CMS publishes a notice, with 
opportunity for public comment, in the Federal Register. The notice 
explains the proposed basis and methodology for setting limits, 
specifies the limits that would result, and states the date of 
implementation of the limits.
    (3) If CMS updates limits by applying the most recent economic index 
data without revising the limit methodology, CMS publishes the revised 
limits in a notice in the Federal Register without prior publication of 
a proposal or public comment period.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



      Subpart C_Part B Carrier Payments for Physician Services to 
                       Beneficiaries in Providers



Sec. 415.100  Scope.

    This subpart implements section 1887(a)(1)(A) of the Act by 
providing general conditions that must be met in order for services 
furnished by physicians to beneficiaries in providers to be paid for on 
the basis of the physician fee schedule under part 414 of this chapter. 
Section 415.102 sets forth the conditions for fee schedule payment for 
physician services to beneficiaries in providers. Section 415.105 sets 
forth general requirements for determining the amounts of payment for 
services that meet the conditions of this section. Sections 415.120 and 
415.130 set forth additional conditions for payment for physician 
services in the specialties of radiology and pathology (laboratory 
services).



Sec. 415.102  Conditions for fee schedule payment for physician services to beneficiaries in providers.

    (a) General rule. If the physician furnishes services to 
beneficiaries in providers, the carrier pays on a fee schedule basis 
provided the following requirements are met:
    (1) The services are personally furnished for an individual 
beneficiary by a physician.
    (2) The services contribute directly to the diagnosis or treatment 
of an individual beneficiary.
    (3) The services ordinarily require performance by a physician.
    (4) In the case of radiology or laboratory services, the additional 
requirements in Sec. 415.120 or Sec. 415.130, respectively, are met.
    (b) Exception. If a physician furnishes services in a provider that 
do not meet the requirements in paragraph (a) of this section, but are 
related to beneficiary care furnished by the provider, the intermediary 
pays for those services, if otherwise covered. The intermediary follows 
the rules in Sec. Sec. 415.55 and 415.60 for payment on the basis of 
reasonable cost or PPS, as appropriate.
    (c) Effect of billing charges for physician services to a provider. 
(1) If a physician furnishes services that may be paid under the 
reasonable cost rules in Sec. 415.55 or Sec. 415.60, and paid by the 
intermediary, or would be paid under those rules except for the PPS 
rules in part 412 of this chapter, and under the payment rules for GME 
established by Sec. Sec. 413.75 through 413.83 of this chapter, neither 
the provider nor the physician may seek payment from the carrier, 
beneficiary, or another insurer.
    (2) If a physician furnishes services to an individual beneficiary 
that do not

[[Page 61]]

meet the applicable conditions in Sec. Sec. 415.120 (concerning 
conditions for payment for radiology services) and 415.130 (concerning 
conditions for payment for physician pathology services), the carrier 
does not pay on a fee schedule basis.
    (3) If the physician, the provider, or another entity bills the 
carrier or the beneficiary or another insurer for physician services 
furnished to the provider, as described in Sec. 415.55(a), CMS 
considers the provider to which the services are furnished to have 
violated its provider participation agreement, and may terminate that 
agreement. See part 489 of this chapter for rules governing provider 
agreements.
    (d) Effect of physician assumption of operating costs. If a 
physician or other entity enters into an agreement (such as a lease or 
concession) with a provider, and the physician (or entity) assumes some 
or all of the operating costs of the provider department in which the 
physician furnishes physician services, the following rules apply:
    (1) If the conditions set forth in paragraph (a) of this section are 
met, the carrier pays for the physician services under the physician fee 
schedule in part 414 of this chapter.
    (2) To the extent the provider incurs a cost payable on a reasonable 
cost basis under part 413 of this chapter, the intermediary pays the 
provider on a reasonable cost basis for the costs associated with 
producing these services, including overhead, supplies, equipment costs, 
and services furnished by nonphysician personnel.
    (3) The physician (or other entity) is treated as being related to 
the provider within the meaning of Sec. 413.17 of this chapter 
(concerning cost to related organizations).
    (4) The physician (or other entity) must make its books and records 
available to the provider and the intermediary as necessary to verify 
the nature and extent of the costs of the services furnished by the 
physician (or other entity).

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.105  Amounts of payment for physician services to beneficiaries in providers.

    (a) General rule. The carrier determines amounts of payment for 
physician services to beneficiaries in providers in accordance with the 
general rules governing the physician fee schedule payment in part 414 
of this chapter, except as provided in paragraph (b) of this section.
    (b) Application in certain settings--(1) Teaching hospitals. The 
carrier applies the rules in subpart D of this part (concerning 
physician services in teaching settings), in addition to those in this 
section, in determining whether fee schedule payment should be made for 
physician services to individual beneficiaries in a teaching hospital.
    (2) Hospital-based ESRD facilities. The carrier applies Sec. Sec. 
414.310 through 414.314 of this chapter, which set forth determination 
of reasonable charges under the ESRD program, to determine the amount of 
payment for physician services furnished to individual beneficiaries in 
a hospital-based ESRD facility approved under part 405 subpart U.



Sec. 415.110  Conditions for payment: Medically directed anesthesia services.

    (a) General payment rule. Medicare pays for the physician's medical 
direction of anesthesia services for one service or two through four 
concurrent anesthesia services furnished after December 31, 1998, only 
if each of the services meets the condition in Sec. 415.102(a) and the 
following additional conditions:
    (1) For each patient, the physician--
    (i) Performs a pre-anesthetic examination and evaluation;
    (ii) Prescribes the anesthesia plan;
    (iii) Personally participates in the most demanding aspects of the 
anesthesia plan including, if applicable, induction and emergence;
    (iv) Ensures that any procedures in the anesthesia plan that he or 
she does not perform are performed by a qualified individual as defined 
in operating instructions;
    (v) Monitors the course of anesthesia administration at frequent 
intervals;

[[Page 62]]

    (vi) Remains physically present and available for immediate 
diagnosis and treatment of emergencies; and
    (vii) Provides indicated post-anesthesia care.
    (2) The physician directs no more than four anesthesia services 
concurrently and does not perform any other services while he or she is 
directing the single or concurrent services so that one or more of the 
conditions in paragraph (a)(1) of this section are not violated.
    (3) If the physician personally performs the anesthesia service, the 
payment rules in Sec. 414.46(c) of this chapter apply (Physician 
personally performs the anesthesia procedure).
    (b) Medical documentation. The physician alone inclusively documents 
in the patient's medical record that the conditions set forth in 
paragraph (a)(1) of this section have been satisfied, specifically 
documenting that he or she performed the pre-anesthetic exam and 
evaluation, provided the indicated post-anesthesia care, and was present 
during the most demanding procedures, including induction and emergence 
where applicable.

[63 FR 58912, Nov. 2, 1998]



Sec. 415.120  Conditions for payment: Radiology services.

    (a) Services to beneficiaries. The carrier pays for radiology 
services furnished by a physician to a beneficiary on a fee schedule 
basis only if the services meet the conditions for fee schedule payment 
in Sec. 415.102(a) and are identifiable, direct, and discrete 
diagnostic or therapeutic services furnished to an individual 
beneficiary, such as interpretation of x-ray plates, angiograms, 
myelograms, pyelograms, or ultrasound procedures. The carrier pays for 
interpretations only if there is a written report prepared for inclusion 
in the patient's medical record maintained by the hospital.
    (b) Services to providers. The carrier does not pay on a fee 
schedule basis for physician services to the provider (for example, 
administrative or supervisory services) or for provider services needed 
to produce the x-ray films or other items that are interpreted by the 
radiologist. However, the intermediary pays the provider for these 
services in accordance with Sec. 415.55 for provider costs; Sec. 
415.102(d)(2) for costs incurred by a physician, such as under a lease 
or concession agreement; or part 412 of this chapter for payment under 
PPS.



Sec. 415.130  Conditions for payment: Physician pathology services.

    (a) Definitions. The following definitions are used in this section.
    (1) Covered hospital means, with respect to an inpatient or an 
outpatient, a hospital that had an arrangement with an independent 
laboratory that was in effect as of July 22, 1999, under which a 
laboratory furnished the technical component of physician pathology 
services to fee-for-service Medicare beneficiaries who were hospital 
inpatients or outpatients, and submitted claims for payment for this 
technical component directly to a Medicare carrier.
    (2) Fee-for-service Medicare beneficiaries means those beneficiaries 
who are entitled to benefits under Part A or are enrolled under Part B 
of Title XVIII of the Act or both and are not enrolled in any of the 
following:
    (i) A Medicare+Choice plan under Part C of Title XVIII of the Act.
    (ii) A plan offered by an eligible organization under section 1876 
of the Act;
    (iii) A program of all-inclusive care for the elderly (PACE) under 
1894 of the Act; or
    (iv) A social health maintenance organization (SHMO) demonstration 
project established under section 4018(b) of the Omnibus Budget 
Reconciliation Act of 1987.
    (b) Physician pathology services. The carrier pays for pathology 
services furnished by a physician to an individual beneficiary on a fee 
schedule basis only if the services meet the conditions for payment in 
Sec. 415.102(a) and are one of the following services:
    (1) Surgical pathology services.
    (2) Specific cytopathology, hematology, and blood banking services 
that have been identified to require performance by a physician and are 
listed in program operating instructions.
    (3) Clinical consultation services that meet the requirements in 
paragraph (c) of this section.
    (4) Clinical laboratory interpretative services that meet the 
requirements of

[[Page 63]]

paragraphs (c)(1), (c)(3), and (c)(4) of this section and that are 
specifically listed in program operating instructions.
    (c) Clinical consultation services. For purposes of this section, 
clinical consultation services must meet the following requirements:
    (1) Be requested by the beneficiary's attending physician.
    (2) Relate to a test result that lies outside the clinically 
significant normal or expected range in view of the condition of the 
beneficiary.
    (3) Result in a written narrative report included in the 
beneficiary's medical record.
    (4) Require the exercise of medical judgment by the consultant 
physician.
    (d) Physician pathology services furnished by an independent 
laboratory. The technical component of physician pathology services 
furnished by an independent laboratory to a hospital inpatient or 
outpatient before January 1, 2001 may be paid to the laboratory on a fee 
schedule basis. After December 31, 2000 but before January 1, 2003, if 
an independent laboratory furnishes the technical component of a 
physician pathology service to a fee-for-service Medicare beneficiary 
who is an inpatient or outpatient of a covered hospital, the carrier 
will treat the technical component as a service for which payment will 
be made to the laboratory under the physician fee schedule. For these 
two years the service will not be treated as an inpatient hospital 
service for which payment is made to the hospital under section 1886(d) 
of the Act or as an outpatient hospital service for which payment is 
made to the hospital under section 1833(t) of the Act. After December 
31, 2002, the technical component for physician pathology services 
furnished by an independent laboratory to a hospital inpatient or 
outpatient is paid only to the hospital.

[60 FR 63178, Dec. 8, 1995, as amended at 64 FR 59442, Nov. 2, 1999; 66 
FR 55332, Nov. 1, 2001]



            Subpart D_Physician Services in Teaching Settings



Sec. 415.150  Scope.

    This subpart sets forth the rules governing payment for the services 
of physicians in teaching settings and the criteria for determining 
whether the payments are made as one of the following:
    (a) Services to the hospital under the reasonable cost election in 
Sec. Sec. 415.160 through 415.164.
    (b) Provider services through the direct GME payment mechanism in 
Sec. Sec. 413.75 through 413.83 of this chapter.
    (c) Physician services to beneficiaries under the physician fee 
schedule as set forth in part 414 of this chapter.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.152  Definitions.

    As used in this subpart--
    Approved graduate medical education (GME) program means one of the 
following:
    (1) A residency program approved by the Accreditation Council for 
Graduate Medical Education of the American Medical Association, by the 
Committee on Hospitals of the Bureau of Professional Education of the 
American Osteopathic Association, by the Commission on Dental 
Accreditation of the American Dental Association, or by the Council on 
Podiatric Medicine Education of the American Podiatric Medical 
Association.
    (2) A program otherwise recognized as an ``approved medical 
residency program'' under Sec. 413.75(b) of this chapter.
    Direct medical and surgical services means services to individual 
beneficiaries that are either personally furnished by a physician or 
furnished by a resident under the supervision of a physician in a 
teaching hospital making the cost election described in Sec. Sec. 
415.160 through 415.162.
    Nonprovider setting means a setting other than a hospital, skilled 
nursing facility, home health agency, or comprehensive outpatient 
rehabilitation facility in which residents furnish services. These 
include, but are not limited to, family practice or multispecialty 
clinics and physician offices.
    Resident means one of the following:

[[Page 64]]

    (1) An individual who participates in an approved GME program, 
including programs in osteopathy, dentistry, and podiatry.
    (2) A physician who is not in an approved GME program, but who is 
authorized to practice only in a hospital, for example, individuals with 
temporary or restricted licenses, or unlicensed graduates of foreign 
medical schools. For purposes of this subpart, the term resident is 
synonymous with the terms intern and fellow.
    Teaching hospital means a hospital engaged in an approved GME 
residency program in medicine, osteopathy, dentistry, or podiatry.
    Teaching physician means a physician (other than another resident) 
who involves residents in the care of his or her patients.
    Teaching setting means any provider, hospital-based provider, or 
nonprovider settings in which Medicare payment for the services of 
residents is made under the direct GME payment provisions of Sec. Sec. 
413.75 through 413.83, or on a reasonable-cost basis under the 
provisions of Sec. 409.26 or Sec. 409.40(f) for resident services 
furnished in skilled nursing facilities or home health agencies, 
respectively.

[60 FR 63178, Dec. 8, 1995, as amended at 61 FR 59554, Nov. 22, 1996; 63 
FR 26359, May 12, 1998; 70 FR 47490, Aug. 12, 2005]



Sec. 415.160  Election of reasonable cost payment for direct medical and surgical services of physicians in teaching hospitals: General provisions.

    (a) Scope. A teaching hospital may elect to receive payment on a 
reasonable cost basis for the direct medical and surgical services of 
its physicians in lieu of fee schedule payments that might otherwise be 
made for these services.
    (b) Conditions. A teaching hospital may elect to receive these 
payments only if--
    (1) The hospital notifies its intermediary in writing of the 
election and meets the conditions of either paragraph (b)(2) or 
paragraph (b)(3) of this section;
    (2) All physicians who furnish services to Medicare beneficiaries in 
the hospital agree not to bill charges for these services; or
    (3) All physicians who furnish services to Medicare beneficiaries in 
the hospital are employees of the hospital and, as a condition of 
employment, are precluded from billing for these services.
    (c) Effect of election. If a teaching hospital elects to receive 
reasonable cost payment for physician direct medical and surgical 
services furnished to beneficiaries--
    (1) Those services and the supervision of interns and residents 
furnishing care to individual beneficiaries are covered as hospital 
services, and
    (2) The intermediary pays the hospital for those services on a 
reasonable cost basis under the rules in Sec. 415.162. (Payment for 
other physician compensation costs related to approved GME programs is 
made as described in Sec. 413.78 of this chapter.)
    (d) Election declined. If the teaching hospital does not make this 
election, payment is made--
    (1) For physician services furnished to beneficiaries on a fee 
schedule basis as described in part 414 subject to the rules in this 
subpart, and
    (2) For the supervision of interns and residents as described in 
Sec. Sec. 413.75 through 413.83.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.162  Determining payment for physician services furnished to beneficiaries in teaching hospitals.

    (a) General rule. Payments for direct medical and surgical services 
of physicians furnished to beneficiaries and supervision of interns and 
residents furnishing care to beneficiaries is made by Medicare on the 
basis of reasonable cost if the hospital exercises the election as 
provided for in Sec. 415.160. If this election is made, the following 
occurs:
    (1) Physician services furnished to beneficiaries and supervision of 
interns and residents furnishing care to beneficiaries are paid on a 
reasonable-cost basis, as provided for in paragraph (b) of this section.
    (2) Payment for certain medical school costs may be made as provided 
for in paragraph (c) of this section.

[[Page 65]]

    (3) Payments for services donated by volunteer physicians to 
beneficiaries are made to a fund designated by the organized medical 
staff of the teaching hospital or medical school as provided for in 
paragraph (d) of this section.
    (b) Reasonable cost of physician services and supervision of interns 
and residents. (1) Physician services furnished to beneficiaries and 
supervision of interns and residents furnishing care to beneficiaries in 
a teaching hospital are payable as provider services on a reasonable-
cost basis.
    (2) For purposes of this paragraph, reasonable cost is defined as 
the direct salary paid to these physicians, plus applicable fringe 
benefits.
    (3) The costs must be allocated to the services as provided by 
paragraph (j) of this section and apportioned to program beneficiaries 
as provided by paragraph (g) of this section.
    (4) Other allowable costs incurred by the provider related to the 
services described in this paragraph are payable subject to the 
requirements applicable to all other provider services.
    (c) Reasonable costs for the services furnished by a medical school 
or related organization in a hospital. An amount is payable to the 
hospital by CMS under the Medicare program provided that the costs would 
be payable if incurred directly by the hospital rather than under the 
arrangement. The amount must not be in excess of the reasonable costs 
(as defined in paragraphs (c)(1) and (c)(2) of this section) incurred by 
a teaching hospital for services furnished by a medical school or 
organization as described in Sec. 413.17 of this chapter for certain 
costs to the medical school (or a related organization) in furnishing 
services in the hospital.
    (1) Reasonable costs of physician services. (i) When the medical 
school and the hospital are related organizations. If the medical school 
(or organization related to the medical school) and the hospital are 
related by common ownership or control as described in Sec. 413.17 of 
this chapter--
    (A) The costs of these services are allowable costs to the hospital 
under the provisions of Sec. 413.17 of this chapter; and
    (B) The reimbursable costs to the hospital are determined under the 
provisions of this section in the same manner as the costs incurred for 
physicians on the hospital staff and without regard to payments made to 
the medical school by the hospital.
    (ii) When the medical school and the hospital are not related 
organizations. (A) If the medical school and the hospital are not 
related organizations under the provisions of Sec. 413.17 of this 
chapter and the hospital makes payment to the medical school for the 
costs of those services furnished to all patients, payment is made by 
Medicare to the hospital for the reasonable cost incurred by the 
hospital for its payments to the medical school for services furnished 
to beneficiaries.
    (B) Costs incurred under an arrangement must be allocated to the 
full range of services furnished to the hospital by the medical school 
physicians on the same basis as provided for under paragraph (j) of this 
section, and costs allocated to direct medical and surgical services 
furnished to hospital patients must be apportioned to beneficiaries as 
provided for under paragraph (g) of this section.
    (C) If the medical school and the hospital are not related 
organizations under the provisions of Sec. 413.17 of this chapter and 
the hospital makes payment to the medical school only for the costs of 
those services furnished to beneficiaries, costs of the medical school 
not to exceed 105 percent of the sum of physician direct salaries, 
applicable fringe benefits, employer's portion of FICA taxes, Federal 
and State unemployment taxes, and workmen's compensation paid by the 
medical school or an organization related to the medical school may be 
recognized as allowable costs of the medical school.
    (D) These allowable medical school costs must be allocated to the 
full range of services furnished by the physicians of the medical school 
or organization related as provided by paragraph (j) of this section.
    (E) Costs allocated to direct medical and surgical services 
furnished to hospital patients must be apportioned to beneficiaries as 
provided by paragraph (g) of this section.
    (2) Reasonable costs of other than direct medical and surgical 
services. These costs

[[Page 66]]

are determined in accordance with paragraph (c)(1) of this section 
except that--
    (i) If the hospital makes payment to the medical school for other 
than direct medical and surgical services furnished to beneficiaries and 
supervision of interns and residents furnishing care to beneficiaries, 
these payments are subject to the required cost-finding and 
apportionment methods applicable to the cost of other hospital services 
(except for direct medical and surgical services furnished to 
beneficiaries); or
    (ii) If the hospital makes payment to the medical school only for 
these services furnished to beneficiaries, the cost of these services is 
not subject to cost-finding and apportionment as otherwise provided by 
this subpart, and the reasonable cost paid by Medicare must be 
determined on the basis of the health insurance ratio(s) used in the 
apportionment of all other provider costs (excluding physician direct 
medical and surgical services furnished to beneficiaries) applied to the 
allowable medical school costs incurred by the medical school for the 
services furnished to all patients of the hospital.
    (d) ``Salary equivalent'' payments for direct medical and surgical 
services furnished by physicians on the voluntary staff of the hospital. 
(1) CMS makes payments under the Medicare program to a fund as defined 
in Sec. 415.164 for direct medical and surgical services furnished to 
beneficiaries on a regularly scheduled basis by physicians on the unpaid 
voluntary medical staff of the hospital (or medical school under 
arrangement with the hospital).
    (i) These payments represent compensation for contributed medical 
staff time which, if not contributed, would have to be obtained through 
employed staff on a payable basis.
    (ii) Payments for volunteer services are determined by applying to 
the regularly scheduled contributed time an hourly rate not to exceed 
the equivalent of the average direct salary (exclusive of fringe 
benefits) paid to all full-time, salaried physicians (other than interns 
and residents) on the hospital staff or, if the number of full-time 
salaried physicians is minimal in absolute terms or in relation to the 
number of physicians on the voluntary staff, to physicians at like 
institutions in the area.
    (iii) This ``salary equivalent'' is a single hourly rate covering 
all physicians regardless of specialty and is applied to the actual 
regularly scheduled time contributed by the physicians in furnishing 
direct medical and surgical services to beneficiaries including 
supervision of interns and residents in that care.
    (iv) A physician who receives any compensation from the hospital or 
a medical school related to the hospital by common ownership or control 
(within the meaning of Sec. 413.17 of this chapter) for direct medical 
and surgical services furnished to any patient in the hospital is not 
considered an unpaid voluntary physician for purposes of this paragraph.
    (v) If, however, a physician receives compensation from the hospital 
or related medical school or organization only for services that are 
other than direct medical and surgical services, a salary equivalent 
payment for the physician's regularly scheduled direct medical and 
surgical services to beneficiaries in the hospital may be imputed. 
However, the sum of the imputed value for volunteer services and the 
physician's actual compensation from the hospital and the related 
medical school (or organization) may not exceed the amount that would 
have been imputed if all of the physician's hospital and medical school 
services (compensated and volunteer) had been volunteer services, or 
paid at the rate of $30,000 per year, whichever is less.
    (2) The following examples illustrate how the allowable imputed 
value for volunteer services is determined. In each example, it has been 
assumed that the average salary equivalent hourly rate is equal to the 
hourly rate for the individual physician's compensated services.

    Example No: 1. Dr. Jones received $3,000 a year from Hospital X for 
services other than direct medical services to all patients, for 
example, utilization review and administrative services. Dr. Jones also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000 for the cost 
reporting period. The full imputed value of Dr. Jones' volunteer direct 
medical services would be allowed since the total amount of

[[Page 67]]

the imputed value ($10,000) and the compensated services ($3,000) does 
not exceed $30,000.
    Example No: 2. Dr. Smith received $25,000 from Hospital X for 
services as a department head in a teaching hospital. Dr. Smith also 
voluntarily furnished direct medical services to beneficiaries. The 
imputed value of the volunteer services amounted to $10,000. Only $5,000 
of the imputed value of volunteer services would be allowed since the 
total amount of the imputed value ($10,000) and the compensated services 
($25,000) exceeds the $30,000 maximum amount allowable for all of Dr. 
Smith's services.

                              Computation:

Maximum amount allowable for all services performed by Dr.       $30,000
 Smith for purposes of this computation......................
Less compensation received from Hospital X for other than        $25,000
 direct medical services to individual patients..............
Allowable amount of imputed value for the volunteer services      $5,000
 furnished by Dr. Smith......................................
 

    Example No. 3. Dr. Brown is not compensated by Hospital X for any 
services furnished in the hospital. Dr. Brown voluntarily furnished 
direct surgical services to beneficiaries for a period of 6 months, and 
the imputed value of these services amounted to $20,000. The allowable 
amount of the imputed value for volunteer services furnished by Dr. 
Brown would be limited to $15,000 ($30,000x6/12).

    (3) The amount of the imputed value for volunteer services 
applicable to beneficiaries and payable to a fund is determined in 
accordance with the aggregate per diem method described in paragraph (g) 
of this section.
    (4) Medicare payments to a fund must be used by the fund solely for 
improvement of care of hospital patients or for educational or 
charitable purposes (which may include but are not limited to medical 
and other scientific research).
    (i) No personal financial gain, either direct or indirect, from 
benefits of the fund may inure to any of the hospital staff physicians, 
medical school faculty, or physicians for whom Medicare imputes costs 
for purposes of payment into the fund.
    (ii) Expenses met from contributions made to the hospital from a 
fund are not included as a reimbursable cost when expended by the 
hospital, and depreciation expense is not allowed with respect to 
equipment or facilities donated to the hospital by a fund or purchased 
by the hospital from monies in a fund.
    (e) Requirements for payment--(1) Physicians on the hospital staff. 
The requirements under which the costs of physician direct medical and 
surgical services (including supervision of interns and residents) to 
beneficiaries are the same as those applicable to the cost of all other 
covered provider services except that the costs of these services are 
separately determined as provided by this section and are not subject to 
cost-finding as described in Sec. 413.24 of this chapter.
    (2) Physicians on the medical school faculty. Payment is made to a 
hospital for the costs of services of physicians on the medical school 
faculty, provided that if the medical school is not related to the 
hospital (within the meaning of Sec. 413.17 of this chapter, concerning 
cost to related organizations), the hospital does not make payment to 
the medical school for services furnished to all patients and the 
following requirements are met: If the hospital makes payment to the 
medical school for services furnished to all patients, these 
requirements do not apply. (See paragraph (c)(1)(ii) of this section.)
    (i) There is a written agreement between the hospital and the 
medical school or organization, specifying the types and extent of 
services to be furnished by the medical school and specifying that the 
hospital must pay to the medical school an amount at least equal to the 
reasonable cost (as defined in paragraph (c) of this section) of 
furnishing the services to beneficiaries.
    (ii) The costs are paid to the medical school by the hospital no 
later than the date on which the cost report covering the period in 
which the services were furnished is due to CMS.
    (iii) Payment for the services furnished under an arrangement would 
have been made to the hospital had the services been furnished directly 
by the hospital.
    (3) Physicians on the voluntary staff of the hospital (or medical 
school under arrangement with the hospital). If the conditions for 
payment to a fund outlined in Sec. 415.164 are met, payments are made

[[Page 68]]

on a ``salary equivalent'' basis (as defined in paragraph (d) of this 
section) to a fund.
    (f) Requirements for payment for medical school faculty services 
other than physician direct medical and surgical services. If the 
requirements for payment for physician direct medical and surgical 
services furnished to beneficiaries in a teaching hospital described in 
paragraph (e) of this section are met, payment is made to a hospital for 
the costs of medical school faculty services other than physician direct 
medical and surgical services furnished in a teaching hospital.
    (g) Aggregate per diem methods of apportionment--(1) For the costs 
of physician direct medical and surgical services. The cost of physician 
direct medical and surgical services furnished in a teaching hospital to 
beneficiaries is determined on the basis of an average cost per diem as 
defined in paragraph (h)(1) of this section for physician direct medical 
and surgical services to all patients (see Sec. Sec. 415.172 through 
415.184) for each of the following categories of physicians:
    (i) Physicians on the hospital staff.
    (ii) Physicians on the medical school faculty.
    (2) For the imputed value of physician volunteer direct medical and 
surgical services. The imputed value of physician direct medical and 
surgical services furnished to beneficiaries in a teaching hospital is 
determined on the basis of an average per diem, as defined in paragraph 
(h)(1) of this section, for physician direct medical and surgical 
services to all patients except that the average per diem is derived 
from the imputed value of the physician volunteer direct medical and 
surgical services furnished to all patients.
    (h) Definitions. (1) Average cost per diem for physician direct 
medical and surgical services (including supervision of interns and 
residents) furnished in a teaching hospital to patients in each category 
of physician services described in paragraph (g)(1) of this section 
means the amount computed by dividing total reasonable costs of these 
services in each category by the sum of--
    (i) Inpatient days (as defined in paragraph (h)(2) of this section); 
and
    (ii) Outpatient visit days (as defined in paragraph (h)(3) of this 
section).
    (2) Inpatient days are determined by counting the day of admission 
as 3.5 days and each day after a patient's day of admission, except the 
day of discharge, as 1 day.
    (3) Outpatient visit days are determined by counting only one visit 
day for each calendar day that a patient visits an outpatient department 
or multiple outpatient departments.
    (i) Application. (1) The following illustrates how apportionment 
based on the aggregate per diem method for costs of physician direct 
medical and surgical services furnished in a teaching hospital to 
patients is determined.

                           Teaching Hospital Y

                     Statistical and financial data:

Total inpatient days as defined in paragraph (h)(2) of this       75,000
 section and outpatient visit days as defined in paragraph
 (h)(3) of this section....................................
Total inpatient Part A days................................       20,000
Total inpatient Part B days where Part A coverage is not           1,000
 available.................................................
Total outpatient Part B visit days.........................        5,000
Total cost of direct medical and surgical services            $1,500,000
 furnished to all patients by physicians on the hospital
 staff as determined in accordance with paragraph (i) of
 this section..............................................
Total cost of direct medical and surgical services            $1,650,000
 furnished to all patients by physicians on the medical
 school faculty as determined in accordance with paragraph
 (i) of this section.......................................
 

    Computation of cost applicable to program for physicians on the 
hospital staff:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the hospital staff: $1,500,000 / 75,000 = $20 
per diem.

Cost of physician direct medical and surgical services          $400,000
 furnished to inpatient beneficiaries covered under Part A:
 $20 per diem x 20,000.....................................
Cost of physician direct medical and surgical services           $20,000
 furnished to inpatient beneficiaries covered under Part B:
 $20 per diem x 1,000......................................

[[Page 69]]

 
Cost of physician direct medical and surgical services          $100,000
 furnished to outpatient beneficiaries covered under Part
 B: $20 per diem x 5,000...................................
 

    Computation of cost applicable to program for physicians on the 
medical school faculty:
    Average cost per diem for direct medical and surgical services to 
patients by physicians on the medical school faculty: $1,650,000 / 
75,000 = $22 per diem.

Cost of physician direct medical and surgical services          $440,000
 furnished to inpatient beneficiaries covered under Part A:
 $22 per diem x 20,000.....................................
Cost of physician direct medical and surgical services           $22,000
 furnished to inpatient beneficiaries covered under Part B:
 $20 per diem x 1,000......................................
Cost of physician direct medical and surgical services          $110,000
 furnished to outpatient beneficiaries covered under Part
 B: $22 per diem x 5,000...................................
 

    (2) The following illustrates how the imputed value of physician 
volunteer direct medical and surgical services furnished in a teaching 
hospital to beneficiaries is determined.

    Example: The physicians on the medical staff of Teaching Hospital Y 
donated a total of 5,000 hours in furnishing direct medical and surgical 
services to patients of the hospital during a cost reporting period and 
did not receive any compensation from either the hospital or the medical 
school. Also, the imputed value for any physician volunteer services did 
not exceed the rate of $30,000 per year per physician.

                     Statistical and financial data:

Total salaries paid to the full-time salaried physicians by     $800,000
 the hospital (excluding interns and residents)............
Total physicians who were paid for an average of 40 hours             20
 per week or 2,080 (52 weeksx40 hours per week) hours per
 year......................................................
Average hourly rate equivalent: $800,000 / 41,600 (2,080 x        $19.23
 20).......................................................
 

    Computation of total imputed value of physician volunteer services 
applicable to all patients:

(Total donated hours x average hourly rate equivalent):          $96,150
 5,000 x $19.23............................................
Total inpatient days (as defined in paragraph (h)(2) of           75,000
 this section) and outpatient visit days (as defined in
 paragraph (h)(3) of this section).........................
Total inpatient Part A days................................       20,000
Total inpatient Part B days if Part A coverage is not              1,000
 available.................................................
Total outpatient Part B visit days.........................        5,000
 

    Computation of imputed value of physician volunteer direct medical 
and surgical services furnished to Medicare beneficiaries:
    Average per diem for physician direct medical and surgical services 
to all patients: $96,150 / 75,000 = $1.28 per diem

Imputed value of physician direct medical and surgical           $25,600
 services furnished to inpatient beneficiaries covered
 under Part A: $1.28 per diem x 20,000.....................
Imputed value of physician direct medical and surgical            $1,280
 services furnished to inpatient beneficiaries covered
 under Part B: $1.28 per diem x 1,000......................
Imputed value of physician direct medical and surgical            $6,400
 services furnished to outpatient beneficiaries covered
 under Part B: $1.28 per diem x 5,000......................
Total......................................................      $33,280
 

    (j) Allocation of compensation paid to physicians in a teaching 
hospital. (1) In determining reasonable cost under this section, the 
compensation paid by a teaching hospital, or a medical school or related 
organization under arrangement with the hospital, to physicians in a 
teaching hospital must be allocated to the full range of services 
implicit in the physician compensation arrangements. (However, see 
paragraph (d) of this section for the computation of the ``salary 
equivalent'' payments for volunteer services furnished to patients.)
    (2) This allocation must be made and must be capable of 
substantiation on the basis of the proportion of each physician's time 
spent in furnishing each type of service to the hospital or medical 
school.



Sec. 415.164  Payment to a fund.

    (a) General rules. Payment for certain voluntary services by 
physicians in teaching hospitals (as these services are described in 
Sec. 415.160) is made on a salary equivalent basis (as described in 
Sec. 415.162(d)) subject to the conditions and limitations contained in 
parts 405 and 413 of this chapter and this part 415, to a single fund 
(as defined in paragraph (b) of this section) designated by

[[Page 70]]

the organized medical staff of the hospital (or, if the services are 
furnished in the hospital by the faculty of a medical school, to a fund 
as may be designated by the faculty), if the following conditions are 
met:
    (1) The hospital (or medical school furnishing the services under 
arrangement with the hospital) incurs no actual cost in furnishing the 
services.
    (2) The hospital has an agreement with CMS under part 489 of this 
chapter.
    (3) The intermediary, or CMS as appropriate, has received written 
assurances that--
    (i) The payment is used solely for the improvement of care of 
hospital patients or for educational or charitable purposes; and
    (ii) Neither the individuals who are furnished the services nor any 
other persons are charged for the services (and if charged, provision is 
made for the return of any monies incorrectly collected).
    (b) Definition of a fund. For purposes of paragraph (a) of this 
section, a fund is an organization that meets either of the following 
requirements:
    (1) The organization has and retains exemption, as a governmental 
entity or under section 501(c)(3) of the Internal Revenue Code 
(nonprofit educational, charitable, and similar organizations), from 
Federal taxation.
    (2) The organization is an organization of physicians who, under the 
terms of their employment by an entity that meets the requirements of 
paragraph (b)(1) of this section, are required to turn over to that 
entity all income that the physician organization derives from the 
physician services.
    (c) Status of a fund. A fund approved for payment under paragraph 
(a) of this section has all the rights and responsibilities of a 
provider under Medicare except that it does not enter into an agreement 
with CMS under part 489 of this chapter.



Sec. 415.170  Conditions for payment on a fee schedule basis for physician services in a teaching setting.

    Services meeting the conditions for payment in Sec. 415.102(a) 
furnished in teaching settings are payable under the physician fee 
schedule if--
    (a) The services are personally furnished by a physician who is not 
a resident; or
    (b) The services are furnished by a resident in the presence of a 
teaching physician except as provided in Sec. 415.172 (concerning 
physician fee schedule payment for services of teaching physicians), 
Sec. 415.174 (concerning an exception for services furnished in 
hospital outpatient and certain other ambulatory settings), Sec. 
415.176 (concerning renal dialysis services), and Sec. 415.184 
(concerning psychiatric services), as applicable.



Sec. 415.172  Physician fee schedule payment for services of teaching physicians.

    (a) General rule. If a resident participates in a service furnished 
in a teaching setting, physician fee schedule payment is made only if a 
teaching physician is present during the key portion of any service or 
procedure for which payment is sought.
    (1) In the case of surgical, high-risk, or other complex procedures, 
the teaching physician must be present during all critical portions of 
the procedure and immediately available to furnish services during the 
entire service or procedure.
    (i) In the case of surgery, the teaching physician's presence is not 
required during opening and closing of the surgical field.
    (ii) In the case of procedures performed through an endoscope, the 
teaching physician must be present during the entire viewing.
    (2) In the case of evaluation and management services, the teaching 
physician must be present during the portion of the service that 
determines the level of service billed. (However, in the case of 
evaluation and management services furnished in hospital outpatient 
departments and certain other ambulatory settings, the requirements of 
Sec. 415.174 apply.)
    (b) Documentation. Except for services furnished as set forth in 
Sec. Sec. 415.174 (concerning an exception for services furnished in 
hospital outpatient and certain other ambulatory settings), 415.176 
(concerning renal dialysis services), and 415.184 (concerning 
psychiatric services), the medical records must

[[Page 71]]

document the teaching physician was present at the time the service is 
furnished. The presence of the teaching physician during procedures may 
be demonstrated by the notes in the medical records made by a physician, 
resident, or nurse. In the case of evaluation and management procedures, 
the teaching physician must personally document his or her participation 
in the service in the medical records.
    (c) Payment level. In the case of services such as evaluation and 
management for which there are several levels of service codes available 
for reporting purposes, the appropriate payment level must reflect the 
extent and complexity of the service when fully furnished by the 
teaching physician.



Sec. 415.174  Exception: Evaluation and management services furnished in certain centers.

    (a) In the case of certain evaluation and management codes of lower 
and mid-level complexity (as specified by CMS in program instructions), 
carriers may make physician fee schedule payment for a service furnished 
by a resident without the presence of a teaching physician. For the 
exception to apply, all of the following conditions must be met:
    (1) The services must be furnished in a center that is located in an 
outpatient department of a hospital or another ambulatory care entity in 
which the time spent by residents in patient care activities is included 
in determining intermediary payments to a hospital under Sec. Sec. 
413.75 through 413.83.
    (2) Any resident furnishing the service without the presence of a 
teaching physician must have completed more than 6 months of an approved 
residency program.
    (3) The teaching physician must not direct the care of more than 
four residents at any given time and must direct the care from such 
proximity as to constitute immediate availability. The teaching 
physician must--
    (i) Have no other responsibilities at the time;
    (ii) Assume management responsibility for those beneficiaries seen 
by the residents;
    (iii) Ensure that the services furnished are appropriate;
    (iv) Review with each resident during or immediately after each 
visit, the beneficiary's medical history, physical examination, 
diagnosis, and record of tests and therapies; and
    (v) Document the extent of the teaching physician's participation in 
the review and direction of the services furnished to each beneficiary.
    (4) The range of services furnished by residents in the center 
includes all of the following:
    (i) Acute care for undifferentiated problems or chronic care for 
ongoing conditions.
    (ii) Coordination of care furnished by other physicians and 
providers.
    (iii) Comprehensive care not limited by organ system, or diagnosis.
    (5) The patients seen must be an identifiable group of individuals 
who consider the center to be the continuing source of their health care 
and in which services are furnished by residents under the medical 
direction of teaching physicians.
    (b) Nothing in paragraph (a) of this section may be construed as 
providing a basis for the coverage of services not determined to be 
covered under Medicare, such as routine physical checkups.

[60 FR 63178, Dec. 8, 1995, as amended at 61 FR 59554, Nov. 22, 1996; 70 
FR 47490, Aug. 12, 2005]



Sec. 415.176  Renal dialysis services.

    In the case of renal dialysis services, physicians who are not paid 
under the physician monthly capitation payment method (as described in 
Sec. 414.314 of this chapter) must meet the requirements of Sec. Sec. 
415.170 and 415.172 (concerning physician fee schedule payment for 
services of teaching physicians).



Sec. 415.178  Anesthesia services.

    (a) General rule. An unreduced physician fee schedule payment may be 
made if a physician is involved in a single anesthesia procedure 
involving an anesthesia resident. In the case of anesthesia services, 
the teaching physician must be present during all critical portions of 
the procedure and immediately available to furnish services during the 
entire service or procedure. The teaching physician cannot receive an 
unreduced fee if he or she performs

[[Page 72]]

services involving other patients during the period the anesthesia 
resident is furnishing services in a single case. For additional rules 
for payment of anesthesia services involving residents, see Sec. 
414.46(c)(1)(iii)).
    (b) Documentation. Documentation must indicate the physician's 
presence or participation in the administration of the anesthesia.

[60 FR 63178, Dec. 8, 1995; 61 FR 42385, Aug. 15, 1996]



Sec. 415.180  Teaching setting requirements for the interpretation of diagnostic radiology and other diagnostic tests.

    (a) General rule. Physician fee schedule payment is made for the 
interpretation of diagnostic radiology and other diagnostic tests if the 
interpretation is performed or reviewed by a physician other than a 
resident.
    (b) Documentation. Documentation must indicate that the physician 
personally performed the interpretation or reviewed the resident's 
interpretation with the resident.



Sec. 415.184  Psychiatric services.

    To qualify for physician fee schedule payment for psychiatric 
services furnished under an approved GME program, the physician must 
meet the requirements of Sec. Sec. 415.170 and 415.172, including 
documentation, except that the requirement for the presence of the 
teaching physician during the service in which a resident is involved 
may be met by observation of the service by use of a one-way mirror, 
video equipment, or similar device.



Sec. 415.190  Conditions of payment: Assistants at surgery in teaching hospitals.

    (a) Basis, purpose, and scope. This section describes the conditions 
under which Medicare pays on a fee schedule basis for the services of an 
assistant at surgery in a teaching hospital. This section is based on 
section 1842(b)(7)(D)(I) of the Act and applies only to hospitals with 
an approved GME residency program. Except as specified in paragraph (c) 
of this section, fee schedule payment is not available for assistants at 
surgery in hospitals with--
    (1) A training program relating to the medical specialty required 
for the surgical procedure; and
    (2) A resident in a training program relating to the specialty 
required for the surgery available to serve as an assistant at surgery.
    (b) Definition. Assistant at surgery means a physician who actively 
assists the physician in charge of a case in performing a surgical 
procedure.
    (c) Conditions for payment for assistants at surgery. Payment on a 
fee schedule basis is made for the services of an assistant at surgery 
in a teaching hospital only if the services meet one of the following 
conditions:
    (1) Are required as a result of exceptional medical circumstances.
    (2) Are complex medical procedures performed by a team of 
physicians, each performing a discrete, unique function integral to the 
performance of a complex medical procedure that requires the special 
skills of more than one physician.
    (3) Constitute concurrent medical care relating to a medical 
condition that requires the presence of, and active care by, a physician 
of another specialty during surgery.
    (4) Are medically required and are furnished by a physician who is 
primarily engaged in the field of surgery, and the primary surgeon does 
not use interns and residents in the surgical procedures that the 
surgeon performs (including preoperative and postoperative care).
    (5) Are not related to a surgical procedure for which CMS determines 
that assistants are used less than 5 percent of the time.



                     Subpart E_Services of Residents



Sec. 415.200  Services of residents in approved GME programs.

    (a) General rules. Services furnished in hospitals by residents in 
approved GME programs are specifically excluded from being paid as 
``physician services'' defined in Sec. 414.2 of this chapter and are 
payable as hospital services. This exclusion applies whether or not the 
resident is licensed to practice under the laws of the State in which he

[[Page 73]]

or she performs the service. The payment methodology for services of 
residents in hospitals and hospital-based providers is set forth in 
Sec. Sec. 413.75 through 413.83 of this chapter.
    (b) Exception. For low and mid-level evaluation and management 
services furnished under certain conditions in centers located in 
hospital outpatient departments and other ambulatory settings, see Sec. 
415.174.
    (c) Definitions. See Sec. 415.152 for definitions of terms used in 
this subpart E.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.202  Services of residents not in approved GME programs.

    (a) General rules. For services of a physician employed by a 
hospital who is authorized to practice only in a hospital setting and 
for the services of a resident who is not in any approved GME program, 
payment is made to the hospital on a Part B reasonable cost basis 
regardless of whether the services are furnished to hospital inpatients 
or outpatients.
    (b) Payment. For services described in paragraph (a) of this 
section, payment is made under Part B by reducing the reasonable costs 
of furnishing the services by the beneficiary deductible and paying 80 
percent of the remaining amount. No payment is made for other costs of 
unapproved programs, such as administrative costs related to teaching 
activities of physicians.



Sec. 415.204  Services of residents in skilled nursing facilities and home health agencies.

    (a) Medicare Part A payment. Payment is made under Medicare Part A 
for interns' and residents' services furnished in the following settings 
that meet the specified requirements:
    (1) Skilled nursing facility. Payment to a participating skilled 
nursing facility may include the cost of services of an intern or 
resident who is in an approved GME program in a hospital with which the 
skilled nursing facility has a transfer agreement that provides, in 
part, for the transfer of patients and the interchange of medical 
records.
    (2) Home health agency. A participating home health agency may 
receive payment for the cost of the services of an intern or resident 
who is under an approved GME program of a hospital with which the home 
health agency is affiliated or under common control if these services 
are furnished as part of the home health visits for a Medicare 
beneficiary. (Nevertheless, see Sec. Sec. 413.75 through 413.83 of this 
chapter for the costs of approved GME programs in hospital-based 
providers.)
    (b) Medicare Part B payment. Medical services of a resident of a 
hospital that are furnished by a skilled nursing facility or home health 
agency are paid under Medicare Part B if payment is not provided under 
Medicare Part A. Payment is made under Part B for a resident's services 
by reducing the reasonable costs of furnishing the services by the 
beneficiary deductible and paying 80 percent of the remaining amount.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.206  Services of residents in nonprovider settings.

    Patient care activities of residents in approved GME programs that 
are furnished in nonprovider settings are payable in one of the 
following two ways:
    (a) Direct GME payments. If the conditions in Sec. 413.78 regarding 
patient care activities and training of residents are met, the time 
residents spend in nonprovider settings such as clinics, nursing 
facilities, and physician offices in connection with approved GME 
programs is included in determining the number of full-time equivalency 
residents in the calculation of a teaching hospital's resident count. 
The teaching physician rules on carrier payments in Sec. Sec. 415.170 
through 415.184 apply in these teaching settings.
    (b) Physician fee schedule. (1) Services furnished by a resident in 
a nonprovider setting are covered as physician services and payable 
under the physician fee schedule if the following requirements are met:
    (i) The resident is fully licensed to practice medicine, osteopathy, 
dentistry, or podiatry in the State in which the service is performed.
    (ii) The time spent in patient care activities in the nonprovider 
setting is not included in a teaching hospital's full-time equivalency 
resident count

[[Page 74]]

for the purpose of direct GME payments.
    (2) Payment may be made regardless of whether a resident is 
functioning within the scope of his or her GME program in the 
nonprovider setting.
    (3) If fee schedule payment is made for the resident's services in a 
nonprovider setting, payment must not be made for the services of a 
teaching physician.
    (4) The carrier must apply the physician fee schedule payment rules 
set forth in subpart A of part 414 of this chapter to payments for 
services furnished by a resident in a nonprovider setting.

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



Sec. 415.208  Services of moonlighting residents.

    (a) Definition. For purposes of this section, the term services of 
moonlighting residents refers to services that licensed residents 
perform that are outside the scope of an approved GME program.
    (b) Services in GME program hospitals. (1) The services of residents 
to inpatients of hospitals in which the residents have their approved 
GME program are not covered as physician services and are payable under 
Sec. Sec. 413.75 through 413.83 regarding direct GME payments.
    (2) Services of residents that are not related to their approved GME 
programs and are performed in an outpatient department or emergency 
department of a hospital in which they have their training program are 
covered as physician services and payable under the physician fee 
schedule if all of the following criteria are met:
    (i) The services are identifiable physician services and meet the 
conditions for payment of physician services to beneficiaries in 
providers in Sec. 415.102(a).
    (ii) The resident is fully licensed to practice medicine, 
osteopathy, dentistry, or podiatry by the State in which the services 
are performed.
    (iii) The services performed can be separately identified from those 
services that are required as part of the approved GME program.
    (3) If the criteria specified in paragraph (b)(2) of this section 
are met, the services of the moonlighting resident are considered to 
have been furnished by the individual in his or her capacity as a 
physician, rather than in the capacity of a resident. The carrier must 
review the contracts and agreements for these services to ensure 
compliance with the criteria specified in paragraph (b)(2) of this 
section.
    (4) No payment is made for services of a ``teaching physician'' 
associated with moonlighting services, and the time spent furnishing 
these services is not included in the teaching hospital's full-time 
equivalency count for the indirect GME payment (Sec. 412.105 of this 
chapter) and for the direct GME payment (Sec. Sec. 413.75 through 
413.83 of this chapter).
    (c) Other settings. Moonlighting services of a licensed resident in 
an approved GME program furnished outside the scope of that program in a 
hospital or other setting that does not participate in the approved GME 
program are payable under the physician fee schedule as set forth in 
Sec. 415.206(b)(1).

[60 FR 63178, Dec. 8, 1995, as amended at 70 FR 47490, Aug. 12, 2005]



PART 416_AMBULATORY SURGICAL SERVICES--Table of Contents




              Subpart A_General Provisions and Definitions

Sec.
416.1 Basis and scope.
416.2 Definitions.

              Subpart B_General Conditions and Requirements

416.25 Basic requirements.
416.26 Qualifying for an agreement.
416.30 Terms of agreement with CMS.
416.35 Termination of agreement.

               Subpart C_Specific Conditions for Coverage

416.40 Condition for coverage--Compliance with State licensure law.
416.41 Condition for coverage--Governing body and management.
416.42 Condition for coverage--Surgical services.
416.43 Condition for coverage--Evaluation of quality.
416.44 Condition for coverage--Environment.

[[Page 75]]

416.45 Condition for coverage--Medical staff.
416.46 Condition for coverage--Nursing services.
416.47 Condition for coverage--Medical records.
416.48 Condition for coverage--Pharmaceutical services.
416.49 Condition for coverage--Laboratory and radiologic services.

                       Subpart D_Scope of Benefits

416.60 General rules.
416.61 Scope of facility services.
416.65 Covered surgical procedures.
416.75 Performance of listed surgical procedures on an inpatient 
          hospital basis.

                 Subpart E_Payment for Facility Services

416.120 Basis for payment.
416.125 ASC facility services payment rate.
416.130 Publication of revised payment methodologies.
416.140 Surveys.
416.150 Beneficiary appeals.

 Subpart F_Adjustment in Payment Amounts for New Technology Intraocular 
             Lenses Furnished by Ambulatory Surgical Centers

416.180 Definitions.
416.185 Payment review process.
416.190 Who may request a review.
416.195 A request to review.
416.200 Application of the payment adjustment.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 47 FR 34094, Aug. 5, 1982, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 416.1  Basis and scope.

    (a) Statutory basis. (1) Section 1832(a)(2)(F)(i) of the Act 
provides for Medicare Part B coverage of facility services furnished in 
connection with surgical procedures specified by the Secretary under 
section 1833(i)(1) of the Act.
    (2) Section 1833(i)(1)(A) of the Act requires the Secretary to 
specify the surgical procedures that can be performed safely on an 
ambulatory basis in an ambulatory surgical center, or a hospital 
outpatient department.
    (3) Section 1833(i) (2)(A) and (3) specify the amounts to be paid 
for facility services furnished in connection with the specified 
surgical procedures when they are performed, respectively, in an ASC, or 
in a hospital outpatient department.
    (b) Scope. This part sets forth--
    (1) The conditions that an ASC must meet in order to participate in 
the Medicare program;
    (2) The scope of covered services; and
    (3) The conditions for Medicare payment for facility services.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



Sec. 416.2  Definitions.

    As used in this part:
    Ambulatory surgical center or ASC means any distinct entity that 
operates exclusively for the purpose of providing surgical services to 
patients not requiring hospitalization, has an agreement with CMS to 
participate in Medicare as an ASC, and meets the conditions set forth in 
subparts B and C of this part.
    ASC services means facility services that are furnished in an ASC.
    Covered surgical procedures means those surgical and other medical 
procedures that meet the criteria specified in Sec. 416.65 and are 
published by CMS in the Federal Register.
    Facility services means services that are furnished in connection 
with covered surgical procedures performed in an ASC, or in a hospital 
on an outpatient basis.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



              Subpart B_General Conditions and Requirements



Sec. 416.25  Basic requirements.

    Participation as an ASC is limited to facilities that--
    (a) Meet the definition in Sec. 416.2; and
    (b) Have in effect an agreement obtained in accordance with this 
subpart.

[56 FR 8843, Mar. 1, 1991]



Sec. 416.26  Qualifying for an agreement.

    (a) Deemed compliance. CMS may deem an ASC to be in compliance with 
any or all of the conditions set forth in subpart C of this part if--

[[Page 76]]

    (1) The ASC is accredited by a national accrediting body, or 
licensed by a State agency, that CMS determines provides reasonable 
assurance that the conditions are met;
    (2) In the case of deemed status through accreditation by a national 
accrediting body, where State law requires licensure, the ASC complies 
with State licensure requirements; and
    (3) The ASC authorizes the release to CMS, of the findings of the 
accreditation survey.
    (b) Survey of ASCs. (1) Unless CMS deems the ASC to be in compliance 
with the conditions set forth in subpart C of this part, the State 
survey agency must survey the facility to ascertain compliance with 
those conditions, and report its findings to CMS.
    (2) CMS surveys deemed ASCs on a sample basis as part of CMS's 
validation process.
    (c) Acceptance of the ASC as qualified to furnish ambulatory 
surgical services. If CMS determines, after reviewing the survey agency 
recommendation and other evidence relating to the qualification of the 
ASC, that the facility meets the requirements of this part, it sends to 
the ASC--
    (1) Written notice of the determination; and
    (2) Two copies of the ASC agreement.
    (d) Filing of agreement by the ASC. If the ASC wishes to participate 
in the program, it must--
    (1) Have both copies of the ASC agreement signed by its authorized 
representative; and
    (2) File them with CMS.
    (e) Acceptance by CMS. If CMS accepts the agreement filed by the 
ASC, returns to the ASC one copy of the agreement, with a notice of 
acceptance specifying the effective date.
    (f) Appeal rights. If CMS refuses to enter into an agreement or if 
CMS terminates an agreement, the ASC is entitled to a hearing in 
accordance with part 498 of this chapter.

[56 FR 8843, Mar. 1, 1991]



Sec. 416.30  Terms of agreement with CMS.

    As part of the agreement under Sec. 416.26 the ASC must agree to 
the following:
    (a) Compliance with coverage conditions. The ASC agrees to meet the 
conditions for coverage specified in subpart C of this part and to 
report promptly to CMS any failure to do so.
    (b) Limitation on charges to beneficiaries. \1\ The ASC agrees to 
charge the beneficiary or any other person only the applicable 
deductible and coinsurance amounts for facility services for which the 
beneficiary--
---------------------------------------------------------------------------

    \1\ For facility services furnished before July 1987, the ASC had to 
agree to make no charge to the beneficiary, since those services were 
not subject to the part B deductible and coinsurance provisions.
---------------------------------------------------------------------------

    (1) Is entitled to have payment made on his or her behalf under this 
part; or
    (2) Would have been so entitled if the ASC had filed a request for 
payment in accordance with Sec. 410.165 of this chapter.
    (c) Refunds to beneficiaries. (1) The ASC agrees to refund as 
promptly as possible any money incorrectly collected from beneficiaries 
or from someone on their behalf.
    (2) As used in this section, money incorrectly collected means sums 
collected in excess of those specified in paragraph (b) of this section. 
It includes amounts collected for a period of time when the beneficiary 
was believed not to be entitled to Medicare benefits if--
    (i) The beneficiary is later determined to have been entitled to 
Medicare benefits; and
    (ii) The beneficiary's entitlement period falls within the time the 
ASC's agreement with CMS is in effect.
    (d) Furnishing information. The ASC agrees to furnish to CMS, if 
requested, information necessary to establish payment rates specified in 
Sec. Sec. 416.120-416.130 in the form and manner that CMS requires.
    (e) Acceptance of assignment. The ASC agrees to accept assignment 
for all facility services furnished in connection with covered surgical 
procedures. For purposes of this section, assignment means an assignment 
under Sec. 424.55 of this chapter of the right to receive payment under 
Medicare Part B and payment under Sec. 424.64 of this chapter (when an 
individual dies before assigning the claim).
    (f) ASCs operated by a hopsital. In an ASC operated by a hospital--

[[Page 77]]

    (1) The agreement is made effective on the first day of the next 
Medicare cost reporting period of the hospital that operates the ASC; 
and
    (2) The ASC participates and is paid only as an ASC, without the 
option of converting to or being paid as a hospital outpatient 
department, unless CMS determines there is good cause to do otherwise.
    (3) Costs for the ASC are treated as a non-reimbursable cost center 
on the hopsital's cost report.
    (g) Additional provisions. The agreement may contain any additional 
provisions that CMS finds necessary or desirable for the efficient and 
effective administration of the Medicare program.

[47 FR 34094, Aug. 5, 1982, as amended at 51 FR 41351, Nov. 14, 1986; 56 
FR 8844, Mar. 1, 1991]



Sec. 416.35  Termination of agreement.

    (a) Termination by the ASC--(1) Notice to CMS. An ASC that wishes to 
terminate its agreement must send CMS written notice of its intent.
    (2) Date of termination. The notice may state the intended date of 
termination which must be the first day of a calendar month.
    (i) If the notice does not specify a date, or the date is not 
acceptable to CMS, CMS may set a date that will not be more than 6 
months from the date on the ASC's notice of intent.
    (ii) CMS may accept a termination date that is less than 6 months 
after the date on the ASC's notice if it determines that to do so would 
not unduly disrupt services to the community or otherwise interfere with 
the effective and efficient administration of the Medicare program.
    (3) Voluntary termination. If an ASC ceases to furnish services to 
the community, that shall be deemed to be a voluntary termination of the 
agreement by the ASC, effective on the last day of business with 
Medicare beneficiaries.
    (b) Termination by CMS--(1) Cause for termination. CMS may terminate 
an agreement if it determines that the ASC--
    (i) No longer meets the conditions for coverage as specified under 
Sec. 416.26; or
    (ii) Is not in substantial compliance with the provisions of the 
agreement, the requirements of this subpart, and other applicable 
regulations of subchapter B of this chapter, or any applicable 
provisions of title XVIII of the Act.
    (2) Notice of termination. CMS sends notice of termination to the 
ASC at least 15 days before the effective date stated in the notice.
    (3) Appeal by the ASC. An ASC may appeal the termination of its 
agreement in accordance with the provisions set forth in part 498 of 
this chapter.
    (c) Effect of termination. Payment is not available for ASC services 
furnished on or after the effective date of termination.
    (d) Notice to the public. Prompt notice of the date and effect of 
termination is given to the public, through publication in local 
newspapers by--
    (1) The ASC, after CMS has approved or set a termination date; or
    (2) CMS, when it has terminated the agreement.
    (e) Conditions for reinstatement after termination of agreement by 
CMS. When an agreement with an ASC is terminated by CMS, the ASC may not 
file another agreement to participate in the Medicare program unless 
CMS--
    (1) Finds that the reason for the termination of the prior agreement 
has been removed; and
    (2) Is assured that the reason for the termination will not recur.

[47 FR 34094, Aug. 5, 1982, as amended at 52 FR 22454, June 12, 1987; 56 
FR 8844, Mar. 1, 1991; 61 FR 40347, Aug. 2, 1996]



               Subpart C_Specific Conditions for Coverage



Sec. 416.40  Condition for coverage--Compliance with State licensure law.

    The ASC must comply with State licensure requirements.



Sec. 416.41  Condition for coverage--Governing body and management.

    The ASC must have a governing body, that assumes full legal 
responsibility for determining, implementing, and monitoring policies 
governing the ASC's total operation and for ensuring that these policies 
are administered so as to provide quality health care in a

[[Page 78]]

safe environment. When services are provided through a contract with an 
outside resource, the ASC must assure that these services are provided 
in a safe and effective manner. Standard: Hospitalization. The ASC must 
have an effective procedure for the immediate transfer to a hospital, of 
patients requiring emergency medical care beyond the capabilities of the 
ASC. This hospital must be a local, Medicare participating hospital or a 
local, nonparticipating hospital that meets the requirements for payment 
for emergency services under Sec. 482.2 of this chapter. The ASC must 
have a written transfer agreement with such a hospital, or all 
physicians performing surgery in the ASC must have admitting privileges 
at such a hospital.

[47 FR 34094, Aug. 5, 1982, as amended at 51 FR 22041, June 17, 1986]



Sec. 416.42  Condition for coverage--Surgical services.

    Surgical procedures must be performed in a safe manner by qualified 
physicians who have been granted clinical privileges by the governing 
body of the ASC in accordance with approved policies and procedures of 
the ASC.
    (a) Standard: Anesthetic risk and evaluation. A physician must 
examine the patient immediately before surgery to evaluate the risk of 
anesthesia and of the procedure to be performed. Before discharge from 
the ASC, each patient must be evaluated by a physician for proper 
anesthesia recovery.
    (b) Standard: Administration of anesthesia. Anesthetics must be 
administered by only--
    (1) A qualified anesthesiologist; or
    (2) A physician qualified to administer anesthesia, a certified 
registered nurse anesthetist (CRNA) or an anesthesiologist's assistant 
as defined in Sec. 410.69(b) of this chapter, or a supervised trainee 
in an approved educational program. In those cases in which a non-
physician administers the anesthesia, unless exempted in accordance with 
paragraph (d) of this section, the anesthetist must be under the 
supervision of the operating physician, and in the case of an 
anesthesiologist's assistant, under the supervision of an 
anesthesiologist.
    (c) Standard: Discharge. All patients are discharged in the company 
of a responsible adult, except those exempted by the attending 
physician.
    (d) Standard: State exemption. (1) An ASC may be exempted from the 
requirement for physician supervision of CRNAs as described in paragraph 
(b)(2) of this section, if the State in which the ASC is located submits 
a letter to CMS signed by the Governor, following consultation with the 
State's Boards of Medicine and Nursing, requesting exemption from 
physician supervision of CRNAs. The letter from the Governor must attest 
that he or she has consulted with State Boards of Medicine and Nursing 
about issues related to access to and the quality of anesthesia services 
in the State and has concluded that it is in the best interests of the 
State's citizens to opt-out of the current physician supervision 
requirement, and that the opt-out is consistent with State law.
    (2) The request for exemption and recognition of State laws, and the 
withdrawal of the request may be submitted at any time, and are 
effective upon submission.

[57 FR 33899, July 31, 1992, as amended at 66 FR 56768, Nov. 13, 2001.]



Sec. 416.43  Condition for coverage--Evaluation of quality.

    The ASC, with the active participation of the medical staff, must 
conduct an ongoing, comprehensive self-assessment of the quality of care 
provided, including medical necessity of procedures performed and 
appropriateness of care, and use findings, when appropriate, in the 
revision of center policies and consideration of clinical privileges.



Sec. 416.44  Condition for coverage--Environment.

    The ASC must have a safe and sanitary environment, properly 
constructed, equipped, and maintained to protect the health and safety 
of patients.
    (a) Standard: Physical environment. The ASC must provide a 
functional and sanitary environment for the provision of surgical 
services.
    (1) Each operating room must be designed and equipped so that the 
types of surgery conducted can be performed

[[Page 79]]

in a manner that protects the lives and assures the physical safety of 
all individuals in the area.
    (2) The ASC must have a separate recovery room and waiting area.
    (3) The ASC must establish a program for identifying and preventing 
infections, maintaining a sanitary environment, and reporting the 
results to appropriate authorities.
    (b) Standard: Safety from fire. (1) Except as otherwise provided in 
this section, the ASC must meet the provisions applicable to Ambulatory 
Health Care Centers of the 2000 edition of the Life Safety Code of the 
National Fire Protection Association, regardless of the number of 
patients served. The Director of the Office of the Federal Register has 
approved the NFPA 101 [reg] 2000 edition of the Life Safety 
Code, issued January 14, 2000, for incorporation by reference in 
accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy of the Code is 
available for inspection at the CMS Information Resource Center, 7500 
Security Boulevard, Baltimore, MD and at the National Archives and 
Records Administration (NARA). For information on the availability of 
this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html. Copies may be obtained from the National Fire Protection 
Association, 1 Batterymarch Park, Quincy, MA 02269. If any changes in 
this edition of the Code are incorporated by reference, CMS will publish 
notice in the Federal Register to announce the changes.
    (2) In consideration of a recommendation by the State survey agency, 
CMS may waive, for periods deemed appropriate, specific provisions of 
the Life Safety Code which, if rigidly applied, would result in 
unreasonable hardship upon an ASC, but only if the waiver will not 
adversely affect the health and safety of the patients.
    (3) The provisions of the Life Safety Code do not apply in a State 
if CMS finds that a fire and safety code imposed by State law adequately 
protects patients in an ASC.
    (4) An ASC must be in compliance with Chapter 21.2.9.1, Emergency 
Lighting, beginning on March 13, 2006.
    (5) Notwithstanding any provisions of the 2000 edition of the Life 
Safety Code to the contrary, an ASC may place alcohol-based hand rub 
dispensers in its facility if--
    (i) Use of alcohol-based hand rub dispensers does not conflict with 
any State or local codes that prohibit or otherwise restrict the 
placement of alcohol-based hand rub dispensers in health care 
facilities;
    (ii) The dispensers are installed in a manner that minimizes leaks 
and spills that could lead to falls;
    (iii) The dispensers are installed in a manner that adequately 
protects against access by vulnerable populations; and
    (iv) The dispensers are installed in accordance with the following 
provisions:
    (A) Where dispensers are installed in a corridor, the corridor shall 
have a minimum width of 6 ft (1.8m);
    (B) The maximum individual dispenser fluid capacity shall be:
    (1) 0.3 gallons (1.2 liters) for dispensers in rooms, corridors, and 
areas open to corridors.
    (2) 0.5 gallons (2.0 liters) for dispensers in suites of rooms;
    (C) The dispensers shall have a minimum horizontal spacing of 4 ft 
(1.2m) from each other;
    (D) Not more than an aggregate 10 gallons (37.8 liters) of ABHR 
solution shall be in use in a single smoke compartment outside of a 
storage cabinet;
    (E) Storage of quantities greater than 5 gallons (18.9 liters) in a 
single smoke compartment shall meet the requirements of NFPA 30, 
Flammable and Combustible Liquids Code;
    (F) The dispensers shall not be installed over or directly adjacent 
to an ignition source; and
    (G) In locations with carpeted floor coverings, dispensers installed 
directly over carpeted surfaces shall be permitted only in sprinklered 
smoke compartments.
    (c) Standard: Emergency equipment. Emergency equipment available to 
the operating rooms must include at least the following:
    (1) Emergency call system.
    (2) Oxygen.

[[Page 80]]

    (3) Mechanical ventilatory assistance equipment including airways, 
manual breathing bag, and ventilator.
    (4) Cardiac defibrillator.
    (5) Cardiac monitoring equipment.
    (6) Tracheostomy set.
    (7) Laryngoscopes and endotracheal tubes.
    (8) Suction equipment.
    (9) Emergency medical equipment and supplies specified by the 
medical staff.
    (d) Standard: Emergency personnel. Personnel trained in the use of 
emergency equipment and in cardiopulmonary resuscitation must be 
available whenever there is a patient in the ASC.

[47 FR 34094, Aug. 5, 1982, amended at 53 FR 11508, Apr. 7, 1988; 54 FR 
4026, Jan. 27, 1989; 68 FR 1385, Jan. 10, 2003; 69 FR 18803, Apr. 9, 
2004; 70 FR 15237, Mar. 25, 2005]

    Effective Date Note: At 71 FR 55339, Sept. 22, 2006, Sec. 416.44 
was amended by revising paragraphs, (b)(5)(iii) and (iv)(F) and (G) and 
by adding paragraph (b)(5)(v), effective October 23, 2006. For the 
convenience of the user, the revised and added text is set forth as 
follows:



Sec. 416.44  Conditions for coverage-Environment.

                                * * * * *

    (b) * * *
    (5) * * *
    (iii) The dispensers are installed in a manner that adequately 
protects against inappropriate access;
    (iv) * * *
    (F) The dispensers shall not be installed over or directly adjacent 
to an ignition source;
    (G) In locations with carpeted floor coverings, dispensers installed 
directly over carpeted surfaces shall be permitted only in sprinklered 
smoke compartments; and
    (v) The dispensers are maintained in accordance with dispenser 
manufacturer guidelines.

                                * * * * *



Sec. 416.45  Condition for coverage--Medical staff.

    The medical staff of the ASC must be accountable to the governing 
body.
    (a) Standard: Membership and clinical privileges. Members of the 
medical staff must be legally and professionally qualified for the 
positions to which they are appointed and for the performance of 
privileges granted. The ASC grants privileges in accordance with 
recommendations from qualified medical personnel.
    (b) Standard: Reappraisals. Medical staff privileges must be 
periodically reappraised by the ASC. The scope of procedures performed 
in the ASC must be periodically reviewed and amended as appropriate.
    (c) Standard: Other practitioners. If the ASC assigns patient care 
responsibilities to practitioners other than physicians, it must have 
established policies and procedures, approved by the governing body, for 
overseeing and evaluating their clinical activities.



Sec. 416.46  Condition for coverage--Nursing services.

    The nursing services of the ASC must be directed and staffed to 
assure that the nursing needs of all patients are met.
    (a) Standard: Organization and staffing. Patient care 
responsibilities must be delineated for all nursing service personnel. 
Nursing services must be provided in accordance with recognized 
standards of practice. There must be a registered nurse available for 
emergency treatment whenever there is a patient in the ASC.
    (b) [Reserved]



Sec. 416.47  Condition for coverage--Medical records.

    The ASC must maintain complete, comprehensive, and accurate medical 
records to ensure adequate patient care.
    (a) Standard: Organization. The ASC must develop and maintain a 
system for the proper collection, storage, and use of patient records.
    (b) Standard: Form and content of record. The ASC must maintain a 
medical record for each patient. Every record must be accurate, legible, 
and promptly completed. Medical records must include at least the 
following:
    (1) Patient identification.
    (2) Significant medical history and results of physical examination.
    (3) Pre-operative diagnostic studies (entered before surgery), if 
performed.

[[Page 81]]

    (4) Findings and techniques of the operation, including a 
pathologist's report on all tissues removed during surgery, except those 
exempted by the governing body.
    (5) Any allergies and abnormal drug reactions.
    (6) Entries related to anesthesia administration.
    (7) Documentation of properly executed informed patient consent.
    (8) Discharge diagnosis.



Sec. 416.48  Condition for coverage--Pharmaceutical services.

    The ASC must provide drugs and biologicals in a safe and effective 
manner, in accordance with accepted professional practice, and under the 
direction of an individual designated responsible for pharmaceutical 
services.
    (a) Standard: Administration of drugs. Drugs must be prepared and 
administered according to established policies and acceptable standards 
of practice.
    (1) Adverse reactions must be reported to the physician responsible 
for the patient and must be documented in the record.
    (2) Blood and blood products must be administered by only physicians 
or registered nurses.
    (3) Orders given orally for drugs and biologicals must be followed 
by a written order, signed by the prescribing physician.
    (b) [Reserved]



Sec. 416.49  Condition for coverage--Laboratory and radiologic services.

    If the ASC performs laboratory services, it must meet the 
requirements of part 493 of this chapter. If the ASC does not provide 
its own laboratory services, it must have procedures for obtaining 
routine and emergency laboratory services from a certified laboratory in 
accordance with part 493 of this chapter. The referral laboratory must 
be certified in the appropriate specialties and subspecialties of 
service to perform the referred tests in accordance with the 
requirements of part 493 of this chapter. The ASC must have procedures 
for obtaining radiologic services from a Medicare approved facility to 
meet the needs of patients.

[57 FR 7135, Feb. 28, 1992]



                       Subpart D_Scope of Benefits



Sec. 416.60  General rules.

    (a) The services payable under this part are facility services 
furnished to Medicare beneficiaries, by a participating facility, in 
connection with covered surgical procedures specified in Sec. 416.65.
    (b) The surgical procedures, including all preoperative and post-
operative services that are performed by a physician, are covered as 
physician services under part 410 of this chapter.

[56 FR 8844, Mar. 1, 1991]



Sec. 416.61  Scope of facility services.

    (a) Included services. Facility services include, but are not 
limited to--
    (1) Nursing, technician, and related services;
    (2) Use of the facilities where the surgical procedures are 
performed;
    (3) Drugs, biologicals, surgical dressings, supplies, splints, 
casts, and appliances and equipment directly related to the provision of 
surgical procedures;
    (4) Diagnostic or therapeutic services or items directly related to 
the provision of a surgical procedure;
    (5) Administrative, recordkeeping and housekeeping items and 
services; and
    (6) Materials for anesthesia.
    (7) Intra-ocular lenses (IOLs).
    (8) Supervision of the services of an anesthetist by the operating 
surgeon.
    (b) Excluded services. Facility services do not include items and 
services for which payment may be made under other provisions of part 
405 of this chapter, such as physicians' services, laboratory, X-ray or 
diagnostic procedures (other than those directly related to performance 
of the surgical procedure), prosthetic devices (except IOLs), ambulance 
services, leg, arm, back and neck braces, artificial limbs, and durable 
medical equipment for use in the patient's home. In addition, they do 
not include anesthetist services furnished on or after January 1, 1989.

[56 FR 8844, Mar. 1, 1991, as amended at 57 FR 33899, July 31, 1992]

[[Page 82]]



Sec. 416.65  Covered surgical procedures.

    Covered surgical procedures are those procedures that meet the 
standards described in paragraphs (a) and (b) of this section and are 
included in the list published in accordance with paragraph (c) of this 
section.
    (a) General standards. Covered surgical procedures are those 
surgical and other medical procedures that--
    (1) Are commonly performed on an inpatient basis in hospitals, but 
may be safely performed in an ASC;
    (2) Are not of a type that are commonly performed, or that may be 
safely performed, in physicians' offices;
    (3) Are limited to those requiring a dedicated operating room (or 
suite), and generally requiring a post-operative recovery room or short-
term (not overnight) convalescent room; and
    (4) Are not otherwise excluded under Sec. 405.310 of this chapter.
    (b) Specific standards. (1) Covered surgical procedures are limited 
to those that do not generally exceed--
    (i) A total of 90 minutes operating time; and
    (ii) A total of 4 hours recovery or convalescent time.
    (2) If the covered surgical procedures require anesthesia, the 
anesthesia must be--
    (i) Local or regional anesthesia; or
    (ii) General anesthesia of 90 minutes or less duration.
    (3) Covered surgical procedures may not be of a type that--
    (i) Generally result in extensive blood loss;
    (ii) Require major or prolonged invasion of body cavities;
    (iii) Directly involve major blood vessels; or
    (iv) Are generally emergency or life-threatening in nature.
    (c) Publication of covered procedures. CMS will publish in the 
Federal Register a list of covered surgical procedures and revisions as 
appropriate.



Sec. 416.75  Performance of listed surgical procedures on an inpatient hospital basis.

    The inclusion of any procedure as a covered surgical procedure under 
Sec. 416.65 does not preclude its coverage in an inpatient hospital 
setting under Medicare.



                 Subpart E_Payment for Facility Services



Sec. 416.120  Basis for payment.

    The basis for payment depends on where the services are furnished.
    (a) Hospital outpatient department. Payment is in accordance with 
part 413 of this chapter.
    (b) [Reserved]
    (c) ASC--(1) General rule. Payment is based on a prospectively 
determined rate. This rate covers the cost of services such as supplies, 
nursing services, equipment, etc., as specified in Sec. 416.61. The 
rate does not cover physician services or other medical services covered 
under part 410 of this chapter (for example, X-ray services or 
laboratory services) which are not directly related to the performance 
of the surgical procedures. Those services may be billed separately and 
paid on a reasonable charge basis.
    (2) Single and multiple surgical procedures. (i) If one covered 
surgical procedure is furnished to a beneficiary in an operative 
session, payment is based on the prospectively determined rate for that 
procedure.
    (ii) If more than one surgical procedure is furnished in a single 
operative session, payment is based on--
    (A) The full rate for the procedure with the highest prospectively 
determined rate; and
    (B) One half of the prospectively determined rate for each of the 
other procedures.
    (3) Deductibles and coinsurance. Part B deductible and coinsurance 
amounts apply as specified in Sec. 410.152 (a) and (i) of this chapter.

[56 FR 8844, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



Sec. 416.125  ASC facility services payment rate.

    (a) The payment rate is based on a prospectively determined standard 
overhead amount per procedure derived from an estimate of the costs 
incurred by ambulatory surgical centers generally in providing services 
furnished in connection with the performance of that procedure.
    (b) The payment must be substantially less than would have been paid 
under the program if the procedure had

[[Page 83]]

been performed on an inpatient basis in a hospital.

[56 FR 8844, Mar. 1, 1991]



Sec. 416.130  Publication of revised payment methodologies.

    Whenever CMS proposes to revise the payment rate for ASCs, CMS 
publishes a notice in the Federal Register describing the revision. The 
notice also explains the basis on which the rates were established. 
After reviewing public comments, CMS publishes a notice establishing the 
rates authorized by this section. In setting these rates, CMS may adopt 
reasonable classifications of facilities and may establish different 
rates for different types of surgical procedures.

[47 FR 34094, Aug. 5, 1982, as amended at 56 FR 8844, Mar. 1, 1991]



Sec. 416.140  Surveys.

    (a) Timing, purpose, and procedures. (1) No more often than once a 
year, CMS conducts a survey of a randomly selected sample of 
participating ASCs to collect data for analysis or reevaluation of 
payment rates.
    (2) CMS notifies the selected ASCs by mail of their selection and of 
the form and content of the report the ASCs are required to submit 
within 60 days of the notice.
    (3) If the facility does not submit an adequate report in response 
to CMS's survey request, CMS may terminate the agreement to participate 
in the Medicare program as an ASC.
    (4) CMS may grant a 30-day postponement of the due date for the 
survey report if it determines that the facility has demonstrated good 
cause for the delay.
    (b) Requirements for ASCs. ASCs must--
    (1) Maintain adequate financial records, in the form and containing 
the data required by CMS, to allow determination of the payment rates 
for covered surgical procedures furnished to Medicare beneficiaries 
under this subpart.
    (2) Within 60 days of a request from CMS submit, in the form and 
detail as may be required by CMS, a report of--
    (i) Their operations, including the allowable costs actually 
incurred for the period and the actual number and kinds of surgical 
procedures furnished during the period; and
    (ii) Their customary charges for each surgical procedure furnished 
for the period.

[47 FR 34094, Aug. 5, 1982, as amended at 56 FR 8845, Mar. 1, 1991]



Sec. 416.150  Beneficiary appeals.

    A beneficiary (or ASC as his or her assignee) may request a hearing 
by a carrier (subject to the limitations and conditions set forth in 
part 405, subpart H of this chapter) if the beneficiary or the ASC--
    (a) Is dissatisfied with a carrier's denial of a request for payment 
made on his or her behalf by an ASC;
    (b) Is dissatisfied with the amount of payment; or
    (c) Believes the request for payment is not being acted upon with 
reasonable promptness.



 Subpart F_Adjustment in Payment Amounts for New Technology Intraocular 
             Lenses Furnished by Ambulatory Surgical Centers

    Source: 64 FR 32205, June 16, 1999, unless otherwise noted.



Sec. 416.180  Definitions.

    As used in this subpart, the following definitions apply:
    Class of new technology intraocular lenses (IOLs) means all of the 
IOLs, collectively, that CMS determines meet the definition of ``new 
technology IOL'' under the provisions of this subpart.
    Interested party means any individual, partnership, corporation, 
association, society, scientific or academic establishment, professional 
or trade organization, or any other legal entity.
    New technology IOL means an IOL that CMS determines has been 
approved by the FDA for use in labeling and advertising the IOL's claims 
of specific clinical advantages and superiority over existing IOLs with 
regard to reduced risk of intraoperative or postoperative complication 
or trauma, accelerated postoperative recovery, reduced induced 
astigmatism, improved

[[Page 84]]

postoperative visual acuity, more stable postoperative vision, or other 
comparable clinical advantages.
    New technology subset means a group of IOLs that CMS determines meet 
the criterion for being treated as new technology IOLs and that share a 
common feature or features that distinguish them from other IOLs. For 
example, all new technology IOLs that are made of a particular 
bioengineered material could comprise one subset, while all that rely on 
a particular optical innovation could comprise another.



Sec. 416.185  Payment review process.

    (a) CMS publishes a Federal Register notice announcing the deadline 
and requirements for submitting a request for CMS to review payment for 
an IOL.
    (b) CMS receives a request to review the appropriateness of the 
payment amount for an IOL.
    (c) CMS compiles a list of the requests it receives and identifies 
the IOL manufacturer's name, the model number of the IOL to be reviewed, 
the interested party or parties that submit requests, and a summary of 
the interested party's grounds for requesting review of the 
appropriateness of the IOL payment amount.
    (d) CMS publishes the list of requests in a Federal Register notice 
with comment period, giving the public 30 days to comment on the IOLs 
for which review was requested.
    (e) CMS reviews the information submitted with the request to 
review, any timely public comments that are submitted regarding the list 
of IOLs published in the Federal Register, and any other timely 
information that CMS deems relevant to decide whether to provide a 
payment adjustment as specified in Sec. 416.200. CMS makes a 
determination of whether the IOL meets the definition of a new 
technology IOL in Sec. 416.180.
    (f) If CMS determines that a lens is a new technology IOL, CMS 
establishes a payment adjustment as follows:
    (1) Before July 16, 2002--$50.
    (2) After July 16, 2002--$50 or the amount announced through 
proposed and final rulemaking in connection with ambulatory surgical 
center services.
    (g) CMS designates a predominant characteristic of a new technology 
IOL that both sets it apart from other IOLs and links it with other 
similar IOLs with the same characteristic to establish a specific subset 
of new technology within the ``class of new technology IOLs.''
    (h) Within 90 days of the end of the comment period following the 
Federal Register notice identified in paragraph (d) of this section, CMS 
publishes in the Federal Register its determinations with regard to IOLs 
that it has determined are ``new technology'' lenses that qualify for a 
payment adjustment.
    (i) Payment adjustments are effective beginning 30 days after the 
publication of CMS's determinations in the Federal Register.



Sec. 416.190  Who may request a review.

    Any party who is able to furnish the information required in Sec. 
416.195 may request that CMS review the appropriateness of the payment 
amount provided under section 1833(i)(2)(A)(iii) of the Act with respect 
to an IOL that meets the definition of a new technology IOL in Sec. 
416.180.



Sec. 416.195  A request to review.

    (a) Content of a request. The request must include all of the 
following information:
    (1) The name of the manufacturer, the model number, and the trade 
name of the IOL.
    (2) A copy of the FDA's summary of the IOL's safety and 
effectiveness.
    (3) A copy of the labeling claims of specific clinical advantages 
approved by the FDA for the IOL.
    (4) A copy of the IOL's original FDA approval notification.
    (5) Reports of modifications made after the original FDA approval.
    (6) Other information that CMS finds necessary for identification of 
the IOL.
    (b) Confidential information. To the extent that information 
received from an IOL manufacturer can reasonably be characterized as a 
trade secret or as privileged or confidential commercial or financial 
information, CMS maintains the confidentiality of the information and 
protects it from disclosure not otherwise authorized or required

[[Page 85]]

by Federal law as allowed under Exemption 4 of the Freedom of 
Information Act (5 U.S.C. 552(b)(4)) and, with respect to trade secrets, 
the Trade Secrets Act (18 U.S.C. 1905).



Sec. 416.200  Application of the payment adjustment.

    (a) CMS recognizes the IOL(s) that define a new technology subset 
for purposes of this subpart as belonging to the class of new technology 
IOLs for a period of 5 years effective from the date that CMS recognizes 
the first new technology IOL for a payment adjustment.
    (b) Any IOL that CMS subsequently recognizes as belonging to a new 
technology subset receives the new technology payment adjustment for the 
remainder of the 5-year period established with CMS's recognition of the 
first IOL in the subset.
    (c) Beginning 5 years after the effective date of CMS's initial 
recognition of a new technology subset, payment adjustments cease for 
all IOLs that CMS designates as belonging to that subset and payment 
reverts to the standard payment rate set under section 
1833(i)(2)(A)(iii) of the Act for IOL insertion procedures performed in 
ASCs.
    (d) ASCs that furnish an IOL designated by CMS as belonging to the 
class of new technology IOLs must submit claims using specific billing 
codes to receive the new technology IOL payment adjustment.



PART 417_HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL PLANS, AND HEALTH CARE PREPAYMENT PLANS--Table of Contents




                      Subpart A_General Provisions

Sec.
417.1 Definitions.
417.2 Basis and scope.

     Subpart B_Qualified Health Maintenance Organizations: Services

417.101 Health benefits plan: Basic health services.
417.102 Health benefits plan: Supplemental health services.
417.103 Providers of basic and supplemental health services.
417.104 Payment for basic health services.
417.105 Payment for supplemental health services.
417.106 Quality assurance program; Availability, accessibility, and 
          continuity of basic and supplemental health services.

 Subpart C_Qualified Health Maintenance Organizations: Organization and 
                                Operation

417.120 Fiscally sound operation and assumption of financial risk.
417.122 Protection of enrollees.
417.124 Administration and management.
417.126 Recordkeeping and reporting requirements.

             Subpart D_Application for Federal Qualification

417.140 Scope.
417.142 Requirements for qualification.
417.143 Application requirements.
417.144 Evaluation and determination procedures.

  Subpart E_Inclusion of Qualified Health Maintenance Organizations in 
                     Employee Health Benefits Plans

417.150 Definitions.
417.151 Applicability.
417.153 Offer of HMO alternative.
417.155 How the HMO option must be included in the health benefits plan.
417.156 When the HMO must be offered to employees.
417.157 Contributions for the HMO alternative.
417.158 Payroll deductions.
417.159 Relationship of section 1310 of the Public Health Service Act to 
          the National Labor Relations Act and the Railway Labor Act.

Subpart F_Continued Regulation of Federally Qualified Health Maintenance 
                              Organizations

417.160 Applicability.
417.161 Compliance with assurances.
417.162 Reporting requirements.
417.163 Enforcement procedures.
417.164 Effect of revocation of qualification on inclusion in employee's 
          health benefit plans.
417.165 Reapplication for qualification.
417.166 Waiver of assurances.

Subparts G-I [Reserved]

         Subpart J_Qualifying Conditions for Medicare Contracts

417.400 Basis and scope.
417.401 Definitions.
417.402 Effective date of initial regulations.
417.404 General requirements.

[[Page 86]]

417.406 Application and determination.
417.407 Requirements for a Competitive Medical Plan (CMP).
417.408 Contract application process.
417.410 Qualifying conditions: General rules.
417.412 Qualifying condition: Administration and management.
417.413 Qualifying condition: Operating experience and enrollment.
417.414 Qualifying condition: Range of services.
417.416 Qualifying condition: Furnishing of services.
417.418 Qualifying condition: Quality assurance program.

  Subpart K_Enrollment, Entitlement, and Disenrollment Under Medicare 
                                Contract

417.420 Basic rules on enrollment and entitlement.
417.422 Eligibility to enroll in an HMO or CMP.
417.423 Special rules: ESRD and hospice patients.
417.424 Denial of enrollment.
417.426 Open enrollment requirements.
417.428 Marketing activities.
417.430 Application procedures.
417.432 Conversion of enrollment.
417.434 Reenrollment.
417.436 Rules for enrollees.
417.440 Entitlement to health care services from an HMO or CMP.
417.442 Risk HMO's and CMP's: Conditions for provision of additional 
          benefits.
417.444 Special rules for certain enrollees of risk HMOs and CMPs.
417.446 [Reserved]
417.448 Restriction on payments for services received by Medicare 
          enrollees of risk HMOs or CMPs.
417.450 Effective date of coverage.
417.452 Liability of Medicare enrollees.
417.454 Charges to Medicare enrollees.
417.456 Refunds to Medicare enrollees.
417.458 Recoupment of uncollected deductible and coinsurance amounts.
417.460 Disenrollment of beneficiaries by an HMO or CMP.
417.461 Disenrollment by the enrollee.
417.464 End of CMS's liability for payment: Disenrollment of 
          beneficiaries and termination or default of contract.

                Subpart L_Medicare Contract Requirements

417.470 Basis and scope.
417.472 Basic contract requirements.
417.474 Effective date and term of contract.
417.476 Waived conditions.
417.478 Requirements of other laws and regulations.
417.479 Requirements for physician incentive plans.
417.480 Maintenance of records: Cost HMOs and CMPs.
417.481 Maintenance of records: Risk HMOs or CMPs.
417.482 Access to facilities and records.
417.484 Requirement applicable to related entities.
417.486 Disclosure of information and confidentiality.
417.488 Notice of termination and of available alternatives: Risk 
          contract.
417.490 Renewal of contract.
417.492 Nonrenewal of contract.
417.494 Modification or termination of contract.
417.500 Sanctions against HMOs and CMPs.

   Subpart M_Change of Ownership and Leasing of Facilities: Effect on 
                            Medicare Contract

417.520 Effect on HMO and CMP contracts.

       Subpart N_Medicare Payment to HMOs and CMPs: General Rules

417.524 Payment to HMOs or CMPs: General.
417.526 Payment for covered services.
417.528 Payment when Medicare is not primary payer.

                 Subpart O_Medicare Payment: Cost Basis

417.530 Basis and scope.
417.531 Hospice care services.
417.532 General considerations.
417.533 Part B carrier responsibilities.
417.534 Allowable costs.
417.536 Cost payment principles.
417.538 Enrollment and marketing costs.
417.540 Enrollment costs.
417.542 Reinsurance costs.
417.544 Physicians' services furnished directly by the HMO or CMP.
417.546 Physicians' services and other Part B supplier services 
          furnished under arrangements.
417.548 Provider services through arrangements.
417.550 Special Medicare program requirements.
417.552 Cost apportionment: General provisions.
417.554 Apportionment: Provider services furnished directly by the HMO 
          or CMP.
417.556 Apportionment: Provider services furnished by the HMO or CMP 
          through arrangements with others.
417.558 Emergency, urgently needed, and out-of-area services for which 
          the HMO or CMP accepts financial responsibility.
417.560 Apportionment: Part B physician and supplier services.
417.564 Apportionment and allocation of administrative and general 
          costs.
417.566 Other methods of allocation and apportionment.

[[Page 87]]

417.568 Adequate financial records, statistical data, and cost finding.
417.570 Interim per capita payments.
417.572 Budget and enrollment forecast and interim reports.
417.574 Interim settlement.
417.576 Final settlement.

                 Subpart P_Medicare Payment: Risk Basis

417.580 Basis and scope.
417.582 Definitions.
417.584 Payment to HMOs or CMPs with risk contracts.
417.585 Special rules: Hospice care.
417.588 Computation of adjusted average per capita cost (AAPCC).
417.590 Computation of the average of the per capita rates of payment.
417.592 Additional benefits requirement.
417.594 Computation of adjusted community rate (ACR).
417.596 Establishment of a benefit stabilization fund.
417.597 Withdrawal from a benefit stabilization fund.
417.598 Annual enrollment reconciliation.

                      Subpart Q_Beneficiary Appeals

417.600 Basis and scope.

                   Subpart R_Medicare Contract Appeals

417.640 Determinations subject to appeal.
417.642 Administrative actions that are not initial determinations.
417.644 Notice of initial determination.
417.646 Effect of initial determination.
417.648 Reconsideration: Applicability.
417.650 Request for reconsideration.
417.652 Opportunity to submit evidence.
417.654 Reconsidered determination.
417.656 Notice of reconsidered determination.
417.658 Effect of reconsidered determination.
417.660 Right to a hearing.
417.662 Request for hearing.
417.664 Postponement of effective date of initial determination.
417.666 Designation of hearing officer.
417.668 Disqualification of hearing officer.
417.670 Time and place of hearing.
417.672 Appointment of representatives.
417.674 Authority of representatives.
417.676 Conduct of hearing.
417.678 Evidence.
417.680 Witnesses.
417.682 Discovery.
417.684 Prehearing.
417.686 Record of hearing.
417.688 Authority of hearing officer.
417.690 Notice and effect of hearing decision.
417.692 Reopening of initial or reconsidered determination or decision 
          of a hearing officer.
417.694 Effect of revised determination.

Subparts S-T [Reserved]

                 Subpart U_Health Care Prepayment Plans

417.800 Payment to HCPPs: Definitions and basic rules.
417.801 Agreements between CMS and health care prepayment plans.
417.802 Allowable costs.
417.804 Cost apportionment.
417.806 Financial records, statistical data, and cost finding.
417.808 Interim per capita payments.
417.810 Final settlement.
417.830 Scope of regulations on beneficiary appeals.
417.832 Applicability of requirements and procedures.
417.834 Responsibility for establishing administrative review 
          procedures.
417.836 Written description of administrative review procedures.
417.838 Organization determinations.
417.840 Administrative review procedures.

    Subpart V_Administration of Outstanding Loans and Loan Guarantees

417.910 Applicability.
417.911 Definitions.
417.920 Planning and initial development.
417.930 Initial costs of operation.
417.931 [Reserved]
417.934 Reserve requirement.
417.937 Loan and loan guarantee provisions.
417.940 Civil action to enforce compliance with assurances.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public Health 
Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and 31 U.S.C. 9701.



                      Subpart A_General Provisions



Sec. 417.1  Definitions.

    As used in this part, unless the context indicates otherwise--
    Basic health services means health services described in Sec. 
417.101(a).
    Community rating system means a system of fixing rates of payments 
for health services that meets the requirements of Sec. 417.104(a)(3).
    Comprehensive health services means as a minimum the following 
services which may be limited as to time and cost:
    (1) Physician services (Sec. 417.101(a)(1));
    (2) Outpatient services and inpatient hospital services (Sec. 
417.101(a)(2));
    (3) Medically necessary emergency health services (Sec. 
417.101(a)(3)); and

[[Page 88]]

    (4) Diagnostic laboratory and diagnostic and therapeutic radiologic 
services (Sec. 417.101(a)(6)).
    Direct service contract means a contract for the provision of basic 
or supplemental health services or both between an HMO and (1) a health 
professional other than a member of the staff of the HMO, or (2) an 
entity other than a medical group or an IPA.
    Enrollee means an individual for whom an HMO, CMP, or HCPP assumes 
the responsibility, under a contract or agreement, for the furnishing of 
health care services on a prepaid basis.
    Full-time student means a student who is enrolled for a sufficient 
number of credit hours in a semester or other academic term to enable 
the student to complete the course of study within not more than the 
number of semesters or other academic terms normally required to 
complete that course of study on a full-time basis at the school in 
which the student is enrolled.
    Furnished, when used in connection with prepaid health care 
services, means services that are maid available to an enrollee either 
dierctly by, or under arrangements made by, the HMO, CMP, or HCPP.
    Health maintenance organization (HMO) means a legal entity that 
provides or arranges for the provision of basic and supplemental health 
services to its enrollees in the manner prescribed by, is organized and 
operated in the manner prescribed by, and otherwise meets the 
requirements of, section 1301 of the PHS Act and the regulations in 
subparts B and C of this part.
    Health professionals means physicians (doctors of medicine and 
doctors of osteopathy), dentists, nurses, podiatrists, optometrists, 
physicians' assistants, clinical psychologists, social workers, 
pharmacists, nutritionists, occupational therapists, physical 
therapists, and other professionals engaged in the delivery of health 
services who are licensed, practice under an institutional license, are 
certified, or practice under authority of the HMO, a medical group, 
individual practice association, or other authority consistent with 
State law.
    Individual practice association (IPA) means a partnership, 
association, corporation, or other legal entity that delivers or 
arranges for the delivery of health services and which has entered into 
written services arrangement or arrangements with health professionals, 
a majority of whom are licensed to practice medicine or osteopathy. The 
written services arrangement must provide:
    (1) That these health professionals will provide their professional 
services in accordance with a compensation arrangement established by 
the entity; and
    (2) To the extent feasible, for the sharing by these health 
professionals of health (including medical) and other records, 
equipment, and professional, technical, and administrative staff.
    Medical group means a partnership, association, corporation, or 
other group:
    (1) That is composed of health professionals licensed to practice 
medicine or osteopathy and of such other licensed health professionals 
(including dentists, optometrists, and podiatrists) as are necessary for 
the provision of health services for which the group is responsible;
    (2) A majority of the members of which are licensed to practice 
medicine or osteopathy; and
    (3) The members of which:
    (i) After the end of the 48 month period beginning after the month 
in which the HMO for which the group provides health services becomes a 
qualified HMO, as their principal professional activity (over 50 percent 
individually) engage in the coordinated practice of their profession and 
as a group responsibility have substantial responsibility (over 35 
percent in the aggregate of their professional activity) for the 
delivery of health services to enrollees of an HMO;
    (ii) Pool their income from practice as members of the group and 
distribute it among themselves according to a prearranged salary or 
drawing account or other similar plan unrelated to the provision of 
specific health services;
    (iii) Share health (including medical) records and substantial 
portions of major equipment and of professional, technical, and 
administrative staff;
    (iv) Establish an arrangement whereby an enrollee's enrollment 
status is not known to the health professional

[[Page 89]]

who provides health services to the enrollee.
    Medical group members means (1) a health professional engaged as a 
partner, associate, or shareholder in the medical group, or (2) any 
other health professional employed by the group who may be designated as 
a medical group member by the medical group.
    Medically underserved population means the population of an urban or 
rural area as described in Sec. 417.912(d).
    Nonmetropolitan area means an area no part of which is within a 
standard metropolitan statistical area as designated by the Office of 
Management and Budget and which does not contain a city whose population 
exceeds 50,000 individuals.
    Party in interest means: (1) Any director, officer, partner, or 
employee responsible for management or administration of an HMO, any 
person who is directly or indirectly the beneficial owner of more than 5 
percent of the equity of the HMO, any person who is the beneficial owner 
of a mortgage, deed of trust, note, or other interest secured by, and 
valuing more than 5 percent of the assets of the HMO, and, in the case 
of an HMO organized as a nonprofit corporation, an incorporator or 
member of the corporation under applicable State corporation law;
    (2) Any entity in which a person described in paragraph (1):
    (i) Is an officer or director;
    (ii) Is a partner (if the entity is organized as a partnership);
    (iii) Has directly or indirectly a beneficial interest of more than 
5 percent of the equity; or
    (iv) Has a mortgage, deed of trust, note, or other interest valuing 
more than 5 percent of the assets of such entity;
    (3) Any spouse, child, or parent of an individual described in 
paragraph (1).
    Policymaking body of an HMO means a board of directors, governing 
body, or other body of individuals that has the authority to establish 
policy for the HMO.
    Qualified HMO means an HMO found by CMS to be qualified within the 
meaning of section 1310 of the PHS Act and subpart D of this part.
    Rural area means any area not listed as a place having a population 
of 2,500 or more in Document PC(1)A, ``Number of Inhabitants,'' 
Table VI, ``Population of Places,'' and not listed as an urbanized area 
in Table XI, ``Population of Urbanized Areas'' of the same document 
(1970 Census or most recent update of this document, Bureau of Census, 
U.S. Department of Commerce).
    Secretary means the Secretary of Health and Human Services and any 
other officer or employee of the Department of Health and Human Services 
to whom the authority involved has been delegated.
    Service area means a geographic area, defined through zip codes, 
census tracts, or other geographic measurements, that is the area, as 
determined by CMS, within which the HMO furnishes basic and supplemental 
health services and makes them available and accessible to all its 
enrollees in accordance with Sec. 417.106(b).
    Significant business transaction means any business transaction or 
series of transactions during any one fiscal year of the HMO, the total 
value of which exceeds the lesser of $25,000 or 5 percent of the total 
operating expenses of the HMO.
    Staff of the HMO means health professionals who are employees of the 
HMO and who--
    (1) Provide services to HMO enrollees at an HMO facility subject to 
the staff policies and operational procedures of the HMO;
    (2) Engage in the coordinated practice of their profession and 
provide to enrollees of the HMO the health services that the HMO has 
contracted to provide;
    (3) Share medical and other records, equipment, and professional, 
technical, and administrative staff of the HMO; and
    (4) Provide their professional services in accordance with a 
compensation arrangement, other than fee-for-service, established by the 
HMO. This arrangement may include, but is not limited to, fee-for-time, 
retainer or salary.
    Subscriber means an enrollee who has entered into a contractual 
relationship with the HMO or who is responsible for

[[Page 90]]

making payments for basic health services (and contracted for 
supplemental health services) to the HMO or on whose behalf these 
payments are made.
    Supplemental health services means the health services described in 
Sec. 417.102(a).
    Unusual or infrequently used health services means:
    (1) Those health services that are projected to involve fewer than 1 
percent of the encounters per year for the entire HMO enrollment, or,
    (2) Those health services the provision of which, given the 
enrollment projection of the HMO and generally accepted staffing 
patterns, is projected will require less than 0.25 full time equivalent 
health professionals.

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19338, May 5, 1982; 52 
FR 22321, June 11, 1987. Redesignated at 52 FR 36746, Sept. 30, 1987. 
Redesignated and amended at 56 FR 51985, Oct. 17, 1991; 58 FR 38067, 
July 15, 1993; 60 FR 34887, July 5, 1995; 60 FR 45674, Sept. 1, 1995]



Sec. 417.2  Basis and scope.

    (a) Subparts B through F of this part pertain to the Federal 
qualification of HMOs under title XIII of the Public Health Service 
(PHS) Act.
    (b) Subparts G through R of this part set forth the rules for 
Medicare contracts with, and payment to, HMOs and competitive medical 
plans (CMPs) under section 1876 of the Act.
    (c) Subpart U of this part pertains to Medicare payment to health 
care prepayment plans under section 1833(a)(1)(A) of the Act.
    (d) Subpart V of this part applies to the administration of 
outstanding loans and loan guarantees previously granted under title 
XIII of the PHS Act.

[56 FR 51985, Oct. 17, 1991, as amended at 60 FR 45675, Sept. 1, 1995]



     Subpart B_Qualified Health Maintenance Organizations: Services



Sec. 417.101  Health benefits plan: Basic health services.

    (a) An HMO must provide or arrange for the provision of basic health 
services to its enrollees as needed and without limitations as to time 
and cost other than those prescribed in the PHS Act and these 
regulations, as follows:
    (1) Physician services (including consultant and referral services 
by a physician), which must be provided by a licensed physician, or if a 
service of a physician may also be provided under applicable State law 
by other health professionals, an HMO may provide the service through 
these other health professionals;
    (2)(i) Outpatient services, which must include diagnostic services, 
treatment services and x-ray services, for patients who are ambulatory 
and may be provided in a non-hospital based health care facility or at a 
hospital;
    (ii) Inpatient hospital services, which must include but not be 
limited to, room and board, general nursing care, meals and special 
diets when medically necessary, use of operating room and related 
facilities, use of intensive care unit and services, x-ray services, 
laboratory, and other diagnostic tests, drugs, medications, biologicals, 
anesthesia and oxygen services, special duty nursing when medically 
necessary, radiation therapy, inhalation therapy, and administration of 
whole blood and blood plasma;
    (iii) Outpatient services and inpatient hospital services must 
include short-term rehabilitation services and physical therapy, the 
provision of which the HMO determines can be expected to result in the 
significant improvement of a member's condition within a period of two 
months;
    (3) Instructions to its enrollees on procedures to be followed to 
secure medically necessary emergency health services both in the service 
area and out of the service area;
    (4) Twenty outpatient visits per enrollee per year, as may be 
necessary and appropriate for short-term evaluative or crisis 
intervention mental health services, or both;
    (5) Diagnosis, medical treatment and referral services (including 
referral services to appropriate ancillary services) for the abuse of or 
addiction to alcohol and drugs:
    (i) Diagnosis and medical treatment for the abuse of or addiction to 
alcohol and drugs must include detoxification for alcoholism or drug 
abuse on either an outpatient or inpatient basis,

[[Page 91]]

whichever is medically determined to be appropriate, in addition to the 
other required basic health services for the treatment of other medical 
conditions;
    (ii) Referral services may be either for medical or for nonmedical 
ancillary services. Medical services must be a part of basic health 
services; nonmedical ancillary services (such as vocational 
rehabilitation and employment counseling) and prolonged rehabilitation 
services in a specialized inpatient or residential facility need not be 
a part of basic health services;
    (6) Diagnostic laboratory and diagnostic and therapeutic radiologic 
services in support of basic health services;
    (7) Home health services provided at an enrollee's home by health 
care personnel, as prescribed or directed by the responsible physician 
or other authority designated by the HMO; and
    (8) Preventive health services, which must be made available to 
members and must include at least the following:
    (i) A broad range of voluntary family planning services;
    (ii) Services for infertility;
    (iii) Well-child care from birth;
    (iv) Periodic health evaluations for adults;
    (v) Eye and ear examinations for children through age 17, to 
determine the need for vision and hearing correction; and
    (vi) Pediatric and adult immunizations, in accord with accepted 
medical practice.
    (b) In addition, an HMO may include a health service described in 
Sec. 417.102 as a supplemental health service in the basic health 
services that it provides or arranges for its enrollees for a basic 
health services payment.
    (c) To the extent that a natural disaster, war, riot, civil 
insurrection, epidemic or any other emergency or similar event not 
within the control of an HMO results in the facilities, personnel, or 
financial resources of an HMO being unavailable to provide or arrange 
for the provision of a basic or supplemental health service in 
accordance with the requirements of Sec. Sec. 417.101 through 417.106 
and Sec. Sec. 417.168 and 417.169, the HMO is required only to make a 
good-faith effort to provide or arrange for the provision of the 
service, taking into account the impact of the event. For purposes of 
this paragraph, an event is not within the control of an HMO if the HMO 
cannot exercise influence or dominion over its occurrence.
    (d) The following are not required to be provided as basic health 
services:
    (1) Corrective appliances and artificial aids;
    (2) Mental health services, except as required under section 
1302(1)(D) of the PHS Act and paragraph (a)(4) of this section;
    (3) Cosmetic surgery, unless medically necessary;
    (4) Prescribed drugs and medicines incidental to outpatient care;
    (5) Ambulance services, unless medically necessary;
    (6) Care for military service connected disabilities for which the 
enrollee is legally entitled to services and for which facilities are 
reasonably available to this enrollee;
    (7) Care for conditions that State or local law requires be treated 
in a public facility;
    (8) Dental services;
    (9) Vision and hearing care except as required by sections 
1302(1)(A) and 1302(1)(H)(vi) of the PHS Act and paragraphs (a)(1) and 
(a)(8) of this section;
    (10) Custodial or domiciliary care;
    (11) Experimental medical, surgical, or other experimental health 
care procedures, unless approved as a basic health service by the 
policymaking body of the HMO;
    (12) Personal or comfort items and private rooms, unless medically 
necessary during inpatient hospitalization;
    (13) Whole blood and blood plasma;
    (14) Long-term physical therapy and rehabilitation;
    (15) Durable medical equipment for home use (such as wheel chairs, 
surgical beds, respirators, dialysis machines); and
    (16) Health services that are unusual and infrequently provided and 
not necessary for the protection of individual health, as approved by 
CMS upon application by the HMO.
    (e) An HMO may not offer to provide or arrange for the provision of 
basic health services on a prepayment basis that do not include all the 
basic health services set forth in paragraph (a) of

[[Page 92]]

this section or that are limited as to time and cost except in a manner 
prescribed by this subpart.

[45 FR 72528, Oct. 31, 1980. Redesignated at 52 FR 36746, Sept. 30, 
1987, and amended at 58 FR 38077, July 15, 1993]



Sec. 417.102  Health benefits plan: Supplemental health services.

    (a) An HMO may provide to its enrollees any health service that is 
not included as a basic health service under Sec. 417.101(a). These 
health services may be limited as to time and cost.
    (b) An HMO must determine the level and scope of supplemental health 
services included with basic health services provided to its enrollees 
for a basic health services payment or those services offered to its 
enrollees as supplemental health services.

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19339, May 5, 1982. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 
38083, July 15, 1993]



Sec. 417.103  Providers of basic and supplemental health services.

    (a)(1) The HMO must provide that the services of health 
professionals that are provided as basic health services will, except as 
provided in paragraph (c) of this section, be provided or arranged for 
through (i) health professionals who are staff of the HMO, (ii) a 
medical group or groups, (iii) an IPA or IPAs, (iv) physicians or other 
health professionals under direct service contracts with the HMO for the 
provision of these services, or (v) any combination of staff, medical 
group or groups, IPA or IPAs, or physicians or other health 
professionals under direct service contracts with the HMO.
    (2) A staff or medical group model HMO may have as providers of 
basic health services physicians who have also entered into written 
services arrangements with an IPA or IPAs, but only if either (i) these 
physicians number less than 50 percent of the physicians who have 
entered into arrangements with the IPA or IPAs, or (ii) if the sharing 
is 50 percent or greater, CMS approves the sharing as being consistent 
with the purposes of section 1310(b) of the PHS Act.
    (3) After the 4 year period beginning with the month following the 
month in that an HMO becomes a qualified HMO, an entity that meets the 
requirements of the definition of medical group in Sec. 417.100, except 
for subdivision (3)(i) of that definition, may be considered a medical 
group if CMS determines that the principal professional activity (over 
50 percent individually) of the entity's members is the coordinated 
practice of their profession, and if the HMO has demonstrated to the 
satisfaction of CMS that the entity is committed to the delivery of 
medical services on a prepaid group practice basis by either:
    (i) Presenting a reasonable time-phased plan for the entity to 
achieve compliance with the ``substantial responsibility'' requirement 
of subdivision (3)(i) of the definition of ``medical group'' in Sec. 
417.100. The HMO must update the plan annually and must demonstrate to 
the satisfaction of CMS that the entity is making continuous efforts and 
progress towards compliance with the requirements of the definition of 
``medical group,'' or
    (ii) Demonstrating that compliance by the entity with the 
``substantial responsibility'' requirement is unreasonable or 
impractical because (A) the HMO serves a non-metropolitan or rural area 
as defined in Sec. 417.100, or (B) the entity is a multi-speciality 
group that provides medical consultation upon referral on a regional or 
national basis, or (C) the majority of the residents of the HMO's 
service area are not eligible for employer-employee health benefits 
plans and the HMO has an insufficient number of enrollees to require 
utilization of at least 35 percent of the entity's services.
    (b) HMOs must have effective procedures to monitor utilization and 
to control cost of basic and supplemental health services and to achieve 
utilization goals, which may include mechanisms such as risk sharing, 
financial incentives, or other provisions agreed to by providers.
    (c) Paragraph (a) of this section does not apply to the provision of 
the services of a physician:
    (1) Which the HMO determines are unusual or infrequently used 
services; or
    (2) Which, because of an emergency, it was medically necessary to 
provide

[[Page 93]]

to the enrollee other than as required by paragraph (a) of this section; 
or
    (3) Which are provided as part of the inpatient hospital services by 
employees or staff of a hospital or provided by staff of other entities 
such as community mental health centers, home health agencies, visiting 
nurses' associations, independent laboratories, or family planning 
agencies.
    (d) Supplemental health services must be provided or arranged for by 
the HMO and need not be provided by providers of basic health services 
under contract with the HMO.
    (e) Each HMO must:
    (1) Pay the provider, or reimburse its enrollees for the payment of 
reasonable charges for basic health services (or supplemental health 
services that the HMO agreed to provide on a prepayment basis) for which 
its enrollees have contracted, which were medically necessary and 
immediately required to be obtained other than through the HMO because 
of an unforeseen illness, injury, or condition, as determined by the 
HMO;
    (2) Adopt procedures to review promptly all claims from enrollees 
for reimbursement for the provision of health services described in 
paragraph (e)(1) of this section, including a procedure for the 
determination of the medical necessity for obtaining the services other 
than through the HMO; and
    (3) Provide instructions to its enrollees on procedures to be 
followed to secure these health services.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980; 45 FR 77031, Nov. 21, 1980, as amended at 
47 FR 19339, May 5, 1982; 50 FR 6174, Feb. 14, 1985. Redesignated at 52 
FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 38083, July 15, 
1993]



Sec. 417.104  Payment for basic health services.

    (a) Basic health services payment. Each HMO must provide or arrange 
for the provision of basic health services for a basic health services 
payment that:
    (1) Is to be paid on a periodic basis without regard to the dates 
these services are provided;
    (2) Is fixed without regard to the frequency, extent, or kind of 
basic health services actually furnished;
    (3) Except as provided in paragraph (c) of this section, is fixed 
under a community rating system, as described in paragraph (b) of this 
section; and
    (4) May be supplemented by nominal copayments which may be required 
for the provision of specific basic health services. Each HMO may 
establish one or more copayment options calculated on the basis of a 
community rating system.
    (i) An HMO may not impose copayment charges that exceed 50 percent 
of the total cost of providing any single service to its enrollees, nor 
in the aggregate more than 20 percent of the total cost of providing all 
basic health services.
    (ii) To insure that copayments are not a barrier to the utilization 
of health services or enrollment in the HMO, an HMO may not impose 
copayment charges on any subscriber (or enrollees covered by the 
subscriber's contract with the HMO) in any calendar year, when the 
copayments made by the subscriber (or enrollees) in that calendar year 
total 200 percent of the total annual premium cost which that subscriber 
(or enrollees) would be required to pay if he (or they) were enrolled 
under an option with no copayments. This limitation applies only if the 
subscriber (or enrollees) demonstrates that copayments in that amount 
have been paid in that year.
    (b) Community rating system. Under a community rating system, rates 
of payment for health services may be determined on a per person or per 
family basis, as described in paragraph (b)(1) of this section or on a 
per group basis as described in paragraph (b)(2) of this section. An HMO 
may fix its rates of payment under the system described in paragraph 
(b)(1) or (b)(2) of this section or under both such systems, but an HMO 
may use only one such system for fixing its rates of payment for any one 
group.
    (1) A system of fixing rates of payment for health services may 
provide that the rates will be fixed on a per person or per family basis 
and may vary with the number of persons in a family. Except as otherwise 
authorized

[[Page 94]]

in this paragraph, these rates must be equivalent for all individuals 
and for all families of similar composition. Rates of payment may be 
based on either a schedule of rates charged to each subscriber group or 
on a per-enrollee-per-month (or per-subscriber-per-month) revenue 
requirement for the HMO. In the former event, rates may vary from group 
to group if the projected total revenue from each group is substantially 
equivalent to the revenue that would be derived if the schedule of rates 
were uniform for all groups. In the latter event, the payments from each 
group of subscribers must be calculated to yield revenues substantially 
equivalent to the product of the total number of enrollees (or 
subscribers) expected to be enrolled from the group and the per-
enrollee-per-month (or per-subscriber-per-month) revenue requirement for 
the HMO. Under the system described in this paragraph, rates of payment 
may not vary because of actual or anticipated utilization of services by 
individuals associated with any specific group of subscribers. These 
provisions do not preclude changes in the rates of payment that are 
established for new enrollments or re-enrollments and that do not apply 
to existing contracts until the renewal of these contracts.
    (2) A system of fixing rates of payment for health services may 
provide that the rates will be fixed for individuals and families by 
groups. Except as otherwise authorized in this paragraph, such rates 
must be equivalent for all individuals in the same group and for all 
families of similar composition in the same group. If an HMO is to fix 
rates of payment for individuals and families by groups, it must:
    (i) Classify all of the enrollees of the organization into classes 
based on factors that the HMO determines predict the differences in the 
use of health services by the individuals or families in each class and 
which have not been disapproved by CMS,
    (ii) Determine its revenue requirements for providing services to 
the enrollees of each class established under paragraph (b)(2)(i) of 
this section, and
    (iii) Fix the rates of payment for the individuals and families of a 
group on the basis of a composite of the organization's revenue 
requirements determined under paragraph (b)(2)(ii) of this section for 
providing services to them as members of the classes established under 
paragraph (b)(2)(i) of this section. CMS will review the factors used by 
each HMO to establish classes under paragraph (b)(2)(i) of this section. 
If CMS determines that any such factor may not reasonably be used to 
predict the use of the health services by individuals and families, CMS 
will disapprove the factor for that purpose.
    (3)(i) Nominal differentials in rates may be established to reflect 
differences in marketing costs and the different administrative costs of 
collecting payments from the following categories of potential 
subscribers:
    (A) Individual (non-group) subscribers (including their families).
    (B) Small groups of subscribers (100 subscribers or fewer).
    (C) Large groups of subscribers (over 100 subscribers).
    (ii) Differentials in rates may be established for subscribers 
enrolled in an HMO: (A) Under a contract with a governmental authority 
under section 1079 (``Contracts for Medical Care for Spouses and 
Children: Plans'') or section 1086 (``Contracts for Health Benefits for 
Certain Members, Former Members and their Dependents'') of title 10 
(``Armed Forces''), United States Code; or (B) under any other 
governmental program (other than the health benefits program authorized 
by chapter 89 (``Health Insurance'') of title 5 (``Government 
Organization and Employees''), United States Code; or (C) under any 
health benefits program for employees of States, political subdivisions 
of states, and other public entities.
    (4) An HMO may establish a separate community rate for separate 
regional components of the organization upon satisfactory demonstration 
to CMS of the following:
    (i) Each regional component is geographically distinct and separate 
from any other regional component; and
    (ii) Each regional component provides substantially the full range 
of basic health services to its enrollees, without extensive referral 
between components of the organization for these services, and without 
substantial utilization by any two components of

[[Page 95]]

the same health care facilities. The separate community rate for each 
regional component of the HMO must be based on the different costs of 
providing health services in the respective regions.
    (c) Exceptions to community rating requirement. (1) In the case of 
an HMO that provided comprehensive health services on a prepaid basis 
before it became a qualifed HMO, the requirement of community rating 
shall not apply to the HMO during the forty-eight month period beginning 
with the month following the month in which it became a qualifed HMO.
    (2) The requirement of community rating does not apply to the basic 
health services payment for basic health services provided an enrollee 
who is a full-time student at an accredited institution of higher 
education.
    (d) Late payment penalty. HMOs may charge a late payment penalty on 
accounts receivable that are in arrears.
    (e) Review procedures for evaluating the community rating by class 
system under paragraph (b)(2). \1\ An HMO may establish a community 
rating system under paragraph (b)(2) of this section or revised factors 
used to establish classes after it receives written approval of the 
factors from CMS. CMS will give approval if it concludes that the 
factors can reasonably be used to predict the use of health services by 
individuals and families.
---------------------------------------------------------------------------

    \1\ Further information entitled ``Guidelines for Rating by Class'' 
may be obtained from the Office of Prepaid Health Care, Division of 
Qualification Analysis, HHS Cohen Bldg., room 4360, 330 Independence 
Ave. SW., Washington, DC 20201.
---------------------------------------------------------------------------

    (1) An HMO must make a written request to CMS, listing the factors 
to be used in the community rating by class system under paragraph 
(b)(2) of this section.
    (2) CMS will notify each HMO within 30 days of receipt of the 
request and application of one of the following:
    (i) The application is approved;
    (ii) Additional information or data are required and CMS will notify 
the HMO of its decision within 30 days from the date of receipt of this 
information or data; or
    (iii) CMS needs additional time to review the written request and 
the HMO will be notified of CMS's decision within 90 days.

(Approved by the Office of Management and Budget under control number 
0915-0051)

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980, as amended at 47 FR 19339, May 5, 1982; 50 
FR 6175, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987, as 
amended at 56 FR 8853, Mar. 1, 1991; 58 FR 38082, 38083, July 15, 1993]



Sec. 417.105  Payment for supplemental health services.

    (a) An HMO may require supplemental health services payments, in 
addition to the basic health services payments, for the provision of 
each health service included in the supplemental health services set 
forth in Sec. 417.102 for which subscribers have contracted, or it may 
include supplemental health services in the basic health services 
provided its enrollees for a basic health services payment.
    (b) Supplemental health services payments may be made in any agreed 
upon manner, such as prepayment or fee-for-service. Supplemental health 
services payments that are fixed on a prepayment basis, however, must be 
fixed under a community rating system, unless the supplemental health 
services payment is for a supplemental health service provided an 
enrollee who is a full-time student at an accredited institution of 
higher education. In the case of an HMO that provided comprehensive 
health services on a prepaid basis before it became a qualifed HMO, the 
community rating requirement shall not apply to that HMO during the 
forty-eight month period beginning with the month following the month in 
which it became a qualifed HMO.

(Sec. 215 of the Public Health Service Act, as amended, 58 Stat. 690, 67 
Stat. 631 (42 U.S.C. 216); secs. 1301-1318, as amended, Pub. L. 97-35, 
95 Stat. 572-578 (42 U.S.C. 300e-300e-17)

[45 FR 72528, Oct. 31, 1980, as amended at 50 FR 6175, Feb. 14, 1985. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38082, 
38083, July 15, 1993]

[[Page 96]]



Sec. 417.106  Quality assurance program; Availability, accessibility, and continuity of basic and supplemental health services.

    (a) Quality assurance program. Each HMO or CMP must have an ongoing 
quality assurance program for its health services that meets the 
following conditions:
    (1) Stresses health outcomes to the extent consistent with the state 
of the art.
    (2) Provides review by physicians and other health professionals of 
the process followed in the provision of health services.
    (3) Uses systematic data collection of performance and patient 
results, provides interpretation of these data to its practitioners, and 
institutes needed change.
    (4) Includes written procedures for taking appropriate remedial 
action whenever, as determined under the quality assurance program, 
inappropriate or substandard services have been provided or services 
that ought to have been furnished have not been provided.
    (b) Availability and accessibility of health care services. Basic 
health services and those supplemental health services for which 
enrollees have contracted must be provided or arranged for by the HMO in 
accordance with the following rules:
    (1) Except as provided in paragraph (b)(2) of this section, the 
services must be available to each enrollee within the HMO's service 
area.
    (2) Exception. If the HMO's service area is located wholly within a 
nonmetropolitan area, the HMO may make available outside its service 
area any basic health service that is not a primary care or emergency 
care service, if the number of providers of that basic health service 
who will provide the service to the HMO's enrollees is insufficient to 
meet the demand. As used in this paragraph, primary care includes 
general practice, family practice, general internal medicine, general 
pediatrics, and general obstetrics and gynecology. An HMO that provides 
the services covered by these fields through at least a general or 
family practitioner, or a pediatrician and a general internist, is 
considered to be providing primary care.
    (3) The services must be available and accessible with reasonable 
promptness to each of the HMO's enrollees as ensured through--
    (i) Staffing patterns within generally accepted norms for meeting 
the projected enrollment needs; and
    (ii) Geographic location, hours of operation, and arrangements for 
after-hours services. (Medically necessary emergency services must be 
available 24 hours a day, 7 days a week.)
    (c) Continuity of care. The HMO must ensure continuity or care 
through arrangements that include but are not limited to the following:
    (1) Use of a health professional who is primarily responsible for 
coordinating the enrollee's overall health care.
    (2) A system of health and medical records that accumulates 
pertinent information about the enrollee's health care and makes it 
available to appropriate professionals.
    (3) Arrangements made directly or through the HMO's providers to 
ensure that the HMO or the health professional who coordinates the 
enrollee's overall health care is kept informed about the services that 
the referral resources furnish to the enrollee.
    (d) Confidentiality of health records. Each HMO must establish 
adequate procedures to ensure the confidentiality of the health and 
medical records of its enrollees.

[58 FR 38068, July 15, 1993]



 Subpart C_Qualified Health Maintenance Organizations: Organization and 
                                Operation

    Source: 58 FR 38068, July 15, 1993, unless otherwise noted.



Sec. 417.120  Fiscally sound operation and assumption of financial risk.

    (a) Fiscally sound operation--(1) General requirements. Each HMO 
must have a fiscally sound operation, as demonstrated by the following:
    (i) Total assets greater than total unsubordinated liabilities. In 
evaluating assets and liabilities, loan funds awarded or guaranteed 
under section

[[Page 97]]

1306 of the PHS Act are not included as liabilities.
    (ii) Sufficient cash flow and adequate liquidity to meet obligations 
as they become due.
    (iii) A net operating surplus, or a financial plan that meets the 
requirements of paragraph (a)(2) of this section.
    (iv) An insolvency protection plan that meets the requirements of 
Sec. 417.122(b) for protection of enrollees.
    (v) A fidelity bond or bonds, procured and maintained by the HMO, in 
an amount fixed by its policymaking body but not less than $100,000 per 
individual, covering each officer and employee entrusted with the 
handling of its funds. The bond may have reasonable deductibles, based 
upon the financial strength of the HMO.
    (vi) Insurance policies or other arrangements, secured and 
maintained by the HMO and approved by CMS to insure the HMO against 
losses arising from professional liability claims, fire, theft, fraud, 
embezzlement, and other casualty risks.
    (2) Financial plan requirement. (i) If an HMO has not earned a 
cumulative net operating surplus during the three most recent fiscal 
years, did not earn a net operating surplus during the most recent 
fiscal year or does not have positive net worth, the HMO must submit a 
financial plan satisfactory to CMS to achieve net operating surplus 
within available fiscal resources.
    (ii) This plan must include--
    (A) A detailed marketing plan;
    (B) Statements of revenue and expense on an accrual basis;
    (C) Sources and uses of funds statements; and
    (D) Balance sheets.
    (b) Assumption of financial risk. Each HMO must assume full 
financial risk on a prospective basis for the provision of basic health 
services, except that it may obtain insurance or make other arrangements 
as follows:
    (1) For the cost of providing to any enrollee basic health services 
with an aggregate value of more than $5,000 in any year.
    (2) For the cost of basic health services obtained by its enrollees 
from sources other than the HMO because medical necessity required that 
they be furnished before they could be secured through the HMO.
    (3) For not more than 90 percent of the amount by which its costs 
for any of its fiscal years exceed 115 percent of its income for that 
fiscal year.
    (4) For physicians or other health professionals, health care 
institutions, or any other combination of such individuals or 
institutions to assume all or part of the financial risk on a 
prospective basis for their furnishing of basic health services to the 
HMO's enrollees.



Sec. 417.122  Protection of enrollees.

    (a) Liability protection. (1) Each HMO must adopt and maintain 
arrangements satisfactory to CMS to protect its enrollees from incurring 
liability for payment of any fees that are the legal obligation of the 
HMO. These arrangements may include any of the following:
    (i) Contractual arrangements that prohibit health care providers 
used by the enrollees from holding any enrollee liable for payment of 
any fees that are the legal obligation of the HMO.
    (ii) Insurance, acceptable to CMS.
    (iii) Financial reserves, acceptable to CMS, that are held for the 
HMO and restricted for use only in the event of insolvency.
    (iv) Any other arrangements acceptable to CMS.
    (2) The requirements of this paragraph do not apply to an HMO if CMS 
determines that State law protects the HMO enrollees from liability for 
payment of any fees that are the legal obligation of the HMO.
    (b) Protection against loss of benefits if the HMO becomes 
insolvent. The insolvency protection plan required under Sec. 
417.120(a) must provide for continuation of benefits as follows:
    (1) For all enrollees, for the duration of the contract period for 
which payment has been made.
    (2) For enrollees who are in an inpatient facility on the date of 
insolvency, until they are discharged from the facility.



Sec. 417.124  Administration and management.

    (a) General requirements. Each HMO must have administrative and 
managerial arrangements satisfactory to CMS,

[[Page 98]]

as demonstrated by at least the following:
    (1) A policymaking body that exercises oversight and control over 
the HMO's policies and personnel to ensure that management actions are 
in the best interest of the HMO and its enrollees.
    (2) Personnel and systems sufficient for the HMO to organize, plan, 
control and evaluate the financial, marketing, health services, quality 
assurance program, administrative and management aspects of the HMO.
    (3) At a minimum, management by an executive whose appointment and 
removal are under the control of the HMO's policymaking body.
    (b) Full and fair disclosure--(1) Basic rule. Each HMO must prepare 
a written description of the following:
    (i) Benefits (including limitations and exclusions).
    (ii) Coverage (including a statement of conditions on eligibility 
for benefits).
    (iii) Procedures to be followed in obtaining benefits and a 
description of circumstances under which benefits may be denied.
    (iv) Rates.
    (v) Grievance procedures.
    (vi) Service area.
    (vii) Participating providers.
    (viii) Financial condition including at least the following most 
recently audited information: Current assets, other assets, total 
assets; current liabilities, long term liabilities; and net worth.
    (2) Requirements for the description. (i) The description must be 
written in a way that can be easily understood by the average person who 
might enroll in the HMO.
    (ii) The description of benefits and coverage may be in general 
terms if reference is made to a detailed statement of benefits and 
coverage that is available without cost to any person who enrolls in the 
HMO or to whom the opportunity for enrollment is offered.
    (iii) The HMO must provide the description to any enrollee or person 
who is eligible to elect the HMO option and who requests the material 
from the HMO or the administrator of a health benefits plan. For 
purposes of this requirement, ``administrator'' (of a health benefits 
plan) has the meaning it is given in the Employment Retirement Income 
Security Act of 1974 (ERISA) at 29 U.S.C. 1002(16)(A).
    (iv) If the HMO provides health services through individual practice 
associations (IPAs), the HMO must specify the number of member 
physicians by specialty, and a listing of the hospitals where HMO 
enrollees will receive basic and supplemental health services.
    (v) If the HMO provides health services other than through IPAs, the 
HMO must specify, for each ambulatory care facility, the facility's 
address, days and hours of operation, and the number of physicians by 
specialty, and a listing of the hospitals where HMO enrollees will 
receive basic and supplemental health services.
    (c) Broadly representative enrollment. (1) Each HMO must offer 
enrollment to persons who are broadly representative of the various age, 
social, and income groups within its service area.
    (2) If an HMO has a medically underserved population located in its 
service area, not more than 75 percent of its enrollees may be from the 
medically underserved population unless the area in which that 
population resides is a rural area.
    (d) Health status and enrollment. (1) The HMO may not, on the basis 
of health status, health care needs, or age of the individual--
    (i) Expel or refuse to reenroll any enrollee; or
    (ii) Refuse to enroll individual members of a group.
    (2) For purposes of this paragraph, a ``group'' is composed of 
individuals who enroll in the HMO under a contract or other arrangement 
that covers two or more subscribers. Examples of groups are employees 
who enroll under a contract between their employer and the HMO, or 
members of an organization that arranges coverage for its membership.
    (3) Nothing in this subpart prohibits an HMO from requiring that, as 
a condition for continued eligibility for enrollment, enrolled dependent 
children, upon reaching a specified age, convert to individual 
enrollment, consistent with paragraph (e) of this section.

[[Page 99]]

    (e) Conversion of enrollment. (1) Each HMO must offer individual 
enrollment to the following:
    (i) Each enrollee (and his or her enrolled dependents) leaving a 
group.
    (ii) Each enrollee who would otherwise cease to be eligible for HMO 
enrollment because of his or her age, or the death or divorce of an 
enrollee.
    (2) The individual enrollment offered must meet the conditions of 
subpart B of this part and this subpart C.
    (3) The HMO is not required to offer individual enrollment except to 
the enrollees specified in this paragraph.
    (4) The HMO must offer the enrollment on the same terms and 
conditions that it makes available to other nongroup enrollees.
    (f) [Reserved]
    (g) Grievance procedures. Each HMO must have and use meaningful 
procedures for hearing and resolving grievances between the HMO's 
enrollees and the HMO, including the HMO staff and medical groups and 
IPAs that furnish services. These procedures must ensure that:
    (1) Grievances and complaints are transmitted in a timely manner to 
appropriate HMO decisionmaking levels that have authority to take 
corrective action; and
    (2) Appropriate action is taken promptly, including a full 
investigation if necessary and notification of concerned parties as to 
the results of the HMO's investigation.
    (h) Certification of institutional providers. Each HMO must ensure 
that its affiliated institutional providers meet one of the following 
conditions:
    (1) In the case of hospitals, are either accredited by the Joint 
Commission on Accreditation of Health Care Organizations, or certified 
by Medicare.
    (2) In the case of laboratories, are either CLIA-exempt, or have in 
effect a valid certificate of one of the following types, issued by CMS 
in accordance with section 353 of the PHS Act and part 493 of this 
chapter:
    (i) Registration certificate.
    (ii) Certificate.
    (iii) Certificate of waiver.
    (iv) Certificate of accreditation.
    (3) In the case of other affiliated institutional providers, are 
certified for participation in Medicare and Medicaid in accordance with 
part 405, 416, 418, 488, or 491 of this chapter, as appropriate.

[58 FR 38068, July 15, 1993, as amended at 59 FR 49843, Sept. 30, 1994]



Sec. 417.126  Recordkeeping and reporting requirements.

    (a) General reporting and disclosure requirements. Each HMO must 
have an effective procedure to develop, compile, evaluate, and report to 
CMS, to its enrollees, and to the general public, at the times and in 
the manner that CMS requires, and while safeguarding the confidentiality 
of the doctor-patient relationship, statistics and other information 
with respect to the following:
    (1) The cost of its operations.
    (2) The patterns of utilization of its services.
    (3) The availability, accessibility, and acceptability of its 
services.
    (4) To the extent practical, developments in the health status of 
its enrollees.
    (5) Information demonstrating that the HMO has a fiscally sound 
operation.
    (6) Other matters that CMS may require.
    (b) Significant business transactions. Each HMO must report to CMS 
annually, within 120 days of the end of its fiscal year (unless for good 
cause shown, CMS authorizes an extension of time), the following:
    (1) A description of significant business transactions (as defined 
in paragraph (c) of this section) between the HMO and a party in 
interest.
    (2) With respect to those transactions--
    (i) A showing that the costs of the transactions listed in paragraph 
(c) of this section do not exceed the costs that would be incurred if 
these transactions were with someone who is not a party in interest; or
    (ii) If they do exceed, a justification that the higher costs are 
consistent with prudent management and fiscal soundness requirements.
    (3) A combined financial statement for the HMO and a party in 
interest if either of the following conditions is met:

[[Page 100]]

    (i) Thirty-five percent or more of the costs of operation of the HMO 
go to a party in interest.
    (ii) Thirty-five percent or more of the revenue of a party in 
interest is from the HMO.
    (c) ``Significant business transaction'' defined. As used in 
paragraph (b) of this section--
    (1) Business transaction means any of the following kinds of 
transactions:
    (i) Sale, exchange or lease of property.
    (ii) Loan of money or extension of credit.
    (iii) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (A) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (B) Health services furnished to the HMO's enrollees by hospitals 
and other providers, and by HMO staff, medical groups, or IPAs, or by 
any combination of those entities.
    (2) Significant business transaction means any business transaction 
or series of transactions of the kind specified in paragraph (c)(1) of 
this section that, during any fiscal year of the HMO, have a total value 
that exceeds $25,000 or 5 percent of the HMO's total operating expenses, 
whichever is less.
    (d) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the HMO and 
each of these parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) These statements must have been examined by an independent 
auditor in accordance with generally accepted accounting principles, and 
must include appropriate opinions and notes.
    (4) Upon written request from an HMO showing good cause, CMS may 
waive the requirement that its combined financial statement include the 
financial information required in this paragraph (d) with respect to a 
particular entity.
    (e) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an HMO in its offerings, the HMO must 
furnish, upon request, the information the plan needs to fulfill its 
reporting and disclosure obligations (with respect to the particular 
HMO) under the Employee Retirement Income Security Act of 1974 (ERISA).
    (i) The HMO must furnish the information to the employer or the 
employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.
    (ii) Loan of money or extension of credit.
    (iii) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (A) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (B) Health services furnished to the HMO's enrollees by hospitals 
and other providers, and by HMO staff, medical groups, or IPAs, or by 
any combination of those entities.
    (2) Significant business transaction means any business transaction 
or series of transactions of the kind specified in paragraph (c)(1) of 
this section that, during any fiscal year of the HMO, have a total value 
that exceeds $25,000 or 5 percent of the HMO's total operating expenses, 
whichever is less.
    (d) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the HMO and 
each of these parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) These statements must have been examined by an independent 
auditor in accordance with generally accepted accounting principles, and 
must include appropriate opinions and notes.
    (4) Upon written request from an HMO showing good cause, CMS may 
waive the requirement that its combined financial statement include the 
financial information required in this paragraph (d) with respect to a 
particular entity.
    (e) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an HMO in its offerings, the HMO must 
furnish,

[[Page 101]]

upon request, the information the plan needs to fulfill its reporting 
and disclosure obligations (with respect to the particular HMO) under 
the Employee Retirement Income Security Act of 1974 (ERISA).
    (2) The HMO must furnish the information to the employer or the 
employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.



             Subpart D_Application for Federal Qualification



Sec. 417.140  Scope.

    This subpart sets forth--
    (a) The requirements for--
    (1) Entities that seek qualification as HMOs under title XIII of the 
PHS Act; and
    (2) HMOs that seek--
    (i) Qualification for their regional components; or
    (ii) Expansion of their service areas;
    (b) The procedures that CMS follows to make determinations; and
    (c) Other related provisions, including application fees.

[59 FR 49836, Sept. 30, 1994]



Sec. 417.142  Requirements for qualification.

    (a) General rules. (1) An entity seeking qualification as an HMO 
must meet the requirements and provide the assurances specified in 
paragraphs (b) through (f) of this section, as appropriate.
    (2) CMS determines whether the entity is an HMO on the basis of the 
entity's application and any additional information and investigation 
(including site visits) that CMS may require.
    (3) CMS may determine that an entity is any of the following:
    (i) An operational qualified HMO.
    (ii) A preoperational qualified HMO.
    (iii) A transitional qualified HMO.
    (b) Operational qualified HMO. CMS determines that an entity is an 
operational qualified HMO if--
    (1) CMS finds that the entity meets the requirements of subparts B 
and C of this part.
    (2) The entity, within 30 days of CMS's determination, provides 
written assurances, satisfactory to CMS, that it--
    (i) Provides and will provide basic health services (and any 
supplemental health services included in any contract) to its enrollees;
    (ii) Provides and will provide these services in the manner 
prescribed in sections 1301(b) and 1301(c) of the PHS Act and subpart B 
of this part;
    (iii) Is organized and operated and will continue to be organized 
and operated in the manner prescribed in section 1301(c) of the PHS Act 
and subpart C of this part;
    (iv) Under arrangements that safeguard the confidentiality of 
patient information and records, will provide access to CMS and the 
Comptroller General or any of their duly authorized representatives for 
the purpose of audit, examination or evaluation to any books, documents, 
papers, and records of the entity relating to its operation as an HMO, 
and to any facilities that it operates; and
    (v) Will continue to comply with any other assurances that it has 
given to CMS.
    (c) Preoperational qualified HMO. (1) CMS may determine that an 
entity is a preoperational qualified HMO if it provides, within 30 days 
of CMS's determination, satisfactory assurances that it will become 
operational within 60 days following that determination and will, when 
it becomes operational, meet the requirements of subparts B and C of 
this part.
    (2) Within 30 days after receiving notice that the entity has begun 
operation, CMS determines whether it is an operational qualified HMO. In 
the absence of this determination, the entity is not an operational 
qualified HMO even though it becomes operational.
    (d) Transitional qualified HMO: General rules--(1) Basic 
requirements. CMS may determine that an entity is a transitional 
qualified HMO if the entity--
    (i) Meets the requirements of paragraph (d)(2) through (d)(4) of 
this section; and
    (ii) Provides the assurances specified in paragraphs (d)(5) through 
(d)(7) of this section within 30 days of CMS's determination.

[[Page 102]]

    (2) Organization and operation. The entity is organized and operated 
in accordance with subpart C of this part, except that it need not--
    (i) Assume full financial risk for the provision of basic health 
services as required by Sec. 417.120(b); or
    (ii) Comply with the limitations that are imposed on insurance by 
Sec. 417.120(b)(1).
    (3) Range of services. The entity is currently providing the 
following services on a prepaid basis:
    (i) Physician services.
    (ii) Outpatient services and inpatient hospital services. (The 
entity need not provide or pay for hospital inpatient or outpatient 
services that it can show are being provided directly, through 
insurance, or under arrangements, by other entities.)
    (iii) Medically necessary emergency services.
    (iv) Diagnostic laboratory services and diagnostic and therapeutic 
radiologic services.

These services must meet the requirement of Sec. 417.101, but may be 
limited in time and cost without regard to the constraints imposed by 
Sec. 417.101(a).
    (4) Payment for services--(i) General rule. The entity pays for 
basic health services in accordance with Sec. 417.104, except that it 
need not comply with the copayments limitations imposed by Sec. 
417.104(a)(4).
    (ii) Determination of payment rates. In determining payment rates, 
the entity need not comply with the community rating requirements of 
Sec. Sec. 417.104(b) and 417.105(b).
    (5) Contracts in effect on the date of CMS's determination. The 
entity gives assurances that it will meet the following conditions with 
respect to its group and individual contracts that are in effect on the 
date of CMS's determination, and which are renewed or renegotiated 
during the period approved by CMS under paragraph (d)(6) of this 
section:
    (i) Continue to provide services in accordance with paragraph (d)(3) 
of this section.
    (ii) Continue to be organized and operated and to pay for basic 
health services in accordance with paragraphs (d)(2) and (d)(4) of this 
section, respectively.
    (6) Time-phased plan. The entity gives assurances as follows:
    (i) It will implement a time-phased plan acceptable to CMS that--
    (A) May not extend for more than 3 years from the date of CMS's 
determination; and
    (B) Specifies definite steps for meeting, at the time of renewal of 
each group or individual contract, all the requirements of subparts B 
and C of this part.
    (ii) Upon completion of this time-phased plan, it will--
    (A) Provide basic and supplemental services to all of its enrollees; 
and
    (B) Be organized and operated, and provide services, in accordance 
with subparts B and C of this part.
    (7) Contracts entered into after the date of CMS's determination. 
The entity gives assurances that, with respect to any group or 
individual contract entered into after the date of CMS's determination, 
it will--
    (i) Be organized and operated in accordance with subpart C of this 
part; and
    (ii) Provide basic health services and any supplemental health 
services included in the contract, in accordance with subpart B of this 
part.
    (e) Failure to sign assurances timely. If CMS determines that an 
entity meets the requirements for qualification and the entity fails to 
sign its assurances within 30 days following the date of the 
determination, CMS gives the entity written notice that its application 
is considered withdrawn and that it is not a qualified HMO.
    (f) Qualification of regional components. An HMO that has more than 
one regional component is considered qualified for those regional 
components for which assurances have been signed in accordance with this 
section.
    (g) Special rules: Enrollees entitled to Medicare or Medicaid. For 
an HMO that accepts enrollees entitled to Medicare or Medicaid, the 
following rules apply:
    (1) The requirements of titles XVIII and XIX of the Act, as 
appropriate, take precedence over conflicting requirements of sections 
1301(b) and 1301(c) of the PHS Act.

[[Page 103]]

    (2) The HMO must, with respect to its enrollees entitled to Medicare 
or Medicaid, comply with the applicable requirement of title XVIII or 
XIX, including those that pertain to--
    (i) Deductibles and coinsurance;
    (ii) Enrollment mix and enrollment practices;
    (iii) State plan rules on copayment options; and
    (iv) Grievance procedures.
    (3) An HMO that complies with paragraph (g)(2) of this section may 
obtain and retain Federal qualification if, for its other enrollees, the 
HMO meets the requirements of sections 1301(b) and 1301(c) of the PHS 
Act and implementing regulations in this subpart D and in subparts B and 
C of this part.
    (h) Special rules: Enrollees under the Federal employee health 
benefits program (FEHBP). An HMO that accepts enrollees under the FEHBP 
(Chapter 89 of title 5 of the U.S.C.) may obtain and retain Federal 
qualification if, for its other enrollees, it complies with the 
requirements of section 1301(b) and 1301(c) of the PHS Act and 
implementing regulations in this subpart D and subparts B and C of this 
part.

[59 FR 49836, Sept. 30, 1994]



Sec. 417.143  Application requirements.

    (a) General requirements. This section sets forth application 
requirements for entities that seek qualification as HMOs; HMOs that 
seek expansion of their service areas; and HMOs that seek qualification 
of their regional components as HMOs.
    (b) Completion of an application form. (1) In order to receive a 
determination concerning whether an entity is a qualified HMO, an 
individual authorized to act for the entity (the applicant) must 
complete an application form provided by CMS.
    (2) The authorized individual must describe thoroughly how the 
entity meets, or will meet, the requirements for qualified HMOs 
described in the PHS Act and in subparts B and C of this part, this 
subpart D, and 417.168 and 417.169 of subpart F.
    (c) Collection of an application fee. In accordance with the 
requirements of 31 U.S.C. 9701, Fees and charges for Government services 
and things of value, CMS determines the amount of the application fee 
that must be submitted with each type of application.
    (1) The fee is reasonably related to the Federal government's cost 
of qualifying an entity and may vary based on the type of application.
    (2) Each type of application has one set fee rather than a charge 
based on the specific cost of each determination. (For example, each 
Federally qualified HMO applicant seeking Federal qualification of one 
of its regional components as an HMO is charged the same amount, unless 
the amount of the fee has been changed under paragraph (f) of this 
section.)
    (d) Application fee amounts. The application fee amounts for 
applications completed on or after July 13, 1987 are as follows:
    (1) $18,400 for an entity seeking qualification as an HMO or 
qualification of a regional component of an HMO.

If, in the case of an HMO seeking qualification of a regional component, 
CMS determines that there is no need for a site visit, $8,000 will be 
returned to the applicant.
    (2) $6,900 for an HMO seeking expansion of its service area.
    (3) $3,100 for a CMP seeking qualification as an HMO.
    (e) Refund of an application fee. CMS refunds an application fee 
only if the entity withdraws its application within 10 working days 
after receipt by CMS. Application fees are not returned in any other 
circumstance, even if qualification or certification is denied.
    (f) Procedure for changing the amount of an application fee. If CMS 
determines that a change in the amount of a fee is appropriate, CMS 
issues a notice of proposed rulemaking in the Federal Register to 
announce the proposed new amount.
    (g) New application after denial. An entity may not submit another 
application under this subpart for the same type of determination for 
four full months after the date of the notice in which CMS denied the 
application.
    (h) Disclosure of application information under the Freedom of 
Information Act. An applicant submitting material that he or she 
believes is protected from disclosure under 5 U.S.C. 552, the Freedom of 
Information Act, or because of exceptions provided in 45 CFR

[[Page 104]]

part 5, the Department's regulations providing exceptions to disclosure, 
should label the material ``privileged'' and include an explanation of 
the applicability of an exception described in 45 CFR part 5.

[52 FR 22321, June 11, 1987. Redesignated at 52 FR 36746, Sept. 30, 
1987, as amended at 58 FR 38077, July 15, 1993]



Sec. 417.144  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
application for Federal qualification on the basis of information 
contained in the application itself and any additional information that 
CMS obtains through on-site visits, public hearings, and any other 
appropriate procedures.
    (2) If the application is incomplete, CMS notifies the entity and 
allows 60 days from the date of the notice for the entity to furnish the 
missing information.
    (3) After evaluating all relevant information, CMS determines 
whether the entity meets the applicable requirements of Sec. Sec. 
417.142 and 417.143.
    (b) Notice of determination. CMS notifies each entity that applies 
for qualification under this subpart of its determination and the basis 
for the determination. The determination may be granting of 
qualification, intent to deny, or denial.
    (c) Intent to deny. (1) If CMS finds that the entity does not appear 
to meet the requirements for qualification and appears to be able to 
meet those requirements within 60 days, CMS gives the entity notice of 
intent to deny qualification and a summary of the basis for this 
preliminary finding.
    (2) Within 60 days from the date of the notice, the entity may 
respond in writing to the issues or other matters that were the basis 
for CMS's preliminary finding, and may revise its application to remedy 
any defects identified by CMS.
    (d) Denial and reconsideration of denial. (1) If CMS denies an 
application for qualification under this subpart, CMS gives the entity 
written notice of the denial and an opportunity to request 
reconsideration of that determination.
    (2) A request for reconsideration must--
    (i) Be submitted in writing, within 60 days following the date of 
the notice of denial;
    (ii) Be addressed to the CMS officer or employee who denied the 
application; and
    (iii) Set forth the grounds upon which the entity requests 
reconsideration, specifying the material issues of fact and of law upon 
which the entity relies.
    (3) CMS bases its reconsideration upon the record compiled during 
the qualification review proceedings, materials submitted in support of 
the request for reconsideration, and other relevant materials available 
to CMS.
    (4) CMS gives the entity written notice of the reconsidered 
determination and the basis for the determination.
    (e) Information on qualified HMOs--(1) Federal Register notices. In 
quarterly Federal Register notices, CMS gives the names, addresses, and 
service areas of newly qualified HMOs and describes the expanded service 
areas of other qualified HMOs.
    (2) Listings. A cumulative list of qualified HMOs is available from 
the following office, which is open from 8:30 a.m. to 5 p.m., Monday 
through Friday: Office of Managed Care, room 4360, Cohen Building, 400 
Independence Avenue SW., Washington, DC 20201.

[59 FR 49837, Sept. 30, 1994]



  Subpart E_Inclusion of Qualified Health Maintenance Organizations in 
                     Employee Health Benefits Plans

    Source: 45 FR 72517, Oct. 31, 1980, unless otherwise noted. 
Redesignated at 52 FR 36746, Sept. 30, 1987.



Sec. 417.150  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Agreement means a collective bargaining agreement.
    Bargaining representative means an individual or entity designated 
or selected, under any applicable Federal, State, or local law, or 
public entity collective bargaining agreement, to

[[Page 105]]

represent employees in collective bargaining, or any other employee 
representative designated or selected under any law.
    Carrier means a voluntary association, corporation, partnership, or 
other organization that is engaged in providing, paying for, or 
reimbursing all or part of the cost of health benefits under group 
insurance policies or contracts, medical or hospital service agreements, 
enrollment or subscription contracts, or similar group arrangements, in 
consideration of premiums or other periodic charges payable to the 
carrier.
    Collective bargaining agreement means an agreement entered into 
between an employing entity and the bargaining representative of its 
employees.
    Contract means an employer-employee or public entity-employee 
contract, or a contract for health benefits.
    Designee means any person or entity authorized to act on behalf of 
an employing entity or a group of employing entities to offer the option 
of enrollment in a qualified health maintenance organization to their 
eligible employees.
    Eligible employee means an employee who meets the employer's 
requirements for participation in the health benefits plan.
    Employee means any individual employed by an employer or public 
entity on a full-time or part-time basis.
    Employer has the meaning given that term in section 3(d) of the Fair 
Labor Standards Act of 1938, except that it--
    (1) Includes non-appropriated fund instrumentalities of the United 
States Government; and
    (2) Excludes the following:
    (i) The governments of the United States, the District of Columbia 
and the territories and possessions of the United States, the 50 States 
and their political subdivisions, and any agencies or instrumentalities 
of any of the foregoing, including the United States Postal Service and 
Postal Rate Commission.
    (ii) Any church, or convention or association of churches, and any 
organization operated, supervised, or controlled by a church, or 
convention or association of churches that meets the following 
conditions:
    (A) Is an organization that is described in section 501(c)(3) of the 
Internal Revenue Code of 1954.
    (B) Does not discriminate, in the employment, compensation, 
promotion or termination of employment of any personnel, or in the 
granting of staff and other privileges to physicians or other health 
personnel, on the grounds that the individuals obtain health care 
through HMOs, or participate in furnishing health care through HMOs.
    Employing entity means an employer or public entity.
    Employing entity-employee contract means a legally enforceable 
agreement (other than a collective bargaining agreement) between an 
employing entity and its employees for the provision of, or payment for, 
health benefits for its employees, or for its employees and their 
eligible dependents.
    Group enrollment period means the period of at least 10 working days 
each calendar year during which each eligible employee is given the 
opportunity to select among the alternatives included in a health 
benefits plan.
    Health benefits means health benefits and services.
    Health benefits contract means a contract or other agreement between 
an employing entity or a designee and a carrier for the provision of, or 
payment for, health benefits to eligible employees or to eligible 
employees and their eligible dependents.
    Health benefits plan means any arrangement, to provide or pay for 
health services, that is offered to eligible employees, or to eligible 
employees and their eligible dependents, by or on behalf of an employing 
entity.
    Public entity means the 50 states, Puerto Rico, Guam, the Virgin 
Islands, the Northern Mariana Islands and American Samoa and their 
political subdivisions, the District of Columbia, and any agency or 
instrumentality of the foregoing, and political subdivisions include 
counties, parishes, townships, cities, municipalities, towns, villages, 
and incorporated villages.
    Qualified HMO means an HMO that has in effect a determination, made 
under subpart D of this part, that the HMO is an operational, 
preoperational, or transitional qualified HMO.

[[Page 106]]

    To offer a health benefits plan means to make participation in a 
health benefits plan available to eligible employees, or to eligible 
employees and their eligible dependents regardless of whether the 
employing entity makes a financial contribution to the plan on behalf of 
these employees, directly or indirectly, for example, through payments 
on any basis into a health and welfare trust fund.

[45 FR 72517, Oct. 31, 1980, as amended at 47 FR 19341, May 5, 1982. 
Redesignated at 52 FR 36746, Sept. 30, 1987, as amended at 58 FR 38077, 
July 15, 1993; 59 FR 49837, 49843, Sept. 30, 1994]



Sec. 417.151  Applicability.

    (a) Basic rule. Effective October 24, 1995, \1\ this subpart applies 
to any employing entity that offers a health benefits plan to its 
employees, meets the conditions specified in paragraphs (b) through (e) 
of this section, and elects to include one or more qualified HMOs in the 
health plan alternatives it offers its employees.
---------------------------------------------------------------------------

    \1\ Before October 24, 1995, an employing entity that met the 
conditions specified in Sec. 417.151 was required to include one or 
more qualified HMOs, if it received from at least one qualified HMO a 
written request for inclusion and that request met the timing, content, 
and procedural requirements specified in Sec. 417.152.
---------------------------------------------------------------------------

    (b) Number of employees. During any calendar quarter of the 
preceding calendar year, the employer or public entity employed an 
average of not less than 25 employees.
    (c) Minimum wage. During any calendar quarter of the preceding 
calendar year, the employer was required to pay the minimum wage 
specified in section 6 of the Fair Labor Standards Act of 1938, or would 
have been required to pay that wage but for section 13(a) of that Act.
    (d) Federal assistance under section 317 of the PHS Act. The public 
entity has a pending application for, or is receiving, assistance under 
section 317 of the PHS Act.
    (e) Employees in HMO's service area. At least 25 of the employing 
entity's employees reside within the HMO's service area.

[59 FR 49838, Sept. 30, 1994, as amended at 61 FR 27287, May 31, 1996]



Sec. 417.153  Offer of HMO alternative.

    (a) Basic rule. An employing entity that is subject to this subpart 
and that elects to include one or more qualified HMOs must offer the HMO 
alternative in accordance with this section.
    (b) Employees to whom the HMO option must be offered. Each employing 
entity must offer the option of enrollment in a qualified HMO to each 
eligible employee and his or her eligible dependents who reside in the 
HMO's service area.
    (c) Manner of offering the HMO option. (1) For employees who are 
represented by a bargaining representative, the option of enrollment in 
a qualified HMO--
    (i) Must first be presented to the bargaining representative; and
    (ii) If the representative accepts the option, must then be offered 
to each represented employee.
    (2) For employees not represented by a bargaining representative, 
the option must be offered directly to those employees.

[59 FR 49839, Sept. 30, 1994, as amended at 61 FR 27287, May 31, 1996]



Sec. 417.155  How the HMO option must be included in the health benefits plan.

    (a) HMO access to employees--(1) Purpose and timing--(i) Purpose. 
The employing entity must provide each HMO included in its health 
benefits plan fair and reasonable access to all employees specified in 
Sec. 417.153(b), so that the HMO can explain its program in accordance 
with Sec. 417.124(b).
    (ii) Timing. The employing entity must provide access beginning at 
least 30 days before, and continuing during, the group enrollment 
period.
    (2) Nature of access. (i) Access must include, at a minimum, 
opportunity to distribute educational literature, brochures, 
announcements of meetings, and other relevant printed materials that 
meet the requirements of Sec. 417.124(b).
    (ii) Access may not be more restrictive or less favorable than the 
access the employing entity provides to other

[[Page 107]]

offerors of options included in the health benefits plan, whether or not 
those offerors elect to avail themselves of that access.
    (b) Review of HMO offering materials. (1) The HMO must give the 
employing entity or designee opportunity to review, revise, and approve 
HMO educational and offering materials before distribution.
    (2) Revisions must be limited to correcting factual errors and 
misleading or ambiguous statements, unless--
    (i) The HMO and the employing entity agree otherwise; or
    (ii) Other revisions are required by law.
    (3) The employing entity or designee must complete revision of the 
materials promptly so as not to delay or otherwise interfere with their 
use during the group enrollment period.
    (c) Group enrollment period; prohibition of restrictions; effective 
date of HMO coverage--(1) Prohibition of restrictions. If an employing 
entity or designee includes the option of enrollment in a qualified HMO 
in the health benefits plan offered to its eligible employees, it must 
provide a group enrollment period before the effective date of HMO 
coverage. The employing entity may not impose waiting periods as a 
condition of enrollment in the HMO or of transfer from HMO to non-HMO 
coverage, or exclusions, or limitations based on health status.
    (2) Effective date of coverage. Unless otherwise agreed to by the 
employing entity, or designee, and the HMO, coverage under the HMO 
contract for employees selecting the HMO option begins on the day the 
non-HMO contract expires or is renewed without lapse.
    (3) Coordination of benefits. Nothing in this subpart precludes the 
uniform application of coordination of benefits agreements between the 
HMOs and the other carriers that are included in the health benefits 
plan.
    (d) Continued eligibility for ``free-standing'' health benefits--(1) 
Basic requirement. At the request of a qualified HMO, the employing 
entity or its designee must provide that employees selecting the option 
of HMO membership will not, because of this selection, lose their 
eligibility for free-standing dental, optical, or prescription drug 
benefits for which they were previously eligible or would be eligible if 
selecting a non-HMO option and that are not included in the services 
provided by the HMO to its enrollees as part of the HMO prepaid benefit 
package.
    (2) ``Free-standing'' defined. For purposes of this paragraph, the 
term ``free-standing'' refers to a benefit that--
    (i) Is not integrated or incorporated into a basic health benefits 
package or major medical plan, and
    (ii) Is--
    (A) Offered by a carrier other than the one offering the basic 
health benefits package or major medical plan; or
    (B) Subject to a premium separate from the premium for the basic 
health benefits package or major medical plan.
    (3) Examples of the employing entity's obligation with respect to 
the continued eligibility. (i) The health benefits plan includes a free-
standing dental benefit. The HMO does not offer any dental coverage as 
part of its health services provided to members on a prepaid basis. The 
employing entity must provide that employees who select the HMO option 
continue to be eligible for dental coverage. (If the dental coverage is 
not optional for employees selecting the non-HMO option, nothing in this 
regulation requires that the coverage be made optional for employees 
selecting the HMO option. Conversely, if this coverage is optional for 
employees selecting the non-HMO option, nothing in this regulation 
requires that the coverage be mandatory for employees selecting the non-
HMO option.) -
    (ii) The non-HMO option provides free-standing coverage for optical 
services (such as refraction and the provision of eyeglasses), and the 
HMO does not. The employing entity must provide that employees who 
select the HMO option continue to be eligible for optical coverage.
    (iii) The non-HMO option includes dental coverage in its major 
medical package, with a common deductible applied to dental as well as 
non-dental benefits. The HMO provides no dental coverage as part of its 
pre-paid health services. Because the dental coverage is not free-
standing, the employing entity is not required to provide that employees 
who select the HMO option

[[Page 108]]

continue to be eligible for dental coverage, but is free to do so.
    (e) Opportunity to select among coverage options: Requirement for 
affirmative written selection--(1) Opportunity other than during a group 
enrollment period. The employing entity or designee must provide 
opportunity (in addition to the group enrollment period) for selection 
among coverage options, by eligible employees who meet any of the 
following conditions:
    (i) Are new employees.
    (ii) Have been transferred or have changed their place of residence, 
resulting in--
    (A) Eligibility for enrollment in a qualified HMO for which they 
were not previously eligible by place of residence; or
    (B) Residence outside the service area of a qualified HMO in which 
they were previously enrolled.
    (iii) Are covered by any coverage option that ceases operation.
    (2) Prohibition of restrictions. When the employees specified in 
paragraph (e)(1) of this section are eligible to participate in the 
health benefits plan, the employing entity or designee must make 
available, without waiting periods or exclusions based on health status 
as a condition, the opportunity to enroll in an HMO, or transfer from 
HMO coverage to non-HMO coverage.
    (3) Affirmative written selection. The employing entity or designee 
must require that the eligible employee make an affirmative written 
selection in any of the following circumstances:
    (i) Enrollment in a particular qualified HMO is offered for the 
first time.
    (ii) The eligible employee elects to change from one option to 
another.
    (iii) The eligible employee is one of those specified in paragraph 
(e)(1) of this section.
    (f) Determination of copayment levels and supplemental health 
services. The selection of a copayment level and of supplemental health 
services to be contracted for must be made as follows:
    (1) For employees represented by a collective bargaining 
representative, the selection of copayment levels and supplemental 
health services is subject to the collective bargaining process.
    (2) For employees not represented by a bargaining representative, 
the selection of copayment levels and supplemental health services is 
subject to the same decisionmaking process used by the employing entity 
with respect to the non-HMO option in its health benefits plan.
    (3) In all cases, the HMO has the right to include, with the basic 
benefits package it provides to its enrollees for a basic health 
services payment, on a non-negotiable basis, those supplemental health 
services that meet the following conditions:
    (i) Are required to be offered under State law.
    (ii) Are included uniformly by the HMO in its prepaid benefit 
package.
    (iii) Are available to employees who select the non-HMO option but 
not available to those who select the HMO option.

[59 FR 49840, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Sec. 417.156  When the HMO must be offered to employees.

    (a) General rules. (1) The employing entity or designee must offer 
eligible employees the option of enrollment in a qualified HMO at the 
earliest date permitted under the terms of existing agreements or 
contracts.
    (2) If the HMO's request for inclusion in a health benefits plan is 
received at a time when existing contracts or agreements do not provide 
for inclusion, the employing entity must include the HMO option in the 
health benefits plan at the time that new agreements or contracts are 
offered or negotiated.
    (b) Specific requirements. Unless mutually agreed otherwise, the 
following rules apply:
    (1) Collective bargaining agreement. The employing entity or 
designee must raise the HMO's request during the collective bargaining 
process--
    (i) When a new agreement is negotiated;
    (ii) At the time prescribed, in an agreement with a fixed term of 
more than 1 year, for discussion of change in health benefits; or
    (iii) In accordance with a specific process for review of HMO 
offers.
    (2) Contracts. For employees not covered by a collective bargaining 
agreement, the employing entity or designee

[[Page 109]]

must include the HMO option in any health benefits plan offered to 
eligible employees when the existing contract is renewed or when a new 
health benefits contract or other arrangement is negotiated.
    (i) If a contract has no fixed term or has a term in excess of 1 
year, the contract must be treated as renewable on its earliest 
anniversary date.
    (ii) If the employing entity or designee is self-insured, the budget 
year must be treated as the term of the existing contract.
    (3) Multiple arrangements. In the case of a health benefits plan 
that includes multiple contracts or other arrangements with varying 
expiration or renewal dates, the employing entity must include the HMO 
option, in accordance with paragraphs (b)(1) and (b)(2) of this 
section,--
    (i) At the time each contract or arrangement is renewed or reissued; 
or
    (ii) The benefits provided under the contract or arrangement are 
offered to employees.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.157  Contributions for the HMO alternative.

    (a) General principles--(1) Nondiscrimination. The employer 
contribution to an HMO must be in an amount that does not discriminate 
financially against an employee who enrolls in an HMO. A contribution 
does not discriminate financially if the method of determining the 
contribution is reasonable and is designed to ensure that employees have 
a fair choice among health benefits plan alternatives.
    (2) Effect of agreements or contracts. The employing entity or 
designee is not required to pay more for health benefits as a result of 
offering the HMO alternative than it would otherwise be required to pay 
under a collective bargaining agreement or contract that provides for 
health benefits and is in effect at the time the HMO alternative is 
included.
    (3) Examples of acceptable employer contributions. The following are 
methods that are considered nondiscriminatory:
    (i) The employer contribution to the HMO is the same, per employee, 
as the contribution to non-HMO alternatives.
    (ii) The employer contribution reflects the composition of the HMO's 
enrollment in terms of enrollee attributes that can reasonably be used 
to predict utilization, experience, costs, or risk. For each enrollee in 
a given class established on the basis of those attributes, the employer 
contributes an equal amount, regardless of the health benefits plan 
chosen by the employee.
    (iii) The employer contribution is a fixed percentage of the premium 
for each of the alternatives offered.
    (iv) The employer contribution is determined under a mutually 
acceptable arrangement negotiated by the HMO and the employer. In 
negotiating the arrangement, the employer may not insist on terms that 
would cause the HMO to violate any of the requirements of this part.
    (4) Adjustment of employer contribution. An employer contribution 
determined by an acceptable method may in some cases be adjusted if it 
would result in a nominal payment or no payment at all by HMO enrollees 
(because the HMO premium is lower than the premiums for the other 
alternatives offered). If, for example the employer has a policy of 
requiring all employees to contribute to their health benefits plan, the 
employer may require HMO enrollees who would otherwise pay little or 
nothing at all, to make a payment that does not exceed 50 percent of the 
employee contribution to the principal non-HMO alternative. The 
principal non-HMO alternative is the one that covers the largest number 
of enrollees from the particular employer.
    (b) Administrative expenses. (1) In determining the amount of its 
contribution to the HMO, the employing entity or designee may not 
consider administrative expenses incurred in connection with offering 
any alternative in the health benefits plan.
    (2) However, if the employing entity or designee has special 
requirements for other than standard solicitation brochures and 
enrollment literature, it must, in the case of the HMO alternative, 
determine and distribute any administrative costs attributable to those 
requirements in a manner consistent with its method of determining

[[Page 110]]

and distributing those costs for the non-HMO alternatives.
    (c) Exclusion for contribution for certain benefits. In determining 
the amount of the employing entity's contribution or the designee's cost 
for the HMO alternative, the employing entity or designee may exclude 
those portions of the contribution allocable to benefits (such as life 
insurance or insurance for supplemental health benefits)--
    (1) For which eligible employees and their eligible dependents are 
covered notwithstanding selection of the HMO alternative; and
    (2) That are not offered on a prepayment basis by the HMO to the 
employing entity's employees.
    (d) Contributions determined by agreements or contracts or by law. 
If the specific amount of the employing entity's contribution for health 
benefits is fixed by an agreement or contract, or by law, that amount 
constitutes the employing entity's obligation for contribution toward 
the HMO premiums.
    (e) Allocation of portion of a contribution determined by an 
agreement. In some cases, the employing entity's contribution for health 
benefits is determined by an agreement that also provides for benefits 
other than health benefits. In that case, the employing entity must 
determine, or instruct its designee to determine, what portion of its 
contribution is applicable to health benefits.
    (f) Retention and availability of data. Each employing entity or 
designee must retain the following data for three years and make it 
available to CMS upon request:
    (1) The data used to compute the level of contribution for each of 
the plans offered to employees.
    (2) Related data about the employees who are eligible to enroll in a 
plan.
    (3) A description of the methodology for computation.
    (g) CMS review of data. (1) CMS may request and review the data 
specified in paragraph (f) of this section on its own initiative or in 
response to requests from HMOs or employees.
    (2) The purpose of CMS's review is to determine whether the 
methodology and the level of contribution comply with the requirements 
of this subpart.
    (3) HMOs and employees that request CMS to review must set forth 
reasonable grounds for making the request.

[61 FR 27287, May 31, 1996]



Sec. 417.158  Payroll deductions.

    Each employing entity that provides payroll deductions as a means of 
paying employees' contributions for health benefits or provides a health 
benefits plan that does not require an employee contribution must, with 
the consent of an employee who selects the HMO option, arrange for the 
employee's contribution, if any, to be paid through payroll deductions.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.159  Relationship of section 1310 of the Public Health Service Act to the National Labor Relations Act and the Railway Labor Act.

    The decision of an employing entity subject to this subpart to 
include the HMO alternative in any health benefits plan offered to its 
eligible employees must be carried out consistently with the obligations 
imposed on that employing entity under the National Labor Relations Act, 
the Railway Labor Act, and other laws of similar effect.

[59 FR 49841, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Subpart F_Continued Regulation of Federally Qualified Health Maintenance 
                              Organizations

    Source: 43 FR 32255, July 25, 1978, unless otherwise noted. 
Redesignated at 52 FR 36746, Sept. 30, 1987.



Sec. 417.160  Applicability.

    This subpart applies to any entity that has been determined to be a 
qualified HMO under subpart D of this part.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.161  Compliance with assurances.

    Any entity subject to this subpart must comply with the assurances 
that it provided to CMS, unless compliance is waived under Sec. 
417.166.

[58 FR 38071, July 15, 1993]

[[Page 111]]



Sec. 417.162  Reporting requirements.

    Entities subject to this subpart must submit:
    (a) The reports that may be required by CMS under Sec. 417.126, and
    (b) Any additional reports CMS may reasonably require.

[58 FR 38071, July 15, 1993]



Sec. 417.163  Enforcement procedures.

    (a) Complaints. Any person, group, association, corporation, or 
other entity may file with CMS a written complaint with respect to an 
HMO's compliance with assurances it gave under subpart D of this part. A 
complaint must--
    (1) State the grounds and underlying facts of the complaint;
    (2) Give the names of all persons involved; and
    (3) Assure that all appropriate grievance and appeals procedures 
established by the HMO and available to the complainant have been 
exhausted.
    (b) Investigations. (1) CMS may initiate investigations when, based 
on a report, a complaint, or any other information, CMS has reason to 
believe that a Federally qualified HMO is not in compliance with any of 
the assurances it gave under subpart D of this part.
    (2) When CMS initiates an investigation, it gives the HMO written 
notice that includes a full statement of the pertinent facts and of the 
matters being investigated and indicates that the HMO may submit, within 
30 days of the date of the notice, a written report concerning these 
matters.
    (3) CMS obtains any information it considers necessary to resolve 
issues related to the assurances, and may use site visits, public 
hearings, or any other procedures that CMS considers appropriate in 
seeking this information.
    (c) Determination and notice by CMS--(1) Determination. (i) On the 
basis of the investigation, CMS determines whether the HMO has failed to 
comply with any of the assurances it gave under subpart D of this part.
    (ii) CMS publishes in the Federal Register a notice of each 
determination of non-compliance.
    (2) Notice of determination: Corrective action. (i) CMS gives the 
HMO written notice of the determination.
    (ii) The notice specifies the manner in which the HMO has not 
complied with its assurances and directs the HMO to initiate the 
corrective action that CMS considers necessary to bring the HMO into 
compliance.
    (iii) The HMO must initiate this corrective action within 30 days of 
the date of the notice from CMS, or within any longer period that CMS 
determines to be reasonable and specifies in the notice. The HMO must 
carry out the corrective action within the time period specified by CMS 
in the notice.
    (iv) The notice may provide the HMO an opportunity to submit, for 
CMS's approval, proposed methods for achieving compliance.
    (d) Remedy: Revocation of qualification. If CMS determines that a 
qualified HMO has failed to initiate or to carry out corrective action 
in accordance with paragraph (c)(2) of this section--(1) CMS revokes the 
HMO's qualification and notifies the HMO of this action.
    (2) In the notice, CMS provides the HMO with an opportunity for 
reconsideration of the revocation, including, at the HMO's election, a 
fair hearing.
    (3) The revocation of qualification is effective on the tenth 
calendar day after the day of the notice unless CMS receives a request 
for reconsideration by that date.
    (4) If after reconsideration CMS again determines to revoke the 
HMO's qualification, this revocation is effective on the tenth calendar 
day after the date of the notice of reconsidered determination.
    (5) CMS publishes in the Federal Register each determination it 
makes under this paragraph (d).
    (6) A revocation under this paragraph (d) has the effect described 
in Sec. 417.164.
    (e) Notice by the HMO. Within 15 days after the date CMS issues a 
notice of revocation, the HMO must prepare a notice that explains, in 
readily understandable language, the reasons for the determination that 
it is not a qualified HMO, and send the notice to the following:
    (1) The HMO's enrollees.
    (2) Each employer or public entity that has offered enrollment in 
the HMO in accordance with subpart E of this part.

[[Page 112]]

    (3) Each lawfully recognized collective bargaining representative or 
other representative of the employees of the employer or public entity.
    (f) Reimbursement of enrollees for services improperly denied, or 
for charges improperly imposed. (1) If CMS determines, under paragraph 
(c)(1) of this section, that an HMO is out of compliance, CMS may 
require the HMO to reimburse its enrollees for the following--
    (i) Expenses for basic or supplemental health services that the 
enrollee obtained from other sources because the HMO failed to provide 
or arrange for them in accordance with its assurances.
    (ii) Any amounts the HMO charged the enrollee that are inconsistent 
with its assurances. (Rules applicable to charges for all enrollees are 
set forth in Sec. Sec. 417.104 and 417.105. The additional rules 
applicable to Medicare enrollees are in Sec. 415.454.)
    (2) This paragraph applies regardless of when the HMO failed to 
comply with the appropriate assurances.
    (g) Remedy: Civil suit--(1) Applicability. This paragraph applies to 
any HMO or other entity to which a grant, loan, or loan guarantee was 
awarded, as set forth in subpart V of this part, on the basis of its 
assurances regarding the furnishing of basic and supplemental services 
or its operation and organization, as the case may be.
    (2) Basis for action. If CMS determines that the HMO or other entity 
has failed to initiate or refuses to carry out corrective action in 
accordance with paragraph (c)(2) of this section, CMS may bring civil 
action in the U.S. district court for the district in which the HMO or 
other entity is located, to enforce compliance with the assurances it 
gave in applying for the grant, loan, or loan guarantee.

[59 FR 49841, Sept. 30, 1994]



Sec. 417.164  Effect of revocation of qualification on inclusion in employee's health benefit plans.

    When an HMO's qualification is revoked under Sec. 417.163(d), the 
following rules apply:
    (a) The HMO may not seek inclusion in employees health benefits 
plans under subpart E of this part.
    (b) Inclusion of the HMO in an employer's health benefits plan--
    (1) Is disregarded in determining whether the employer is subject to 
the requirements of subpart E of this part; and
    (2) Does not constitute compliance with subpart E of this part by 
the employer.

[59 FR 49842, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]



Sec. 417.165  Reapplication for qualification.

    An entity whose qualification as an HMO has been revoked by CMS for 
purposes of section 1310 of the PHS Act may, after completing the 
corrective action required under Sec. 417.163(c)(2), reapply for a 
determination of qualification in accordance with the procedures 
specified in subpart D of this part.

[43 FR 32255, July 25, 1978. Redesignated at 52 FR 36746, Sept. 30, 
1987, and amended at 58 FR 38078, July 15, 1993]



Sec. 417.166  Waiver of assurances.

    (a) General rule. CMS may release an HMO from compliance with any 
assurances the HMO gives under subpart D of this part if--
    (1) The qualification requirements are changed by Federal law; or
    (2) The HMO shows good cause, consistent with the purposes of title 
XIII of the PHS Act.
    (b) Basis for finding of good cause. (1) Grounds upon which CMS may 
find good cause include but are not limited to the following:
    (i) The HMO has filed for reorganization under Federal bankruptcy 
provisions and the reorganization can only be approved with the waiver 
of the assurances.
    (ii) State laws governing the entity have been changed after it 
signed the assurances so as to prohibit the HMO from being organized and 
operated in a manner consistent with the signed assurances.
    (2) Changes in State laws do not constitute good cause to the extent 
that the changes are preempted by Federal law under section 1311 of the 
PHS Act.
    (c) Consequences of waiver. If CMS waives any assurances regarding 
compliance with section 1301 of the PHS Act, CMS concurrently revokes 
the

[[Page 113]]

HMO's qualification unless the waiver is based on paragraph (a)(1) of 
this section.

[59 FR 49842, Sept. 30, 1994, as amended at 61 FR 27288, May 31, 1996]

Subparts G-I [Reserved]



         Subpart J_Qualifying Conditions for Medicare Contracts

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.400  Basis and scope.

    (a) Statutory basis. The regulations in this subpart implement 
section 1876 of the Act, which authorizes Medicare payment to HMOs and 
CMPs that contract with CMS to furnish covered services to Medicare 
beneficiaries.
    (b) Scope. (1) This subpart sets forth the requirements an HMO or 
CMP must meet in order to enter into a contract with CMS under section 
1876 of the Act. It also specifies the procedures that CMS follows to 
evaluate applications and make determinations.
    (2) The rules for payment to HMOs and CMPs are set forth in subparts 
N, O, and P of this part.
    (3) The rules for HCPP participation in Medicare under section 
1833(a)(1)(A) of the Act are set forth in subpart U of this part.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.401  Definitions.

    As used in this subpart and subparts K through R of this part, 
unless the context indicates otherwise--
    Adjusted average per capita cost (AAPCC) means an actuarial estimate 
made by CMS in advance of an HMO's or CMP's contract period that 
represents what the average per capita cost to the Medicare program 
would be for each class of the HMO's or CMP's Medicare enrollees if they 
had received covered services other than through the HMO or CMP in the 
same geographic area or in a similar area.
    Adjusted community rate (ACR) is the equivalent of the premium that 
a risk HMO or CMP would charge Medicare enrollees independently of 
Medicare payments if the HMO or CMP used the same rates it charges non-
Medicare enrollees for a benefit package limited to covered Medicare 
services.
    Arrangement means a written agreement between an HMO or CMP and 
another entity, under which--
    (1) The other entity agrees to furnish specified services to the 
HMO's or CMP's Medicare enrollees;
    (2) The HMO or CMP retains responsibility for the services; and
    (3) Medicare payment to the HMO or CMP discharges the beneficiary's 
obligation to pay for the services.
    Benefit stabilization fund means a fund established by CMS, at the 
request of a risk HMO or CMP, to withhold a portion of the per capita 
payments available to the HMO or CMP and pay that portion in a 
subsequent contract period for the purpose of stabilizing fluctuations 
in the availability of the additional benefits the HMO or CMP provides 
to its Medicare enrollees.
    Cost contract means a Medicare contract under which CMS pays the HMO 
or CMP on a reasonable cost basis.
    Cost HMO or CMP means an HMO or CMP that has in effect a cost 
contract with CMS under section 1876 of the Act and subpart L of this 
part.
    Demonstration project means a demonstration project under section 
402 of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (42 U.S.C. 
1395b-1 (note)), relating to the provision of services for which payment 
is made under Medicare on a prospectively determined basis.
    Emergency services means covered inpatient or outpatient services 
that are furnished by an appropriate source other than the HMO or CMP 
and that meet the following conditions:
    (1) Are needed immediately because of an injury or sudden illness.
    (2) Are such that the time required to reach the HMO's or CMP's 
providers or suppliers (or alternatives authorized by the HMO or CMP) 
would mean risk of permanent damage to the enrollee's health.

Once initiated, the services continue to be considered emergency 
services as long as transfer of the enrollee to the HMO's or CMP's 
source of health care or authorized alternative is precluded because of 
risk to the enrollee's health

[[Page 114]]

or because transfer would be unreasonable, given the distance and the 
nature of the medical condition.
    Geographic area means the area found by CMS to be the area within 
which the HMO or CMP furnishes, or arranges for furnishing, the full 
range of services that it offers to its Medicare enrollees.
    Medicare enrollee means a Medicare beneficiary who has been 
identified on CMS records as an enrollee of an HMO or CMP that has a 
contract with CMS under section 1876 of the Act and subpart L of this 
part.
    New Medicare enrollee means a Medicare beneficiary who--
    (1) Enrolls with an HMO or CMP after the date on which the HMO or 
CMP first enters into a risk contract under subpart L of this part; and
    (2) Was not enrolled with the HMO or CMP at the time he or she 
became entitled to benefits under Part A or eligible to enroll in Part B 
of Medicare.
    Risk contract means a Medicare contract under which CMS pays the HMO 
or CMP on a risk basis for Medicare covered services.
    Risk HMO or CMP means an HMO or CMP that has in effect a risk 
contract with CMS under section 1876 of the Act and subpart L of this 
part.
    Urgently needed services means covered services that are needed by 
an enrollee who is temporarily absent from the HMO's or CMP's geographic 
area and that--
    (1) Are required in order to prevent serious deterioration of the 
enrollee's health as a result of unforeseen injury or illness; and
    (2) Cannot be delayed until the enrollee returns to the HMO's or 
CMP's geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 51986, Oct. 17, 1991; 58 
FR 38072, July 15, 1993; 60 FR 45675, Sept. 1, 1995]



Sec. 417.402  Effective date of initial regulations.

    (a) The changes made to section 1876 of the Act by section 114 of 
the Tax Equity and Fiscal Responsibility Act of 1982 became effective on 
February 1, 1985, the effective date of the initial implementing 
regulations.
    (b) No new cost plan contracts are accepted by CMS. CMS will, 
however, accept and approve applications to modify cost plan contracts 
in order to expand service areas, provided they are submitted on or 
before September 1, 2006, and CMS determines that the organization 
continues to meet regulatory requirements and the requirements in its 
cost plan contract. Section 1876 cost plan contracts will not be 
extended or renewed beyond December 31, 2007, where conditions in 
paragraph (c) of this section are present.
    (c) Mandatory HMO or CMP and contract non-renewal or service area 
reduction. CMS will non-renew all or a portion of an HMO's or CMP's 
contracted service area using procedures in Sec. 417.492(b) and Sec. 
417.494(a) for any period beginning on or after January 1, 2008, where-
    (1) There were two or more coordinated care plan-model MA regional 
plans in the same service area or portion of a service area for the 
entire previous calendar year meeting the conditions in paragraph (c)(3) 
of this section; or
    (2) There were two or more coordinated care plan-model MA local 
plans in the same service area or portion of a service area for the 
entire previous calendar year meeting the conditions in paragraph (c)(3) 
of this section.
    (3) Minimum enrollment requirements. (i) With respect to any service 
area or portion of a service area that is within a Metropolitan 
Statistical Area with a population of more than 250,000 and counties 
contiguous to the Metropolitan Statistical Area, 5,000 enrolled 
individuals.
    (ii) With respect to any service area or portion of a service area 
that is not within a Metropolitan Statistical Area described in 
paragraph (c)(3)(i) of this section, 1,500 individuals.

[63 FR 35066, June 26, 1998, as amended at 65 FR 40314, June 29, 2000; 
67 FR 13288, Mar. 22, 2002; 70 FR 4713, Jan. 28, 2005]



Sec. 417.404  General requirements.

    (a) In order to contract with CMS under the Medicare program, an 
entity must--
    (1) Be determined by CMS to be an HMO or CMP (in accordance with 
Sec. Sec. 117.142 and 417.407, respectively); and

[[Page 115]]

    (2) Comply with the contract requirements set forth in subpart L of 
this part.
    (b) CMS enters into or renews a contract only if it determines that 
action would be consistent with the effective and efficient 
implementation of section 1876 of the Act.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.406  Application and determination.

    (a) Responsibility for making determinations. CMS is responsible for 
determining whether an entity meets the requirements to be an HMO or 
CMP.
    (b) Application requirements. (1) The application requirements for 
HMOs are set forth in Sec. 417.143.
    (2) The requirements of Sec. 417.143 also apply to CMPs except that 
there are no application fees.
    (c) Determination. CMS uses the procedures set forth in Sec. 
417.144(a) through (d) to determine whether an entity is an HMO or CMP.
    (d) Oversight of continuing compliance. (1) CMS oversees an entity's 
continued compliance with the requirements for an HMO as defined in 
Sec. 417.1 or for a CMP as set forth in Sec. 417.407.
    (2) If an entity no longer meets those requirements, CMS terminates 
the contract of that entity in accordance with Sec. 417.494.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.407  Requirements for a Competitive Medical Plan (CMP).

    (a) General rule. To qualify as a CMP, an entity must be organized 
under the laws of a State and must meet the requirements of paragraphs 
(b) through (f) of this section.
    (b) Required services--(1) Basic rule. Except as provided in 
paragraph (b)(2) of this section, the entity furnishes to its enrollees 
at least the following services:
    (i) Physicians' services performed by physicians.
    (ii) Laboratory, x-ray, emergency, and preventive services.
    (iii) Out-of-area coverage.
    (iv) Inpatient hospital services.
    (2) Exception for Medicaid prepayment risk contracts. An entity that 
had, before 1970, a Medicaid prepayment risk contract that did not 
include provision of inpatient hospital services is not required to 
provide those services.
    (c) Compensation for services. The entity receives compensation 
(except for deductibles, coinsurance, and copayments) for the health 
care services it provides to enrollees on a periodic, prepaid capitation 
basis regardless of the frequency, extent, or kind of services provided 
to any enrollee.
    (d) Source of physicians' services. The entity provides physicians' 
services primarily through--
    (1) Physicians who are employees or partners of the entity; or
    (2) Physicians or groups of physicians (organized on a group or 
individual practice basis) under contract with the entity to provide 
physicians' services.
    (e) Assumption of financial risk. The rules set forth in Sec. 
417.120(b) for HMOs apply also to CMPs except that reference to ``basic 
services'' must be read as reference to the required services listed in 
paragraph (b) of this section.
    (f) Protection of enrollees. The entity provides adequately against 
the risk of insolvency by meeting the requirements of Sec. Sec. 
417.120(a) and 417.122 for protection of enrollees against loss of 
benefits and liability for payment of any fees that are the legal 
responsibility of the entity.

[60 FR 45675, Sept. 1, 1995]



Sec. 417.408  Contract application process.

    (a) Contents of application. (1) The application for a contract must 
include supporting information in the form and detail required by CMS. 
(2) Whenever feasible, CMS exempts the HMO or CMP from resubmittal of 
information it has already submitted to CMS in connection with a 
determination made under the provisions of Sec. 417.406.
    (b) Approval of application. (1) If CMS approves the application, it 
gives written notice to the HMO or CMP, indicating that it meets the 
requirements for either a risk or reasonable cost contract or only for a 
reasonable cost contract.
    (2) If the HMO or CMP is dissatisfied with a determination that it 
meets the requirements only for a reasonable cost

[[Page 116]]

contract, it may request reconsideration in accordance with the 
procedures specified in subpart R of this part.
    (c) Denial of application. If CMS denies the application, it gives 
written notice to the HMO or CMP indicating--
    (1) That it does not meet the contract requirements under section 
1876 of the Act;
    (2) The reasons why the HMO or CMP does not meet the contract 
requirements; and
    (3) The HMO's or CMP's right to request reconsideration in 
accordance with the procedures specified in subpart R of this part.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 
FR 38078, July 15, 1993; 60 FR 45676, Sept. 1, 1995]



Sec. 417.410  Qualifying conditions: General rules.

    (a) Basic requirement. In order to qualify for a contract with CMS 
under this subpart, an HMO or CMP must demonstrate its ability to enroll 
Medicare beneficiaries and other individuals and groups and to deliver a 
specified comprehensive range of high quality services efficiently, 
effectively, and economically to its Medicare enrollees.
    (b) Other qualifying conditions. An HMO or CMP must meet qualifying 
conditions that pertain to operating experience, enrollment, range of 
services, furnishing of services, and a quality assurance program.
    (c) Standards. Generally, each qualifying condition is interpreted 
by a series of standards that are used in surveying an HMO or CMP to 
determine its qualifications for a Medicare contract.
    (d) Application of standards. Application of the standards enables 
the surveyor to determine--
    (1) The HMO's or CMP's activities;
    (2) The extent to which the HMO or CMP complies with each condition;
    (3) The nature and extent of any deficiencies; and
    (4) The need for improvement if CMS should enter into a contract 
with the HMO or CMP.
    (e) Requirements for a risk contract. An HMO or CMP may enter into a 
risk contract with CMS if it--
    (1) Meets all the applicable requirements in the statute and 
regulations;
    (2) Has at least 5,000 enrollees or 1,500 enrollees if it serves a 
primarily rural area as defined in Sec. 417.413(b)(3);
    (3) Has at least 75 Medicare enrollees or has an acceptable plan to 
achieve this Medicare membership within 2 years;
    (4) Satisfies CMS that it can bear the potential losses of a risk 
contract; and
    (5) Has not previously terminated or failed to renew a risk contract 
within the preceding 5 years, unless CMS determines that circumstances 
warrant special consideration.
    (f) Requirements for a reasonable cost sontract. An HMO or CMP may 
enter into a reasonable cost contract if it meets one of the following:
    (1) The HMO or CMP qualifies for a risk contract, but chooses a 
reasonable cost contract.
    (2) The HMO or CMP meets the conditions for entering into a risk 
contract specified in paragraph (e) of this section except that CMS does 
not judge the HMO or CMP capable of bearing the potential losses of a 
risk contract.
    (g) Regulations on reasonable cost and risk reimbursement are set 
forth in subparts O and P of this part.

[50 FR 20570, May 17, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45676, Sept. 1, 1995]



Sec. 417.412  Qualifying condition: Administration and management.

    The HMO or CMP must demonstrate that it--
    (a) Has sufficient administrative capability to carry out the 
requirements of the contract; and
    (b) Does not have any agents or management staff or persons with 
ownership or control interests who have been convicted of criminal 
offenses related to their involvement in Medicaid, Medicare, or social 
service programs under title XX of the Act.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45676, Sept. 1, 1995]



Sec. 417.413  Qualifying condition: Operating experience and enrollment.

    (a) Condition. The HMO or CMP must demonstrate that it has operating 
experience and an enrolled population

[[Page 117]]

sufficient to provide a reasonable basis for establishing a prospective 
per capita reimbursement rate or a reasonable cost reimbursement rate, 
as appropriate.
    (b) Standard: Enrollment and operating experience for HMOs or CMPs 
to contract on a risk basis. To be eligible to contract on a risk 
basis--
    (1) A nonrural HMO or CMP must currently have the following:
    (i) At least 5,000 enrollees; and
    (ii) At least 75 Medicare enrollees or a plan acceptable to CMS for 
achieving a Medicare enrollment of 75 within 2 years from the beginning 
of its initial contract period.
    (2) A rural HMO or CMP must currently have--
    (i) At least 1,500 enrollees; and
    (ii) At least 75 Medicare enrollees or a plan acceptable to CMS for 
achieving a Medicare enrollment of 75 within 2 years from the beginning 
of its initial contract period.
    (3) For purposes of this paragraph, an HMO or CMP is considered 
rural if at least 50 percent of its enrollees reside in nonmetropolitan 
areas. A nonmetropolitan area is an area--
    (i) No part of which is within a metropolitan statistical area (MSA) 
as designated by the Executive Office of Management and Budget; and
    (ii) That does not contain a city whose population exceeds 50,000 
individuals.
    (4) A subdivision or subsidiary of an HMO or CMP that meets the 
requirements of paragraph (b)(1) or (b)(2) of this section need not 
demonstrate that it meets those requirements as an independent unit if 
the HMO or CMP assumes responsibility for the financial risk, and 
adequate management and supervision of health care services furnished by 
its subdivision or subsidiary.
    (c) Standard: Enrollment and operating experience for HMOs or CMPs 
to contract on a cost basis. To be eligible to contract on a reasonable 
cost basis, an HMO or CMP must currently have enrollees sufficient in 
number to provide a reasonable basis for entering into a contract, as 
follows:
    (1) At least 1,500 enrollees.
    (2) At least 75 Medicare enrollees, or a plan acceptable to CMS for 
achieving--
    (i) A Medicare enrollment of 75 within 2 years from the beginning of 
its initial contract period; and
    (ii) At least 250 Medicare enrollees by the beginning of its fourth 
contract period.
    (d) Standard: Composition of enrollment--(1) Requirement. Except as 
specified in paragraphs (d)(2) and (e) of this section, not more than 50 
percent of an HMO's or CMP's enrollment may be Medicare beneficiaries.
    (2) Waiver of composition of enrollment standard. CMS may waive 
compliance with the requirements of paragraph (d)(1) of this section if 
the HMO or CMP has made and is making reasonable efforts to enroll 
individuals who are not Medicare beneficiaries and it meets one of the 
following requirements:
    (i) The HMO or CMP serves a geographic area in which Medicare 
beneficiaries and Medicaid recipients constitute more than 50 percent of 
the population. (CMS does not grant a waiver that would permit the 
percentage of Medicare and Medicaid enrollees to exceed the percentage 
of Medicare beneficiaries and Medicaid recipients in the population of 
the geographic area.)
    (ii) The HMO or CMP is owned and operated by a government entity. 
The waiver may be for a period up to three years after the date the HMO 
or CMP first enters into a contract under this subpart, and may not be 
extended.
    (iii) The HMO or CMP requests waiver of the composition rule because 
it is in the public interest. The organization provides documentation 
that supports one of the following:
    (A) The organization serves a medically underserved rural or urban 
area.
    (B) The organization demonstrates a long-term business and community 
service commitment to the area.
    (C) The organization believes that a waiver is necessary to promote 
managed care choices in an area with limited or no managed care choices.
    (3) Waiver granted on or before October 21, 1986. An HMO or CMP (or 
a successor HMO or CMP) that as of October 21, 1986, had been granted an 
exception, waiver, or modification of the requirements of paragraph 
(d)(1) of this section, but that does not meet the requirements of 
paragraph (d)(2) of this

[[Page 118]]

section, must make (and throughout the period of the exception, waiver, 
or modification continue to make) reasonable efforts to meet scheduled 
enrollment goals, consistent with a schedule of compliance approved by 
CMS.
    (i) If CMS determines that the HMO or CMP has complied, or made 
significant progress toward compliance, with the approved schedule, and 
that an extension is in the best interest of the Medicare program, CMS 
may extend the waiver of modification.
    (ii) If CMS determines that the HMO or CMP has not complied with the 
approved schedule, CMS may apply the sanctions described in paragraphs 
(d)(6) and (d)(7) of this section.
    (4) Basis for application of sanctions. CMS may, as an alternative 
to contract termination, apply the sanctions specified in paragraph 
(d)(6) of this section if CMS determines that the HMO or CMP is not 
complying with the requirements in paragraphs (d)(1), (d)(2), or (d)(3) 
of this section, as applicable.
    (5) Notice of sanction. Before applying the sanctions specified in 
paragraph (d)(6) of this section, CMS sends a written notice to the HMO 
or CMP stating the proposed action and its basis. CMS gives the HMO or 
CMP 15 days after the date of the notice to provide evidence 
establishing the HMO's or CMP's compliance with the requirements in 
paragraph (d)(1), (d)(2), or (d)(3) of this section, as applicable.
    (6) Sanctions. If, following review of the HMO's or CMP's timely 
response to CMS's notice, CMS determines that an HMO or CMP does not 
comply with the requirements of paragraphs (d)(1), (d)(2), or (d)(3) of 
this section, CMS may apply either of the following sanctions:
    (i) Require the HMO or CMP to stop accepting new enrollment 
applications after a date specified by CMS.
    (ii) Deny payment for individuals who are formally added or 
``accreted'' to CMS's records as Medicare enrollees after a date 
specified by CMS.
    (7) Termination by CMS. In addition to the sanctions described in 
paragraph (d)(6) of this section. CMS may decline to renew an HMO's or 
CMP's contract in accordance with Sec. 417.492(b), or terminate its 
contract in accordance with Sec. 417.494(b) if CMS determines that the 
HMO or CMP no longer substantially meets the requirements of paragraphs 
(d)(1), (d)(2), or (d)(3) of this section.
    (8) Termination of composition standard. The 50 percent composition 
of Medicare beneficiaries terminates for all managed care plans on 
December 31, 1998.
    (e) Standard: Open enrollment. (1) Except as specified in paragraph 
(e)(2) of this section, an HMO or CMP must enroll Medicare beneficiaries 
on a first-come, first-served basis to the limit of its capacity and 
provide annual open enrollment periods of at least 30 days duration for 
Medicare beneficiaries.
    (2) CMS may waive the requirement of paragraph (e)(1) of this 
section if compliance would prevent compliance with the limitation on 
enrollment of Medicare beneficiaries and Medicaid recipients (paragraph 
(d) of this section) or result in an enrollment substantially 
nonrepresentative of the population of the HMO's or CMP's geographic 
area. The enrollment would be ``substantially nonrepresentative'' if the 
proportion of a subgroup to the total enrollment exceeded, by 10 percent 
or more, its proportion of the population in the HMO's or CMP's 
geographic area, as shown by census data or other data acceptable to 
CMS. For purposes of this paragraph, a subgroup means a class of 
Medicare enrollees as defined in Sec. 417.582.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46570, Sept. 13, 1991; 
58 FR 38082, July 15, 1993; 60 FR 45676, Sept. 1, 1995; 63 FR 35066, 
June 26, 1998]



Sec. 417.414  Qualifying condition: Range of services.

    (a) Condition. The HMO or CMP must demonstrate that it is capable of 
delivering to Medicare enrollees the range of services required in 
accordance with this section.
    (b) Standard: Range of services furnished by eligible HMOs or CMPs--
(1) Basic requirement. Except as specified in paragraph (b)(3) of this 
section, an HMO or CMP must furnish to its Medicare enrollees (directly 
or through arrangements with others) all the Medicare services to which 
those enrollees are entitled to the extent that they are available to 
Medicare beneficiaries who

[[Page 119]]

reside in the HMO's or CMP's geographic area but are not enrolled in the 
HMO or CMP.
    (2) Criteria for availability. The services are considered available 
if--
    (i) The sources are located within the HMO's or CMP's geographic 
area; or
    (ii) It is common practice to refer patients to sources outside that 
geographic area.
    (3) Exception for hospice care. An HMO or CMP is not required to 
furnish hospice care as described in part 418 of this chapter. However, 
HMOs or CMPs must inform their Medicare enrollees about the availability 
of hospice care if--
    (i) A hospice participating in Medicare is located within the HMO's 
or CMP's geographic area; or
    (ii) It is common practice to refer patients to hospices outside the 
geographic area.
    (c) Standard: Financial responsibility for services furnished 
outside the HMO or CMP. (1) An HMO or CMP must assume financial 
responsibility and provide reasonable reimbursement for emergency 
services and urgently needed services (as defined in Sec. 417.401) that 
are obtained by its Medicare enrollees from providers and suppliers 
outside the HMO or CMP even in the absence of the HMO's or CMP's prior 
approval.
    (2) An HMO or CMP must assume financial responsibility for services 
that the Medicare enrollee attempted to obtain from the HMO or CMP, but 
that the HMO or CMP failed to furnish or unreasonably denied, and that 
are found, upon appeal by the enrollee under subpart Q of this part, to 
be services that the enrollee was entitled to have furnished to him or 
her by the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.416  Qualifying condition: Furnishing of services.

    (a) Condition. The HMO or CMP must furnish the required services to 
its Medicare enrollees through providers and suppliers that meet 
applicable Medicare statutory definitions and implementing regulations. 
The HMO or CMP must also ensure that the required services, additional 
services, and any other supplemental services for which the Medicare 
enrollee has contracted are available and accessible and are furnished 
in a manner that ensures continuity.
    (b) Standard: Conformance with conditions of participation, 
conditions for coverage, and conditions for certification. (1) 
Hospitals, SNFs, HHAs, CORFs, and providers of outpatient physical 
therapy or speech-language pathology services must meet the applicable 
conditions of participation in Medicare, as set forth elsewhere in this 
chapter.
    (2) Suppliers must meet the conditions for coverage or conditions 
for certification of their services, as set forth elsewhere in this 
chapter.
    (3) If more than one type of practitioner is qualified to furnish a 
particular service, the HMO or CMP may select the type of practitioner 
to be used.
    (c) Standard: Physician supervision. The HMO or CMP must provide for 
supervision by a physician of other health care professionals who are 
directly involved in the provision of health care as generally 
authorized under section 1861 of the Act. Except as specified in 
paragraph (d) of this section, with respect to medical services 
furnished in an HMO's or CMP's clinic or the office of a physician with 
whom the HMO or CMP has a service agreement, the HMO or CMP must ensure 
that--
    (1) Services furnished by paramedical, ancillary, and other 
nonphysician personnel are furnished under the direct supervision of a 
physician;
    (2) A physician is present to perform medical (as opposed to 
administrative) services whenever the clinics or offices are open; and
    (3) Each patient is under the care of a physician.
    (d) Exceptions to physician supervision requirement. The following 
services may be furnished without the direct personal supervision of a 
physician:
    (1) Services of physician assistants and nurse practitioners (as 
defined in Sec. 491.2 of this chapter), and the services and supplies 
incident to their services. The conditions for payment, as set forth in 
Sec. Sec. 405.2414 and 405.2415 of this chapter for services furnished 
by rural health clinics and Federally qualified health centers, 
respectively, also apply

[[Page 120]]

when those services are furnished by an HMO or CMP.
    (2) When furnished by an HMO or CMP, services of clinical 
psychologists who meet the qualifications specified in Sec. 410.71(d) 
of this chapter, and the services and supplies incident to their 
professional services.
    (3) When an HMO or CMP contracts on--
    (i) A risk basis, the services of a clinical social worker (as 
defined at Sec. 410.73 of this chapter) and the services and supplies 
incident to their professional services; or
    (ii) A cost basis, the services of a clinical social worker (as 
defined in Sec. 410.73 of this chapter). Services incident to the 
professional services of a clinical social worker furnished by an HMO or 
CMP contracting on a cost basis are not covered by Medicare and payment 
will not be made for these services.
    (e) Standard: Accessibility and continuity. (1) The HMO or CMP must 
ensure that the required services and any other services for which 
Medicare enrollees have contracted are accessible, with reasonable 
promptness, to the enrollees with respect to geographic location, hours 
of operation, and provision of after hours service. Medically necessary 
emergency services must be available twenty-four hours a day, seven days 
a week.
    (2) The HMO or CMP must maintain a health (including medical) 
recordkeeping system through which pertinent information relating to the 
health care of its Medicare enrollees is accumulated and is readily 
available to appropriate professionals.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 63 FR 20130, Apr. 23, 1998]



Sec. 417.418  Qualifying condition: Quality assurance program.

    (a) Condition. The HMO or CMP must make arrangements for a quality 
assurance program that meets the requirements of this section.
    (b) Standard. An HMO or CMP must have an ongoing quality assurance 
program that meets the requirements set forth in Sec. 417.106(a).

[58 FR 38072, July 15, 1993]



  Subpart K_Enrollment, Entitlement, and Disenrollment under Medicare 
                                Contract

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.420  Basic rules on enrollment and entitlement.

    (a) Enrollment. Individuals who are entitled to benefits under both 
Part A and Part B of Medicare or only Part B may elect to receive those 
benefits through an HMO or CMP that has in effect a contract with CMS 
under subpart L of this part.
    (b) Entitlement. If a Medicare beneficiary enrolls with an HMO or 
CMP, CMS pays the HMO or CMP on his or her behalf for the services to 
which he or she is entitled.
    (c) Beneficiary liability. (1) The HMO or CMP may require payment, 
in the form of premiums or otherwise, from individuals for services not 
covered under Medicare, as well as deductible and coinsurance amounts 
attributable to Medicare covered services.
    (2) As described in Sec. 417.448, Medicare enrollees of risk HMOs 
or CMPs are liable for services that they obtain from sources other than 
the HMO or CMP, unless the services are--
    (i) Emergency or urgently needed; or
    (ii) Determined, on appeal under subpart Q of this part, to be 
services that should have been furnished by the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.422  Eligibility to enroll in an HMO or CMP.

    Except as specified in Sec. Sec. 417.423 and 417.424, an HMO or CMP 
must enroll, either for an indefinite period or for a specified period 
of at least 12 months, any individual who--
    (a) Is entitled to Medicare benefits under Parts A and B or under 
Part B only;
    (b) Lives within the geographic area served by the HMO or CMP;
    (c) Is not enrolled in any other HMO or CMP that has entered into a 
contract under subpart L of this part;
    (d) During an enrollment period of the HMO or CMP, completes and 
signs

[[Page 121]]

the HMO's or CMP's application form and gives whatever information is 
required for enrollment;
    (e) Agrees to abide by the HMO's or CMP's rules after they are 
disclosed to him or her in connection with the enrollment process;
    (f) Is not denied enrollment by the HMO or CMP under a selection 
policy, if any, that has been approved by CMS under Sec. 417.424(b); 
and
    (g) Is not denied enrollment by the HMO or CMP on the basis of any 
of the administrative criteria concerning denial of enrollment in Sec. 
417.424(a).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.423  Special rules: ESRD and hospice patients.

    (a) ESRD patients. (1) A Medicare beneficiary who has been medically 
determined to have end-stage renal disease is not eligible to enroll in 
an HMO or CMP.
    (2) However, if a beneficiary is already enrolled in an HMO or CMP 
when he or she is determined to have end-stage renal disease, the HMO or 
CMP--
    (i) Must reenroll the beneficiary as required by Sec. 417.434; and
    (ii) May not disenroll the beneficiary except as provided in Sec. 
417.460.
    (b) Hospice patients. A Medicare beneficiary who elects hospice care 
under Sec. 418.24 of this chapter is not eligible to enroll in an HMO 
or CMP as long as the hospice election remains in effect.

[60 FR 45677, Sept. 1, 1995]



Sec. 417.424  Denial of enrollment.

    (a) Basis for denial. An HMO or CMP may deny enrollment to an 
individual who meets the criteria of Sec. 417.422 if acceptance would--
    (1) Cause the number of enrollees who are Medicare or Medicaid 
beneficiaries to exceed 50 percent of the HMO's or CMP's total 
enrollment;
    (2) Prevent the HMO or CMP from complying with any of the other 
contract qualifying conditions set forth in subpart J of this part;
    (3) Require the HMO or CMP to exceed its enrollment capacity; or
    (4) Cause the enrollment to become substantially nonrepresentative 
of the general population in the HMO's or CMP's geographic area.
    (b) Selection policies. (1) Denial under paragraph (a)(4) of this 
section must be in accordance with written selection policies approved 
by CMS. (2) Enrollment of individuals will not be considered to make the 
enrollment of the HMO or CMP substantially nonrepresentative of the 
general population in the HMO's or CMP's geographic area unless, as a 
result of the enrollment, the proportion of the subgroup of enrollees to 
which the enrollee belongs as compared to the HMO's or CMP's total 
enrollment exceeds by at least ten percent the subgroup's proportion of 
the general population in the geographic area of the HMO or CMP. (A 
subgroup is a class of Medicare enrollees of an HMO or CMP that CMS 
constructs on the basis of actuarial factors.)

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38078, July 15, 1993; 60 FR 45677, Sept. 1, 1995]



Sec. 417.426  Open enrollment requirements.

    (a) Basic requirements. (1) HMOs or CMPs must provide open 
enrollment for Medicare beneficiaries for at least 30 consecutive days 
during each contract year.
    (2) During open enrollment, the HMO or CMP must enroll eligible 
Medicare beneficiaries in the order in which their applications are 
received and until its enrollment capacity is reached.
    (3) The HMO or CMP may accept applications from Medicare 
beneficiaries after it has reached capacity if it places those 
individuals on a waiting list and enrolls them in chronological order as 
vacancies occur.
    (4) An HMO or CMP with a risk contract must accept applications from 
eligible Medicare beneficiaries during the month of November 1998.
    (b) Capacity to accept new enrollees. (1) If an HMO or CMP chooses 
to limit enrollments because of its capacity, it must notify CMS at 
least 90 days before the beginning of its open enrollment period and, at 
that time, provide CMS with its reasons for limiting enrollment.

[[Page 122]]

    (2) CMS evaluates the HMO's or CMP's submittal under paragraph 
(b)(1) of this section.
    (3) The HMO or CMP must promptly notify CMS if there is any change 
in its enrollment capacity.
    (c) Reserved vacancies. (1) Subject to CMS's approval, an HMO or CMP 
may set aside a reasonable number of vacancies for an anticipated new 
group contract or for anticipated new enrollees under an existing group 
contract that will have its enrollment period after the Medicare open 
enrollment period during the contract year.
    (2) Any set aside vacancies that are not filled within a reasonable 
time after the beginning of the group contract enrollment period must be 
made available to Medicare beneficiaries and other nongroup applicants 
under the requirements of this subpart.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 63 FR 35066, June 26, 1998]



Sec. 417.428  Marketing activities.

    (a) Required marketing activities. An HMO or CMP must meet the 
following requirements:
    (1) Offer its plan to Medicare beneficiaries and provide to those 
interested in enrolling, adequate written descriptions of the HMO's or 
CMP's rules, procedures, benefits, fees and other charges, services, and 
other information necessary for beneficiaries to make an informed 
decision about enrollment.
    (2) Notify the general public of its enrollment period (whether time 
limited or continuous) in an appropriate manner through appropriate 
media, throughout its enrollment area.
    (3) Submit all marketing materials to CMS at least 45 days before 
their planned distribution.
    (4) Include in the HMO's or CMP's written materials provided to 
prospective enrollees prior to enrollment, notice that the HMO or CMP is 
authorized by law to terminate or refuse to renew its contract with CMS, 
that CMS may also choose to terminate or refuse to renew its contact 
with the HMO or CMP and that termination or nonrenewal may result in 
termination of the individual's enrollment in the HMO or CMP.
    (b) Prohibited marketing activities--general. In offering its plan 
to Medicare beneficiaries, an HMO or CMP may not engage in any of the 
following practices or activities:
    (1) Practices that are discriminatory. For example, the HMO or CMP 
may not engage in any activity intended to recruit Medicare 
beneficiaries from higher income areas (usually an indicator of better 
health) without making a comparable effort to enroll Medicare 
beneficiaries from lower income areas.
    (2) Activities that could mislead or confuse Medicare beneficiaries, 
or misrepresent the HMO or CMP its marketing representatives, or CMS. 
For example, the HMO or CMP may not claim that it is recommended or 
endorsed by CMS or that CMS recommends that the beneficiary enroll in 
the HMO or CMP. It may, however, explain that the entity is approved as 
an HMO or CMP for purposes of participation in Medicare.
    (3) Offers of gifts or payment as an inducement to enroll in the HMO 
or CMP. This does not prohibit the explanation of any legitimate 
benefits the beneficiary might obtain as an enrollee of the HMO or CMP 
such as eligibility to enroll in a supplemental benefit plan that covers 
deductibles and coinsurance or preventive services.
    (4) Door-to-door solicitation of Medicare beneficiaries.
    (5) Distribution of marketing materials if, before the expiration of 
the 45-day period described in paragraph (a)(3) of this section, the HMO 
or CMP receives written notice from CMS that CMS has disapproved the 
material because it is inaccurate or misleading or it misrepresents the 
HMO or CMP, its marketing representatives or CMS.
    (c) Marketing activities of risk HMOs or CMPs In addition to the 
generally permitted or prohibited marketing activities described in 
paragraphs (a) and (b) of this section, a risk HMO or CMP must provide 
potential Medicare enrollees with adequate written descriptions of the 
additional benefits or services, or reductions in premiums, deductible 
or copayments that may pertain under payment on a risk basis.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 8901, Mar. 20, 1987; 56 
FR 46570, Sept. 13, 1991; 58 FR 38082, July 15, 1993; 60 FR 45677, Sept. 
1, 1995]

[[Page 123]]



Sec. 417.430  Application procedures.

    (a) Application forms. (1) The application form must comply with CMS 
instructions regarding format and content and must include the 
beneficiary's signature and authorization for disclosure and exchange of 
necessary information between CMS and the HMO or CMP.
    (2) The HMO or CMP must file and retain application forms for the 
period specified in CMS instructions.
    (b) Handling of applications. An HMO or CMP must have an effective 
system for receiving, controlling, and processing applications from 
Medicare beneficiaries. The system must meet the following conditions 
and requirements:
    (1) Each application is dated as of the day it is received.
    (2) Applications are processed in chronological order by date of 
receipt.
    (3) The HMO or CMP gives the beneficiary prompt written notice of 
acceptance or rejection of the application.
    (4) The notice of acceptance--
    (i) Specifies the date on which the HMO or CMP will request CMS to 
make the enrollment effective; or
    (ii) If the HMO or CMP is currently enrolled to capacity, explains 
the procedures that will be followed when vacancies occur.
    (5) The notice of denial explains the reason for denial.
    (6) The HMO or CMP transmits the information necessary for CMS to 
add the beneficiary to its records of the HMO's or CMP's Medicare 
enrollees--
    (i) Within 30 days from the date of application or from the date a 
vacancy occurs for an applicant who was accepted (for future enrollment) 
while there were no vacancies; or
    (ii) Within an additional period of time approved by CMS on a 
showing by the HMO or CMP that it needs more time.
    (7) The HMO or CMP promptly notifies the beneficiary of the 
effective month of his or her enrollment as a Medicare enrollee, when it 
receives that information from CMS.
    (8) If the HMO or CMP accepts applications while it is enrolled to 
capacity, its procedures ensure that vacancies are filled in 
chronological order by date of application of beneficiaries who are 
still eligible to enroll, unless that would result in failure to comply 
with any of the qualifying conditions set forth in Sec. 417.413.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45677, Sept. 1, 1995]



Sec. 417.432  Conversion of enrollment.

    (a) Basic rule. An HMO or CMP must accept as a Medicare enrollee any 
individual who is enrolled in the HMO or CMP for the month immediately 
before the month in which he or she is entitled to both Medicare Parts A 
and B or Part B only.
    (b) Effective date of conversion. Unless the individual chooses to 
disenroll from the HMO or CMP the individual's conversion to a Medicare 
enrollee is effective the month in which he or she is entitled to both 
Medicare Parts A and B or Part B only.
    (c) Prohibition against disenrollment. An HMO or CMP may not 
disenroll an individual who is converting under the provisions of 
paragraph (a) of this section unless one of the conditions specified in 
Sec. 417.460 is met.
    (d) Application form. The individual who is converting must sign an 
application form as described in Sec. 417.430(a).
    (e) Expedited submittal of information to CMS. The HMO or CMP must 
notify CMS, within the following time frames, of the enrollee's 
authorization for disclosure and exchange of information and the 
information necessary for CMS to include the enrollee in its records as 
a Medicare enrollee of the HMO or CMP:
    (1) At least 30, but no earlier than 90, days before the enrollee--
    (i) Attains age 65; or
    (ii) Reaches his or her 25th month of entitlement to social security 
disability benefits under title II of the Act or railroad retirement 
disability benefits under section 7(d) of the Railroad Retirement Act of 
1974.
    (2) Within 30 days after the enrollee initiates a course of renal 
dialysis, or on or before the day he or she enters a hospital in 
anticipation of a kidney transplant.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46570, Sept. 13, 1991; 
58 FR 38082, July 15, 1993; 60 FR 45677, Sept. 1, 1995]

[[Page 124]]



Sec. 417.434  Reenrollment.

    If an HMO or CMP requires periodic reenrollment, it must reenroll 
Medicare enrollees unless there is a basis for disenrollment as set 
forth in Sec. 417.460.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.436  Rules for enrollees.

    (a) Maintaining rules. An HMO or CMP must maintain written rules 
that deal with, but need not be limited to the following:
    (1) All benefits provided under the contract, as described in Sec. 
417.440.
    (2) How and where to obtain services from or through the HMO or CMP.
    (3) The restrictions on coverage for services furnished from sources 
outside a risk HMO or CMP, other than emergency services and urgently 
needed services (as defined in Sec. 417.401).
    (4) The obligation of the HMO or CMP to assume financial 
responsibility and provide reasonable reimbursement for emergency 
services and urgently needed services as required by Sec. 417.414(c).
    (5) Any services other than the emergency or urgently needed 
services that the HMO or CMP chooses to provide as permitted by this 
part, from sources outside the HMO or CMP. A cost HMO or CMP must 
disclose that the enrollee may receive services through any Medicare 
providers and suppliers.
    (6) Premium information, including the amount (or if the amount 
cannot be included, the telephone number of the source from which this 
information may be obtained) and the procedures for paying premiums and 
other charges for which enrollees may be liable.
    (7) Grievance and appeal procedures.
    (8) Disenrollment rights.
    (9) The obligation of an enrollee who is leaving the HMO's or CMP's 
geographic area for more than 90 days to notify the HMO or CMP of the 
move or extended absence and the HMO's or CMP's policies concerning 
retention of enrollees who leave the geographic area for more than 90 
days, as described in Sec. 417.460(a)(2).
    (10) The expiration date of the Medicare contract with CMS and 
notice that both CMS and the HMO or CMP are authorized by law to 
terminate or refuse to renew the contract, and that termination or 
nonrenewal of the contract may result in termination of the individual's 
enrollment in the HMO or CMP.
    (11) Advance directives as specified in paragraph (d) of this 
section.
    (12) Any other matters that CMS may prescribe.
    (b) Availability of rules. The HMO or CMP must furnish a copy of the 
rules to each Medicare enrollee at the time of enrollment and at least 
annually thereafter.
    (c) Changes in rules. If an HMO or CMP changes its rules, it must 
submit the changes to CMS in accordance with Sec. 417.428(a)(3), and 
notify its Medicare enrollees of the changes at least 30 days before the 
effective date of the changes.
    (d) Advance directives. (1) An HMO or CMP must maintain written 
policies and procedures concerning advance directives, as defined in 
Sec. 489.100 of this chapter, with respect to all adult individuals 
receiving medical care by or through the HMO or CMP and are required to:
    (i) Provide written information to those individuals concerning--
    (A) Their rights under the law of the State in which the 
organization furnishes services (whether statutory or recognized by the 
courts of the State) to make decisions concerning such medical care, 
including the right to accept or refuse medical or surgical treatment 
and the right to formulate, at the individual's option, advance 
directives. Providers are permitted to contract with other entities to 
furnish this information but are still legally responsible for ensuring 
that the requirements of this section are met. Such information must 
reflect changes in State law as soon as possible, but no later than 90 
days after the effective date of the State law; and
    (B) The HMO's or CMP's written policies respecting the 
implementation of those rights, including a clear and precise statement 
of limitation if the HMO or CMP cannot implement an advance directive as 
a matter of conscience. At a minimum, this statement should:

[[Page 125]]

    (1) Clarify any differences between institution-wide conscience 
objections and those that may be raised by individual physicians;
    (2) Identify the state legal authority permitting such objection; 
and
    (3) Describe the range of medical conditions or procedures affected 
by the conscience objection.
    (ii) Provide the information specified in paragraphs (d)(1)(i) of 
this section to each enrollee at the time of initial enrollment. If an 
enrollee is incapacitated at the time of initial enrollment and is 
unable to receive information (due to the incapacitating condition or a 
mental disorder) or articulate whether or not he or she has executed an 
advance directive, the HMO or CMP may give advance directive information 
to the enrollee's family or surrogate in the same manner that it issues 
other materials about policies and procedures to the family of the 
incapacitated enrollee or to a surrogate or other concerned persons in 
accordance with State law. The HMO or CMP is not relieved of its 
obligation to provide this information to the enrollee once he or she is 
no longer incapacitated or unable to receive such information. Follow-up 
procedures must be in place to ensure that the information is given to 
the individual directly at the appropriate time.
    (iii) Document in the individual's medical record whether or not the 
individual has executed an advance directive;
    (iv) Not condition the provision of care or otherwise discriminate 
against an individual based on whether or not the individual has 
executed an advance directive;
    (v) Ensure compliance with requirements of State law (whether 
statutory or recognized by the courts of the State) regarding advance 
directives;
    (vi) Provide for education of staff concerning its policies and 
procedures on advance directives; and
    (vii) Provide for community education regarding advance directives 
that may include material required in paragraph (d)(1)(i)(A) of this 
section, either directly or in concert with other providers or entities. 
Separate community education materials may be developed and used, at the 
discretion of the HMO or CMP. The same written materials are not 
required for all settings, but the material should define what 
constitutes an advance directive, emphasizing that an advance directive 
is designed to enhance an incapacitated individual's control over 
medical treatment, and describe applicable State law concerning advance 
directives. An HMO or CMP must be able to document its community 
education efforts.
    (2) The HMO or CMP--(i) Is not required to provide care that 
conflicts with an advance directive.
    (ii) Is not required to implement an advance directive if, as a 
matter of conscience, the HMO or CMP cannot implement an advance 
directive and State law allows any health care provider or any agent of 
such provider to conscientiously object.
    (3) The HMO or CMP must inform individuals that complaints 
concerning non-compliance with the advance directive requirements may be 
filed with the State survey and certification agency.

[58 FR 38072, July 15, 1993, as amended at 59 FR 49843, Sept. 30, 1994; 
60 FR 33292, June 27, 1995]



Sec. 417.440  Entitlement to health care services from an HMO or CMP.

    (a) Basic rules. (1) Subject to the conditions and limitations set 
forth in this subpart, a Medicare enrollee of an HMO or CMP is entitled 
to receive health care services and supplies directly from, or through 
arrangements made by, the HMO or CMP as specified in this section and 
Sec. Sec. 417.442-417.446.
    (2) A Medicare enrollee is also entitled to receive timely and 
reasonable payment directly (or have payment made on his or her behalf) 
for services he or she obtained from a provider or supplier outside the 
HMO or CMP if those services are--
    (i) Emergency services or urgently needed services as defined Sec. 
417.401;
    (ii) Services denied by the HMO or CMP and found (upon appeal under 
subpart Q of this part) to be services the enrollee was entitled to have 
furnished by the HMO or CMP.
    (b) Scope of services--(1) Part A and Part B services. Except as 
specified in paragraphs (c), (d), and (e) of this section, a Medicare 
enrollee is entitled to

[[Page 126]]

receive from an HMO or CMP all the Medicare-covered services that are 
available to individuals residing in the HMO's or CMP's geographic area, 
as follows:
    (i) Medicare Part A and Part B services if the enrollee is entitled 
to benefits under both programs.
    (ii) Medicare Part B services if the enrollee is entitled only under 
that program.
    (2) Supplemental services elected by an enrollee. (i) Except as 
provided under paragraph (b)(2)(ii) of this section, a Medicare enrollee 
of an HMO or CMP may elect to pay for optional services that are offered 
by the HMO or CMP in addition to the covered Part A and Part B services.
    (ii) An HMO or CMP may elect to provide qualified prescription drug 
coverage (as defined at Sec. 423.104 of this chapter) as an optional 
supplemental service in accordance with the applicable requirements 
under part 423 of this chapter, including Sec. 423.104(f)(4) of this 
chapter.
    (iii) The HMO or CMP may not set health status standards for those 
enrollees whom it accepts for these optional supplemental services.
    (3) Supplemental services imposed by a risk HMO or CMP. (i) Subject 
to CMS's approval, a risk HMO or CMP may require Medicare enrollees to 
accept and pay for services in addition to those covered by Medicare. 
(ii) If the HMO or CMP elects this option, it must impose the 
requirement on all Medicare enrollees, without regard to health status. 
(iii) CMS approves supplemental benefits of this type if CMS determines 
that imposition of the requirements will not discourage other Medicare 
beneficiaries from enrolling in the risk HMO or CMP.
    (4) Additional benefits from risk HMOs or CMPs required by statute. 
Subject to the conditions stated in Sec. 417.442, a new Medicare 
enrollee or a current nonrisk Medicare enrollee who converts to risk 
reimbursement under Sec. 417.444 is eligible to receive, in addition to 
the covered Part A and Part B benefits for which he or she is eligible, 
benefits consisting of one or both of the following:
    (i) A reduction in the HMO's or CMP's premium rate or in other 
charges for services furnished to Medicare enrollees.
    (ii) Provision of health benefits or services beyond the required 
Part A and Part B coverage.
    (5) Special supplemental benefits. Under conditions described in 
Sec. 417.444(c), current nonrisk Medicare enrollees who are not 
converted to the risk portion of the contract, may enroll in a special 
supplemental plan, if offered by the HMO or CMP, for some or all of the 
additional benefits described in paragraph (b)(4) of this section.
    (c) Limitation on hospice care--(1) Extent of limitation. (i) Basic 
rule. Except as provided in paragraph (c)(1)(ii) of this section, a 
Medicare enrollee who elects to receive hospice care under Sec. 418.24 
of this chapter waives the right to receive from the HMO or CMP any 
Medicare services (including services equivalent to hospice care) that 
are related to the terminal condition for which the enrollee elected 
hospice care, or to a related condition.
    (ii) Exception. An enrollee who elects hospice care retains the 
right to services furnished by his or her attending physician if that 
physician--
    (A) Is an employee or contractor of the HMO or CMP; and
    (B) Is not an employee of the designated hospice and does not 
receive compensation from the hospice for those services.
    (2) Effective date of limitation. The limitation in paragraph (c)(1) 
of this section begins on the effective date of the beneficiary's 
election of hospice care and remains in effect until the earlier of the 
following:
    (i) The effective date of the enrollee's revocation of the election 
of hospice care as described in Sec. 418.28 of this chapter.
    (ii) The date the enrollee exhausts his or her hospice benefits.
    (3) Payment to HMO or CMP. For the period that the Medicare 
enrollee's election of hospice care is in effect, CMS pays a cost HMO or 
CMP only as described in Sec. 417.585.
    (d) Limitation on provision of inpatient hospital services. If a 
beneficiary's effective date of coverage, as specified in Sec. 417.450, 
in a risk HMO or CMP occurs during an inpatient stay in a hospital

[[Page 127]]

paid for under part 412 of this chapter, the HMO or CMP--
    (1) Is not responsible for the provision of any of the inpatient 
hospital services under Part A during the stay and is not required to 
pay for those services;
    (2) Must assume responsibility for payment for or provision of 
inpatient hospital services under Part A on the day after the day of 
discharge from the inpatient stay; and
    (3) Is responsible for the full scope of services under paragraph 
(b) of this section, other than inpatient hospital services under Part 
A, beginning on the effective date of enrollment.
    (e) Extension of provision of inpatient hospital services. If an 
enrollee's effective date of disenrollment, as defined by Sec. 417.460, 
occurs during an inpatient stay in a hospital paid for under part 412 of 
this chapter and the stay is provided or arranged for by the HMO or CMP, 
or the HMO or CMP is financially responsible for the hospitalization 
under paragraph (a)(2) of this section, the HMO or CMP--
    (1) Is financially responsible for payment of the inpatient services 
under Part A through the date the beneficiary is discharged from the 
inpatient stay; and
    (2) Is not responsible for the provision of services, furnished on 
or after the effective date of disenrollment, other than inpatient 
hospital services under Part A.
    (f) Notice of noncoverage of inpatient hospital care. (1) If an 
enrollee is an inpatient of a hospital, entitlement to inpatient 
hospital care continues until he or she receives notice of noncoverage 
of that care.
    (2) Before giving notice of noncoverage, the HMO or CMP must obtain 
the concurrence of its affiliated physician responsible for the hospital 
care of the enrollee, or other physician as authorized by the HMO or 
CMP.
    (3) The HMO or CMP must give the enrollee written notice that 
includes the following:
    (i) The reason why inpatient hospital care is no longer needed.
    (ii) The effective date of the enrollee's liability for continued 
inpatient care.
    (iii) The enrollee's appeal rights.
    (4) If the HMO or CMP delegates to the hospital the determination of 
noncoverage of inpatient care, the hospital obtains the concurrence of 
the HMO- or CMP-affiliated physician responsible for the hospital care 
of the enrollee, or other physician as authorized by the HMO or CMP, and 
sends notice, following the procedures set forth in Sec. 412.42(c)(3) 
of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 
FR 8901, Mar. 20, 1987; 58 FR 38079, July 15, 1993; 59 FR 59941, Nov. 
21, 1994; 60 FR 45678, Sept. 1, 1995; 70 FR 4525, Jan. 28, 2005]



Sec. 417.442  Risk HMO's and CMP's: Conditions for provision of additional benefits.

    (a) General rule. Except as provided in paragraph (b) of this 
section, a risk HMO or CMP must, during any contract period, provide to 
its Medicare enrollees the additional benefits described in Sec. 
417.440(b)(4) if its ACRs (calculated in accordance with Sec. 417.594) 
are less than the average per capita rates that CMS pays for the 
Medicare enrollees during the contract period.
    (b) Exceptions--(1) Reduced payment election. An HMO or CMP is not 
obligated to furnish additional services under paragraph (a) of this 
section if it has requested a reduction in its monthly payment from CMS 
under Sec. 417.592(e), and it--
    (i) Elects to receive reduced payment so that there is no difference 
between the average of its per capita rates of payment and its ACR; or
    (ii) Elects to receive partially reduced payment and furnish 
Medicare enrollees with additional benefits described in Sec. 417.440 
(b)(4) so that the combined value of benefits and reduced payment is 
equivalent to the difference between the average of its per capita rates 
of payment and its ACR.
    (2) Benefit stabilization fund. An HMO or CMP may elect to have a 
part of the value of the additional benefits it must provide under 
paragraph (a) of this section withheld in a benefit stabilization fund 
as described in Sec. 417.596.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985; 58 FR 38082, July 
15, 1993; 60 FR 45678, Sept. 1, 1995]

[[Page 128]]



Sec. 417.444  Special rules for certain enrollees of risk HMOs and CMPs.

    (a) Applicability. This section applies to any Medicare enrollee of 
a risk HMO or CMP who meets the following conditions:
    (1) On February 1, 1985, was enrolled--
    (i) In an HMO or CMP that had in effect a cost contract entered into 
under section 1876 of the Act in accordance with regulations in effect 
before February 1, 1985; or
    (ii) In an HCPP that was being reimbursed on a reasonable cost basis 
under section 1833(a)(1)(A) of the Act.
    (2) Has continued enrollment in the same entity without interruption 
or disenrolled after February 1, 1985, and later reenrolled in the same 
entity.
    (b) Retention of nonrisk status--(1) A ``nonrisk'' enrollee is a 
Medicare beneficiary who meets the conditions of paragraph (a) of this 
section and is enrolled in an entity that enters into a risk contract as 
an HMO or CMP. A ``nonrisk'' enrollee may retain nonrisk status 
indefinitely unless CMS determines under paragraph (c)(1) of this 
section, that the enrollee's status must be changed, or the enrollee 
requests the change, as provided in paragraph (c)(2) of this section.
    (2) A nonrisk enrollee of a risk HMO or CMP is not entitled to 
additional benefits under Sec. 417.442.
    (c) Conversion to risk status--(1) Conversion based on CMS 
determination. If CMS determines that, for administrative reasons or 
because there are fewer than 75 current nonrisk Medicare enrollees 
remaining in the HMO or CMP, all of its nonrisk Medicare enrollees must 
be covered under the risk provisions of the contract, the conversion 
process is as follows:
    (i) CMS notifies each affected enrollee of the decision at least 90 
days prior to the effective date.
    (ii) The nonrisk Medicare enrollees complete and sign forms stating 
that they understand and accept the new rules and benefits that will be 
applicable to them.
    (iii) The HMO or CMP notifies each affected enrollee, in writing, at 
least 30 days in advance, of the date upon which his or her coverage 
under the risk portion of the contract takes effect.
    (2) Conversion based on enrollee's request. A nonrisk Medicare 
enrollee requests, using a form identical or similar to the form 
described in paragraph (c)(1) of this section, that he or she be covered 
under the risk portion of the contract.
    (d) Notification. An HMO or CMP converting from a cost contract to a 
risk contract must, within 60 days of signing the risk contract, inform 
nonrisk enrollees of their right to remain nonrisk Medicare enrollees or 
to convert to risk enrollment at any time in accordance with paragraph 
(c)(2) of this section.

[58 FR 38073, July 15, 1993]



Sec. 417.446  [Reserved]



Sec. 417.448  Restriction on payments for services received by Medicare enrollees of risk HMOs or CMPs.

    (a) Basic rule. Except for emergency and urgently needed services as 
defined in Sec. 417.401, risk HMOs or CMPs are not required to make 
payments to or on behalf of certain Medicare enrollees, for any services 
received by the enrollees that are not provided--
    (1) Directly by the HMO or CMP; or
    (2) Through arrangements made by the HMO or CMP.
    (b) Application. The restriction on payments for services imposed by 
paragraph (a) of this section applies to services received by--
    (1) New Medicare enrollees;
    (2) Nonrisk Medicare enrollees who convert to risk reimbursement; 
and
    (3) Nonrisk Medicare enrollees who elect special supplemental 
benefit plans.
    (c) End of restriction. The restriction of payments imposed by 
paragraph (a) of this section ends when a Medicare enrollee leaves the 
HMO's or CMP's geographic area for an extended period as defined in 
Sec. 471.460(a)(2) and the HMO or CMP and the enrollee make 
arrangements for enrollment to continue as provided in Sec. 
417.460(a)(2)(iv).
    (d) Timing. The effective date for the end of the restriction on 
payments, as discussed in paragraph (c) of this section is the first day 
of the first month

[[Page 129]]

following the month in which the enrollee notifies the HMO or CMP as 
required in Sec. 417.436(a)(9), that he or she has left the HMO's or 
CMP's geographic area for an extended period.

[51 FR 28573, Aug. 8, 1986, as amended at 56 FR 46571, Sept. 13, 1991; 
58 FR 38079, July 15, 1993]



Sec. 417.450  Effective date of coverage.

    (a) Basic rules. Except as specified in paragraph (b) of this 
section, and notwithstanding the provisions of Sec. 417.440(d).
    (1) CMS's liability for payments to an HMO or CMP on behalf of a 
Medicare beneficiary begins on the first day of the month in which he or 
she is--
    (i) Entitled to Medicare benefits; and
    (ii) Enrolled in an HMO or CMP; and
    (2) The effective month of coverage may not be earlier than the 
first month after, nor later than the third month after the month in 
which CMS receives the information necessary to include the beneficiary 
as a Medicare enrollee of the HMO or CMP in CMS records.
    (b) Exceptions. (1) CMS may approve a later month if it is requested 
by the HMO or CMP and the beneficiary.
    (2) If an individual becomes an HMO or CMP enrollee before becoming 
entitled to Medicare Part B benefits, the effective month of coverage is 
the first month for which he or she becomes entitled to Medicare Part B 
benefits.
    (c) Notice of effective date of coverage. For each beneficiary added 
to CMS's records as an enrollee of an HMO or CMP, CMS gives the HMO or 
CMP prompt written notice of the month with which CMS's liability 
begins.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 8901, Mar. 20, 1987; 58 
FR 38079, July 15, 1993; 60 FR 45678, Sept. 1, 1995]



Sec. 417.452  Liability of Medicare enrollees.

    (a) Deductibles and coinsurance. (1) A Medicare enrollee of an HMO 
or CMP is responsible for applicable Medicare deductible and coinsurance 
amounts, unless the HMO's or CMP's charges for these amounts are reduced 
under the additional benefits provision of Sec. 417.442.
    (2) The deductible and coinsurance amounts may be paid by or on 
behalf of the enrollee in the form of a premium, membership fee, charge 
per unit, or other similar charge.
    (3) The sum of the amounts the HMO or CMP charges its Medicare 
enrollees for Medicare deductibles and coinsurance may not exceed, on 
the average, the actuarial value of the deductible and coinsurance the 
Medicare enrollees otherwise would have been liable for had they not 
enrolled in the HMO or CMP or in another HMO or CMP.
    (b) Services not covered under Medicare. Unless the services are 
provided as additional benefits under Sec. 417.442, a Medicare enrollee 
of an HMO or CMP is liable for payment for--
    (1) All services that are not covered under Medicare Part A or Part 
B; or
    (2) If entitled only to Medicare Part B benefits, all services that 
are not covered under Medicare Part B.
    (c) Services for which Medicare is not primary payer. A Medicare 
enrollee of an HMO or CMP is liable for payments made to the enrollee 
for all covered services for which Medicare is not the primary payer as 
provided in Sec. 417.528.
    (d) Optional supplemental benefits plan. (1) The HMO or CMP may 
offer its Medicare enrollees a supplemental benefit plan to cover 
deductible and coinsurance amounts, or services not covered under 
Medicare, or both.
    (2) If a supplemental benefit plan premium includes charges for both 
noncovered services and the deductible and coinsurance amounts 
applicable to covered services, the portion of the premium that is for 
deductibles and coinsurance must be computed separately and must be 
disclosed to the beneficiary during the enrollment process and before he 
or she elects coverage options.
    (3) The sum of the amounts an HMO or CMP charges its Medicare 
enrollees for services that are not covered under Part A or Part B may 
not exceed the ACR for these services.
    (e) Coverage of Part A services for Part B-only Medicare enrollees. 
If an HMO or CMP furnishes coverage of Medicare Part A services to a 
Medicare enrollee entitled to Part B only, the HMO's or CMP's premium 
(or other payment method) for these services may not exceed the ACR for 
these services. In addition, if a risk HMO or CMP furnishes

[[Page 130]]

these services and supplemental services, which are the same as the 
additional benefits furnished Medicare enrollees of the HMO or CMP who 
are entitled to benefits under both Parts A and B, the HMO's or CMP's 
combined premium for both these groups of services that the Part B 
enrollee must pay may not exceed 95 percent of the weighted average 
AAPCC for Part A services (or the Medicare payment for Part A services, 
if it is less) for the Medicare enrollee of the HMO or CMP.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.454  Charges to Medicare enrollees.

    (a) Limits on charges. The HMO or CMP must agree to charge its 
Medicare enrollees only for the--
    (1) Deductible and coinsurance amounts applicable to furnished 
covered services;
    (2) Charges for noncovered services or services for which the 
enrollee is liable as described in Sec. 417.452; and
    (3) Services for which Medicare is not the primary payor as provided 
in Sec. 417.528.
    (b) Limit on charges for inpatient hospital care. If a Medicare 
enrollee who is an inpatient of a hospital requests immediate QIO review 
(as provided in Sec. 417.605) of any determination by the hospital 
furnishing services or the HMO or CMP that the inpatient hospital 
services will no longer be covered, the HMO or CMP may not charge the 
enrollee for any inpatient care costs incured before noon of the first 
working day after the QIO issues its review decision.
    (c) Reporting requirements. A risk HMO or CMP must report, within 90 
days after the end of the contract period, all premiums, enrollment 
fees, and other charges collected from its Medicare enrollees during 
that period.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 59 
FR 59941, Nov. 21, 1994; 60 FR 45678, Sept. 1, 1995]



Sec. 417.456  Refunds to Medicare enrollees.

    (a) Definitions. As used in this section--
    Amounts incorrectly collected means amounts collected that are in 
excess of those specified in Sec. 417.452. It includes amounts 
collected when the enrollee was believed not entitled to Medicare 
benefits if the enrollee is later determined to have been entitled to 
Medicare benefits and CMS is liable for payments as specified in Sec. 
417.450.
    Other amounts due means amounts due a Medicare enrollee for services 
obtained outside the HMO or CMP if they were--
    (1) Emergency services;
    (2) Urgently needed services for which the HMO or CMP has assumed 
financial responsibility; or
    (3) On appeal under subpart Q of this part, found to be services the 
enrollee was entitled to have furnished by the HMO or CMP.
    (b) Basic commitment. An HMO or CMP must agree to refund all amounts 
incorrectly collected from its Medicare enrollees, or from others on 
behalf of the enrollees, and any other amounts due the enrollees or 
others on their behalf.
    (c) Refund by lump sum payment. An HMO or CMP must make refunds to 
its current and former Medicare enrollees, or to others who have made 
payments on behalf of enrollees, by lump sum payment for the following:
    (1) Incorrectly collected amounts that were not collected as 
premiums.
    (2) Other amounts due.
    (3) All amounts due, if the HMO or CMP is going out of business.
    (d) Refund by premium adjustment or lump sum payment or both. An HMO 
or CMP may make refund by adjustment of future premiums, by lump sum 
payment, or by a combination of both methods, for amounts that were 
incorrectly collected in the form of premiums or through a combination 
of premium payments and other charges.
    (e) Refund when enrollee has died or cannot be located. If an 
enrollee has died or cannot be located after reasonable effort by the 
HMO or CMP, the HMO or CMP must make the refund in accordance with State 
law.
    (f) Reduction by CMS. If the HMO or CMP does not make refund in 
accordance with paragraphs (b) through (d) of this section by the end of 
the contract period following the contract period

[[Page 131]]

during which an amount was determined to be due an enrollee, CMS reduces 
its payment to the HMO or CMP by the amounts incorrectly collected or 
otherwise due, and arranges for those amounts to be paid to the Medicare 
enrollee.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.458  Recoupment of uncollected deductible and coinsurance amounts.

    An HMO or CMP agrees not to recoup deductible and coinsurance 
amounts for which Medicare enrollees were liable in a previous contract 
period except in the following circumstances:
    (a) The HMO or CMP failed to collect the deductible and coinsurance 
amounts during the contract period in which they were due because of--
    (1) Underestimation of the actuarial value of the deductible and 
coinsurance amounts; or
    (2) A billing error.
    (b) The HMO or CMP has identified the amounts and obtained advance 
CMS approval of the recoupment and the method and timing of recoupment.
    (c) The HMO or CMP collects these amounts no later than the end of 
the contract period following the contract period during which they were 
found to be due.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45678, Sept. 1, 1995]



Sec. 417.460  Disenrollment of beneficiaries by an HMO or CMP.

    (a) General rule. Except as provided in paragraphs (b) through (i) 
of this section, an HMO or CMP may not--
    (1) Disenroll a Medicare beneficiary; or
    (2) Orally or in writing, or by any action or inaction, request or 
encourage a Medicare enrollee to disenroll.
    (b) Bases for disenrollment: Overview--(1) Optional disenrollment. 
Generally, an HMO or CMP may disenroll a Medicare enrollee if he or 
she--
    (i) Fails to pay the required premiums or other charges;
    (ii) Commits fraud or permits abuse of his or her enrollment card; 
or
    (iii) Behaves in a manner that seriously impairs the HMO's or CMP's 
ability to furnish health care services to the particular enrollee or to 
other enrollees.
    (2) Required disenrollment. Generally, an HMO or CMP must disenroll 
a Medicare enrollee if he or she--
    (i) Moves out of the HMO's or CMP's geographic area;
    (ii) Fails to convert to the risk provisions of the HMO's or CMP's 
Medicare contract;
    (iii) Loses entitlement to Medicare Part B benefits; or
    (iv) Dies.
    (3) Related provisions. Specific requirements, limitations, and 
exceptions are set forth in paragraphs (c) through (i) of this section.
    (c) Failure to pay premiums or other charges--(1) Basic rule. Except 
as specified in paragraph (c)(2) of this section, an HMO or CMP may 
disenroll a Medicare enrollee who fails to pay premiums or other charges 
imposed by the HMO or CMP for deductible and coinsurance amounts for 
which the enrollee is liable, if the HMO or CMP--
    (i) Can demonstrate to CMS that it made reasonable efforts to 
collect the unpaid amount;
    (ii) Gives the enrollee written notice of disenrollment, including 
an explanation of the enrollee's right to a hearing under the HMO's or 
CMP's grievance procedures; and
    (iii) Sends the notice of disenrollment to the enrollee before it 
notifies CMS.
    (2) Exception. If the enrollee fails to pay the premium for optional 
supplemental benefits (that is, a package of benefits that an enrollee 
is not required to accept), but pays the basic premium and other 
charges, the HMO or CMP may discontinue the optional benefits but may 
not disenroll the beneficiary.
    (d) Enrollee commits fraud or permits abuse of the enrollment card--
(1) Basis for disenrollment. An HMO or CMP may disenroll a Medicare 
beneficiary if the beneficiary--
    (i) Knowingly provides, on the application form, fraudulent 
information that materially affects the beneficiary's eligibility to 
enroll in the HMO or CMP; or

[[Page 132]]

    (ii) Intentionally permits others to use his or her enrollment card 
to obtain services from the HMO or CMP.
    (2) Notice requirement. If disenrollment is for either of the 
reasons specified in paragraph (d)(1) of this section, the HMO or CMP 
must give the beneficiary a written notice of termination of enrollment.
    (i) The notice must be mailed to the enrollee before submission of 
the disenrollment notice to CMS.
    (ii) The notice must include an explanation of the enrollee's right 
to have the disenrollment heard under the grievance procedures 
established in accordance with Sec. 417.436.
    (3) Report to the Inspector General. The HMO or CMP must report to 
the Office of the Inspector General of the Department any disenrollment 
based on fraud or abuse by the enrollee.
    (e) Disenrollment for cause--(1) Basis for disenrollment. An HMO or 
CMP may disenroll a Medicare enrollee for cause if the enrollee's 
behavior is disruptive, unruly, abusive, or uncooperative to the extent 
that his or her continuing enrollment in the HMO or CMP seriously 
impairs the HMO's or CMP's ability to furnish services to either the 
particular enrollee or other enrollees.
    (2) Effort to resolve the problem. The HMO or CMP must make a 
serious effort to resolve the problem presented by the enrollee, 
including the use (or attempted use) of internal grievance procedures.
    (3) Consideration of extenuating circumstances. The HMO or CMP must 
ascertain that the enrollee's behavior is not related to the use of 
medical services or to mental illness.
    (4) Documentation. The HMO or CMP must document the problems, 
efforts, and medical conditions as described in paragraphs (e)(1) 
through (e)(3) of this section.
    (5) CMS review of an HMO's or CMP's proposed disenrollment for 
cause. (i) CMS decides on the basis of review of the documentation 
submitted by the HMO or CMP, whether disenrollment requirements have 
been met.
    (ii) CMS makes this decision within 20 working days after receipt of 
the documentation material, and notifies the HMO or CMP within 5 working 
days after making its decision.
    (6) Effective date of disenrollment. If CMS permits an HMO or CMP to 
disenroll an enrollee for cause, the disenrollment takes effect on the 
first day of the calendar month after the month in which the HMO or CMP 
gives the enrollee a written notice of disenrollment that meets the 
requirements set forth in paragraphs (d)(2)(i) and (d)(2)(ii) of this 
section.
    (f) Enrollee moves out of the HMO's or CMP's geographic area--(1) 
Basic rules. (i) Disenrollment. Except as provided in paragraph (f)(2) 
of this section, an HMO or CMP must disenroll a Medicare enrollee who 
moves out of its geographic area if the HMO or CMP establishes, on the 
basis of a written statement from the enrollee, or other evidence 
acceptable to CMS, that the enrollee has permanently moved out of its 
geographic area.
    (ii) Notice requirement. The HMO or CMP must comply with the notice 
requirements set forth in paragraph (d)(2) of this section.
    (iii) Effect on geographic area. Failure to disenroll an enrollee 
who has moved out of the HMO's or CMP's geographic area does not expand 
that area to encompass the location of the enrollee's new residence.
    (2) Exception. An HMO or CMP may retain a Medicare enrollee who is 
absent from its geographic area for an extended period, but who remains 
within the United States as defined in Sec. 400.200 of this chapter if 
the enrollee agrees. For purposes of this exception, the following 
provisions apply:
    (i) An absence for an extended period means an uninterrupted absence 
from the HMO's or CMP's geographic area for more than 90 days but less 
than 1 year.
    (ii) The HMO or CMP and the enrollee may mutually agree upon 
restrictions for obtaining services while the enrollee is absent for an 
extended period from the HMO's or CMP's geographic area. However, 
restrictions may not be imposed on the scope of services described in 
Sec. 417.440.
    (iii) HMOs and CMPs that choose to exercise this exception must make 
the option available to all Medicare enrollees who are absent for an 
extended period from their geographic areas. However, HMOs and CMPs may 
limit this

[[Page 133]]

option to enrollees who go to a geographic area served by an affiliated 
HMO or CMP.
    (iv) As used in this paragraph, ``affiliated HMO or CMP'' means an 
HMO or CMP that--
    (A) Is under common ownership or control of the HMO or CMP that 
seeks to retain the absent enrollees; or
    (B) Has in effect an agreement to furnish services to enrollees who 
are on an extended absence from the geographic area of the HMO or CMP 
that seeks to retain them.
    (v) When the enrollee returns to the HMO's or CMP's geographic area 
(even temporarily), the restrictions of Sec. 417.448(a) (which limit 
payment for services not provided or arranged for by the HMO or CMP) 
apply again immediately.
    (vi) If the enrollee fails to return to the HMO's or CMP's 
geographic area within 1 year from the date he or she left that area, 
the HMO or CMP must disenroll the beneficiary on the first day of the 
month following the anniversary of the date the enrollee left that area 
in accordance with paragraph (f)(1) of this section.
    (g) Failure to convert to risk provisions of Medicare contract--(1) 
Basis for disenrollment. A risk HMO or CMP must disenroll a nonrisk 
Medicare enrollee who refuses to convert to the risk provisions of the 
Medicare contract after CMS determines that all of the HMO's or CMP's 
nonrisk Medicare enrollees must convert.
    (2) Advance notice requirement. At least 30 days before it gives CMS 
notice of disenrollment, the HMO or CMP must give the enrollee written 
notice of the fact that failure to convert will result in disenrollment.
    (h) Loss of entitlement to Medicare benefits--(1) Loss of 
entitlement to Part A benefits. If an enrollee loses entitlement to 
benefits under Part A of Medicare but remains entitled to benefits under 
Part B, the enrollee automatically continues as a Medicare enrollee of 
the HMO or CMP and is entitled to receive and have payment made for Part 
B services, beginning with the month immediately following the last 
month of his or her entitlement to Part A benefits.
    (2) Loss of entitlement to Part B benefits. If a Medicare enrollee 
loses entitlement to Part B benefits, the HMO or CMP must disenroll him 
or her as a Medicare enrollee effective with the month following the 
last month of entitlement to Part B benefits. However, the HMO or CMP 
may continue to enroll the individual under its regular plan if the 
individual so chooses.
    (i) Death of the enrollee. Disenrollment is effective with the month 
following the month of death.

[60 FR 45678, Sept. 1, 1995]



Sec. 417.461  Disenrollment by the enrollee.

    (a) Request for disenrollment. (1) A Medicare enrollee who wishes to 
disenroll may at any time give the HMO or CMP a signed, dated request in 
the form and manner prescribed by CMS.
    (2) The enrollee may request a certain disenrollment date but it may 
be no earlier than the first day of the month following the month in 
which the HMO or CMP receives the request.
    (b) Responsibilities of the HMO or CMP. The HMO or CMP must--
    (1) Submit a disenrollment notice to CMS promptly;
    (2) Provide the enrollee with a copy of the request for 
disenrollment; and
    (3) In the case of a risk HMO or CMP, also provide the enrollee with 
a statement explaining that he or she--
    (i) Remains enrolled until the effective date of disenrollment; and
    (ii) Until that date, is subject to the restrictions of Sec. 
417.448(a) under which neither the HMO or CMP nor CMS pays for services 
not provided or arranged for by the HMO or CMP.
    (c) Effect of failure to submit disenrollment notice to CMS 
promptly. If the HMO or CMP fails to submit timely the correct and 
complete notice required in paragraph (b)(1) of this section, the HMO or 
CMP must reimburse CMS for any capitation payments received after the 
month in which payments would have ceased if the requirement had been 
met timely.

[60 FR 45679, Sept. 1, 1995]

[[Page 134]]



Sec. 417.464  End of CMS's liability for payment: Disenrollment of beneficiaries and termination or default of contract.

    (a) Effect of disenrollment: General rule. (1) CMS's liability for 
monthly capitation payments to the HMO or CMP generally ends as of the 
first day of the month following the month in which disenrollment is 
effective, as shown on CMS's records.
    (2) Disenrollment is effective no earlier than the month immediately 
after, and no later than the third month after, the month in which CMS 
receives the disenrollment notice in acceptable form.
    (b) Effect of disenrollment: Special rules--(1) Fraud or abuse by 
the enrollee. If disenrollment is on the basis of fraud committed or 
abuse permitted by the enrollee, CMS's liability ends as of the first 
day of the month in which disenrollment is effective.
    (2) Loss of entitlement to Part B benefits. If disenrollment is on 
the basis of loss of entitlement to Part B benefits, CMS's liability 
ends as of the first day of the month following the last month of Part B 
entitlement.
    (3) Death of enrollee. If the enrollee dies, CMS's liability ends as 
of the first day of the month following the month of death.
    (4) Disenrollment at enrollee's request. If disenrollment is in 
response to the enrollee's request, CMS's liability ends as of the first 
day of the month following the month of termination requested by the 
enrollee.
    (c) Effect of termination or default of contract--(1) Termination of 
contract. If the contract between CMS and the HMO or CMP is terminated 
by mutual consent or by unilateral action of either party, CMS's 
liability for payments ends as of the first day of the month after the 
last month for which the contract is in effect.
    (2) Default of contract. If the HMO or CMP defaults on the contract 
before the end of the contract year because of bankruptcy or other 
reasons, CMS--
    (i) Determines the month in which its liability for payments ends; 
and
    (ii) Notifies the HMO or CMP and all affected Medicare enrollees as 
soon as practicable.

[60 FR 45680, Sept. 1, 1995]



                Subpart L_Medicare Contract Requirements

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.470  Basis and scope.

    (a) Basis. This subpart implements those portions of section 
1857(e)(2) of the Act pertaining to cost sharing in enrollment-related 
costs and section 1876(c), (g), (h), and (i) of the Act that pertain to 
the contract between CMS and an HMO or CMP for participation in the 
Medicare program.
    (b) Scope. This subpart sets forth--
    (1) Specific contract requirements; and
    (2) Procedures for renewal, nonrenewal, or termination of a 
contract.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 62 
FR 63673, Dec. 2, 1997]



Sec. 417.472  Basic contract requirements.

    (a) Submittal of contract. An HMO or CMP that wishes to contract 
with CMS to furnish services to Medicare beneficiaries must submit a 
signed contract that meets the requirements of this subpart and any 
other requirements established by CMS.
    (b) Agreement to comply with regulations and instructions. The 
contract must provide that the HMO or CMP agrees to comply with all the 
applicable requirements and conditions set forth in this subpart and in 
general instructions issued by CMS.
    (c) Other contract provisions. In addition to the requirements set 
forth in Sec. Sec. 417.474 through 417.488, the contract must contain 
any other terms and conditions that CMS requires to implement section 
1876 of the Act.
    (d) Exemption from Federal procurement regulations. The Federal 
Acquisition Regulations and HHS Acquisition Regulations contained in 
title 48 of the Code of Federal Regulations do not apply to Medicare 
contracts under section 1876 of the Act.
    (e) Compliance with civil rights laws. The HMO or CMP must comply 
with title VI of the Civil Rights Act of 1964 (regulations at 45 CFR 
part 80), section 504 of the Rehabilitation Act of 1973 (regulations at 
45 CFR part 84), and the

[[Page 135]]

Age Discrimination Act of 1975 (regulations at 45 CFR part 91).
    (f) Requirements for advance directives. The HMO or CMP must meet 
all the requirements for advance directives at Sec. 417.436(d).
    (g) Authority to waive conflicting contract requirements. Under 
section 1876(i)(5) of the Act, CMS is authorized to administer the terms 
of this subpart without regard to provisions of law or other regulations 
relating to the making, performance, amendment, or modification of 
contracts of the United States if it determines that those provisions 
are inconsistent with the efficient and effective administration of the 
Medicare program.
    (h) Collection of fees from risk HMOs and CMPs. (1) The rules set 
forth in Sec. 422.10 of this chapter for M+C plans also apply to 
collection of fees from risk HMOs and CMPs.
    (2) In applying the part 422 rules, references to ``M+C 
organizations'' or ``M+C plans'' must be read as references to ``risk 
HMOs and CMPs''.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 57 
FR 8202, Mar. 6, 1992; 58 FR 38079, July 15, 1993; 60 FR 45680, Sept. 1, 
1995; 63 FR 35067, June 26, 1998]



Sec. 417.474  Effective date and term of contract.

    (a) Effective date. The contract must specify its effective date, 
which may not be earlier than the date it is signed by both CMS and the 
HMO or CMP.
    (b) Term. The contract must specify the duration of its term as 
follows:
    (1) For the initial term, at least 12 months, but no more than 23 
months.
    (2) For any subsequent term, 12 months.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.476  Waived conditions.

    If CMS waives any of the qualifying conditions required under 
subpart J of this part, the contract must specify the following 
information for each waived condition:
    (a) The specific terms of the waiver.
    (b) The expiration date of the waiver.
    (c) Any other information required by CMS.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.478  Requirements of other laws and regulations.

    The contract must provide that the HMO or CMP agrees to comply 
with--
    (a) The requirements for QIO review of services furnished to 
Medicare enrollees as set forth in subchapter D of this chapter;
    (b) Sections 1318(a) and (c) of the PHS Act, which pertain to 
disclosure of certain financial information;
    (c) Section 1301(c)(8) of the PHS Act, which relates to liability 
arrangements to protect enrollees of the HMO or CMP; and
    (d) The reporting requirements in Sec. 417.126(a), which pertain to 
the monitoring of an HMO's or CMP's continued compliance.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 56 
FR 8853, Mar. 1, 1991; 58 FR 38079, 38082, July 15, 1993]



Sec. 417.479  Requirements for physician incentive plans.

    (a) The contract must specify that an HMO or CMP may operate a 
physician incentive plan only if--
    (1) No specific payment is made directly or indirectly under the 
plan to a physician or physician group as an inducement to reduce or 
limit medically necessary services furnished to an individual enrollee; 
and
    (2) The stop-loss protection, enrollee survey, and disclosure 
requirements of this section are met.
    (b) Applicability. The requirements in this section apply to 
physician incentive plans between HMOs and CMP and individual physicians 
or physician groups with which they contract to provide medical services 
to enrollees. The requirements in this section also apply to 
subcontracting arrangements as specified in Sec. 417.479(i). These 
requirements apply only to physician incentive plans that base 
compensation (in whole or in part) on the use or cost of services 
furnished to Medicare beneficiaries or Medicaid recipients.
    (c) Definitions. For purposes of this section:
    Bonus means a payment an HMO or CMP makes to a physician or 
physician group beyond any salary, fee-for-service payments, capitation, 
or returned withhold.

[[Page 136]]

    Capitation means a set dollar payment per patient per unit of time 
(usually per month) that an organization pays a physician or physician 
group to cover a specified set of services and administrative costs 
without regard to the actual number of services provided. The services 
covered may include the physician's own services, referral services, or 
all medical services.
    Payments means any amounts the HMO or CMP pays physicians or 
physician groups for services they furnish directly, plus amounts paid 
for administration and amounts paid (in whole or in part) based on use 
and costs of referral services (such as withhold amounts, bonuses based 
on referral levels, and any other compensation to the physician or 
physician group to influence the use of referral services). Bonuses and 
other compensation that are not based on referral levels (such as 
bonuses based solely on quality of care furnished, patient satisfaction, 
and participation on committees) are not considered payments for 
purposes of this section.
    Physician group means a partnership, association, corporation, 
individual practice association, or other group that distributes income 
from the practice among members. An individual practice association is a 
physician group only if it is composed of individual physicians and has 
no subcontracts with physician groups.
    Physician incentive plan means any compensation arrangement between 
an HMO or CMP and a physician or physician group that may directly or 
indirectly have the effect of reducing or limiting services furnished to 
Medicare beneficiaries or Medicaid recipients enrolled in the HMO or 
CMP.
    Referral services means any specialty, inpatient, outpatient, or 
laboratory services that a physician or physician group orders or 
arranges, but does not furnish directly.
    Risk threshold means the maximum risk, if the risk is based on 
referral services, to which a physician or physician group may be 
exposed under a physician incentive plan without being at substantial 
financial risk.
    Withhold means a percentage of payments or set dollar amounts that 
an HMO or CMP deducts from a physician's service fee, capitation, or 
salary payment, and that may or may not be returned to the physician, 
depending on specific predetermined factors.
    (d) Prohibited physician payments. No specific payment of any kind 
may be made directly or indirectly under the incentive plan to a 
physician or physician group as an inducement to reduce or limit covered 
medically necessary services covered under the HMO's or CMP's contract 
furnished to an individual enrollee. Indirect payments include offerings 
of monetary value (such as stock options or waivers of debt) measured in 
the present or future.
    (e) General rule: Determination of substantial financial risk. 
Substantial financial risk occurs when the incentive arrangements place 
the physician or physician group at risk for amounts beyond the risk 
threshold, if the risk is based on the use or costs of referral 
services. Amounts at risk based solely on factors other than a 
physician's or physician group's referral levels do not contribute to 
the determination of substantial financial risk. The risk threshold is 
25 percent.
    (f) Arrangements that cause substantial financial risk. For purposes 
of this paragraph, potential payments means the maximum anticipated 
total payments (based on the most recent year's utilization and 
experience and any current or anticipated factors that may affect 
payment amounts) that could be received if use or costs of referral 
services were low enough. The following physician incentive plans cause 
substantial financial risk if risk is based (in whole or in part) on use 
or costs of referral services and the patient panel size is not greater 
than 25,000 patients:
    (1) Withholds greater than 25 percent of potential payments.
    (2) Withholds less than 25 percent of potential payments if the 
physician or physician group is potentially liable for amounts exceeding 
25 percent of potential payments.
    (3) Bonuses that are greater than 33 percent of potential payments 
minus the bonus.
    (4) Withholds plus bonuses if the withholds plus bonuses equal more 
than 25 percent of potential payments. The threshold bonus percentage 
for a

[[Page 137]]

particular withhold percentage may be calculated using the formula--
Withhold = 0.75 (Bonus %) + 25%.
    (5) Capitation, arrangements, if--
    (i) The difference between the maximum potential payments and the 
minimum potential payments is more than 25 percent of the maximum 
potential payments; or
    (ii) The maximum and minimum potential payments are not clearly 
explained in the physician's or physician group's contract.
    (6) Any other incentive arrangements that have the potential to hold 
a physician or physician group liable for more than 25 percent of 
potential payments.
    (g) Requirements for physician incentive plans that place physicians 
at substantial financial risk. HMOs and CMPs that operate incentive 
plans that place physicians or physician groups at substantial financial 
risk must do the following:
    (1) Conduct enrollee surveys. These surveys must--
    (i) Include either all current Medicare/Medicaid enrollees in the 
HMO or CMP and those who have disenrolled (other than because of loss of 
eligibility in Medicaid or relocation outside the HMO's or CMP's service 
area) in the past 12 months, or a sample of these same enrollees and 
disenrollees;
    (ii) Be designed, implemented, and analyzed in accordance with 
commonly accepted principles of survey design and statistical analysis;
    (iii) Address enrollees/disenrollees satisfaction with the quality 
of the services provided and their degree of access to the services; and
    (iv) Be conducted no later than 1 year after the effective date of 
the Medicare contract and at least annually thereafter.
    (2) Ensure that all physicians and physician groups at substantial 
financial risk have either aggregate or per-patient stop-loss protection 
in accordance with the following requirements:
    (i) If aggregate stop-loss protection is provided, it must cover 90 
percent of the costs of referral services (beyond allocated amounts) 
that exceed 25 percent of potential payments.
    (ii) If the stop-loss protection provided is based on a per-patient 
limit, the stop-loss limit per patient must be determined based on the 
size of the patient panel and may be a single combined limit or consist 
of separate limits for professional services and institutional services. 
In determining patient panel size, the patients may be pooled in 
accordance with paragraph (h)(2) of this section. Stop-loss protection 
must cover 90 percent of the costs of referral services that exceed the 
per patient limit. The per-patient stop-loss limit is as follows:

------------------------------------------------------------------------
                                   Single       Separate      Separate
          Panel size              combined   institutional  professional
                                   limit         limit          limit
------------------------------------------------------------------------
1-1000........................       $6,000       $10,000         $3,000
1,001-5000....................       30,000        40,000         10,000
5,001-8,000...................       40,000        60,000         15,000
8,001-10,000..................       75,000       100,000         20,000
10,001-25,000.................      150,000       200,000         25,000
25,000.............         none          none           none
------------------------------------------------------------------------

    (h) Disclosure and other requirements for organizations with 
physician incentive plans.--(1) Disclosure to CMS. Each health 
maintenance organization or competitive medical plan must provide to CMS 
information concerning its physician incentive plans as requested.
    (2) Pooling of patients. Pooling of patients is permitted only if--
(i) It is otherwise consistent with the relevant contracts governing the 
compensation arrangements for the physician or physician group;
    (ii) The physician or physician group is at risk for referral 
services with respect to each of the categories of patients being 
pooled;
    (iii) The terms of the compensation arrangements permit the 
physician or physician group to spread the risk across the categories of 
patients being pooled;

[[Page 138]]

    (iv) The distribution of payments to physicians from the risk pool 
is not calculated separately by patient category; and
    (v) The terms of the risk borne by the physicians or physician group 
are comparable for all categories of patients being pooled.
    (3) Disclosure to Medicare beneficiaries. Each health maintenance 
organization or competitive medical plan must provide the following 
information to any Medicare beneficiary who requests it:
    (i) Whether the prepaid plan uses a physician incentive plan that 
affects the use of referral services.
    (ii) The type of incentive arrangement.
    (iii) Whether stop-loss protection is provided.
    (iv) If the prepaid plan was required to conduct a survey, a summary 
of the survey results.
    (i) Requirements related to subcontracting arrangements--(1) 
Physician groups. An HMO or CMP that contracts with a physician group 
that places the individual physician members at substantial financial 
risk for services they do not furnish must do the following:
    (i) Disclose to CMS any incentive plan between the physician group 
and its individual physicians that bases compensation to the physician 
on the use or cost of services furnished to Medicare beneficiaries or 
Medicaid recipients. The disclosure must include the information 
specified in paragraphs (h)(1)(i) through (h)(1)(vii) of this section 
and be made at the times specified in paragraph (h)(2) of this section.
    (ii) Provide adequate stop-loss protection to the individual 
physicians.
    (iii) Conduct enrollee surveys as specified in paragraph (g)(1) of 
this section.
    (2) Intermediate entities. An HMO or CMP that contracts with an 
entity (other than a physician group) for the provision of services to 
Medicare beneficiaries must do the following:
    (i) Disclose to CMS any incentive plan between the entity and a 
physician or physician group that bases compensation to the physician or 
physician group on the use or cost of services furnished to Medicare 
beneficiaries or Medicaid recipients. The disclosure must include the 
information required to be disclosed under paragraphs (h)(1)(i) through 
(h)(1)(vii) of this section and be made at the times specified in 
paragraph (h)(2) of this section.
    (ii) If the physician incentive plan puts a physician or physician 
group at substantial financial risk for the cost of services the 
physician or physician group does not furnish--
    (A) Meet the stop-loss protection requirements of this subpart; and
    (B) Conduct enrollee surveys as specified in paragraph (g)(1) of 
this section.
    (3) For purposes of paragraph (i)(2) of this section, an entity 
includes, but is not limited to, an individual practice association that 
contracts with one or more physician groups and a physician hospital 
organization.
    (j) Sanctions against the HMO or CMP. CMS may apply intermediate 
sanctions, or the Office of Inspector General may apply civil money 
penalties described at Sec. 417.500, if CMS determines that an HMO or 
CMP fails to comply with the requirements of this section.

[61 FR 13446, Mar. 27, 1996; 61 FR 46385, Sept. 3, 1996, as amended at 
61 FR 69049, Dec. 31, 1996; 68 FR 50855, Aug. 22, 2003]



Sec. 417.480  Maintenance of records: Cost HMOs and CMPs.

    A reasonable cost contract must provide that the HMO or CMP agrees 
to maintain books, records, documents, and other evidence of accounting 
procedures and practices that--
    (a) Are sufficient to--
    (1) Ensure an audit trail; and
    (2) Properly reflect all direct and indirect costs claimed to have 
been incurred under the contract; and
    (b) Include at least records of the following:
    (1) Ownership, HMO or CMP, and operation of the HMO's or CMP's 
financial, medical, and other recordkeeping systems.
    (2) Financial statements for the current contract period and three 
prior periods.
    (3) Federal income tax or information returns for the current 
contract period and three prior periods.
    (4) Asset acquisition, lease, sale, or other action.
    (5) Agreements, contracts, and subcontracts.

[[Page 139]]

    (6) Franchise, marketing, and management agreements.
    (7) Schedules of charges for the HMO's or CMP's fee-for-service 
patients.
    (8) Matters pertaining to costs of operations.
    (9) Amounts of income received by source and payment.
    (10) Cash flow statements.
    (11) Any financial reports filed with other Federal programs or 
State authorities.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.481  Maintenance of records: Risk HMOs and CMPs.

    A risk contract must provide that the HMO or CMP agrees to maintain 
and make available to CMS upon request, books, records, documents, and 
other evidence of acounting procedures and practices that--
    (a) Are sufficient to--
    (1) Establish component rates of the ACR for determining additional 
and supplementary benefits; and
    (2) Determine the rates utilized in setting premiums for State 
insurance agency purposes; and
    (b) Include at least any records or financial reports filed with 
other Federal agencies or State authorities.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.482  Access to facilities and records.

    The contract must provide that the HMO or CMP agrees to the 
following:
    (a) HHS may evaluate, through inspection or other means, the 
quality, appropriateness, and timeliness of services furnished under the 
contract to its Medicare enrollees.
    (b) HHS may evaluate, through inspection or other means, the 
facilities of the HMO or CMP when there is reasonable evidence of some 
need for that inspection.
    (c) HHS, the Comptroller General, or their designees may audit or 
inspect any books and records of the HMO or CMP or its transferee that 
pertain to any aspect of services performed, reconciliation of benefit 
liabilities, and determination of amounts payable under the contract.
    (d) HHS may evaluate, through inspection or other means, the 
enrollment and disenrollment records for the current contract period and 
three prior periods, when there is reasonable evidence of some need for 
that inspection.
    (e) In the case of a reasonable cost HMO or CMP to make available 
for the purposes specified in paragraphs (a), (b), (c), and (d) of this 
section, its premises, physical facilities, and equipment, its records 
relating to its Medicare enrollees, the records specified in Sec. 
417.480 and any additional relevant information that CMS may require.
    (f) That the right to inspect, evaluate, and audit, will extend 
through three years from the date of the final settlement for any 
contract period unless--
    (1) CMS determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the HMO or 
CMP at least 30 days before the normal disposition date;
    (2) There has been a termination, dispute, fraud, or similar fault 
by the HMO or CMP, in which case the retention may be extended to three 
years from the date of any resulting final settlement; or
    (3) CMS determines that there is a reasonable possibility of fraud, 
in which case it may reopen a final settlement at any time.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.484  Requirement applicable to related entities.

    (a) Definition. As used in this section, related entity means any 
entity that is related to the HMO or CMP by common ownership or control 
and--
    (1) Performs some of the HMO's or CMP's management functions under 
contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the HMO or CMP at a 
cost of more than $2,500 during a contract period.
    (b) Requirement. The contract must provide that the HMO or CMP 
agrees to

[[Page 140]]

require all related entities to agree that--
    (1) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent books, documents, papers, 
and records of the subcontractor involving transactions related to the 
subcontract; and
    (2) The right under paragraph (b)(1) of this section to information 
for any particular contract period will exist for a period equivalent to 
that specified in Sec. 417.482(f).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.486  Disclosure of information and confidentiality.

    The contract must provide that the HMO or CMP agrees to the 
following:
    (a) To submit to CMS--
    (1) All financial information required under subpart O of this part 
and for final settlement; and
    (2) Any other information necessary for the administration or 
evaluation of the Medicare program.
    (b) To comply with the requirements set forth in part 420, subpart 
C, of this chapter pertaining to the disclosure of ownership and control 
information.
    (c) To comply with the requirements of the Privacy Act, as 
implemented by 45 CFR part 5b and subpart B of part 401 of this chapter, 
with respect to any system of records developed in performing carrier or 
intermediary functions under Sec. Sec. 417.532 and 417.533.
    (d) To meet the confidentiality requirements of Sec. 482.24(b)(3) 
of this chapter for medical records and for all other enrollee 
information that is--
    (1) Contained in its records or obtained from CMS or other sources; 
and
    (2) Not covered under paragraph (c) of this section.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 45680, Sept. 1, 1995]



Sec. 417.488  Notice of termination and of available alternatives: Risk contract.

    A risk contract must provide that the HMO or CMP agrees to give 
notice as follows if the contract is terminated:
    (a) At least 60 days before the effective date of termination, to 
give its Medicare enrollees a written notice that--
    (1) Specifies the termination date; and
    (2) Describes the alternatives available for obtaining Medicare 
services after termination.
    (b) To pay the cost of the written notices.

[60 FR 45680, Sept. 1, 1995]



Sec. 417.490  Renewal of contract.

    A contract with an HMO or CMP is renewed automatically for the next 
12-month period unless CMS or the HMO or CMP decides not to renew, in 
accordance with Sec. 417.492.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.492  Nonrenewal of contract.

    (a) Nonrenewal by the HMO or CMP. (1) If an HMO or CMP does not 
intend to renew its contract, it must--
    (i) Give written notice to CMS at least 90 days before the end of 
the current contract period;
    (ii) Notify each Medicare enrollee by mail at least 60 days before 
the end of the contract period; and
    (iii) Notify the general public at least 30 days before the end of 
the contract period, by publishing a notice in one or more newspapers of 
general circulation in each community or county located in the HMO's or 
CMP's geographic area.
    (2) CMS may accept a nonrenewal notice submitted less than 90 days 
before the end of a contract period if--
    (i) The HMO or CMP notifies its Medicare enrollees and the public in 
accordance with paragraph (a)(1) of this section; and
    (ii) Acceptance would not otherwise jeopardize the effective and 
efficient administration of the Medicare program.
    (b) Nonrenewal by CMS--(1) Notice of nonrenewal. If CMS decides not 
to renew a contract, it gives written notice of nonrenewal as follows:
    (i) To the HMO or CMP at least 90 days before the end of the 
contract period.

[[Page 141]]

    (ii) To the HMO's or CMP's Medicare enrollees at least 60 days 
before the end of the contract period.
    (iii) To the general public at least 30 days before the end of the 
contract period.
    (2) Notice of appeal rights. CMS gives the HMO or CMP written notice 
of its right to appeal the nonrenewal decision, in accordance with 
subpart R of this part, if CMS's decision was based on any of the 
reasons specified in Sec. 417.494(b).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38079, July 15, 1993; 60 
FR 45681, Sept. 1, 1995]



Sec. 417.494  Modification or termination of contract.

    (a) Modification or termination by mutual consent. (1) CMS and an 
HMO or CMP may modify or terminate a contract at any time by written 
mutual consent.
    (2) If the contract is modified, the HMO or CMP must notify its 
Medicare enrollees of any changes that CMS determines are appropriate 
for notification.
    (3) If the contract is terminated, the HMO or CMP must notify its 
Medicare enrollees, and CMS notifies the general public, at least 30 
days before the termination date.
    (b) Termination by CMS. (1) CMS may terminate a contract for any of 
the following reasons:
    (i) The HMO or CMP has failed substantially to carry out the terms 
of the contract.
    (ii) The HMO or CMP is carrying out the contract in a manner that is 
inconsistent with the effective and efficient implementation of section 
1876 of the Act.
    (iii) The HMO or CMP has failed substantially to comply with the 
composition of enrollment requirements specified in Sec. 417.413(d).
    (iv) CMS determines that the HMO or CMP no longer meets the 
requirements of section 1876 of the Act and this subpart for being an 
HMO or CMP.
    (2) If CMS decides to terminate a contract, it sends a written 
notice informing the HMO or CMP of its right to appeal the termination 
in accordance with subpart R of this part.
    (3) An HMO or CMP with a risk contract must notify its Medicare 
enrollees of the termination as described in Sec. 417.488.
    (4) CMS notifies the HMO's or CMP's Medicare enrollees and the 
general public of the termination at least 30 days before the effective 
date of termination.
    (c) Termination by the HMO or CMP. The HMO or CMP may terminate the 
contract if CMS has failed substantially to carry out the terms of the 
contract.
    (1) The HMO or CMP must notify CMS at least 90 days before the 
effective date of the termination and must include in its notice the 
reasons for the termination.
    (2) The HMO or CMP must notify its Medicare enrollees of the 
termination at least 60 days before the termination date. Risk HMOs or 
CMPs must also provide a written description of alternatives available 
for obtaining Medicare services after termination of the contract. The 
HMO or CMP is responsible for the cost of these notices.
    (3) The HMO or CMP must notify the general public of the termination 
at least 30 days before the termination date.
    (4) The contract is terminated effective 60 days after the HMO or 
CMP mails the notice to Medicare enrollees as required in paragraph 
(c)(2) of this section.
    (5) CMS's liability for payment ends as of the first day of the 
month after the last month for which the contract is in effect.

[50 FR 1346, Jan. 10, 1985, as amended at 52 FR 22322, June 11, 1987; 56 
FR 46571, Sept. 13, 1991; 58 FR 38079, 38082, July 15, 1993; 60 FR 
45681, Sept. 1, 1995]



Sec. 417.500  Sanctions against HMOs and CMPs.

    (a) Basis for imposition of sanctions. CMS may impose the 
intermediate sanctions specified in paragraph (d) of this section, as an 
alternative to termination of contract, if CMS determines that an HMO or 
CMP does one or more of the following:
    (1) Fails substantially to provide the medically necessary services 
required to be provided to a Medicare enrollee and the failure adversely 
affects (or has

[[Page 142]]

a substantial likelihood of adversely affecting) the enrollee.
    (2) Requires Medicare enrollees to pay amounts in excess of premiums 
permitted.
    (3) Acts, in violation of the provisions of subpart K of this part, 
to expel or to refuse to reenroll an individual.
    (4) Engages in any practice that could reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by subpart K of this part) by eligible individuals whose 
medical conditions or histories indicate a need for substantial future 
medical services.
    (5) Misrepresents or falsifies information that it furnishes under 
this part to CMS, an individual, or to any other entity.
    (6) Fails to comply with the requirements of section 1876(g)(6)(A) 
of the Act relating to the prompt payment of claims.
    (7) Fails to meet the requirement in section 1876(f)(1) of the Act 
that not more than 50 percent of the organization's enrollment be 
Medicare beneficiaries and Medicaid recipients.
    (8) Has a Medicare risk contract and--
    (i) Employs or contracts with individuals or entities excluded from 
participation in Medicare under section 1128 or section 1128A of the Act 
for the provision of health care, utilization review, medical social 
work, or administrative services; or
    (ii) Employs or contracts with any entity for the provision of those 
services (directly or indirectly) through an excluded individual or 
entity.
    (9) Fails to comply with the requirements of Sec. Sec. 417.479(d) 
through (i) relating to physician incentive plans.
    (b) Notice of sanction and opportunity to respond--(1) Notice of 
sanction. Before imposing the intermediate sanctions specified in 
paragraph (d) of this section, CMS--
    (i) Sends a written notice to the HMO or CMP stating the nature and 
basis of the proposed sanction; and
    (ii) Sends the OIG a copy of the notice (other than a notice 
regarding the restriction on Medicare and Medicaid enrollees as 
described in paragraph (a)(7) of this section), once the sanction has 
been confirmed following the notice period or the reconsideration.
    (2) Opportunity to respond. CMS allows the HMO or CMP 15 days from 
receipt of the notice to provide evidence that it has not committed an 
act or failed to comply with a requirement described in paragraph (a) of 
this section, as applicable. CMS may allow a 15-day addition to the 
original 15 days upon receipt of a written request from the HMO or CMP. 
To be approved, the request must provide a credible explanation of why 
additional time is necessary and be received by CMS before the end of 
the 15-day period following the date of receipt of the sanction notice. 
CMS does not grant an extension if it determines that the HMO's or CMP's 
conduct poses a threat to an enrollee's health and safety.
    (c) Informal reconsideration. If, consistent with paragraph (b)(2) 
of this section, the HMO or CMP submits a timely response to CMS's 
notice of sanction, CMS conducts an informal reconsideration that:
    (1) Consists of a review of the evidence by a CMS official who did 
not participate in the initial decision to impose a sanction; and
    (2) Gives the HMO or CMP a concise written decision setting forth 
the factual and legal basis for the decision that affirms or rescinds 
the original determination.
    (d) Specific sanctions. If CMS determines that an HMO or CMP has 
acted or failed to act as specified in paragraph (a) of this section and 
affirms this determination in accordance with paragraph (c) of this 
section, CMS may--
    (1) Require the HMO or CMP to suspend acceptance of applications for 
enrollment made by Medicare beneficiaries during the sanction period;
    (2) Suspend payments to the HMO or CMP for Medicare beneficiaries 
enrolled during the sanction period; and
    (3) Require the HMO or CMP to suspend all marketing activities to 
Medicare enrollees.
    (e) Effective date and duration of sanctions--(1) Effective date. 
Except as provided in paragraph (e)(2) of this section, a sanction is 
effective 15 days after the date that the organization is notified of 
the decision to impose the

[[Page 143]]

sanction or, if the HMO or CMP timely seeks reconsideration under 
paragraph (c) of this section, on the date specified in the notice of 
CMS's reconsidered determination.
    (2) Exception. If CMS determines that the HMO's or CMP's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on a date before issuance of CMS's reconsidered 
determination.
    (3) Duration of sanction. The sanction remains in effect until CMS 
notifies the HMO or CMP that CMS is satisfied that the basis for 
imposing the sanction has been corrected and is not likely to recur.
    (f) Termination by CMS. In addition to or as an alternative to the 
sanctions described in paragraph (d) of this section, CMS may decline to 
renew a HMO's or CMP's contract in accordance with Sec. 417.492(b), or 
terminate the contract in accordance with Sec. 417.494(b).
    (g) Civil money penalties. If CMS determines that a HMO or CMP has 
committed an act or failed to comply with a requirement described in 
paragraph (a) of this section (with the exception of the requirement to 
limit the percentage of Medicare and Medicaid enrollees described in 
paragraph (a)(7) of this section), CMS notifies the OIG of that 
determination. CMS also conveys to the OIG information when it reverses 
or terminates a sanction imposed under this subpart. In accordance with 
the provisions of 42 CFR part 1003, the OIG may impose civil money 
penalties on the HMO or CMP in addition to or in place of the sanctions 
that CMS may impose under paragraph (d) of this section.

[59 FR 36083, July 15, 1994, as amended at 60 FR 45681, Sept. 1, 1995; 
61 FR 13448, Mar. 27, 1996]



   Subpart M_Change of Ownership and Leasing of Facilities: Effect on 
                            Medicare Contract



Sec. 417.520  Effect on HMO and CMP contracts.

    (a) The provisions set forth in subpart L of part 422 of this 
chapter also apply to Medicare contracts with HMOs and CMPs under 
section 1876 of the Act.
    (b) In applying these provisions, references to ``M+C 
organizations'' must be read as references to ``HMOs and CMPs''.
    (c) In Sec. 422.550, reference to ``subpart K of this part'' must 
be read as reference to ``subpart L of part 417 of this chapter''.
    (d) In Sec. 422.553, reference to ``subpart K of this part'' must 
be read as reference to ``subpart J of part 417 of this chapter''.

[63 FR 35067, June 26, 1998]



       Subpart N_Medicare Payment to HMOs and CMPs: General Rules



Sec. 417.524  Payment to HMOs or CMPs: General.

    (a) Basic rule. The payments that CMS makes to an HMO or CMP under 
this subpart and subparts O and P of this part for furnishing covered 
Medicare services are in place of any payment that CMS would otherwise 
make to a beneficiary or the HMO or CMP under sections 1814(b) and 
1833(a) of the Act.
    (b) Basis of payment. (1) CMS pays the HMOs or CMPs on either a 
reasonable cost basis or a risk basis depending on the type of contract 
the HMO or CMP has with CMS.
    (2) In certain cases a risk HMO or CMP also receives payments on a 
reasonable cost basis for certain Medicare enrollees who retain nonrisk 
status, as provided in Sec. 417.444, after the HMO or CMP enters into a 
risk contract.

[60 FR 46229, Sept. 6, 1995]



Sec. 417.526  Payment for covered services.

    Subpart O of this part set forth the principles that CMS follows in 
determining Medicare payment to an HMO or CMP that has a reasonable cost 
contract. Subpart P of this part describes the per capita method of 
Medicare payment to HMOs or CMPs that contract on a risk basis.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985; as amended at 58 
FR 38080, July 15, 1993; 60 FR 46229, Sept. 6, 1995]

[[Page 144]]



Sec. 417.528  Payment when Medicare is not primary payer.

    (a) Limits on payments and charges. (1) CMS may not pay for services 
to the extent that Medicare is not the primary payer under section 
1862(b) of the Act and part 411 of this chapter.
    (2) The circumstances under which an HMO or CMP may charge, or 
authorize a provider to charge, for covered Medicare services for which 
Medicare is not the primary payer are stated in paragraphs (b) and (c) 
of this section.
    (b) Charge to other insurers or the enrollee. If a Medicare enrollee 
receives from an HMO or CMP covered services that are also covered under 
State or Federal worker's compensation, automobile medical, or any no-
fault insurance, or any liability insurance policy or plan, including a 
self-insured plan, the HMO or CMP may charge, or authorize a provider 
that furnished the service to charge--
    (1) The insurance carrier, employer, or other entity that is liable 
to pay for these services; or
    (2) The Medicare enrollee, to the extent that he or she has been 
paid by the carrier, employer, or other entity.
    (c) Charge to group health plans (GHPs) or large group health plans 
(LGHPs). An HMO or CMP may charge a GHP or LGHP for covered services it 
furnished to a Medicare enrollee and may charge the Medicare enrollee to 
the extent that he or she has been paid by the GHP or LGHP for these 
covered services if--
    (1) The Medicare enrollee is covered under the plan; and
    (2) Under section 1862(b) of the Act, CMS is precluded from paying 
for the covered services .
    (d) Responsibilities of HMO or CMP. An HMO or CMP must--
    (1) Identify payers that are primary to Medicare under section 
1862(b) of the Act;
    (2) Determine the amounts payable by these payers; and
    (3) Coordinate the benefits of its Medicare enrollees with these 
payers.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46229, Sept. 6, 1995]



                 Subpart O_Medicare Payment: Cost Basis

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.530  Basis and scope.

    This subpart sets forth the principles that CMS follows to determine 
the amount it pays for services furnished by a cost HMO or CMP to its 
Medicare enrollees. These principles are based on sections 1861(v) and 
1876 of the Act and are, for the most part, the same as those set 
forth--
    (a) In part 412 of this chapter, for paying the costs of inpatient 
hospital services which, for cost HMOs and CMPs, are considered 
``reasonable'' only if they do not exceed the amounts allowed under the 
prospective payment system; and
    (b) In part 413 of this chapter, for the costs of all other covered 
services.

[60 FR 46230, Sept. 6, 1995]



Sec. 417.531  Hospice care services.

    (a) If a Medicare enrollee of an HMO or CMP with a reasonable cost 
contract makes an election under Sec. 418.24 of this chapter to receive 
hospice care services, payment for these services is made to the hospice 
that furnishes the services in accordance with part 418 of this chapter.
    (b) While the enrollee's hospice election is in effect, CMS pays the 
HMO or CMP on a reasonable cost basis for only the following covered 
Medicare services furnished to the Medicare enrollee:
    (1) Services of the enrollee's attending physician if the physician 
is an employee or contractor of the HMO or CMP and is not employed by or 
under contract to the enrollee's hospice.
    (2) Services not related to the treatment of the terminal condition 
for which hospice care was elected or a condition related to the 
terminal condition.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.532  General considerations.

    (a) Conditions and criteria for payment. (1) The costs incurred by 
the HMO or

[[Page 145]]

CMP to furnish services covered by Medicare are reimbursable if they 
are--
    (i) Proper and necessary;
    (ii) Reasonable in amount; and
    (iii) Except as provided in Sec. 417.550, appropriately apportioned 
among the HMO's or CMP's Medicare enrollees, other enrollees, and 
nonenrolled patients.
    (2) In determining fair and equitable payment for the HMOs or CMPs, 
CMS generally applies the cost payment principles set forth in Sec. 
413.5 of this chapter.
    (3) In judging whether costs are reasonable, CMS applies the 
weighted average of the AAPCCs of each class of the HMO's or CMP's 
Medicare enrollees (as defined in Sec. 417.582) for the HMO's or CMP's 
geographic area as an absolute limitation on the total amount payable.
    (b) Method and amount of payment to the HMO or CMP. (1) CMS makes 
interim per capita payments each month for each Medicare enrollee, 
equivalent to the interim per capita cost rate determined in accordance 
with Sec. 417.570.
    (2) CMS adjusts the interim per capita rate as necessary during the 
contract period and makes final adjustments at the end of the contract 
period.
    (3) In determining the amount due the HMO or CMP, CMS deducts from 
the reasonable cost actually incurred by the HMO or CMP for covered 
services furnished to its Medicare enrollees, an amount equal to the 
actuarial value of the applicable Medicare Part A and Part B deductible 
and coinsurance amounts that would have applied to the covered services 
for which payment is being made if these enrollees had not enrolled in 
the HMO or CMP or another HMO or CMP.
    (c) Election by HMO or CMP. An HMO or CMP must elect, on an 
individual provider basis, one of the following methods for payment for 
hospital and SNF services it furnishes to Medicare enrollees:
    (1) Direct payment by CMS.
    (2) Direct payment by the HMO or CMP.
    (d) Notice of election. The election must be made in writing before 
the beginning of the contract period and is binding for that period.
    (e) Payment by HMO or CMP. If the HMO or CMP elects to pay providers 
directly, as provided in paragraph (c) of this section, it must--
    (1) Determine the eligibility of its Medicare enrollees to receive 
covered services through the HMO or CMP;
    (2) Make proper coverage decisions and appropriate payments, in 
accordance with Sec. Sec. 421.100 and 421.200 of this chapter, for the 
services furnished to its Medicare enrollees;
    (3) Ensure that providers maintain and furnish appropriate 
documentation of physician certification and recertification, to the 
extent required under subpart B of part 424 of this chapter; and
    (4) Carry out any other procedures required by CMS.
    (f) Review of HMO's or CMP's bill processing capabilities. If the 
HMO or CMP elects to pay providers directly, CMS determines whether the 
HMO or CMP has the experience and capability to carry out the 
responsibilities specified in paragraph (e) of this section in an 
efficient and effective manner.
    (g) Direct payment by CMS. (1) If the HMO or CMP elects to have CMS 
pay for provider services, CMS pays each provider on a reasonable cost 
basis or under the PPS system, whichever is appropriate for the 
particular provider under part 412 or part 413 of this chapter.
    (2) In computing the Medicare payment to the HMO or CMP, CMS deducts 
these payments and any other payments made by the Medicare intermediary 
or carrier on behalf of the HMO or CMP (such as payment for emergency or 
urgently needed services under Sec. 417.558).
    (h) Payment for services furnished to Medicare beneficiaries not 
enrolled in the HMO or CMP. CMS pays the HMO or CMP for services it 
furnishes to Medicare beneficiaries who are not its enrollees through 
the HMO's or CMP's Medicare intermediary or carrier, as appropriate.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 53 
FR 6648, Mar. 2, 1988; 58 FR 38082, July 15, 1993; 60 FR 46230, Sept. 6, 
1995]

[[Page 146]]



Sec. 417.533  Part B carrier responsibilities.

    In paying for Part B services furnished to its enrollees by 
suppliers, the HMO or CMP must--
    (a) Determine the eligibility of individuals to receive those 
services through the HMO or CMP;
    (b) Make proper coverage decisions and appropriate payment as 
authorized under Sec. 421.200 of this chapter for the services for 
which its Medicare enrollees are eligible; and
    (c) Carry out any other procedures that CMS may require.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.534  Allowable costs.

    (a) Definition--Allowable costs means the direct and indirect costs, 
including normal standby costs incurred by the HMO or CMP, that are 
proper and necessary for efficient delivery of needed health care 
services. They include the costs of furnishing services to the HMO's or 
CMP's Medicare enrollees, other enrollees, and nonenrolled patients, 
which are typical ``provider'' costs, and costs (such as marketing, 
enrollment, membership, and operation of the HMO or CMP) that are 
peculiar to health care prepayment organizations.
    (b) Basic rules. (1) The allowability of an HMO's or CMP's costs for 
furnishing services is generally determined in accordance with 
principles applicable to provider costs, as set forth in Sec. 417.536.
    (2) The allowability of other costs is determined in accordance with 
principles set forth in Sec. Sec. 417.538 through 417.550.
    (3) Costs for covered services for which Medicare is not the primary 
payor, as described in Sec. 417.528, are not allowable.
    (c) Medicare Part D program costs. To the extent that an HMO or CMP 
provides qualified prescription drug coverage to enrollees under Part D, 
no costs related to the offering or provision of Part D benefits are 
reimbursed under this part. These costs are reimbursed solely under the 
applicable provisions of part 423 of this chapter.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 70 
FR 4525, Jan. 28, 2005]



Sec. 417.536  Cost payment principles.

    (a) Applicability. Unless otherwise specified in this subpart, the 
principles set forth in parts 412 and 413 of this chapter are applicable 
to the costs incurred by an HMO or CMP or by providers and other 
facilities owned or operated by the HMO or CMP or related to it by 
common ownership or control. The most common examples of these costs are 
set forth in this section.
    (b) Depreciation. An appropriate allowance for depreciation on 
buildings and equipment is an allowable cost, in accordance with 
Sec. Sec. 413.134, 413.144, and 413.149 of this chapter.
    (c) Interest expense. Necessary and proper interest on both current 
and capital indebtedness is an allowable cost, in accordance with Sec. 
413.153 of this chapter.
    (d) Cost of educational activities. An appropriate part of the net 
cost of approved educational activities of a provider or other health 
care facility owned or operated by an HMO or CMP is an allowable cost in 
accordance with Sec. 413.85 of this chapter.
    (e) Compensation of owners. An appropriate amount of compensation 
for services of owners is an allowable cost, if the services are 
actually performed and are necessary, as specified in Sec. 413.102 of 
this chapter.
    (f) Bad debts. (1) In accordance with Sec. 413.80 of this chapter, 
bad debts are deductions from revenue and may be included as allowable 
costs only if--
    (i) They are attributable to Medicare deductible and coinsurance 
amounts for which the Medicare enrollee is liable; and
    (ii) The HMO or CMP has made a reasonable, but unsuccessful, effort 
to collect those amounts.
    (2) If all or part of the deductible and coinsurance amounts is 
payable through a monthly premium or other periodic payment, the amount 
allowed as a bad debt may not exceed three times the monthly rate for 
the actuarial value of the deductible and coinsurance amounts, or its 
equivalent, if

[[Page 147]]

the periodic payment is on other than a monthly basis.
    (3) Any bad debt related to a service furnished to a Medicare 
enrollee of the HMO or CMP, and claimed on a cost report submitted for 
payment by a provider or other facility reimbursed on a cost basis, may 
not be claimed as a bad debt by the HMO or CMP.
    (g) Charity and courtesy allowances. As specified in Sec. 413.80 of 
this chapter, charity and courtesy allowances are deductions from 
revenue and may not be included as allowable costs.
    (h) Research costs. As specified in Sec. 413.90 of this chapter, 
costs incurred for research purposes, over and above patient care, are 
not allowable costs.
    (i) Value of services of nonpaid workers. The value of services of 
nonpaid workers of an organization is not an allowable cost, except as 
provided in Sec. 413.94 of this chapter.
    (j) Purchase discounts and allowances and refund of expenses. 
Discounts and allowances that an HMO or CMP receives on purchases of 
goods and services and refunds of previous expense payments must be 
deducted from the costs to which they relate, in accordance with Sec. 
413.98 of this chapter.
    (k) Cost to related entities. (1) The costs of services, facilities, 
or supplies furnished to an HMO or CMP by a related entity are allowable 
at the cost to the related entity in accordance with Sec. 413.17 of 
this chapter.
    (2) An entity is not considered related to the HMO or CMP merely 
because--
    (i) It has a risk or incentive agreement under which the HMO or CMP 
reimburses or compensates the entity for services it furnishes to the 
HMOs' or CMPs' enrollees; or
    (ii) Substantially all the services the entity furnishes are 
furnished to the HMO's or CMP's enrollees.
    (3) However, an entity described in paragraph (k)(2) of this section 
and an HMO or CMP are considered related if either of them is in a 
position to exercise significant management or ownership influence or 
control over the other.
    (l) Return on equity capital of proprietary providers owned by the 
HMO or CMP. An allowance for a reasonable return on equity capital 
invested and used in providing services is allowable in addition to the 
reasonable cost of services furnished by a proprietary provider owned by 
the HMO or CMP. The amount of the allowance is determined in accordance 
with Sec. 413.157 of this chapter.
    (m) Limitations on payment. Medicare payment for covered services 
furnished by entities owned by or operated by, or related to, an HMO or 
CMP paid on a reasonable cost basis is subject to certain provisions of 
parts 412 and 413 of this chapter that pertain to reasonable cost and 
reasonable charge. Those provisions include, but are not necessarily 
limited to, the following:
    (1) For ESRD treatment, the limitations authorized under Sec. 
413.170 of this chapter.
    (2) For services of physical, occupational, and speech therapists 
and other therapists and nonphysician health specialists, the 
limitations set forth in Sec. 413.106 of this chapter.
    (3) For drugs, the allowable cost as determined under Sec. Sec. 
405.517 and 410.29 of this chapter.
    (4) The overall cost limits established in accordance with Sec. 
413.30 of this chapter.
    (5) The limitation to the lesser of reasonable cost or customary 
charges, as set forth in Sec. 413.13 of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 51 
FR 34832, Sept. 30, 1986; 51 FR 37398, Oct. 22, 1986; 58 FR 38080, July 
15, 1993; 60 FR 46230, Sept. 6, 1995]



Sec. 417.538  Enrollment and marketing costs.

    (a) Principle. Costs incurred by an HMO or CMP in performing the 
enrollment and marketing activities described in subpart k of this part 
are allowable.
    (b) Included costs. Allowable enrollment and marketing costs are 
those necessary and proper costs incurred in offering the HMO's or CMP's 
plan to potential enrollees in accordance with this part. Those costs 
include selling, advertising, promotional, and other marketing costs and 
may not exceed an amount that would be incurred by a prudent and cost-
conscious management.

[[Page 148]]

    (c) Application. Enrollment and marketing costs are allowable, 
whether incurred directly by HMO or CMP staff or under contract with 
marketing specialists or other outside consultants.
    (d) Limitation on payment. The relatively higher costs that an HMO 
or CMP is likely to incur in initially offering its plan to Medicare 
beneficiaries are taken into account in determining whether enrollment 
and marketing costs are reasonable in amount. However, if those costs 
exceed amounts that would be paid by prudent management, the excess is 
not allowable.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.540  Enrollment costs.

    (a) Principle. Enrollment costs are allowable if incurred in 
maintaining and servicing subscriber contracts for prepayment enrollees.
    (b) Kind of costs included. Enrollment costs include, but are not 
limited to, reasonable costs incurred in connection with maintaining 
statistical, financial, and other data on enrollees.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.542  Reinsurance costs.

    Reinsurance costs are not allowable.



Sec. 417.544  Physicians' services furnished directly by the HMO or CMP.

    (a) Principles. (1) Compensation paid by an HMO or CMP to physicians 
is an allowable cost to the extent that it is commensurate with the 
compensation paid for similar services performed by similar physicians 
practicing in the same or a similar locality.
    (2) Physician compensation may take various forms, but the aggregate 
compensation allowable must be reasonable in relation to the services 
personally furnished.
    (3) If aggregate physician compensation costs exceed what is 
normally incurred, the excess is not a reasonable cost.
    (b) Application. (1) In determining the allowability of the costs of 
physicians' services, the cost of personal services (for example, 
expenses attributable to salaries, wages, incentive payments, fringe 
benefits) must be distinguished from the cost of nonpersonal services 
(for example, expenses attributable to facilities, equipment, support 
personnel, supplies).
    (2) To be allowable, compensation must be reasonable in relation to 
the personal services furnished.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.546  Physicians' services and other Part B supplier services furnished under arrangements.

    General principle. The amount paid by an HMO or CMP for physicians' 
services and other Part B supplier services furnished under arrangements 
is an allowable cost to the extent it is reasonable. Costs are 
considered reasonable if they--
    (a) Do not exceed those that a prudent and cost-conscious buyer 
would incur to purchase those services; and
    (b) Are comparable to costs incurred for similar services furnished 
by similar physicians or other suppliers in the same or a similar 
geographic area.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 34887, July 5, 1995; 60 FR 45372, Aug. 31, 1995]



Sec. 417.548  Provider services through arrangements.

    (a) Principle. The cost incurred by an HMO or CMP for covered 
services furnished under arrangement with a provider is allowable to the 
extent that it would be allowable and payable under parts 412 and 413 of 
this chapter, unless the HMO or CMP petitions CMS and demonstrates to 
HFCA's satisfaction that payment in excess of the amount authorized 
under parts 412 and 413 of this chapter is justified on the basis of 
advantages gained by the HMO or CMP.
    (b) Application. An advantage gained must represent a real and 
tangible benefit received by the HMO or CMP for the excess cost 
incurred, and any excess payment is subject to other applicable 
requirements of parts 405, 412 and 413 of this chapter, including tests 
of reasonableness.
    (c) Example. In the case of an arrangement an HMO or CMP has with a 
provider that is located outside the

[[Page 149]]

HMO's or CMP's geographic area and that is not related to the HMO or CMP 
by common ownership or control, payment of the provider's charges to the 
HMO or CMP (rather than the payment amounts determined under part 412 or 
part 413 of this chapter) may be justified in exchange for the 
advantages of not having to incur the administrative costs of 
determining the provider's reasonable cost and of making a more timely 
final settlement with the HMO or CMP. However, repayment of the 
provider's charges would be acceptable only if--
    (1) The provider furnishes services to the HMO's or CMP's enrollees 
infrequently;
    (2) The charges represent an insignificant portion of total Medicare 
reimbursement to the HMO or CMP; and
    (3) The charges do not exceed the customary charges by the provider 
to its other patients for similar services.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34832, Sept. 30, 1986; 
58 FR 38080, July 15, 1993; 60 FR 46230, Sept. 6, 1995]



Sec. 417.550  Special Medicare program requirements.

    (a) Principle. CMS pays the full reasonable cost incurred by an HMO 
or CMP for activities that are solely for Medicare purposes and unique 
to Medicare contracts under section 1876 of the Act.
    (b) Application. CMS pays the full reasonable cost of the following 
activities:
    (1) Reporting increases and decreases in the number of Medicare 
enrollees.
    (2) Obtaining independent certification of the HMO's or CMP's cost 
report to the extent that it is for Medicare purposes.
    (3) Reporting special data that CMS requires solely for program 
planning and evaluation.
    (c) Prior approval requirement. The costs specified in paragraph (b) 
of this section must be separately budgeted and approved by CMS before 
the contract period begins.
    (d) Limit on full payment. Full payment is limited to the costs 
specified in paragraph (b) of this section. All other administrative 
costs must be apportioned in accordance with Sec. 417.552.

[60 FR 46230, Sept. 6, 1995]



Sec. 417.552  Cost apportionment: General provisions.

    (a) Basic rule. The HMO or CMP must apportion its total allowable 
direct and indirect costs among its Medicare enrollees, its other 
enrollees, and its nonenrolled patients--
    (1) In accordance with this subpart; and
    (2) Using methods approved by CMS.
    (b) Purpose of apportionment. The purpose of apportionment is to 
ensure that--
    (1) The cost of services furnished to Medicare enrollees is not 
borne by other enrollees and nonenrolled patients; and
    (2) The cost of the services furnished to other enrollees and 
nonenrolled patients is not borne by Medicare.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46230, Sept. 6, 1995]



Sec. 417.554  Apportionment: Provider services furnished directly by the HMO or CMP.

    The Medicare share of the cost of covered services furnished to 
Medicare enrollees by providers that are owned or operated by the HMO or 
CMP or are related to the HMO or CMP by common ownership or control must 
be determined in accordance with the apportionment methods set forth in 
part 412, Sec. Sec. 413.24, 413.55, and 415.55 of this chapter.

[51 FR 28574, Aug. 8, 1986, as amended at 51 FR 34832, Sept. 30, 1986; 
58 FR 38082, July 15, 1993; 60 FR 46231, Sept. 6, 1995; 60 FR 63189, 
Dec. 8, 1995]



Sec. 417.556  Apportionment: Provider services furnished by the HMO or CMP through arrangements with others.

    The Medicare share of the cost of covered services furnished to 
Medicare enrollees through arrangements with providers other than those 
specified in Sec. 417.554 must be determined as follows:
    (a) The Medicare share must be based on the cost the HMO or CMP pays 
the provider under their arrangement, to the extent that cost is 
reasonable and within the limits established by Sec. Sec. 417.534 
through 417.548.
    (b) Except as specified in paragraph (c) of this section, 
apportionment must

[[Page 150]]

be on the same approved basis that is used by the provider for Medicare 
beneficiaries who are not Medicare enrollees of the HMO or CMP, subject 
to the conditions and limitations set forth in Sec. 417.548.
    (c) If, because of the special nature or terms of the HMO's or CMP's 
arrangement with the provider, apportionment on the basis specified in 
paragraph (b) of this section would result in Medicare's bearing the 
costs of furnishing services to individuals other than the HMO's or 
CMP's Medicare enrollees, apportionment must be on another basis that is 
approved by CMS and that will ensure that Medicare does not pay any of 
the cost of furnishing services to individuals who are not Medicare 
enrollees of the HMO or CMP.
    (d) If the HMO or CMP elects to have providers reimbursed by the 
HMO's or CMP's Medicare intermediary, the Medicare share is the amount 
the intermediary paid the provider.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.558  Emergency, urgently needed, and out-of-area services for which the HMO or CMP accepts responsibility.

    (a) Source of payment. Either CMS or the HMO or CMP may pay a 
provider for emergency or urgently needed services or other covered out-
of-area services for which the HMO or CMP accepts responsibility.
    (b) Limits on payment. If the HMO or CMP pays, the payment amount 
may not exceed the amount that is allowable under part 412 or part 413 
of this chapter.
    (c) Exception to limit on payment. Payment in excess of the limit 
imposed by paragraph (b) of this section is allowable only if the HMO or 
CMP demonstrates to CMS's satisfaction that it is justified on the basis 
of advantages gained by the HMO or CMP, as set forth in Sec. 417.548.

[60 FR 46231, Sept. 6, 1995]



Sec. 417.560  Apportionment: Part B physician and supplier services.

    (a) Medical services furnished directly by the HMO or CMP. The total 
allowable cost of Part B physician and supplier services furnished by 
employees or partners of the HMO or CMP or by a related entity of the 
HMO or CMP must be apportioned on the basis of the ratio of covered Part 
B services furnished to Medicare enrollees to total services furnished 
to all the HMO's or CMP's enrollees and nonenrolled patients. The HMO or 
CMP must use a method for reporting costs that is approved by CMS. CMS 
bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.
    (b) Medical services furnished under arrangements made by the HMO or 
CMP. When the HMO or CMP pays for Part B physician and supplier services 
on some basis other than fee-for-service, the reasonable cost the HMO or 
CMP pays under its financial arrangement with the physician or supplier 
must be apportioned between Medicare enrollees and others based on the 
ratio of covered services furnished to Medicare enrollees to the total 
services furnished to all enrollees and nonenrolled patients. If 
apportionment on this basis would result in Medicare bearing the cost of 
furnishing services to individuals who are not Medicare enrollees, the 
Medicare share must be determined on another basis (approved by CMS) to 
ensure that Medicare pays only for services furnished to Medicare 
enrollees.
    (c) Medical services furnished under an arrangement that provides 
for the HMO or CMP to pay on a fee-for-service basis. The Medicare share 
of the cost of Part B physician and supplier services furnished to 
Medicare enrollees under arrangements, and paid for by the HMO or CMP on 
a fee-for-service basis, is determined by multiplying the total amount 
for all such services by the ratio of charges for covered services 
furnished to Medicare enrollees to the total charges for all such 
services.
    (d) Emergency services, urgently needed services, and other covered 
medical services for which the HMO or CMP assumes financial 
responsibility. The Medicare share of the cost of Part B emergency or 
urgently needed services or other Part B services that are not furnished 
by a provider and for which the HMO or CMP accepts financial 
responsibility is

[[Page 151]]

determined in accordance with paragraphs (b) and (c) of this section.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 34888, July 5, 1995]



Sec. 417.564  Apportionment and allocation of administrative and general costs.

    (a) Costs not directly associated with providing medical care. 
Enrollment, marketing, and other administrative and general costs that 
benefit the total enrollment of the HMO or CMP and are not directly 
associated with furnishing medical care must be apportioned on the basis 
of a ratio of Medicare enrollees to the total HMO or CMP enrollment.
    (b) Costs significantly related to providing medical services. (1) 
The following administrative and general costs, which bear a significant 
relationship to the services furnished, are not apportioned to Medicare 
directly; they must be allocated or distributed to the HMO or CMP 
components and then apportioned to Medicare in accordance with 
Sec. Sec. 417.552 through 417.560:
    (i) Facility costs.
    (ii) Interest expense.
    (iii) Medical record costs.
    (iv) Centralized purchasing costs.
    (v) Accounting and data processing costs.
    (vi) Other administrative and general costs that are not included in 
paragraph (a) of this section.
    (2) The allocation or distribution process must be as follows:
    (i) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which can be quantitatively 
measured (such as centralized purchasing and data processing), the total 
allowable costs of this entity or department must be allocated or 
distributed to the components of the HMO or CMP in reasonable proportion 
to the benefits received by these components.
    (ii) If a separate entity or department of an HMO or CMP performs 
administrative functions the benefit of which cannot be quantitatively 
measured (such as facility costs), the total allowable costs of this 
entity or department must be allocated or distributed to the components 
of the HMO or CMP on the basis of a ratio of total incurred and 
distributed costs per component to the total incurred and distributed 
costs for all components.

[60 FR 46231, Sept. 6, 1995]



Sec. 417.566  Other methods of allocation and apportionment.

    (a) Justification. A method of apportionment or allocation of costs, 
other than the methods prescribed in this subpart may be used if it 
results in a more accurate and equitable apportionment of allowable 
costs and is justifiable from an administrative and cost standpoint.
    (b) Required approval. (1) An HMO or CMP that desires to use an 
alternative method must submit a written request for CMS approval at 
least 90 days before the beginning of the period for which the different 
method is to be used.
    (2) If CMS approves use of a different method, the HMO or CMP may 
not revert to another method without first obtaining CMS's approval.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.568  Adequate financial records, statistical data, and cost finding.

    (a) Maintenance of records. (1) An HMO or CMP must maintain 
sufficient financial records and statistical data for proper 
determination of costs payable by CMS for covered services the HMO or 
CMP furnished to its Medicare enrollees either directly or under 
arrangements with others. These include accurate and sufficient detail 
of incurred costs and enrollment data.
    (2) Unless otherwise provided for in this subpart, the HMO or CMP 
must follow standardized definitions and accounting, statistics, and 
reporting practices that are widely accepted in the health care 
industry.
    (b) Provision of data. (1) The HMO or CMP must provide adequate cost 
and statistical data, based on its financial and statistical records, 
that can be verified by qualified auditors.
    (2) The cost data must be based on an approved method of cost 
finding and, except as provided in paragraph (b)(3) of this section, on 
the accrual method of accounting.

[[Page 152]]

    (3) For governmental institutions that use a cash basis of 
accounting, cost data developed on this basis is acceptable. However, 
only depreciation on capital assets, rather than the expenditure for the 
capital asset, is allowable.
    (c) Provider services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes provider services directly, the provider is subject 
to the cost-finding and cost-reporting requirements set forth in parts 
412 and 413 of this chapter. The provider must use an approved cost-
finding method described in Sec. 413.24 of this chapter to determine 
the actual cost of these covered services.
    (d) Supplier services furnished directly by the HMO or CMP. If the 
HMO or CMP furnishes Part B physician and supplier services directly, it 
must furnish statistics that indicate the frequency and type of service 
provided, in the form and detail prescribed by CMS.
    (e) Part B physician and supplier services furnished through 
arrangement. If the HMO or CMP furnishes Part B physician and supplier 
services under arrangements with others, it must furnish to CMS 
statistical, financial, and other information with respect to those 
services in the form and detail prescribed by CMS.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46231, Sept. 6, 1995]



Sec. 417.570  Interim per capita payments.

    (a) Principle of payment. (1) CMS makes monthly advance payments 
equivalent to the HMO's or CMP's interim per capita rate for each 
beneficiary who is registered in CMS records as a Medicare enrollee of 
the HMO or CMP.
    (2) Additional lump-sum payments may be made at other times during 
the contract period, at CMS's discretion, to adjust the total amounts 
paid during the contract period to the level of incurred costs.
    (b) Determination of rate. The interim per capita rate of payment is 
equal to the estimated per capita cost of providing covered services to 
the HMO's or CMP's Medicare enrollees, based upon the types and 
components of costs that are reimbursable under this part. The interim 
per capita rate is determined annually by CMS on the basis of the HMO's 
or CMP's annual operating and enrollment forecast (as set forth in Sec. 
417.572) and may be revised during the contract period as explained in 
paragraphs (c) and (d) of this section.
    (c) Adjustments of payments. In order to maintain the interim 
payments at the level of current reasonable costs, CMS will adjust the 
interim per capita rate, to the extent necessary, on the basis of 
adequate data supplied by the HMO or CMP in its interim estimated cost 
and enrollment reports or on other evidence showing that the rate based 
on actual costs is more or less than the current rate. Adjustments may 
also be made if there is--
    (1) A change in the number of Medicare enrollees that affects the 
per capita rate;
    (2) A material variation from the costs estimated when the annual 
operating budget was prepared; or
    (3) A significant change in the use of covered services by the HMO's 
or CMP's Medicare enrollees.
    (d) Reduction of interim payments. If the HMO or CMP does not 
submit, on time, the reports and other data required to determine the 
proper amount of payment, CMS may reduce interim payments to the extent 
appropriate, or may take any other action authorized under this part. An 
interim payment reduction remains in effect until CMS can make a 
reasonable estimate of per capita costs.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.572  Budget and enrollment forecast and interim reports.

    (a) Annual submittal. The HMO or CMP must submit an annual operating 
budget and enrollment forecast, in the form and detail required by CMS, 
at least 90 days before the beginning of each contract period. The 
forecast must be based on financial and statistical data and records 
that can be verified if CMS requires a detailed review of supporting 
records. The data and records include, but are not limited to, all 
ledgers, books, records, and original evidence of costs, and statistical 
data used in the determination of reasonable cost.

[[Page 153]]

    (b) Effect of failure to submit on time. If the HMO or CMP does not 
submit the budget and enrollment forecast on time, CMS may--
    (1) Establish an interim per capita rate of payment on the basis of 
the best available data and adjust payments on the basis of that rate 
until the required reports are submitted and a new interim per capita 
rate can be established; or
    (2) If there is not enough data on which to base an interim per 
capita rate, inform the HMO or CMP that interim payments will not be 
made until the required reports are submitted.
    (c) Interim cost reports. (1) An HMO or CMP must submit interim cost 
reports on a quarterly basis in the form and detail prescribed by CMS. 
These interim cost reports must be submitted no later than 60 days after 
the close of each quarter of the contract period.
    (2) CMS may reduce the frequency of the reports required under 
paragraph (c)(1) of this section if CMS determines that, on the basis of 
the HMO's or CMP's reporting experience, there is good cause to do so.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.574  Interim settlement.

    (a) Determination. Within 30 days following the receipt of the HMO's 
or CMP's final interim cost and enrollment reports, CMS will make an 
interim determination of the estimated amount payable to the HMO or CMP 
for the reasonable cost of covered services furnished to its Medicare 
enrollees during the contract period. CMS will base the determination on 
the interim cost report and enrollment data submitted by the HMO or CMP, 
and any other relevant data CMS finds appropriate. For this purpose, CMS 
will accept costs as reported, subject to later review or audit, unless 
there are obvious errors or inconsistencies.
    (b) Payment. Any difference between the total amount of interim 
payments and the amount found payable on the basis of the interim 
determination under paragraph (a) of this section, must be paid by the 
HMO or CMP or will be paid by CMS, whichever is appropriate, no later 
than 30 days after CMS's determination.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993]



Sec. 417.576  Final settlement.

    (a) General rule. Final settlement and payment of amounts due the 
HMO or CMP or the appropriate Medicare trust funds are made following 
the HMO's or CMP's submission and CMS's review of an independently 
certified cost report and supporting documents as described in paragraph 
(b) of this section.
    (b) Certified cost report as basis for final settlement--(1) Timing 
of cost report. The HMO or CMP must submit to CMS an independently 
certified cost report and supporting documents, in the form and detail 
required by CMS, no later than 180 days after the end of each contract 
period, unless CMS extends the period for good cause shown by the HMO or 
CMP.
    (2) Content of cost report. The cost report and supporting documents 
must include the following:
    (i) The per capita costs incurred in furnishing covered services to 
its Medicare enrollees, determined in accordance with subpart O of this 
part and including--
    (A) The costs incurred by entities related to the HMO or CMP by 
common ownership or control; and
    (B) For reports for cost-reporting periods that begin on or after 
January 1, 1996, the costs of hospital and SNF services paid by 
Medicare's intermediaries under the option provided by Sec. 417.532(d).
    (ii) The HMO's or CMP's methods of apportioning cost among Medicare 
enrollees, and nonenrolled patients, in accordance with the payment 
procedures specified in this subpart (as, applicable, in parts 412 and 
413 of this chapter); and
    (iii) Any other information required by CMS.
    (3) Failure to report required financial information. If the HMO or 
CMP fails to submit the required cost report and supporting documents 
within 180 days (or an extended period approved by CMS under paragraph 
(b)(1) of this section), CMS may--
    (i) Consider the failure to report as evidence of likely 
overpayment; and

[[Page 154]]

    (ii) Initiate recovery of amounts previously paid, or reduce interim 
payments, or both.
    (c) Final determination and adjustment. (1) After receipt of 
acceptable reports as specified in paragraph (b) of this section, CMS 
determines the total payment due the HMO or CMP for furnishing covered 
services to its Medicare enrollees (which is subject to the audit 
provisions of this subpart) and makes a retroactive adjustment to bring 
interim payments into agreement with the payable amount due the HMO or 
CMP.
    (2) A final settlement may be made with the HMO or CMP even though a 
provider that is not owned or operated by the HMO or CMP or related to 
the HMO or CMP by common ownership or control and that provides services 
to the HMO's or CMP's Medicare enrollees has not had a final settlement 
with CMS under parts 412 and 413 of this chapter for services furnished 
by the provider to Medicare beneficiaries who are not enrolled in the 
HMO or CMP. In this situation--
    (i) CMS must be satisfied that the costs of covered services 
furnished to the HMO's or CMP's Medicare enrollees, as shown in the 
reports specified in paragraph (b) of this section, are reasonable and 
that the interest of the Medicare program would best be served by not 
delaying final settlement with the HMO or CMP until there is a final 
settlement with the provider for services furnished to Medicare 
beneficiaries not enrolled in the HMO or CMP; and
    (ii) Prompt settlement with the HMO or CMP would be in the best 
interest of the Medicare program if, for instance, the provider's costs 
represent an insignificant portion of total payment due to the HMO or 
CMP; or if CMS is satisfied that the provider's costs, as shown in the 
reports specified in paragraph (b) of this section, will not be 
modified, to any significant extent, by the final settlement with the 
provider under parts 412 and 413 of this chapter.
    (d) Notice of amount of payment. The notice of amount of Medicare 
payment--
    (1) Explains CMS's determination regarding total Medicare payment 
due the HMO or CMP for the contract period covered by the financial 
information specified in paragraph (b) of this section;
    (2) Relates this determination to the HMO's or CMP's claimed total 
payable cost for that period;
    (3) Explains the amounts and reasons, by appropriate reference to 
law, regulations, and Medicare program policy and procedures, if the 
determined amounts differ from the HMO's or CMP's claim; and
    (4) Informs the HMO or CMP of its right to a hearing in accordance 
with subpart R of part 405 of this chapter.
    (e) Basis for retroactive adjustment. (1) CMS's determination (as 
contained in the notice of amount of Medicare payment) constitutes the 
basis for making retroactive adjustments to any Medicare payment made to 
the HMO or CMP during the period to which the determination applies.
    (2) Further payments to the HMO or CMP may be withheld or offset in 
order to recover, or to aid in the recovery of, any overpayment 
identified in the determination as having been made to the HMO or CMP, 
even if the HMO or CMP requests a hearing under subpart R of part 405 of 
this chapter.
    (3) Any withholding continues until the earliest of the following 
occurs:
    (i) The overpayment is liquidated.
    (ii) The HMO or CMP enters into an agreement with CMS to refund the 
overpaid amount.
    (iii) CMS, on the basis of subsequently acquired information, 
determines that there was no overpayment.
    (iv) The decision of a hearing specified in paragraph (d)(4) of this 
section is that there was no overpayment.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34833, Sept. 30, 1986; 
58 FR 38082, July 15, 1993; 60 FR 34888, July 5, 1995; 60 FR 46231, 
Sept. 6, 1995]



                 Subpart P_Medicare Payment: Risk Basis

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.580  Basis and scope.

    (a) Basis. This subpart implements those portions of section 1876 
(a), (e), and (g) of the Act that pertain to the amount CMS pays an 
organization for

[[Page 155]]

its Medicare enrollees who are enrolled on a risk basis.
    (b) Scope. This subpart sets forth--
    (1) Method of payment;
    (2) Procedures for determining the HMO's or CMP's payment rate; and
    (3) Procedures for determining the additional benefits (and their 
value) the HMO or CMP must provide to its Medicare enrollees.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38080, July 15, 1993; 60 FR 46231, Sept. 6, 1995]



Sec. 417.582  Definitions.

    As used in this subpart--
    AAPCC stands for adjusted average per capita cost.
    ACR stands for adjusted community rate.
    Actuarial factors means factors such as the age, sex, and disability 
level distribution of the population and any other relevant factors that 
CMS determines have a significant effect on the level of utilization and 
cost of health services.
    APCRP stands for average of per capita rates of payment.
    Class of Medicare enrollees means a group of Medicare enrollees of 
an HMO or CMP that CMS constructs on the basis of actuarial factors.
    Similar area means an area similar to the HMO's or CMP's geographic 
area but free from special characteristics that would distort the 
determination of the AAPCC.
    U.S. per capita incurred cost means the average per capita cost, 
including intermediary or carrier administrative costs, incurred by 
Medicare, as determined on an accrual basis, for covered services 
furnished to Medicare beneficiaries nationwide during the most recent 
period for which CMS has complete data.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38080, July 15, 1993; 60 FR 46232, Sept. 6, 1995]



Sec. 417.584  Payment to HMOs or CMPs with risk contracts.

    Except in the circumstances specified in Sec. 417.440(d) for 
inpatient hospital care, and as provided in Sec. 417.585 for hospice 
care, CMS makes payment for covered services only to the HMO or CMP.
    (a) Principle of payment. CMS makes monthly advance payments 
equivalent to the HMO's or CMP's per capita rate of payment for each 
beneficiary who is registered in CMS records as a Medicare enrollee of 
the HMO or CMP.
    (b) Determination of rate. (1) The annual per capita rate of payment 
for each class of Medicare enrollees is equal to 95 percent of the AAPCC 
(as determined under the provisions of Sec. 417.588) for that class of 
Medicare enrollees.
    (2) CMS furnishes each HMO or CMP with its per capita rate of 
payment for each class of Medicare enrollees not later than 90 days 
before the beginning of the HMO's or CMP's contract period.
    (c) Adjustments to payments. If the actual number of Medicare 
enrollees differs from the estimated number on which the amount of 
advance monthly payment was based, CMS adjusts subsequent monthly 
payments to take account of the difference.
    (d) Reduction of payments. If an HMO or CMP requests a reduction in 
its monthly payment in accordance with Sec. 417.592(b)(2), CMS reduces 
the amount of payment by the appropriate amount.
    (e) Determination of rate for calendar year 1998. For calendar year 
1998, HMOs or CMPs with risk contracts will be paid in accordance with 
principles contained in subpart F of part 422 of this chapter.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 52 
FR 8901, Mar. 20, 1987; 58 FR 38082, July 15, 1993; 60 FR 46232, Sept. 
6, 1995; 63 FR 35067, June 26, 1998]



Sec. 417.585  Special rules: Hospice care.

    (a) No payment is made to an HMO or CMP on behalf of a Medicare 
enrollee who has elected hospice care under Sec. 418.24 of this chapter 
except for the portion of the payment applicable to the additional 
benefits described in Sec. 417.592. This no-payment rule is effective 
from the first day of the month following the month of election to 
receive hospice care, until the first day of the month following the 
month in which the enrollee resumes normal Medicare coverage.
    (b) During the time the election is in effect, the HMO or CMP may 
bill CMS on a fee-for-service basis (subject to the usual Medicare rules 
of payment)

[[Page 156]]

but only for the following covered Medicare services:
    (1) Services of the enrollee's attending physician if the physician 
is an employee or contractor of the HMO or CMP and is not employed by or 
under contract to the enrollee's hospice.
    (2) Services not related to the treatment of the terminal condition 
for which the enrollee elected hospice care or a condition related to 
the terminal condition.
    (3) Services furnished after the revocation or expiration of the 
enrollee's hospice election until the full monthly capitation payments 
begin again.
    (c) Payment for hospice care services furnished to Medicare 
enrollees of an HMO or CMP is made to the Medicare-participating hospice 
elected by the enrollee.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.588  Computation of adjusted average per capita cost (AAPCC).

    (a) Basic data. In computing the AAPCC, CMS uses the U.S. per capita 
incurred cost and adjusts it by the factors specified in paragraph (c) 
of this section to establish an AAPCC for each class of Medicare 
enrollees.
    (b) Advance notice to the HMO or CMP. Before the beginning of a 
contract period, CMS informs the HMO or CMP of the specific adjustment 
factors it will use in computing the AAPCC.
    (c) Adjustment factors--(1) Geographic. CMS makes an adjustment to 
reflect the relative level of Medicare expenditures for beneficiaries 
who reside in the HMO's or CMP's geographic area (or a similar area). 
This adjustment is based on reimbursement for Medicare covered services 
and uses the most accurate and timely data that pertain to the HMO's or 
CMP's geographic area and that is available to CMS when it makes the 
determination.
    (2) Enrollment. CMS makes a further adjustment to remove the cost 
effect of all area Medicare beneficiaries who are enrolled in the HMO or 
CMP or another HMO or CMP.
    (3) Age, sex, and disability status. CMS makes adjustments to 
reflect the age and sex distribution and the disability status of the 
HMO's or CMP's enrollees based on Medicare program experience and 
available data that indicate cost differences that result from those 
factors.
    (4) Other relevant factors. If accurate data are available and 
appropriate, CMS makes adjustments to reflect welfare and institutional 
status and other relevant factors.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.590  Computation of the average of the per capita rates of payment.

    (a) Computation by the HMO or CMP. As indicated in Sec. 417.584(b), 
before an HMO's or CMP's contract period begins, CMS determines a per 
capita rate of payment for each class of the HMO's or CMP's Medicare 
enrollees. In order to determine the additional benefits required under 
Sec. 417.592, weighted averages of those per capita rates must be 
computed separately for enrollees entitled to Part A and Part B, and for 
enrollees entitled only to Part B. Except as provided in paragraph (b) 
of this section, the HMO or CMP must make the computations.
    (b) Computation by CMS. If the HMO or CMP claims to have 
insufficient enrollment experience to make the computations required by 
paragraph (a) of this section, and CMS agrees with the claim, CMS makes 
the computations, using the best available information, which may 
include the enrollment experience of other risk HMOs and CMPs.

[58 FR 38075, July 15, 1993]



Sec. 417.592  Additional benefits requirement.

    (a) General rules. (1) An HMO or CMP that has an APCRP (as 
determined under Sec. 417.590) greater than its ACR (as determined 
under Sec. 417.594) must elect one of the options specified in 
paragraph (b) of this section.
    (2) The dollar value of the elected option must, over the course of 
a contract period, be at least equal to the difference between the APCRP 
and the proposed ACR.
    (b) Options--(1) Additional benefits. Provide its Medicare enrollees 
with additional benefits in accordance with paragraph (c) of this 
section.

[[Page 157]]

    (2) Payment reduction. Request CMS to reduce its monthly payments.
    (3) Combination of additional benefits and payment reduction. 
Provide fewer than the additional benefits required under paragraph 
(b)(1) of this section and request CMS to reduce the monthly payments by 
the remaining difference between the APCRP and the ACR.
    (4) Combination of additional benefits and withholding in a 
stabilization fund. Provide fewer than the additional benefits required 
under paragraph (b)(1) of this section, and request CMS to withhold in a 
stabilization fund (as provided in Sec. 417.596) the remaining 
difference between the APCRP and the ACR.
    (c) Special rules: Additional benefits option. (1) The HMO or CMP 
must determine additional benefits separately for enrollees entitled to 
both Part A and Part B benefits and those entitled only to Part B.
    (2) The HMO or CMP may elect to provide additional benefits in any 
of the following forms--
    (i) A reduction in the HMO's or CMP's premium or in other charges it 
imposes in the form of deductibles or coinsurance.
    (ii) Health benefits in addition to the required Part A and Part B 
covered services.
    (iii) A combination of reduced charges and additional benefits.
    (d) Notification to CMS. (1) The HMO or CMP must give CMS notice of 
its ACR and its weighted APCRP at least 45 days before its contract 
period begins.
    (2) An HMO or CMP that elects the option of providing additional 
benefits must include in its submittal--
    (i) A description of the additional benefits it will provide to its 
Medicare enrollees; and
    (ii) Supporting evidence to show that the selected benefits meet the 
requirements of paragraph (a)(2) of this section with respect to dollar 
value equivalence.

[60 FR 46232, Sept. 6, 1995]



Sec. 417.594  Computation of adjusted community rate (ACR).

    (a) Basic rule. Each HMO or CMP must compute its basic rate as 
follows:
    (1) Compute an initial rate in accordance with paragraph (b) of this 
section.
    (2) Adjust and reduce the initial rate in accordance with paragraphs 
(c) and (d) of this section.
    (b) Computation of initial rates. (1) The HMO or CMP must compute 
its initial rate using either of the following systems:
    (i) A community rating system as defined in Sec. 417.104(b); or
    (ii) A system, approved by CMS, under which the HMO or CMP develops 
an aggregate premium for all its enrollees and weights the aggregate by 
the size of the various enrolled groups that compose its enrollment.


(For purposes of this section, enrolled groups are defined as employee 
groups or other bodies of subscribers that enroll in the HMO or CMP 
through payment of premiums.)
    (2) Regardless of which method the HMO or CMP uses--
    (i) The initial rate must be equal to the premium it would charge 
its non-Medicare enrollees for the Medicare-covered services;
    (ii) The HMO or CMP must compute the rates separately for enrollees 
entitled to Medicare Part A and Part B and for those entitled only to 
Part B; and
    (iii) The HMO or CMP must identify and take into account anticipated 
revenue from health insurance payers for those services for which 
Medicare is not the primary payer as provided in Sec. 417.528.
    (3) Except as provided in paragraph (b)(4) of this section, the HMO 
or CMP must identify in its initial rate calculation, the following 
components whose rates must be consistent with rates used by the HMO or 
CMP in calculating premiums for non-Medicare enrollees:
    (i) Hospital services (services covered under Medicare Part A and 
Part B shown separately).
    (ii) Physicians' services.
    (iii) Other medical services (for example, X-ray and laboratory 
services).
    (iv) Home health services.
    (v) Out-of-plan claims for emergency services.
    (vi) Skilled nursing care services.
    (vii) Ambulance services.
    (viii) Other Medicare covered services.

[[Page 158]]

    (ix) General and administrative.
    (x) Noncovered Medicare services (for example, eyeglasses).
    (xi) Services for which Medicare is the secondary payer.
    (xii) Enrollee liabilities (for example, deductibles, coinsurance, 
or copayments) for covered services.
    (4) An HMO or CMP that does not usually separate its premium 
components as described in paragraph (b)(3) of this section may 
calculate its initial rate with the methods it uses for its other 
enrolled groups if the HMO or CMP provides CMS with the documentation 
necessary to support any adjustments the HMO or CMP makes to the initial 
rate in accordance with paragraph (e) of this section.
    (5) The initial rate calculation must not carry forward any losses 
experienced by the HMO or CMP during prior contract periods. The HMO or 
CMP must submit supporting documentation to assure CMS that rates do not 
include past losses but only premiums for the price of additional 
benefits and services of the upcoming contract period.
    (c) Adjustment of initial rates--(1) Purpose of adjustment. The 
purpose of adjustment is to reflect the utilization characteristics of 
Medicare enrollees.
    (2) Adjustment by the HMO or CMP. The HMO or CMP may adjust the rate 
for a particular service using more than one of the following factors if 
they do not duplicate each other:
    (i) Unit of service. If the HMO or CMP purchases or identifies 
services on a unit of service basis and the unit of service is defined 
the same for all enrollees, the HMO or CMP may make an adjustment in its 
initial rate to reflect the number of units of services furnished to its 
Medicare enrollees in comparison to those furnished to other enrollees.
    (ii) Complexity or intensity of services. The HMO or CMP may make an 
adjustment to reflect the differences in the complexity or intensity of 
services furnished to its Medicare enrollees if the calculation of its 
initial rate includes the elements of this adjustment.
    (3) Support documentation. All adjustments made by the HMO or CMP 
must be accompanied by adequate supporting data. If an HMO or CMP does 
not have sufficient enrollment experience to develop this data, it may, 
during its initial contract period, use documented statistics from a 
nationally recognized statistical source.
    (4) Adjustment by CMS. If the HMO or CMP does not have adequate data 
to adjust the initial rate calculated under paragraph (b) of this 
section to reflect the utilization characteristics of its Medicare 
enrollees, CMS will, at the HMO's or CMP's request, adjust the initial 
rate. CMS adjusts the rate on the basis of differences in the 
utilization characteristics of--
    (i) Medicare and non-Medicare enrollees in other HMOs or CMPs; or
    (ii) Medicare beneficiaries (in the HMO's or CMP's area, or State, 
or the United States) who are eligible to enroll in an HMO or CMP and 
other individuals in that same area, or State, or the United States.
    (d) Reduction of adjusted rates. The HMO or CMP or CMS further 
reduces the adjusted rates by the actuarial value of applicable Medicare 
deductibles and coinsurance.
    (e) CMS review--(1) Submission of data. The HMO or CMP must submit 
its ACR and the methodology used to compute it for CMS review and 
approval, and must include adequate supporting data.
    (2) Appeals procedures. (i) If CMS determines that an HMO's or CMP's 
ACR computation is not acceptable, the HMO or CMP may, within 30 days 
after receipt of notice of the determination, file with CMS a request 
for a hearing.
    (ii) The request must state why the HMO or CMP believes the 
determination is incorrect, and include any supporting evidence the HMO 
or CMP considers pertinent.
    (iii) A hearing officer designated by CMS conducts the hearing in 
accordance with the hearing procedures set forth in Sec. Sec. 405.1819 
through 405.1833 of this chapter.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46232, Sept. 6, 1995]



Sec. 417.596  Establishment of a benefit stabilization fund.

    (a) General. If an HMO or CMP is required to provide its Medicare 
enrollees with additional benefits as described in Sec. 417.592, the 
organization

[[Page 159]]

may request that CMS withhold a part of its monthly per capita payment 
in a benefit stabilization fund. The fund will be used to prevent 
excessive fluctuation in the provision of those additional benefits in 
subsequent contract periods.
    (b) Notification to CMS. An HMO's or CMP's request to have monies 
withheld in a benefit stabilization fund must be made when the HMO or 
CMP notifies CMS under Sec. 417.592(d) of its ACR and its APCRP in 
preparation for its next contract period.
    (c) Limitations on the amounts withheld--(1) Limit per contract 
period. Except as provided in paragraph (c)(3) of this section, CMS does 
not withhold in a benefit stabilization fund more than 15 percent of the 
difference between an HMO's or CMP's ACR and its ACPRP for a given 
contract period.
    (2) Cumulative limit. If CMS has established a benefit stabilization 
fund for an HMO or CMP, it does not approve a request for withholding 
made by that HMO or CMP for a subsequent contract period that would 
cause the total value of the benefit stabilization fund to exceed 25 
percent of the difference between the HMO's or CMP's ACR and the average 
of its per capita rates of payment for that subsequent contract period.
    (3) Exception. CMS may grant an exception to the limit described in 
paragraph (c)(1) of this section if an HMO or CMP can demonstrate to 
CMS's satisfaction that the value of the additional benefits it provides 
to its Medicare enrollees fluctuates substantially in excess of 15 
percent from one contract period to another.
    (d) Financial management of benefit stabilization funds. (1) The 
amounts withheld by CMS to establish and maintain a benefit 
stabilization fund are in the custody of the Federal Health Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.
    (2) The amounts withheld in a benefit stabilization fund are 
accounted for by CMS in accounts in which interest does not accrue to 
the HMO or CMP.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended by 56 
FR 46571, Sept. 13, 1991; 58 FR 38083, July 15, 1993; 60 FR 46233, Sept. 
6, 1995]



Sec. 417.597  Withdrawal from a benefit stabilization fund.

    (a) Notification to CMS. An HMO's or CMP's request to make a 
withdrawal from its benefit stabilization fund for use during a contract 
period must be made when the HMO or CMP notifies CMS of its ACR and its 
ACPRP for that contract period. In making its request, the HMO or CMP 
must--
    (1) Indicate how it intends to use the withdrawn amounts;
    (2) Justify the need for the withdrawal in terms of stabilizing the 
additional benefits it provides to Medicare enrollees;
    (3) Document the HMO's or CMP's experience with fluctuations of 
revenue requirements relative to the additional benefits it provides to 
Medicare enrollees; and
    (4) Document its experience during the contract period previous to 
the one for which it requests withdrawal to ensure that the HMO or CMP 
will not be using the withdrawn amounts to refinance losses suffered 
during that previous contract period.
    (b) Criteria for CMS approval. CMS approves a request for a 
withdrawal from a benefit stabilization fund for use during the next 
contract period only if--
    (1) The HMO's or CMP's average of its per capita rates of payment 
for the next contract period is less than that of the previous contract 
period;
    (2) The HMO's or CMP's ACR for the next contract period is 
significantly higher than that of the previous contract period; or
    (3) The HMO's or CMP's revenue requirements for the next contract 
period for providing the additional benefits it provided during the 
previous contract period is significantly higher than the requirements 
for that previous period and the ACR for the next contract period 
results in an additional benefits package that is less in total value 
than that of the previous contract period.
    (c) Basis for denial. CMS does not approve a request for a 
withdrawal from a benefit stabilization fund if the withdrawal would 
allow the HMO or CMP to--

[[Page 160]]

    (1) Offer without charge the supplemental services it provides to 
its Medicare enrollees under the provisions of Sec. 417.440 (b)(2) or 
(b)(3); or
    (2) Refinance prior contract period losses or to avoid losses in the 
upcoming contract period.
    (d) Form of payment. Payment of monies withdrawn from a benefit 
stabilization fund is made, in equal parts, as an additional amount to 
the monthly advance payment made to the HMO or CMP under Sec. 417.584 
during the period of the contract.

[58 FR 38075, July 15, 1993, as amended at 60 FR 46233, Sept. 6, 1995]



Sec. 417.598  Annual enrollment reconciliation.

    CMS's payment to an HMO or CMP may be subject to an enrollment 
reconciliation at least annually. CMS conducts this reconciliation as 
necessary to ensure that the payments made do not exceed or fall short 
of the appropriate per capita rate of payment for each Medicare enrollee 
of the HMO or CMP during the contract period. The HMO or CMP must submit 
any information or reports required by CMS to conduct the 
reconciliation.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993; 60 
FR 46233, Sept. 6, 1995]



                      Subpart Q_Beneficiary Appeals



Sec. 417.600  Basis and scope.

    (a) Statutory basis. (1) Section 1869 of the Act provides the right 
to a redetermination, reconsideration, hearing, and judicial review for 
individuals dissatisfied with a determination regarding their Medicare 
benefits.
    (2) Section 1876 of the Act provides for Medicare payments to HMOs 
and CMPs that contract with CMS to enroll Medicare beneficiaries and 
furnish Medicare-covered health care services to them.
    (3) Section 234 of the MMA requires section 1876 contractors to 
operate under the same provisions as MA plans where two plans of the 
same type enter the cost plan contract's service area.
    (b) Applicability. (1) The rights, procedures, and requirements 
relating to beneficiary appeals and grievances set forth in subpart M of 
part 422 of this chapter also apply to Medicare contracts with HMOs and 
CMPs under section 1876 of the Act.
    (2) In applying those provisions, references to section 1852 of the 
Act must be read as references to section 1876 of the Act, and 
references to MA organizations as references to HMOs and CMPs.

[60 FR 46233, Sept. 6, 1995, as amended at 62 FR 23374, Apr. 30, 1997; 
70 FR 4713, Jan. 28, 2005]



                   Subpart R_Medicare Contract Appeals

    Source: 50 FR 1346, Jan. 10, 1985, unless otherwise noted.



Sec. 417.640  Determinations subject to appeal.

    This subpart establishes the procedures for making and reviewing the 
following initial determinations:
    (a) A determination that an HMO or CMP is not qualified to enter 
into a contract with CMS under section 1876 of the Act.
    (b) A determination that an HMO or CMP is qualified only for a 
reasonable cost contract.
    (c) A determination to terminate, or to refuse to renew, a contract 
with an HMO or CMP because--
    (1) The HMO or CMP has failed substantially to carry out the terms 
of the contract;
    (2) The HMO or CMP is carrying out the contract in a manner that is 
inconsistent with the efficient and effective administration of section 
1876 of the Act;
    (3) The HMO or CMP no longer meets the applicable conditions 
necessary to qualify as an HMO or CMP under section 1876 of the Act and 
this subpart; or
    (4) The HMO or CMP has failed to comply with the composition of 
enrollment requirements specified in Sec. 417.413(d).

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 46572, Sept. 13, 1991; 
58 FR 38080, July 15, 1993]

[[Page 161]]



Sec. 417.642  Administrative actions that are not initial determinations.

    Administrative actions that are not initial determinations under 
this subpart include, but are not limited to, CMS's refusal to renew a 
contract with an HMO or CMP when the refusal is not based on the causes 
specifed in Sec. 417.640(c).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38080, July 15, 1993]



Sec. 417.644  Notice of initial determination.

    (a) When CMS makes an initial determination, it gives the HMO or CMP 
written notice.
    (b) The notice specifies--
    (1) The reasons for the determination; and
    (2) The HMO's or CMP's right to request reconsideration.
    (c) CMS mails the notice to the HMO or CMP at least 90 days before 
the end of the contract period, or in the case of termination, at least 
90 days before the effective date of the termination.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993; 60 
FR 46234, Sept. 6, 1995]



Sec. 417.646  Effect of initial determination.

    The initial determination is final and binding on all parties 
unless--
    (a) It is reconsidered in accordance with Sec. Sec. 417.648 through 
417.658;
    (b) In the case of an initial determination described in Sec. 
417.640(c), a request for a hearing is filed; or
    (c) It is revised as a result of a reopening under Sec. 417.692.



Sec. 417.648  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing an organization 
determination specified in Sec. 417.640(a) or (b).
    (b) CMS reconsiders either of the specified determinations if the 
HMO or CMP files a written request in accordance with Sec. 417.650.

[60 FR 46234, Sept. 6, 1995]



Sec. 417.650  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with any CMS office.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, the request for reconsideration must be filed within 60 
days from the date of the notice of the initial determination.
    (c) Extension of time to file a request. CMS may, in response to a 
party's written petition showing good cause, accept a request for 
reconsideration after the expiration of the 60 day period.
    (d) Proper party to file a request. Only an authorized official of 
the entity that was a party to an initial determination may file the 
request for reconsideration.
    (e) Withdrawal of a request. A request for reconsideration may be 
withdrawn by the party who filed the request at any time before the 
notice of the reconsidered determination is mailed. The request for 
withdrawal must be in writing and filed with CMS. If CMS approves, the 
request for reconsideration is withdrawn.



Sec. 417.652  Opportunity to submit evidence.

    CMS provides the parties to the reconsideration reasonable 
opportunity to present as evidence any documents or written statements 
that are relevant and material to the matters at issue.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.654  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the initial determination, the evidence 
and findings upon which that was based, and any other written evidence 
submitted before notice of the reconsidered determination is mailed, 
including facts relating to the status of the entity subsequent to the 
initial determination; and
    (b) Affirms, reverses, or modifies the initial determination.



Sec. 417.656  Notice of reconsidered determination.

    (a) CMS gives the parties written notice of the reconsidered 
determination.
    (b) The notice--

[[Page 162]]

    (1) Contains findings with respect to the HMO's or CMP's 
qualifications to enter into a contract with CMS under section 1876 of 
the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the party of its right to a hearing if it is 
dissatisfied with the determination.

[60 FR 46234, Sept. 6, 1995]



Sec. 417.658  Effect of reconsidered determination.

    A reconsidered determination is final and binding on all parties 
unless a request for a hearing is filed in accordance with Sec. 417.662 
or it is revised in accordance with Sec. 417.692.



Sec. 417.660  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) An entity that has been determined in a reconsidered 
determination to be unqualified to enter into a contract with CMS under 
section 1876 of the Act.
    (b) An HMO or CMP that has been determined in a reconsidered 
determination to be qualified only for a reasonable cost contract.
    (c) An HMO or CMP whose contract with CMS has been terminated or has 
not been renewed as a result of an initial determination as provided in 
Sec. 417.640(c).

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.662  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
entity or HMO or CMP that was the party to the determination under 
appeal. The request for a hearing must be filed with any CMS office.
    (b) Time for filing a request. Except as provided in paragraph (c) 
of this section, a request for a hearing must be filed within 60 days 
after the date of receipt of the notice of initial or reconsidered 
determination.
    (c) Extension of time to file a request. If good cause is shown, the 
60-day period to request a hearing may be extended by CMS.
    (d) Parties to a hearing. The parties to a hearing must be--
    (1) The parties described in Sec. 417.660;
    (2) At the discretion of the hearing officer, any interested parties 
who make a showing that their rights may be prejudiced by the decision 
to be rendered at the hearing; and
    (3) CMS.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.664  Postponement of effective date of initial determination.

    When a request for a hearing with respect to an initial 
determination is filed timely--
    (a) The effective date of the initial determination to terminate a 
contract with an HMO or CMP will be postponed until a hearing decision 
is reached; and
    (b) The current contract will be extended at the end of the contract 
period (in the case of a determination not to renew) only--
    (1) If CMS finds that an extension of the contract will be 
consistent with the purpose of section 1876 of the Act; and
    (2) For such period as CMS and the HMO or CMP agree.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38083, July 15, 1993]



Sec. 417.666  Designation of hearing officer.

    CMS designates a hearing officer to conduct the hearing. The hearing 
officer need not be an ALJ.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.668  Disqualification of hearing officer.

    (a) A hearing officer may not conduct a hearing in a case in which 
he or she is prejudiced or partial to any party or has any interest in 
the matter pending for decision.
    (b) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest opportunity.
    (c) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.

[[Page 163]]

    (1) If the hearing officer withdraws, CMS designates another hearing 
officer to conduct the hearing.
    (2) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted to CMS.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.670  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing and 
sends written notice to the parties. The notice also informs the parties 
of the general and specific issues to be resolved and information about 
the hearing procedure.
    (b) The hearing officer may, on his or her own motion, or at the 
request of a party, change the time and place for the hearing. The 
hearing officer may adjourn or postpone the hearing.
    (c) The hearing officer will give the parties reasonable notice of 
any change in the time or place of hearing, or of adjournment or 
postponement.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993; 60 
FR 46234, Sept. 6, 1995]



Sec. 417.672  Appointment of representatives.

    A party may appoint as its representative at the hearing anyone not 
disqualified or suspended from acting as a representative before CMS or 
otherwise prohibited by law.



Sec. 417.674  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec. 417.672 may, on behalf of the represented party--
    (1) Give or accept any notice or request pertinent to the 
proceedings set forth in this subpart;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request sent to the representative has the same 
force and effect as if it had been sent to the party.



Sec. 417.676  Conduct of hearing.

    (a) The hearing is open to the parties and to the public.
    (b) The hearing officer inquires fully into all the matters at issue 
and receives in evidence the testimony of witnesses and any documents 
that are relevant and material.
    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The hearing officer decides the order in which the evidence and 
the arguments of the parties are presented and the conduct of the 
hearing.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.678  Evidence.

    The hearing officer rules on the admissibility of evidence and may 
admit evidence that would be inadmissible under rules applicable to 
court procedures.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.680  Witnesses.

    (a) The hearing officer may examine the witnesses.
    (b) The parties or their representatives are permitted to examine 
their witnesses and cross-examine witnesses of other parties.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.682  Discovery.

    (a) Prehearing discovery is permitted upon timely request of a 
party.
    (b) A request is timely if it is made before the beginning of the 
hearing.
    (c) A reasonable time for inspection and reproduction of documents 
is provided by order of the hearing officer.
    (d) The hearing officer's order on all discovery matters is final.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.684  Prehearing.

    The hearing officer may schedule a prehearing conference if he or 
she believes that a conference would more clearly define the issues.

[[Page 164]]



Sec. 417.686  Record of hearing.

    (a) A complete record of the proceedings at the hearing is made and 
transcribed and made available to all parties upon request.
    (b) The record may not be closed until a hearing decision has been 
issued.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.688  Authority of hearing officer.

    In exercising his or her authority, the hearing officer must comply 
with the provisions of title XVIII and related provisions of the Act, 
the regulations issued by CMS, and general instructions issued by CMS in 
implementing that Act.



Sec. 417.690  Notice and effect of hearing decision.

    (a) As soon as practical after the close of the hearing, the hearing 
officer issues a written decision that--
    (1) Is based upon the evidence of record; and
    (2) Contains separately numbered findings of fact and conclusions of 
law.
    (b) The hearing officer provides a copy of the hearing decision to 
each party.
    (c) The hearing decision is final and binding unless it is reopened 
and revised in accordance with Sec. 417.692.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.692  Reopening of initial or reconsidered determination or decision of a hearing officer.

    (a) Initial or reconsidered determination. An initial or 
reconsidered determination may be reopened and revised by CMS upon its 
own motion within one year of the date of the notice of determination.
    (b) Decision of hearing officer. A decision of a hearing officer 
that is unfavorable to any party and is otherwise final may be reopened 
and revised by the hearing officer upon the officer's own motion within 
one year of the notice of the hearing decision. It may be reopened and 
revised by another hearing officer designated by CMS if the hearing 
officer who issued the decision is unavailable.
    (c) Notices. (1) The notice of reopening and of any revisions 
following the reopening is mailed to the parties.
    (2) The notice of revision specifies the reasons for revisions.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]



Sec. 417.694  Effect of revised determination.

    The revision of an initial or reconsidered determination is binding 
unless a party files a written request for hearing of the revised 
determination in accordance with Sec. 417.662.

[50 FR 1346, Jan. 10, 1985, as amended at 60 FR 46234, Sept. 6, 1995]

Subparts S-T [Reserved]



                 Subpart U_Health Care Prepayment Plans

    Source: 50 FR 1375, Jan. 10, 1985, unless otherwise noted.



Sec. 417.800  Payment to HCPPs: Definitions and basic rules.

    (a) Definitions. As used in this subpart, unless the context 
indicates otherwise--
    Covered Part B services means physicians' services, diagnostic X-ray 
tests, laboratory, other diagnostic tests, and any additional medical 
and other health services, that the HCPP furnishes to its Medicare 
enrollees.
    Health care prepayment plan (HCPP) means an organization that meets 
the following conditions:
    (1) Effective January 1, 1999, (or on the effective date of the HCPP 
agreement in the case of a 1998 applicant) either--
    (A) Is union or employer sponsored; or
    (B) Does not provide, or arrange for the provision of, any inpatient 
hospital services.
    (2) Is responsible for the organization, financing, and delivery of 
covered Part B services to a defined population on a prepayment basis.
    (3) Meets the conditions specified in paragraph (b) of this section.
    (4) Elects to be reimbursed on a reasonable cost basis.

[[Page 165]]

    Medicare enrollee means a beneficiary under Part B of Medicare who 
has been identified on CMS records as an enrollee of the HCPP. Reporting 
period means the period specified by CMS for which an HCPP must report 
its costs and utilization.
    (b) Qualifying conditions. (1) Except as provided in paragraph 
(b)(2) of this section, an organization wishing to participate as an 
HCPP must--
    (i) Enter into a written agreement with CMS as specified in Sec. 
417.801;
    (ii) Furnish physicians' services through its employees or under a 
formal arrangement with a medical group, independent practice 
association or individual physicians; and
    (iii) Furnish covered Part B services to its Medicare enrollees 
through institutions, entities, and persons that have qualified under 
the applicable requirements of title XVIII of the Social Security Act 
and section 353 of the PHS Act.
    (2) An organization that, as of January 31, 1983, was being 
reimbursed on a reasonable cost basis under section 1833(a)(1)(A) of the 
Act, and that would not otherwise meet the conditions specified in 
paragraph (b)(1) of this section, may receive reimbursement on a 
reasonable cost basis as an HCPP, provided it files an agreement with 
CMS as required by Sec. 417.801.
    (c) Payment of reasonable cost. (1) Except as otherwise provided in 
this subpart, CMS pays an HCPP on the basis of the reasonable cost it 
incurs, as specified in subpart O of this part, for the covered Part B 
services furnished to its Medicare enrollees.
    (2) Payment for Part B services: Basic rules. (i) Cost basis 
payment. Except as provided in paragraph (d) of this section, CMS pays 
an HCPP on the basis of the reasonable costs it incurs, as specified in 
subpart O of this part, for the covered Part B services furnished to its 
Medicare enrollees.
    (ii) Deductions. In determining the amount due an HCPP for covered 
Part B services furnished to its Medicare enrollees, CMS deducts, from 
the reasonable cost actually incurred by the HCPP, the following:
    (A) The actuarial value of the Part B deductible.
    (B) An amount equal to 20 percent of the cost incurred for any 
service that is subject to the Medicare coinsurance.
    (d) Covered services not reimbursed to an HCPP. (1) Services 
reimbursed under Part A are not reimbursable to an HCPP. CMS makes 
payment for these services directly to the hospital, or other provider 
of services, on a reasonable cost basis through the provider's Medicare 
fiscal intermediary (for more details, see parts 412 and 413 of this 
chapter).
    (2) Covered Part B services furnished by a provider of services to 
an HCPP's Medicare enrollees are not payable to the HCPP. CMS makes 
payment for these services to the provider on behalf of the Medicare 
enrollee through the provider's Medicare fiscal intermediary. This 
requirement does not affect Medicare payment to the HCPP for physicians' 
services furnished to its Medicare enrollees for which the physicians 
are compensated by the HCPP.
    (e) Payment for services to nonenrollees. CMS makes payment to an 
HCPP for covered Part B services furnished by the HCPP to a Medicare 
beneficiary who is not enrolled in the HCPP if the beneficiary assigns 
his rights to payment in accordance with Sec. 424.55 of this chapter. 
Payment is made on a reasonable charge basis through the HCPP's Medicare 
carrier.

[50 FR 1346, Jan. 10, 1985, as amended at 51 FR 34833, Sept. 30, 1986; 
53 FR 6648, Mar. 2, 1988; 57 FR 7135, Feb. 28, 1992; 58 FR 38081, July 
15, 1993; 60 FR 34888, July 5, 1995; 63 FR 35067, June 26, 1998; 63 FR 
52611, Oct. 1, 1998]



Sec. 417.801  Agreements between CMS and health care prepayment plans.

    (a) General requirement. (1) In order to participate and receive 
payment under the Medicare program as an HCPP as defined in Sec. 
417.800, an organization must enter into a written agreement with CMS.
    (2) An existing group practice prepayment plan (GPPP) that continues 
as an HCPP under this subpart U must have entered into a written 
agreement with CMS within 60 days of January 31, 1983.
    (b) Terms. The agreement must provide that the HCPP agrees to--

[[Page 166]]

    (1) Maintain compliance with the requirements for participation and 
reimbursement on a reasonable cost basis of HCPPs as specified in Sec. 
417.800;
    (2) Not charge the Medicare enrollee or any other person for items 
or services for which that enrollee is entitled to have payment made 
under the provisions of this part, except for any deductible or 
coinsurance amounts for which the enrollee is liable;
    (3) Refund, as promptly as possible, any money incorrectly collected 
as charges or premiums, or in any other way from Medicare enrollees in 
the HCPP in accordance with the requirements specified in Sec. 417.456;
    (4) Not impose any limitations on the acceptance of Medicare 
enrollees or beneficiaries for care and treatment that it does not 
impose on all other individuals;
    (5) Meet the advance directives requirements specified in Sec. 
417.436(d) of this part;
    (6) Establish administrative review procedures in accordance with 
Sec. Sec. 417.830 through 417.840 for Medicare enrollees who are 
dissatisfied with denied services or claims; and
    (7) Consider any additional requirements that CMS finds necessary or 
desirable for efficient and effective program administration.
    (c) Duration of agreement. Except for the term of the initial 
agreement, the agreement is for a term of one year and may be renewed 
annually by mutual consent. The term of the initial agreement is set by 
CMS.
    (d) Termination or nonrenewal of agreement by CMS. (1) CMS may 
terminate or not renew an agreement if it determines that--
    (i) The HCPP no longer meets the requirements for participation and 
reimbursement as an HCPP as specified in Sec. 417.800;
    (ii) The HCPP is not in substantial compliance with the provisions 
of the agreement, applicable CMS regulations, or applicable provisions 
of the Medicare law; or
    (iii) The HCPP undergoes a change in ownership as specified in 
subpart M of this part.
    (2) CMS will give notice of termination or nonrenewal to the HCPP at 
least 90 days before the effective date stated in the notice.
    (e) Termination or nonrenewal of agreement by HCPP. (1) If an HCPP 
does not wish to renew its agreement at the end of the term, it must 
give written notice to CMS at least 90 days before the end of the term 
of the agreement. If an HCPP wishes to terminate its agreement before 
the end of the term, it must file a written notice with CMS stating the 
intended effective date of termination.
    (2) CMS may approve the termination date proposed by the HCPP, or 
set a different date no later than 6 months after that date. CMS makes 
this decision based on a finding that termination on a specific date 
would not--
    (i) Unduly disrupt the furnishing of services to the community 
serviced by the HCPP; or
    (ii) Otherwise interfere with the efficient administration of the 
Medicare program.

[50 FR 1375, Jan. 10, 1985, as amended at 57 FR 8202, Mar. 6, 1992; 58 
FR 38081, July 15, 1993; 59 FR 49843, Sept. 30, 1994; 59 FR 59943, Nov. 
21, 1994]



Sec. 417.802  Allowable costs.

    (a) General rule. The costs that are considered allowable for HCPP 
reimbursement are the same as those for reasonable cost HMOs and CMPs 
specified in subpart O of this part, except those in Sec. Sec. 417.531, 
417.532 (a)(3) and (c) through (g), 417.536 (l) and (m), 417.546, 
417.548, and 417.550(b)(2).
    (b) Physicians' services and other Part B supplier services 
furnished under arrangements--(1) Principle. The amount paid by an HCPP 
for physicians' services and other Part B supplier services furnished 
under arrangements is an allowable cost to the extent it is reasonable.
    (2) Application: Payment on other than a fee-for-service basis. If 
the HCPP pays for physicians' services and other Part B supplier 
services on other than a fee-for-service basis--
    (i) Except as specified in paragraph (b)(2)(ii) of this section, the 
costs incurred by the HCPP may be considered reasonable if they--
    (A) Do not exceed those that a prudent and cost-conscious buyer 
would incur to purchase those services; and

[[Page 167]]

    (B) Are comparable to costs incurred for similar services furnished 
by similar physicians and other suppliers in the same or a similar 
locality.
    (ii)(A) If a physician group to whom the HCPP makes payment 
compensates its physicians on a fee-for-service basis, the HCPP's 
payment to the group may not exceed the reasonable charges for those 
services, as defined in subpart E of part 405 of this chapter.
    (B) Payment in excess of the limits specified in paragraph 
(b)(2)(ii)(A) of this section is allowable if the group has procedures 
under which members of the group accept effective incentives, such as 
risk-sharing, designed to avoid unnecessary or unduly costly utilization 
of health services. In such cases, the amount paid by the HCPP is 
considered reasonable if it meets the conditions specified in paragraph 
(b)(2)(i) of this section.
    (3) Application: Payment on a fee-for-service basis. If the HCPP 
pays for physicians' services and other Part B supplier services on a 
fee-for-service basis--
    (i) Except as specified in paragraph (b)(3)(ii) of this section, the 
costs incurred by the HCPP are considered reasonable if they do not 
exceed--
    (A) The reasonable charges for those services, as defined in subpart 
E of part 405 of this chapter; and
    (B) The amount that CMS would pay for those services if they were 
furnished to beneficiaries who are not enrolled in the HCPP and who 
receive the services from sources other than providers of services or 
other entities that are reimbursed on a reasonable cost basis.
    (ii) Payment to a physician group organized on an individual-
practice basis is not subject to the paragraph (b)(3)(i) of this section 
if the group pays its physicians on a fee-for-service basis and has 
procedures under which the members of the group accept effective 
incentives, such as risk-sharing, designed to avoid unnecessary or 
unduly costly utilization of health services. In these cases, the amount 
paid by an HCPP is considered reasonable if it meets the conditions 
specified in paragraph (b)(2)(i) of this section.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.804  Cost apportionment.

    (a) The HCPP follows the cost apportionment principles specified in 
Sec. Sec. 417.552 through 417.566, except for provisions on provider 
costs and provisions on departmental apportionment.
    (b) The HCPP may use a method for reporting costs that is approved 
by CMS. CMS bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.



Sec. 417.806  Financial records, statistical data, and cost finding.

    (a) The principles specified in Sec. 417.568 apply to HCPPs, except 
those in paragraph (c) of that section.
    (b) The HCPP may use a method for reporting costs that is approved 
by CMS. CMS bases its approval on a finding that the method--
    (1) Results in an accurate and equitable allocation of allowable 
costs; and
    (2) Is justifiable from an administrative and cost efficiency 
standpoint.
    (c) An HCPP must permit the Department and the Comptroller General 
to audit or inspect any books and records of the HCPP and of any related 
organization that pertain to the determination of amounts payable for 
covered Part B services furnished its Medicare enrollees. For purposes 
of this requirement, the principles specified in Sec. 417.486 apply to 
HCPPs.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.808  Interim per capita payments.

    The HCPP follows the principles specified in Sec. Sec. 417.570 and 
417.572 on interim per capita payments, except for the following:
    (a) When applying these principles to HCPPs, the term ``reporting 
period'' should be used instead of the term ``contract period'' 
contained in that section.
    (b) An HCPP must submit to CMS an annual operating budget and 
enrollment forecast, in the form and detail specified by CMS, at least 
60 days before the beginning of each reporting period. A reporting 
period must be 12 consecutive months, except that the

[[Page 168]]

HCPP's initial reporting period for participating in Medicare may be as 
short as 6 months or as long as 18 months.
    (c) An HCPP must submit to CMS an interim cost report and enrollment 
data applicable to the first 6-month period of the HCPP's reporting 
period in the form and detail specified by CMS. The interim cost report 
must be submitted not later than 45 days after the close of the first 6-
month period of the HCPP's reporting period.
    (d) In lieu of an interim payment based on the actual monthly 
enrollment in an HCPP, CMS and the HCPP may agree to a uniform monthly 
interim reimbursement rate for a reporting period. This interim rate is 
based on the HCPP's budget and enrollment forecast, if CMS is satisfied 
that the rate is consistent with efficiency and economy, and will not 
result in excessive adjustment at the end of the reporting period.



Sec. 417.810  Final settlement.

    (a) General requirement. CMS and an HCPP must make a final 
settlement, and payment of amounts due either to the HCPP or to CMS, 
following the submission and review of the HCPP's annual cost report and 
the supporting documents specified in paragraph (b) of this section.
    (b) Annual cost report as basis for final settlement--(1) Form and 
due date. An HCPP must submit to CMS a cost report and supporting 
documents in the form and detail specified by CMS, no later than 120 
days following the close of a reporting period.
    (2) Contents. The report must include--
    (i) The HCPP's per capita incurred costs of providing covered Part B 
services to its Medicare enrollees during the reporting period, 
including any costs incurred by another organization related to the HCPP 
by common ownership or control;
    (ii) The HCPP's methods of apportioning costs among its Medicare 
enrollees, enrollees who are not Medicare beneficiaries, and other 
nonenrollees, including Medicare beneficiaries receiving health care 
services on a fee-for-service or other basis; and
    (iii) Information on enrollment and other data as specified by CMS.
    (3) Extension of time to submit cost report. CMS may grant an HCPP 
an extension of time to submit a cost report for good cause shown.
    (4) Failure to report required financial information. If an HCPP 
does not submit the required cost report and supporting documents within 
the time specified in paragraph (b)(1) of this section, and has not 
requested and received an extension of time for good cause shown, CMS 
may--
    (i) Regard the failure to report this information as evidence of 
likely overpayment and reduce or suspend interim payments to the HCPP; 
and
    (ii) Determine that amounts previously paid are overpayments, and 
make appropriate recovery.
    (c) Determination of final settlement. Following the HCPP's 
submission of the reports specified in paragraph (b) of this section in 
acceptable form, CMS makes a determination of the total reimbursement 
due the HCPP for the reporting period and the difference, if any, 
between this amount and the total interim payments made to the HCPP. CMS 
sends to the HCPP a notice of the amount of reimbursement by the 
Medicare program. This notice--
    (1) Explains CMS's determination of total reimbursement due the HCPP 
for the reporting period; and
    (2) Informs the HCPP of its right to have the determination reviewed 
at a hearing as provided in part 405, subpart R of this chapter.
    (d) Payment of amounts due. (1) Within 30 days of CMS's 
determination, CMS or the HCPP, as appropriate, will make payment of any 
difference between the total amount due and the total interim payments 
made to the HCPP by CMS.
    (2) If the HCPP does not pay CMS within 30 days of CMS's 
determination of any amounts the HCPP owes CMS, CMS may offset further 
payments to the HCPP to recover, or to aid in the recovery of, any 
overpayment identified in its determination.
    (3) Any offset of payments CMS makes under paragraph (d)(2) of this 
section will remain in effect even if the HCPP has requested a hearing 
on the determination under the provisions of part 405, subpart R of this 
chapter.
    (e) Tentative settlement. (1) If a final settlement cannot be made 
within 90

[[Page 169]]

days after the HCPP submits the report specified in paragraph (b) of 
this section, CMS will make an interim settlement by estimating the 
amount payable to the HCPP.
    (2) CMS or the HCPP will make payment within 30 days of CMS's 
determination under the tentative settlement of any estimated amounts 
due.
    (3) The tentative settlement is subject to adjustment at the time of 
a final settlement.

[50 FR 1375, Jan. 10, 1985, as amended at 58 FR 38081, July 15, 1993]



Sec. 417.830  Scope of regulations on beneficiary appeals.

    Sections 417.832 through 417.840 establish procedures for the 
presentation and resolution of organization determinations, 
reconsiderations, hearings, Departmental Appeals Board review, court 
reviews, and finality of decisions that are applicable to Medicare 
enrollees of an HCPP.

[59 FR 59943, Nov. 21, 1994, as amended at 61 FR 32348, June 24, 1996]



Sec. 417.832  Applicability of requirements and procedures.

    (a) The administrative review rights and procedures specified in 
Sec. Sec. 417.834 through 417.840 pertain to disputes involving an 
organization determination, as defined in Sec. 417.838, with which the 
enrollee is dissatisfied.
    (b) Physicians and other individuals who furnish items or services 
under arrangements with an HCPP have no right of administrative review 
under Sec. Sec. 417.834 through 417.840.
    (c) The provisions of part 405 dealing with the representation of 
parties apply to organization determinations and appeals.
    (d) The provisions of part 405 dealing with administrative law judge 
hearings, Medicare Appeals Council review, and judicial review are 
applicable, unless otherwise provided.

[59 FR 59943, Nov. 21, 1994, as amended at 70 FR 4713, Jan. 28, 2005]



Sec. 417.834  Responsibility for establishing administrative review procedures.

    The HCPP is responsible for establishing and maintaining the 
administrative review procedures that are specified in Sec. Sec. 
417.830 through 417.840.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.836  Written description of administrative review procedures.

    Each HCPP is responsible for ensuring that all Medicare enrollees 
are informed in writing of the administrative review procedures that are 
available to them.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.838  Organization determinations.

    (a) Actions that are organization determinations. For purposes of 
Sec. Sec. 417.830 through 417.840, an organization determination is a 
refusal to furnish or arrange for services, or reimburse the party for 
services provided to the beneficiary, on the grounds that the services 
are not covered by Medicare.
    (b) Actions that are not organization determinations. The following 
are not organization determinations for purposes of Sec. Sec. 417.830 
through 417.840:
    (1) A determination regarding services that were furnished by the 
HCPP, either directly or under arrangement, for which the enrollee has 
no further obligation for payment.
    (2) A determination regarding services that are not covered under 
the HCPP's agreement with CMS.

[59 FR 59943, Nov. 21, 1994]



Sec. 417.840  Administrative review procedures.

    The HCPP must apply Sec. 422.568 through Sec. 422.619 of this 
chapter to organization determinations that affect its Medicare 
enrollees, and to reconsiderations, hearings, Medicare Appeals Council 
review, and judicial review of those organization determinations.

[70 FR 4713, Jan. 28, 2005]



    Subpart V_Administration of Outstanding Loans and Loan Guarantees



Sec. 417.910  Applicability.

    The regulations in this subpart apply, as appropriate, to public and 
private entities that have loans or loan guarantees that--

[[Page 170]]

    (a) Were awarded to them before October 1986 under section 1304 or 
section 1305 of the PHS Act; and
    (b) Are still outstanding.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.911  Definitions.

    As used in this subpart--
    Any 12-month period means the 12-month period beginning on the first 
day of any month.
    Expansion of services means--(1) The addition of any health service 
not previously provided by or through the HMO, that requires an increase 
in the facilities, equipment, or health professionals of the HMO; or
    (2) The improvement or upgrading of existing facilities or 
equipment, or an increase in the number of categories of health 
professionals, of the HMO so that the HMO could provide directly 
services that it previously provided through contract or referral or 
which it could not previously provide with its existing facilities or 
equipment.
    First 60 months of operation or expansion means the 60-month period 
beginning on the first day of the month during which the HMO first 
provided services to enrollees, or in the case of significant expansion, 
first provided services in accordance with its expansion plan.
    Health system agency means an entity that has been designated in 
accordance with section 1515 of the PHS Act; and the term State health 
planning and development agency means an agency that has been designated 
in accordance with section 1521 of the PHS Act.
    Initial costs of operation means any cost incurred in the first 60 
months of an operation or expansion that met any of the following 
requirements:
    (1) Under generally accepted accounting principles or under 
accounting practices prescribed or permitted by State regulatory 
authority, was not a capital cost.
    (2) Was required by State regulatory authority to meet reserves or 
tangible net equity requirements.
    (3) Was for a payment made to reduce balance sheet liabilities 
existing at the beginning of the 60-month period, but only if--(i) The 
payment had been approved in writing by the Secretary; and
    (ii) The total of these payments did not exceed 20 percent of the 
amount of the loan.
    (4) Was for a small capital expenditure, but only if--(i) The cost 
had been approved in writing by the Secretary; and
    (ii) The total of these costs did not exceed $200,000 in any 12-
month period, and $400,000 during the first 60 months of operation or 
expansion.
    Nonprofit as applied to a private entity, means a private agency, 
institution, or organization, no part of the net earnings of which 
inures, or may lawfully inure, to the benefit of any private shareholder 
or individual.
    Significant expansion means--(1) A planned substantial increase in 
the enrollment of the HMO, that requires an increase in the number of 
health professionals serving enrollees of the HMO or an expansion of the 
physical capacity of the HMO's total health facilities; or
    (2) A planned expansion of the service area beyond the current 
service area, that would be made possible by the addition of health 
service delivery facilities and health professionals to serve enrollees 
at a new site or sites in areas previously without service sites.
    Small capital expenditure means expenditures for--(1) Equipment as 
defined in 45 CFR 74.132; or
    (2) Alterations and renovations required to change the interior 
arrangements or other physical characteristics of an existing facility 
or installed equipment, so that it may be more effectively used for its 
currently designated purpose, or adapted to a changed use.

[58 FR 38076, July 15, 1993, as amended at 59 FR 49842, Sept. 30, 1994]



Sec. 417.920  Planning and initial development.

    (a) Under section 1304 of the PHS Act, grants and loan guarantees 
were awarded for projects for planning and initial development of HMOs.
    (b) Planning projects included projects for any of the following:
    (1) Establishment of an HMO.
    (2) Significant expansion of the HMO's enrollment or geographic 
area.

[[Page 171]]

    (c) Initial development projects included projects for any of the 
following:
    (1) Establishment of an HMO.
    (2) Significant expansion of the HMO's enrollment or geographic 
area.
    (3) Expansion of the range or amount of services furnished by the 
HMO.

[58 FR 38076, July 15, 1993]



Sec. 417.930  Initial costs of operation.

    Under section 1305 of the PHS, loans and loan guarantees were 
awarded for initial costs of operation of HMOs.

[58 FR 38077, July 15, 1993]



Sec. 417.931  [Reserved]



Sec. 417.934  Reserve requirement.

    (a) Timing. Unless the Secretary approved a longer period, an entity 
that received a loan or loan guarantee under section 1305 of the PHS Act 
was required to establish a restricted reserve account on the earlier of 
the following:
    (1) When the HMO's revenues and costs of operation reached the 
break-even point.
    (2) At the end of the 60-month period following the Secretary's 
endorsement of the loan or loan guarantee.
    (b) Purpose and amount of reserve. The reserve had to be constituted 
so as to accumulate, no later than 12 years after endorsement of the 
loan or loan guarantee, an amount equal to 1 year's principal and 
interest.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.937  Loan and loan guarantee provisions.

    (a) Disbursement of loan proceeds. The principal amount of any loan 
made or guaranteed by the Secretary under this subpart was disbursed to 
the entity in accordance with an agreement entered into between the 
parties to the loan and approved by the Secretary.
    (b) Length and maturity of loans. The principal amount of each loan 
or loan guarantee, together with interest thereon, is repayable over a 
period of 22 years, beginning on the date of endorsement of the loan, or 
loan guarantee by the Secretary. The Secretary could approve a shorter 
repayment period if he or she determined that a repayment period of less 
than 22 years is more appropriate to an entity's total financial plan.
    (c) Repayment. The principal amount of each loan or loan guarantee, 
together with interest thereon is repayable in accordance with a 
repayment schedule that is agreed upon by the parties to the loan or 
loan guarantee and approved by the Secretary before or at the time of 
endorsement of the loan. Unless otherwise specifically authorized by the 
Secretary, each loan made or guaranteed by the Secretary is repayable in 
substantially level combined installments of principal and interest to 
be paid at intervals not less frequently than annually, sufficient in 
amount to amortize the loan through the final year of the life of the 
loan. Principal repayment during the first 60 months of operation could 
be deferred with payment of interest only during that period. The 
Secretary could set rates of interest for each disbursement at a rate 
comparable to the rate of interest prevailing on the date of 
disbursement for marketable obligations of the United States of 
comparable maturities, adjusted to provide for appropriate 
administrative charges.

[59 FR 49842, Sept. 30, 1994]



Sec. 417.940  Civil action to enforce compliance with assurances.

    The provisions of Sec. 417.163(g) apply to entities that have 
outstanding loans or loan guarantees administered under this subpart.

[59 FR 49843, Sept. 30, 1994]



PART 418_HOSPICE CARE--Table of Contents




               Subpart A_General Provision and Definitions

Sec.
418.1 Statutory basis.
418.2 Scope of part.
418.3 Definitions.

        Subpart B_Eligibility, Election and Duration of Benefits

418.20 Eligibility requirements.
418.21 Duration of hospice care coverage--Election periods.
418.22 Certification of terminal illness.
418.24 Election of hospice care.
418.25 Admission to hospice care.
418.26 Discharge from hospice care.

[[Page 172]]

418.28 Revoking the election of hospice care.
418.30 Change of the designated hospice.

      Subpart C_Conditions of Participation_General Provisions and 
                             Administration

418.50 Condition of participation--General provisions.
418.52 Condition of participation--Governing body.
418.54 Condition of participation--Medical director.
418.56 Condition of participation--Professional management.
418.58 Condition of participation--Plan of care.
418.60 Condition of participation--Continuation of care.
418.62 Condition of participation--Informed consent.
418.64 Condition of participation--Inservice training.
418.66 Condition of participation--Quality assurance.
418.68 Condition of participation--Interdisciplinary group.
418.70 Condition of participation--Volunteers.
418.72 Condition of participation--Licensure.
418.74 Condition of participation--Central clinical records.

          Subpart D_Conditions of Participation: Core Services

418.80 Condition of participation--Furnishing of core services.
418.82 Condition of participation--Nursing services.
418.83 Nursing services--Waiver of requirement that substantially all 
          nursing services be routinely provided directly by a hospice.
418.84 Condition of participation--Medical social services.
418.86 Condition of participation--Physician services.
418.88 Condition of participation--Counseling services.

          Subpart E_Conditions of Participation: Other Services

418.90 Condition of participation--Furnishing of other services.
418.92 Condition of participation--Physical therapy, occupational 
          therapy, and speech-language pathology.
418.94 Condition of participation--Home health aide and homemaker 
          services.
418.96 Condition of participation--Medical supplies.
418.98 Condition of participation--Short term inpatient care.
418.100 Condition of participation--Hospices that provide inpatient care 
          directly.

                       Subpart F_Covered Services

418.200 Requirements for coverage.
418.202 Covered services.
418.204 Special coverage requirements.
418.205 Special requirements for hospice pre-election evaluation and 
          counseling services.

                   Subpart G_Payment for Hospice Care

418.301 Basic rules.
418.302 Payment procedures for hospice care.
418.304 Payment for physician and nurse practitioner services.
418.306 Determination of payment rates.
418.307 Periodic interim payments.
418.308 Limitation on the amount of hospice payments.
418.309 Hospice cap amount.
418.310 Reporting and recordkeeping requirements.
418.311 Administrative appeals.

                          Subpart H_Coinsurance

418.400 Individual liability for coinsurance for hospice care.
418.402 Individual liability for services that are not considered 
          hospice care.
418.405 Effect of coinsurance liability on Medicare payment.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 48 FR 56026, Dec. 16, 1983, unless otherwise noted.



               Subpart A_General Provision and Definitions



Sec. 418.1  Statutory basis.

    This part implements section 1861(dd) of the Social Security Act. 
Section 1861(dd) specifies services covered as hospice care and the 
conditions that a hospice program must meet in order to participate in 
the Medicare program. The following sections of the Act are also 
pertinent:
    (a) Sections 1812(a) (4) and (d) of the Act specify eligibility 
requirements for the individual and the benefit periods.
    (b) Section 1813(a)(4) of the Act specifies coinsurance amounts.
    (c) Sections 1814(a)(7) and 1814(i) of the Act contain conditions 
and limitations on coverage of, and payment for, hospice care.

[[Page 173]]

    (d) Sections 1862(a) (1), (6) and (9) of the Act establish limits on 
hospice coverage.

[48 FR 56026, Dec. 16, 1983, as amended at 57 FR 36017, Aug. 12, 1992]



Sec. 418.2  Scope of part.

    Subpart A of this part sets forth the statutory basis and scope and 
defines terms used in this part. Subpart B specifies the eligibility 
requirements and the benefit periods. Subpart C specifies conditions of 
participation for hospices. Subpart D describes the covered services and 
specifies the limits on services covered as hospice care. Subpart E 
specifies the reimbursement methods and procedures. Subpart F specifies 
coinsurance amounts applicable to hospice care.



Sec. 418.3  Definitions.

    For purposes of this part--
    Attending physician means a--(1)(i) Doctor of medicine or osteopathy 
legally authorized to practice medicine and surgery by the State in 
which he or she performs that function or action; or
    (ii) Nurse practitioner who meets the training, education, and 
experience requirements as the Secretary may prescribe; and
    (2) Is identified by the individual, at the time he or she elects to 
receive hospice care, as having the most significant role in the 
determination and delivery of the individual's medical care.
    Bereavement counseling means counseling services provided to the 
individual's family after the individual's death.
    Cap period means the twelve-month period ending October 31 used in 
the application of the cap on overall hospice reimbursement specified in 
Sec. 418.309.
    Employee means an employee (defined by section 210(j) of the Act) of 
the hospice or, if the hospice is a subdivision of an agency or 
organization, an employee of the agency or organization who is 
appropriately trained and assigned to the hospice unit. ``Employee'' 
also refers to a volunteer under the jurisdiction of the hospice.
    Hospice means a public agency or private organization or subdivision 
of either of these that--is primarily engaged in providing care to 
terminally ill individuals.
    Physician means physician as defined in Sec. 410.20 of this 
chapter.
    Representative means an individual who has been authorized under 
State law to terminate medical care or to elect or revoke the election 
of hospice care on behalf of a terminally ill individual who is mentally 
or physically incapacitated.
    Social worker means a person who has at least a bachelor's degree 
from a school accredited or approved by the Council on Social Work 
Education.
    Terminally ill means that the individual has a medical prognosis 
that his or her life expectancy is 6 months or less if the illness runs 
its normal course.

[48 FR 56026, Dec. 16, 1983, as amended at 52 FR 4499, Feb. 12, 1987; 50 
FR 50834, Dec. 11, 1990; 70 FR 45144, Aug. 4, 2005]



        Subpart B_Eligibility, Election and Duration of Benefits



Sec. 418.20  Eligibility requirements.

    In order to be eligible to elect hospice care under Medicare, an 
individual must be--
    (a) Entitled to Part A of Medicare; and
    (b) Certified as being terminally ill in accordance with Sec. 
418.22.



Sec. 418.21  Duration of hospice care coverage--Election periods.

    (a) Subject to the conditions set forth in this part, an individual 
may elect to receive hospice care during one or more of the following 
election periods:
    (1) An initial 90-day period;
    (2) A subsequent 90-day period; or
    (3) An unlimited number of subsequent 60-day periods.
    (b) The periods of care are available in the order listed and may be 
elected separately at different times.

[55 FR 50834, Dec. 11, 1990, as amended at 57 FR 36017, Aug. 12, 1992; 
70 FR 70546, Nov. 22, 2005]

[[Page 174]]



Sec. 418.22  Certification of terminal illness.

    (a) Timing of certification--(1) General rule. The hospice must 
obtain written certification of terminal illness for each of the periods 
listed in Sec. 418.21, even if a single election continues in effect 
for an unlimited number of periods, as provided in Sec. 418.24(c).
    (2) Basic requirement. Except as provided in paragraph (a)(3) of 
this section, the hospice must obtain the written certification before 
it submits a claim for payment.
    (3) Exception. If the hospice cannot obtain the written 
certification within 2 calendar days, after a period begins, it must 
obtain an oral certification within 2 calendar days and the written 
certification before it submits a claim for payment.
    (b) Content of certification. Certification will be based on the 
physician's or medical director's clinical judgment regarding the normal 
course of the individual's illness. The certification must conform to 
the following requirements:
    (1) The certification must specify that the individual's prognosis 
is for a life expectancy of 6 months or less if the terminal illness 
runs its normal course.
    (2) Clinical information and other documentation that support the 
medical prognosis must accompany the certification and must be filed in 
the medical record with the written certification as set forth in 
paragraph (d)(2) of this section. Initially, the clinical information 
may be provided verbally, and must be documented in the medical record 
and included as part of the hospice's eligibility assessment.
    (c) Sources of certification. (1) For the initial 90-day period, the 
hospice must obtain written certification statements (and oral 
certification statements if required under paragraph (a)(3) of this 
section) from--
    (i) The medical director of the hospice or the physician member of 
the hospice interdisciplinary group; and
    (ii) The individual's attending physician, if the individual has an 
attending physician. The attending physician must meet the definition of 
physician specified in Sec. 410.20 of this subchapter.
    (2) For subsequent periods, the only requirement is certification by 
one of the physicians listed in paragraph (c)(1)(i) of this section.
    (d) Maintenance of records. Hospice staff must--
    (1) Make an appropriate entry in the patient's medical record as 
soon as they receive an oral certification; and
    (2) File written certifications in the medical record.

[55 FR 50834, Dec. 11, 1990, as amended at 57 FR 36017, Aug. 12, 1992; 
70 FR 45144, Aug. 4, 2005; 70 FR 70547, Nov. 22, 2005]



Sec. 418.24  Election of hospice care.

    (a) Filing an election statement. An individual who meets the 
eligibility requirement of Sec. 418.20 may file an election statement 
with a particular hospice. If the individual is physically or mentally 
incapacitated, his or her representative (as defined in Sec. 418.3) may 
file the election statement.
    (b) Content of election statement. The election statement must 
include the following:
    (1) Identification of the particular hospice that will provide care 
to the individual.
    (2) The individual's or representative's acknowledgement that he or 
she has been given a full understanding of the palliative rather than 
curative nature of hospice care, as it relates to the individual's 
terminal illness.
    (3) Acknowledgement that certain Medicare services, as set forth in 
paragraph (d) of this section, are waived by the election.
    (4) The effective date of the election, which may be the first day 
of hospice care or a later date, but may be no earlier than the date of 
the election statement.
    (5) The signature of the individual or representative.
    (c) Duration of election. An election to receive hospice care will 
be considered to continue through the initial election period and 
through the subsequent election periods without a break in care as long 
as the individual--
    (1) Remains in the care of a hospice;
    (2) Does not revoke the election; and
    (3) Is not discharged from the hospice under the provisions of Sec. 
418.26.
    (d) Waiver of other benefits. For the duration of an election of 
hospice care,

[[Page 175]]

an individual waives all rights to Medicare payments for the following 
services:
    (1) Hospice care provided by a hospice other than the hospice 
designated by the individual (unless provided under arrangements made by 
the designated hospice).
    (2) Any Medicare services that are related to the treatment of the 
terminal condition for which hospice care was elected or a related 
condition or that are equivalent to hospice care except for services--
    (i) Provided by the designated hospice:
    (ii) Provided by another hospice under arrangements made by the 
designated hospice; and
    (iii) Provided by the individual's attending physician if that 
physician is not an employee of the designated hospice or receiving 
compensation from the hospice for those services.
    (e) Re-election of hospice benefits. If an election has been revoked 
in accordance with Sec. 418.28, the individual (or his or her 
representative if the individual is mentally or physically 
incapacitated) may at any time file an election, in accordance with this 
section, for any other election period that is still available to the 
individual.

[55 FR 50834, Dec. 11, 1990, as amended at 70 FR 70547, Nov. 22, 2005]



Sec. 418.25  Admission to hospice care.

    (a) The hospice admits a patient only on the recommendation of the 
medical director in consultation with, or with input from, the patient's 
attending physician (if any).
    (b) In reaching a decision to certify that the patient is terminally 
ill, the hospice medical director must consider at least the following 
information:
    (1) Diagnosis of the terminal condition of the patient.
    (2) Other health conditions, whether related or unrelated to the 
terminal condition.
    (3) Current clinically relevant information supporting all 
diagnoses.

[70 FR 70547, Nov. 22, 2005]



Sec. 418.26  Discharge from hospice care.

    (a) Reasons for discharge. A hospice may discharge a patient if--
    (1) The patient moves out of the hospice's service area or transfers 
to another hospice;
    (2) The hospice determines that the patient is no longer terminally 
ill; or
    (3) The hospice determines, under a policy set by the hospice for 
the purpose of addressing discharge for cause that meets the 
requirements of paragraphs (a)(3)(i) through (a)(3)(iv) of this section, 
that the patient's (or other persons in the patient's home) behavior is 
disruptive, abusive, or uncooperative to the extent that delivery of 
care to the patient or the ability of the hospice to operate effectively 
is seriously impaired. The hospice must do the following before it seeks 
to discharge a patient for cause:
    (i) Advise the patient that a discharge for cause is being 
considered;
    (ii) Make a serious effort to resolve the problem(s) presented by 
the patient's behavior or situation;
    (iii) Ascertain that the patient's proposed discharge is not due to 
the patient's use of necessary hospice services; and
    (iv) Document the problem(s) and efforts made to resolve the 
problem(s) and enter this documentation into its medical records.
    (b) Discharge order. Prior to discharging a patient for any reason 
listed in paragraph (a) of this section, the hospice must obtain a 
written physician's discharge order from the hospice medical director. 
If a patient has an attending physician involved in his or her care, 
this physician should be consulted before discharge and his or her 
review and decision included in the discharge note.
    (c) Effect of discharge. An individual, upon discharge from the 
hospice during a particular election period for reasons other than 
immediate transfer to another hospice--
    (1) Is no longer covered under Medicare for hospice care;
    (2) Resumes Medicare coverage of the benefits waived under Sec. 
418.24(d); and
    (3) May at any time elect to receive hospice care if he or she is 
again eligible to receive the benefit.
    (d) Discharge planning. (1) The hospice must have in place a 
discharge planning process that takes into account the prospect that a 
patient's condition

[[Page 176]]

might stabilize or otherwise change such that the patient cannot 
continue to be certified as terminally ill.
    (2) The discharge planning process must include planning for any 
necessary family counseling, patient education, or other services before 
the patient is discharged because he or she is no longer terminally ill.

[70 FR 70547, Nov. 22, 2005]



Sec. 418.28  Revoking the election of hospice care.

    (a) An individual or representative may revoke the individual's 
election of hospice care at any time during an election period.
    (b) To revoke the election of hospice care, the individual or 
representative must file a statement with the hospice that includes the 
following information:
    (1) A signed statement that the individual or representative revokes 
the individual's election for Medicare coverage of hospice care for the 
remainder of that election period.
    (2) The date that the revocation is to be effective. (An individual 
or representative may not designate an effective date earlier than the 
date that the revocation is made).
    (c) An individual, upon revocation of the election of Medicare 
coverage of hospice care for a particular election period--
    (1) Is no longer covered under Medicare for hospice care;
    (2) Resumes Medicare coverage of the benefits waived under Sec. 
418.24(e)(2); and
    (3) May at any time elect to receive hospice coverage for any other 
hospice election periods that he or she is eligible to receive.



Sec. 418.30  Change of the designated hospice.

    (a) An individual or representative may change, once in each 
election period, the designation of the particular hospice from which 
hospice care will be received.
    (b) The change of the designated hospice is not a revocation of the 
election for the period in which it is made.
    (c) To change the designation of hospice programs, the individual or 
representative must file, with the hospice from which care has been 
received and with the newly designated hospice, a statement that 
includes the following information:
    (1) The name of the hospice from which the individual has received 
care and the name of the hospice from which he or she plans to receive 
care.
    (2) The date the change is to be effective.



      Subpart C_Conditions of Participation_General Provisions and 
                             Administration



Sec. 418.50  Condition of participation--General provisions.

    (a) Standard: Compliance. A hospice must maintain compliance with 
the conditions of this subpart and subparts D and E of this part.
    (b) Standard: Required services. A hospice must be primarily engaged 
in providing the care and services described in Sec. 418.202, must 
provide bereavement counseling and must--
    (1) Make nursing services, physician services, and drugs and 
biologicals routinely available on a 24-hour basis;
    (2) Make all other covered services available on a 24-hour basis to 
the extent necessary to meet the needs of individuals for care that is 
reasonable and necessary for the palliation and management of terminal 
illness and related conditions; and
    (3) Provide these services in a manner consistent with accepted 
standards of practice.
    (c) Standard: Disclosure of information. The hospice must meet the 
disclosure of information requirements at Sec. 420.206 of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50834, Dec. 11, 1990]



Sec. 418.52  Condition of participation--Governing body.

    A hospice must have a governing body that assumes full legal 
responsibility for determining, implementing and monitoring policies 
governing the hospice's total operation. The governing body must 
designate an individual who is responsible for the day to day management 
of the hospice program. The governing body must also ensure that all 
services provided are

[[Page 177]]

consistent with accepted standards of practice.



Sec. 418.54  Condition of participation--Medical director.

    The medical director must be a hospice employee who is a doctor of 
medicine or osteopathy who assumes overall responsibility for the 
medical component of the hospice's patient care program.



Sec. 418.56  Condition of participation--Professional management.

    Subject to the conditions of participation pertaining to services in 
Sec. Sec. 418.80 and 418.90, a hospice may arrange for another 
individual or entity to furnish services to the hospice's patients. If 
services are provided under arrangement, the hospice must meet the 
following standards:
    (a) Standard: Continuity of care. The hospice program assures the 
continuity of patient/family care in home, outpatient, and inpatient 
settings.
    (b) Standard: Written agreement. The hospice has a legally binding 
written agreement for the provision of arranged services. The agreement 
includes at least the following:
    (1) Identification of the services to be provided.
    (2) A stipulation that services may be provided only with the 
express authorization of the hospice.
    (3) The manner in which the contracted services are coordinated, 
supervised, and evaluated by the hospice.
    (4) The delineation of the role(s) of the hospice and the contractor 
in the admission process, patient/family assessment, and the 
interdisciplinary group care conferences.
    (5) Requirements for documenting that services are furnished in 
accordance with the agreement.
    (6) The qualifications of the personnel providing the services.
    (c) Standard: Professional management responsibility. The hospice 
retains professional management responsibility for those services and 
ensures that they are furnished in a safe and effective manner by 
persons meeting the qualifications of this part, and in accordance with 
the patient's plan of care and the other requirements of this part.
    (d) Standard: Financial responsibility. The hospice retains 
responsibility for payment for services.
    (e) Standard: Inpatient care. The hospice ensures that inpatient 
care is furnished only in a facility which meets the requirements in 
Sec. 418.98 and its arrangement for inpatient care is described in a 
legally binding written agreement that meets the requirements of 
paragraph (b) and that also specifies, at a minimum--
    (1) That the hospice furnishes to the inpatient provider a copy of 
the patient's plan of care and specifies the inpatient services to be 
furnished;
    (2) That the inpatient provider has established policies consistent 
with those of the hospice and agrees to abide by the patient care 
protocols established by the hospice for its patients;
    (3) That the medical record includes a record of all inpatient 
services and events and that a copy of the discharge summary and, if 
requested, a copy of the medical record are provided to the hospice;
    (4) The party responsible for the implementation of the provisions 
of the agreement; and
    (5) That the hospice retains responsibility for appropriate hospice 
care training of the personnel who provide the care under the agreement.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983]



Sec. 418.58  Condition of participation--Plan of care.

    A written plan of care must be established and maintained for each 
individual admitted to a hospice program, and the care provided to an 
individual must be in accordance with the plan.
    (a) Standard: Establishment of plan. The plan must be established by 
the attending physician, the medical director or physician designee and 
interdisciplinary group prior to providing care.
    (b) Standard: Review of plan. The plan must be reviewed and updated, 
at intervals specified in the plan, by the attending physician, the 
medical director or physician designee and interdisciplinary group. 
These reviews must be documented.
    (c) Standard: Content of plan. The plan must include an assessment 
of the individual's needs and identification of the

[[Page 178]]

services including the management of discomfort and symptom relief. It 
must state in detail the scope and frequency of services needed to meet 
the patient's and family's needs.



Sec. 418.60  Condition of participation--Continuation of care.

    A hospice may not discontinue or diminish care provided to a 
Medicare beneficiary because of the beneficiary's inability to pay for 
that care.



Sec. 418.62  Condition of participation--Informed consent.

    A hospice must demonstrate respect for an individual's rights by 
ensuring that an informed consent form that specifies the type of care 
and services that may be provided as hospice care during the course of 
the illness has been obtained for every individual, either from the 
individual or representative as defined in Sec. 418.3.



Sec. 418.64  Condition of participation--Inservice training.

    A hospice must provide an ongoing program for the training of its 
employees.



Sec. 418.66  Condition of participation--Quality assurance.

    A hospice must conduct an ongoing, comprehensive, integrated, self-
assessment of the quality and appropriateness of care provided, 
including inpatient care, home care and care provided under 
arrangements. The findings are used by the hospice to correct identified 
problems and to revise hospice policies if necessary. Those responsible 
for the quality assurance program must--
    (a) Implement and report on activities and mechanisms for monitoring 
the quality of patient care;
    (b) Identify and resolve problems; and
    (c) Make suggestions for improving patient care.



Sec. 418.68  Condition of participation--Interdisciplinary group.

    The hospice must designate an interdisciplinary group or groups 
composed of individuals who provide or supervise the care and services 
offered by the hospice.
    (a) Standard: Composition of group. The hospice must have an 
interdisciplinary group or groups that include at least the following 
individuals who are employees of the hospice:
    (1) A doctor of medicine or osteopathy.
    (2) A registered nurse.
    (3) A social worker.
    (4) A pastoral or other counselor.
    (b) Standard: Role of group. The interdisciplinary group is 
responsible for--
    (1) Participation in the establishment of the plan of care;
    (2) Provision or supervision of hospice care and services;
    (3) Periodic review and updating of the plan of care for each 
individual receiving hospice care; and
    (4) Establishment of policies governing the day-to-day provision of 
hospice care and services.
    (c) If a hospice has more than one interdisciplinary group, it must 
designate in advance the group it chooses to execute the functions 
described in paragraph (b)(4) of this section.
    (d) Standard: Coordinator. The hospice must designate a registered 
nurse to coordinate the implementation of the plan of care for each 
patient.



Sec. 418.70  Condition of participation--Volunteers.

    The hospice in accordance with the numerical standards, specified in 
paragraph (e) of this section, uses volunteers, in defined roles, under 
the supervision of a designated hospice employee.
    (a) Standard: Training. The hospice must provide appropriate 
orientation and training that is consistent with acceptable standards of 
hospice practice.
    (b) Standard: Role. Volunteers must be used in administrative or 
direct patient care roles.
    (c) Standard: Recruiting and retaining. The hospice must document 
active and ongoing efforts to recruit and retain volunteers.
    (d) Standard: Cost saving. The hospice must document the cost 
savings achieved through the use of volunteers. Documentation must 
include--
    (1) The identification of necessary positions which are occupied by 
volunteers;

[[Page 179]]

    (2) The work time spent by volunteers occupying those positions; and
    (3) Estimates of the dollar costs which the hospice would have 
incurred if paid employees occupied the positions identified in 
paragraph (d)(1) for the amount of time specified in paragraph (d)(2).
    (e) Standard: Level of activity. A hospice must document and 
maintain a volunteer staff sufficient to provide administrative or 
direct patient care in an amount that, at a minimum, equals 5 percent of 
the total patient care hours of all paid hospice employees and contract 
staff. The hospice must document a continuing level of volunteer 
activity. Expansion of care and services achieved through the use of 
volunteers, including the type of services and the time worked, must be 
recorded.
    (f) Standard: Availability of clergy. The hospice must make 
reasonable efforts to arrange for visits of clergy and other members of 
religious organizations in the community to patients who request such 
visits and must advise patients of this opportunity.



Sec. 418.72  Condition of participation--Licensure.

    The hospice and all hospice employees must be licensed in accordance 
with applicable Federal, State and local laws and regulations.
    (a) Standard: Licensure of program. If State or local law provides 
for licensing of hospices, the hospice must be licensed.
    (b) Standard: Licensure of employees. Employees who provide services 
must be licensed, certified or registered in accordance with applicable 
Federal or State laws.



Sec. 418.74  Condition of participation--Central clinical records.

    In accordance with accepted principles of practice, the hospice must 
establish and maintain a clinical record for every individual receiving 
care and services. The record must be complete, promptly and accurately 
documented, readily accessible and systematically organized to 
facilitate retrieval.
    (a) Standard: Content. Each clinical record is a comprehensive 
compilation of information. Entries are made for all services provided. 
Entries are made and signed by the person providing the services. The 
record includes all services whether furnished directly or under 
arrangements made by the hospice. Each individual's record contains--
    (1) The initial and subsequent assessments;
    (2) The plan of care;
    (3) Identification data;
    (4) Consent and authorization and election forms;
    (5) Pertinent medical history; and
    (6) Complete documentation of all services and events (including 
evaluations, treatments, progress notes, etc.).
    (b) Standard; Protection of information. The hospice must safeguard 
the clinical record against loss, destruction and unauthorized use.



          Subpart D_Conditions of Participation: Core Services



Sec. 418.80  Condition of participation--Furnishing of core services.

    Except as permitted in Sec. 418.83, a hospice must ensure that 
substantially all the core services described in this subpart are 
routinely provided directly by hospice employees. A hospice may use 
contracted staff if necessary to supplement hospice employees in order 
to meet the needs of patients during periods of peak patient loads or 
under extraordinary circumstances. If contracting is used, the hospice 
must maintain professional, financial, and administrative responsibility 
for the services and must assure that the qualifications of staff and 
services provided meet the requirements specified in this subpart.

[52 FR 7416, Mar. 11, 1987, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.82  Condition of participation--Nursing services.

    The hospice must provide nursing care and services by or under the 
supervision of a registered nurse.
    (a) Nursing services must be directed and staffed to assure that the 
nursing needs of patients are met.
    (b) Patient care responsibilities of nursing personnel must be 
specified.
    (c) Services must be provided in accordance with recognized 
standards of practice.

[[Page 180]]



Sec. 418.83  Nursing services--Waiver of requirement that substantially all nursing services be routinely provided directly by a hospice.

    (a) CMS may approve a waiver of the requirement in Sec. 418.80 for 
nursing services provided by a hospice which is located in a non-
urbanized area. The location of a hospice that operates in several areas 
is considered to be the location of its central office. The hospice must 
provide evidence that it was operational on or before January 1, 1983, 
and that it made a good faith effort to hire a sufficient number of 
nurses to provide services directly. CMS bases its decision as to 
whether to approve a waiver application on the following:
    (1) The current Bureau of the Census designations for determining 
non-urbanized areas.
    (2) Evidence that a hospice was operational on or before January 1, 
1983 including:
    (i) Proof that the organization was established to provide hospice 
services on or before January 1, 1983;
    (ii) Evidence that hospice-type services were furnished to patients 
on or before January 1, 1983; and
    (iii) Evidence that the hospice care was a discrete activity rather 
than an aspect of another type of provider's patient care program on or 
before January 1, 1983.
    (3) Evidence that a hospice made a good faith effort to hire nurses, 
including:
    (i) Copies of advertisements in local newspapers that demonstrate 
recruitment efforts;
    (ii) Job descriptions for nurse employees;
    (iii) Evidence that salary and benefits are competitive for the 
area; and
    (iv) Evidence of any other recruiting activities (e.g., recruiting 
efforts at health fairs and contacts with nurses at other providers in 
the area);
    (b) Any waiver request is deemed to be granted unless it is denied 
within 60 days after it is received.
    (c) Waivers will remain effective for one year at a time.
    (d) CMS may approve a maximum of two one-year extensions for each 
initial waiver. If a hospice wishes to receive a one-year extension, the 
hospice must submit a certification to CMS, prior to the expiration of 
the waiver period, that the employment market for nurses has not changed 
significantly since the time the initial waiver was granted.

[52 FR 7416, Mar. 11, 1987]



Sec. 418.84  Condition of participation--Medical social services.

    Medical social services must be provided by a qualified social 
worker, under the direction of a physician.



Sec. 418.86  Condition of participation--Physician services.

    In addition to palliation and management of terminal illness and 
related conditions, physician employees of the hospice, including the 
physician member(s) of the interdisciplinary group, must also meet the 
general medical needs of the patients to the extent that these needs are 
not met by the attending physician.



Sec. 418.88  Condition of participation--Counseling services.

    Counseling services must be available to both the individual and the 
family. Counseling includes bereavement counseling, provided after the 
patient's death as well as dietary, spiritual and any other counseling 
services for the individual and family provided while the individual is 
enrolled in the hospice.
    (a) Standard: Bereavement counseling. There must be an organized 
program for the provision of bereavement services under the supervision 
of a qualified professional. The plan of care for these services should 
reflect family needs, as well as a clear delineation of services to be 
provided and the frequency of service delivery (up to one year following 
the death of the patient). A special coverage provision for bereavement 
counseling is specified Sec. 418.204(c).
    (b) Standard: Dietary counseling. Dietary counseling, when required, 
must be provided by a qualified individual.
    (c) Standard: Spiritual counseling. Spiritual counseling must 
include notice to patients as to the availability of clergy as provided 
in Sec. 418.70(f).
    (d) Standard: Additional counseling. Counseling may be provided by 
other members of the interdisciplinary group

[[Page 181]]

as well as by other qualified professionals as determined by the 
hospice.



          Subpart E_Conditions of Participation: Other Services



Sec. 418.90  Condition of participation--Furnishing of other services.

    A hospice must ensure that the services described in this subpart 
are provided directly by hospice employees or under arrangements made by 
the hospice as specified in Sec. 418.56.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.92  Condition of participation--Physical therapy, occupational therapy, and speech-language pathology.

    (a) Physical therapy services, occupational therapy services, and 
speech-language patholgy services must be available, and when provided, 
offered in a manner consistent with accepted standards of practice.
    (b)(1) If the hospice engages in laboratory testing outside of the 
context of assisting an individual in self-administering a test with an 
appliance that has been cleared for that purpose by the FDA, such 
testing must be in compliance with all applicable requirements of part 
493 of this chapter.
    (2) If the hospice chooses to refer specimens for laboratory testing 
to another laboratory, the referral laboratory must be certified in the 
appropriate specialties and subspecialties of services in accordance 
with the applicable requirements of part 493 of this chapter.

[57 FR 7135, Feb. 28, 1992]



Sec. 418.94  Condition of participation--Home health aide and homemaker services.

    Home health aide and homemaker services must be available and 
adequate in frequency to meet the needs of the patients. A home health 
aide is a person who meets the training, attitude and skill requirements 
specified in Sec. 484.36 of this chapter.
    (a) Standard: Supervision. A registered nurse must visit the home 
site at least every two weeks when aide services are being provided, and 
the visit must include an assessment of the aide services.
    (b) Standard: Duties. Written instructions for patient care are 
prepared by a registered nurse. Duties include, but may not be limited 
to, the duties specified in Sec. 484.36(c) of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.96  Condition of participation--Medical supplies.

    Medical supplies and appliances including drugs and biologicals, 
must be provided as needed for the palliation and management of the 
terminal illness and related conditions.
    (a) Standard: Administration. All drugs and biologicals must be 
administered in accordance with accepted standards of practice.
    (b) Standard: Controlled drugs in the patient's home. The hospice 
must have a policy for the disposal of controlled drugs maintained in 
the patient's home when those drugs are no longer needed by the patient.
    (c) Standard: Administration of drugs and biologicals. Drugs and 
biologicals are administered only by the following individuals:
    (1) A licensed nurse or physician.
    (2) An employee who has completed a State-approved training program 
in medication administration.
    (3) The patient if his or her attending physician has approved.
    (4) Any other individual in accordance with applicable State and 
local laws. The persons, and each drug and biological they are 
authorized to administer, must be specified in the patient's plan of 
care.



Sec. 418.98  Condition of participation--Short term inpatient care.

    Inpatient care must be available for pain control, symptom 
management and respite purposes, and must be provided in a participating 
Medicare or Medicaid facility.
    (a) Standard: Inpatient care for symptom control. Inpatient care for 
pain control and symptom management must be provided in one of the 
following:
    (1) A hospice that meets the condition of participation for 
providing inpatient care directly as specified in Sec. 418.100.

[[Page 182]]

    (2) A hospital or an SNF that also meets the standards specified in 
Sec. 418.100 (a) and (e) regarding 24-hour nursing service and patient 
areas.
    (b) Standard: Inpatient care for respite purposes. Inpatient care 
for respite purposes must be provided by one of the following:
    (1) A provider specified in paragraph (a) of this section.
    (2) An ICF that also meets the standards specified in Sec. 418.100 
(a) and (e) regarding 24-hour nursing service and patient areas.
    (c) Standard: Inpatient care limitation. The total number of 
inpatient days used by Medicare beneficiaries who elected hospice 
coverage in any 12-month period preceding a certification survey in a 
particular hospice may not exceed 20 percent of the total number of 
hospice days for this group of beneficiaries.
    (d) Standard: Exemption from limitation. Until October 1, 1986, any 
hospice that began operation before January 1, 1975 is not subject to 
the limitation specified in paragraph (c).

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.100  Condition of participation Hospices that provide inpatient care directly.

    A hospice that provides inpatient care directly must comply with all 
of the following standards.
    (a) Standard: Twenty-four-hour nursing services. (1) The facility 
provides 24-hour nursing services which are sufficient to meet total 
nursing needs and which are in accordance with the patient plan of care. 
Each patient receives treatments, medications, and diet as prescribed, 
and is kept comfortable, clean, well-groomed, and protected from 
accident, injury, and infection.
    (2) Each shift must include a registered nurse who provides direct 
patient care.
    (b) Standard: Disaster preparedness. The hospice has an acceptable 
written plan, periodically rehearsed with staff, with procedures to be 
followed in the event of an internal or external disaster and for the 
care of casualties (patients and personnel) arising from such disasters.
    (c) Standard: Health and safety laws. The hospice must meet all 
Federal, State, and local laws, regulations, and codes pertaining to 
health and safety, such as provisions regulating--
    (1) Construction, maintenance, and equipment for the hospice;
    (2) Sanitation;
    (3) Communicable and reportable diseases; and
    (4) Post mortem procedures.
    (d) Standard: Fire protection. (1) Except as otherwise provided in 
this section--
    (i) The hospice must meet the provisions applicable to nursing homes 
of the 2000 edition of the Life Safety Code of the National Fire 
Protection Association. The Director of the Office of the Federal 
Register has approved the NFPA 101 [reg] 2000 edition of the 
Life Safety Code, issued January 14, 2000, for incorporation by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy 
of the Code is available for inspection at the CMS Information Resource 
Center, 7500 Security Boulevard, Baltimore, MD or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html. Copies may be obtained from the 
National Fire Protection Association, 1 Batterymarch Park, Quincy, MA 
02269. If any changes in this edition of the Code are incorporated by 
reference, CMS will publish notice in the Federal Register to announce 
the changes.
    (ii) Chapter 19.3.6.3.2, exception number 2 of the adopted edition 
of the LSC does not apply to a hospice.
    (2) In consideration of a recommendation by the State survey agency, 
CMS may waive, for periods deemed appropriate, specific provisions of 
the Life Safety Code which, if rigidly applied would result in 
unreasonable hardship for the hospice, but only if the waiver would not 
adversely affect the health and safety of the patients.
    (3) The provisions of the adopted edition of the Life Safety Code do 
not apply in a State if CMS finds that a fire and safety code imposed by 
State

[[Page 183]]

law adequately protects patients in hospices.
    (4) Beginning March 13, 2006, a hospice must be in compliance with 
Chapter 9.2.9, Emergency Lighting.
    (5) Beginning March 13, 2006, Chapter 19.3.6.3.2, exception number 2 
does not apply to hospices.
    (6) Notwithstanding any provisions of the 2000 edition of the Life 
Safety Code to the contrary, a hospice may place alcohol-based hand rub 
dispensers in its facility if--
    (i) Use of alcohol-based hand rub dispensers does not conflict with 
any State or local codes that prohibit or otherwise restrict the 
placement of alcohol-based hand rub dispensers in health care 
facilities;
    (ii) The dispensers are installed in a manner that minimizes leaks 
and spills that could lead to falls;
    (iii) The dispensers are installed in a manner that adequately 
protects against access by vulnerable populations; and
    (iv) The dispensers are installed in accordance with chapter 
18.3.2.7 or chapter 19.3.2.7 of the 2000 edition of the Life Safety 
Code, as amended by NFPA Temporary Interim Amendment 00-1(101), issued 
by the Standards Council of the National Fire Protection Association on 
April 15, 2004. The Director of the Office of the Federal Register has 
approved NFPA Temporary Interim Amendment 00-1(101) for incorporation by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. A copy 
of the amendment is available for inspection at the CMS Information 
Resource Center, 7500 Security Boulevard, Baltimore, MD and at the 
Office of the Federal Register, 800 North Capitol Street NW., Suite 700, 
Washington, DC. Copies may be obtained from the National Fire Protection 
Association, 1 Batterymarch Park, Quincy, MA 02269. If any additional 
changes are made to this amendment, CMS will publish notice in the 
Federal Register to announce the changes.
    (e) Standard: Patient areas. (1) The hospice must design and equip 
areas for the comfort and privacy of each patient and family members.
    (2) The hospice must have--
    (i) Physical space for private patient/family visiting;
    (ii) Accommodations for family members to remain with the patient 
throughout the night;
    (iii) Accommodations for family privacy after a patient's death; and
    (iv) Decor which is homelike in design and function.
    (3) Patients must be permitted to receive visitors at any hour, 
including small children.
    (f) Standard: Patient rooms and toilet facilities. Patient rooms are 
designed and equipped for adequate nursing care and the comfort and 
privacy of patients.
    (1) Each patient's room must--
    (i) Be equipped with or conveniently located near toilet and bathing 
facilities;
    (ii) Be at or above grade level;
    (iii) Contain a suitable bed for each patient and other appropriate 
furniture;
    (iv) Have closet space that provides security and privacy for 
clothing and personal belongings;
    (v) Contain no more than four beds;
    (vi) Measure at least 100 square feet for a single patient room or 
80 square feet for each patient for a multipatient room; and
    (vii) Be equipped with a device for calling the staff member on 
duty.
    (2) For an existing building, CMS may waive the space and occupancy 
requirements of paragraphs (f)(1) (v) and (vi) of this section for as 
long as it is considered appropriate if it finds that--
    (i) The requirements would result in unreasonable hardship on the 
hospice if strictly enforced; and
    (ii) The waiver serves the particular needs of the patients and does 
not adversely affect their health and safety.
    (g) Standard: Bathroom facilities. The hospice must--
    (1) Provide an adequate supply of hot water at all times for patient 
use; and
    (2) Have plumbing fixtures with control valves that automatically 
regulate the temperature of the hot water used by patients.
    (h) Standard: Linen. The hospice has available at all times a 
quantity of linen essential for proper care and comfort of patients. 
Linens are handled, stored, processed, and transported in such a manner 
as to prevent the spread of infection.

[[Page 184]]

    (i) Standard: Isolation areas. The hospice must make provision for 
isolating patients with infectious diseases.
    (j) Standard: Meal service, menu planning, and supervision. The 
hospice must--
    (1) Serve at least three meals or their equivalent each day at 
regular times, with not more than 14 hours between a substantial evening 
meal and breakfast;
    (2) Procure, store, prepare, distribute, and serve all food under 
sanitary conditions;
    (3) Have a staff member trained or experienced in food management or 
nutrition who is responsible for--
    (i) Planning menus that meet the nutritional needs of each patient, 
following the orders of the patient's physician and, to the extent 
medically possible, the recommended dietary allowances of the Food and 
Nutrition Board of the National Research Council, National Academy of 
Sciences (Recommended Dietary Allowances (9th ed., 1981) is available 
from the Printing and Publications Office, National Academy of Sciences, 
Washington, DC 20418); and
    (ii) Supervising the meal preparation and service to ensure that the 
menu plan is followed; and
    (4) If the hospice has patients who require medically prescribed 
special diets, have the menus for those patients planned by a 
professionally qualified dietitian and supervise the preparation and 
serving of meals to ensure that the patient accepts the special diet.
    (k) Standard: Pharmaceutical services. The hospice provides 
appropriate methods and procedures for the dispensing and administering 
of drugs and biologicals. Whether drugs and biologicals are obtained 
from community or institutional pharmacists or stocked by the facility, 
the facility is responsible for drugs and biologicals for its patients, 
insofar as they are covered under the program and for ensuring that 
pharmaceutical services are provided in accordance with accepted 
professional principles and appropriate Federal, State, and local laws. 
(See Sec. 405.1124(g), (h), and (i) of this chapter.)
    (1) Licensed pharmacist. The hospice must--
    (i) Employ a licensed pharmacist; or
    (ii) Have a formal agreement with a licensed pharmacist to advise 
the hospice on ordering, storage, administration, disposal, and 
recordkeeping of drugs and biologicals.
    (2) Orders for medications. (i) A physician must order all 
medications for the patient.
    (ii) If the medication order is verbal--
    (A) The physician must give it only to a licensed nurse, pharmacist, 
or another physician; and
    (B) The individual receiving the order must record and sign it 
immediately and have the prescribing physician sign it in a manner 
consistent with good medical practice.
    (3) Administering medications. Medications are administered only by 
one of the following individuals:
    (i) A licensed nurse or physician.
    (ii) An employee who has completed a State-approved training program 
in medication administration.
    (iii) The patient if his or her attending physician has approved.
    (4) Control and accountability. The pharmaceutical service has 
procedures for control and accountability of all drugs and biologicals 
throughout the facility. Drugs are dispensed in compliance with Federal 
and State laws. Records of receipt and disposition of all controlled 
drugs are maintained in sufficient detail to enable an accurate 
reconciliation. The pharmacist determines that drug records are in order 
and that an account of all controlled drugs is maintained and 
reconciled.
    (5) Labeling of drugs and biologicals. The labeling of drugs and 
biologicals is based on currently accepted professional principles, and 
includes the appropriate accessory and cautionary instructions, as well 
as the expiration date when applicable.
    (6) Storage. In accordance with State and Federal laws, all drugs 
and biologicals are stored in locked compartments under proper 
temperature controls and only authorized personnel have access to the 
keys. Separately locked compartments are provided for storage of 
controlled drugs listed in Schedule II of the Comprehensive Drug Abuse 
Prevention & Control Act of 1970 and other drugs subject to abuse, 
except under single unit package drug

[[Page 185]]

distribution systems in which the quantity stored is minimal and a 
missing dose can be readily detected. An emergency medication kit is 
kept readily available.
    (7) Drug disposal. Controlled drugs no longer needed by the patient 
are disposed of in compliance with State requirements. In the absence of 
State requirements, the pharmacist and a registered nurse dispose of the 
drugs and prepare a record of the disposal.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983; 49 FR 23010, 
June 1, 1984, as amended at 53 FR 11509, Apr. 7, 1988; 55 FR 50835, Dec. 
11, 1990; 68 FR 1386, Jan. 10, 2003; 69 FR 18803, Apr. 9, 2004; 69 FR 
49266, Aug. 11, 2004; 70 FR 15237, Mar. 25, 2005]

    Effective Date Note: At 71 FR 55339, Sept. 22, 2006, Sec. 418.100 
was amended by revising paragraph (d)(6)(iii), by amending paragraph 
(d)(6)(iv) by removing the last sentence and by removing the period at 
the end of the paragraph and adding in its place ``; and'' and by adding 
paragraph (d)(6)(v), effective October 23, 2006. For the convenience of 
the user, the revised text is set forth as follows:



Sec. 418.100  Condition of participation: Hospices that provide 
          inpatient care directly.

                                * * * * *

    (d) * * *
    (6) * * *
    (iii) The dispensers are installed in a manner that adequately 
protects against inappropriate access;

                                * * * * *

    (v) The dispensers are maintained in accordance with dispenser 
manufacturer guidelines.

                                * * * * *



                       Subpart F_Covered Services



Sec. 418.200  Requirements for coverage.

    To be covered, hospice services must meet the following 
requirements. They must be reasonable and necessary for the palliation 
or management of the terminal illness as well as related conditions. The 
individual must elect hospice care in accordance with Sec. 418.24 and a 
plan of care must be established as set forth in Sec. 418.58 before 
services are provided. The services must be consistent with the plan of 
care. A certification that the individual is terminally ill must be 
completed as set forth in Sec. 418.22.



Sec. 418.202  Covered services.

    All services must be performed by appropriately qualified personnel, 
but it is the nature of the service, rather than the qualification of 
the person who provides it, that determines the coverage category of the 
service. The following services are covered hospice services:
    (a) Nursing care provided by or under the supervision of a 
registered nurse.
    (b) Medical social services provided by a social worker under the 
direction of a physician.
    (c) Physicians' services performed by a physician as defined in 
Sec. 410.20 of this chapter except that the services of the hospice 
medical director or the physician member of the interdisciplinary group 
must be performed by a doctor of medicine or osteopathy.
    (d) Counseling services provided to the terminally ill individual 
and the family members or other persons caring for the individual at 
home. Counseling, including dietary counseling, may be provided both for 
the purpose of training the individual's family or other caregiver to 
provide care, and for the purpose of helping the individual and those 
caring for him or her to adjust to the individual's approaching death.
    (e) Short-term inpatient care provided in a participating hospice 
inpatient unit, or a participating hospital or SNF, that additionally 
meets the standards in Sec. 418.202 (a) and (e) regarding staffing and 
patient areas. Services provided in an inpatient setting must conform to 
the written plan of care. Inpatient care may be required for procedures 
necessary for pain control or acute or chronic symptom management.

Inpatient care may also be furnished as a means of providing respite for 
the individual's family or other persons caring for the individual at 
home. Respite care must be furnished as specified in Sec. 418.98(b). 
Payment for inpatient care will be made at the rate appropriate to the 
level of care as specified in Sec. 418.302.
    (f) Medical appliances and supplies, including drugs and 
biologicals. Only

[[Page 186]]

drugs as defined in section 1861(t) of the Act and which are used 
primarily for the relief of pain and symptom control related to the 
individual's terminal illness are covered. Appliances may include 
covered durable medical equipment as described in Sec. 410.38 of this 
chapter as well as other self-help and personal comfort items related to 
the palliation or management of the patient's terminal illness. 
Equipment is provided by the hospice for use in the patient's home while 
he or she is under hospice care. Medical supplies include those that are 
part of the written plan of care.
    (g) Home health aide services furnished by qualified aides as 
designated in Sec. 418.94 and homemaker services. Home health aides may 
provide personal care services as defined in Sec. 409.45(b) of this 
chapter. Aides may perform household services to maintain a safe and 
sanitary environment in areas of the home used by the patient, such as 
changing bed linens or light cleaning and laundering essential to the 
comfort and cleanliness of the patient. Aide services must be provided 
under the general supervision of a registered nurse. Homemaker services 
may include assistance in maintenance of a safe and healthy environment 
and services to enable the individual to carry out the treatment plan.
    (h) Physical therapy, occupational therapy and speech-language 
pathology services in addition to the services described in Sec. 409.33 
(b) and (c) of this chapter provided for purposes of symptom control or 
to enable the patient to maintain activities of daily living and basic 
functional skills.
    (i) Effective April 1, 1998, any other service that is specified in 
the patient's plan of care as reasonable and necessary for the 
palliation and management of the patient's terminal illness and related 
conditions and for which payment may otherwise be made under Medicare.

[48 FR 56026, Dec. 16, 1983, as amended at 51 FR 41351, Nov. 14, 1986; 
55 FR 50835, Dec. 11, 1990; 59 FR 65498, Dec. 20, 1994; 70 FR 70547, 
Nov. 22, 2005]



Sec. 418.204  Special coverage requirements.

    (a) Periods of crisis. Nursing care may be covered on a continuous 
basis for as much as 24 hours a day during periods of crisis as 
necessary to maintain an individual at home. Either homemaker or home 
health aide services or both may be covered on a 24-hour continuous 
basis during periods of crisis but care during these periods must be 
predominantly nursing care. A period of crisis is a period in which the 
individual requires continuous care to achieve palliation or management 
of acute medical symptoms.
    (b) Respite care. (1) Respite care is short-term inpatient care 
provided to the individual only when necessary to relieve the family 
members or other persons caring for the individual.
    (2) Respite care may be provided only on an occasional basis and may 
not be reimbursed for more than five consecutive days at a time.
    (c) Bereavement counseling. Bereavement counseling is a required 
hospice service but it is not reimbursable.

[48 FR 56026, Dec. 16, 1983, as amended at 55 FR 50835, Dec. 11, 1990]



Sec. 418.205  Special requirements for hospice pre-election evaluation and counseling services.

    (a) Definition. As used in this section the following definition 
applies.
    Terminal illness has the same meaning as defined in Sec. 418.3.
    (b) General. Effective January 1, 2005, payment for hospice pre-
election evaluation and counseling services as specified in Sec. 
418.304(d) may be made to a hospice on behalf of a Medicare beneficiary 
if the requirements of this section are met.
    (1) The beneficiary. The beneficiary:
    (i) Has been diagnosed as having a terminal illness as defined in 
Sec. 418.3.
    (ii) Has not made a hospice election.
    (iii) Has not previously received hospice pre-election evaluation 
and consultation services specified under this section.
    (2) Services provided. The hospice pre-election services include an 
evaluation of an individual's need for pain and symptom management and 
counseling

[[Page 187]]

regarding hospice and other care options. In addition, the services may 
include advising the individual regarding advanced care planning.
    (3) Provision of pre-election hospice services. (i) The services 
must be furnished by a physician.
    (ii) The physician furnishing these services must be an employee or 
medical director of the hospice billing for this service.
    (iii) The services cannot be furnished by hospice personnel other 
than employed physicians, such as but not limited to nurse 
practitioners, nurses, or social workers, physicians under contractual 
arrangements with the hospice or by the beneficiary's physician, if that 
physician is not an employee of the hospice.
    (iv) If the beneficiary's attending physician is also the medical 
director or a physician employee of the hospice, the attending physician 
may not provide nor may the hospice bill for this service because that 
physician already possesses the expertise necessary to furnish end-of-
life evaluation and management, and counseling services.
    (4) Documentation. (i) If the individual's physician initiates the 
request for services of the hospice medical director or physician, 
appropriate documentation is required.
    (ii) The request or referral must be in writing, and the hospice 
medical director or physician employee is expected to provide a written 
note on the patient's medical record.
    (iii) The hospice agency employing the physician providing these 
services is required to maintain a written record of the services 
furnished.
    (iv) If the services are initiated by the beneficiary, the hospice 
agency is required to maintain a record of the services and 
documentation that communication between the hospice medical director or 
physician and the beneficiary's physician occurs, with the beneficiary's 
permission, to the extent necessary to ensure continuity of care.

[69 FR 66425, Nov. 15, 2004]



                   Subpart G_Payment for Hospice Care



Sec. 418.301  Basic rules.

    (a) Medicare payment for covered hospice care is made in accordance 
with the method set forth in Sec. 418.302.
    (b) Medicare reimbursement to a hospice in a cap period is limited 
to a cap amount specified in Sec. 418.309.
    (c) The hospice may not charge a patient for services for which the 
patient is entitled to have payment made under Medicare or for services 
for which the patient would be entitled to payment, as described in 
Sec. 489.21 of this chapter.

[48 FR 56026, Dec. 16, 1983, as amended at 56 FR 26919, June 12, 1991; 
70 FR 70547, Nov. 22, 2005]



Sec. 418.302  Payment procedures for hospice care.

    (a) CMS establishes payment amounts for specific categories of 
covered hospice care.
    (b) Payment amounts are determined within each of the following 
categories:
    (1) Routine home care day. A routine home care day is a day on which 
an individual who has elected to receive hospice care is at home and is 
not receiving continuous care as defined in paragraph (b)(2) of this 
section.
    (2) Continuous home care day. A continuous home care day is a day on 
which an individual who has elected to receive hospice care is not in an 
inpatient facility and receives hospice care consisting predominantly of 
nursing care on a continuous basis at home. Home health aide or 
homemaker services or both may also be provided on a continuous basis. 
Continuous home care is only furnished during brief periods of crisis as 
described in Sec. 418.204(a) and only as necessary to maintain the 
terminally ill patient at home.
    (3) Inpatient respite care day. An inpatient respite care day is a 
day on which the individual who has elected hospice care receives care 
in an approved facility on a short-term basis for respite.
    (4) General inpatient care day. A general inpatient care day is a 
day on which an individual who has elected hospice care receives general 
inpatient care in an inpatient facility for pain control or acute or 
chronic symptom

[[Page 188]]

management which cannot be managed in other settings.
    (c) The payment amounts for the categories of hospice care are fixed 
payment rates that are established by CMS in accordance with the 
procedures described in Sec. 418.306. Payment rates are determined for 
the following categories:
    (1) Routine home care.
    (2) Continuous home care.
    (3) Inpatient respite care.
    (4) General inpatient care.
    (d)(1) The intermediary reimburses the hospice its appropriate 
payment amount for each day for which an eligible Medicare beneficiary 
is under the hospice's care.
    (2) Effective December 8, 2003, if a hospice makes arrangements with 
another hospice to provide services under the circumstances specified in 
section 1861(dd)(5)(D) of the Act, the intermediary reimburses the 
hospice for which the beneficiary has made an election as described in 
paragraph (d)(1) of this section.
    (e) The intermediary makes payment according to the following 
procedures:
    (1) Payment is made to the hospice for each day during which the 
beneficiary is eligible and under the care of the hospice, regardless of 
the amount of services furnished on any given day.
    (2) Payment is made for only one of the categories of hospice care 
described in Sec. 418.302(b) for any particular day.
    (3) On any day on which the beneficiary is not an inpatient, the 
hospice is paid the routine home care rate, unless the patient receives 
continuous care as defined in paragraph (b)(2) of this section for a 
period of at least 8 hours. In that case, a portion of the continuous 
care day rate is paid in accordance with paragraph (e)(4) of this 
section.
    (4) The hospice payment on a continuous care day varies depending on 
the number of hours of continuous services provided. The continuous home 
care rate is divided by 24 to yield an hourly rate. The number of hours 
of continuous care provided during a continuous home care day is then 
multiplied by the hourly rate to yield the continuous home care payment 
for that day. A minimum of 8 hours of care must be furnished on a 
particular day to qualify for the continuous home care rate.
    (5) Subject to the limitations described in paragraph (f) of this 
section, on any day on which the beneficiary is an inpatient in an 
approved facility for inpatient care, the appropriate inpatient rate 
(general or respite) is paid depending on the category of care 
furnished. The inpatient rate (general or respite) is paid for the date 
of admission and all subsequent inpatient days, except the day on which 
the patient is discharged. For the day of discharge, the appropriate 
home care rate is paid unless the patient dies as an inpatient. In the 
case where the beneficiary is discharged deceased, the inpatient rate 
(general or respite) is paid for the discharge day. Payment for 
inpatient respite care is subject to the requirement that it may not be 
provided consecutively for more than 5 days at a time. Payment for the 
sixth and any subsequent day of respite care is made at the routine home 
care rate.
    (f) Payment for inpatient care is limited as follows: (1) The total 
payment to the hospice for inpatient care (general or respite) is 
subject to a limitation that total inpatient care days for Medicare 
patients not exceed 20 percent of the total days for which these 
patients had elected hospice care.
    (2) At the end of a cap period, the intermediary calculates a 
limitation on payment for inpatient care to ensure that Medicare payment 
is not made for days of inpatient care in excess of 20 percent of the 
total number of days of hospice care furnished to Medicare patients.
    (3) If the number of days of inpatient care furnished to Medicare 
patients is equal to or less than 20 percent of the total days of 
hospice care to Medicare patients, no adjustment is necessary. Overall 
payments to a hospice are subject to the cap amount specified in Sec. 
418.309.
    (4) If the number of days of inpatient care furnished to Medicare 
patients exceeds 20 percent of the total days of hospice care to 
Medicare patients, the total payment for inpatient care is determined in 
accordance with the procedures specified in paragraph (f)(5) of this 
section. That amount is compared to actual payments for inpatient care,

[[Page 189]]

and any excess reimbursement must be refunded by the hospice. Overall 
payments to the hospice are subject to the cap amount specified in Sec. 
418.309.
    (5) If a hospice exceeds the number of inpatient care days described 
in paragraph (f)(4), the total payment for inpatient care is determined 
as follows:
    (i) Calculate the ratio of the maximum number of allowable inpatient 
days to the actual number of inpatient care days furnished by the 
hospice to Medicare patients.
    (ii) Multiply this ratio by the total reimbursement for inpatient 
care made by the intermediary.
    (iii) Multiply the number of actual inpatient days in excess of the 
limitation by the routine home care rate.
    (iv) Add the amounts calculated in paragraphs (f)(5)(ii) and (iii) 
of this section.
    (g) Payment for routine home care and continuous home care is made 
on the basis of the geographic location where the service is provided.

[48 FR 56026, Dec. 16, 1983, as amended at 56 FR 26919, June 12, 1991; 
70 FR 45145, Aug. 4, 2005; 70 FR 70547, Nov. 22, 2005]



Sec. 418.304  Payment for physician and nurse practitioner services.

    (a) The following services performed by hospice physicians and nurse 
practitioners are included in the rates described in Sec. 418.302:
    (1) General supervisory services of the medical director.
    (2) Participation in the establishment of plans of care, supervision 
of care and services, periodic review and updating of plans of care, and 
establishment of governing policies by the physician member of the 
interdisciplinary group.
    (b) For services not described in paragraph (a) of this section, a 
specified Medicare contractor pays the hospice an amount equivalent to 
100 percent of the physician fee schedule for those physician services 
furnished by hospice employees or under arrangements with the hospice. 
Reimbursement for these physician services is included in the amount 
subject to the hospice payment limit described in Sec. 418.309. 
Services furnished voluntarily by physicians are not reimbursable.
    (c) Services of the patient's attending physician, if he or she is 
not an employee of the hospice or providing services under arrangements 
with the hospice, are not considered hospice services and are not 
included in the amount subject to the hospice payment limit described in 
Sec. 418.309. These services are paid by the carrier under the 
procedures in subpart B, part 414 of this chapter.
    (d) Payment for hospice pre-election evaluation and counseling 
services. The intermediary makes payment to the hospice for the services 
established in Sec. 418.205. Payment for this service is set at an 
amount established under the physician fee schedule, for an office or 
other outpatient visit for evaluation and management associated with 
presenting problems of moderate severity and requiring medical decision-
making of low complexity other than the portion of the amount 
attributable to the practice expense component. Payment for this pre-
election service does not count towards the hospice cap amount.
    (e)(1) Effective December 8, 2003, Medicare pays for attending 
physician services provided by nurse practitioners to Medicare 
beneficiaries who have elected the hospice benefit and who have selected 
a nurse practitioner as their attending physician. This applies to nurse 
practitioners without regard to whether they are hospice employees.
    (2) Nurse practitioners may bill and receive payment for services 
only if the--
    (i) Nurse practitioner is the beneficiary's attending physician as 
defined in Sec. 418.3;
    (ii) Services are medically reasonable and necessary;
    (iii) Services are performed by a physician in the absence of the 
nurse practitioner; and
    (iv) Services are not related to the certification of terminal 
illness specified in Sec. 418.22.
    (3) Payment for nurse practitioner services are made at 85 percent 
of the physician fee schedule amount.

[48 FR 56026, Dec. 16, 1983, as amended at 69 FR 66426, Nov. 15, 2004; 
70 FR 45145, Aug. 4, 2005; 70 FR 70547, Nov. 22, 2005]

[[Page 190]]



Sec. 418.306  Determination of payment rates.

    (a) Applicability. CMS establishes payment rates for each of the 
categories of hospice care described in Sec. 418.302(b). The rates are 
established using the methodology described in section 1814(i)(1)(C) of 
the Act.
    (b) Payment rates. The payment rates for routine home care and other 
services included in hospice care are as follows:
    (1) The following rates, which are 120 percent of the rates in 
effect on September 30, 1989, are effective January 1, 1990 through 
September 30, 1990 and October 21, 1990 through December 31, 1990:

Routine home care.............................................    $75.80
Continuous home care:
  Full rate for 24 hours......................................    442.40
  Hourly rate.................................................     18.43
Inpatient respite care........................................     78.40
General inpatient care........................................    337.20
 

    (2) Except for the period beginning October 21, 1990, through 
December 31, 1990, the payment rates for routine home care and other 
services included in hospice care for Federal fiscal years 1991, 1992, 
and 1993 and those that begin on or after October 1, 1997, are the 
payment rates in effect under this paragraph during the previous fiscal 
year increased by the market basket percentage increase as defined in 
section 1886(b)(3)(B)(iii) of the Act, otherwise applicable to 
discharges occurring in the fiscal year. The payment rates for the 
period beginning October 21, 1990, through December 31, 1990, are the 
same as those shown in paragraph (b)(1) of this section.
    (3) For Federal fiscal years 1994 through 2002, the payment rate is 
the payment rate in effect during the previous fiscal year increased by 
a factor equal to the market basket percentage increase minus--
    (i) 2 percentage points in FY 1994;
    (ii) 1.5 percentage points in FYs 1995 and 1996;
    (iii) 0.5 percentage points in FY 1997; and
    (iv) 1 percentage point in FY 1998 through FY 2002.
    (4) For Federal fiscal year 2001, the payment rate is the payment 
rate in effect during the previous fiscal year increased by a factor 
equal to the market basket percentage increase plus 5 percentage points. 
However, this payment rate is effective only for the period April 1, 
2001 through September 30, 2001. For the period October 1, 2000 through 
March 31, 2001, the payment rate is based upon the rule under paragraph 
(b)(3)(iv) of this section. The payment rate in effect during the period 
April 1, 2001 through September 30, 2001 is considered the payment rate 
in effect during fiscal year 2001.
    (5) The payment rate for hospice services furnished during fiscal 
years 2001 and 2002 is increased by an additional 0.5 percent and 0.75 
percent, respectively. This additional amount is not included in 
updating the payment rate as described in paragraph (b)(3) of this 
section.
    (c) Adjustment for wage differences. CMS will issue annually, in the 
Federal Register, a hospice wage index based on the most current 
available CMS hospital wage data, including any changes to the 
definitions of Metropolitan Statistical Areas. The payment rates 
established by CMS are adjusted by the intermediary to reflect local 
differences in wages according to the revised wage index.
    (d) Federal Register notices. CMS publishes as a notice in the 
Federal Register any proposal to change the methodology for determining 
the payment rates.

[56 FR 26919, June 12, 1991, as amended at 59 FR 26960, May 25, 1994; 62 
FR 42882, Aug. 8, 1997; 70 FR 70548, Nov. 22, 2005]



Sec. 418.307  Periodic interim payments.

    Subject to the provisions of Sec. 413.64(h) of this chapter, a 
hospice may elect to receive periodic interim payments (PIP) effective 
with claims received on or after July 1, 1987. Payment is made biweekly 
under the PIP method unless the hospice requests a longer fixed interval 
(not to exceed one month) between payments. The biweekly interim payment 
amount is based on the total estimated Medicare payments for the 
reporting period (as described in Sec. Sec. 418.302-418.306). Each 
payment is made 2 weeks after the end of a biweekly period of service as 
described in Sec. 413.64(h)(5) of this chapter. Under certain 
circumstances that are described in Sec. 413.64(g) of this chapter, a 
hospice

[[Page 191]]

that is not receiving PIP may request an accelerated payment.

[59 FR 36713, July 19, 1994]



Sec. 418.308  Limitation on the amount of hospice payments.

    (a) Except as specified in paragraph (b) of this section, the total 
Medicare payment to a hospice for care furnished during a cap period is 
limited by the hospice cap amount specified in Sec. 418.309.
    (b) Until October 1, 1986, payment to a hospice that began operation 
before January 1, 1975 is not limited by the amount of the hospice cap 
specified in Sec. 418.309.
    (c) The intermediary notifies the hospice of the determination of 
program reimbursement at the end of the cap year in accordance with 
procedures similar to those described in Sec. 405.1803 of this chapter.
    (d) Payments made to a hospice during a cap period that exceed the 
cap amount are overpayments and must be refunded.

[48 FR 56026, Dec. 16, 1983; 48 FR 57282, Dec. 29, 1983]



Sec. 418.309  Hospice cap amount.

    The hospice cap amount is calculated using the following procedures:
    (a) The cap amount is $6,500 per year and is adjusted for inflation 
or deflation for cap years that end after October 1, 1984, by using the 
percentage change in the medical care expenditure category of the 
Consumer Price Index (CPI) for urban consumers that is published by the 
Bureau of Labor Statistics. This adjustment is made using the change in 
the CPI from March 1984 to the fifth month of the cap year. The cap year 
runs from November 1 of each year until October 31 of the following 
year.
    (b) Each hospice's cap amount is calculated by the intermediary by 
multiplying the adjusted cap amount determined in paragraph (a) of this 
section by the number of Medicare beneficiaries who elected to receive 
hospice care from that hospice during the cap period. For purposes of 
this calculation, the number of Medicare beneficiaries includes--
    (1) Those Medicare beneficiaries who have not previously been 
included in the calculation of any hospice cap and who have filed an 
election to receive hospice care, in accordance with Sec. 418.24, from 
the hospice during the period beginning on September 28 (35 days before 
the beginning of the cap period) and ending on September 27 (35 days 
before the end of the cap period).
    (2) In the case in which a beneficiary has elected to receive care 
from more than one hospice, each hospice includes in its number of 
Medicare beneficiaries only that fraction which represents the portion 
of a patient's total stay in all hospices that was spent in that 
hospice. (The hospice can obtain this information by contacting the 
intermediary.)



Sec. 418.310  Reporting and recordkeeping requirements.

    Hospices must provide reports and keep records as the Secretary 
determines necessary to administer the program.



Sec. 418.311  Administrative appeals.

    A hospice that believes its payments have not been properly 
determined in accordance with these regulations may request a review 
from the intermediary or the Provider Reimbursement Review Board (PRRB) 
if the amount in controversy is at least $1,000 or $10,000, 
respectively. In such a case, the procedure in 42 CFR part 405, subpart 
R, will be followed to the extent that it is applicable. The PRRB, 
subject to review by the Secretary under Sec. 405.1874 of this chapter, 
shall have the authority to determine the issues raised. The methods and 
standards for the calculation of the payment rates by CMS are not 
subject to appeal.



                          Subpart H_Coinsurance



Sec. 418.400  Individual liability for coinsurance for hospice care.

    An individual who has filed an election for hospice care in 
accordance with Sec. 418.24 is liable for the following coinsurance 
payments. Hospices may charge individuals the applicable coinsurance 
amounts.

[[Page 192]]

    (a) Drugs and biologicals. An individual is liable for a coinsurance 
payment for each palliative drug and biological prescription furnished 
by the hospice while the individual is not an inpatient. The amount of 
coinsurance for each prescription approximates 5 percent of the cost of 
the drug or biological to the hospice determined in accordance with the 
drug copayment schedule established by the hospice, except that the 
amount of coinsurance for each prescription may not exceed $5. The cost 
of the drug or biological may not exceed what a prudent buyer would pay 
in similar circumstances. The drug copayment schedule must be reviewed 
for reasonableness and approved by the intermediary before it is used.
    (b) Respite care. (1) The amount of coinsurance for each respite 
care day is equal to 5 percent of the payment made by CMS for a respite 
care day.
    (2) The amount of the individual's coinsurance liability for respite 
care during a hospice coinsurance period may not exceed the inpatient 
hospital deductible applicable for the year in which the hospice 
coinsurance period began.
    (3) The individual hospice coinsurance period--
    (i) Begins on the first day an election filed in accordance with 
Sec. 418.24 is in effect for the beneficiary; and
    (ii) Ends with the close of the first period of 14 consecutive days 
on each of which an election is not in effect for the beneficiary.



Sec. 418.402  Individual liability for services that are not considered hospice care.

    Medicare payment to the hospice discharges an individual's liability 
for payment for all services, other than the hospice coinsurance amounts 
described in Sec. 418.400, that are considered covered hospice care (as 
described in Sec. 418.202). The individual is liable for the Medicare 
deductibles and coinsurance payments and for the difference between the 
reasonable and actual charge on unassigned claims on other covered 
services that are not considered hospice care. Examples of services not 
considered hospice care include: Services furnished before or after a 
hospice election period; services of the individual's attending 
physician, if the attending physician is not an employee of or working 
under an arrangement with the hospice; or Medicare services received for 
the treatment of an illness or injury not related to the individual's 
terminal condition.



Sec. 418.405  Effect of coinsurance liability on Medicare payment.

    The Medicare payment rates established by CMS in accordance with 
Sec. 418.306 are not reduced when the individual is liable for 
coinsurance payments. Instead, when establishing the payment rates, CMS 
offsets the estimated cost of services by an estimate of average 
coinsurance amounts hospices collect.

[56 FR 26919, June 12, 1991]



PART 419_PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES--Table of Contents




                      Subpart A_General Provisions

Sec.
419.1 Basis and scope.
419.2 Basis of payment.

 Subpart B_Categories of Hospitals and Services Subject to and Excluded 
         From the Hospital Outpatient Prospective Payment System

419.20 Hospitals subject to the hospital outpatient prospective payment 
          system.
419.21 Hospital outpatient services subject to the outpatient 
          prospective payment system.
419.22 Hospital outpatient services excluded from payment under the 
          hospital outpatient prospective payment system.

 Subpart C_Basic Methodology for Determining Prospective Payment Rates 
                    for Hospital Outpatient Services

419.30 Base expenditure target for calendar year 1999.
419.31 Ambulatory payment classification (APC) system and payment 
          weights.
419.32 Calculation of prospective payment rates for hospital outpatient 
          services.

                     Subpart D_Payments to Hospitals

419.40 Payment concepts.
419.41 Calculation of national beneficiary copayment amounts and 
          national Medicare program payment amounts.

[[Page 193]]

419.42 Hospital election to reduce copayment.
419.43 Adjustments to national program payment and beneficiary copayment 
          amounts.
419.44 Payment reductions for surgical procedures.

                            Subpart E_Updates

419.50 Annual updates.

                     Subpart F_Limitations on Review

419.60 Limitations on administrative and judicial review.

              Subpart G_Transitional Pass-through Payments

419.62 Transitional pass-through payments: General rules.
419.64 Transitional pass-through payments: Drugs and biologicals.
419.66 Transitional pass-through payments: Medical devices.

                    Subpart H_Transitional Corridors

419.70 Transitional adjustment to limit decline in payment.

    Authority: Secs. 1102, 1833(t), and 1871 of the Social Security Act 
(42 U.S.C. 1302, 1395l(t), and 1395hh).

    Source: 65 FR 18542, Apr. 7, 2000, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 419.1  Basis and scope.

    (a) Basis. This part implements section 1833(t) of the Act by 
establishing a prospective payment system for services furnished on or 
after July 1, 2000 by hospital outpatient departments to Medicare 
beneficiaries who are registered on hospital records as outpatients.
    (b) Scope. This subpart describes the basis of payment for 
outpatient hospital services under the prospective payment system. 
Subpart B sets forth the categories of hospitals and services that are 
subject to the outpatient hospital prospective payment system and those 
categories of hospitals and services that are excluded from the 
outpatient hospital prospective payment system. Subpart C sets forth the 
basic methodology by which prospective payment rates for hospital 
outpatient services are determined. Subpart D describes Medicare payment 
amounts, beneficiary copayment amounts, and methods of payment to 
hospitals under the hospital outpatient prospective payment system. 
Subpart E describes how the hospital outpatient prospective payment 
system may be updated. Subpart F describes limitations on administrative 
and judicial review. Subpart G describes the transitional payment 
adjustments that are made before 2004 to limit declines in payment for 
outpatient services.



Sec. 419.2  Basis of payment.

    (a) Unit of payment. Under the hospital outpatient prospective 
payment system, predetermined amounts are paid for designated services 
furnished to Medicare beneficiaries. These services are identified by 
codes established under the Centers for Medicare & Medicaid Services 
Common Procedure Coding System (HCPCS). The prospective payment rate for 
each service or procedure for which payment is allowed under the 
hospital outpatient prospective payment system is determined according 
to the methodology described in subpart C of this part. The manner in 
which the Medicare payment amount and the beneficiary copayment amount 
for each service or procedure are determined is described in subpart D 
of this part.
    (b) Determination of hospital outpatient prospective payment rates: 
Included costs. The prospective payment system establishes a national 
payment rate, standardized for geographic wage differences, that 
includes operating and capital-related costs that are directly related 
and integral to performing a procedure or furnishing a service on an 
outpatient basis. In general, these costs include, but are not limited 
to--
    (1) Use of an operating suite, procedure room, or treatment room;
    (2) Use of recovery room;
    (3) Use of an observation bed;
    (4) Anesthesia, certain drugs, biologicals, and other 
pharmaceuticals; medical and surgical supplies and equipment; surgical 
dressings; and devices used for external reduction of fractures and 
dislocations;
    (5) Supplies and equipment for administering and monitoring 
anesthesia or sedation;
    (6) Intraocular lenses (IOLs);

[[Page 194]]

    (7) Incidental services such as venipuncture;
    (8) Capital-related costs;
    (9) Implantable items used in connection with diagnostic X-ray 
tests, diagnostic laboratory tests, and other diagnostic tests;
    (10) Durable medical equipment that is implantable;
    (11) Implantable prosthetic devices (other than dental) which 
replace all or part of an internal body organ (including colostomy bags 
and supplies directly related to colostomy care), including replacement 
of these devices; and
    (12) Costs incurred to procure donor tissue other than corneal 
tissue.
    (c) Determination of hospital outpatient prospective payment rates: 
Excluded costs. The following costs are excluded from the hospital 
outpatient prospective payment system.
    (1) The costs of direct graduate medical education activities as 
described in Sec. Sec. 413.75 through 413.83 of this chapter.
    (2) The costs of nursing and allied health programs as described in 
Sec. 413.85 of this chapter.
    (3) The costs associated with interns and residents not in approved 
teaching programs as described in Sec. 415.202 of this chapter.
    (4) The costs of teaching physicians attributable to Part B services 
for hospitals that elect cost-based reimbursement for teaching 
physicians under Sec. 415.160.
    (5) The reasonable costs of anesthesia services furnished to 
hospital outpatients by qualified nonphysician anesthetists (certified 
registered nurse anesthetists and anesthesiologists' assistants) 
employed by the hospital or obtained under arrangements, for hospitals 
that meet the requirements under Sec. 412.113(c) of this chapter.
    (6) Bad debts for uncollectible deductibles and coinsurances as 
described in Sec. 413.89(b) of this chapter.
    (7) Organ acquisition costs paid under Part B.
    (8) Corneal tissue acquisition costs.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 70 
FR 47490, Aug. 12, 2005]



 Subpart B_Categories of Hospitals and Services Subject to and Excluded 
         From the Hospital Outpatient Prospective Payment System



Sec. 419.20  Hospitals subject to the hospital outpatient prospective payment system.

    (a) Applicability. The hospital outpatient prospective payment 
system is applicable to any hospital participating in the Medicare 
program, except those specified in paragraph (b) of this section, for 
services furnished on or after August 1, 2000.
    (b) Hospitals excluded from the outpatient prospective payment 
system. (1) Those services furnished by Maryland hospitals that are paid 
under a cost containment waiver in accordance with section 1814(b)(3) of 
the Act are excluded from the hospital outpatient prospective payment 
system.
    (2) Critical access hospitals (CAHs) are excluded from the hospital 
outpatient prospective payment system.
    (3) A hospital located outside one of the 50 States, the District of 
Columbia, and Puerto Rico is excluded from the hospital outpatient 
prospective payment system.
    (4) A hospital of the Indian Health Service.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001]



Sec. 419.21  Hospital outpatient services subject to the outpatient prospective payment system.

    Except for services described in Sec. 419.22, effective for 
services furnished on or after July 1, 2000, payment is made under the 
hospital outpatient prospective payment system for the following:
    (a) Medicare Part B services furnished to hospital outpatients 
designated by the Secretary under this part.
    (b) Services designated by the Secretary that are covered under 
Medicare Part B when furnished to hospital inpatients who are either not 
entitled to benefits under Part A or who have exhausted their Part A 
benefits but are entitled to benefits under Part B of the program.

[[Page 195]]

    (c) Partial hospitalization services furnished by community mental 
health centers (CMHCs).
    (d) The following medical and other health services furnished by a 
comprehensive outpatient rehabilitation facility (CORF) when they are 
provided outside the patient's plan (of care); or by a home health 
agency (HHA) to patients who are not under an HHA plan or treatment; or 
by a hospice program furnishing services to patients outside the hospice 
benefit:
    (1) Antigens.
    (2) Splints and casts.
    (3) Hepatitis B vaccine.
    (e) Effective January 1, 2005, an initial preventive physical 
examination, as defined in Sec. 410.16 of this chapter, if the 
examination is performed no later than 6 months after the individual's 
initial Part B coverage date that begins on or after January 1, 2005.

[65 FR 18542, Apr. 7, 2000, as amended at 67 FR 66813, Nov. 1, 2002; 69 
FR 65863, Nov. 15, 2004]



Sec. 419.22  Hospital outpatient services excluded from payment under the hospital outpatient prospective payment system.

    The following services are not paid for under the hospital 
outpatient prospective payment system:
    (a) Physician services that meet the requirements of Sec. 
415.102(a) of this chapter for payment on a fee schedule basis.
    (b) Nurse practitioner and clinical nurse specialist services, as 
defined in section 1861(s)(2)(K)(ii) of the Act.
    (c) Physician assistant services, as defined in section 
1861(s)(2)(K)(i) of the Act.
    (d) Certified nurse-midwife services, as defined in section 1861(gg) 
of the Act.
    (e) Services of qualified psychologists, as defined in section 
1861(ii) of the Act.
    (f) Services of an anesthetist as defined in Sec. 410.69 of this 
chapter.
    (g) Clinical social worker services as defined in section 
1861(hh)(2) of the Act.
    (h) Outpatient therapy services described in section 1833(a)(8) of 
the Act.
    (i) Ambulance services, as described in section 1861(v)(1)(U) of the 
Act, or, if applicable, the fee schedule established under section 
1834(l).
    (j) Except as provided in Sec. 419.22(b)(11), prosthetic devices, 
prosthetics, prosthetic supplies, and orthotic devices.
    (k) Except as provided in Sec. 419.2(b)(10), durable medical 
equipment supplied by the hospital for the patient to take home.
    (l) Clinical diagnostic laboratory services.
    (m) Services for patients with ESRD that are paid under the ESRD 
composite rate and drugs and supplies furnished during dialysis but not 
included in the composite rate.
    (n) Services and procedures that the Secretary designates as 
requiring inpatient care.
    (o) Hospital outpatient services furnished to SNF residents (as 
defined in Sec. 411.15(p) of this chapter) as part of the patient's 
resident assessment or comprehensive care plan (and thus included under 
the SNF PPS) that are furnished by the hospital ``under arrangements'' 
but billable only by the SNF, regardless of whether or not the patient 
is in a Part A SNF stay.
    (p) Services that are not covered by Medicare by statute.
    (q) Services that are not reasonable or necessary for the diagnosis 
or treatment of an illness or disease.
    (r) Services defined in Sec. 419.21(b) that are furnished to 
inpatients of hospitals that do not submit claims for outpatient 
services under Medicare Part B.
    (s) Effective December 8, 2003, screening mammography services and 
effective January 1, 2005, diagnostic mammography services.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 69 
FR 65863, Nov. 15, 2004]



 Subpart C_Basic Methodology for Determining Prospective Payment Rates 
                    for Hospital Outpatient Services



Sec. 419.30  Base expenditure target for calendar year 1999.

    (a) CMS estimates the aggregate amount that would be payable for 
hospital outpatient services in calendar year 1999 by summing--

[[Page 196]]

    (1) The total amounts that would be payable from the Trust Fund for 
covered hospital outpatient services without regard to the outpatient 
prospective payment system described in this part; and
    (2) The total amounts of coinsurance that would be payable by 
beneficiaries to hospitals for covered hospital outpatient services 
without regard to the outpatient prospective payment system described in 
this part.
    (b) The estimated aggregate amount under paragraph (a) of this 
section is determined as though the deductible required under section 
1833(b) of the Act did not apply.



Sec. 419.31  Ambulatory payment classification (APC) system and payment weights.

    (a) APC groups. (1) CMS classifies outpatient services and 
procedures that are comparable clinically and in terms of resource use 
into APC groups. Except as specified in paragraph (a)(2) of this 
section, items and services within a group are not comparable with 
respect to the use of resources if the highest median cost for an item 
or service within the group is more than 2 times greater than the lowest 
median cost for an item or service within the group.
    (2) CMS may make exceptions to the requirements set forth in 
paragraph (a)(1) in unusual cases, such as low volume items and 
services, but may not make such an exception in the case of a drug or 
biological that has been designated as an orphan drug under section 526 
of the Federal Food, Drug and Cosmetic Act.
    (3) The payment rate determined for an APC group in accordance with 
Sec. 419.32, and the copayment amount and program payment amount 
determined for an APC group in accordance with subpart D of this part, 
apply to every HCPCS code classified within an APC group.
    (b) APC weighting factors. (1) Using hospital outpatient claims data 
from calendar year 1996 and data from the most recent available hospital 
cost reports, CMS determines the median costs for the services and 
procedures within each APC group.
    (2) CMS assigns to each APC group an appropriate weighting factor to 
reflect the relative median costs for the services within the APC group 
compared to the median costs for the services in all APC groups.
    (c) Standardizing amounts. (1) CMS determines the portion of costs 
determined in paragraph (b)(1) of this section that is labor-related. 
This is known as the ``labor-related portion'' of hospital outpatient 
costs.
    (2) CMS standardizes the median costs determined in paragraph (b)(1) 
of this section by adjusting for variations in hospital labor costs 
across geographic areas.



Sec. 419.32  Calculation of prospective payment rates for hospital outpatient services.

    (a) Conversion factor for 1999. CMS calculates a conversion factor 
in such a manner that payment for hospital outpatient services furnished 
in 1999 would have equaled the base expenditure target calculated in 
Sec. 419.30, taking into account APC group weights and estimated 
service frequencies and reduced by the amounts that would be payable in 
1999 as outlier payments under Sec. 419.43(d) and transitional pass-
through payments under Sec. 419.43(e).
    (b) Conversion factor for calendar year 2000 and subsequent years. 
(1) Subject to paragraph (b)(2) of this section, the conversion factor 
for a calendar year is equal to the conversion factor calculated for the 
previous year adjusted as follows:
    (i) For calendar year 2000, by the hospital inpatient market basket 
percentage increase applicable under section 1886(b)(3)(B)(iii) of the 
Act reduced by one percentage point.
    (ii) For calendar year 2001--
    (A) For services furnished on or after January 1, 2001 and before 
April 1, 2001, by the hospital inpatient market basket percentage 
increase applicable under section 1886(b)(3)(B)(iii) of the Act reduced 
by one percentage point; and
    (B) For services furnished on or after April 1, 2001 and before 
January 1, 2002, by the hospital inpatient market basket percentage 
increase applicable under section 1886(b)(3)(B)(iii) of the Act, and 
increased by a transitional

[[Page 197]]

percentage allowance equal to 0.32 percent.
    (iii) For the portion of calendar year 2002 that is affected by 
these rules, by the hospital inpatient market basket percentage increase 
applicable under section 1886(b)(3)(B)(iii) of the Act reduced by one 
percentage point, without taking into account the transitional 
percentage allowance referenced in Sec. 419.32(b)(ii)(B).
    (iv) For calendar year 2003 and subsequent years, by the hospital 
inpatient market basket percentage increase applicable under section 
1886(b)(3)(B)(iii) of the Act.
    (2) Beginning in calendar year 2000, CMS may substitute for the 
hospital inpatient market basket percentage in paragraph (b) of this 
section a market basket percentage increase that is determined and 
applied to hospital outpatient services in the same manner that the 
hospital inpatient market basket percentage increase is determined and 
applied to inpatient hospital services.
    (c) Payment rates. The payment rate for services and procedures for 
which payment is made under the hospital outpatient prospective payment 
system is the product of the conversion factor calculated under 
paragraph (a) or paragraph (b) of this section and the relative weight 
determined under Sec. 419.31(b).
    (d) Budget neutrality. (1) CMS adjusts the conversion factor as 
needed to ensure that updates and adjustments under Sec. 419.50(a) are 
budget neutral.
    (2) In determining adjustments for 2004 and 2005, CMS will not take 
into account any additional expenditures per section 1833(t)(14) of the 
Act that would not have been made but for enactment of section 621 of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 67 
FR 9568, Mar. 1, 2002; 69 FR 832, Jan. 6, 2004]

    Effective Date Note: At 66 FR 59922, Nov. 30, 2001, Sec. 41932 was 
amended by revising paragraph (b)(1), effective Jan. 1, 2002. At 66 FR 
67494, Dec. 31, 2001, paragraph (b)(1)(iii) was delayed indefinitely.



                     Subpart D_Payments to Hospitals



Sec. 419.40  Payment concepts.

    (a) In addition to the payment rate described in Sec. 419.32, for 
each APC group there is a predetermined beneficiary copayment amount as 
described in Sec. 419.41(a). The Medicare program payment amount for 
each APC group is calculated by applying the program payment percentage 
as described in Sec. 419.41(b).
    (b) For purposes of this section--
    (1) Coinsurance percentage is calculated as the difference between 
the program payment percentage and 100 percent. The coinsurance 
percentage in any year is thus defined for each APC group as the greater 
of the following: the ratio of the APC group unadjusted copayment amount 
to the annual APC group payment rate, or 20 percent.
    (2) Program payment percentage is calculated as the lower of the 
following: the ratio of the APC group payment rate minus the APC group 
unadjusted copayment amount, to the APC group payment rate, or 80 
percent.
    (3) Unadjusted copayment amount is calculated as 20 percent of the 
wage-adjusted national median of charges for services within an APC 
group furnished during 1996, updated to 1999 using an actuarial 
projection of charge increases for hospital outpatient department 
services during the period 1996 to 1999.
    (c) Limitation of copayment amount to inpatient hospital deductible 
amount. The copayment amount for a procedure performed in a year cannot 
exceed the amount of the inpatient hospital deductible established under 
section 1813(b) of the Act for that year.

[66 FR 59922, Nov. 30, 2001]



Sec. 419.41  Calculation of national beneficiary copayment amounts and national Medicare program payment amounts.

    (a) To calculate the unadjusted copayment amount for each APC group, 
CMS--
    (1) Standardizes 1996 hospital charges for the services within each 
APC group to offset variations in hospital labor costs across geographic 
areas;

[[Page 198]]

    (2) Identifies the median of the wage-neutralized 1996 charges for 
each APC group; and
    (3) Determines the value equal to 20 percent of the wage-neutralized 
1996 median charge for each APC group and multiplies that value by an 
actuarial projection of increases in charges for hospital outpatient 
department services during the period 1996 to 1999. The result is the 
unadjusted beneficiary copayment amount for the APC group.
    (b) CMS calculates annually the program payment percentage for every 
APC group on the basis of each group's unadjusted copayment amount and 
its payment rate after the payment rate is adjusted in accordance with 
Sec. 419.32.
    (c) To determine payment amounts due for a service paid under the 
hospital outpatient prospective payment system, CMS makes the following 
calculations:
    (1) Makes the wage index adjustment in accordance with Sec. 419.43.
    (2) Subtracts the amount of the applicable Part B deductible 
provided under Sec. 410.160 of this chapter.
    (3) Multiplies the remainder by the program payment percentage for 
the group to determine the preliminary Medicare program payment amount.
    (4) Subtracts the program payment amount from the amount determined 
in paragraph (c)(2) of this section to determine the copayment amount.
    (i) The copayment amount for an APC cannot exceed the amount of the 
inpatient hospital deductible, established in accordance with Sec. 
409.82 of this chapter, for that year. For purposes of this paragraph 
(c)--
    (A) Effective for drugs and biologicals furnished on or after 
January 1, 2001, the copayment amount for multiple APCs for a single 
drug or biological furnished on the same day will be aggregated and 
treated as the copayment amount for one APC.
    (B) Effective for drugs and biologicals furnished on or after July 
1, 2001, the copayment amount for the APC or APCs for a drug or 
biological furnished on the same day will be aggregated with the 
copayment amount for the APC that reflects the administration of the 
drug or biological furnished on that day and treated as the copayment 
amount for one APC.
    (ii) Effective for services furnished from April 1, 2001 through 
December 31, 2001, the national unadjusted coinsurance rate for an APC 
cannot exceed 57 percent of the prospective payment rate for that APC.
    (iii) The national unadjusted coinsurance rate for an APC cannot 
exceed 55 percent in calendar years 2002 and 2003; 50 percent in 
calendar year 2004; 45 percent in calendar year 2005; and 40 percent in 
calendar year 2006 and thereafter.
    (iv) The copayment amount is computed as if the adjustments under 
Sec. 419.43(d) and (e) (and any adjustment made under Sec. 419.43(f) 
in relation to these adjustments) had not been paid.
    (5) Adds the amount by which the copayment amount would have 
exceeded the inpatient hospital deductible for that year to the 
preliminary Medicare program payment amount determined in paragraph 
(c)(3) of this section to determine the final Medicare program payment 
amount.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 67829, Nov. 13, 2000; 66 
FR 59923, Nov. 30, 2001]



Sec. 419.42  Hospital election to reduce coinsurance.

    (a) A hospital may elect to reduce coinsurance for any or all APC 
groups on a calendar year basis. A hospital may not elect to reduce 
copayment amounts for some, but not all, services within the same group.
    (b) A hospital must notify its fiscal intermediary of its election 
to reduce coinsurance no later than--
    (1) June 1, 2000, for coinsurance elections for the period July 1, 
2000 through December 31, 2000; or
    (2) December 1 preceding the beginning of each subsequent calendar 
year.
    (c) The hospital's election must be properly documented. It must 
specifically identify the APCs to which it applies and the copayment 
amount (within the limits identified below) that the hospital has 
selected for each group.
    (d) The election of reduced coinsurance remains in effect unchanged 
during the year for which the election was made.
    (e) In electing reduced coinsurance, a hospital may elect a 
copayment amount that is less than that year's

[[Page 199]]

wage-adjusted copayment amount for the group but not less than 20 
percent of the APC payment rate as determined in Sec. 419.32.
    (f) The hospital may advertise and otherwise disseminate information 
concerning the reduced level of coinsurance that it has elected. All 
advertisements and information furnished to Medicare beneficiaries must 
specify that the coinsurance reductions advertised apply only to the 
specified services of that hospital and that coinsurance reductions are 
available only for hospitals that choose to reduce coinsurance for 
hospital outpatient services and are not allowed in any other ambulatory 
settings or physician offices.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 67829, Nov. 13, 2000; 66 
FR 59923, Nov. 30, 2001]



Sec. 419.43  Adjustments to national program payment and beneficiary copayment amounts.

    (a) General rule. CMS determines national prospective payment rates 
for hospital outpatient department services and determines a wage 
adjustment factor to adjust the portion of the APC payment and national 
beneficiary copayment amount attributable to labor-related costs for 
relative differences in labor and labor-related costs across geographic 
regions in a budget neutral manner.
    (b) Labor-related portion of payment and copayment rates for 
hospital outpatient services. CMS determines the portion of hospital 
outpatient costs attributable to labor and labor-related costs (known as 
the ``labor-related portion'' of hospital outpatient costs) in 
accordance with Sec. 419.31(c)(1).
    (c) Wage index factor. CMS uses the hospital inpatient prospective 
payment system wage index established in accordance with part 412 of 
this chapter to make the adjustment referred to in paragraph (a) of this 
section.
    (d) Outlier adjustment--(1) General rule. Subject to paragraph 
(d)(4) of this section, CMS provides for an additional payment for a 
hospital outpatient service (or group of services) not excluded under 
paragraph (f) of this section for which a hospital's charges, adjusted 
to cost, exceed the following:
    (i) A fixed multiple of the sum of--
    (A) The applicable Medicare hospital outpatient payment amount 
determined under Sec. 419.32(c), as adjusted under Sec. 419.43 (other 
than for adjustments under this paragraph (d) or paragraph (e) of this 
section); and
    (B) Any transitional pass-through payment under paragraph (e) of 
this section.
    (ii) At the option of CMS, a fixed dollar amount.
    (2) Amount of adjustment. The amount of the additional payment under 
paragraph (d)(1) of this section is determined by CMS and approximates 
the marginal cost of care beyond the applicable cutoff point under 
paragraph (d)(1) of this section.
    (3) Limit on aggregate outlier adjustments--(i) In general. The 
total of the additional payments made under this paragraph (d) for 
covered hospital outpatient department services furnished in a year (as 
estimated by CMS before the beginning of the year) may not exceed the 
applicable percentage specified in paragraph (d)(3)(ii) of this section 
of the total program payments (sum of both the Medicare and beneficiary 
payments to the hospital) estimated to be made under this part for all 
hospital outpatient services furnished in that year. If this paragraph 
is first applied to less than a full year, the limit applies only to the 
portion of the year.
    (ii) Applicable percentage. For purposes of paragraph (d)(3)(i) of 
this section, the term ``applicable percentage'' means a percentage 
specified by CMS up to (but not to exceed)--
    (A) For a year (or portion of a year) before 2004, 2.5 percent; and
    (B) For 2004 and thereafter, 3.0 percent.
    (4) Transitional authority. In applying paragraph (d)(1) of this 
section for hospital outpatient services furnished before January 1, 
2002, CMS may--
    (i) Apply paragraph (d)(1) of this section to a bill for these 
services related to an outpatient encounter (rather than for a specific 
service or group of services) using hospital outpatient payment amounts 
and transitional pass-through payments covered under the bill; and

[[Page 200]]

    (ii) Use an appropriate cost-to-charge ratio for the hospital or 
CMHC (as determined by CMS), rather than for specific departments within 
the hospital.
    (e) Budget neutrality. CMS establishes payment under paragraph (d) 
of this section in a budget-neutral manner excluding services and groups 
specified in paragraph (f) of this section.
    (f) Excluded services and groups. Drugs and biologicals that are 
paid under a separate APC and devices of brachytherapy, consisting of a 
seed or seeds (including a radioactive source) are excluded from 
qualification for outlier payments.
    (g) Payment adjustment for certain rural hospitals--(1) General 
rule. CMS provides for additional payment for covered hospital 
outpatient services not excluded under paragraph (g)(4) of this section, 
furnished on or after January 1, 2006, if the hospital--
    (i) Is a sole community hospital under Sec. 412.92 of this chapter; 
and
    (ii) Is located in a rural area as defined in Sec. 412.64(b) of 
this chapter or is treated as being located in a rural area under Sec. 
412.103 of this chapter.
    (2) Amount of adjustment. The amount of the additional payment under 
paragraph (g)(1) of this section is determined by CMS and is based on 
the difference between costs incurred by hospitals that meet the 
criteria in paragraphs (g)(1)(i) and (g)(1)(ii) of this section and 
costs incurred by hospitals located in urban areas.
    (3) Budget neutrality. CMS establishes the payment adjustment under 
paragraph (g)(2) of this section in a budget neutral manner, excluding 
services and groups specified in paragraph (g)(4) of this section.
    (4) Excluded services and groups. Drugs and biologicals that are 
paid under a separate APC, devices of brachytheraphy consisting of a 
seed or seeds (including a radioactive source), and devices paid under 
Sec. 419.66 are excluded from qualification for the payment adjustment 
in paragraph (g)(2) of this section.
    (5) Copayment. The payment adjustment in paragraph (g)(2) of this 
section is applied before calculating copayment amounts.
    (6) Outliers. The payment adjustment in paragraph (g)(2) of this 
section is applied before calculating outlier payments.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 47677, Aug. 3, 2000; 66 
FR 55856, Nov. 2, 2001; 69 FR 832, Jan. 6, 2004; 70 FR 68727, Nov. 10, 
2005; 70 FR 76178, Dec. 23, 2005]



Sec. 419.44  Payment reductions for surgical procedures.

    (a) Multiple surgical procedures. When more than one surgical 
procedure for which payment is made under the hospital outpatient 
prospective payment system is performed during a single surgical 
encounter, the Medicare program payment amount and the beneficiary 
copayment amount are based on--
    (1) The full amounts for the procedure with the highest APC payment 
rate; and
    (2) One-half of the full program and the beneficiary payment amounts 
for all other covered procedures.
    (b) Terminated procedures. When a surgical procedure is terminated 
prior to completion due to extenuating circumstances or circumstances 
that threaten the well-being of the patient, the Medicare program 
payment amount and the beneficiary copayment amount are based on--
    (1) The full amounts if the procedure is discontinued after the 
induction of anesthesia or after the procedure is started; or
    (2) One-half of the full program and the beneficiary coinsurance 
amounts if the procedure is discontinued after the patient is prepared 
for surgery and taken to the room where the procedure is to be performed 
but before anesthesia is induced.



                            Subpart E_Updates



Sec. 419.50  Annual review.

    (a) General rule. Not less often than annually, CMS reviews and 
updates groups, relative payment weights, and the wage and other 
adjustments to take into account changes in medical practice, changes in 
technology, the addition of new services, new cost data, and other 
relevant information and factors.
    (b) Consultation requirement. CMS will consult with an expert 
outside advisory

[[Page 201]]

panel composed of an appropriate selection of representatives of 
providers to review (and advise CMS concerning) the clinical integrity 
of the groups and weights. The panel may use data collected or developed 
by entities and organizations (other than the Department of Health and 
Human Services) in conducting the review.
    (c) Effective dates. CMS conducts the first annual review under 
paragraph (a) of this section in 2001 for payments made in 2002.



                     Subpart F_Limitations on Review



Sec. 419.60  Limitations on administrative and judicial review.

    There can be no administrative or judicial review under sections 
1869 and 1878 of the Act or otherwise of the following:
    (a) The development of the APC system, including--
    (1) Establishment of the groups and relative payment weights;
    (2) Wage adjustment factors;
    (3) Other adjustments; and
    (4) Methods for controlling unnecessary increases in volume.
    (b) The calculation of base amounts described in section 1833(t)(3) 
of the Act.
    (c) Periodic adjustments described in section 1833(t)(9) of the Act.
    (d) The establishment of a separate conversion factor for hospitals 
described in section 1886(d)(1)(B)(v) of the Act.
    (e) The determination of the fixed multiple, or a fixed dollar 
cutoff amount, the marginal cost of care, or applicable percentage under 
Sec. 419.43(d) or the determination of insignificance of cost, the 
duration of the additional payments (consistent with subpart G of this 
part), the determination of initial and new categories under Sec. 
419.66, the portion of the Medicare hospital outpatient fee schedule 
amount associated with particular devices, drugs, or biologicals, and 
the application of any pro rata reduction under Sec. 419.62(c).

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 55856, Nov. 2, 2001]



              Subpart G_Transitional Pass-through Payments

    Source: 66 FR 55856, Nov. 2, 2001, unless otherwise noted.



Sec. 419.62  Transitional pass-through payments: General rules.

    (a) General. CMS provides for additional payments under Sec. Sec. 
419.64 and 419.66 for certain innovative medical devices, drugs, and 
biologicals.
    (b) Budget neutrality. CMS establishes the additional payments under 
Sec. Sec. 419.64 and 419.66 in a budget neutral manner.
    (c) Uniform prospective reduction of pass-through payments. (1) If 
CMS estimates before the beginning of a calendar year that the total 
amount of pass-through payments under Sec. Sec. 419.64 and 419.66 for 
the year would exceed the applicable percentage (as described in 
paragraph (c)(2) of this section) of the total amount of Medicare 
payments under the outpatient prospective payment system. CMS will 
reduce, pro rata, the amount of each of the additional payments under 
Sec. Sec. 419.64 and 419.66 for that year to ensure that the applicable 
percentage is not exceeded.
    (2) The applicable percentages are as follows:
    (i) For a year before CY 2004, the applicable percentage is 2.5 
percent.
    (ii) For 2004 and subsequent years, the applicable percentage is a 
percentage specified by CMS up to (but not to exceed) 2.0 percent.
    (d) CY 2002 incorporated amount. For the portion of CY 2002 affected 
by these rules, CMS incorporated 75 percent of the estimated pass-
through costs (before the incorporation and any pro rata reduction) for 
devices into the procedure APCs associated with these devices.

[66 FR 55856, 55865, Nov. 2, 2001; 67 FR 9568, Mar. 1, 2002]

    Effective Date Note: At 66 FR 55865, Nov. 2, 2001, Sec. 419.62 was 
amended by adding paragraph (d), effective Jan. 1, 2002. At 66 FR 67494, 
Dec. 31, 2001, the amendment was delayed indefinitely.



Sec. 419.64  Transitional pass-through payments: Drugs and biologicals.

    (a) Eligibility for pass-through payment. CMS makes a transitional 
pass-through payment for the following

[[Page 202]]

drugs and biologicals that are furnished as part of an outpatient 
hospital service:
    (1) Orphan drugs. A drug or biological that is used for a rare 
disease or condition and has been designated as an orphan drug under 
section 526 of the Federal Food, Drug and Cosmetic Act if payment for 
the drug or biological as an outpatient hospital service was being made 
on August 1, 2000.
    (2) Cancer therapy drugs and biologicals. A drug or biological that 
is used in cancer therapy, including, but not limited to, a 
chemotherapeutic agent, an antiemetic, a hematopoietic growth factor, a 
colony stimulating factor, a biological response modifier, and a 
bisphosphonate if payment for the drug or biological as an outpatient 
hospital service was being made on August 1, 2000.
    (3) Radiopharmaceutical drugs and biological products. A 
radiopharmaceutical drug or biological product used in diagnostic, 
monitoring, and therapeutic nuclear medicine services if payment for the 
drug or biological as an outpatient hospital service was being made on 
August 1, 2000.
    (4) Other drugs and biologicals. A drug or biological that meets the 
following conditions:
    (i) It was first payable as an outpatient hospital service after 
December 31, 1996.
    (ii) CMS has determined the cost of the drug or biological is not 
insignificant in relation to the amount payable for the applicable APC 
(as calculated under Sec. 419.32(c)) as defined in paragraph (b) of 
this section.
    (b) Cost. CMS determines the cost of a drug or biological to be not 
insignificant if it meets the following requirements:
    (1) Services furnished before January 1, 2003. The expected 
reasonable cost of a drug or biological must exceed 10 percent of the 
applicable APC payment amount for the service related to the drug or 
biological.
    (2) Services furnished after December 31, 2002. CMS considers the 
average cost of a new drug or biological to be not insignificant if it 
meets the following conditions:
    (i) The estimated average reasonable cost of the drug or biological 
in the category exceeds 10 percent of the applicable APC payment amount 
for the service related to the drug or biological.
    (ii) The estimated average reasonable cost of the drug or biological 
exceeds the cost of the drug or biological portion of the APC payment 
amount for the related service by at least 25 percent.
    (iii) The difference between the estimated reasonable cost of the 
drug or biological and the estimated portion of the APC payment amount 
for the drug or biological exceeds 10 percent of the APC payment amount 
for the related service.
    (c) Limited period of payment. CMS limits the eligibility for a 
pass-through payment under this section to a period of at least 2 years, 
but not more than 3 years, that begins as follows:
    (1) For a drug or biological described in paragraphs (a)(1) through 
(a)(3) of this section--August 1, 2000.
    (2) For a drug or biological described in paragraph (a)(4) of this 
section--the date that CMS makes its first pass-through payment for the 
drug or biological.
    (d) Amount of pass-through payment. Subject to any reduction 
determined under Sec. 419.62(b), the pass-through payment for a drug or 
biological equals the amount determined under section 1842(o) of the 
Social Security Act, minus the portion of the APC payment amount that 
CMS determines is associated with the drug or biological.

[65 FR 18542, Apr. 7, 2000, as amended at 69 FR 832, Jan. 6, 2004; 69 FR 
65863, Nov. 15, 2004]



Sec. 419.66  Transitional pass-through payments: Medical devices.

    (a) General rule. CMS makes a pass-through payment for a medical 
device that meets the requirements in paragraph (b) of this section and 
that is described by a category of devices established by CMS under the 
criteria in paragraph (c) of this section.
    (b) Eligibility. A medical device must meet the following 
requirements:
    (1) If required by the FDA, the device must have received FDA 
approval or clearance (except for a device that has received an FDA 
investigational device exemption (IDE) and has been classified as a 
Category B device by the FDA

[[Page 203]]

in accordance with Sec. Sec. 405.203 through 405.207 and 405.211 
through 405.215 of this chapter) or another appropriate FDA exemption.
    (2) The device is determined to be reasonable and necessary for the 
diagnosis or treatment of an illness or injury or to improve the 
functioning of a malformed body part (as required by section 
1862(a)(1)(A) of the Act).
    (3) The device is an integral and subordinate part of the service 
furnished, is used for one patient only, comes in contact with human 
tissue, and is surgically implanted or inserted whether or not it 
remains with the patient when the patient is released from the hospital.
    (4) The device is not any of the following:
    (i) Equipment, an instrument, apparatus, implement, or item of this 
type for which depreciation and financing expenses are recovered as 
depreciable assets as defined in Chapter 1 of the Medicare Provider 
Reimbursement Manual (CMS Pub. 15-1).
    (ii) A material or supply furnished incident to a service (for 
example, a suture, customized surgical kit, or clip, other than 
radiological site marker).
    (iii) A material that may be used to replace human skin (for 
example, a biological or synthetic material).
    (c) Criteria for establishing device categories. CMS uses the 
following criteria to establish a category of devices under this 
section:
    (1) CMS determines that a device to be included in the category is 
not appropriately described by any of the existing categories or by any 
category previously in effect, and was not being paid for as an 
outpatient service as of December 31, 1996.
    (2) CMS determines that a device to be included in the category has 
demonstrated that it will substantially improve the diagnosis or 
treatment of an illness or injury or improve the functioning of a 
malformed body part compared to the benefits of a device or devices in a 
previously established category or other available treatment.
    (3) Except for medical devices identified in paragraph (e) of this 
section, CMS determines the cost of the device is not insignificant as 
described in paragraph (d) of this section.
    (d) Cost criteria. CMS considers the average cost of a category of 
devices to be not insignificant if it meets the following conditions:
    (1) The estimated average reasonable cost of devices in the category 
exceeds 25 percent of the applicable APC payment amount for the service 
related to the category of devices.
    (2) The estimated average reasonable cost of the devices in the 
category exceeds the cost of the device-related portion of the APC 
payment amount for the related service by at least 25 percent.
    (3) The difference between the estimated average reasonable cost of 
the devices in the category and the portion of the APC payment amount 
for the device exceeds 10 percent of the APC payment amount for the 
related service.
    (e) Devices exempt from cost criteria. The following medical devices 
are not subject to the cost requirements described in paragraph (d) of 
this section, if payment for the device was being made as an outpatient 
service on August 1, 2000:
    (1) A device of brachytherapy.
    (2) A device of temperature-monitored cryoablation.
    (f) Identifying a category for a device. A device is described by a 
category, if it meets the following conditions:
    (1) Matches the long descriptor of the category code established by 
CMS.
    (2) Conforms to guidance issued by CMS relating to the definition of 
terms and other information in conjunction with the category descriptors 
and codes.
    (g) Limited period of payment for devices. CMS limits the 
eligibility for a pass-through payment established under this section to 
a period of at least 2 years, but not more than 3 years beginning on the 
date that CMS establishes a category of devices.
    (h) Amount of pass-through payment. Subject to any reduction 
determined under Sec. 419.62(b), the pass-through payment for a device 
is the hospital's charge for the device, adjusted to the actual cost for 
the device, minus the amount included in the APC payment amount for the 
device.

[66 FR 55856, Nov. 2, 2001, as amended at 67 FR 66813, Nov. 1, 2002; 70 
FR 68728, Nov. 10, 2005]

[[Page 204]]



                    Subpart H_Transitional Corridors

    Source: 65 FR 18542, Apr. 7, 2000, unless otherwise noted. 
Redesignated at 66 FR 55856, Nov. 2, 2001.



Sec. 419.70  Transitional adjustments to limit decline in payments.

    (a) Before 2002. Except as provided in paragraph (d) of this 
section, for covered hospital outpatient services furnished before 
January 1, 2002, for which the prospective payment system amount (as 
defined in paragraph (e) of this section) is--
    (1) At least 90 percent, but less than 100 percent, of the pre-BBA 
amount (as defined in paragraph (f) of this section), the amount of 
payment under this part is increased by 80 percent of the amount of this 
difference;
    (2) At least 80 percent, but less than 90 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by the amount 
by which the product of 0.71 and the pre-BBA amount exceeds the product 
of 0.70 and the prospective payment system amount;
    (3) At least 70 percent, but less than 80 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by the amount 
by which the product of 0.63 and the pre-BBA amount, exceeds the product 
of 0.60 and the PPS amount; or
    (4) Less than 70 percent of the pre-BBA amount, the amount of 
payment under this part shall be increased by 21 percent of the pre-BBA 
amount.
    (b) For 2002. Except as provided in paragraph (d) of this section, 
for covered hospital outpatient services furnished during 2002, for 
which the prospective payment system amount is--
    (1) At least 90 percent, but less than 100 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by 70 percent 
of the amount of this difference;
    (2) At least 80 percent, but less than 90 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by the amount 
by which the product of 0.61 and the pre-BBA amount exceeds the product 
of 0.60 and the prospective payment system amount; or
    (3) Less than 80 percent of the pre-BBA amount, the amount of 
payment under this part is increased by 13 percent of the pre-BBA 
amount.
    (c) For 2003. Except as provided in paragraph (d) of this section, 
for covered hospital outpatient services furnished during 2003, for 
which the prospective payment system amount is--
    (1) At least 90 percent, but less than 100 percent, of the pre-BBA 
amount, the amount of payment under this part is increased by 60 percent 
of the amount of this difference; or
    (2) Less than 90 percent of the pre-BBA amount, the amount of 
payment under this part is increased by 6 percent of the pre-BBA amount.
    (d) Hold harmless provisions--(1) Temporary treatment for small 
rural hospitals. For covered hospital outpatient services furnished in a 
calendar year before January 1, 2006 for which the prospective payment 
system amount is less than the pre-BBA amount, the amount of payment 
under this part is increased by the amount of that difference if the 
hospital--
    (i) Is located in a rural area as defined in Sec. 412.63(b) of this 
chapter or is treated as being located in a rural area under section 
1886(d)(8)(E) of the Act; and
    (ii) Has 100 or fewer beds as defined in Sec. 412.105(b) of this 
chapter.
    (2) Permanent treatment for cancer hospitals and children's 
hospitals. In the case of a hospital described in Sec. 412.23(d) or 
Sec. 412.23(f) of this chapter for which the prospective payment system 
amount is less than the pre-BBA amount for covered hospital outpatient 
services, the amount of payment under this part is increased by the 
amount of this difference.
    (3) Temporary treatment for sole community hospitals located in 
rural areas. For covered hospital outpatient services furnished during 
cost reporting periods beginning on or after January 1, 2004, and 
continuing through December 31, 2005, for which the prospective payment 
system amount is less than the pre-BBA amount, the amount of payment 
under this part is increased by the amount of that difference if the 
hospital--
    (i) Is a sole community hospital, under Sec. 412.92 of this 
chapter; and

[[Page 205]]

    (ii) Is located in a rural area as defined in Sec. 412.63(b) of 
this chapter or is treated as being located in a rural area under 
section 1886(d)(8)(E) of the Act.
    (e) Prospective payment system amount defined. In this paragraph, 
the term ``prospective payment system amount'' means, with respect to 
covered hospital outpatient services, the amount payable under this part 
for these services (determined without regard to this paragraph or any 
reduction in coinsurance elected under Sec. 419.42), including amounts 
payable as copayment under Sec. 419.41, coinsurance under section 
1866(a)(2)(A)(ii) of the Act, and the deductible under section 1833(b) 
of the Act.
    (f) Pre-BBA amount defined--(1) General rule. In this paragraph, the 
``pre-BBA amount'' means, with respect to covered hospital outpatient 
services furnished by a hospital or a community mental health center 
(CMHC) in a year, an amount equal to the product of the reasonable cost 
of the provider for these services for the portions of the provider's 
cost reporting period (or periods) occurring in the year and the base 
provider outpatient payment-to-cost ratio for the provider (as defined 
in paragraph (f)(2) of this section).
    (2) Base payment-to-cost-ratio defined. For purposes of this 
paragraph, CMS shall determine these ratios as if the amendments to 
sections 1833(i)(3)(B)(i)(II) and 1833(n)(1)(B)(i) of the Act made by 
section 4521 of the BBA, to require that the full amount beneficiaries 
paid as coinsurance under section 1862(a)(2)(A) of the Act are taken 
into account in determining Medicare Part B Trust Fund payment to the 
hospital, were in effect in 1996. The ``base payment-to-cost ratio'' for 
a hospital or CMHC means the ratio of--
    (i) The provider's payment under this part for covered outpatient 
services furnished during one of the following periods, including any 
payment for these services through cost-sharing described in paragraph 
(e) of this section:
    (A) The cost reporting period ending in 1996; or
    (B) If the provider does not have a cost reporting period ending in 
1996, the first cost reporting period ending on or after January 1, 
1997, and before January 1, 2001; and
    (ii) The reasonable costs of these services for the same cost 
reporting period.
    (g) Interim payments. CMS makes payments under this paragraph to 
hospitals and CMHCs on an interim basis, subject to retrospective 
adjustments based on settled cost reports.
    (h) No effect on coinsurance. No payment made under this section 
affects the unadjusted coinsurance amount or the coinsurance amount 
described in Sec. 419.41.
    (i) Application without regard to budget neutrality. The additional 
payments made under this paragraph--
    (1) Are not considered an adjustment under Sec. 419.43(f); and
    (2) Are not implemented in a budget neutral manner.

[65 FR 18542, Apr. 7, 2000, as amended at 65 FR 67829, Nov. 13, 2000; 66 
FR 59923, Nov. 30, 2001; 69 FR 832, Jan. 6, 2004; 69 FR 65863, Nov. 15, 
2004]



PART 420_PROGRAM INTEGRITY: MEDICARE--Table of Contents




                      Subpart A_General Provisions

Sec.
420.1 Scope and purpose.
420.3 Other related regulations.

Subpart B [Reserved]

        Subpart C_Disclosure of Ownership and Control Information

420.200 Purpose.
420.201 Definitions.
420.202 Determination of ownership or control percentages.
420.203 Disclosure of hiring of intermediary's former employees.
420.204 Principals convicted of a program-related crime.
420.205 Disclosure by providers and part B suppliers of business 
          transaction information.
420.206 Disclosure of persons having ownership, financial, or control 
          interest.

   Subpart D_Access to Books, Documents, and Records of Subcontractors

420.300 Basis, purpose, and scope.
420.301 Definitions.
420.302 Requirement for access clause in contracts.
420.303 HHS criteria for requesting books, documents, and records.

[[Page 206]]

420.304 Procedures for obtaining access to books, documents, and 
          records.

Subpart E_Rewards for Information Relating to Medicare Fraud and Abuse, 
  and Establishment of a Program to Collect Suggestions for Improving 
   Medicare Program Efficiency and to Reward Suggesters for Monetary 
                                 Savings

420.400 Basis and scope.
420.405 Rewards for information relating to Medicare fraud and abuse.
420.410 Establishment of a program to collect suggestions for improving 
          Medicare program efficiency and to reward suggesters for 
          monetary savings.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 44 FR 31142, May 30, 1979, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 420.1  Scope and purpose.

    This part sets forth requirements for Medicare providers, 
intermediaries, and carriers to disclose ownership and control 
information. It also deals with access to records pertaining to certain 
contracts entered into by Medicare providers. These rules are aimed at 
protecting the integrity of the Medicare program. The statutory basis 
for these requirements is explained in each of the other subparts.

[51 FR 34787, Sept. 30, 1986]



Sec. 420.3  Other related regulations.

    (a) Appeals procedures. Part 498 of this chapter sets forth the 
appeals procedures available to providers whose provider agreements CMS 
terminates for failure to comply with the disclosure of information 
requirements set forth in subpart C of this part.
    (b) Exclusion, termination, or suspension. Part 1001 of this title 
sets forth the rules applicable to exclusion, termination, or suspension 
from the Medicare program because of fraud or abuse or conviction of 
program-related crimes.

[51 FR 34787, Sept. 30, 1986, as amended at 52 FR 22454, June 12, 1987]

Subpart B [Reserved]



        Subpart C_Disclosure of Ownership and Control Information



Sec. 420.200  Purpose.

    This subpart implements sections 1124, 1124A, 1126, and 
1861(v)(1)(i) of the Social Security Act. It sets forth requirements for 
providers, Part B suppliers, intermediaries, and carriers to disclose 
ownership and control information and the identities of managing 
employees. It also sets forth requirements for disclosure of information 
about a provider's or Part B supplier's owners, those with a controlling 
interest, or managing employees convicted of criminal offenses against 
Medicare, Medicaid, or the title V (Maternal and Child Health Services) 
and title XX (Social Services) programs.

[57 FR 27306, June 18, 1992, as amended at 60 FR 50442, Sept. 29, 1995]



Sec. 420.201  Definitions.

    As used in this subpart unless the context indicates otherwise:
    Agent means any person who has been delegated the authority to 
obligate or act on behalf of a provider.
    Disclosing entity means:
    (1) A provider of services, an independent clinical laboratory, a 
renal disease facility, a rural health clinic, a Federally qualified 
health center, or a health maintenance organization (as defined in 
section 1301(a) of the Public Health Service Act);
    (2) A carrier or other agency or organization that is acting for one 
or more providers of services for purposes of part A and part B of 
Medicare; and
    (3) A part B supplier, as defined in Sec. 400.202 of this chapter.
    Group of practitioners means two or more health care practitioners 
who practice their profession at a common location (whether or not they 
share common facilities, common supporting staff, or common equipment).
    Indirect ownership interest means any ownership interest in an 
entity that has an ownership interest in the disclosing entity. The term 
includes an ownership interest in any entity that has an indirect 
ownership interest in the disclosing entity.

[[Page 207]]

    Managing employee means a general manager, business manager, 
administrator, director, or other individual that exercises operational 
or managerial control over, or who directly or indirectly conducts, the 
day-to-day operation of the institution, organization, or agency, either 
under contract or through some other arrangement, whether or not the 
individual is a W-2 employee.
    Other disclosing entity means any other Medicare disclosing entity 
and any entity that does not participate in Medicare, but is required to 
disclose certain ownership and control information because of 
participation in any of the programs established under title V, XIX, or 
XX of the Act. This includes:
    (1) An entity (other than an individual practitioner or group of 
practitioners) that furnishes, or arranges for the furnishing of, items 
or services for which payment may be claimed by the entity under any 
plan or program established under title V of the Social Security Act or 
under an approved State Medicaid plan;
    (2) An entity (other than an individual practitioner or group of 
practitioners) that furnishes, or arranges for the furnishing of, 
health-related services for which payment may be claimed by the entity 
under an approved State plan and services program under title XX of the 
Act; or
    (3) A Medicaid fiscal agent.
    Ownership interest means the possession of equity in the capital, 
the stock, or the profits of the disclosing entity.
    Person with an ownership or control interest means a person or 
corporation that--
    (1) Has an ownership interest totaling 5 percent or more in a 
disclosing entity;
    (2) Has an indirect ownership interest equal to 5 percent or more in 
a disclosing entity;
    (3) Has a combination of direct and indirect ownership interests 
equal to 5 percent or more in a disclosing entity;
    (4) Owns an interest of 5 percent or more in any mortgage, deed of 
trust, note, or other obligation secured by the disclosing entity if 
that interest equals at least 5 percent of the value of the property or 
assets of the disclosing entity;
    (5) Is an officer or director of a disclosing entity that is 
organized as a corporation; or
    (6) Is a partner in a disclosing entity that is organized as a 
partnership.
    Significant business transaction means any business transaction or 
series of transactions during any one fiscal year, the total of which 
exceeds the lesser of $25,000 and 5 percent of the total operating 
expenses of the provider.
    Subcontractor means--
    (1) An individual, agency, or organization to which a disclosing 
entity has contracted or delegated some of its management functions or 
responsibilities of providing medical care to its patients; or
    (2) An individual, agency, or organization with which an 
intermediary or carrier has entered into a contract, agreement, purchase 
order or lease (or leases of real property) to obtain space, supplies, 
equipment, or services provided under the Medicare agreement.
    Wholly owned supplier means a supplier whose total ownership 
interest is held by a provider or by a person, persons, or other entity 
with an ownership or control interest in a provider.

[44 FR 41642, July 17, 1979, as amended at 57 FR 24982, June 12, 1992; 
57 FR 27306, June 18, 1992; 57 FR 35760, Aug. 11, 1992; 71 FR 20775, 
Apr. 21, 2006]



Sec. 420.202  Determination of ownership or control percentages.

    (a) Indirect ownership interest. The amount of indirect ownership 
interest is determined by multiplying the percentages of ownership in 
each entity. For example, if A owns 10 percent of the stock in a 
corporation that owns 80 percent of the disclosing entity, A's interest 
equates to an 8 percent indirect ownership interest in the disclosing 
entity and must be reported. Conversely, if B owns 80 percent of the 
stock of a corporation that owns 5 percent of the stock of the 
disclosing entity, B's interest equates to a 4 percent indirect 
ownership interest in the disclosing entity and need not be reported.
    (b) Person with an ownership or control interest. In order to 
determine the percentage of ownership interest in any mortgage, deed of 
trust, note, or other obligation, the percentage of interest

[[Page 208]]

owned in obligation is multiplied by the percentage of the disclosing 
entity's assets used to secure the obligation. For example, if A owns 10 
percent of a note secured by 60 percent of the provider's assets, A's 
interest in the provider's assets equates to 6 percent and must be 
reported. Conversely, if B owns 40 percent of a note secured by 10 
percent of the provider's assets, B's interest in the provider's assets 
equates to 4 percent and need not be reported.



Sec. 420.203  Disclosure of hiring of intermediary's former employees.

    A provider must notify the Secretary promptly if it, or its home 
office (in the case of a chain organization), employs or obtains the 
services of an individual who, at any time during the year preceding 
such employment, was employed in a managerial, accounting, auditing, or 
similar capacity by an agency or organization which currently serves, or 
at any time during the preceding year, served as a Medicare fiscal 
intermediary or carrier for the provider. Similar capacity means the 
performance of essentially the same work functions as those of a 
manager, accountant, or auditor even though the individual is not so 
designated by title.



Sec. 420.204  Principals convicted of a program-related crime.

    (a) Information required. Prior to CMS's acceptance of a provider 
agreement or issuance or reissuance of a supplier billing number, or at 
any time upon written request by CMS, the provider or part B supplier 
must furnish CMS with the identity of any person who:
    (1) Has an ownership or control interest in the provider or part B 
supplier;
    (2) Is an agent or managing employee of the provider or part B 
supplier; or
    (3) Is a person identified in paragraph (a)(1) or (a)(2) of this 
section and has been convicted of, or was an owner of, had a controlling 
interest in, or was a managing employee of a corporation that has been 
convicted of a criminal offense, subjected to any civil monetary 
penalty, or excluded from the programs for any activities related to 
involvement in the Medicare, Medicaid, title V or title XX social 
services program, since the inception of those programs.
    (b) Refusal to enter into or renew agreement or to issue or reissue 
billing numbers. CMS may refuse to enter into or renew an agreement with 
a provider of services, or to issue or reissue a billing number to a 
part B supplier, if any person who has an ownership or control interest 
in the provider or supplier, or who is an agent or managing employee, 
has been convicted of a criminal offense or subjected to any civil 
penalty or sanction related to the involvement of that person in 
Medicare, Medicaid, title V or title XX social services programs. In 
making this decision, CMS considers the facts and circumstances of the 
specific case, including the nature and severity of the crime, penalty 
or sanction and the extent to which it adversely affected beneficiaries 
and the programs involved. CMS also considers whether it has been given 
reasonable assurance that the person will not commit any further 
criminal or civil offense against the programs.
    (c) Notification of Inspector General. CMS promptly notifies the 
Inspector General of the Department of the receipt of any application or 
request for participation, certification, re-certification, or for a 
billing number that identifies any person described in paragraph (a)(3) 
of this section and the action taken on that application or request.

[57 FR 27306, June 18, 1992]



Sec. 420.205  Disclosure by providers and part B suppliers of business transaction information.

    A provider or part B supplier must submit to CMS, within 35 days 
after the date of a written request, full and complete information on--
    (a) The ownership of a subcontractor with which the provider or part 
B supplier has had, during the previous 12 months, business transactions 
in an aggregate amount in excess of $25,000;
    (b) Any significant business transactions between the provider or 
part B supplier and any wholly owned supplier or between the provider or 
part B supplier and any subcontractor, during the 5 year period ending 
on the date of the request;

[[Page 209]]

    (c) The names of managing employees of the subcontractors;
    (d) The identity of any other entities to which payment may be made 
by Medicare, which a person with an ownership or control interest or a 
managing employee in the subcontractor has or has had an ownership or 
control interest in the 3-year period preceding disclosure; and
    (e) Any penalties, assessments, or exclusions under sections 1128, 
1128A and 1128B of the Act incurred by the subcontractor, its owners, 
managing employees or those with a controlling interest in the 
subcontract.

[57 FR 27306, June 18, 1992]



Sec. 420.206  Disclosure of persons having ownership, financial, or control interest.

    (a) Information that must be disclosed. A disclosing entity must 
submit the following information in the manner specified in paragraph 
(b) of this section:
    (1) The name and address of each person with an ownership or control 
interest in the entity or in any subcontractor in which the entity has 
direct or indirect ownership interest totaling 5 percent or more. In the 
case of a part B supplier that is a joint venture, ownership of 5 
percent or more of any company participating in the joint venture should 
be reported. Any physician who has been issued a Unique Physician 
Identification Number by the Medicare program must provide this number.
    (2) Whether any of the persons named, in compliance with paragraph 
(a)(1) of this section, is related to another as spouse, parent, child, 
or sibling.
    (3) The name of any other disclosing entity in which any person with 
an ownership or control interest, or who is a managing employee in the 
reporting disclosing entity, has, or has had in the previous three-year 
period, an ownership or control interest or position as managing 
employee, and the nature of the relationship with the other disclosing 
entity. If any of these other disclosing entities has been convicted of 
a criminal offense or received a civil monetary or other administrative 
sanction related to participation in Medicare, Medicaid, title V 
(Maternal and Child Health) or title XX (Social Services) programs, such 
as penalties assessments and exclusions under sections 1128, 1128A or 
1128B of the Act, the disclosing entity must also provide that 
information.
    (b) Time and manner of disclosure. (1) Any disclosing entity that is 
subject to periodic survey and certification of its compliance with 
Medicare standards must supply the information specified in paragraph 
(a) of this section to the State survey agency at the time it is 
surveyed. The survey agency will promptly furnish the information to the 
Secretary.
    (2) Any disclosing entity that is not subject to periodic survey and 
certification must supply the information specified in paragraph (a) of 
this section to CMS before entering into a contract or agreement with 
Medicare or before being issued or reissued a billing number as a part B 
supplier.
    (3) A disclosing entity must furnish updated information to CMS at 
intervals between recertification, or re-enrollment, or contract 
renewals, within 35 days of a written request. In the case of a part B 
supplier, the supplier must report also within 35 days, on its own 
initiative, any changes in the information it previously supplied.
    (c) Consequences of failure to disclose. (1) CMS does not approve an 
agreement or contract with, or make a determination of eligibility for, 
or (in the case of a part B supplier) issue or reissue a billing number 
to, any disclosing entity that fails to comply with paragraph (b) of 
this section.
    (2) CMS terminates any existing agreement or contract with, or 
withdraws a determination of eligibility for or (in the case of a part B 
supplier) revokes the billing number of, any disclosing entity that 
fails to comply with paragraph (b) of this section.
    (d) Public disclosure. Information furnished to the Secretary under 
the provisions of this section shall be subject to public disclosure as 
specified in 20 CFR part 422.

[44 FR 41642, July 17, 1979, as amended at 57 FR 27306, June 18, 1992]

[[Page 210]]



   Subpart D_Access to Books, Documents, and Records of Subcontractors

    Source: 47 FR 58267, Dec. 30, 1982, unless otherwise noted.



Sec. 420.300  Basis, purpose, and scope.

    This subpart implements section 1861(v)(1)(I) of the Act, which 
requires, for Medicare payment under certain provider contracts, access 
by the Secretary, upon written request, and the Comptroller General, and 
their duly authorized representatives, to certain contracts for services 
and to books, documents, and records necessary to verify the costs of 
the services. The contracts affected are those between providers and 
their subcontractors, and between the subcontractors and organizations 
related to the subcontractor by control or common ownership. It also 
specifies the criteria by which HHS will determine whether to request 
access to books, documents, and records.



Sec. 420.301  Definitions.

    For purposes of this subpart--
    Books, documents, and records means all writings, recordings, 
transcriptions and tapes of any description necessary to verify the 
nature and extent of the costs of the services provided by the 
subcontractor.
    Common ownership means that an individual or individuals possess 
significant ownership or equity in the subcontractor and the entity 
providing the services under the contract.
    Contract for services means a contract through which a provider 
obtains the performance of an act or acts, as distinguished from 
supplies or equipment. It includes any contract for both goods and 
services to the extent the value or cost of the service component is 
$10,000 or more within a 12-month period.
    Control means that an individual or an organization has the power, 
directly or indirectly, significantly to influence or direct the actions 
of policies of an organization.
    Provider means a hospital, skilled nursing facility, home health 
agency, hospice or comprehensive outpatient rehabilitation facility, or 
a related organization (as defined in Sec. 413.17 of this chapter) of 
any of these providers.
    Related to the subcontractor means that the subcontractor is, to a 
significant extent, associated or affiliated with, owns, or is owned by, 
or has control of or is controlled by, the organization furnishing the 
services, facilities, or supplies.
    Subcontractor means any entity, including an individual or 
individuals, that contracts with a provider to supply a service, either 
to the provider or directly to a beneficiary, for which Medicare 
reimburses the provider the cost of the service. This includes 
organizations related to the subcontractor that have a contract with the 
subcontractor for which the cost or value is $10,000 or more in a 12-
month period.

[47 FR 58267, Dec. 30, 1982, as amended at 49 FR 13703, Apr. 6, 1984; 51 
FR 34833, Sept. 30, 1986]



Sec. 420.302  Requirement for access clause in contracts.

    (a) Applicability. This subpart applies to contracts--
    (1) Between a provider and a subcontractor and, where subject to 
section 1861(v)(l)(I)(ii) of the Act, between a subcontractor and an 
organization related to the subcontractor;
    (2) Entered into or renewed after December 5, 1980; and
    (3) For services the cost or value of which is $10,000 or more over 
a 12-month period, including contracts for both goods and services in 
which the service component is worth $10,000 or more over a 12-month 
period.
    (b) Requirement. Any contract meeting the conditions of paragraph 
(a) of this section must include a clause that allows the Comptroller 
General of the United States, HHS, and their duly authorized 
representatives access to the subcontractor's contract, books, 
documents, and records until the expiration of four years after the 
services are furnished under the contract or subcontract. The access 
must be provided for in accordance with the provisions of this subpart. 
The clause must also allow similar access by HHS, the Comptroller 
General, and their duly authorized representatives to contracts subject 
to section 1861(v)(l)(I)(ii) of the

[[Page 211]]

Act between a subcontractor and organizations related to the 
subcontractor and to books, documents, and records.
    (c) Prohibition against Medicare reimbursement. If a contract 
subject to the requirements of this subpart does not contain the clause 
required by paragraph (b) of this section, CMS will not reimburse the 
provider for the cost of the services furnished under the contract and 
will recoup any payments previously made for services under the 
contract. However, in order to avoid nonreimbursement or recoupment, 
providers will have until July 30, 1983, to amend those contracts 
entered into or renewed after December 5, 1980, and before January 31, 
1983, that do not conform to the requirements of paragraph (b) of this 
section.

[47 FR 58267, Dec. 30, 1982, as amended at 49 FR 13703, Apr. 6, 1984]



Sec. 420.303  HHS criteria for requesting books, documents, and records.

    HHS will generally request books, documents, and records from a 
subcontractor only if one of the following situations exists and the 
question cannot satisfactorily and efficiently be resolved without 
access to the books, documents, and records:
    (a) HHS has reason to believe that the costs claimed for services of 
the subcontractor are excessive or inappropriate.
    (b) There is insufficient information to judge the appropriateness 
of the costs.
    (c) There is a written accusation with suitable evidence against the 
provider or subcontractor of kickbacks, bribes, rebates, or other 
illegal activities.
    (d) There is evidence of a possible nondisclosure of the existence 
of a related organization.



Sec. 420.304  Procedures for obtaining access to books, documents, and records.

    (a) Contents of the request. Requests for access will be in writing 
and contain the following elements:
    (1) Reasonable identification of the books, documents, and records 
to which access is being requested.
    (2) Identification of the contract or subcontract in which costs are 
being questioned as excessive or inappropriate.
    (3) The reason that the appropriateness of the costs or value of the 
services of the subcontractor in question cannot be adequately or 
efficiently determined without access to the subcontractor's books and 
records.
    (4) The authority in the statute and regulations for the access 
requested.
    (5) To the extent possible, the identification of those individuals 
who will be visiting the subcontractor to obtain access to the books, 
documents, and records.
    (6) The time and date of the scheduled visit.
    (7) The name of the duly authorized representative of HHS to contact 
if there are any questions.
    (b) Subcontractor response to a request for access to books, 
documents, and records. (1) The subcontractor will have 30 days from the 
date of a written request for access to books, documents, and records to 
make them available in accordance with the request.
    (2) If the subcontractor believes the request is inadequate because 
it does not fully meet one or more of the required elements in paragraph 
(a) of this section, the subcontractor must advise the requesting 
organization of the additional information needed.
    (i) The subcontractor must notify the requesting organization within 
20 days of the date of the request that it was improperly completed.
    (ii) The subcontractor must make the books, documents, and records 
available within 20 days after the date of the requesting organization's 
response.
    (3) If the subcontractor believes, for good cause, that the 
requested books, documents, and records cannot be made available as 
requested with the 30-day period under paragraph (b)(1) of this section, 
the subcontractor may request an extension of time within which to 
comply with the request from the requesting organization. The requesting 
organization may, at its discretion, grant the request for an extension, 
in whole or in part, for good cause shown.
    (4) The subcontractor must make the books, documents, and records 
available during its regular business hours for inspection, audit, and 
reproduction.

[[Page 212]]

    (5) If HHS asks the subcontractor to reproduce books, documents, and 
records, HHS will pay the reasonable cost of reproduction. However, if 
the subcontractor reproduces books, documents, and records as a means of 
making them available, the subcontractor must bear the cost of the 
reproduction and no Medicare reimbursement will be made for that 
purpose.
    (6) HHS reserves the right to examine the originals of any requested 
contracts, books, documents, and records, if they exist.
    (c) Refusal by subcontractor to furnish access to records. If CMS 
determines that the books, documents, and records are necessary for the 
reimbursement determination and the subcontractor refuses to make them 
available, HHS may initiate legal action against the subcontractor.



Subpart E_Rewards for Information Relating to Medicare Fraud and Abuse, 
  and Establishment of a Program to Collect Suggestions for Improving 
   Medicare Program Efficiency and to Reward Suggesters for Monetary 
                                 Savings

    Source: 63 FR 31128, June 8, 1998, unless otherwise noted.



Sec. 420.400  Basis and scope.

    This subpart implements sections 203(b) and (c) of Public Law 104-
191, which require the establishment of programs to encourage 
individuals to report suspected cases of fraud and abuse and submit 
suggestions on methods to improve the efficiency of the Medicare 
program. Sections 203(b) and (c) of Public Law 104-191 also provide the 
authority for CMS to reward individuals for reporting fraud and abuse 
and for submitting suggestions that could improve the efficiency of the 
Medicare program. This subpart sets forth procedures for rewarding 
individuals.

[64 FR 66401, Nov. 26, 1999]



Sec. 420.405  Rewards for information relating to Medicare fraud and abuse.

    (a) General rule. CMS pays a monetary reward for information that 
leads to the recovery of at least $100 of Medicare funds from 
individuals and entities that are engaging in, or have engaged in, acts 
or omissions that constitute grounds for the imposition of a sanction 
under section 1128, section 1128A, or section 1128B of the Act or that 
have otherwise engaged in sanctionable fraud and abuse against the 
Medicare program. The determination of whether an individual meets the 
criteria for an award, and the amount of the award, is at the discretion 
of CMS. CMS pays rewards only if a reward is not otherwise provided for 
by law. When CMS applies the criteria specified in paragraphs (b), (c), 
and (e) of this section to determine the eligibility and the amount of 
the reward, it notifies the recipient as specified in paragraph (d) of 
this section.
    (b) Information eligible for reward. (1) In order for an individual 
to be eligible to receive a reward, the information he or she supplied 
must relate to the activities of a specific individual or entity and 
must specify the time period of the alleged activities.
    (2) CMS does not give a reward for information relating to an 
individual or entity that, at the time the information is provided, is 
already the subject of a review or investigation by CMS or its 
contractors, or the OIG, the Department of Justice, the Federal Bureau 
of Investigation, or any other Federal, State, or local law enforcement 
agency.
    (c) Persons eligible to receive a reward--(1) General rule. Any 
person (other than one excluded under paragraph (c)(2) of this section) 
is eligible to receive a reward under this section if the person submits 
the information in the manner set forth in paragraph (f) of this 
section.
    (2) Excluded individuals. (i) An individual who was, or is an 
immediate family member of, an officer or employee of HHS or its 
contractors, the SSA, the OIG, a State Medicaid Agency, or the 
Department of Justice, the Federal Bureau of Investigation, or any other 
Federal, State, or local law enforcement agency at the time he or she 
came into possession of, or divulged, information leading to a recovery 
of Medicare funds is not eligible to receive a reward under this 
section.

[[Page 213]]

    (ii) Any other Federal or State employee or contractor or an HHS 
grantee is not eligible for a reward under this section if the 
information submitted came to his or her knowledge in the course of his 
or her official duties.
    (iii) An individual who illegally obtained the information he or she 
submitted is excluded from receiving a reward under this section.
    (iv) An individual who participated in the sanctionable offense with 
respect to which payment would be made is excluded from receiving a 
reward under this section.
    (d) Notification of eligibility--(1) General rule. After all 
Medicare funds have been recovered and CMS has determined a participant 
eligible to receive a reward under the provisions of this section, it 
notifies the informant of his or her eligibility, by mail, at the most 
recent address supplied by the individual. It is the individual's 
responsibility to ensure that the reward program has been notified of 
any change in his or her address or other relevant personal information 
(for example, change of name, phone number).
    (2) Special circumstances. (i) If the individual has relocated to an 
unknown address, the individual or his or her legal representative may 
claim the reward by contacting CMS within 1 year from the date on which 
CMS first attempted to notify the individual about a reward. CMS does 
not consider the individual or his or her legal representative eligible 
for a reward more than 1 year after the date on which it first attempted 
to give notice. CMS does not pay interest on rewards that are not 
immediately claimed.
    (ii) If the individual has become incapacitated or has died, an 
executor, administrator, or other legal representative may claim the 
reward on behalf of the individual or the individual's estate. The 
claimant must submit certified copies of the letters testamentary, 
letters of administration, or other similar evidence to show his or her 
authority to claim the reward. The claim must be filed within 1 year 
from the date on which CMS first gave or attempted to give notice of the 
reward.
    (e) Amount and payment of reward. (1) In determining whether it will 
pay a reward and, if so, the amount of the reward, CMS takes into 
account all relevant factors, including the significance of the 
information furnished in relation to the ultimate resolution of the case 
and the recovery of Medicare funds.
    (2) The amount of a reward represents what CMS considers to be 
adequate compensation in the particular case, not to exceed 10 percent 
of the overpayments recovered in the case or $1,000, whichever is less.
    (3) If more than one person is eligible to receive a reward in a 
particular case, CMS allocates the total reward amount (not to exceed 10 
percent of the overpayments recovered in that case or $1,000, whichever 
is less) among the participants.
    (4) CMS bases rewards only on recovered Medicare payments and not on 
amounts collected as penalties or fines.
    (5) CMS makes payments as promptly as the circumstances of the case 
permit, but not until it has collected all Medicare overpayments, fines, 
and penalties.
    (6) No person may make any offer or promise or otherwise bind CMS or 
HHS with respect to the payment of any reward under this section or the 
amount of the reward.
    (f) Submission of information. (1) An individual may submit 
information on persons or entities engaging in, or that have engaged in, 
fraud and abuse against the Medicare program to the Office of the 
Inspector General, or to the Medicare intermediary or carrier that has 
jurisdiction over the suspected fraudulent provider or supplier.
    (2) A participant interested in receiving a reward must provide his 
or her name, address, telephone number, and any other requested 
identifying information so that he or she may be contacted, if 
necessary, for additional information and, when applicable, for the 
payment of a reward upon resolution of the case.
    (g) Confidentiality. CMS does not reveal a participant's identity to 
any person, except as required by law.
    (h) Finding of ineligibility after reward is accepted. If, after a 
reward is accepted, CMS finds that the awardee was ineligible to receive 
the reward, the Government is not liable for the reward

[[Page 214]]

and the awardee must refund all monies received.



Sec. 420.410  Establishment of a program to collect suggestions for improving Medicare program efficiency and to reward suggesters for monetary savings.

    (a) Definitions. As used in this section, the following definitions 
apply:
    Payment means a monetary award given to a suggester in recognition 
of, and as a reward for, a suggestion adopted by CMS that improves the 
efficiency of, and results in monetary savings to, the Medicare program.
    Savings means the monetary value of the net benefits the Medicare 
program derives from implementing the suggestion.
    Suggester means an individual, a group of individuals, or a legal 
entity such as a corporation, partnership, or professional association, 
not otherwise excluded under Sec. 420.410(d), who submits a suggestion 
under this section.
    Suggestion means an original idea submitted in writing.
    Suggestion program means the specific procedures and requirements 
established by CMS for receiving suggestions from the suggester on 
methods to improve the efficiency of the Medicare program, evaluating 
the suggestions and, if appropriate, paying a reward to the suggester 
for adopted suggestions that result in improved efficiency and produce 
monetary savings to the Medicare program.
    (b) General rule. CMS may make payment for adopted suggestions that 
increase the efficiency of the Medicare program and result in monetary 
savings. CMS only makes payment for suggestions in instances in which a 
reward is not otherwise provided by law. The determination to adopt a 
suggestion, to reward the suggester, and the method of calculating a 
reward are at the sole discretion of CMS.
    (c) Eligibility. Except as specified in paragraph (d) of this 
section, any individual, group of individuals or legal entity, such as a 
corporation, partnership or professional association, is eligible to 
submit a suggestion and be considered for a reward under this suggestion 
program if the suggestion is submitted to CMS in the manner set forth in 
paragraph (e) of this section.
    (d) Exclusions. Medicare contractors, their officers and employees, 
individuals who work for Federal agencies under a contract, employees of 
Federally-sponsored research and demonstration projects, Federal 
officers and employees, and immediate family members of these 
individuals, are excluded from receiving payment under the suggestion 
program. If, after the suggester receives a reward payment, CMS 
determines that the suggester was ineligible to receive the reward, CMS 
is not liable for the reward payment and the suggester must refund all 
monies received.
    (e) Requirements for submitting suggestions--(1) To be considered, 
the suggestion must be in writing, mailed to CMS, and must include the 
following information:
    (i) A description of an existing problem or need;
    (ii) A suggested method for solving the problem or filling the need; 
and
    (iii) If known, an estimate of the savings potential that could 
result from implementing the suggestion.
    (2) Suggestions must be mailed to: Centers for Medicare & Medicaid 
Services Suggestion Program, 7500 Security Blvd., Baltimore, Maryland 
21244-1850.
    (3) Any suggesters interested in receiving a reward must provide CMS 
with the following information: An individual suggester must provide his 
or her name, a group of suggesters must provide the names of all the 
group members, and a legal entity must provide its name and the name of 
its representative. All suggesters must provide an address, telephone 
number, and any other identifying information that CMS needs to contact 
the suggester for additional information and, where applicable, to mail 
the reward.
    (f) Evaluation process--(1) Relevant factors. CMS evaluates all 
suggestions on the basis of the following factors:
    (i) Originality of suggestion.
    (ii) An estimate of potential monetary savings to the Medicare 
program.
    (iii) The extent to which Medicare program efficiency would be 
improved if CMS adopts the suggestion.
    (iv) Accuracy of the information reflected in the suggestion.
    (v) Feasibility of implementation.
    (vi) Nature and complexity of the suggestion.

[[Page 215]]

    (vii) Any other factors that appear to be relevant.
    (2) Evaluation time limit. CMS concludes the evaluation process in a 
reasonable amount of time, not to exceed 2 years from the receipt date, 
taking into consideration the complexity of the suggestion, the number 
of possible implementation strategies, and CMS's current workload.
    (g) Basis for reward payment--(1) General rule. If CMS determines 
that it is appropriate to make a reward payment for a suggestion adopted 
in whole or in part, that results in improved efficiency and monetary 
savings to the Medicare program, the payment is based on--
    (i) The actual first-year net savings to the Medicare program, or
    (ii) The average annual net savings to the Medicare program expected 
to be realized over a period of not more than 3 years if--
    (A) An improvement is expected to yield monetary savings for more 
than 1 year and implementation involves substantial costs; or
    (B) Monetary savings are negligible in the first year but are 
expected to substantially increase in subsequent years.
    (2) Reward payment amount. CMS determines the amount of a reward 
payment using the following formula:
    (i) Net savings from $1,000 to $10,000--10 percent of the savings, 
with a minimum award amount of $100;
    (ii) Net savings of $10,001 to $100,000--$1,000 for the first 
$10,000 of savings, plus 3 percent of the net savings over $10,000;
    (iii) Net savings of more than $100,000--$3,700 for the first 
$100,000 of savings, plus 0.5 percent of savings over $100,000, with a 
maximum award amount of $25,000.
    (h) Adoption of suggestion and issuance of reward payment--(1) 
Adoption. Upon completing its evaluation, CMS decides whether to adopt a 
suggestion. If CMS receives the same or an overlapping suggestion from 
two or more unrelated parties, CMS will consider a reward only for the 
suggestion CMS received first, if the suggestion or overlapping part of 
the suggestion are identical, and CMS has adopted that part. If the 
suggestions are not identical, CMS will consider rewarding the 
suggestion received first, if it is feasible and CMS is able to adopt 
and implement the suggestion. If the first suggestion cannot be 
implemented, CMS may consider rewarding the suggestion received next, 
even if it is similar, provided CMS can adopt and implement the 
suggestion.
    (2) Issuance of reward payment. After the reward payment amount is 
determined, as described in paragraph (g) of this section, CMS mails 
payment to the suggester (or to the legal representatives referenced in 
paragraph (k) of this section) only after the suggestion has been in 
operation for 1 year.
    (i) Group suggestions. When CMS deems that a reward payment is 
appropriate for a suggestion submitted by a group of individuals, CMS 
pays an equal share of the reward to each of the individuals identified 
in the group. If an organization such as a corporation, partnership, or 
professional association submits a suggestion, CMS makes a single reward 
payment to that organization.
    (j) Change in name or address. It is the suggester's responsibility 
to notify CMS of any change of address or other relevant information. If 
the suggester fails to update CMS on any change in this information, and 
the reward payment mailed to the suggester is returned to CMS, the 
suggester must claim the reward payment by contacting CMS within 1 year 
from the date CMS first mailed the reward payment to the suggester. CMS 
does not pay interest on rewards that, for any reason, are delayed or 
are not immediately claimed.
    (k) Incapacitated or deceased suggester. If the suggester is 
incapacitated or has died, an executor, administrator, or other legal 
representative may claim the reward on behalf of the suggester or the 
suggester's estate. The claimant must submit certified copies of the 
letters testamentary, letters of administration, or other similar 
evidence to CMS showing his or her authority to claim the reward. The 
claim must be filed within 1 year from the date on which CMS first 
attempted to pay the reward to the individual who submitted the 
suggestion.

[[Page 216]]

    (l) Maintenance of records--(1) CMS retains records related to the 
administration of the suggestion program in accordance with 36 CFR part 
1228 (the regulations for the National Archives and Records 
Administration).
    (2) CMS does not disclose information submitted under the suggestion 
program, except as required by law.

[64 FR 66401, Nov. 26, 1999]



PART 421_INTERMEDIARIES AND CARRIERS--Table of Contents




          Subpart A_Scope, Definitions, and General Provisions

Sec.
421.1 Basis and scope.
421.3 Definitions.
421.5 General provisions.

                        Subpart B_Intermediaries

421.100 Intermediary functions.
421.103 Options available to providers and CMS.
421.104 Nominations for intermediary.
421.105 Notification of action on nomination.
421.106 Change to another intermediary or to direct payment.
421.110 Requirements for approval of an agreement.
421.112 Considerations relating to the effective and efficient 
          administration of the program.
421.114 Assignment and reassignment of providers by CMS.
421.116 Designation of national or regional intermediaries.
421.117 Designation of regional and alternative designated regional 
          intermediaries for home health agencies and hospices.
421.118 Awarding of experimental contracts.
421.120 Performance criteria.
421.122 Performance standards.
421.124 Intermediary's failure to perform efficiently and effectively.
421.126 Termination of agreements.
421.128 Intermediary's opportunity for hearing and right to judicial 
          review.

                           Subpart C_Carriers

421.200 Carrier functions.
421.201 Performance criteria and standards.
421.202 Requirements and conditions.
421.203 Carrier's failure to perform efficiently and effectively.
421.205 Termination by the Secretary.
421.210 Designations of regional carriers to process claims for durable 
          medical equipment, prosthetics, orthotics and supplies.
421.212 Railroad Retirement Board contracts.
421.214 Advance payments to suppliers furnishing items or services under 
          Part B.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 45 FR 42179, June 23, 1980, unless otherwise noted.



          Subpart A_Scope, Definitions, and General Provisions



Sec. 421.1  Basis and scope.

    (a) This part is based on the indicated provisions of the following 
sections of the Act:

    1124--Requirements for disclosure of certain information.
    1816 and 1842--Use of organizations and agencies in making Medicare 
payments to providers and suppliers of services.

    (b) Section 421.118 is also based on 42 U.S.C.1395b-1(a)(1)(F), 
which authorizes demonstration projects involving intermediary 
agreements and carrier contracts.
    (c) The provisions of this part apply to agreements with Part A 
(Hospital Insurance) intermediaries and contracts with Part B 
(Supplementary Medical Insurance) carriers. They also state that CMS may 
perform certain functions directly or by contract. They specify criteria 
and standards to be used in selecting intermediaries and evaluating 
their performance, in assigning or reassigning a provider or providers 
to particular intermediaries, and in designating regional or national 
intermediaries for certain classes of providers. The provisions set 
forth the instances where there is the opportunity for a hearing for 
intermediaries and carriers affected by certain adverse actions. In some 
circumstances, the adversely affected intermediaries may request a 
judicial review of hearings decisions on--
    (1) Assignment or reassignment of a provider or providers; or
    (2) Designation of an intermediary or intermediaries to serve a 
class of providers.

[49 FR 3659, Jan. 30, 1984, as amended at 60 FR 50442, Sept. 29, 1995]

[[Page 217]]



Sec. 421.3  Definitions.

    Intermediary means an entity that has a contract with CMS to 
determine and make Medicare payments for Part A or Part B benefits 
payable on a cost basis (or under the Prospective Payment System for 
hospitals) and to perform other related functions. For purposes of 
designating regional or alternative regional intermediaries for home 
health agencies and of designating intermediaries for hospices under 
Sec. 421.117 as well as for applying the performance criteria in Sec. 
421.120 and the performance standards in Sec. 421.122 and any adverse 
action resulting from such application, the term intermediary also means 
a Blue Cross Plan which has entered into a subcontract approved by CMS 
with the Blue Cross and Blue Shield Association to perform intermediary 
functions.

[59 FR 681, Jan. 6, 1994]



Sec. 421.5  General provisions.

    (a) Competitive bidding not required for carriers. CMS may enter 
into contracts with carriers, or with intermediaries to act as carriers 
in certain circumstances, without regard to section 3709 of the U.S. 
Revised Statutes or any other provision of law that requires competitive 
bidding.
    (b) Indemnification of intermediaries and carriers. Intermediaries 
and carriers act on behalf of CMS in carrying out certain administrative 
responsibilities that the law imposes. Accordingly, their agreements and 
contracts contain clauses providing for indemnification with respect to 
actions taken on behalf of CMS and CMS is the real party of interest in 
any litigation involving the administration of the program.
    (c) Use of intermediaries to perform carrier functions. CMS may 
contract with an intermediary to perform carrier functions with respect 
to services for which Part B payment is made to a provider.
    (d) Nonrenewal of agreement or contract. Notwithstanding any of the 
provisions of this part, CMS has the authority not to renew an agreement 
or contract when its term expires.
    (e) Intermediary availability in an area. For more effective and 
efficient administration of the program, CMS retains the right to expand 
or diminish the geographical area in which an intermediary is available 
to serve providers.
    (f) Provision for automatic renewal. Agreements and contracts under 
this part may contain automatic renewal clauses for continuation from 
term to term unless either party gives notice, within timeframes 
specified in the agreement or contract, of its intention not to renew.

[45 FR 42179, June 23, 1980, as amended at 54 FR 4026, Jan. 27, 1989]



                        Subpart B_Intermediaries



Sec. 421.100  Intermediary functions.

    An agreement between CMS and an intermediary specifies the functions 
to be performed by the intermediary, which must include, but are not 
necessarily limited to, the following:
    (a) Coverage. (1) The intermediary ensures that it makes payments 
only for services that are:
    (i) Furnished to Medicare beneficiaries;
    (ii) Covered under Medicare; and
    (iii) In accordance with QIO determinations when they are services 
for which the QIO has assumed review responsibility under its contract 
with CMS.
    (2) The intermediary takes appropriate action to reject or adjust 
the claim if--
    (i) The intermediary or the QIO determines that the services 
furnished or proposed to be furnished were not reasonable, not medically 
necessary, or not furnished in the most appropriate setting; or
    (ii) The intermediary determines that the claim does not properly 
reflect the kind and amount of services furnished.
    (b) Fiscal management. The intermediary must receive, disburse, and 
account for funds in making Medicare payments.
    (c) Provider audits. The intermediary must audit the records of 
providers of services as necessary to assure proper payments.
    (d) Utilization patterns. The intermediary must assist providers 
to--
    (1) Develop procedures relating to utilization practices;

[[Page 218]]

    (2) Make studies of the effectiveness of those procedures and 
recommend methods to improve them;
    (3) Evaluate the results of utilization review activity; and
    (4) Assist in the application of safeguards against unnecessary 
utilization of services.
    (e) Resolution of cost report disputes. The intermediary must 
establish and maintain procedures approved by CMS to consider and 
resolve any disputes that may result from provider dissatisfaction with 
an intermediary's determinations concerning provider cost reports.
    (f) Reconsideration of determinations. The intermediary must 
establish and maintain procedures approved by CMS for the 
reconsideration of its determinations to deny payments to an individual 
or to the provider that furnished services to the individual. The QIO 
performs reconsideration of cases in which it made a determination 
subject to reconsideration.
    (g) Information and reports. The intermediary must furnish to CMS 
any information and reports that CMS requests in order to carry out its 
responsibilities in the administration of the Medicare program.
    (h) Other terms and conditions. The intermediary must comply with 
all applicable laws and regulations and with any other terms and 
conditions included in its agreement.
    (i) Dual intermediary responsibilities. With respect to the 
responsibility for service to provider-based HHAs and provider-based 
hospices, where the HHA or hospice and its parent provider will be 
served by different intermediaries under Sec. 421.117 of this part, the 
designated regional intermediary will process bills, make coverage 
determinations and make payments to the HHAs and hospices. The 
intermediary serving the parent provider will perform all fiscal 
functions, including audits and settlement of the Medicare cost reports 
and the HHA and hospice supplement worksheets.

[45 FR 42179, June 23, 1980, as amended at 48 FR 7178, Feb. 18, 1983; 49 
FR 3659, Jan. 30, 1984; 51 FR 43198, Dec. 1, 1986; 53 FR 17944, May 19, 
1988; 54 FR 4026, Jan. 27, 1989]



Sec. 421.103  Options available to providers and CMS.

    (a) Except for hospices (which are covered under Sec. 421.117), a 
provider may elect to receive payment for covered services furnished to 
Medicare beneficiaries--
    (1) Directly from CMS (subject to the provisions of paragraph (b) of 
this section); or
    (2) Through an intermediary, when both CMS and the intermediary 
consent.
    (b) Whenever CMS determines it appropriate, it may contract with any 
organization (including an intermediary with which CMS has previously 
entered into an agreement under Sec. 421.105 and Sec. 421.110 or 
designated as a regional or alternative regional intermediary under 
Sec. 421.117) for the purposes of making payments to any provider that 
does not elect to receive payment from an intermediary.

[49 FR 3659, Jan. 30, 1984; 49 FR 9174, Mar. 12, 1984]



Sec. 421.104  Nominations for intermediary.

    (a) Nomination by groups or associations of providers. (1) An 
association of providers, except for hospices, may nominate an 
organization or agency to serve as intermediary for its members.
    (2) The nomination is not binding on any member of the association 
if it notifies CMS of its nonconcurrence with the nomination.
    (3) The nomination must be made in writing, to CMS, and must--
    (i) Identify the proposed intermediary by giving the complete name 
and address;
    (ii) Include, or furnish as an attachment, the name, address, and 
bed capacity (or patient care capacity in the case of home health 
agencies) of each member of the association;
    (iii) List the members that have concurred in the nomination of the 
proposed intermediary; and
    (iv) Be signed by an authorized representative of the association.
    (b) Action by nonmembers or nonconcurring members. Providers that 
nonconcur in their association's nomination, or are not members of an 
association, may--

[[Page 219]]

    (1) Form a group of 2 or more providers for the specific purpose of 
nominating an intermediary, in accordance with provisions of paragraph 
(a) of this section;
    (2) Elect to receive payments from a fiscal intermediary with which 
CMS already has an agreement, if CMS and the intermediary agree to it 
(see Sec. 421.106); or
    (3) Elect to receive payment from CMS as provided in Sec. 421.103.
    (c) CMS is not required to enter into an agreement with a proposed 
intermediary solely because it has been nominated.

[45 FR 42179, June 23, 1980, as amended at 48 FR 56035, Dec. 16, 1983; 
49 FR 3659, Jan. 30, 1984]



Sec. 421.105  Notification of action on nomination.

    (a) CMS will send, to each member of a nominating association or 
group, written notice of a decision to enter into or not enter into an 
agreement with the nominated organization or agency.
    (b) Any member of a group or association having more than one 
nominated intermediary approved by CMS to act on its behalf must 
withdraw its nomination from all but one or exercise the option provided 
in Sec. 421.103(a), subject to Sec. 421.103(b), to receive payment 
directly from CMS.

[45 FR 42179, June 23, 1980, as amended at 49 FR 3660, Jan. 30, 1984]



Sec. 421.106  Change to another intermediary or to direct payment.

    (a) Any provider may request a change of intermediary, or except for 
a hospice, that it be paid directly by CMS, by--
    (1) Giving CMS written notice of its desire at least 120 days before 
the end of its current fiscal year; and
    (2) Concurrently giving written notice to its intermediary.
    (b) If CMS finds the change is consistent with effective and 
efficient administration of the program and approves the request under 
paragraph (a) of this section, it will notify the provider, the outgoing 
intermediary, and the newly-elected intermediary (if any) that the 
change will be effective on the first day following the close of the 
fiscal year in which the request was filed.

[45 FR 42179, June 23, 1980, as amended at 49 FR 56036, Dec. 16, 1983; 
49 FR 3660, Jan. 30, 1984]



Sec. 421.110  Requirements for approval of an agreement.

    Before entering into or renewing an intermediary agreement, CMS 
will--
    (a) Determine that to do so is consistent with the effective and 
efficient administration of the Medicare program;
    (b) Review the performance of the intermediary as measured by the 
criteria (Sec. 421.120) and standards (Sec. 421.122); and
    (c) Determine that the intermediary or prospective intermediary--
    (1) Is willing and able to assist providers in the application of 
safeguards against unnecessary utilization of services;
    (2) Meets all solvency and financial responsibility requirements 
imposed by the statutes and regulatory authorities of the State or 
States in which it, or any subcontractor performing some or all of its 
functions, would serve;
    (3) Has the overall resources and experience to administer its 
responsibilities under the Medicare program and has an existing 
operational, statistical, and recordkeeping capacity to carry out the 
additional program responsibilities it proposes to assume. CMS will 
presume that an intermediary or prospective intermediary meets this 
requirement if it has at least 5 years experience in paying for or 
reimbursing the cost of health services;
    (4) Will serve a sufficient number of providers to permit a finding 
of effective and efficient administration. Under this criterion no 
intermediary or prospective intermediary shall be found to be not 
efficient or effective solely on the grounds that it serves only 
providers located in a single State;
    (5) Has acted in good faith to achieve effective cooperation with 
the providers it will service and with the physicians and medical 
societies in the area;
    (6) Has established a record of integrity and satisfactory service 
to the public; and

[[Page 220]]

    (7) Has an affirmative equal employment opportunity program that 
complies with the fair employment provisions of the Civil Rights Act of 
1964 and Executive Order 11246, as amended.



Sec. 421.112  Considerations relating to the effective and efficient administration of the program.

    (a) In order to accomplish the most effective and efficient 
administration of the Medicare program, determinations may be made by 
the Secretary with respect to the termination of an intermediary 
agreement, or by CMS with respect to the--
    (1) Renewal of an intermediary agreement (Sec. 421.110);
    (2) Assignment or reassignment of providers to an intermediary 
(Sec. 421.114); or
    (3) Designation of a regional or national intermediary to serve a 
class of providers (Sec. 421.116).
    (b) When taking the actions listed in paragraph (a), the Secretary 
or CMS will consider the performance of the individual intermediary in 
its Medicare operations using the factors contained in the performance 
criteria (Sec. 421.120) and performance standards (Sec. 421.122).
    (c) In addition, when taking the actions listed in paragraph (a) of 
this section, the Secretary or CMS may consider factors relating to--
    (1) Consistency in the administration of program policy;
    (2) Development of intermediary expertise in difficult areas of 
program administration;
    (3) Individual capacity of available intermediaries to serve 
providers as it is affected by such considerations as--
    (i) Program emphasis on the number or type of providers to be 
served; or
    (ii) Changes in data processing technology;
    (4) Overdependence of the program on the capacity of an intermediary 
to an extent that services could be interrupted;
    (5) Economy in the delivery of intermediary services;
    (6) Timeliness in the delivery of intermediary services;
    (7) Duplication in the availability of intermediaries;
    (8) Conflict of interest between an intermediary and provider; and
    (9) Any additional pertinent factors.

[45 FR 42179, June 23, 1980, as amended at 59 FR 682, Jan. 6, 1994]



Sec. 421.114  Assignment and reassignment of providers by CMS.

    CMS may assign or reassign any provider to any intermediary if it 
determines that the assignment or reassignment will result in a more 
effective and efficient administration of the Medicare program. Before 
making this determination CMS will consider--
    (a) The preferences of the provider;
    (b) The availability of an intermediary as specified in Sec. 
421.5(e); and
    (c) Intermediary performance measured against the criteria and 
standards specified in Sec. Sec. 421.120 and 421.122.

[45 FR 42179, June 23, 1980, as amended at 49 FR 3660, Jan. 30, 1984]



Sec. 421.116  Designation of national or regional intermediaries.

    (a) After considering intermediary performance measured against the 
criteria and standards specified in Sec. Sec. 421.120 and 421.122, CMS 
may designate a particular intermediary to serve a class of providers 
nationwide or in any geographic area it defines. CMS may make this 
designation if it determines that the designation will result in a 
greater degree of effectiveness and efficiency in the administration of 
the Medicare program than could be achieved by an assignment of 
providers to an intermediary preferred by the providers.
    (b) No designation may be made until the affected providers and 
intermediaries are given an explanation and the intermediaries are 
advised of their right to a hearing and judicial review as specified in 
Sec. 421.128. This provision does not apply to experimental contracts 
awarded under Sec. 421.118.
    (c) To designate an intermediary, CMS may establish classes of 
providers on the basis of--
    (1) The type of provider, for example, hospital, skilled nursing 
facility, home health agency; or
    (2) Common characteristics.

[45 FR 42179, June 23, 1980, as amended at 49 FR 3660, Jan. 30, 1984]

[[Page 221]]



Sec. 421.117  Designation of regional and alternative designated regional intermediaries for home health agencies and hospices.

    (a) This section is based on section 1816(e)(4) of the Social 
Security Act, which requires the Secretary to designate regional 
intermediaries for home health agencies (HHAs) other than hospital-based 
HHAs but permits him or her to designate regional intermediaries for 
hospital-based HHAs only if the designation meets promulgated criteria 
concerning administrative efficiency and effectiveness; on section 
1816(e)(5) of the Social Security Act, which requires the Secretary to 
designate intermediaries for hospices; and on section 1874 of the Act, 
which permits CMS to contract with any organization for the purpose of 
making payments to any provider that elects to receive payment directly 
from CMS.
    (b) CMS applies the following criteria to determine whether the 
assignment of hospital-based HHAs to designated regional intermediaries 
will result in the more effective and efficient administration of the 
Medicare program:
    (1) Uniform interpretation of Medicare rules;
    (2) Expertise in bill processing;
    (3) Control of administrative costs;
    (4) Ease of communication of program policy and issues to affected 
providers;
    (5) Ease of data collection;
    (6) Ease of CMS's monitoring of intermediary performance; and
    (7) Other criteria as the Secretary believes to be pertinent.
    (c) Except as provided in paragraphs (e), (f), and (g) of this 
section, an HHA must receive payment through a regional intermediary 
designated by CMS.
    (d) Except as provided in paragraphs (f) through (h) of this 
section, a hospice must receive payment for covered services furnished 
to Medicare beneficiaries through an intermediary designated by CMS.
    (e) An HHA chain not desiring to receive payment from designated 
regional intermediaries may request service by one lead intermediary 
with the assistance of a local designated regional intermediary. 
Alternatively, the chain may request to be serviced by a single 
intermediary. A lead, local, or a single intermediary must be an 
organization that is a designated regional intermediary. Any request 
made under this paragraph is evaluated by CMS in accordance with the 
criteria contained at Sec. 421.106 of this subpart.
    (f) An HHA or hospice not wishing to receive payment from a regional 
intermediary designated under paragraph (c) or (d) of this section may 
submit a request to the CMS Regional Office to receive payment through 
an alternative regional intermediary designated by CMS.
    (g) Except as provided in paragraph (h) of this section, any request 
that an HHA or hospice may make to change from a designated regional 
intermediary to an alternative designated regional intermediary, in 
accordance with paragraph (f) of this section, is evaluated by CMS in 
accordance with the criteria set forth at Sec. 421.106(b) of this 
subpart and must be filed within the timeframe established at Sec. 
421.106(a) of this subpart.
    (h) Exception: An HHA or a hospice that, as of June 20, 1988 is 
receiving payment from a designated regional intermediary may, without 
regard to the limitations contained in Sec. 421.106 of this subpart, 
continue to receive payment from that intermediary. It may do so even if 
that intermediary is not the designated regional intermediary or the 
alternative designated regional intermediary for the particular State in 
which the HHA or hospice is located.

[53 FR 17944, May 19, 1988]



Sec. 421.118  Awarding of experimental contracts.

    Notwithstanding the provisions of Sec. Sec. 421.103 and 421.104, 
CMS may award a fixed price or performance incentive contract under the 
experimental authority contained in 42 U.S.C. 1395b-1 for performance of 
any of the functions specified in Sec. 421.100. Action taken by CMS 
under this paragraph is not subject to--
    (a) The administrative and judicial review which would otherwise be 
available under Sec. 421.128; or

[[Page 222]]

    (b) Performance criteria and performance standards review as 
provided for in Sec. Sec. 421.120 and 421.122.

[45 FR 42179, June 23, 1980, as amended at 59 FR 682, Jan. 6, 1994]



Sec. 421.120  Performance criteria.

    (a) Application of performance criteria. As part of the intermediary 
evaluations authorized by section 1816(f) of the Act, CMS periodically 
assesses the performance of intermediaries in their Medicare operations 
using performance criteria. The criteria measure and evaluate 
intermediary performance of functional responsibilities such as--
    (1) Correct coverage and payment determinations;
    (2) Responsiveness to beneficiary concerns; and
    (3) Proper management of administrative funds.
    (b) Basis for criteria. CMS will base the performance criteria on--
    (1) Nationwide intermediary experience;
    (2) Changes in intermediary operations due to fiscal constraints; 
and
    (3) HFCA's objectives in achieving better performance.
    (c) Publication of criteria. The development and revision of 
criteria for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, CMS 
will publish the performance criteria as a notice in the Federal 
Register.

[48 FR 7178, Feb. 18, 1983]



Sec. 421.122  Performance standards.

    (a) Development of standards. In addition to the performance 
criteria (Sec. 421.120), CMS develops detailed performance standards 
for use in evaluating intermediary performance which may be based on 
historical performance, application of acceptable statistical measures 
of variation to nationwide intermediary experience during a base period, 
or changing program emphases or requirements. These standards are also 
developed considering intermediary experience and evaluate the specific 
requirements of each functional responsibility or criterion.
    (b) Factors beyond intermediary's control. To identify measurable 
factors that significantly affect an intermediary's performance, but 
that are not within the intermediary's control, CMS will--
    (1) Study the performance of intermediaries during the base period, 
and
    (2) Consider the noncontrollable factors in developing performance 
standards.
    (c) Publication of standards. The development and revision of 
standards for evaluating intermediary performance is a continuing 
process. Therefore, before the beginning of each evaluation period, 
which usually coincides with the Federal fiscal year period of October 
1-September 30, CMS publishes the performance standards as part of the 
Federal Register notice describing the performance criteria issued under 
Sec. 421.120(c). CMS may not necessarily publish the criteria and 
standards every year. CMS interprets the statutory phrase ``before the 
beginning of each evaluation period'' as allowing publication of the 
criteria and standards after the Federal fiscal year begins, as long as 
the evaluation period of the intermediaries for the new criteria and 
standards begins after the publication of the notice.

[59 FR 682, Jan. 6, 1994]



Sec. 421.124  Intermediary's failure to perform efficiently and effectively.

    (a) Failure by an intermediary to meet, or to demonstrate the 
capacity to meet, the criteria or standards specified in Sec. Sec. 
421.120 and 421.122 may be grounds for adverse action by the Secretary 
or by CMS, such as reassignment of providers, offer of a short-term 
agreement, termination of a contract, or non-renewal of a contract. If 
an intermediary meets all criteria and standards in its overall 
performance, but does not meet them with respect to a specific provider 
or class of providers, CMS may reassign that provider or class of 
providers to another intermediary in accordance with Sec. 421.114.
    (b) In addition, notwithstanding whether an intermediary meets the 
criteria and standards, if the cost incurred by the intermediary to meet 
its contractual requirements exceeds the amount which CMS finds to be 
reasonable and adequate to meet the cost

[[Page 223]]

which must be incurred by an efficiently and economically operated 
intermediary, those high costs may also be grounds for adverse action.

[59 FR 682, Jan. 6, 1994]



Sec. 421.126  Termination of agreements.

    (a) Termination by intermediary. An intermediary may terminate its 
agreement at any time by--
    (1) Giving written notice of its intention to CMS and to the 
providers it services at least 180 days before its intended termination 
date; and
    (2) Giving public notice of its intention by publishing a statement 
of the effective date of termination at least 60 days before that date. 
Publication must be in a newspaper of general circulation in each 
community served by the intermediary.
    (b) Termination by the Secretary, and right of appeal. (1) The 
Secretary may terminate an agreement if--
    (i) The intermediary fails to comply with the requirements of this 
subpart;
    (ii) The intermediary fails to meet the criteria or standards 
specified in Sec. Sec. 421.120 and 421.122; or
    (iii) CMS has reassigned, under Sec. 421.114 or Sec. 421.116, all 
of the providers assigned to the intermediary.
    (2) If the Secretary decides to terminate an agreement, he or she 
will offer the intermediary an opportunity for a hearing, in accordance 
with Sec. 421.128.
    (3) If the intermediary does not request a hearing, or if the 
hearing decision affirms the Secretary's decision, the Secretary will 
provide reasonable notice of the effective date of termination to--
    (i) The intermediary;
    (ii) The providers served by the intermediary; and
    (iii) The general public.
    (4) The providers served by the intermediary will be given the 
opportunity to nominate another intermediary, in accordance with Sec. 
421.104.



Sec. 421.128  Intermediary's opportunity for hearing and right to judicial review.

    (a) Basis for appeal. An intermediary adversely affected by any of 
the following actions shall be granted an opportunity for a hearing:
    (1) Assignment or reassignment of providers to another intermediary.
    (2) Designation of a national or regional intermediary to serve a 
class of providers.
    (3) Termination of the agreement.
    (b) Request for hearing. The intermediary shall file the request 
with CMS within 20 days from the date on the notice of intended action.
    (c) Hearing procedures. The hearing officer shall be a 
representative of the Secretary and not otherwise a party to the initial 
administrative decision. The intermediary may be represented by counsel 
and may present evidence and examine witnesses. A complete recording of 
the proceedings at the hearing will be made and transcribed.
    (d) Judicial review. An adverse hearing decision concerning action 
under paragraph (a)(1) or (a)(2) of this section is subject to judicial 
review in accordance with 5 U.S.C. chapter 7.
    (e) As specified in Sec. 421.118, contracts awarded under the 
experimental authority of CMS are not subject to the provisions of this 
section.
    (f) Exception. An intermediary adversely affected by the designation 
of a regional intermediary or an alternative regional intermediary for 
HHAs, or an intermediary for hospices, under Sec. 421.117 of this 
subpart is not entitled to a hearing or judicial review concerning 
adverse effects caused by the designation of an intermediary.

[45 FR 42179, June 23, 1980, as amended at 47 FR 38540, Sept. 1, 1982; 
49 FR 3660, Jan. 30, 1984; 53 FR 17945, May 19, 1988]



                           Subpart C_Carriers



Sec. 421.200  Carrier functions.

    A contract between CMS and a carrier, other than a regional DMEPOS 
carrier, specifies the functions to be performed by the carrier which 
must include, but are not necessarily limited to, the following:
    (a) Coverage. (1) The carrier ensures that payment is made only for 
services that are:
    (i) Furnished to Medicare beneficiaries;
    (ii) Covered under Medicare; and
    (iii) In accordance with QIO determinations when they are services 
for

[[Page 224]]

which the QIO has assumed review responsibility under its contract with 
CMS.
    (2) The carrier takes appropriate action to reject or adjust the 
claim if--
    (i) The carrier or the QIO determines that the services furnished or 
proposed to be furnished were not reasonable, not medically necessary, 
or not furnished in the most appropriate setting;
    (ii) The carrier determines that the claim does not properly reflect 
the kind and amount of services furnished.
    (b) Payment on a cost basis. If payment is on a cost basis, the 
carrier must assure that payments are based on reasonable costs, as 
determined under part 413 of this chapter.
    (c) Payment on a charge basis. If payment is on a charge basis, 
under part 405, subpart E of this chapter, the carrier must ensure 
that--
    (1) Charges are reasonable and not higher than the charge for a 
comparable service furnished under comparable circumstances to the 
carrier's policy holders and subscribers; and
    (2) The payment is based on one of the following--
    (i) An itemized bill.
    (ii) An assignment under the terms of which the reasonable charge is 
the full charge for the service, as specified in Sec. 424.55 of this 
chapter.
    (iii) If the beneficiary has died, the procedures set forth in 
Sec. Sec. 424.62 and 424.64 of this chapter.
    (d) Fiscal management. The carrier must receive, disburse, and 
account for funds in making payments under Medicare.
    (e) Provider audits. The carrier must audit the records of providers 
to whom it makes Medicare Part B payments to assure that payments are 
made properly.
    (f) Utilization patterns. (1) The carrier must have methods and 
procedures for identifying utilization patterns that deviate from 
professionally established norms and bring the deviant patterns to the 
attention of appropriate professional groups.
    (2) The carrier must assist providers and other persons who furnish 
Medicare Part B services to--
    (i) Develop procedures relating to utilization practices;
    (ii) Make studies of the effectiveness of those procedures and 
devise methods to improve them;
    (iii) Apply safeguards against unnecessary utilization of services; 
and
    (iv) Develop procedures for utilization review, and establish groups 
to perform such reviews of providers to whom it makes Medicare Part B 
payments.
    (g) Information and reports. The carrier must furnish to CMS any 
information and reports that CMS requests in order to carry out CMS's 
responsibilities in the administration of the Medicare program. The 
carrier must be responsive to requests for information from the public.
    (h) Maintenance and availability of records. The carrier must 
maintain and make available to CMS the records necessary for 
verification of payments and for other related purposes.
    (i) Hearings to Part B beneficiaries. (1) The carrier must provide 
an opportunity for a fair hearing if it denies the beneficiary's request 
for payment, does not act upon the request with reasonable promptness, 
or pays less than the amount claimed.
    (2) The hearing procedures must be in accordance with part 405, 
subpart H, of this chapter (Review and Hearing Under the Supplementary 
Medical Insurance Program).
    (j) Other terms and conditions. The carrier must comply with any 
other terms and conditions included in its contract.

[45 FR 42183, June 23, 1980; 45 FR 64913, Oct. 1, 1980, as amended at 49 
FR 3660, Jan. 30, 1984; 49 FR 9174, Mar. 12, 1984; 51 FR 34833, Sept. 
30, 1986; 51 FR 41350, Nov. 14, 1986; 51 FR 43198, Dec. 1, 1986; 52 FR 
4499, Feb. 12, 1987; 53 FR 6648, Mar. 2, 1988; 54 FR 4027, Jan. 27, 
1989; 57 FR 27307, June 18, 1992]



Sec. 421.201  Performance criteria and standards.

    (a) Application of performance criteria and standards. As part of 
the carrier evaluations mandated by section 1842(b)(2) of the Act, CMS 
periodically assesses the performance of carriers in their Medicare 
operations using performance criteria and standards.
    (1) The criteria measure and evaluate carrier performance of 
functional responsibilities such as--

[[Page 225]]

    (i) Accurate and timely payment determinations;
    (ii) Responsiveness to beneficiary, physician, and supplier 
concerns; and
    (iii) Proper management of administrative funds.
    (2) The standards evaluate the specific requirements of each 
functional responsibility or criterion.
    (b) Basis for criteria and standards. CMS bases the performance 
criteria and standards on--
    (1) Nationwide carrier experience;
    (2) Changes in carrier operations due to fiscal constraints; and
    (3) CMS's objectives in achieving better performance.
    (c) Publication of criteria and standards. Before the beginning of 
each evaluation period, which usually coincides with the Federal fiscal 
year period of October 1-September 30, CMS publishes the performance 
criteria and standards as a notice in the Federal Register. CMS may not 
necessarily publish the criteria and standards every year. CMS 
interprets the statutory phrase ``before the beginning of each 
evaluation period'' as allowing publication of the criteria and 
standards after the Federal fiscal year begins, as long as the 
evaluation period of the carriers for the new criteria and standards 
begins after the publication of the notice.

[59 FR 682, Jan. 6, 1994]



Sec. 421.202  Requirements and conditions.

    Before entering into or renewing a carrier contract, CMS determines 
that the carrier--
    (a) Has the capacity to perform its contractual responsibilities 
effectively and efficiently;
    (b) Has the financial responsibility and legal authority necessary 
to carry out its responsibilities; and
    (c) Will be able to meet any other requirements CMS considers 
pertinent, and, if designated a regional DMEPOS carrier, any special 
requirements for regional carriers under Sec. 421.210 of this subpart.

[45 FR 42179, June 23, 1980, as amended at 57 FR 27307, June 18, 1992]



Sec. 421.203  Carrier's failure to perform efficiently and effectively.

    (a) Failure by a carrier to meet, or demonstrate the capacity to 
meet, the criteria and standards specified in Sec. 421.201 may be 
grounds for adverse action by the Secretary, such as contract 
termination or non-renewal.
    (b) Notwithstanding whether or not a carrier meets the criteria and 
standards specified in Sec. 421.201, if the cost incurred by the 
carrier to meet its contractual requirements exceeds the amount that CMS 
finds to be reasonable and adequate to meet the cost which must be 
incurred by an efficiently and economically operated carrier, those high 
costs may also be grounds for adverse action.

[59 FR 682, Jan. 6, 1994]



Sec. 421.205  Termination by the Secretary.

    (a) Cause for termination. The Secretary may terminate a contract 
with a carrier at any time if he or she determines that the carrier has 
failed substantially to carry out any material terms of the contract or 
has performed its function in a manner inconsistent with the effective 
and efficient administration of the Medicare Part B program.
    (b) Notice and opportunity for hearing. Upon notification of the 
Secretary's intent to terminate the contract, the carrier may request a 
hearing within 20 days after the date on the notice of intent to 
terminate.
    (c) Hearing procedures. The hearing procedures will be those 
specified in Sec. 421.128(c).



Sec. 421.210  Designations of regional carriers to process claims for durable medical equipment, prosthetics, orthotics and supplies.

    (a) Basis. This section is based on sections 1834(a)(12) and 1834(h) 
of the Act, which authorize the Secretary to designate one carrier for 
one or more entire regions to process claims for durable medical 
equipment, prosthetic devices, prosthetics, orthotics, and other 
supplies (DMEPOS). This authority has been delegated to CMS.
    (b) Types of claims. Claims for the following, except for items 
incident to a

[[Page 226]]

physician's professional service as defined in Sec. 410.26, incident to 
a physician's service in a rural health clinic as defined in Sec. 
405.2413, or bundled into payment to a provider, ambulatory surgical 
center, or other facility, are processed by the designated carrier for 
its designated region and not by other carriers--
    (1) Durable medical equipment (and related supplies) as defined in 
section 1861(n) of the Act;
    (2) Prosthetic devices (and related supplies) as described in 
section 1861(s)(8) of the Act, (including intraocular lenses and 
parenteral and enteral nutrients, supplies, and equipment, when 
furnished under the prosthetic device benefit);
    (3) Orthotics and prosthetics (and related supplies) as described in 
section 1861(s)(9);
    (4) Home dialysis supplies and equipment as described in section 
1861(s)(2)(F);
    (5) Surgical dressings and other devices as described in section 
1861(s)(5);
    (6) Immunosuppressive drugs as described in section 1861(s)(2)(J); 
and
    (7) Other items or services which are designated by CMS.
    (c) Region designation. (1) The boundaries of the initial four 
regions for processing claims described in paragraph (b) of this section 
contain the following States and territories:
    (i) Region A: Maine, New Hampshire, Vermont, Massachusetts, 
Connecticut, Rhode Island, New York, New Jersey, Pennsylvania, and 
Delaware.
    (ii) Region B: Maryland, the District of Columbia, Virginia, West 
Virginia, Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota.
    (iii) Region C: North Carolina, South Carolina, Kentucky, Tennessee, 
Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Arkansas, 
Oklahoma, New Mexico, Colorado, Puerto Rico, and the Virgin Islands.
    (iv) Region D: Alaska, Hawaii, American Samoa, Guam, the Northern 
Mariana Islands, California, Nevada, Arizona, Washington, Oregon, 
Montana, Idaho, Utah, Wyoming, North Dakota, South Dakota, Nebraska, 
Kansas, Iowa, and Missouri.
    (2) CMS has the option to modify the number and boundaries of the 
regions established in paragraph (c)(1) of this section based on 
appropriate criteria and considerations, including the effect of the 
change on beneficiaries and DMEPOS suppliers. To announce changes, CMS 
publishes a notice in the Federal Register that delineates the regional 
boundary or boundaries changed, the States and territories affected, and 
supporting criteria or considerations.
    (d) Criteria for designating regional carriers. CMS designates 
regional carriers to achieve a greater degree of effectiveness and 
efficiency in the administration of the Medicare program. In making this 
designation, CMS will award regional carrier contracts in accordance 
with applicable law and will consider some or all of the following 
criteria--
    (1) Timeliness of claim processing;
    (2) Cost per claim;
    (3) Claim processing quality;
    (4) Experience in claim processing, and in establishing local 
medical review policy; and
    (5) Other criteria that CMS believes to be pertinent.
    (e) Carrier designation. (1) Each carrier designated a regional 
carrier must process claims for items listed in paragraph (b) of this 
section for beneficiaries whose permanent residence is within that 
carrier's region as designated under paragraph (c) of this section. When 
processing the claims, the carrier must use the payment rates applicable 
for the State of residence of the beneficiary, including a qualified 
Railroad Retirement beneficiary. A beneficiary's permanent residence is 
the address at which he or she intends to spend 6 months or more of the 
calendar year.
    (2) CMS notifies affected Medicare beneficiaries and suppliers when 
it designates a regional carrier (in accordance with paragraph (d) of 
this section) to process DMEPOS claims (as defined in paragraph (b) of 
this section) for all Medicare beneficiaries residing in their 
respective regions (as designated under paragraph (c) of this section).
    (3) CMS may contract for the performance of National Supplier 
Clearinghouse functions through a contract amendment to one of the DME 
regional carrier contracts or through a contract

[[Page 227]]

amendment to any Medicare carrier contract under Sec. 421.200.
    (4) CMS periodically recompetes the contracts for the DME regional 
carriers. CMS also periodically recompetes the National Supplier 
Clearinghouse function.
    (f) Collecting information of ownership. Carriers designated as 
regional claims processors must obtain from each supplier of items 
listed in paragraph (b) of this section information concerning ownership 
and control as required by section 1124A of the Act and part 420 of this 
chapter, and certifications that supplier standards are met as required 
by part 424 of this chapter.

[57 FR 27307, June 18, 1992, as amended at 58 FR 60796, Nov. 18, 1993; 
70 FR 9239, Feb. 25, 2005]



Sec. 421.212  Railroad Retirement Board contracts.

    In accordance with this subpart C, the Railroad Retirement Board 
contracts with DMEPOS regional carriers designated by CMS, as set forth 
in Sec. 421.210(e)(2), for processing claims for Medicare-eligible 
Railroad Retirement beneficiaries, for the same contract period as the 
contracts entered into between CMS and the DMEPOS regional carriers.

[58 FR 60797, Nov. 18, 1993]



Sec. 421.214  Advance payments to suppliers furnishing items or services under Part B.

    (a) Scope and applicability. This section provides for the 
following:
    (1) Sets forth requirements and procedures for the issuance and 
recovery of advance payments to suppliers of Part B services and the 
rights and responsibilities of suppliers under the payment and recovery 
process.
    (2) Does not limit CMS's right to recover unadjusted advance payment 
balances.
    (3) Does not affect suppliers' appeal rights under part 405, subpart 
H of this chapter relating to substantive determinations on suppliers' 
claims.
    (4) Does not apply to claims for Part B services furnished by 
suppliers that have in effect provider agreements under section 1866 of 
the Act and part 489 of this chapter, and are paid by intermediaries.
    (b) Definition. As used in this section, advance payment means a 
conditional partial payment made by the carrier in response to a claim 
that it is unable to process within established time limits.
    (c) When advance payments may be made. An advance payment may be 
made if all of the following conditions are met:
    (1) The carrier is unable to process the claim timely.
    (2) CMS determines that the prompt payment interest provision 
specified in section 1842(c) of the Act is insufficient to make a 
claimant whole.
    (3) CMS approves, in writing to the carrier, the making of an 
advance payment by the carrier.
    (d) When advance payments are not made. Advance payments are not 
made to any supplier that meets any of the following conditions:
    (1) Is delinquent in repaying a Medicare overpayment.
    (2) Has been advised of being under active medical review or program 
integrity investigation.
    (3) Has not submitted any claims.
    (4) Has not accepted claims' assignments within the most recent 180-
day period preceding the system malfunction.
    (e) Requirements for suppliers. (1) Except as provided for in 
paragraph (g)(1) of this section, a supplier must request, in writing to 
the carrier, an advance payment for Part B services it furnished.
    (2) A supplier must accept an advance payment as a conditional 
payment subject to adjustment, recoupment, or both, based on an eventual 
determination of the actual amount due on the claim and subject to the 
provisions of this section.
    (f) Requirements for carriers. (1) A carrier must notify a supplier 
as soon as it is determined that payment will not be made in a timely 
manner, and an advance payment option is to be offered to the supplier.
    (i) A carrier must calculate an advance payment for a particular 
claim at no more than 80 percent of the anticipated payment for that 
claim based upon the historical assigned claims payment data for claims 
paid the supplier.

[[Page 228]]

    (ii) ``Historical data'' are defined as a representative 90-day 
assigned claims payment trend within the most recent 180-day experience 
before the system malfunction.
    (iii) Based on this amount and the number of claims pending for the 
supplier, the carrier must determine and issue advance payments.
    (iv) If historical data are not available or if backlogged claims 
cannot be identified, the carrier must determine and issue advance 
payments based on some other methodology approved by CMS.
    (v) Advance payments can be made no more frequently than once every 
2 weeks to a supplier.
    (2) Generally, a supplier will not receive advance payments for more 
assigned claims than were paid, on a daily average, for the 90-day 
period before the system malfunction.
    (3) A carrier must recover an advance payment by applying it against 
the amount due on the claim on which the advance was made. If the 
advance payment exceeds the Medicare payment amount, the carrier must 
apply the unadjusted balance of the advance payment against future 
Medicare payments due the supplier.
    (4) In accordance with CMS instructions, a carrier must maintain a 
financial system of data in accordance with the Statement of Federal 
Financial Accounting Standards for tracking each advance payment and its 
recoupment.
    (g) Requirements for CMS. (1) In accordance with the provisions of 
this section, CMS may determine that circumstances warrant the issuance 
of advance payments to all affected suppliers furnishing Part B 
services. CMS may waive the requirement in paragraph (e)(1) of this 
section as part of that determination.
    (2) If adjusting Medicare payments fails to recover an advance 
payment, CMS may authorize the use of any other recoupment method 
available (for example, lump sum repayment or an extended repayment 
schedule) including, upon written notice from the carrier to the 
supplier, converting any unpaid balances of advance payments to 
overpayments. Overpayments are recovered in accordance with part 401, 
subpart F of this chapter concerning claims collection and compromise 
and part 405, subpart C of this chapter concerning recovery of 
overpayments.
    (h) Prompt payment interest. An advance payment is a ``payment'' 
under section 1842(c)(2)(C) of the Act for purposes of meeting the time 
limit for the payment of clean claims, to the extent of the advance 
payment.
    (i) Notice, review, and appeal rights. (1) The decision to advance 
payments and the determination of the amount of any advance payment are 
committed to CMS's discretion and are not subject to review or appeal.
    (2) The carrier must notify the supplier receiving an advance 
payment about the amounts advanced and recouped and how any Medicare 
payment amounts have been adjusted.
    (3) The supplier may request an administrative review from the 
carrier if it believes the carrier's reconciliation of the amounts 
advanced and recouped is incorrectly computed. If a review is requested, 
the carrier must provide a written explanation of the adjustments.
    (4) The review and explanation described in paragraph (i)(3) of this 
section is separate from a supplier's right to appeal the amount and 
computation of benefits paid on the claim, as provided at part 405, 
subpart H of this chapter. The carrier's reconciliation of amounts 
advanced and recouped is not an initial determination as defined at 
Sec. 405.803 of this chapter, and any written explanation of a 
reconciliation is not subject to further administrative review.

[61 FR 49275, Sept. 19, 1996]



PART 422_MEDICARE ADVANTAGE PROGRAM--Table of Contents




                      Subpart A_General Provisions

Sec.
422.1 Basis and scope.
422.2 Definitions.
422.4 Types of MA plans.
422.6 Cost-sharing in enrollment-related costs.

             Subpart B_Eligibility, Election, and Enrollment

422.50 Eligibility to elect an MA plan.

[[Page 229]]

422.52 Eligibility to elect an MA plan for special needs individuals.
422.54 Continuation of enrollment for MA local plans.
422.56 Limitations on enrollment in an MA MSA plan.
422.57 Limited enrollment under MA RFB plans.
422.60 Election process
422.62 Election of coverage under an MA plan.
422.64 Information about the MA program.
422.66 Coordination of enrollment and disenrollment through MA 
          organizations.
422.68 Effective dates of coverage and change of coverage.
422.74 Disenrollment by the MA organization.
422.80 Approval of marketing materials and election forms.

             Subpart C_Benefits and Beneficiary Protections

422.100 General requirements.
422.101 Requirements relating to basic benefits.
422.102 Supplemental benefits.
422.103 Benefits under an MA MSA plan.
422.104 Special rules on supplemental benefits for MA MSA plans.
422.105 Special rules for self-referral and point of service option.
422.106 Coordination of benefits with employer or union group health 
          plans and Medicaid.
422.108 Medicare secondary payer (MSP) procedures.
422.109 Effect of national coverage determinations (NCDs) and 
          legislative changes in benefits.
422.110 Discrimination against beneficiaries prohibited.
422.111 Disclosure requirements.
422.112 Access to services.
422.113 Special rules for ambulance services, emergency and urgently 
          needed services, and maintenance and post-stabilization care 
          services.
422.114 Access to services under an MA private fee-for-service plan.
422.118 Confidentiality and accuracy of enrollee records.
422.128 Information on advance directives.
422.132 Protection against liability and loss of benefits.
422.133 Return to home skilled nursing facility.

                      Subpart D_Quality Improvement

422.152 Quality improvement program.
422.156 Compliance deemed on the basis of accreditation.
422.157 Accreditation organizations.
422.158 Procedures for approval of accreditation as a basis for deeming 
          compliance.

                 Subpart E_Relationships With Providers

422.200 Basis and scope.
422.202 Participation procedures.
422.204 Provider selection and credentialing.
422.205 Provider antidiscrimination rules.
422.206 Interference with health care professionals' advice to enrollees 
          prohibited.
422.208 Physician incentive plans: requirements and limitations.
422.210 Assurances to CMS.
422.212 Limitations on provider indemnification.
422.214 Special rules for services furnished by noncontract providers.
422.216 Special rules for MA private fee-for-service plans.
422.220 Exclusion of services furnished under a private contract.

Subpart F_Submission of Bids, Premiums, and Related Information and Plan 
                                Approval

422.250 Basis and scope.
422.252 Terminology.
422.254 Submission of bids.
422.256 Review, negotiation, and approval of bids.
422.258 Calculation of benchmarks.
422.262 Beneficiary premiums.
422.264 Calculation of savings.
422.266 Beneficiary rebates.
422.270 Incorrect collections of premiums and cost sharing.

         Subpart G_Payments to Medicare Advantage Organizations

422.300 Basis and scope.
422.304 Monthly payments.
422.306 Annual MA capitation rates.
422.308 Adjustments to capitation rates, benchmarks, bids, and payments.
422.310 Risk adjustment data.
422.311 Announcement of annual capitation rate, benchmarks, and 
          methodology changes.
422.314 Special rules for beneficiaries enrolled in MA MSA plans.
422.316 Special rules for payments to Federally qualified health 
          centers.
422.318 Special rules for coverage that begins or ends during an 
          inpatient hospital stay.
422.320 Special rules for hospice care.
422.322 Source of payment and effect of MA plan election on payment.
422.324 Payments to MA organizations for graduate medical education 
          costs.

               Subpart H_Provider-Sponsored Organizations

422.350 Basis, scope, and definitions.
422.352 Basic requirements.

[[Page 230]]

422.354 Requirements for affiliated providers.
422.356 Determining substantial financial risk and majority financial 
          interest.
422.370 Waiver of State licensure.
422.372 Basis for waiver of State licensure.
422.374 Waiver request and approval process.
422.376 Conditions of the waiver.
422.378 Relationship to State law.
422.380 Solvency standards.
422.382 Minimum net worth amount.
422.384 Financial plan requirement.
422.386 Liquidity.
422.388 Deposits.
422.390 Guarantees.

   Subpart I_Organization Compliance With State Law and Preemption by 
                               Federal Law

422.400 State licensure requirement.
422.402 Federal preemption of State law.
422.404 State premium taxes prohibited.

              Subpart J_Special Rules for MA Regional Plans

422.451 Moratorium on new local preferred provider organization plans.
422.455 Special rules for MA Regional plans.
422.458 Risk sharing with regional MA organizations for 2006 and 2007.

        Subpart K_Contracts With Medicare Advantage Organizations

422.500 Scope and definitions.
422.501 Application requirements.
422.502 Evaluation and determination procedures.
422.503 General provisions.
422.504 Contract provisions.
422.505 Effective date and term of contract.
422.506 Nonrenewal of contract.
422.508 Modification or termination of contract by mutual consent.
422.510 Termination of contract by CMS.
422.512 Termination of contract by the MA organization.
422.514 Minimum enrollment requirements.
422.516 Reporting requirements.
422.520 Prompt payment by MA organization.
422.521 Effective date of new significant regulatory requirements.
422.524 Special rules for RFB societies.
422.527 Agreements with Federally qualified health centers.

Subpart L_Effect of Change of Ownership or Leasing of Facilities During 
                            Term of Contract

422.550 General provisions.
422.552 Novation agreement requirements.
422.553 Effect of leasing of an MA organization's facilities.

      Subpart M_Grievances, Organization Determinations and Appeals

422.560 Basis and scope.
422.561 Definitions.
422.562 General provisions.
422.564 Grievance procedures.
422.566 Organization determinations.
422.568 Standard timeframes and notice requirements for organization 
          determinations.
422.570 Expediting certain organization determinations.
422.572 Timeframes and notice requirements for expedited organization 
          determinations.
422.574 Parties to the organization determination.
422.576 Effect of an organization determination.
422.578 Right to a reconsideration.
422.580 Reconsideration defined.
422.582 Request for a standard reconsideration.
422.584 Expediting certain reconsiderations.
422.586 Opportunity to submit evidence.
422.590 Timeframes and responsibility for reconsiderations.
422.592 Reconsideration by an independent entity.
422.594 Notice of reconsidered determination by the independent entity.
422.596 Effect of a reconsidered determination.
422.600 Right to a hearing.
422.602 Request for an ALJ hearing.
422.608 Medicare Appeals Council (MAC) review.
422.612 Judicial review.
422.616 Reopening and revising determinations and decisions.
422.618 How an MA organization must effectuate standard reconsidered 
          determinations or decisions.
422.619 How an MA organization must effectuate expedited reconsidered 
          determinations.
422.620 How enrollees of MA organizations must be notified of noncovered 
          inpatient hospital care.
422.622 Requesting immediate QIO review of noncoverage of inpatient 
          hospital care.
422.624 Notifying enrollees of termination of provider services.
422.626 Fast-track appeals of service terminations to independent review 
          entities (IREs).

         Subpart N_Medicare Contract Determinations and Appeals

422.641 Contract determinations.
422.644 Notice of contract determination.
422.646 Effect of contract determination.
422.648 Reconsideration: Applicability.
422.650 Request for reconsideration.
422.652 Opportunity to submit evidence.

[[Page 231]]

422.654 Reconsidered determination.
422.656 Notice of reconsidered determination.
422.658 Effect of reconsidered determination.
422.660 Right to a hearing.
422.662 Request for hearing.
422.664 Postponement of effective date of a contract determination when 
          a request for a hearing with respect to a contract 
          determination is filed timely.
422.666 Designation of hearing officer.
422.668 Disqualification of hearing officer.
422.670 Time and place of hearing.
422.672 Appointment of representatives.
422.674 Authority of representatives.
422.676 Conduct of hearing.
422.678 Evidence.
422.680 Witnesses.
422.682 Discovery.
422.684 Prehearing.
422.686 Record of hearing.
422.688 Authority of hearing officer.
422.690 Notice and effect of hearing decision.
422.692 Review by the Administrator.
422.694 Effect of Administrator's decision.
422.696 Reopening of contract or reconsidered determination or decision 
          of a hearing officer or the Administrator.
422.698 Effect of revised determination.

                    Subpart O_Intermediate Sanctions

422.750 Kinds of sanctions.
422.752 Basis for imposing sanctions.
422.756 Procedures for imposing sanctions.
422.758 Maximum amount of civil money penalties imposed by CMS.
422.760 Other applicable provisions.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 63 FR 18134, Apr. 14, 1998, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 422 appear at 70 FR 
4741, Jan. 28, 2005.



                      Subpart A_General Provisions

    Source: 63 FR 35068, June 26, 1998, unless otherwise noted.



Sec. 422.1  Basis and scope.

    (a) Basis. This part is based on the indicated provisions of the 
following sections of the Act:

1851--Eligibility, election, and enrollment.
1852--Benefits and beneficiary protections.
1853--Payments to Medicare Advantage (MA) organizations.
1854--Premiums.
1855--Organization, licensure, and solvency of MA organizations.
1856--Standards.
1857--Contract requirements.
1858--Special rules for MA Regional Plans.
1859--Definitions; enrollment restriction for certain MA plans.

    (b) Scope. This part establishes standards and sets forth the 
requirements, limitations, and procedures for Medicare services 
furnished, or paid for, by Medicare Advantage organizations through 
Medicare Advantage plans.

[63 FR 35068, June 26, 1998, as amended at 70 FR 4714, Jan. 28, 2005]



Sec. 422.2  Definitions.

    As used in this part--
    Arrangement means a written agreement between an MA organization and 
a provider or provider network, under which--
    (1) The provider or provider network agrees to furnish for a 
specific MA plan(s) specified services to the organization's MA 
enrollees;
    (2) The organization retains responsibilities for the services; and
    (3) Medicare payment to the organization discharges the enrollee's 
obligation to pay for the services.
    Balance billing generally refers to an amount billed by a provider 
that represents the difference between the amount the provider charges 
an individual for a service and the sum of the amount the individual's 
health insurer (for example, the original Medicare program) will pay for 
the service plus any cost-sharing by the individual.
    Basic benefits means all Medicare-covered benefits (except hospice 
services).
    Benefits means health care services that are intended to maintain or 
improve the health status of enrollees, for which the MA organization 
incurs a cost or liability under an MA plan (not solely an 
administrative processing cost). Benefits are submitted and approved 
through the annual bidding process.
    Coinsurance is a fixed percentage of the total amount paid for a 
health care service that can be charged to an MA enrollee on a per-
service basis.
    Copayment is a fixed amount that can be charged to an MA plan 
enrollee on a per-service basis.
    Cost-sharing includes deductibles, coinsurance, and copayments.

[[Page 232]]

    Institutionalized means for the purpose of defining a special needs 
individual, an MA eligible individual who continuously resides or is 
expected to continuously reside for 90 days or longer in a long-term 
care facility which is a skilled nursing facility (SNF) nursing facility 
(NF); SNF/NF; an intermediate care facility for the mentally retarded 
(ICF/MR); or an inpatient psychiatric facility.
    Licensed by the State as a risk-bearing entity means the entity is 
licensed or otherwise authorized by the State to assume risk for 
offering health insurance or health benefits coverage, such that the 
entity is authorized to accept prepaid capitation for providing, 
arranging, or paying for comprehensive health services under an MA 
contract.
    MA stands for Medicare Advantage.
    MA local area is defined in Sec. 422.252.
    MA local plan means an MA plan that is not an MA regional plan.
    MA-Prescription drug (PD) plan means an MA plan that provides 
qualified prescription drug coverage under Part D of the Social Security 
Act.
    MA regional plan means a coordinated care plan structured as a 
preferred provider organization (PPO) that serves one or more entire 
regions. An MA regional plan must have a network of contracting 
providers that have agreed to a specific reimbursement for the plan's 
covered services and must pay for all covered services whether provided 
in or out of the network.
    MA eligible individual means an individual who meets the 
requirements of Sec. 422.50.
    MA organization means a public or private entity organized and 
licensed by a State as a risk-bearing entity (with the exception of 
provider-sponsored organizations receiving waivers) that is certified by 
CMS as meeting the MA contract requirements.
    MA plan means health benefits coverage offered under a policy or 
contract by an MA organization that includes a specific set of health 
benefits offered at a uniform premium and uniform level of cost-sharing 
to all Medicare beneficiaries residing in the service area of the MA 
plan (or in individual segments of a service area, under Sec. 
422.304(b)(2)).
    MA plan enrollee is an MA eligible individual who has elected an MA 
plan offered by an MA organization.
    Mandatory supplemental benefits means health care services not 
covered by Medicare that an MA enrollee must accept or purchase as part 
of an MA plan. The benefits may include reductions in cost sharing for 
benefits under the original Medicare fee for service program and are 
paid for in the form of premiums and cost sharing, or by an application 
of the beneficiary rebate rule in section 1854(b)(1)(C)(ii)(I) of the 
Act, or both.
    MSA stands for medical savings account.
    MSA trustee means a person or business with which an enrollee 
establishes an MA MSA. A trustee may be a bank, an insurance company, or 
any other entity that--
    (1) Is approved by the Internal Revenue Service to be a trustee or 
custodian of an individual retirement account (IRA); and
    (2) Meets the requirements of Sec. 422.262(b).
    National coverage determination (NCD) means a national policy 
determination regarding the coverage status of a particular service that 
CMS makes under section 1862(a)(1) of the Act, and publishes as a 
Federal Register notice or CMS ruling. (The term does not include 
coverage changes mandated by statute.)
    Optional supplemental benefits are health services not covered by 
Medicare that are purchased at the option of the MA enrollee and paid 
for in full, directly by (or on behalf of) the Medicare enrollee, in the 
form of premiums or cost-sharing. These services may be grouped or 
offered individually.
    Original Medicare means health insurance available under Medicare 
Part A and Part B through the traditional fee-for service payment 
system.
    Point of service (POS) is a benefit option that an MA coordinated 
care plan can offer to its Medicare enrollees as an additional, 
mandatory supplemental, or optional supplemental benefit. Under the POS 
benefit option, the MA plan allows members the option of receiving 
specified services outside of

[[Page 233]]

the MA plan's provider network. In return for this flexibility, members 
typically have higher cost-sharing requirements for services received 
and, where offered as a mandatory or optional supplemental benefit, may 
also be charged a premium for the POS benefit option.
    Prescription drug plan (PDP). PDP has the definition set forth in 
Sec. 423.4 of this chapter.
    Prescription drug plan (PDP) sponsor. A prescription drug plan 
sponsor has the definition set forth in Sec. 423.4 of this chapter.
    Provider means--
    (1) Any individual who is engaged in the delivery of health care 
services in a State and is licensed or certified by the State to engage 
in that activity in the State; and
    (2) Any entity that is engaged in the delivery of health care 
services in a State and is licensed or certified to deliver those 
services if such licensing or certification is required by State law or 
regulation.
    Provider network means the providers with which an MA organization 
contracts or makes arrangements to furnish covered health care services 
to Medicare enrollees under an MA coordinated care plan or network PFFS 
plan.
    Religious Fraternal benefit (RFB) society means an organization 
that--
    (1) Is described in section 501(c)(8) of the Internal Revenue Code 
of 1986 and is exempt from taxation under section 501(a) of that Act; 
and
    (2) Is affiliated with, carries out the tenets of, and shares a 
religious bond with, a church or convention or association of churches 
or an affiliated group of churches.
    RFB plan means an MA plan that is offered by an RFB society.
    Service area means a geographic area that for local MA plans is a 
county or multiple counties, and for MA regional plans is a region 
approved by CMS within which an MA-eligible individual may enroll in a 
particular MA plan offered by an MA organization. Each MA plan must be 
available to all MA-eligible individuals within the plan's service area. 
In deciding whether to approve an MA plan's proposed service area, CMS 
considers the following criteria:
    (1) For local MA plans:
    (i) Whether the area meets the ``county integrity rule'' that a 
service area generally consists of a full county or counties.
    (ii) However, CMS may approve a service area that includes only a 
portion of a county if it determines that the ``partial county'' area is 
necessary, nondiscriminatory, and in the best interests of the 
beneficiaries. CMS may also consider the extent to which the proposed 
service area mirrors service areas of existing commercial health care 
plans or MA plans offered by the organization.
    (2) For all MA coordinated care plans, whether the contracting 
provider network meets the access and availability standards set forth 
in Sec. 422.112. Although not all contracting providers must be located 
within the plan's service area, CMS must determine that all services 
covered under the plan are accessible from the service area.
    (3) For MA regional plans, whether the service area consists of the 
entire region.
    Special needs individual means an MA eligible individual who is 
institutionalized, as defined above, is entitled to medical assistance 
under a State plan under title XIX, or has a severe or disabling chronic 
condition(s) and would benefit from enrollment in a specialized MA plan.
    Specialized MA Plans for Special Needs Individuals means a MA 
coordinated care plan that exclusively enrolls or enrolls a 
disproportionate percentage of special needs individuals as set forth in 
Sec. 422.4(a)(1)(iv) and that, beginning January 1, 2006, provides Part 
D benefits under part 423 of this chapter to all enrollees; and which 
has been designated by CMS as meeting the requirements of a MA SNP as 
determined on a case-by-case basis using criteria that include the 
appropriateness of the target population, the existence of clinical 
programs or special expertise to serve the target population, and 
whether the proposal discriminates

[[Page 234]]

against sicker members of the target population.

[63 FR 35068, June 26, 1998, as amended at 65 FR 40314, June 29, 2000; 
68 FR 50855, Aug. 22, 2003; 70 FR 4714, Jan. 28, 2005; 70 FR 52026, 
Sept. 1, 2005; 70 FR 76197, Dec. 23, 2005]



Sec. 422.4  Types of MA plans.

    (a) General rule. An MA plan may be a coordinated care plan, a 
combination of an MA MSA plan and a contribution into an MA MSA 
established in accordance with Sec. 422.262, or an MA private fee-for-
service plan.
    (1) A coordinated care plan. A coordinated care plan is a plan that 
includes a network of providers that are under contract or arrangement 
with the organization to deliver the benefit package approved by CMS.
    (i) The network is approved by CMS to ensure that all applicable 
requirements are met, including access and availability, service area, 
and quality.
    (ii) Coordinated care plans may include mechanisms to control 
utilization, such as referrals from a gatekeeper for an enrollee to 
receive services within the plan, and financial arrangements that offer 
incentives to providers to furnish high quality and cost-effective care.
    (iii) Coordinated care plans include plans offered by health 
maintenance organizations (HMOs), provider-sponsored organizations 
(PSOs), regional or local preferred provider organizations (PPOs) as 
specified in paragraph (a)(1)(v) of this section, and other network 
plans (except PFFS plans).
    (iv) A specialized MA plan for special needs individuals (SNP) 
includes any type of coordinated care plan that meets CMS'SNP 
requirements and either--
    (A) Exclusively enrolls special needs individuals as defined in 
Sec. 422.2; or
    (B) Enrolls a greater proportion of special needs individuals than 
occur nationally in the Medicare population as defined by CMS.
    (v) A PPO plan is a plan that has a network of providers that have 
agreed to a contractually specified reimbursement for covered benefits 
with the organization offering the plan; provides for reimbursement for 
all covered benefits regardless of whether the benefits are provided 
within the network of providers; and, only for purposes of quality 
assurance requirements in Sec. 422.152(e), is offered by an 
organization that is not licensed or organized under State law as an 
HMO.
    (2) A combination of an MA MSA plan and a contribution into the MA 
MSA established in accordance with Sec. 422.262. (i) MA MSA plan means 
a plan that--
    (A) Pays at least for the services described in Sec. 422.101, after 
the enrollee has incurred countable expenses (as specified in the plan) 
equal in amount to the annual deductible specified in Sec. 422.103(d); 
and
    (B) Meets all other applicable requirements of this part.
    (ii) MA MSA means a trust or custodial account--
    (A) That is established in conjunction with an MSA plan for the 
purpose of paying the qualified expenses of the account holder; and
    (B) Into which no deposits are made other than contributions by CMS 
under the MA program, or a trustee-to-trustee transfer or rollover from 
another MA MSA of the same account holder, in accordance with the 
requirements of sections 138 and 220 of the Internal Revenue Code.
    (3) MA private fee-for-service plan. An MA private fee-for-service 
plan is an MA plan that--
    (i) Pays providers of services at a rate determined by the plan on a 
fee-for-service basis without placing the provider at financial risk;
    (ii) Does not vary the rates for a provider based on the utilization 
of that provider's services; and
    (iii) Does not restrict enrollees' choices among providers that are 
lawfully authorized to provide services and agree to accept the plan's 
terms and conditions of payment.
    (b) Multiple plans. Under its contract, an MA organization may offer 
multiple plans, regardless of type, provided that the MA organization is 
licensed or approved under State law to provide those types of plans 
(or, in the case of a PSO plan, has received from CMS a waiver of the 
State licensing requirement). If an MA organization has received a 
waiver for the licensing requirement to offer a PSO plan, that waiver 
does not apply to the licensing

[[Page 235]]

requirement for any other type of MA plan.
    (c) Rule for MA Plans' Part D coverage. (1) Coordinated care plans. 
In order to offer an MA coordinated care plan in an area, the MA 
organization offering the coordinated care plan must offer qualified 
Part D coverage meeting the requirements in Sec. 423.104 of this 
chapter in that plan or in another MA plan in the same area.
    (2) MSAs. MA organizations offering MSA plans are not permitted to 
offer prescription drug coverage, other than that required under Parts A 
and B of Title XVIII of the Act.
    (3) Private Fee-For-Service. MA organizations offering private fee-
for-service plans can choose to offer qualified Part D coverage meeting 
the requirements in Sec. 423.104 in that plan.

[63 FR 35068, June 26, 1998, as amended at 65 FR 40315, June 29, 2000; 
70 FR 4714, Jan. 28, 2005; 70 FR 52026, Sept. 1, 2005]



Sec. 422.6  Cost-sharing in enrollment-related costs.

    (a) Basis and scope. This section implements that portion of section 
1857 of the Act that pertains to cost-sharing in enrollment-related 
costs. It sets forth the procedures that CMS follows to determine the 
aggregate annual ``user fee'' to be contributed by MA organizations and 
PDP sponsors under Medicare Part D and to assess the required user fees 
for each MA plan offered by MA organizations and PDP sponsors.
    (b) Purpose of assessment. Section 1857(e)(2) of the Act authorizes 
CMS to charge and collect from each MA plan offered by an MA 
organization its pro rata share of fees for administering section 1851 
of the Act (relating to dissemination of enrollment information), and 
section 4360 of the Omnibus Budget Reconciliation Act of 1990 (relating 
to the health insurance counseling and assistance program) and section 
1860D-1(c) of the Act (relating to dissemination of enrollment 
information for the drug benefit).
    (c) Applicability. The fee assessment also applies to those 
demonstrations for which enrollment is effected or coordinated under 
section 1851 of the Act.
    (d) Collection of fees--(1) Timing of collection. CMS collects the 
fees over 9 consecutive months beginning with January of each fiscal 
year.
    (2) Amount to be collected. The aggregate amount of fees for a 
fiscal year is the lesser of--
    (i) The estimated costs to be incurred by CMS in that fiscal year to 
carry out the activities described in paragraph (b) of this section; or
    (ii) For fiscal year 2006 and each succeeding year, the applicable 
portion (as defined in paragraph (e) of this section) of $200 million.''
    (e) Applicable portion. In this section, the term ``applicable 
portion'' with respect to an MA plan means, for a fiscal year, CMS's 
estimate of Medicare Part C and D expenditures for those MA 
organizations as a percentage of all expenditures under title XVIII and 
with respect to PDP sponsors, the applicable portion is CMS's estimate 
of Medicare Part D prescription drug expenditures for those PDP sponsors 
as a percentage of all expenditures under title XVIII.
    (f) Assessment methodology. (1) The amount of the applicable portion 
of the user fee each MA organization and PDP sponsor must pay is 
assessed as a percentage of the total Medicare payments to each 
organization. CMS determines the annual assessment percentage rate 
separately for MA organizations and for PDPs using the following 
formula:
    (i) The assessment formula for MA organizations (including MA-PD 
plans):
    C divided by A times B where--
    A is the total estimated January payments to all MA organizations 
subject to the assessment;
    B is the 9-month (January through September) assessment period; and
    C is the total fiscal year MA organization user fee assessment 
amount determined in accordance with paragraph (d)(2) of this section.
    (ii) The assessment formula for PDPs: C divided by A times B where--
A is the total estimated January payments to all PDP sponsors subject to 
the assessment; B is the 9-month (January through September) assessment 
period; and C is the total fiscal year PDP sponsor's user fee assessment 
amount determined in accordance with paragraph (d)(2) of this section.
    (2) CMS determines each MA organization's and PDP sponsor's pro rata

[[Page 236]]

share of the annual fee on the basis of the organization's calculated 
monthly payment amount during the 9 consecutive months beginning with 
January. CMS calculates each organization's monthly pro rata share by 
multiplying the established percentage rate by the total monthly 
calculated Medicare payment amount to the organization as recorded in 
CMS's payment system on the first day of the month.
    (3) CMS deducts the organization's fee from the amount of Federal 
funds otherwise payable to the MA organization or PDP sponsor for that 
month.
    (4) If assessments reach the amount authorized for the year before 
the end of September, CMS discontinues assessment.
    (5) If there are delays in determining the amount of the annual 
aggregate fees specified in paragraph (d)(2) of this section, or the fee 
percentage rate specified in paragraph (f)(2), CMS may adjust the 
assessment time period and the fee percentage amount.

[65 FR 40315, June 29, 2000. Redesignated and amended at 70 FR 4715, 
Jan. 28, 2005; 70 FR 52026, Sept. 1, 2005]



             Subpart B_Eligibility, Election, and Enrollment

    Source: 63 FR 35071, June 26, 1998, unless otherwise noted.



Sec. 422.50  Eligibility to elect an MA plan.

    For this subpart, all references to an MA plan include MA-PD and 
both MA local and MA regional plans, as defined in Sec. 422.2 unless 
specifically noted otherwise.
    (a) An individual is eligible to elect an MA plan if he or she--
    (1) Is entitled to Medicare under Part A and enrolled in Part B 
(except that an individual entitled only to Part B and who was enrolled 
in an HMO or CMP with a risk contract under part 417 of this chapter on 
December 31, 1998 may continue to be enrolled in the MA organization as 
an MA plan enrollee);
    (2) Has not been medically determined to have end-stage renal 
disease, except that--
    (i) An individual who develops end-stage renal disease while 
enrolled in an MA plan or in a health plan offered by the MA 
organization is eligible to elect an MA plan offered by that 
organization;
    (ii) An individual with end-stage renal disease whose enrollment in 
an MA plan was terminated or discontinued after December 31, 1998, 
because CMS or the MA organization terminated the MA organization's 
contract for the plan or discontinued the plan in the area in which the 
individual resides, is eligible to elect another MA plan. If the plan so 
elected is later terminated or discontinued in the area in which the 
individual resides, he or she may elect another MA plan; and
    (iii) An individual with end-stage renal disease may elect an MA 
special needs plan as defined in Sec. 422.2, as long as that plan has 
opted to enroll ESRD individuals.
    (3) Meets either of the following residency requirements:
    (i) Resides in the service area of the MA plan.
    (ii) Resides outside of the service area of the MA plan and is 
enrolled in a health plan offered by the MA organization during the 
month immediately preceding the month in which the individual is 
entitled to both Medicare Part A and Part B, provided that an MA 
organization chooses to offer this option and that CMS determines that 
all applicable MA access requirements of Sec. 422.112 are met for that 
individual through the MA plan's established provider network. The MA 
organization must furnish the same benefits to these enrollees as to 
enrollees who reside in the service area;
    (4) Has been a member of an Employer Group Health Plan (EGHP) that 
includes the elected MA plan, even if the individual lives outside of 
the MA plan service area, provided that an MA organization chooses to 
offer this option and that CMS determines that all applicable MA access 
requirements at Sec. 422.112 are met for that individual through the MA 
plan's established provider network. The MA organization must furnish 
the same benefits to all enrollees, regardless of whether they reside in 
the service area;
    (5) Completes and signs an election form or completes another CMS-
approved election method offered by the

[[Page 237]]

MA organization and provides information required for enrollment; and
    (6) Agrees to abide by the rules of the MA organization after they 
are disclosed to him or her in connection with the election process.
    (b) An MA eligible individual may not be enrolled in more than one 
MA plan at any given time.

[63 FR 35071, June 26, 1998; 63 FR 52611, Oct. 1, 1998, as amended at 65 
FR 40316, June 29, 2000; 68 FR 50855, Aug. 22, 2003; 70 FR 4715, Jan. 
28, 2005; 70 FR 52026, Sept. 1, 2005]



Sec. 422.52  Eligibility to elect an MA plan for special needs individuals.

    (a) General rule. In order to elect a specialized MA plan for a 
special needs individual (Special Needs MA plan, or SNP), the individual 
must meet the eligibility requirements specified in this section.
    (b) Basic eligibility requirements. Except as provided in paragraph 
(c) of this section, to be eligible to elect an SNP, an individual must:
    (1) Meet the definition of a special needs individual, as defined at 
Sec. 422.2;
    (2) Meet the eligibility requirements for that specific SNP; and
    (3) Be eligible to elect an MA plan under Sec. 422.50.
    (c) Exception to Sec. 422.50. CMS may waive Sec. 422.50(a)(2) 
concerning the exclusion of persons with ESRD.
    (d) Deeming continued eligibility. If an SNP determines that the 
enrollee no longer meets the eligibility criteria, but can reasonably be 
expected to again meet that criteria within a 6-month period, the 
enrollee is deemed to continue to be eligible for the MA plan for a 
period of not less than 30 days but not to exceed 6 months.
    (e) Restricting Enrollment. An SNP must restrict future enrollment 
to only special needs individuals as established under Sec. 422.2.
    (f) Exceptions. (1) As specified in Sec. 422.4, CMS may designate 
certain MA plans that disproportionately serve special needs 
individuals, as defined in Sec. 422.2 as SNPs.
    (2) Individuals already enrolled in an MA plan that CMS subsequently 
designates as an SNP may continue to be enrolled in the plan and may not 
be involuntarily disenrolled because they do not meet the definition of 
special needs individuals in Sec. 422.2.

[70 FR 4716, Jan. 28, 2005]



Sec. 422.54  Continuation of enrollment for MA local plans.

    (a) Definition. Continuation area means an additional area (outside 
the service area) within which the MA organization offering a local plan 
furnishes or arranges to furnish services to its continuation-of-
enrollment enrollees. Enrollees must reside in a continuation area on a 
permanent basis. A continuation area does not expand the service area of 
any MA local plan.
    (b) Basic rule. An MA organization may offer a continuation of 
enrollment option to MA local plan enrollees when they no longer reside 
in the service area of a plan and permanently move into the geographic 
area designated by the MA organization as a continuation area. The 
intent to no longer reside in an area and permanently live in another 
area is verified through documentation that establishes residency, such 
as a driver's license or voter registration card.
    (c) General requirements. (1) An MA organization that wishes to 
offer a continuation of enrollment option must meet the following 
requirements:
    (i) Obtain CMS's approval of the continuation area, the marketing 
materials that describe the option, and the MA organization's assurances 
of access to services.
    (ii) Describe the option(s) in the member materials it offers and 
make the option available to all MA local plan enrollees residing in the 
continuation area.
    (2) An enrollee who moves out of the service area and into the 
geographic area designated as the continuation area has the choice of 
continuing enrollment or disenrolling from the MA local plan. The 
enrollee must make the choice of continuing enrollment in a manner 
specified by CMS. If no choice is made, the enrollee must be disenrolled 
from the plan.
    (d) Specific requirements--
    (1) Continuation of enrollment benefits. The MA organization must, 
at a minimum, provide or arrange for the Medicare-covered benefits as 
described in Sec. 422.101(a).

[[Page 238]]

    (2) Reasonable access. The MA organization must ensure reasonable 
access in the continuation area--
    (i) Through contracts with providers, or through direct payment of 
claims that satisfy the requirements in Sec. 422.100(b)(2), to other 
providers who meet the requirement in subpart E of this part; and
    (ii) By ensuring that the access requirements of Sec. 422.112 are 
met.
    (3) Reasonable cost sharing. For services furnished in the 
continuation area, an enrollee's cost-sharing liability is limited to 
the cost-sharing amounts required in the MA local plan's service area 
(in which the enrollee no longer resides).
    (4) Protection of enrollee rights. An MA organization that offers a 
continuation of enrollment option must convey all enrollee rights 
conferred under this rule, with the understanding that--
    (i) The ultimate responsibility for all appeals and grievance 
requirements remain with the organization that is receiving payment from 
CMS; and
    (ii) Organizations that require enrollees to give advance notice of 
intent to use the continuation of enrollment option, must stipulate the 
notification process in the marketing materials.
    (e) Capitation payments. CMS's capitation payments to all MA 
organizations, for all Medicare enrollees, are based on rates 
established on the basis of the enrollee's permanent residence, 
regardless of where he or she receives services.

[63 FR 35071, June 26, 1998; 63 FR 52611, Oct. 1, 1998, as amended at 65 
FR 40316, June 29, 2000; 70 FR 4716, Jan. 28, 2005]



Sec. 422.56  Enrollment in an MA MSA plan.

    (a) General. An individual is not eligible to elect an MA MSA plan 
unless the individual provides assurances that are satisfactory to CMS 
that he or she will reside in the United States for at least 183 days 
during the year for which the election is effective.
    (b) Individuals eligible for or covered under other health benefits 
program. Unless otherwise provided by the Secretary, an individual who 
is enrolled in a Federal Employee Health Benefit plan under 5 U.S.C. 
chapter 89, or is eligible for health care benefits through the 
Veteran's Administration under 10 U.S.C. chapter 55 or the Department of 
Defense under 38 U.S.C. chapter 17, may not enroll in an MA MSA plan.
    (c) Individuals eligible for Medicare cost-sharing under Medicaid 
State plans. An individual who is entitled to coverage of Medicare cost-
sharing under a State plan under title XIX of the Act is not eligible to 
enroll in an MA MSA plan.
    (d) Other limitations. An individual who receives health benefits 
that cover all or part of the annual deductible under the MA MSA plan 
may not enroll in an MA MSA plan. Examples of this type of coverage 
include, but are not limited to, primary health care coverage other than 
Medicare, current coverage under the Medicare hospice benefit, 
supplemental insurance policies not specifically permitted under Sec. 
422.104, and retirement health benefits.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998, as amended at 70 
FR 4716, Jan. 28, 2005]



Sec. 422.57  Limited enrollment under MA RFB plans.

    An RFB society that offers an MA RFB plan may offer that plan only 
to members of the church, or convention or group of churches with which 
the society is affiliated.



Sec. 422.60  Election process.

    (a) Acceptance of enrollees: General rule. (1) Except for the 
limitations on enrollment in an MA MSA plan provided by Sec. 
422.62(d)(1) and except as specified in paragraph (a)(2) of this 
section, each MA organization must accept without restriction (except 
for an MA RFB plan as provided by Sec. 422.57) individuals who are 
eligible to elect an MA plan that the MA organization offers and who 
elect an MA plan during initial coverage election periods under Sec. 
422.62(a)(1), annual election periods under Sec. 422.62(a)(2), and 
under the circumstances described in Sec. 422.62(b)(1) through (b)(4).
    (2) MA organizations must accept elections during the open 
enrollment periods specified in Sec. 422.62(a)(3), (a)(4), and (a)(5) 
if their MA plans are open to new enrollees.

[[Page 239]]

    (b) Capacity to accept new enrollees. (1) MA organizations may 
submit information on enrollment capacity of plans.
    (2) If CMS determines that an MA plan offered by an MA organization 
has a capacity limit, and the number of MA eligible individuals who 
elect to enroll in that plan exceeds the limit, the MA organization 
offering the plan may limit enrollment in the plan under this part, but 
only if it provides priority in acceptance as follows:
    (i) First, for individuals who elected the plan prior to the CMS 
determination that capacity has been exceeded, elections will be 
processed in chronological order by date of receipt of their election 
forms.
    (ii) Then for other individuals in a manner that does not 
discriminate on the basis of any factor related to health as described 
in Sec. 422.110.
    (3) CMS considers enrollment limit requests for an MA plan service 
area, or a portion of the plan service area, only if the health and 
safety of beneficiaries is at risk, such as if the provider network is 
not available to serve the enrollees in all or a portion of the service 
area.
    (c) Election forms and other election mechanisms. (1) The election 
must comply with CMS instructions regarding content and format and be 
approved by CMS as described in Sec. 422.80. The election must be 
completed by the MA eligible individual (or the individual who will soon 
become eligible to elect an MA plan) and include authorization for 
disclosure and exchange of necessary information between the U.S. 
Department of Health and Human Services and its designees and the MA 
organization. Persons who assist beneficiaries in completing forms must 
sign the form, or through other approved mechanisms, indicate their 
relationship to the beneficiary.
    (2) The MA organization must file and retain election forms for the 
period specified in CMS instructions.
    (d) When an election is considered to have been made. An election in 
an MA plan is considered to have been made on the date the completed 
election is received by the MA organization.
    (e) Handling of elections. The MA organization must have an 
effective system for receiving, controlling, and processing elections. 
The system must meet the following conditions and requirements:
    (1) Each election is dated as of the day it is received in a manner 
acceptable to CMS.
    (2) Elections are processed in chronological order, by date of 
receipt.
    (3) The MA organization gives the beneficiary prompt notice of 
acceptance or denial in a format specified by CMS.
    (4) If the MA plan is enrolled to capacity, it explains the 
procedures that will be followed when vacancies occur.
    (5) Upon receipt of the election, or for an individual who was 
accepted for future enrollment from the date a vacancy occurs, the MA 
organization transmits, within the timeframes specified by CMS, the 
information necessary for CMS to add the beneficiary to its records as 
an enrollee of the MA organization.
    (f) Exception for employer group health plans. (1) In cases in which 
an MA organization has both a Medicare contract and a contract with an 
employer group health plan, and in which the MA organization arranges 
for the employer to process elections for Medicare-entitled group 
members who wish to enroll under the Medicare contract, the effective 
date of the election may be retroactive. Consistent with Sec. 
422.308(f)(2), payment adjustments based on a retroactive effective date 
may be made for up to a 90-day period.
    (2) In order to obtain the effective date described in paragraph 
(f)(1) of this section, the beneficiary must certify that, at the time 
of enrollment in the MA organization, he or she received the disclosure 
statement specified in Sec. 422.111.
    (3) Upon receipt of the election from the employer, the MA 
organization must submit the enrollment within timeframes specified by 
CMS.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998; 63 FR 54526, 
Oct. 9, 1998; 64 FR 7980, Feb. 17, 1999; 65 FR 40316, June 29, 2000; 70 
FR 4716, Jan. 28, 2005; 70 FR 52026, Sept. 1, 2005]



Sec. 422.62  Election of coverage under an MA plan.

    (a) General: Coverage election periods--(1) Initial coverage 
election period for

[[Page 240]]

MA. The initial coverage election period is the period during which a 
newly MA-eligible individual may make an initial election. This period 
begins 3 months before the month the individual is first entitled to 
both Part A and Part B and ends on the later of--
    (i) The last day of the month preceding the month of entitlement; or
    (ii) If after May 15, 2006, the last day of the individual's Part B 
initial enrollment period.
    (2) Annual coordinated election period. (i) Beginning with 2002, the 
annual coordinated election period for the following calendar year is 
November 15th through December 31st, except for 2006.
    (ii) For 2006, the annual coordinated election period
    begins on November 15, 2005 and ends on May 15, 2006.
    (iii) During the annual coordinated election period, an individual 
eligible to enroll in an MA plan may change his or her election from an 
MA plan to original Medicare or to a different MA plan, or from original 
Medicare to an MA plan. If an individual changes his or her election to 
original Medicare, he or she may also elect a PDP.
    (3) Open enrollment and disenrollment opportunities through 2005. 
Through 2005, the number of elections or changes that an MA eligible 
individual may make is not limited (except as provided for in paragraph 
(d) of this section for MA MSA plans). Subject to the MA plan being open 
to enrollees as provided under Sec. 422.60(a)(2), an individual 
eligible to elect an MA plan may change his or her election from an MA 
plan to original Medicare or to a different MA plan, or from original 
Medicare to an MA plan.
    (4) Open enrollment and disenrollment during 2006. (i) Except as 
provided in paragraphs (a)(4)(ii), (a)(4)(iii), and (a)(6) of this 
section, an individual who is not enrolled in an MA plan, but who is 
eligible to elect an MA plan in 2006, may elect an MA plan only once 
during the first 6 months of the year.
    (A) An individual who is enrolled in an MA-PD plan may elect another 
MA-PD plan or original Medicare and coverage under a PDP. Such an 
individual may not elect an MA plan that does not provide qualified 
prescription drug coverage.
    (B) An individual who is enrolled in an MA plan that does not 
provide qualified prescription drug coverage may elect another MA plan 
that does not provide that coverage or original Medicare. Such an 
individual may not elect an MA-PD plan or coverage under a PDP.
    (ii) Newly eligible MA individual. An individual who becomes MA 
eligible during 2006 may elect an MA plan or change his or her election 
once during the period that begins the month the individual is entitled 
to both Part A and Part B and ends on the last day of the 6th month of 
the entitlement, or on December 31, whichever is earlier, subject to the 
limitations in paragraphs (a)(4)(i)(A) and (a)(4)(i)(B) of this section.
    (iii) The limitation to one election or change in paragraphs 
(a)(4)(i) and (a)(4)(ii) of this section does not apply to elections or 
changes made during the annual coordinated election period specified in 
paragraph (a)(2) of this section or during a special election period 
specified in paragraph (b) of this section.
    (5) Open enrollment and disenrollment beginning in 2007. (i) For 
2007 and subsequent years, except as provided in paragraphs (a)(5)(ii), 
(a)(5)(iii), and (a)(6) of this section, an individual who is not 
enrolled in an MA plan but is eligible to elect an MA plan may make an 
election into an MA plan once during the first 3 months of the year.
    (A) An individual who is enrolled in an MA-PD plan may elect another 
MA-PD plan or original Medicare and coverage under a PDP. An individual 
who is in original Medicare and has coverage under a PDP may elect a MA-
PD plan. Such an individual may not elect an MA plan that does not 
provide qualified prescription drug coverage.
    (B) An individual who is enrolled in an MA plan that does not 
provide qualified prescription drug coverage may elect another MA plan 
that does not provide that coverage or original Medicare. An individual 
who is in original Medicare and does not have coverage under a PDP may 
elect an MA plan that does not provide qualified prescription drug 
coverage. Such an individual may not elect an MA-PD plan or coverage 
under a PDP.

[[Page 241]]

    (ii) Newly eligible MA individual. An individual who becomes MA 
eligible during 2007 or later may elect an MA plan or change his or her 
election once during the period that begins the month the individual is 
entitled to both Part A and Part B and ends on the last day of the 3rd 
month of the entitlement, or on December 31, whichever is earlier 
subject to the limitations in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) 
of this section.
    (iii) The limitation to one election or change in paragraph 
(a)(5)(i) and (a)(5)(ii) of this section does not apply to elections 
made or changes made during the annual coordinated election period 
specified in paragraph (a)(2) of this section or during a special 
election period specified in paragraph (b) of this section.
    (6) Open enrollment period for institutionalized individuals. After 
2005, an individual who is eligible to elect an MA plan and who is 
institutionalized, as defined by CMS, is not limited (except as provided 
for in paragraph (d) of this section for MA MSA plans) in the number of 
elections or changes he or she may make. Subject to the MA plan being 
open to enrollees as provided under Sec. 422.60(a)(2), an MA eligible 
institutionalized individual may at any time elect an MA plan or change 
his or her election from an MA plan to original Medicare, to a different 
MA plan, or from original Medicare to an MA plan.
    (b) Special election periods. An individual may at any time (that 
is, not limited to the annual coordinated election period) discontinue 
the election of an MA plan offered by an MA organization and change his 
or her election, in the form and manner specified by CMS, from an MA 
plan to original Medicare or to a different MA plan under any of the 
following circumstances:
    (1) CMS or the organization has terminated the organization's 
contract for the plan, discontinued the plan in the area in which the 
individual resides, or the organization has notified the individual of 
the impending termination of the plan, or the impending discontinuation 
of the plan in the area in which the individual resides.
    (2) The individual is not eligible to remain enrolled in the plan 
because of a change in his or her place of residence to a location out 
of the service area or continuation area or other change in 
circumstances as determined by CMS but not including terminations 
resulting from a failure to make timely payment of an MA monthly or 
supplemental beneficiary premium, or from disruptive behavior.
    (3) The individual demonstrates to CMS, in accordance with 
guidelines issued by CMS, that--
    (i) The organization offering the plan substantially violated a 
material provision of its contract under this part in relation to the 
individual, including, but not limited to the following:
    (A) Failure to provide the beneficiary on a timely basis medically 
necessary services for which benefits are available under the plan.
    (B) Failure to provide medical services in accordance with 
applicable quality standards; or
    (ii) The organization (or its agent, representative, or plan 
provider) materially misrepresented the plan's provisions in marketing 
the plan to the individual.
    (4) The individual meets such other exceptional conditions as CMS 
may provide.
    (c) Special election period for individual age 65. Effective January 
1, 2002, an MA eligible individual who elects an MA plan during the 
initial enrollment period, as defined under section 1837(d) of the Act, 
that surrounds his or her 65th birthday (this period begins 3 months 
before and ends 3 months after the month of the individual's 65th 
birthday) may discontinue the election of that plan and elect coverage 
under original Medicare at any time during the 12-month period that 
begins on the effective date of enrollment in the MA plan.
    (d) Special rules for MA MSA plans--(1) Enrollment. An individual 
may enroll in an MA MSA plan only during an initial coverage election 
period or annual coordinated election period described in paragraphs 
(a)(1) and (a)(2) of this section.
    (2) Disenrollment. (i) Except as provided in paragraph (d)(2)(ii) of 
this section, an individual may disenroll from an MA MSA plan only 
during--
    (A) An annual election period; or

[[Page 242]]

    (B) The special election period described in paragraph (b) of this 
section.
    (ii) Exception. An individual who elects an MA MSA plan during an 
annual election period and has never before elected an MA MSA plan may 
revoke that election, no later than December 15 of that same year, by 
submitting to the organization that offers the MA MSA plan a signed and 
dated request in the form and manner prescribed by CMS or by filing the 
appropriate disenrollment form through other mechanisms as determined by 
CMS.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998, as amended at 65 
FR 40317, June 29, 2000; 70 FR 4717, Jan. 28, 2005]



Sec. 422.64  Information about the MA program.

    Each MA organization must provide, on an annual basis, and in a 
format and using standard terminology that may be specified by CMS, the 
information necessary to enable CMS to provide to current and potential 
beneficiaries the information they need to make informed decisions with 
respect to the available choices for Medicare coverage.

[65 FR 40317, June 29, 2000]



Sec. 422.66  Coordination of enrollment and disenrollment through MA organizations.

    (a) Enrollment. An individual who wishes to elect an MA plan offered 
by an MA organization may make or change his or her election during the 
election periods specified in Sec. 422.62 by filing the appropriate 
election form with the organization or through other mechanisms as 
determined by CMS.
    (b) Disenrollment--(1) Basic rule. An individual who wishes to 
disenroll from an MA plan may change his or her election during the 
election periods specified in Sec. 422.62 in either of the following 
manners:
    (i) Elect a different MA plan by filing the appropriate election 
with the MA organization.
    (ii) Submit a request for disenrollment to the MA organization in 
the form and manner prescribed by CMS or file the appropriate 
disenrollment request through other mechanisms as determined by CMS.
    (2) When a disenrollment request is considered to have been made. A 
disenrollment request is considered to have been made on the date the 
disenrollment request is received by the MA organization.
    (3) Responsibilities of the MA organization. The MA organization 
must--
    (i) Submit a disenrollment notice to CMS within timeframes specified 
by CMS;
    (ii) Provide enrollee with notice of disenrollment in a format 
specified by CMS; and
    (iii) In the case of a plan where lock-in applies, include in the 
notice a statement explaining that he or she--
    (A) Remains enrolled until the effective date of disenrollment; and
    (B) Until that date, neither the MA organization nor CMS pays for 
services not provided or arranged for by the MA plan in which the 
enrollee is enrolled; and
    (iv) File and retain disenrollment requests for the period specified 
in CMS instructions.
    (4) Effect of failure to submit disenrollment notice to CMS 
promptly. If the MA organization fails to submit the correct and 
complete notice required in paragraph (b)(3)(i) of this section, the MA 
organization must reimburse CMS for any capitation payments received 
after the month in which payment would have ceased if the requirement 
had been met timely.
    (5) Retroactive disenrollment. CMS may grant retroactive 
disenrollment in the following cases:
    (i) There never was a legally valid enrollment.
    (ii) A valid request for disenrollment was properly made but not 
processed or acted upon.
    (c) Election by default: Initial coverage election period. An 
individual who fails to make an election during the initial coverage 
election period is deemed to have elected original Medicare.
    (d) Conversion of enrollment (seamless continuation of coverage)--
(1) Basic rule. An MA plan offered by an MA organization must accept any 
individual (regardless of whether the individual has end-stage renal 
disease) who is enrolled in a health plan offered by the MA organization 
during the month immediately preceding the month in which

[[Page 243]]

he or she is entitled to both Part A and Part B, and who meets the 
eligibility requirements at Sec. 422.50.
    (2) Reserved vacancies. Subject to CMS's approval, an MA 
organization may set aside a reasonable number of vacancies in order to 
accommodate enrollment of conversions. Any set aside vacancies that are 
not filled within a reasonable time must be made available to other MA 
eligible individuals.
    (3) Effective date of conversion. If an individual chooses to remain 
enrolled with the MA organization as an MA enrollee, the individual's 
conversion to an MA enrollee is effective the month in which he or she 
is entitled to both Part A and Part B in accordance with the 
requirements in paragraph (d)(5) of this section.
    (4) Prohibition against disenrollment. The MA organization may 
disenroll an individual who is converting under the provisions of 
paragraph (a) of this section only under the conditions specified in 
Sec. 422.74.
    (5) Election. The individual who is converting must complete an 
election as described in Sec. 422.60(c)(1) unless otherwise provided in 
a form and manner approved by CMS.
    (6) Submittal of information to CMS. The MA organization must 
transmit the information necessary for CMS to add the individual to its 
records as specified in Sec. 422.60(e)(6).
    (e) Maintenance of enrollment. (1) An individual who has made an 
election under this section is considered to have continued to have made 
that election until either of the following, which ever occurs first:
    (i) The individual changes the election under this section.
    (ii) The elected MA plan is discontinued or no longer serves the 
area in which the individual resides, as provided under Sec. 
422.74(b)(3), or the organization does not offer or the individual does 
not elect the option of continuing enrollment, as provided under Sec. 
422.54.
    (2) An individual enrolled in an MA plan that becomes an MA-PD plan 
on January 1, 2006, will be deemed to have elected to enroll in that MA-
PD plan.
    (3) An individual enrolled in an MA plan that, as of
    December 31, 2005, offers any prescription drug coverage will be 
deemed to have elected an MA-PD plan offered by the same organization as 
of January 1, 2006.
    (4) An individual who has elected an MA plan that does not provide 
prescription drug coverage will not be deemed to have elected an MA-PD 
plan and will remain enrolled in the MA plan as provided in paragraph 
(e)(1) of this section.
    (5) An individual enrolled in an MA-PD plan as of December 31 of a 
year is deemed to have elected to remain enrolled in that plan on 
January 1 of the following year.
    (f) Exception for employer group health plans. (1) In cases when an 
MA organization has both a Medicare contract and a contract with an 
employer group health plan, and in which the MA organization arranges 
for the employer to process election forms for Medicare-entitled group 
members who wish to disenroll from the Medicare contract, the effective 
date of the election may be retroactive. Consistent with Sec. 
422.308(f)(2), payment adjustments based on a retroactive effective date 
may be made for up to a 90-day period.
    (2) Upon receipt of the election from the employer, the MA 
organization must submit a disenrollment notice to CMS within timeframes 
specified by CMS.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998, as amended at 65 
FR 40317, June 29, 2000; 70 FR 4718, Jan. 28, 2005; 70 FR 52026, Sept. 
1, 2005]



Sec. 422.68  Effective dates of coverage and change of coverage.

    (a) Initial coverage election period. An election made during an 
initial coverage election period as described in Sec. 422.62(a)(1) is 
effective as of the first day of the month of entitlement to both Part A 
and Part B.
    (b) Annual coordinated election periods. For an election or change 
of election made during the annual coordinated election period as 
described in Sec. 422.62(a)(2)(i), coverage is effective as of the 
first day of the following calendar year except that for the annual 
coordinated election period described in Sec. 422.62(a)(2)(ii), 
elections made after December 31, 2005 through May 15, 2006 are 
effective as of the first day of the

[[Page 244]]

first calendar month following the month in which the election is made.
    (c) Open enrollment periods. For an election, or change in election, 
made during an open enrollment period, as described in Sec. 
422.62(a)(3) through (a)(6), coverage is effective as of the first day 
of the first calendar month following the month in which the election is 
made.
    (d) Special election periods. For an election or change of election 
made during a special election period as described in Sec. 422.62(b), 
the effective date of coverage shall be determined by CMS, to the extent 
practicable, in a manner consistent with protecting the continuity of 
health benefits coverage.
    (e) Special election period for individual age 65. For an election 
of coverage under original Medicare made during a special election 
period for an individual age 65 as described in Sec. 422.62(c), 
coverage is effective as of the first day of the first calendar month 
following the month in which the election is made.

[63 FR 35071, June 26, 1998, as amended at 65 FR 40317, June 29, 2000; 
67 FR 13288, Mar. 22, 2002; 70 FR 4718, Jan. 28, 2005]



Sec. 422.74  Disenrollment by the MA organization.

    (a) General rule. Except as provided in paragraphs (b) through (d) 
of this section, an MA organization may not--
    (1) Disenroll an individual from any MA plan it offers; or
    (2) Orally or in writing, or by any action or inaction, request or 
encourage an individual to disenroll.
    (b) Basis for disenrollment--(1) Optional disenrollment. An MA 
organization may disenroll an individual from an MA plan it offers in 
any of the following circumstances:
    (i) Any monthly basic and supplementary beneficiary premiums are not 
paid on a timely basis, subject to the grace period for late payment 
established under paragraph (d)(1) of this section.
    (ii) The individual has engaged in disruptive behavior specified at 
paragraph (d)(2) of this section.
    (iii) The individual provides fraudulent information on his or her 
election form or permits abuse of his or her enrollment card as 
specified in paragraph (d)(3) of this section.
    (2) Required disenrollment. An MA organization must disenroll an 
individual from an MA plan it offers in any of the following 
circumstances:
    (i) The individual no longer resides in the MA plan's service area 
as specified under paragraph (d)(4) of this section, is no longer 
eligible under Sec. 422.50(a)(3)(ii), and optional continued enrollment 
has not been offered or elected under Sec. 422.54.
    (ii) The individual loses entitlement to Part A or Part B benefits 
as described in paragraph (d)(5) of this section.
    (iii) Death of the individual as described in paragraph (d)(6) of 
this section.
    (iv) Individuals enrolled in a specialized MA plan for special needs 
individuals that exclusively serves and enrolls special needs 
individuals who no longer meet the special needs status of that plan (or 
deemed continued eligibility, if applicable).
    (3) Plan termination or reduction of area where plan is available--
(i) General rule. An MA organization that has its contract for an MA 
plan terminated, that terminates an MA plan, or that discontinues 
offering the plan in any portion of the area where the plan had 
previously been available, must disenroll affected enrollees in 
accordance with the procedures for disenrollment set forth at paragraph 
(d)(7) of this section, unless the exception in paragraph (b)(3)(ii) of 
this section applies.
    (ii) Exception. When an MA organization discontinues offering an MA 
plan in a portion of its service area, the MA organization may elect to 
offer enrollees residing in all or portions of the affected area the 
option to continue enrollment in an MA plan offered by the organization, 
provided that there is no other MA plan offered in the affected area at 
the time of the organization's election. The organization may require an 
enrollee who chooses to continue enrollment to agree to receive the full 
range of basic benefits (excluding emergency and urgently needed care) 
exclusively through facilities designated by the organization within the 
plan service area.

[[Page 245]]

    (c) Notice requirement. If the disenrollment is for any of the 
reasons specified in paragraphs (b)(1), (b)(2)(i), or (b)(3) of this 
section (that is, other than death or loss of entitlement to Part A or 
Part B) the MA organization must give the individual a written notice of 
the disenrollment with an explanation of why the MA organization is 
planning to disenroll the individual. Notices for reasons specified in 
paragraphs (b)(1) through (b)(2)(i) must--
    (1) Be provided to the individual before submission of the 
disenrollment to CMS; and
    (2) Include an explanation of the individual's right to a hearing 
under the MA organization's grievance procedures.
    (d) Process for disenrollment--(1) Monthly basic and supplementary 
premiums are not paid timely. An MA organization may disenroll an 
individual from the MA plan for failure to pay basic and supplementary 
premiums under the following circumstances:
    (i) The MA organization can demonstrate to CMS that it made 
reasonable efforts to collect the unpaid premium amount, including:
    (A) Alerting the individual that the premiums are delinquent;
    (B) Providing the individual with a grace period, that is, an 
opportunity to pay past due premiums in full. The length of the grace 
period will be, at minimum, one month and will begin on the first day of 
the month for which the premium is unpaid.
    (C) Advising the individual that failure to pay the premiums by the 
end of the grace period will result in termination of MA coverage.
    (ii) The MA organization provides the enrollee with notice of 
disenrollment that meets the requirements set forth in paragraph (c) of 
this section.
    (iii) If the enrollee fails to pay the premium for optional 
supplemental benefits but pays the basic premium and any mandatory 
supplemental premium, the MA organization has the option to discontinue 
the optional supplemental benefits and retain the individual as an MA 
enrollee.
    (2) Disruptive behavior. (i) Definition of disruptive behavior. An 
MA plan enrollee is disruptive if his or her behavior substantially 
impairs the plan's ability to arrange for or provide services to the 
individual or other plan members. An individual cannot be considered 
disruptive if such behavior is related to the use of medical services or 
compliance (or noncompliance) with medical advice or treatment.
    (ii) Basis of disenrollment for disruptive behavior. An organization 
may disenroll an individual whose behavior is disruptive as defined in 
422.74(d)(2)(i) only after it meets the requirements described in this 
section and CMS has reviewed and approved the request.
    (iii) Effort to resolve the problem. The MA organization must make a 
serious effort to resolve the problems presented by the individual, 
including providing reasonable accommodations, as determined by CMS, for 
individuals with mental or cognitive conditions, including mental 
illness and developmental disabilities. In addition, the MA organization 
must inform the individual of the right to use the organization's 
grievance procedures. The beneficiary has a right to submit any 
information or explanation that he or she may wish to the MA 
organization.
    (iv) Documentation. The MA organization must document the enrollee's 
behavior, its own efforts to resolve any problems, as described in 
paragraph (iii), and any extenuating circumstances. The MA organization 
may request from CMS the ability to decline future enrollment by the 
individual. The MA organization must submit this information and any 
documentation received by the beneficiary to CMS.
    (v) CMS review of the proposed disenrollment. CMS will review the 
information submitted by the MA organization and any information 
submitted by the beneficiary (which the MA organization must forward to 
CMS) to determine if the MA organization has fulfilled the requirements 
to request disenrollment for disruptive behavior. If the organization 
has fulfilled the necessary requirements, CMS will review the 
information and make a decision to approve or deny the request for 
disenrollment, including conditions on future enrollment, within 20 
working days. During the review, CMS will ensure that staff with 
appropriate clinical or medical expertise review the

[[Page 246]]

case before making the final decision. The MA organization will be 
required to provide a reasonable accommodation, as determined by CMS, 
for the individual in such exceptional circumstances that CMS deems 
necessary. CMS will notify the MA organization within 5 working days 
after making its decision.
    (vi) Effective date of disenrollment. If CMS permits an MA 
organization to disenroll an individual for disruptive behavior, the 
termination is effective the first day of the calendar month after the 
month in which the MA organization gives the individual notice of the 
disenrollment that meets the requirements set forth in paragraph (c) of 
this section, unless otherwise determined by CMS.
    (3) Individual commits fraud or permits abuse of enrollment card.--
(i) Basis for disenrollment. An MA organization may disenroll the 
individual from an MA plan if the individual--
    (A) Knowingly provides, on the election form, fraudulent information 
that materially affects the individual's eligibility to enroll in the MA 
plan; or
    (B) Intentionally permits others to use his or her enrollment card 
to obtain services under the MA plan.
    (ii) Notice of disenrollment. The MA organization must give the 
individual a written notice of the disenrollment that meets the 
requirements set forth in paragraph (c) of this section.
    (iii) Report to CMS. The MA organization must report to CMS any 
disenrollment based on fraud or abuse by the individual.
    (4) Individual no longer resides in the MA plan's service area--(i) 
Basis for disenrollment. Unless continuation of enrollment is elected 
under Sec. 422.54, the MA organization must disenroll an individual if 
the MA organization establishes, on the basis of a written statement 
from the individual or other evidence acceptable to CMS, that the 
individual has permanently moved--
    (A) Out of the MA plan's service area; or
    (B) From the residence in which the individual resided at the time 
of enrollment in the MA plan to an area outside the MA plan's service 
area, for those individuals who enrolled in the MA plan under the 
eligibility requirements at Sec. 422.50(a)(3)(ii) or (a)(4).
    (ii) Special rule. If the individual has not moved from the MA 
plan's service area (or residence, as described in paragraph 
(d)(4)(i)(B) of this section), but has left the service area (or 
residence) for more than 6 months, the MA organization must disenroll 
the individual from the plan, unless the exception in paragraph 
(d)(4)(iii) of this section applies.
    (iii) Exception. If the MA plan covers services other than emergent, 
urgent, maintenance and poststabilization, and renal dialysis services 
(as described in Sec. 422.100(b)(1)(iv) and Sec. 422.113) when the 
individual is out of the service area for a period of consecutive days 
longer than 6 months but less than 12 months, but within the United 
States (as defined in Sec. 400.200 of this chapter), the MA 
organization may elect to offer to the individual the option of 
remaining enrolled in the MA plan if--
    (A) The individual is disenrolled on the first day of the 13th month 
after the individual left the service area (or residence, if paragraph 
(d)(4)(i)(B) of this section applies);
    (B) The individual understands and accepts any restrictions imposed 
by the MA plan on obtaining these services while absent from the MA 
plan's service area for the extended period; and
    (C) The MA organization makes this option available to all Medicare 
enrollees who are absent for an extended period from the MA plan's 
service area. However, MA organizations may limit this option to 
enrollees who travel to certain areas, as defined by the MA 
organization, and who receive services from qualified providers who 
directly provide, arrange for, or pay for health care.
    (iv) Notice of disenrollment. The MA organization must give the 
individual a written notice of the disenrollment that meets the 
requirements set forth in paragraph (c) of this section.
    (5) Loss of entitlement to Part A or Part B benefits. If an 
individual is no longer entitled to Part A or Part B benefits, CMS 
notifies the MA organization that the disenrollment is effective the 
first day of the calendar month following

[[Page 247]]

the last month of entitlement to Part A or Part B benefits.
    (6) Death of the individual. If the individual dies, disenrollment 
is effective the first day of the calendar month following the month of 
death.
    (7) Plan termination or area reduction. (i) When an MA organization 
has its contract for an MA plan terminated, terminates an MA plan, or 
discontinues offering the plan in any portion of the area where the plan 
had previously been available, the MA organization must give each 
affected MA plan enrollee a written notice of the effective date of the 
plan termination or area reduction and a description of alternatives for 
obtaining benefits under the MA program.
    (ii) The notice must be sent before the effective date of the plan 
termination or area reduction, and in the timeframes specified in Sec. 
422.506(a)(2).
    (e) Consequences of disenrollment--(1) Disenrollment for non-payment 
of premiums, disruptive behavior, fraud or abuse, loss of Part A or Part 
B. An individual who is disenrolled under paragraph (b)(1)(i), 
(b)(1)(ii), (b)(1)(iii), or paragraph (b)(2)(ii) of this section is 
deemed to have elected original Medicare.
    (2) Disenrollment based on plan termination, area reduction, or 
individual moves out of area. (i) An individual who is disenrolled under 
paragraph (b)(2)(i) or (b)(3) of this section has a special election 
period in which to make a new election as provided in Sec. 422.62(b)(1) 
and (b)(2).
    (ii) An individual who fails to make an election during the special 
election period is deemed to have elected original Medicare.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998, as amended at 65 
FR 40318, June 29, 2000; 68 FR 50855, Aug. 22, 2003; 70 FR 4718, Jan. 
28, 2005]



Sec. 422.80  Approval of marketing materials and election forms.

    (a) CMS review of marketing materials. (1) Except as provided in 
paragraph (a)(2) of this section, an MA organization may not distribute 
any marketing materials (as defined in paragraph (b) of this section ), 
or election forms, or make such materials or forms available to 
individuals eligible to elect an MA organization unless--
    (i) At least 45 days (or 10 days if using marketing materials that 
use, without modification, proposed model language as specified by CMS) 
before the date of distribution the MA organization has submitted the 
material or form to CMS for review under the guidelines in paragraph 
(c); and
    (ii) CMS does not disapprove the distribution of new material or 
form.
    (2) The MA organization may distribute the marketing materials 5 
days following their submission to CMS if--
    (i) The MA organization is deemed by CMS to meet certain performance 
requirements established by CMS; or
    (ii) The MA organization certifies that in the case of certain 
marketing materials designated by CMS, it followed all applicable 
marketing guidelines or used model language specified by CMS without 
modification.
    (b) Definition of marketing materials. Marketing materials include 
any informational materials targeted to Medicare beneficiaries which:
    (1) Promote the MA organization, or any MA plan offered by the MA 
organization;
    (2) Inform Medicare beneficiaries that they may enroll, or remain 
enrolled in, an MA plan offered by the MA organization;
    (3) Explain the benefits of enrollment in an MA plan, or rules that 
apply to enrollees;
    (4) Explain how Medicare services are covered under an MA plan, 
including conditions that apply to such coverage;
    (5) Examples of marketing materials include, but are not limited to:
    (i) General audience materials such as general circulation 
brochures, newspapers, magazines, television, radio, billboards, yellow 
pages, or the internet.
    (ii) Marketing representative materials such as scripts or outlines 
for telemarketing or other presentations.
    (iii) Presentation materials such as slides and charts.
    (iv) Promotional materials such as brochures or leaflets, including 
materials for circulation by third parties (e.g., physicians or other 
providers).

[[Page 248]]

    (v) Membership communication materials such as membership rules, 
subscriber agreements (evidence of coverage), member handbooks and 
wallet card instructions to enrollees.
    (vi) Letters to members about contractual changes; changes in 
providers, premiums, benefits, plan procedures etc.
    (vii) Membership or claims processing activities (e.g., materials on 
rules involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or annual notification information).
    (c) Guidelines for CMS review. In reviewing marketing material or 
election forms under paragraph (a) of this section, CMS determines that 
the marketing materials:
    (1) Provide, in a format (and, where appropriate, print size), and 
using standard terminology that may be specified by CMS, the following 
information to Medicare beneficiaries interested in enrolling:
    (i) Adequate written description of rules (including any limitations 
on the providers from whom services can be obtained), procedures, basic 
benefits and services, and fees and other charges.
    (ii) Adequate written description of any supplemental benefits and 
services.
    (iii) Adequate written explanation of the grievance and appeals 
process, including differences between the two, and when it is 
appropriate to use each.
    (iv) Any other information necessary to enable beneficiaries to make 
an informed decision about enrollment.
    (2) Notify the general public of its enrollment period (whether 
time-limited or continuous) in an appropriate manner, through 
appropriate media, throughout its service and continuation area.
    (3) Include in the written materials notice that the MA organization 
is authorized by law to refuse to renew its contract with CMS, that CMS 
also may refuse to renew the contract, and that termination or non-
renewal may result in termination of the beneficiary's enrollment in the 
plan.
    (4) Are not materially inaccurate or misleading or otherwise make 
material misreprepresentations.
    (5) For markets with a significant non-English speaking population, 
provide materials in the language of these individuals.
    (d) Deemed approval (one-stop shopping). If CMS has not disapproved 
the distribution of marketing materials or forms submitted by an MA 
organization with respect to an MA plan in an area, CMS is deemed not to 
have disapproved the distribution in all other areas covered by the MA 
plan and organization except with regard to any portion of the material 
or form that is specific to the particular area.
    (e) Standards for MA organization marketing. (1) In conducting 
marketing activities, MA organizations may not:
    (i) Provide for cash or other monetary rebates as an inducement for 
enrollment or otherwise. This does not prohibit explanation of any 
legitimate benefits the beneficiary might obtain as an enrollee of the 
MA plan, such as eligibility to enroll in a supplemental benefit plan 
that covers deductibles and coinsurance, or preventive services.
    (ii) Engage in any discriminatory activity, including targeted 
marketing to Medicare beneficiaries from higher income areas without 
making comparable efforts to enroll Medicare beneficiaries from lower 
income areas.
    (iii) Solicit Medicare beneficiaries door-to-door.
    (iv) Engage in activities that could mislead or confuse Medicare 
beneficiaries, or misrepresent the MA organization. The MA organization 
may not claim it is recommended or endorsed by CMS or Medicare or the 
Department of Health and Human Services or that CMS or Medicare or the 
Department of Health and Human Services recommends that the beneficiary 
enroll in the MA plan. It may, however, explain that the organization is 
approved for participation in Medicare.
    (v) Distribute marketing materials for which, before expiration of 
the 45-day period (or 10 days as provided in paragraph (a)(1) of this 
section), the MA organization receives from CMS written notice of 
disapproval because it is inaccurate or misleading, or misrepresents the 
MA organization, its marketing representatives, or CMS.

[[Page 249]]

    (vi) Use providers or provider groups to distribute printed 
information comparing the benefits of different health plans unless the 
materials have the concurrence of all MA organizations involved and have 
received prior approval by CMS. Physicians or providers may distribute 
health plan brochures (exclusive of application forms) at a health fair 
or in their offices. Physicians may discuss, in response to an 
individual patient's inquiry, the various benefits in different health 
plans.
    (vii) Accept plan applications in provider offices or other places 
where health care is delivered.
    (viii) Employ MA plan names that suggest that a plan is not 
available to all Medicare beneficiaries. This prohibition shall not 
apply to MA plan names in effect on July 31, 2000.
    (ix) Engage in any other marketing activity prohibited by CMS in its 
marketing guidance.
    (2) In its marketing, the MA organization must:
    (i) Demonstrate to CMS's satisfaction that marketing resources are 
allocated to marketing to the disabled Medicare population as well as 
beneficiaries age 65 and over.
    (ii) Establish and maintain a system for confirming that enrolled 
beneficiaries have in fact, enrolled in the MA plan, and understand the 
rules applicable under the plan.
    (f) Employer group retiree marketing. MA organizations may develop 
marketing materials designed for members of an employer group who are 
eligible for employer-sponsored benefits through the MA organization, 
and furnish these materials only to the group members. While the 
materials must be submitted for approval under paragraph (a) of this 
section, CMS will not review portions of these materials that relate to 
employer group benefits.

[63 FR 35071, June 26, 1998; 63 FR 52612, Oct. 1, 1998, as amended at 65 
FR 40318, June 29, 2000; 67 FR 13288, Mar. 22, 2002; 70 FR 4719, Jan. 
28, 2005]



             Subpart C_Benefits and Beneficiary Protections

    Source: 63 FR 35077, June 26, 1998, unless otherwise noted.



Sec. 422.100  General requirements.

    (a) Basic rule. Subject to the conditions and limitations set forth 
in this subpart, an MA organization offering an MA plan must provide 
enrollees in that plan with coverage of the basic benefits described in 
paragraph (c) of this section (and, to the extent applicable, the 
benefits described in Sec. 422.102) by furnishing the benefits directly 
or through arrangements, or by paying for the benefits. CMS reviews 
these benefits subject to the requirements of Sec. 422.100(g) and the 
requirements in subpart G of this part.
    (b) Services of noncontracting providers and suppliers. (1) An MA 
organization must make timely and reasonable payment to or on behalf of 
the plan enrollee for the following services obtained from a provider or 
supplier that does not contract with the MA organization to provide 
services covered by the MA plan:
    (i) Ambulance services dispatched through 911 or its local 
equivalent as provided in Sec. 422.113.
    (ii) Emergency and urgently needed services as provided in Sec. 
422.113.
    (iii) Maintenance and post-stabilization care services as provided 
in Sec. 422.113.
    (iv) Renal dialysis services provided while the enrollee was 
temporarily outside the plan's service area.
    (v) Services for which coverage has been denied by the MA 
organization and found (upon appeal under subpart M of this part) to be 
services the enrollee was entitled to have furnished, or paid for, by 
the MA organization.
    (2) An MA plan (and an MA MSA plan, after the annual deductible in 
Sec. 422.103(d) has been met) offered by an MA organization satisfies 
paragraph (a) of this section with respect to benefits for services 
furnished by a noncontracting provider if that MA plan provides payment 
in an amount the provider would have received under original Medicare 
(including balance billing permitted under Medicare Part A and Part B).
    (c) Types of benefits. An MA plan includes at a minimum basic 
benefits, and also may include mandatory and optional supplemental 
benefits.

[[Page 250]]

    (1) Basic benefits are all Medicare-covered services, except hospice 
services.
    (2) Supplemental benefits, which consist of--
    (i) Mandatory supplemental benefits are services not covered by 
Medicare that an MA enrollee must purchase as part of an MA plan that 
are paid for in full, directly by (or on behalf of) Medicare enrollees, 
in the form of premiums or cost-sharing.
    (ii) Optional supplemental benefits are health services not covered 
by Medicare that are purchased at the option of the MA enrollee and paid 
for in full, directly by (or on behalf of) the Medicare enrollee, in the 
form of premiums or cost-sharing. These services may be grouped or 
offered individually.
    (d) Availability and structure of plans. An MA organization offering 
an MA plan must offer it--
    (1) To all Medicare beneficiaries residing in the service area of 
the MA plan;
    (2) At a uniform premium, with uniform benefits and level of cost-
sharing throughout the plan's service area, or segment of service area 
as provided in Sec. 422.262(c)(2).
    (e) Multiple plans in one service area. An MA organization may offer 
more than one MA plan in the same service area subject to the conditions 
and limitations set forth in this subpart for each MA plan.
    (f) CMS review and approval of MA benefits. CMS reviews and approves 
MA benefits using written policy guidelines and requirements in this 
part and other CMS instructions to ensure that--
    (1) Medicare-covered services meet CMS fee-for-service guidelines;
    (2) MA organizations are not designing benefits to discriminate 
against beneficiaries, promote discrimination, discourage enrollment or 
encourage disenrollment, steer subsets of Medicare beneficiaries to 
particular MA plans, or inhibit access to services; and
    (3) Benefit design meets other MA program requirements.
    (g) Benefits affecting screening mammography, influenza vaccine, and 
pneumoccal vaccine. (1) Enrollees of MA organizations may directly 
access (through self-referral) screening mammography and influenza 
vaccine.
    (2) MA organizations may not impose cost-sharing for influenza 
vaccine and pneumococcal vaccine on their MA plan enrollees.
    (h) Requirements relating to Medicare conditions of participation. 
Basic benefits must be furnished through providers meeting the 
requirements in Sec. 422.204(b)(3).
    (i) Provider networks. The MA plans offered by an MA organization 
may share a provider network as long as each MA plan independently meets 
the access and availability standards described at Sec. 422.112, as 
determined by CMS.

[65 FR 40319, June 29, 2000, as amended at 67 FR 13288, Mar. 22, 2002; 
70 FR 4719, Jan. 28, 2005; 70 FR 52026, Sept. 1, 2005]



Sec. 422.101  Requirements relating to basic benefits.

    Except as specified in Sec. 422.318 (for entitlement that begins or 
ends during a hospital stay) and Sec. 422.320 (with respect to hospice 
care), each MA organization must meet the following requirements:
    (a) Provide coverage of, by furnishing, arranging for, or making 
payment for, all services that are covered by Part A and Part B of 
Medicare (if the enrollee is entitled to benefits under both parts) or 
by Medicare Part B (if entitled only under Part B) and that are 
available to beneficiaries residing in the plan's service area. Services 
may be provided outside of the service area of the plan if the services 
are accessible and available to enrollees.
    (b) Comply with--
    (1) CMS's national coverage determinations;
    (2) General coverage guidelines included in original Medicare 
manuals and instructions unless superseded by regulations in this part 
or related instructions; and
    (3) Written coverage decisions of local Medicare contractors with 
jurisdiction for claims in the geographic area in which services are 
covered under the MA plan. If an MA plan covers geographic areas 
encompassing more than one local coverage policy area, the MA 
organization offering

[[Page 251]]

such an MA plan may elect to apply to plan enrollees in all areas 
uniformly the coverage policy that is the most beneficial to MA 
enrollees. MA organizations that elect this option must notify CMS 
before selecting the area that has local coverage policies that are most 
beneficial to enrollees as follows:
    (i) An MA organization electing to adopt a uniform local coverage 
policy for a plan or plans must notify CMS at least 60 days before the 
date specified in Sec. 422.254(a)(1), which is 60 days before the date 
bid amounts are due for the subsequent year. Such notice must identify 
the plan or plans and service area or services areas to which the 
uniform local coverage policy or policies will apply, the competing 
local coverage policies involved, and a justification explaining why the 
selected local coverage policy or policies are most beneficial to MA 
enrollees.
    (ii) CMS will review notices provided under paragraph (b)(3)(i) of 
this section, evaluate the selected local coverage policy or policies 
based on such factors as cost, access, geographic distribution of 
enrollees, and health status of enrollees, and notify the MA 
organization of its approval or denial of the selected uniform local 
coverage policy or policies.
    (4) Instead of applying rules in paragraph (b)(3)(ii) of this 
section, and to the extent it exercises this option, an organization 
offering an MA regional plan in an MA region that covers more than one 
local coverage policy area must uniformly apply all of the local 
coverage policy determinations that apply in the selected local coverage 
policy area in that MA region to all parts of that same MA region. The 
selection of the single local coverage policy area's local coverage 
policy determinations to apply throughout the MA region is at the 
discretion of the MA regional plan and is not subject to CMS pre-
approval.
    (5) If an MA organization offering an MA local plan elects to 
exercise the option in paragraph (b)(3) of this section related to a 
local MA plan, or if an MA organization offering an MA regional plan 
elects to exercise the option in paragraph (b)(4) of this section 
related to an MA regional plan, then the MA organization must make 
information on the selected local coverage policy readily available, 
including through the Internet, to enrollees and health care providers.
    (c) MA organizations may elect to furnish, as part of their Medicare 
covered benefits, coverage of posthospital SNF care as described in 
subparts C and D of this part, in the absence of the prior qualifying 
hospital stay that would otherwise be required for coverage of this 
care.
    (d) Special cost-sharing rules for MA regional plans. In addition to 
the requirements in paragraph (a) through paragraph (c) of this section, 
MA regional plans must provide for the following:
    (1) Single deductible. MA regional plans, to the extent they apply a 
deductible, are permitted to have only a single deductible related to 
combined Medicare Part A and Part B services (to the extent they have a 
deductible). Applicability of the single deductible may be differential 
for specific in-network services and may also be waived for preventative 
services or other items and services.
    (2) Catastrophic limit. MA regional plans are required to provide 
for a catastrophic limit on beneficiary out-of-pocket expenditures for 
in-network benefits under the original Medicare fee-for-service program 
(Part A and Part B benefits).
    (3) Total catastrophic limit. MA regional plans are required to 
provide a total catastrophic limit on beneficiary out-of-pocket 
expenditures for in-network and out-of-network benefits under the 
original Medicare fee-for-service program. This total out-of-pocket 
catastrophic limit, which would apply to both in-network and out-of-
network benefits under original Medicare, may be higher than the in-
network catastrophic limit in paragraph (d)(2) of this section, but may 
not increase the limit described in paragraph (d)(2) of this section.
    (4) Tracking of deductible and catastrophic limits and notification. 
MA regional plans are required to track the deductible (if any) and 
catastrophic limits in paragraphs (d)(1) through (d)(3) of this section 
based on incurred out-of-pocket beneficiary costs for original Medicare 
covered services, and are also required to notify members

[[Page 252]]

and health care providers when the deductible (if any) or a limit has 
been reached.
    (e) Other rules for MA regional plans. (1) MA regional plans are 
required to provide reimbursement for all covered benefits, regardless 
of whether those benefits are provided within or outside of the network 
of contracted providers.
    (2) In applying the actuarially equivalent level of cost-sharing 
with respect to MA bids related to benefits under the original Medicare 
program option as set forth at Sec. 422.256(b)(3), only the 
catastrophic limit on out-of-pocket expenses for in-network benefits in 
paragraph (d)(2) of this section will be taken into account.

[65 FR 40319, June 29, 2000, as amended at 68 FR 50856, Aug. 22, 2003; 
70 FR 4720, Jan. 28, 2005; 70 FR 52026, Sept. 1, 2005; 70 FR 76197, Dec. 
23, 2005]



Sec. 422.102  Supplemental benefits.

    (a) Mandatory supplemental benefits. (1) Subject to CMS approval, an 
MA organization may require Medicare enrollees of an MA plan (other than 
an MSA plan) to accept or pay for services in addition to Medicare-
covered services described in Sec. 422.101.
    (2) If the MA organization imposes mandatory supplemental benefits, 
it must impose them on all Medicare beneficiaries enrolled in the MA 
plan.
    (3) CMS approves mandatory supplemental benefits if the benefits are 
designed in accordance with CMS' guidelines and requirements as stated 
in this part and other written instructions.
    (4) Beginning in 2006, an MA plan may reduce cost sharing below the 
actuarial value specified in section 1854(e)(4)(A) of the Act only as a 
mandatory supplemental benefit.
    (b) Optional supplemental benefits. Except as provided in Sec. 
422.104 in the case of MSA plans, each MA organization may offer (for 
election by the enrollee and without regard to health status) services 
that are not included in the basic benefits as described in Sec. 
422.100(c) and any mandatory supplemental benefits described in 
paragraph (a) of this section. Optional supplemental benefits are 
purchased at the discretion of the enrollee and must be offered to all 
Medicare beneficiaries enrolled in the MA plan.
    (c) Payment for supplemental services. All supplemental benefits are 
paid for in full, directly by (or on behalf of) the enrollee of the MA 
plan.
    (d) Marketing of supplemental benefits. MA organizations may offer 
enrollees a group of services as one optional supplemental benefit, 
offer services individually, or offer a combination of groups and 
individual services.

[65 FR 40320, June 29, 2000, as amended at 70 FR 4720, Jan. 28, 2005]



Sec. 422.103  Benefits under an MA MSA plan.

    (a) General rule. An MA organization offering an MA MSA plan must 
make available to an enrollee, or provide reimbursement for, at least 
the services described in Sec. 422.101 after the enrollee incurs 
countable expenses equal to the amount of the plan's annual deductible.
    (b) Countable expenses. An MA organization offering an MA MSA plan 
must count toward the annual deductible at least all amounts that would 
be paid for the particular service under original Medicare, including 
amounts that would be paid by the enrollee as deductibles or 
coinsurance.
    (c) Services after the deductible. For services received by the 
enrollee after the annual deductible is satisfied, an MA organization 
offering an MA MSA plan must pay, at a minimum, the lesser of the 
following amounts:
    (1) 100 percent of the expense of the services.
    (2) 100 percent of the amounts that would have been paid for the 
services under original Medicare, including amounts that would be paid 
by the enrollee as deductibles and coinsurance.
    (d) Annual deductible. The annual deductible for an MA MSA plan--
    (1) For contract year 1999, may not exceed $6,000; and
    (2) For subsequent contract years may not exceed the deductible for 
the preceding contract year, increased by the national per capita growth 
percentage determined under Sec. 422.306(a)(2).

[63 FR 35077, June 26, 1998, as amended at 70 FR 4720, Jan. 28, 2005; 70 
FR 52026, Sept. 1, 2005]

[[Page 253]]



Sec. 422.104  Special rules on supplemental benefits for MA MSA plans.

    (a) An MA organization offering an MA MSA plan may not provide 
supplemental benefits that cover expenses that count towards the 
deductible specified in Sec. 422.103(d).
    (b) In applying the limitation of paragraph (a) of this section, the 
following kinds of policies are not considered as covering the 
deductible:
    (1) A policy that provides coverage (whether through insurance or 
otherwise) for accidents, disability, dental care, vision care, or long-
term care.
    (2) A policy of insurance in which substantially all of the coverage 
relates to liabilities incurred under workers' compensation laws, tort 
liabilities, liabilities relating to use or ownership of property, and 
any other similar liabilities that CMS may specify by regulation.
    (3) A policy of insurance that provides coverage for a specified 
disease or illness or pays a fixed amount per day (or other period) of 
hospitalization.



Sec. 422.105  Special rules for self-referral and point of service option.

    (a) Self-referral. When an MA plan member receives an item or 
service of the plan that is covered upon referral or pre-authorization 
from a contracted provider of that plan, the member cannot be 
financially liable for more than the normal in-plan cost sharing, if the 
member correctly identified himself or herself as a member of that plan 
to the contracted provider before receiving the covered item or service, 
unless the contracted provider can show that the enrollee was notified 
prior to receiving the item or service that the item or service is 
covered only if further action is taken by the enrollee.
    (b) Point of service option. As a general rule, a POS benefit is an 
option that an MA organization may offer in an MA coordinated care plan 
to provide enrollees with additional choice in obtaining specified 
health care services. The organization may offer A POS option--
    (1) Before January 1, 2006, under a coordinated care plan as an 
additional benefit as described in section 1854(f)(1)(A) of the Act;
    (2) Under a coordinated care plan as a mandatory supplemental 
benefit as described in Sec. 422.102(a); or
    (3) Under a coordinated care plan as an optional supplemental 
benefit as described in Sec. 422.102(b).
    (4) An MA regional plan or local MA PPO is permitted to offer a POS-
LIKE benefit as described in paragraphs (b)(2) or (b)(3) of this section 
as a supplemental benefit. An MA regional plan or local MA PPO may offer 
a POS-LIKE option as a supplemental benefit where cost sharing for out-
of-network services is reduced, in a limited manner, for services 
obtained from out-of-network providers. Offering a POS-LIKE supplemental 
benefit does not affect the MA regional plan's or local MA PPO's 
responsibility to provide reimbursement for all covered benefits, 
regardless of whether those benefits are provided within the network of 
contracted providers.
    (c) Ensuring availability and continuity of care. An MA network plan 
that includes a POS benefit must continue to provide all benefits and 
ensure access as required under this subpart.
    (d) Enrollee information and disclosure. The disclosure requirements 
specified in Sec. 422.111 apply in addition to the following 
requirements:
    (1) Written rules. MA organizations must maintain written rules on 
how to obtain health benefits through the POS benefit.
    (2) Evidence of coverage document. The MA organization must provide 
to beneficiaries enrolling in a plan with a POS benefit an ``evidence of 
coverage'' document, or otherwise provide written documentation, that 
specifies all costs and possible financial risks to the enrollee, 
including--
    (i) Any premiums and cost-sharing for which the enrollee is 
responsible;
    (ii) Annual limits on benefits and on out-of-pocket expenditures;
    (iii) Potential financial responsibility for services for which the 
plan denies payment because they were not covered under the POS benefit, 
or exceeded the dollar limit for the benefit; and
    (iv) The annual maximum out-of-pocket expense an enrollee could 
incur.

[[Page 254]]

    (e) Prompt payment. Health benefits payable under the POS benefit 
are subject to the prompt payment requirements in Sec. 422.520.
    (f) POS-related data. An MA organization that offers a POS benefit 
through an MA plan must report enrollee utilization data at the plan 
level by both plan contracting providers (in-network) and by non-
contracting providers (out-of-network) including enrollee use of the POS 
benefit, in the form and manner prescribed by CMS.

[63 FR 35077, June 26, 1998, as amended at 65 FR 40320, June 29, 2000; 
70 FR 4721, Jan. 28, 2005]



Sec. 422.106  Coordination of benefits with employer or union group health plans and Medicaid.

    (a) General rule. If an MA organization contracts with an employer, 
labor organization, or the trustees of a fund established by one or more 
employers or labor organizations that cover enrollees in an MA plan, or 
contracts with a State Medicaid agency to provide Medicaid benefits to 
individuals who are eligible for both Medicare and Medicaid, and who are 
enrolled in an MA plan, the enrollees must be provided the same benefits 
as all other enrollees in the MA plan, with the employer, labor 
organization, fund trustees, or Medicaid benefits supplementing the MA 
plan benefits. Jurisdiction regulating benefits under these 
circumstances is as follows:
    (1) All requirements of this part that apply to the MA program apply 
to the MA plan coverage and benefits provided to enrollees eligible for 
benefits under an employer, labor organization, trustees of a fund 
established by one or more employers or labor organizations, or Medicaid 
contract.
    (2) Employer benefits that complement an MA plan, which are not part 
of the MA plan, are not subject to review or approval by CMS.
    (3) Medicaid benefits are not reviewed under this part, but are 
subject to appropriate CMS review under the Medicaid program. MA plan 
benefits provided to individuals entitled to Medicaid benefits provided 
by the MA organization under a contract with the State Medicaid agency 
are subject to MA rules and requirements.
    (b) Examples. Permissible employer, labor organization, benefit fund 
trustee, or Medicaid plan benefits include the following:
    (1) Payment of a portion or all of the MA basic and supplemental 
premiums.
    (2) Payment of a portion or all of other cost-sharing amounts 
approved for the MA plan.
    (3) Other employer-sponsored benefits that may require additional 
premium and cost-sharing, or other benefits provided by the organization 
under a contract with the State Medicaid agency.
    (c) Waiver or modification of contracts with MA organizations. (1) 
MA organizations may request, in writing, from CMS, a waiver or 
modification of those requirements in this part that hinder the design 
of, the offering of, or the enrollment in, MA plans under contracts 
between MA organizations and employers, labor organizations, or the 
trustees of funds established by one or more employers or labor 
organizations to furnish benefits to the entity's employees, former 
employees, or members or former members of the labor organizations.
    (2) Approved waivers or modifications under this paragraph granted 
to any MA organization may be used by any other similarly situated MA 
organization in developing its bid.
    (d) Employer sponsored MA plans for plan years beginning on or after 
January 1, 2006. (1) CMS may waive or modify any requirement in this 
part or Part D that hinders the design of, the offering of, or the 
enrollment in, an MA plan (including an MA-PD plan) offered by one or 
more employers, labor organizations, or the trustees of a fund 
established by one or more employers or labor organizations (or 
combination thereof), or that is offered, sponsored or administered by 
an entity on behalf of one or more employers or labor organizations, to 
furnish benefits to the employers' employees, former employees (or 
combination thereof) or members or former members (or combination 
thereof) of the labor organizations. Any entity seeking to offer, 
sponsor, or administer such an MA plan described in this paragraph may 
request, in writing, from CMS, a waiver or modification of requirements 
in this

[[Page 255]]

part that hinder the design of, the offering of, or the enrollment in, 
such MA plan.
    (2) An MA plan described in this paragraph may restrict the 
enrollment of individuals in that plan to individuals who are 
beneficiaries and participants in that plan.
    (3) Approved waivers or modifications under this paragraph granted 
to any MA plan may be used by any other similarly situated MA plan in 
developing its bid.

[65 FR 40320, June 29, 2000, as amended at 68 FR 50856, Aug. 22, 2003; 
70 FR 4721, Jan. 28, 2005]



Sec. 422.108  Medicare secondary payer (MSP) procedures.

    (a) Basic rule. CMS does not pay for services to the extent that 
Medicare is not the primary payer under section 1862(b) of the Act and 
part 411 of this chapter.
    (b) Responsibilities of the MA organization. The MA organization 
must, for each MA plan--
    (1) Identify payers that are primary to Medicare under section 
1862(b) of the Act and part 411 of this chapter;
    (2) Identify the amounts payable by those payers; and
    (3) Coordinate its benefits to Medicare enrollees with the benefits 
of the primary payers.
    (c) Collecting from other entities. The MA organization may bill, or 
authorize a provider to bill, other individuals or entities for covered 
Medicare services for which Medicare is not the primary payer, as 
specified in paragraphs (d) and (e) of this section.
    (d) Collecting from other insurers or the enrollee. If a Medicare 
enrollee receives from an MA organization covered services that are also 
covered under State or Federal workers' compensation, any no-fault 
insurance, or any liability insurance policy or plan, including a self-
insured plan, the MA organization may bill, or authorize a provider to 
bill any of the following--
    (1) The insurance carrier, the employer, or any other entity that is 
liable for payment for the services under section 1862(b) of the Act and 
part 411 of this chapter.
    (2) The Medicare enrollee, to the extent that he or she has been 
paid by the carrier, employer, or entity for covered medical expenses.
    (e) Collecting from group health plans (GHPs) and large group health 
plans (LGHPs). An MA organization may bill a GHP or LGHP for services it 
furnishes to a Medicare enrollee who is also covered under the GHP or 
LGHP and may bill the Medicare enrollee to the extent that he or she has 
been paid by the GHP or LGHP.
    (f) MSP rules and State laws. Consistent with Sec. 422.402 
concerning the Federal preemption of State law, the rules established 
under this section supersede any State laws, regulations, contract 
requirements, or other standards that would otherwise apply to MA plans. 
A State cannot take away an MA organization's right under Federal law 
and the MSP regulations to bill, or to authorize providers and suppliers 
to bill, for services for which Medicare is not the primary payer. The 
MA organization will exercise the same rights to recover from a primary 
plan, entity, or individual that the Secretary exercises under the MSP 
regulations in subparts B through D of part 411 of this chapter.

[63 FR 35077, June 26, 1998, as amended at 65 FR 40320, June 29, 2000; 
70 FR 4721, Jan. 28, 2005]



Sec. 422.109  Effect of national coverage determinations (NCDs) and legislative changes in benefits.

    (a) Definitions. The term significant cost, as it relates to a 
particular NCD or legislative change in benefits, means either of the 
following:
    (1) The average cost of furnishing a single service exceeds a cost 
threshold that--
    (i) For calendar years 1998 and 1999, is $100,000; and
    (ii) For calendar year 2000 and subsequent calendar years, is the 
preceding year's dollar threshold adjusted to reflect the national per 
capita growth percentage described in Sec. 422.308(a).
    (2) The estimated cost of Medicare services furnished as a result of 
a particular NCD or legislative change in benefits represents at least 
0.1 percent of the national average per capita costs.
    (b) General rule. If CMS determines and announces that an individual 
NCD or legislative change in benefits meets

[[Page 256]]

the criteria for significant cost described in paragraph (a) of this 
section, a MA organization is not required to assume risk for the costs 
of that service or benefit until the contract year for which payments 
are appropriately adjusted to take into account the cost of the NCD 
service or legislative change in benefits. If CMS determines that an NCD 
or legislative change in benefits does not meet the ``significant cost'' 
threshold described in Sec. 422.109(a), the MA organization is required 
to provide coverage for the NCD or legislative change in benefits and 
assume risk for the costs of that service or benefit as of the effective 
date stated in the NCD or specified in the legislation.
    (c) Before payment adjustments become effective. Before the contract 
year that payment adjustments that take into account the significant 
cost of the NCD service or legislative change in benefits become 
effective, the service or benefit is not included in the MA 
organization's contract with CMS, and is not a covered benefit under the 
contract. The following rules apply to these services or benefits:
    (1) Medicare payment for the service or benefit is made directly by 
the fiscal intermediary and carrier to the provider furnishing the 
service or benefit in accordance with original Medicare payment rules, 
methods, and requirements.
    (2) Costs for NCD services or legislative changes in benefits for 
which CMS intermediaries and carriers will not make payment and are the 
responsibility of the MA organization are--
    (i) Services necessary to diagnose a condition covered by the NCD or 
legislative changes in benefits;
    (ii) Most services furnished as follow-up care to the NCD service or 
legislative change in benefits;
    (iii) Any service that is already a Medicare-covered service and 
included in the annual MA capitation rate or previously adjusted 
payments; and
    (iv) Any services, including the costs of the NCD service or 
legislative change in benefits, to the extent the MA organization is 
already obligated to cover it as a supplemental benefit under Sec. 
422.102.
    (3) Costs for significant cost NCD services or legislative changes 
in benefits for which CMS fiscal intermediaries and carriers will make 
payment are those Medicare costs not listed in paragraphs (c)(2)(i) 
through (c)(2)(iv) of this section.
    (4) Beneficiaries are liable for any applicable coinsurance amounts.
    (d) After payment adjustments become effective. For the contract 
year in which payment adjustments that take into account the significant 
cost of the NCD service or legislative change in benefits are in effect, 
the service or benefit is included in the MA organization's contract 
with CMS, and is a covered benefit under the contract. Subject to all 
applicable rules under this part, the MA organization must furnish, 
arrange, or pay for the NCD service or legislative change in benefits. 
MA organizations may establish separate plan rules for these services 
and benefits, subject to CMS review and approval. CMS may, at its 
discretion, issue overriding instructions limiting or revising the MA 
plan rules, depending on the specific NCD or legislative change in 
benefits. For these services or benefits, the Medicare enrollee will be 
responsible for MA plan cost sharing, as approved by CMS or unless 
otherwise instructed by CMS.

[68 FR 50856, Aug. 22, 2003, as amended at 70 FR 4721, Jan. 28, 2005; 70 
FR 52026, Sept. 1, 2005]



Sec. 422.110  Discrimination against beneficiaries prohibited.

    (a) General prohibition. Except as provided in paragraph (b) of this 
section, an MA organization may not deny, limit, or condition the 
coverage or furnishing of benefits to individuals eligible to enroll in 
an MA plan offered by the organization on the basis of any factor that 
is related to health status, including, but not limited to the 
following:
    (1) Medical condition, including mental as well as physical illness.
    (2) Claims experience.
    (3) Receipt of health care.
    (4) Medical history.
    (5) Genetic information.
    (6) Evidence of insurability, including conditions arising out of 
acts of domestic violence.
    (7) Disability.

[[Page 257]]

    (b) Exception. An MA organization may not enroll an individual who 
has been medically determined to have end-stage renal disease. However, 
an enrollee who develops end-stage renal disease while enrolled in a 
particular MA organization may not be disenrolled for that reason. An 
individual who is an enrollee of a particular MA organization, and who 
resides in the MA plan service area at the time he or she first becomes 
MA eligible, or, an individual enrolled by an MA organization that 
allows those who reside outside its MA service area to enroll in an MA 
plan as set forth at Sec. 422.50(a)(3)(ii), then that individual is 
considered to be ``enrolled'' in the MA organization for purposes of the 
preceding sentence.

[63 FR 35077, June 26, 1998; 63 FR 52612, Oct. 1, 1998; 64 FR 7980, Feb. 
17, 1999, as amended at 65 FR 40321, June 29, 2000; 70 FR 4721, Jan. 28, 
2005]



Sec. 422.111  Disclosure requirements.

    (a) Detailed description. An MA organization must disclose the 
information specified in paragraph (b) of this section--
    (1) To each enrollee electing an MA plan it offers;
    (2) In clear, accurate, and standardized form; and
    (3) At the time of enrollment and at least annually thereafter.
    (b) Content of plan description. The description must include the 
following information:
    (1) Service area. The MA plan's service area and any enrollment 
continuation area.
    (2) Benefits. The benefits offered under a plan, including 
applicable conditions and limitations, premiums and cost-sharing (such 
as copayments, deductibles, and coinsurance) and any other conditions 
associated with receipt or use of benefits; and to the extent it offers 
Part D as an MA-PD plan, the information in Sec. 423.128 of this 
chapter; and for purposes of comparison-
    (i) The benefits offered under original Medicare, including the 
content specified in paragraph (f)(1) of this section;
    (ii) For an MA MSA plan, the benefits under other types of MA plans; 
and
    (iii) The availability of the Medicare hospice option and any 
approved hospices in the service area, including those the MA 
organization owns, controls, or has a financial interest in.
    (3) Access. (i) The number, mix, and distribution (addresses) of 
providers from whom enrollees may reasonably be expected to obtain 
services; any out-of network coverage; any point-of-service option, 
including the supplemental premium for that option; and how the MA 
organization meets the requirements of Sec. 422.112 and Sec. 422.114 
for access to services offered under the plan.
    (ii) The process MA regional plan enrollees should follow to secure 
in-network cost sharing when covered services are not readily available 
from contracted network providers.
    (4) Out-of-area coverage provided under the plan, including coverage 
provided to individuals eligible to enroll in the plan under Sec. 
422.50(a)(3)(ii).
    (5) Emergency coverage. Coverage of emergency services, including--
    (i) Explanation of what constitutes an emergency, referencing the 
definitions of emergency services and emergency medical condition at 
Sec. 422.113;
    (ii) The appropriate use of emergency services, stating that prior 
authorization cannot be required;
    (iii) The process and procedures for obtaining emergency services, 
including use of the 911 telephone system or its local equivalent; and
    (iv) The locations where emergency care can be obtained and other 
locations at which contracting physicians and hospitals provide 
emergency services and post-stabilization care included in the MA plan.
    (6) Supplemental benefits. Any mandatory or optional supplemental 
benefits and the premium for those benefits.
    (7) Prior authorization and review rules. Prior authorization rules 
and other review requirements that must be met in order to ensure 
payment for the services. The MA organization must instruct enrollees 
that, in cases where noncontracting providers submit a bill directly to 
the enrollee, the enrollee should not pay the bill, but submit it to the 
MA organization for processing and determination of enrollee liability, 
if any.

[[Page 258]]

    (8) Grievance and appeals procedures. All grievance and appeals 
rights and procedures.
    (9) Quality improvement program. A description of the quality 
improvement program required under Sec. 422.152.
    (10) Disenrollment rights and responsibilities.
    (11) Catastrophic caps and single deductible. MA organizations 
sponsoring MA regional plans are required to provide enrollees a 
description of the catastrophic stop-loss coverage and single deductible 
(if any) applicable under the plan.
    (c) Disclosure upon request. Upon request of an individual eligible 
to elect an MA plan, an MA organization must provide to the individual 
the following information:
    (1) The information required in paragraph (f) of this section.
    (2) The procedures the organization uses to control utilization of 
services and expenditures.
    (3) The number of disputes, and the disposition in the aggregate, in 
a manner and form described by the Secretary. Such disputes shall be 
categorized as
    (i) Grievances according to Sec. 422.564; and
    (ii) Appeals according to Sec. 422.578 et. seq.
    (4) A summary description of the method of compensation for 
physicians.
    (5) Financial condition of the MA organization, including the most 
recently audited information regarding, at least, a description of the 
financial condition of the MA organization offering the plan.
    (d) Changes in rules. If an MA organization intends to change its 
rules for an MA plan, it must:
    (1) Submit the changes for CMS review under the procedures of Sec. 
422.80.
    (2) For changes that take effect on January 1, notify all enrollees 
at least 15 days before the beginning of the Annual Coordinated Election 
Period defined in section 1851(e)(3)(B) of the Act.
    (3) For all other changes, notify all enrollees at least 30 days 
before the intended effective date of the changes.
    (e) Changes to provider network. The MA organization must make a 
good faith effort to provide written notice of a termination of a 
contracted provider at least 30 calendar days before the termination 
effective date to all enrollees who are patients seen on a regular basis 
by the provider whose contract is terminating, irrespective of whether 
the termination was for cause or without cause. When a contract 
termination involves a primary care professional, all enrollees who are 
patients of that primary care professional must be notified.
    (f) Disclosable information--(1) Benefits under original Medicare. 
(i) Covered services.
    (ii) Beneficiary cost-sharing, such as deductibles, coinsurance, and 
copayment amounts.
    (iii) Any beneficiary liability for balance billing.
    (2) Enrollment procedures. Information and instructions on how to 
exercise election options under this subpart.
    (3) Rights. A general description of procedural rights (including 
grievance and appeals procedures) under original Medicare and the MA 
program and the right to be protected against discrimination based on 
factors related to health status in accordance with Sec. 422.110.
    (4) Potential for contract termination. The fact that an MA 
organization may terminate or refuse to renew its contract, or reduce 
the service area included in its contract, and the effect that any of 
those actions may have on individuals enrolled in that organization's MA 
plan.
    (5) Benefits. (i) Covered services beyond those provided under 
original Medicare.
    (ii) Any beneficiary cost-sharing.
    (iii) Any maximum limitations on out-of-pocket expenses.
    (iv) In the case of an MA MSA plan, the amount of the annual MSA 
deposit.
    (v) The extent to which an enrollee may obtain benefits through out-
of-network health care providers.
    (vi) The types of providers that participate in the plan's network 
and the extent to which an enrollee may select among those providers.
    (vii) The coverage of emergency and urgently needed services.
    (6) Premiums. (i) The MA monthly basic beneficiary premiums.

[[Page 259]]

    (ii) The MA monthly supplemental beneficiary premium.
    (iii) The reduction in Part B premiums, if any.
    (7) The plan's service area.
    (8) Quality and performance indicators for benefits under a plan to 
the extent they are available as follows (and how they compare with 
indicators under original Medicare):
    (i) Disenrollment rates for Medicare enrollees for the 2 previous 
years, excluding disenrollment due to death or moving outside the plan's 
service area, calculated according to CMS guidelines.
    (ii) Medicare enrollee satisfaction.
    (iii) Health outcomes.
    (iv) Plan-level appeal data.
    (v) The recent record of plan compliance with the requirements of 
this part, as determined by the Secretary.
    (vi) Other performance indicators.
    (9) Supplemental benefits. Whether the plan offers mandatory and 
optional supplemental benefits, including any reductions in cost sharing 
offered as a mandatory supplemental benefit as permitted under section 
1852(a)(3) of the Act (and implementing regulations at Sec. 422.102) 
and the terms, conditions, and premiums for those benefits.
    (10) The names, addresses, and phone numbers of contracted providers 
from whom the enrollee may obtain in-network coverage in other parts of 
the service area.
    (11) If an MA organization exercises the option in Sec. 
422.101(b)(3) or (b)(4) related to an MA plan, then it must make the 
local coverage determination that applies to members of that plan 
readily available to providers, including through a web site on the 
Internet.
    (12) To the extent an MA organization has a web site or provides MA 
plan information through the Internet, then it must also post copies of 
its Evidence of Coverage, Summary of Benefits and information (names, 
addresses, phone numbers, specialty) on the network of contracted 
providers on an Internet web site. Such posting does not relieve the MA 
organization of its responsibility under Sec. 422.111(a) to provide 
hard copies to enrollees.

[63 FR 35077, June 26, 1998, as amended at 64 FR 7980, Feb. 17, 1999; 65 
FR 40321, June 29, 2000; 68 FR 50857, Aug. 22, 2003; 70 FR 4722, Jan. 
28, 2005; 70 FR 52026, Sept. 1, 2005]



Sec. 422.112  Access to services.

    (a) Rules for coordinated care plans. An MA organization that offers 
an MA coordinated care plan may specify the networks of providers from 
whom enrollees may obtain services if the MA organization ensures that 
all covered services, including supplemental services contracted for by 
(or on behalf of) the Medicare enrollee, are available and accessible 
under the plan. To accomplish this, the MA organization must meet the 
following requirements:
    (1) Provider network. (i) Maintain and monitor a network of 
appropriate providers that is supported by written agreements and is 
sufficient to provide adequate access to covered services to meet the 
needs of the population served. These providers are typically used in 
the network as primary care providers (PCPs), specialists, hospitals, 
skilled nursing facilities, home health agencies, ambulatory clinics, 
and other providers.
    (ii) Exception: MA regional plans, upon CMS pre-approval, can use 
methods other than written agreements to establish that access 
requirements are met.
    (2) PCP panel. Establish a panel of PCPs from which the enrollee may 
select a PCP. If an MA organization requires its enrollees to obtain a 
referral in most situations before receiving services from a specialist, 
the MA organization must either assign a PCP for purposes of making the 
needed referral or make other arrangements to ensure access to medically 
necessary specialty care.
    (3) Specialty care. Provide or arrange for necessary specialty care, 
and in particular give women enrollees the option of direct access to a 
women's health specialist within the network for women's routine and 
preventive health care services provided as basic benefits (as defined 
in Sec. 422.2). The MA organization arranges for specialty

[[Page 260]]

care outside of the plan provider network when network providers are 
unavailable or inadequate to meet an enrollee's medical needs.
    (4) Service area expansion. If seeking a service area expansion for 
an MA plan, demonstrate that the number and type of providers available 
to plan enrollees are sufficient to meet projected needs of the 
population to be served.
    (5) Credentialed providers. Demonstrate to CMS that its providers in 
an MA plan are credentialed through the process set forth at Sec. 
422.204(a).
    (6) Written standards. Establish written standards for the 
following:
    (i) Timeliness of access to care and member services that meet or 
exceed standards established by CMS. Timely access to care and member 
services within a plan's provider network must be continuously monitored 
to ensure compliance with these standards, and the MA organization must 
take corrective action as necessary.
    (ii) Policies and procedures (coverage rules, practice guidelines, 
payment policies, and utilization management) that allow for individual 
medical necessity determinations.
    (iii) Provider consideration of beneficiary input into the 
provider's proposed treatment plan.
    (7) Hours of operation. Ensure that--
    (i) The hours of operation of its MA plan providers are convenient 
to the population served under the plan and do not discriminate against 
Medicare enrollees; and
    (ii) Plan services are available 24 hours a day, 7 days a week, when 
medically necessary.
    (8) Cultural considerations. Ensure that services are provided in a 
culturally competent manner to all enrollees, including those with 
limited English proficiency or reading skills, and diverse cultural and 
ethnic backgrounds.
    (9) Ambulance services, emergency and urgently needed services, and 
post-stabilization care services coverage. Provide coverage for 
ambulance services, emergency and urgently needed services, and post-
stabilization care services in accordance with Sec. 422.113.
    (b) Continuity of care. MA organizations offering coordinated care 
plans must ensure continuity of care and integration of services through 
arrangements with contracted providers that include--
    (1) Policies that specify under what circumstances services are 
coordinated and the methods for coordination;
    (2) Offering to provide each enrollee with an ongoing source of 
primary care and providing a primary care source to each enrollee who 
accepts the offer;
    (3) Programs for coordination of plan services with community and 
social services generally available through contracting or 
noncontracting providers in the area served by the MA plan, including 
nursing home and community-based services; and
    (4) Procedures to ensure that the MA organization and its provider 
network have the information required for effective and continuous 
patient care and quality review, including procedures to ensure that--
    (i) The MA organization makes a ``best-effort'' attempt to conduct 
an initial assessment of each enrollee's health care needs, including 
following up on unsuccessful attempts to contact an enrollee, within 90 
days of the effective date of enrollment;
    (ii) Each provider, supplier, and practitioner furnishing services 
to enrollees maintains an enrollee health record in accordance with 
standards established by the MA organization, taking into account 
professional standards; and
    (iii) There is appropriate and confidential exchange of information 
among provider network components.
    (5) Procedures to ensure that enrollees are informed of specific 
health care needs that require follow-up and receive, as appropriate, 
training in self-care and other measures they may take to promote their 
own health; and
    (6) Systems to address barriers to enrollee compliance with 
prescribed treatments or regimens.
    (c) Essential hospital. An MA regional plan may seek, upon 
application to CMS, to designate a noncontracting hospital as an 
essential hospital as defined in section 1858(h) of the Act under the 
following conditions:
    (1) The hospital that the MA regional plan seeks to designate as 
essential is a general acute care hospital identified

[[Page 261]]

as a ``subsection(d)'' hospital as defined in section 1886(d)(1)(B) of 
the Act.
    (2) The MA regional plan provides convincing evidence to CMS that 
the MA regional plan needs to contract with the hospital as a condition 
of meeting access requirements under this section.
    (3) The MA regional plan must establish that it made a ``good 
faith'' effort to contract with the hospital to be designated as an 
essential hospital and that the hospital refused to contract with it 
despite its ``good faith'' effort. A ``good faith'' effort to contract 
will be established to the extent that the MA regional plan can show it 
has offered the hospital a contract providing for the payment of rates 
in an amount no less than the amount the hospital would have received 
had payment been made under section 1886(d) of the Act.
    (4) The MA regional plan must establish that there are no competing 
Medicare participating hospitals in the area to which MA regional plan 
enrollees could reasonably be referred for inpatient hospital services.
    (5) The hospital that is an essential hospital under this paragraph 
provides convincing evidence to CMS that the amounts normally payable 
under section 1886 of the Act (and which the MA regional plan has agreed 
to pay) will be less than the hospital's actual costs of providing care 
to the MA regional plan's enrollee.
    (6) If CMS determines the requirements in paragraphs (c)(1) through 
(c)(5) of this section have been met, it will make payment to the 
essential hospital in accordance with section 1858(h)(2) of the Act 
based on the order in which claims are received, as limited by the 
amounts specified in section 1858(h)(3) of the Act.
    (7) If CMS determines the requirements in paragraphs (c)(1) through 
(c)(4) of this section have been met, (and if they continue to be met 
upon annual renewal of the CMS contract with the MA organization 
offering the MA regional plan), then the hospital designated by the MA 
regional plan in paragraph (c)(1) of this section shall be ``deemed'' to 
be a network hospital to that MA regional plan based on the exception in 
paragraph (a)(1)(ii) of this section and normal in-network inpatient 
hospital cost sharing levels (including the catastrophic limit described 
in Sec. 422.101(d)(2)) shall apply to all plan members accessing 
covered inpatient hospital services in that hospital.

[64 FR 7980, Feb. 17, 1999, as amended at 65 FR 40321, June 29, 2000; 70 
FR 4722, Jan. 28, 2005; 70 FR 76197, Dec. 23, 2005]



Sec. 422.113  Special rules for ambulance services, emergency and urgently needed services, and maintenance and post-stabilization care services.

    (a) Ambulance services. The MA organization is financially 
responsible for ambulance services, including ambulance services 
dispatched through 911 or its local equivalent, where other means of 
transportation would endanger the beneficiary's health.
    (b) Emergency and urgently needed services--(1) Definitions. (i) 
Emergency medical condition means a medical condition manifesting itself 
by acute symptoms of sufficient severity (including severe pain) such 
that a prudent layperson, with an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in--
    (A) Serious jeopardy to the health of the individual or, in the case 
of a pregnant woman, the health of the woman or her unborn child;
    (B) Serious impairment to bodily functions; or
    (C) Serious dysfunction of any bodily organ or part.
    (ii) Emergency services means covered inpatient and outpatient 
services that are--
    (A) Furnished by a provider qualified to furnish emergency services; 
and
    (B) Needed to evaluate or stabilize an emergency medical condition.
    (iii) Urgently needed services means covered services that are not 
emergency services as defined this section, provided when an enrollee is 
temporarily absent from the MA plan's service (or, if applicable, 
continuation) area (or, under unusual and extraordinary circumstances, 
provided when the enrollee is in the service or continuation area but 
the organization's provider network is temporarily unavailable or 
inaccessible) when the

[[Page 262]]

services are medically necessary and immediately required--
    (A) As a result of an unforeseen illness, injury, or condition; and
    (B) It was not reasonable given the circumstances to obtain the 
services through the organization offering the MA plan.
    (2) MA organization financial responsibility. The MA organization is 
financially responsible for emergency and urgently needed services--
    (i) Regardless of whether the services are obtained within or 
outside the MA organization;
    (ii) Regardless of whether there is prior authorization for the 
services.
    (A) Instructions to seek prior authorization for emergency or 
urgently needed services may not be included in any materials furnished 
to enrollees (including wallet card instructions), and enrollees must be 
informed of their right to call 911.
    (B) Instruction to seek prior authorization before the enrollee has 
been stabilized may not be included in any materials furnished to 
providers (including contracts with providers);
    (iii) In accordance with the prudent layperson definition of 
emergency medical condition regardless of final diagnosis;
    (iv) For which a plan provider or other MA organization 
representative instructs an enrollee to seek emergency services within 
or outside the plan; and
    (v) With a limit on charges to enrollees for emergency department 
services of $50 or what it would charge the enrollee if he or she 
obtained the services through the MA organization, whichever is less.
    (3) Stabilized condition. The physician treating the enrollee must 
decide when the enrollee may be considered stabilized for transfer or 
discharge, and that decision is binding on the MA organization.
    (c) Maintenance care and post-stabilization care services (hereafter 
together referred to as ``post-stabilization care services'').
    (1) Definition. Post-stabilization care services means covered 
services, related to an emergency medical condition, that are provided 
after an enrollee is stabilized in order to maintain the stabilized 
condition, or, under the circumstances described in paragraph 
(c)(2)(iii) of this section, to improve or resolve the enrollee's 
condition.
    (2) MA organization financial responsibility. The MA organization--
    (i) Is financially responsible (consistent with Sec. 422.214) for 
post-stabilization care services obtained within or outside the MA 
organization that are pre-approved by a plan provider or other MA 
organization representative;
    (ii) Is financially responsible for post-stabilization care services 
obtained within or outside the MA organization that are not pre-approved 
by a plan provider or other MA organization representative, but 
administered to maintain the enrollee's stabilized condition within 1 
hour of a request to the MA organization for pre-approval of further 
post-stabilization care services;
    (iii) Is financially responsible for post-stabilization care 
services obtained within or outside the MA organization that are not 
pre-approved by a plan provider or other MA organization representative, 
but administered to maintain, improve, or resolve the enrollee's 
stabilized condition if--
    (A) The MA organization does not respond to a request for pre-
approval within 1 hour;
    (B) The MA organization cannot be contacted; or
    (C) The MA organization representative and the treating physician 
cannot reach an agreement concerning the enrollee's care and a plan 
physician is not available for consultation. In this situation, the MA 
organization must give the treating physician the opportunity to consult 
with a plan physician and the treating physician may continue with care 
of the patient until a plan physician is reached or one of the criteria 
in Sec. 422.113(c)(3) is met; and
    (iv) Must limit charges to enrollees for post-stabilization care 
services to an amount no greater than what the organization would charge 
the enrollee if he or she had obtained the services through the MA 
organization. For purposes of cost sharing, post-stabilization care 
services begin upon inpatient admission.

[[Page 263]]

    (3) End of MA organization's financial responsibility. The MA 
organization's financial responsibility for post-stabilization care 
services it has not pre-approved ends when--
    (i) A plan physician with privileges at the treating hospital 
assumes responsibility for the enrollee's care;
    (ii) A plan physician assumes responsibility for the enrollee's care 
through transfer;
    (iii) An MA organization representative and the treating physician 
reach an agreement concerning the enrollee's care; or
    (iv) The enrollee is discharged.

[65 FR 40322, June 29, 2000, as amended at 70 FR 4723, Jan. 28, 2005]



Sec. 422.114  Access to services under an MA private fee-for-service plan.

    (a) Sufficient access. (1) An MA organization that offers an MA 
private fee-for-service plan must demonstrate to CMS that it has 
sufficient number and range of providers willing to furnish services 
under the plan.
    (2) CMS finds that an MA organization meets the requirement in 
paragraph (a)(1) of this section if, with respect to a particular 
category of health care providers, the MA organization has--
    (i) Payment rates that are not less than the rates that apply under 
original Medicare for the provider in question;
    (ii) Contracts or agreements with a sufficient number and range of 
providers to furnish the services covered under the MA private fee-for-
service plan; or
    (iii) A combination of paragraphs (a)(2)(i) and (a)(2)(ii) of this 
section.
    (b) Freedom of choice. MA fee-for-service plans must permit 
enrollees to obtain services from any entity that is authorized to 
provide services under Medicare Part A and Part B and agrees to provide 
services under the terms of the plan.
    (c) Contracted network. Private fee-for-service plans that meet 
network adequacy requirements for a category of health care professional 
or provider by meeting the requirements in paragraph (a)(2)(ii) of this 
section may provide for a higher beneficiary copayment in the case of 
health care professionals or providers of that same category who do not 
have contracts or agreements to provide covered services under the terms 
of the plan.

[63 FR 35077, June 26, 1998, as amended at 70 FR 4723, Jan. 28, 2005]



Sec. 422.118  Confidentiality and accuracy of enrollee records.

    For any medical records or other health and enrollment information 
it maintains with respect to enrollees, an MA organization must 
establish procedures to do the following:
    (a) Abide by all Federal and State laws regarding confidentiality 
and disclosure of medical records, or other health and enrollment 
information. The MA organization must safeguard the privacy of any 
information that identifies a particular enrollee and have procedures 
that specify--
    (1) For what purposes the information will be used within the 
organization; and
    (2) To whom and for what purposes it will disclose the information 
outside the organization.
    (b) Ensure that medical information is released only in accordance 
with applicable Federal or State law, or pursuant to court orders or 
subpoenas.
    (c) Maintain the records and information in an accurate and timely 
manner.
    (d) Ensure timely access by enrollees to the records and information 
that pertain to them.

[65 FR 40323, June 29, 2000]



Sec. 422.128  Information on advance directives.

    (a) Each MA organization must maintain written policies and 
procedures that meet the requirements for advance directives, as set 
forth in subpart I of part 489 of this chapter. For purposes of this 
part, advance directive has the meaning given the term in Sec. 489.100 
of this chapter.
    (b) An MA organization must maintain written policies and procedures 
concerning advance directives with respect to all adult individuals 
receiving medical care by or through the MA organization.
    (1) An MA organization must provide written information to those 
individuals with respect to the following:

[[Page 264]]

    (i) Their rights under the law of the State in which the 
organization furnishes services (whether statutory or recognized by the 
courts of the State) to make decisions concerning their medical care, 
including the right to accept or refuse medical or surgical treatment 
and the right to formulate advance directives. Providers may contract 
with other entities to furnish this information but remain legally 
responsible for ensuring that the requirements of this section are met. 
The information must reflect changes in State law as soon as possible, 
but no later than 90 days after the effective date of the State law.
    (ii) The MA organization's written policies respecting the 
implementation of those rights, including a clear and precise statement 
of limitation if the MA organization cannot implement an advance 
directive as a matter of conscience. At a minimum, this statement must 
do the following:
    (A) Clarify any differences between institution-wide conscientious 
objections and those that may be raised by individual physicians.
    (B) Identify the state legal authority permitting such objection.
    (C) Describe the range of medical conditions or procedures affected 
by the conscience objection.
    (D) Provide the information specified in paragraph (a)(1) of this 
section to each enrollee at the time of initial enrollment. If an 
enrollee is incapacitated at the time of initial enrollment and is 
unable to receive information (due to the incapacitating condition or a 
mental disorder) or articulate whether or not he or she has executed an 
advance directive, the MA organization may give advance directive 
information to the enrollee's family or surrogate in the same manner 
that it issues other materials about policies and procedures to the 
family of the incapacitated enrollee or to a surrogate or other 
concerned persons in accordance with State law. The MA organization is 
not relieved of its obligation to provide this information to the 
enrollee once he or she is no longer incapacitated or unable to receive 
such information. Follow-up procedures must be in place to ensure that 
the information is given to the individual directly at the appropriate 
time.
    (E) Document in a prominent part of the individual's current medical 
record whether or not the individual has executed an advance directive.
    (F) Not condition the provision of care or otherwise discriminate 
against an individual based on whether or not the individual has 
executed an advance directive.
    (G) Ensure compliance with requirements of State law (whether 
statutory or recognized by the courts of the State) regarding advance 
directives.
    (H) Provide for education of staff concerning its policies and 
procedures on advance directives.
    (I) Provide for community education regarding advance directives 
that may include material required in paragraph (a)(1)(i) of this 
section, either directly or in concert with other providers or entities. 
Separate community education materials may be developed and used, at the 
discretion of the MA organization. The same written materials are not 
required for all settings, but the material should define what 
constitutes an advance directive, emphasizing that an advance directive 
is designed to enhance an incapacitated individual's control over 
medical treatment, and describe applicable State law concerning advance 
directives. An MA organization must be able to document its community 
education efforts.
    (2) The MA organization--
    (i) Is not required to provide care that conflicts with an advance 
directive; and
    (ii) Is not required to implement an advance directive if, as a 
matter of conscience, the MA organization cannot implement an advance 
directive and State law allows any health care provider or any agent of 
the provider to conscientiously object.
    (3) The MA organization must inform individuals that complaints 
concerning noncompliance with the advance directive requirements may be 
filed with the State survey and certification agency.

[[Page 265]]



Sec. 422.132  Protection against liability and loss of benefits.

    Enrollees of MA organizations are entitled to the protections 
specified in Sec. 422.504(g).

[63 FR 35077, June 26, 1998, as amended at 70 FR 52026, Sept. 1, 2005



Sec. 422.133  Return to home skilled nursing facility.

    (a) General rule. MA plans must provide coverage of posthospital 
extended care services to Medicare enrollees through a home skilled 
nursing facility if the enrollee elects to receive the coverage through 
the home skilled nursing facility, and if the home skilled nursing 
facility either has a contract with the MA organization or agrees to 
accept substantially similar payment under the same terms and conditions 
that apply to similar skilled nursing facilities that contract with the 
MA organization.
    (b) Definitions. In this subpart, home skilled nursing facility 
means--
    (1) The skilled nursing facility in which the enrollee resided at 
the time of admission to the hospital preceding the receipt of 
posthospital extended care services;
    (2) A skilled nursing facility that is providing posthospital 
extended care services through a continuing care retirement community in 
which the MA plan enrollee was a resident at the time of admission to 
the hospital. A continuing care retirement community is an arrangement 
under which housing and health-related services are provided (or 
arranged) through an organization for the enrollee under an agreement 
that is effective for the life of the enrollee or for a specified 
period; or
    (3) The skilled nursing facility in which the spouse of the enrollee 
is residing at the time of discharge from the hospital.
    (4) If an MA organization elects to furnish SNF care in the absence 
of a prior qualifying hospital stay under Sec. 422.101(c), then that 
SNF care is also subject to the home skilled nursing facility rules in 
this section. In applying the provisions of this section to coverage 
under this paragraph, references to a hospitalization, or discharge from 
a hospital, are deemed to refer to wherever the enrollee resides 
immediately before admission for extended care services.
    (c) Coverage no less favorable. The posthospital extended care scope 
of services, cost-sharing, and access to coverage provided by the home 
skilled nursing facility must be no less favorable to the enrollee than 
posthospital extended care services coverage that would be provided to 
the enrollee by a skilled nursing facility that would be otherwise 
covered under the MA plan.
    (d) Exceptions. The requirement to allow an MA plan enrollee to 
elect to return to the home skilled nursing facility for posthospital 
extended care services after discharge from the hospital does not do the 
following:
    (1) Require coverage through a skilled nursing facility that is not 
otherwise qualified to provide benefits under Part A for Medicare 
beneficiaries not enrolled in the MA plan.
    (2) Prevent a skilled nursing facility from refusing to accept, or 
imposing conditions on the acceptance of, an enrollee for the receipt of 
posthospital extended care services.

[68 FR 50857, Aug. 22, 2003, as amended at 70 FR 4723, Jan. 28, 2005]



                      Subpart D_Quality Improvement

    Source: 63 FR 35082, June 26, 1998, unless otherwise noted.



Sec. 422.152  Quality improvement program.

    (a) General rule. Each MA organization (other than MA private-fee-
for-service and MSA plans) that offers one or more MA plans must have, 
for each of those plans, an ongoing quality improvement program that 
meets the applicable requirements of this section for the services it 
furnishes to its MA enrollees. As part of its ongoing quality 
improvement program, a plan must--
    (1) Have a chronic care improvement program that meets the 
requirements of paragraph (c) of this section concerning elements of a 
chronic care program;
    (2) Conduct quality improvement projects that can be expected to 
have a favorable effect on health outcomes and enrollee satisfaction, 
and meet the

[[Page 266]]

requirements of paragraph (d) of this section; and
    (3) Encourage its providers to participate in CMS and HHS quality 
improvement initiatives.
    (b) Requirements for MA coordinated care plans (except for regional 
MA plans) and including local PPO plans that are offered by 
organizations that are licensed or organized under State law as HMOs. An 
MA coordinated care plan's (except for regional PPO plans and local PPO 
plans as defined in paragraph (e) of this section) quality improvement 
program must--
    (1) In processing requests for initial or continued authorization of 
services, follow written policies and procedures that reflect current 
standards of medical practice.
    (2) Have in effect mechanisms to detect both underutilization and 
overutilization of services.
    (3) Measure and report performance. The organization offering the 
plan must do the following:
    (i) Measure performance under the plan, using the measurement tools 
required by CMS, and report its performance to CMS. The standard 
measures may be specified in uniform data collection and reporting 
instruments required by CMS.
    (ii) Make available to CMS information on quality and outcomes 
measures that will enable beneficiaries to compare health coverage 
options and select among them, as provided in Sec. 422.64.
    (4) Special rule for MA local PPO-type plans that are offered by an 
organization that is licensed or organized under State law as a health 
maintenance organization must meet the requirements specified in 
paragraphs (b)(1) through (b)(3) of this section.
    (c) Chronic care improvement program requirements. Develop criteria 
for a chronic care improvement program. These criteria must include--
    (1) Methods for identifying MA enrollees with multiple or 
sufficiently severe chronic conditions that would benefit from 
participating in a chronic care improvement program; and
    (2) Mechanisms for monitoring MA enrollees that are participating in 
the chronic care improvement program.
    (d) Quality improvement projects. (1) Quality improvement projects 
are an organization's initiatives that focus on specified clinical and 
nonclinical areas and that involve the following:
    (i) Measurement of performance.
    (ii) System interventions, including the establishment or alteration 
of practice guidelines.
    (iii) Improving performance.
    (iv) Systematic and periodic follow-up on the effect of the 
interventions.
    (2) For each project, the organization must assess performance under 
the plan using quality indicators that are--
    (i) Objective, clearly and unambiguously defined, and based on 
current clinical knowledge or health services research; and
    (ii) Capable of measuring outcomes such as changes in health status, 
functional status and enrollee satisfaction, or valid proxies of those 
outcomes.
    (3) Performance assessment on the selected indicators must be based 
on systematic ongoing collection and analysis of valid and reliable 
data.
    (4) Interventions must achieve demonstrable improvement.
    (5) The organization must report the status and results of each 
project to CMS as requested.
    (e) Requirements for MA regional plans and MA local plans that are 
PPO plans as defined in this section--(1) Definition of local preferred 
provider organization plan. For purposes of this section, the term local 
preferred provider organization (PPO) plan means an MA plan that--
    (i) Has a network of providers that have agreed to a contractually 
specified reimbursement for covered benefits with the organization 
offering the plan;
    (ii) Provides for reimbursement for all covered benefits regardless 
of whether the benefits are provided within the network of providers; 
and
    (iii) Is offered by an organization that is not licensed or 
organized under State law as a health maintenance organization.
    (2) MA organizations offering an MA regional plan or local PPO plan 
as defined in this section must:
    (i) Measure performance under the plan using standard measures 
required by CMS and report its performance to CMS. The standard measures 
may be specified in uniform data collection

[[Page 267]]

and reporting instruments required by CMS.
    (ii) Evaluate the continuity and coordination of care furnished to 
enrollees.
    (iii) If the organization uses written protocols for utilization 
review, the organization must--
    (A) Base those protocols on current standards of medical practice; 
and
    (B) Have mechanisms to evaluate utilization of services and to 
inform enrollees and providers of services of the results of the 
evaluation.
    (f) Requirements for all types of plans--(1) Health information. For 
all types of plans that it offers, an organization must--
    (i) Maintain a health information system that collects, analyzes, 
and integrates the data necessary to implement its quality improvement 
program;
    (ii) Ensure that the information it receives from providers of 
services is reliable and complete; and
    (iii) Make all collected information available to CMS.
    (2) Program review. For each plan, there must be in effect a process 
for formal evaluation, at least annually, of the impact and 
effectiveness of its quality improvement program.
    (3) Remedial action. For each plan, the organization must correct 
all problems that come to its attention through internal surveillance, 
complaints, or other mechanisms.

[70 FR 4723, Jan. 28, 2005, as amended at 70 FR 52026, Sept. 1, 2005]



Sec. 422.156  Compliance deemed on the basis of accreditation.

    (a) General rule. An MA organization is deemed to meet all of the 
requirements of any of the areas described in paragraph (b) of this 
section if--
    (1) The MA organization is fully accredited (and periodically 
reaccredited) for the standards related to the applicable area under 
paragraph (b) of this section by a private, national accreditation 
organization approved by CMS; and
    (2) The accreditation organization used the standards approved by 
CMS for the purposes of assessing the MA organization's compliance with 
Medicare requirements.
    (b) Deemable requirements. The requirements relating to the 
following areas are deemable:
    (1) Quality improvement.
    (2) Antidiscrimination.
    (3) Access to services.
    (4) Confidentiality and accuracy of enrollee records.
    (5) Information on advance directives.
    (6) Provider participation rules.
    (7) Part D prescription drug benefit programs that are offered by MA 
programs.
    (c) Effective date of deemed status. The date on which the 
organization is deemed to meet the applicable requirements is the later 
of the following:
    (1) The date on which the accreditation organization is approved by 
CMS.
    (2) The date the MA organization is accredited by the accreditation 
organization.
    (d) Obligations of deemed MA organizations. An MA organization 
deemed to meet Medicare requirements must--
    (1) Submit to surveys by CMS to validate its accreditation 
organization's accreditation process; and
    (2) Authorize its accreditation organization to release to CMS a 
copy of its most recent accreditation survey, together with any survey-
related information that CMS may require (including corrective action 
plans and summaries of unmet CMS requirements).
    (e) Removal of deemed status. CMS removes part or all of an MA 
organization's deemed status for any of the following reasons:
    (1) CMS determines, on the basis of its own investigation, that the 
MA organization does not meet the Medicare requirements for which deemed 
status was granted.
    (2) CMS withdraws its approval of the accreditation organization 
that accredited the MA organization.
    (3) The MA organization fails to meet the requirements of paragraph 
(d) of this section.
    (f) Enforcement authority. CMS retains the authority to initiate 
enforcement action against any MA organization that it determines, on 
the basis of its own survey or the results of an accreditation survey, 
no longer meets the

[[Page 268]]

Medicare requirements for which deemed status was granted.

[63 FR 35082, June 26, 1998, as amended at 65 FR 40323, June 29, 2000; 
65 FR 59749, Oct. 6, 2000; 70 FR 4724, Jan. 28, 2005]



Sec. 422.157  Accreditation organizations.

    (a) Conditions for approval. CMS may approve an accreditation 
organization with respect to a given standard under this part if it 
meets the following conditions:
    (1) In accrediting MA organizations, it applies and enforces 
standards that are at least as stringent as Medicare requirements with 
respect to the standard or standards in question.
    (2) It complies with the application and reapplication procedures 
set forth in Sec. 422.158.
    (3) It ensures that:
    (i) Any individual associated with it, who is also associated with 
an entity it accredits, does not influence the accreditation decision 
concerning that entity.
    (ii) The majority of the membership of its governing body is not 
comprised of managed care organizations or their representatives.
    (iii) Its governing body has a broad and balanced representation of 
interests and acts without bias.
    (b) Notice and comment--(1) Proposed notice. CMS publishes a notice 
in the Federal Register whenever it is considering granting an 
accreditation organization's application for approval. The notice--
    (i) Announces CMS's receipt of the accreditation organization's 
application for approval;
    (ii) Describes the criteria CMS will use in evaluating the 
application; and
    (iii) Provides at least a 30-day comment period.
    (2) Final notice. (i) After reviewing public comments, CMS publishes 
a final Federal Register notice indicating whether it has granted the 
accreditation organization's request for approval.
    (ii) If CMS grants the request, the final notice specifies the 
effective date and the term of the approval, which may not exceed 6 
years.
    (c) Ongoing responsibilities of an approved accreditation 
organization. An accreditation organization approved by CMS must 
undertake the following activities on an ongoing basis:
    (1) Provide to CMS in written form and on a monthly basis all of the 
following:
    (i) Copies of all accreditation surveys, together with any survey-
related information that CMS may require (including corrective action 
plans and summaries of unmet CMS requirements).
    (ii) Notice of all accreditation decisions.
    (iii) Notice of all complaints related to deemed MA organizations.
    (iv) Information about any MA organization against which the 
accrediting organization has taken remedial or adverse action, including 
revocation, withdrawal or revision of the MA organization's 
accreditation. (The accreditation organization must provide this 
information within 30 days of taking the remedial or adverse action.)
    (v) Notice of any proposed changes in its accreditation standards or 
requirements or survey process. If the organization implements the 
changes before or without CMS approval, CMS may withdraw its approval of 
the accreditation organization.
    (2) Within 30 days of a change in CMS requirements, submit to CMS--
    (i) An acknowledgment of CMS's notification of the change;
    (ii) A revised cross-walk reflecting the new requirements; and
    (iii) An explanation of how the accreditation organization plans to 
alter its standards to conform to CMS's new requirements, within the 
time-frames specified in the notification of change it receives from 
CMS.
    (3) Permit its surveyors to serve as witnesses if CMS takes an 
adverse action based on accreditation findings.
    (4) Within 3 days of identifying, in an accredited MA organization, 
a deficiency that poses immediate jeopardy to the organization's 
enrollees or to the general public, give CMS written notice of the 
deficiency.
    (5) Within 10 days of CMS's notice of withdrawal of approval, give 
written notice of the withdrawal to all accredited MA organizations.
    (6) Provide, on an annual basis, summary data specified by CMS that 
relate

[[Page 269]]

to the past year's accreditation activities and trends.
    (d) Continuing Federal oversight of approved accreditation 
organizations. This paragraph establishes specific criteria and 
procedures for continuing oversight and for withdrawing approval of an 
accreditation organization.
    (1) Equivalency review. CMS compares the accreditation 
organization's standards and its application and enforcement of those 
standards to the comparable CMS requirements and processes when--
    (i) CMS imposes new requirements or changes its survey process;
    (ii) An accreditation organization proposes to adopt new standards 
or changes in its survey process; or
    (iii) The term of an accreditation organization's approval expires.
    (2) Validation review. CMS or its agent may conduct a survey of an 
accredited organization, examine the results of the accreditation 
organization's own survey, or attend the accreditation organization's 
survey, in order to validate the organization's accreditation process. 
At the conclusion of the review, CMS identifies any accreditation 
programs for which validation survey results--
    (i) Indicate a 20 percent rate of disparity between certification by 
the accreditation organization and certification by CMS or its agent on 
standards that do not constitute immediate jeopardy to patient health 
and safety if unmet;
    (ii) Indicate any disparity between certification by the 
accreditation organization and certification by CMS or its agent on 
standards that constitute immediate jeopardy to patient health and 
safety if unmet; or
    (iii) Indicate that, irrespective of the rate of disparity, there 
are widespread or systematic problems in an organization's accreditation 
process such that accreditation no longer provides assurance that the 
Medicare requirements are met or exceeded.
    (3) Onsite observation. CMS may conduct an onsite inspection of the 
accreditation organization's operations and offices to verify the 
organization's representations and assess the organization's compliance 
with its own policies and procedures. The onsite inspection may include, 
but is not limited to, reviewing documents, auditing meetings concerning 
the accreditation process, evaluating survey results or the 
accreditation status decision making process, and interviewing the 
organization's staff.
    (4) Notice of intent to withdraw approval. If an equivalency review, 
validation review, onsite observation, or CMS's daily experience with 
the accreditation organization suggests that the accreditation 
organization is not meeting the requirements of this subpart, CMS gives 
the organization written notice of its intent to withdraw approval.
    (5) Withdrawal of approval. CMS may withdraw its approval of an 
accreditation organization at any time if CMS determines that--
    (i) Deeming based on accreditation no longer guarantees that the MA 
organization meets the MA requirements, and failure to meet those 
requirements could jeopardize the health or safety of Medicare enrollees 
and constitute a significant hazard to the public health; or
    (ii) The accreditation organization has failed to meet its 
obligations under this section or under Sec. 422.156 or Sec. 422.158.
    (6) Reconsideration of withdrawal of approval. An accreditation 
organization dissatisfied with a determination to withdraw CMS approval 
may request a reconsideration of that determination in accordance with 
subpart D of part 488 of this chapter.

[63 FR 35082, June 26, 1998, as amended at 65 FR 40323, June 29, 2000; 
65 FR 59749, Oct. 6, 2000]



Sec. 422.158  Procedures for approval of accreditation as a basis for deeming compliance.

    (a) Required information and materials. A private, national 
accreditation organization applying for approval must furnish to CMS all 
of the following information and materials. (When reapplying for 
approval, the organization need furnish only the particular information 
and materials requested by CMS.)
    (1) The types of MA plans that it would review as part of its 
accreditation process.

[[Page 270]]

    (2) A detailed comparison of the organization's accreditation 
requirements and standards with the Medicare requirements (for example, 
a crosswalk).
    (3) Detailed information about the organization's survey process, 
including--
    (i) Frequency of surveys and whether surveys are announced or 
unannounced.
    (ii) Copies of survey forms, and guidelines and instructions to 
surveyors.
    (iii) Descriptions of--
    (A) The survey review process and the accreditation status decision 
making process;
    (B) The procedures used to notify accredited MA organizations of 
deficiencies and to monitor the correction of those deficiencies; and
    (C) The procedures used to enforce compliance with accreditation 
requirements.
    (4) Detailed information about the individuals who perform surveys 
for the accreditation organization, including--
    (i) The size and composition of accreditation survey teams for each 
type of plan reviewed as part of the accreditation process;
    (ii) The education and experience requirements surveyors must meet;
    (iii) The content and frequency of the in-service training provided 
to survey personnel;
    (iv) The evaluation systems used to monitor the performance of 
individual surveyors and survey teams; and
    (v) The organization's policies and practice with respect to the 
participation, in surveys or in the accreditation decision process by an 
individual who is professionally or financially affiliated with the 
entity being surveyed.
    (5) A description of the organization's data management and analysis 
system with respect to its surveys and accreditation decisions, 
including the kinds of reports, tables, and other displays generated by 
that system.
    (6) A description of the organization's procedures for responding to 
and investigating complaints against accredited organizations, including 
policies and procedures regarding coordination of these activities with 
appropriate licensing bodies and ombudsmen programs.
    (7) A description of the organization's policies and procedures with 
respect to the withholding or removal of accreditation for failure to 
meet the accreditation organization's standards or requirements, and 
other actions the organization takes in response to noncompliance with 
its standards and requirements.
    (8) A description of all types (for example, full, partial) and 
categories (for example, provisional, conditional, temporary) of 
accreditation offered by the organization, the duration of each type and 
category of accreditation and a statement identifying the types and 
categories that would serve as a basis for accreditation if CMS approves 
the accreditation organization.
    (9) A list of all currently accredited MA organizations and the 
type, category, and expiration date of the accreditation held by each of 
them.
    (10) A list of all full and partial accreditation surveys scheduled 
to be performed by the accreditation organization as requested by CMS.
    (11) The name and address of each person with an ownership or 
control interest in the accreditation organization.
    (b) Required supporting documentation. A private, national 
accreditation organization applying or reapplying for approval must also 
submit the following supporting documentation:
    (1) A written presentation that demonstrates its ability to furnish 
CMS with electronic data in CMS compatible format.
    (2) A resource analysis that demonstrates that its staffing, 
funding, and other resources are adequate to perform the required 
surveys and related activities.
    (3) A statement acknowledging that, as a condition for approval, it 
agrees to comply with the ongoing responsibility requirements of Sec. 
422.157(c).
    (c) Additional information. If CMS determines that it needs 
additional information for a determination to grant or deny the 
accreditation organization's request for approval, it notifies the 
organization and allows time for the organization to provide the 
additional information.
    (d) Onsite visit. CMS may visit the accreditation organization's 
offices to

[[Page 271]]

verify representations made by the organization in its application, 
including, but not limited to, review of documents, and interviews with 
the organization's staff.
    (e) Notice of determination. CMS gives the accreditation 
organization, within 210 days of receipt of its completed application, a 
formal notice that--
    (1) States whether the request for approval has been granted or 
denied;
    (2) Gives the rationale for any denial; and
    (3) Describes the reconsideration and reapplication procedures.
    (f) Withdrawal. An accreditation organization may withdraw its 
application for approval at any time before it receives the formal 
notice specified in paragraph (e) of this section.
    (g) Reconsideration of adverse determination. An accreditation 
organization that has received notice of denial of its request for 
approval may request reconsideration in accordance with subpart D of 
part 488 of this chapter.
    (h) Request for approval following denial. (1) Except as provided in 
paragraph (h)(2) of this section, an accreditation organization that has 
received notice of denial of its request for approval may submit a new 
request if it--
    (i) Has revised its accreditation program to correct the 
deficiencies on which the denial was based;
    (ii) Can demonstrate that the MA organizations that it has 
accredited meet or exceed applicable Medicare requirements; and
    (iii) Resubmits the application in its entirety.
    (2) An accreditation organization that has requested reconsideration 
of CMS's denial of its request for approval may not submit a new request 
until the reconsideration is administratively final.

[63 FR 35082, June 26, 1998, as amended at 65 FR 40324, June 29, 2000]



                 Subpart E_Relationships With Providers

    Source: 63 FR 35085, June 26, 1998, unless otherwise noted.



Sec. 422.200  Basis and scope.

    This subpart is based on sections 1852(a)(1), (a)(2), (b)(2), 
(c)(2)(D), (j), and (k) of the Act; section 1859(b)(2)(A) of the Act; 
and the general authority under 1856(b) of the Act requiring the 
establishment of standards. It sets forth the requirements and standards 
for the MA organization's relationships with providers including 
physicians, other health care professionals, institutional providers and 
suppliers, under contracts or arrangements or deemed contracts under MA 
private fee-for-service plans. This subpart also contains some 
requirements that apply to noncontracting providers.



Sec. 422.202  Participation procedures.

    (a) Notice and appeal rights. An MA organization that operates a 
coordinated care plan or network MSA plan must provide for the 
participation of individual physicians, and the management and members 
of groups of physicians, through reasonable procedures that include the 
following:
    (1) Written notice of rules of participation including terms of 
payment, credentialing, and other rules directly related to 
participation decisions.
    (2) Written notice of material changes in participation rules before 
the changes are put into effect.
    (3) Written notice of participation decisions that are adverse to 
physicians.
    (4) A process for appealing adverse participation procedures, 
including the right of physicians to present information and their views 
on the decision. In the case of termination or suspension of a provider 
contract by the MA organization, this process must conform to the rules 
in Sec. 422.202(d).
    (b) Consultation. The MA organization must establish a formal 
mechanism to consult with the physicians who have agreed to provide 
services under the MA plan offered by the organization, regarding the 
organization's medical policy, quality improvement programs and medical 
management procedures and ensure that the following standards are met:
    (1) Practice guidelines and utilization management guidelines--
    (i) Are based on reasonable medical evidence or a consensus of 
health care professionals in the particular field;

[[Page 272]]

    (ii) Consider the needs of the enrolled population;
    (iii) Are developed in consultation with contracting physicians; and
    (iv) Are reviewed and updated periodically.
    (2) The guidelines are communicated to providers and, as 
appropriate, to enrollees.
    (3) Decisions with respect to utilization management, enrollee 
education, coverage of services, and other areas in which the guidelines 
apply are consistent with the guidelines.
    (c) Subcontracted groups. An MA organization that operates an MA 
plan through subcontracted physician groups must provide that the 
participation procedures in this section apply equally to physicians 
within those subcontracted groups.
    (d) Suspension or termination of contract. An MA organization that 
operates a coordinated care plan or network MSA plan providing benefits 
through contracting providers must meet the following requirements:
    (1) Notice to physician. An MA organization that suspends or 
terminates an agreement under which the physician provides services to 
MA plan enrollees must give the affected individual written notice of 
the following:
    (i) The reasons for the action, including, if relevant, the 
standards and profiling data used to evaluate the physician and the 
numbers and mix of physicians needed by the MA organization.
    (ii) The affected physician's right to appeal the action and the 
process and timing for requesting a hearing.
    (2) Composition of hearing panel. The MA organization must ensure 
that the majority of the hearing panel members are peers of the affected 
physician.
    (3) Notice to licensing or disciplinary bodies. An MA organization 
that suspends or terminates a contract with a physician because of 
deficiencies in the quality of care must give written notice of that 
action to licensing or disciplinary bodies or to other appropriate 
authorities.
    (4) Timeframes. An MA organization and a contracting provider must 
provide at least 60 days written notice to each other before terminating 
the contract without cause.

[64 FR 7981, Feb. 17, 1999, as amended at 65 FR 40324, June 29, 2000; 68 
FR 50857, Aug. 22, 2003; 70 FR 4724, Jan. 28, 2005]



Sec. 422.204  Provider selection and credentialing.

    (a) General rule. An MA organization must have written policies and 
procedures for the selection and evaluation of providers. These policies 
must conform with the credential and recredentialing requirements set 
forth in paragraph (b) of this section and with the antidiscrimination 
provisions set forth in Sec. 422.205.
    (b) Basic requirements. An MA organization must follow a documented 
process with respect to providers and suppliers who have signed 
contracts or participation agreements that--
    (1) For providers (other than physicians and other health care 
professionals) requires determination, and redetermination at specified 
intervals, that each provider is--
    (i) Licensed to operate in the State, and in compliance with any 
other applicable State or Federal requirements; and
    (ii) Reviewed and approved by an accrediting body, or meets the 
standards established by the organization itself;
    (2) For physicians and other health care professionals, including 
members of physician groups, covers--
    (i) Initial credentialing that includes written application, 
verification of licensure or certification from primary sources, 
disciplinary status, eligibility for payment under Medicare, and site 
visits as appropriate. The application must be signed and dated and 
include an attestation by the applicant of the correctness and 
completeness of the application and other information submitted in 
support of the application;
    (ii) Recredentialing at least every 3 years that updates information 
obtained during initial credentialing, considers performance indicators 
such as those collected through quality improvement programs, 
utilization management systems, handling of grievances and appeals, 
enrollee satisfaction surveys, and other plan activities, and

[[Page 273]]

that includes an attestation of the correctness and completeness of the 
new information; and
    (iii) A process for consulting with contracting health care 
professionals with respect to criteria for credentialing and 
recredentialing.
    (3) Specifies that basic benefits must be provided through, or 
payments must be made to, providers and suppliers that meet applicable 
requirements of title XVIII and part A of title XI of the Act. In the 
case of providers meeting the definition of ``provider of services'' in 
section 1861(u) of the Act, basic benefits may only be provided through 
these providers if they have a provider agreement with CMS permitting 
them to provide services under original Medicare.
    (4) Ensures compliance with the requirements at Sec. 422.752(a)(8) 
that prohibit employment or contracts with individuals (or with an 
entity that employs or contracts with such an individual) excluded from 
participation under Medicare and with the requirements at Sec. 422.220 
regarding physicians and practitioners who opt out of Medicare.

[65 FR 40324, June 29, 2000, as amended at 66 FR 47413, Sept. 12, 2001; 
70 FR 4724, Jan. 28, 2005]



Sec. 422.205  Provider antidiscrimination rules.

    (a) General rule. Consistent with the requirements of this section, 
the policies and procedures concerning provider selection and 
credentialing established under Sec. 422.204, and with the requirement 
under Sec. 422.100(c) that all Medicare-covered services be available 
to MA plan enrollees, an MA organization may select the practitioners 
that participate in its plan provider networks. In selecting these 
practitioners, an MA organization may not discriminate, in terms of 
participation, reimbursement, or indemnification, against any health 
care professional who is acting within the scope of his or her license 
or certification under State law, solely on the basis of the license or 
certification. If an MA organization declines to include a given 
provider or group of providers in its network, it must furnish written 
notice to the effected provider(s) of the reason for the decision.
    (b) Construction. The prohibition in paragraph (a)(1) of this 
section does not preclude any of the following by the MA organization:
    (1) Refusal to grant participation to health care professionals in 
excess of the number necessary to meet the needs of the plan's enrollees 
(except for MA private-fee-for-service plans, which may not refuse to 
contract on this basis).
    (2) Use of different reimbursement amounts for different specialties 
or for different practitioners in the same specialty.
    (3) Implementation of measures designed to maintain quality and 
control costs consistent with its responsibilities.

[65 FR 40324, June 29, 2000]



Sec. 422.206  Interference with health care professionals' advice to enrollees prohibited.

    (a) General rule. (1) An MA organization may not prohibit or 
otherwise restrict a health care professional, acting within the lawful 
scope of practice, from advising, or advocating on behalf of, an 
individual who is a patient and enrolled under an MA plan about--
    (i) The patient's health status, medical care, or treatment options 
(including any alternative treatments that may be self-administered), 
including the provision of sufficient information to the individual to 
provide an opportunity to decide among all relevant treatment options;
    (ii) The risks, benefits, and consequences of treatment or non-
treatment; or
    (iii) The opportunity for the individual to refuse treatment and to 
express preferences about future treatment decisions.
    (2) Health care professionals must provide information regarding 
treatment options in a culturally-competent manner, including the option 
of no treatment. Health care professionals must ensure that individuals 
with disabilities have effective communications with participants 
throughout the health system in making decisions regarding treatment 
options.

[[Page 274]]

    (b) Conscience protection. The general rule in paragraph (a) of this 
section does not require the MA plan to cover, furnish, or pay for a 
particular counseling or referral service if the MA organization that 
offers the plan--
    (1) Objects to the provision of that service on moral or religious 
grounds; and
    (2) Through appropriate written means, makes available information 
on these policies as follows:
    (i) To CMS, with its application for a Medicare contract, within 10 
days of submitting its bid proposal or, for policy changes, in 
accordance with Sec. 422.80 (concerning approval of marketing materials 
and election forms) and with Sec. 422.111.
    (ii) To prospective enrollees, before or during enrollment.
    (iii) With respect to current enrollees, the organization is 
eligible for the exception provided in paragraph (b)(1) of this section 
if it provides notice of such change within 90 days after adopting the 
policy at issue; however, under Sec. 422.111(d), notice of such a 
change must be given in advance.
    (c) Construction. Nothing in paragraph (b) of this section may be 
construed to affect disclosure requirements under State law or under the 
Employee Retirement Income Security Act of 1974.
    (d) Sanctions. An MA organization that violates the prohibition of 
paragraph (a) of this section or the conditions in paragraph (b) of this 
section is subject to intermediate sanctions under subpart O of this 
part.

[63 FR 35085, June 26, 1998, as amended at 65 FR 40325, June 29, 2000; 
70 FR 52026, Sept. 1, 2005]



Sec. 422.208  Physician incentive plans: requirements and limitations.

    (a) Definitions. In this subpart, the following definitions apply:
    Bonus means a payment made to a physician or physician group beyond 
any salary, fee-for-service payments, capitation, or returned withhold.
    Capitation means a set dollar payment per patient per unit of time 
(usually per month) paid to a physician or physician group to cover a 
specified set of services and administrative costs without regard to the 
actual number of services provided. The services covered may include the 
physician's own services, referral services, or all medical services.
    Physician group means a partnership, association, corporation, 
individual practice association, or other group of physicians that 
distributes income from the practice among members. An individual 
practice association is defined as a physician group for this section 
only if it is composed of individual physicians and has no subcontracts 
with physician groups.
    Physician incentive plan means any compensation arrangement to pay a 
physician or physician group that may directly or indirectly have the 
effect of reducing or limiting the services provided to any plan 
enrollee.
    Potential payments means the maximum payments possible to physicians 
or physician groups including payments for services they furnish 
directly, and additional payments based on use and costs of referral 
services, such as withholds, bonuses, capitation, or any other 
compensation to the physician or physician group. Bonuses and other 
compensation that are not based on use of referrals, such as quality of 
care furnished, patient satisfaction or committee participation, are not 
considered payments in the determination of substantial financial risk.
    Referral services means any specialty, inpatient, outpatient, or 
laboratory services that a physician or physician group orders or 
arranges, but does not furnish directly.
    Risk threshold means the maximum risk, if the risk is based on 
referral services, to which a physician or physician group may be 
exposed under a physician incentive plan without being at substantial 
financial risk. This is set at 25 percent risk.
    Substantial financial risk, for purposes of this section, means risk 
for referral services that exceeds the risk threshold.
    Withhold means a percentage of payments or set dollar amounts 
deducted from a physician's service fee, capitation, or salary payment, 
and that may or may not be returned to the physician, depending on 
specific predetermined factors.

[[Page 275]]

    (b) Applicability. The requirements in this section apply to an MA 
organization and any of its subcontracting arrangements that utilize a 
physician incentive plan in their payment arrangements with individual 
physicians or physician groups. Subcontracting arrangements may include 
an intermediate entity, which includes but is not limited to, an 
individual practice association that contracts with one or more 
physician groups or any other organized group such as those specified in 
Sec. 422.4.
    (c) Basic requirements. Any physician incentive plan operated by an 
MA organization must meet the following requirements:
    (1) The MA organization makes no specific payment, directly or 
indirectly, to a physician or physician group as an inducement to reduce 
or limit medically necessary services furnished to any particular 
enrollee. Indirect payments may include offerings of monetary value 
(such as stock options or waivers of debt) measured in the present or 
future.
    (2) If the physician incentive plan places a physician or physician 
group at substantial financial risk (as determined under paragraph (d) 
of this section) for services that the physician or physician group does 
not furnish itself, the MA organization must assure that all physicians 
and physician groups at substantial financial risk have either aggregate 
or per-patient stop-loss protection in accordance with paragraph (f) of 
this section.
    (3) For all physician incentive plans, the MA organization provides 
to CMS the information specified in Sec. 422.210.
    (d) Determination of substantial financial risk--(1) Basis. 
Substantial financial risk occurs when risk is based on the use or costs 
of referral services, and that risk exceeds the risk threshold. Payments 
based on other factors, such as quality of care furnished, are not 
considered in this determination.
    (2) Risk threshold. The risk threshold is 25 percent of potential 
payments.
    (3) Arrangements that cause substantial financial risk. The 
following incentive arrangements cause substantial financial risk within 
the meaning of this section, if the physician's or physician group's 
patient panel size is not greater than 25,000 patients, as shown in the 
table at paragraph (f)(2)(iii) of this section:
    (i) Withholds greater than 25 percent of potential payments.
    (ii) Withholds less than 25 percent of potential payments if the 
physician or physician group is potentially liable for amounts exceeding 
25 percent of potential payments.
    (iii) Bonuses that are greater than 33 percent of potential payments 
minus the bonus.
    (iv) Withholds plus bonuses if the withholds plus bonuses equal more 
than 25 percent of potential payments. The threshold bonus percentage 
for a particular withhold percentage may be calculated using the 
formula--Withhold % = -0.75 (Bonus %) +25%.
    (v) Capitation arrangements, if--
    (A) The difference between the maximum potential payments and the 
minimum potential payments is more than 25 percent of the maximum 
potential payments;
    (B) The maximum and minimum potential payments are not clearly 
explained in the contract with the physician or physician group.
    (vi) Any other incentive arrangements that have the potential to 
hold a physician or physician group liable for more than 25 percent of 
potential payments.
    (e) Prohibition for private MA fee-for-service plans. An MA fee-for-
service plan may not operate a physician incentive plan.
    (f) Stop-loss protection requirements--(1) Basic rule. The MA 
organization must assure that all physicians and physician groups at 
substantial financial risk have either aggregate or per-patient stop-
loss protection in accordance with the following requirements:
    (2) Specific requirements. (i) Aggregate stop-loss protection must 
cover 90 percent of the costs of referral services that exceed 25 
percent of potential payments.
    (ii) For per-patient stop-loss protection if the stop-loss 
protection provided is on a per-patient basis, the stop-loss limit 
(deductible) per patient must be determined based on the size

[[Page 276]]

of the patient panel and may be a combined policy or consist of separate 
policies for professional services and institutional services. In 
determining patient panel size, the patients may be pooled in accordance 
with paragraph (g) of this section.
    (iii) Stop-loss protection must cover 90 percent of the costs of 
referral services that exceed the per patient deductible limit. The per-
patient stop-loss deductible limits are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                 Separate           Separate
                       Panel size                         Single combined     institutional       professional
                                                             deductible         deductible         deductible
----------------------------------------------------------------------------------------------------------------
1-1,000................................................             $6,000            $10,000             $3,000
1,001-5,000............................................             30,000             40,000             10,000
5,001-8,000............................................             40,000             60,000             15,000
8,001-10,000...........................................             75,000            100,000             20,000
10,001-25,000..........................................            150,000            200,000             25,000
25,000......................................              (\1\)              (\1\)              (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ None.

    (g) Pooling of patients. Any entity that meets the pooling 
conditions of this section may pool commercial, Medicare, and Medicaid 
enrollees or the enrollees of several MA organizations with which a 
physician or physician group has contracts. The conditions for pooling 
are as follows:
    (1) It is otherwise consistent with the relevant contracts governing 
the compensation arrangements for the physician or physician group.
    (2) The physician or physician group is at risk for referral 
services with respect to each of the categories of patients being 
pooled.
    (3) The terms of the compensation arrangements permit the physician 
or physician group to spread the risk across the categories of patients 
being pooled.
    (4) The distribution of payments to physicians from the risk pool is 
not calculated separately by patient category.
    (5) The terms of the risk borne by the physician or physician group 
are comparable for all categories of patients being pooled.
    (h) Sanctions. An MA organization that fails to comply with the 
requirements of this section is subject to intermediate sanctions under 
subpart O of this part.

[63 FR 35085, June 26, 1998, as amended at 65 FR 40325, June 29, 2000; 
70 FR 4724, Jan. 28, 2005; 70 FR 52026, Sept. 1, 2005]



Sec. 422.210  Assurances to CMS.

    (a) Assurances to CMS. Each organization will provide assurance 
satisfactory to the Secretary that the requirements of Sec. 422.208 are 
met.
    (b) Disclosure to Medicare Beneficiaries. Each MA organization must 
provide the following information to any Medicare beneficiary who 
requests it:
    (1) Whether the MA organization uses a physician incentive plan that 
affects the use of referral services.
    (2) The type of incentive arrangement.
    (3) Whether stop-loss protection is provided.

[70 FR 52026, Sept. 1, 2005]



Sec. 422.212  Limitations on provider indemnification.

    An MA organization may not contract or otherwise provide, directly 
or indirectly, for any of the following individuals, organizations, or 
entities to indemnify the organization against any civil liability for 
damage caused to an enrollee as a result of the MA organization's denial 
of medically necessary care:
    (a) A physician or health care professional.
    (b) Provider of services.
    (c) Other entity providing health care services.
    (d) Group of such professionals, providers, or entities.



Sec. 422.214  Special rules for services furnished by noncontract providers.

    (a) Services furnished by non-section 1861(u) providers. (1) Any 
provider (other than a provider of services as defined in section 
1861(u) of the Act) that

[[Page 277]]

does not have in effect a contract establishing payment amounts for 
services furnished to a beneficiary enrolled in an MA coordinated care 
plan, an MSA plan, or an MA private fee-for-service plan must accept, as 
payment in full, the amounts that the provider could collect if the 
beneficiary were enrolled in original Medicare.
    (2) Any statutory provisions (including penalty provisions) that 
apply to payment for services furnished to a beneficiary not enrolled in 
an MA plan also apply to the payment described in paragraph (a)(1) of 
this section.
    (b) Services furnished by section 1861(u) providers of service. Any 
provider of services as defined in section 1861(u) of the Act that does 
not have in effect a contract establishing payment amounts for services 
furnished to a beneficiary enrolled in an MA coordinated care plan, an 
MSA plan, or an MA private fee-for-service plan must accept, as payment 
in full, the amounts (less any payments under Sec. 412.105(g) and Sec. 
413.76 of this chapter) that it could collect if the beneficiary were 
enrolled in original Medicare. (Section 412.105(g) concerns indirect 
medical education payment to hospitals for managed care enrollees. 
Section 413.76 concerns calculating payment for direct medical education 
costs.)

[63 FR 35085, June 26, 1998, as amended at 65 FR 40325, June 29, 2000; 
70 FR 4724, Jan. 28, 2005; 70 FR 47490, Aug. 12, 2005]



Sec. 422.216  Special rules for MA private fee-for-service plans.

    (a) Payment to providers--(1) Payment rate. (i) The MA organization 
must establish uniform payment rates for items and services that apply 
to all contracting providers, regardless of whether the contract is 
signed or deemed under paragraph (f) of this section.
    (ii) Contracting providers must be reimbursed on a fee-for-service 
basis.
    (iii) The MA organization must make information on its payment rates 
available to providers that furnish services that may be covered under 
the MA private fee-for-service plan.
    (2) Payment to contract providers. For each service, the MA 
organization pays a contract provider (including one deemed to have a 
contract) an amount that is equal to the payment rate under paragraph 
(a)(1) of this section minus any applicable cost-sharing.
    (3) Noncontract providers. The organization pays for services of 
noncontract providers in accordance with Sec. 422.100(b)(2).
    (4) Service furnished by providers of service. Any provider of 
services as defined in section 1861(u) of the Act that does not have in 
effect a contract establishing payment mounts for services furnished to 
a beneficiary enrolled in an MA private fee-for-service plan must accept 
as payment in full the amounts (less any payments under Sec. Sec. 
412.105(g) and 413.76 of this chapter) that it could collect if the 
beneficiary were enrolled in original Medicare.
    (b) Charges to enrollees--(1) Contract providers (i) Contract 
providers and ``deemed'' contract providers may charge enrollees no more 
than the cost-sharing and, subject to the limit in paragraph (b)(1)(ii) 
of this section, balance billing amounts that are permitted under the 
plan, and these amounts must be the same for ``deemed'' contract 
providers as for those that have signed contracts in effect, unless 
access requirements with respect to a particular category of health care 
providers are met solely through Sec. 422.114(a)(2)(ii) and the MA 
organization imposes higher beneficiary copayments as permitted under 
Sec. 422.114(c).
    (ii) The organization may permit balance billing no greater than 15 
percent of the payment rate established under paragraph (a)(1) of this 
section.
    (iii) The MA organization must specify the amount of cost-sharing 
and balance billing in its contracts with providers and these amounts 
must be the same for ``deemed'' contract providers as for those that 
have signed contracts in effect, unless access requirements with respect 
to a particular category of health care providers are met solely through 
Sec. 422.114(a)(2)(ii) and the MA organization imposes higher 
beneficiary copayments as permitted under Sec. 422.114(c).
    (iv) The MA organization is subject to intermediate sanctions under 
Sec. 422.752(a)(7), under the rules in subpart O of this part, if it 
fails to enforce

[[Page 278]]

the limit specified in paragraph (b)(1)(i) of this section.
    (2) Noncontract providers. A noncontract provider may not collect 
from an enrollee more than the cost-sharing established by the MA 
private fee-for-service plan as specified in Sec. 422.256(b)(3), unless 
the provider has opted out of Medicare as described in part 405, subpart 
D of this chapter.
    (c) Enforcement of limit--(1) Contract providers. An MA organization 
that offers an MA fee-for-service plan must enforce the limit specified 
in paragraph (b)(1) of this section.
    (2) Noncontract providers. An MA organization that offers an MA 
private fee-for-service plan must monitor the amount collected by 
noncontract providers to ensure that those amounts do not exceed the 
amounts permitted to be collected under paragraph (b)(2) of this 
section, unless the provider has opted out of Medicare as described in 
part 405, subpart D of this chapter. The MA organization must develop 
and document violations specified in instructions and must forward 
documented cases to CMS.
    (d) Information on enrollee liability--(1) General information. An 
MA organization that offers an MA fee-for-service plan must provide to 
plan enrollees, for each claim filed by the enrollee or the provider 
that furnished the service, an appropriate explanation of benefits. The 
explanation must include a clear statement of the enrollee's liability 
for deductibles, coinsurance, copayment, and balance billing.
    (2) Advance notice for hospital services. In its terms and 
conditions of payment to hospitals, the MA organization must require the 
hospital, if it imposes balance billing, to provide to the enrollee, 
before furnishing any services for which balance billing could amount to 
not less than $500--
    (i) Notice that balance billing is permitted for those services;
    (ii) A good faith estimate of the likely amount of balance billing, 
based on the enrollees presenting condition; and
    (iii) The amount of any deductible, coinsurance, and copayment that 
may be due in addition to the balance billing amount.
    (e) Coverage determinations. The MA organization must make coverage 
determinations in accordance with subpart M of this part.
    (f) Rules describing deemed contract providers. Any provider 
furnishing health services, except for emergency services furnished in a 
hospital pursuant to Sec. 489.24 of this chapter, to an enrollee in an 
MA private fee-for-service plan, and who has not previously entered into 
a contract or agreement to furnish services under the plan, is treated 
as having a contract in effect and is subject to the limitations of this 
section that apply to contract providers if the following conditions are 
met:
    (1) The services are covered under the plan and are furnished--
    (i) To an enrollee of an MA fee-for-service plan; and
    (ii) Provided by a provider including a provider of services (as 
defined in section 1861(u) of the Act) that does not have in effect a 
signed contract with the MA organization.
    (2) Before furnishing the services, the provider--
    (i) Was informed of the individual's enrollment in the plan; and
    (ii) Was informed (or given a reasonable opportunity to obtain 
information) about the terms and conditions of payment under the plan, 
including the information described in Sec. 422.202(a)(1).
    (3) The information was provided in a manner that was reasonably 
designed to effect informed agreement and met the requirements of 
paragraphs (g) and (h) of this section.
    (g) Enrollment information. Enrollment information was provided by 
one of the following methods or a similar method:
    (1) Presentation of an enrollment card or other document attesting 
to enrollment.
    (2) Notice of enrollment from CMS, a Medicare intermediary or 
carrier, or the MA organization itself.
    (h) Information on payment terms and conditions. Information on 
payment terms and conditions was made available through either of the 
following methods:
    (1) The MA organization used postal service, electronic mail, FAX, 
or telephone to communicate the information to one of the following:
    (i) The provider.

[[Page 279]]

    (ii) The employer or billing agent of the provider.
    (iii) A partnership of which the provider is a member.
    (iv) Any party to which the provider makes assignment or reassigns 
benefits.
    (2) The MA organization has in effect a procedure under which--
    (i) Any provider furnishing services to an enrollee in an MA private 
fee-for-service plan, and who has not previously entered into a contract 
or agreement to furnish services under the plan, can receive 
instructions on how to request the payment information;
    (ii) The organization responds to the request before the entity 
furnishes the service; and
    (iii) The information the organization provides includes the 
following:
    (A) Billing procedures.
    (B) The amount the organization will pay towards the service.
    (C) The amount the provider is permitted to collect from the 
enrollee.
    (D) The information described in Sec. 422.202(a)(1).
    (3) Announcements in newspapers, journals, or magazines or on radio 
or television are not considered communication of the terms and 
conditions of payment.
    (i) Provider credential requirements. Contracts with providers must 
provide that, in order to be paid to provide services to plan enrollees, 
providers must meet the requirements specified in Sec. Sec. 
422.204(b)(1)(i) and (b)(3).

[63 FR 35085, June 26, 1998, as amended at 65 FR 40325, June 29, 2000; 
70 FR 52056, Sept. 1, 2005; 70 FR 47490, Aug. 12, 2005; 70 FR 76197, 
Dec. 23, 2005]



Sec. 422.220  Exclusion of services furnished under a private contract.

    An MA organization may not pay, directly or indirectly, on any 
basis, for services (other than emergency or urgently needed services as 
defined in Sec. 422.2) furnished to a Medicare enrollee by a physician 
(as defined in section 1861(r)(1) of the Act) or other practitioner (as 
defined in section 1842(b)(18)(C) of the Act) who has filed with the 
Medicare carrier an affidavit promising to furnish Medicare-covered 
services to Medicare beneficiaries only through private contracts under 
section 1802(b) of the Act with the beneficiaries. An MA organization 
must pay for emergency or urgently needed services furnished by a 
physician or practitioner who has not signed a private contract with the 
beneficiary.



Subpart F-Submission of Bids, Premiums, and Related Information and Plan 
                                Approval

    Source: 70 FR 4725, Jan. 28, 2005, unless otherwise noted.



Sec. 422.250  Basis and scope.

    This subpart is based largely on section 1854 of the Act, but also 
includes provisions from section 1853 and section 1858 of the Act. It 
sets forth the requirements for the Medicare Advantage bidding payment 
methodology, including CMS' calculation of benchmarks, submission of 
plan bids by Medicare Advantage (MA) organizations, establishment of 
beneficiary premiums and rebates through comparison of plan bids and 
benchmarks, and negotiation and approval of bids by CMS.



Sec. 422.252  Terminology.

    Annual MA capitation rate means a county payment rate for an MA 
local area (county) for a calendar year. The terms ``per capita rate'' 
and ``capitation rate'' are used interchangeably to refer to the annual 
MA capitation rate.
    MA local area means a payment area consisting of county or 
equivalent area specified by CMS.
    MA monthly basic beneficiary premium means the premium amount an MA 
plan (except an MSA plan) charges an enrollee for benefits under the 
original Medicare fee-for-service program option (if any), and is 
calculated as described at Sec. 422.262.
    MA monthly MSA premium means the amount of the plan premium for 
coverage of benefits under the original Medicare program through an MSA 
plan, as set forth at Sec. 422.254(e).
    MA monthly prescription drug beneficiary premium is the MA-PD plan 
base beneficiary premium, defined at section 1860D-13(a)(2) of the Act, 
as adjusted to reflect the difference between the plan's bid and the 
national average

[[Page 280]]

bid (as described in Sec. 422.256(c)) less the amount of rebate the MA-
PD plan elects to apply, as described at Sec. 422.266(b)(2).
    MA monthly supplemental beneficiary premium is the portion of the 
plan bid attributable to mandatory and/or optional supplemental health 
care benefits described under Sec. 422.102, less the amount of 
beneficiary rebate the plan elects to apply to a mandatory supplemental 
benefit, as described at Sec. 422.266(b)(1).
    MA-PD plan means an MA local or regional plan that provides 
prescription drug coverage under Part D of Title XVIII of the Social 
Security Act.
    Monthly aggregate bid amount means the total monthly plan bid amount 
for coverage of an MA eligible beneficiary with a nationally average 
risk profile for the factors described in Sec. 422.308(c), and this 
amount is comprised of the following:
    (1) The unadjusted MA statutory non-drug monthly bid amount for 
coverage of original Medicare benefits;
    (2) The amount for coverage of basic prescription drug benefits 
under Part D (if any); and
    (3) The amount for provision of supplemental health care benefits 
(if any).
    Plan basic cost sharing means cost sharing that would be charged by 
a plan for benefits under the original Medicare FFS program option 
before any reductions resulting from mandatory supplemental benefits.
    Unadjusted MA area-specific non-drug monthly benchmark amount means, 
for local MA plans serving one county, the county capitation rate CMS 
publishes annually, and for local MA plans serving multiple counties it 
is the weighted average of county rates in a plan's service area, 
weighted by the plan's projected enrollment per county.
    Unadjusted MA region-specific non-drug monthly benchmark amount 
means, for MA regional plans, the amount described at Sec. 422.258(b).
    Unadjusted MA statutory non-drug monthly bid amount means a plan's 
estimate of its average monthly required revenue to provide coverage of 
original Medicare benefits to an MA eligible beneficiary with a 
nationally average risk profile for the risk factors CMS applies to 
payment calculations as set forth at Sec. 422.308(c).

63 FR 35085, June 26, 1998, as amended at 70 FR 52026, Sept. 1, 2005]



Sec. 422.254  Submission of bids.

    (a) General rules. (1) Not later than the first Monday in June, each 
MA organization must submit to CMS an aggregate monthly bid amount for 
each MA plan (other than an MSA plan) the organization intends to offer 
in the upcoming year in the service area (or segment of such an area if 
permitted under Sec. 422.262(c)(2)) that meets the requirements in 
paragraph (b) of this section. With each bid submitted, the MA 
organization must provide the information required in paragraph (c) of 
this section and, for plans with rebates as described at Sec. 
422.266(a), the MA organization must provide the information required in 
paragraph (d) of this section.
    (2) CMS has the authority to determine whether and when it is 
appropriate to apply the bidding methodology described in this section 
to ESRD MA enrollees.
    (3) If the bid submission described in paragraphs (a)(1) and (2) of 
this section is not complete, timely, or accurate, CMS has the authority 
to impose sanctions under subpart O of this part or may choose not to 
renew the contract.
    (b) Bid requirements. (1) The monthly aggregate bid amount submitted 
by an MA organization for each plan is the organization's estimate of 
the revenue required for the following categories for providing coverage 
to an MA eligible beneficiary with a national average risk profile for 
the factors described in Sec. 422.308(c):
    (i) The unadjusted MA statutory non-drug monthly bid amount, which 
is the MA plan's estimated average monthly required revenue for 
providing benefits under the original Medicare fee-for-service program 
option (as defined in Sec. 422.252).
    (ii) The amount to provide basic prescription drug coverage, if any 
(defined at section 1860D-2(a)(3) of the Act).
    (iii) The amount to provide supplemental health care benefits, if 
any.
    (2) Each bid is for a uniform benefit package for the service area.

[[Page 281]]

    (3) Each bid submission must contain all estimated revenue required 
by the plan, including administrative costs and return on investment.
    (4) The bid amount is for plan payments only but must be based on 
plan assumptions about the amount of revenue required from enrollee 
cost-sharing. The estimate of plan cost-sharing for the unadjusted MA 
statutory non-drug monthly bid amount for coverage of original Medicare 
benefits must reflect the requirement that the level of cost sharing MA 
plans charge to enrollees must be actuarially equivalent to the level of 
cost sharing (deductible, copayments, or coinsurance) charged to 
beneficiaries under the original Medicare program option. The 
actuarially equivalent level of cost sharing reflected in a regional 
plan's unadjusted MA statutory non-drug monthly bid amount does not 
include cost sharing for out-of-network Medicare benefits, as described 
at Sec. 422.101(d).
    (c) Information required for coordinated care plans and MA private 
fee-for-service plans. MA organizations' submission of bids for 
coordinated care plans, including regional MA plans and specialized MA 
plans for special needs beneficiaries (described at Sec. 
422.4(a)(1)(iv)), and for MA private fee-for-service plans must include 
the following information:
    (1) The plan type for each plan.
    (2) The monthly aggregate bid amount for the provision of all items 
and services under the plan, as defined in Sec. 422.252 and discussed 
in paragraph (a) of this section.
    (3) The proportions of the bid amount attributable to-
    (i) The provision of benefits under the original Medicare fee-for-
service program option (as defined at Sec. 422.100(c));
    (ii) The provision of basic prescription drug coverage (as defined 
at section 1860D-2(a)(3) of the Act; and
    (iii) The provision of supplemental health care benefits (as defined 
Sec. 422.102).
    (4) The projected number of enrollees in each MA local area used in 
calculation of the bid amount, and the enrollment capacity, if any, for 
the plan.
    (5) The actuarial basis for determining the amount under paragraph 
(c)(2) of this section, the proportions under paragraph (c)(3) of this 
section, the amount under paragraph (b)(4) of this section, and 
additional information as CMS may require to verify actuarial bases and 
the projected number of enrollees.
    (6) A description of deductibles, coinsurance, and copayments 
applicable under the plan and the actuarial value of the deductibles, 
coinsurance, and copayments.
    (7) For qualified prescription drug coverage, the information 
required under section 1860D-11(b) of the Act with respect to coverage.
    (8) For the purposes of calculation of risk corridors under Sec. 
422.458, MA organizations offering regional MA plans in 2006 and/or 2007 
must submit the following information developed using the appropriate 
actuarial bases.
    (i) Projected allowable costs (defined in Sec. 422.458(a)).
    (ii) The portion of projected allowable costs attributable to 
administrative expenses incurred in providing these benefits.
    (iii) The total projected costs for providing rebatable integrated 
benefits (as defined in Sec. 422.458(a)) and the portion of costs that 
is attributable to administrative expenses.
    (9) For regional plans, as determined by CMS, the relative cost 
factors for the counties in a plan's service area, for the purposes of 
adjusting payment under Sec. 422.308(d) for intra-area variations in an 
MA organization's local payment rates.
    (d) Beneficiary rebate information. In the case of a plan required 
to provide a monthly rebate under Sec. 422.266 for a year, the MA 
organization offering the plan must inform CMS how the plan will 
distribute the beneficiary rebate among the options described at Sec. 
422.266(b).
    (e) Information required for MSA plans. MA organizations intending 
to offer MA MSA plans must submit--
    (1) The enrollment capacity (if any) for the plan;
    (2) The amount of the MSA monthly premium for basic benefits under 
the original Medicare fee-for-service program option;
    (3) The amount of the plan deductible; and

[[Page 282]]

    (4) The amount of the beneficiary supplemental premium, if any.
    (f) Separate bids must be submitted for Part A and Part B enrollees 
and Part B-only enrollees for each MA plan offered.

63 FR 35085, June 26, 1998, as amended at 70 FR 52026, Sept. 1, 2005]



Sec. 422.256  Review, negotiation, and approval of bids.

    (a) Authority. Subject to paragraphs (a)(2), (d), and (e) of this 
section, CMS has the authority to review the aggregate bid amounts 
submitted under Sec. 422.252 and conduct negotiations with MA 
organizations regarding these bids (including the supplemental benefits) 
and the proportions of the aggregate bid attributable to basic benefits, 
supplemental benefits, and prescription drug benefits.
    (1) When negotiating bid amounts and proportions, CMS has authority 
similar to that provided the Director of the Office of Personnel 
Management for negotiating health benefits plans under 5 U.S.C. chapter 
89.
    (2) Noninterference. (i) In carrying out Parts C and D under this 
title, CMS may not require any MA organization to contract with a 
particular hospital, physician, or other entity or individual to furnish 
items and services.
    (ii) CMS may not require a particular price structure for payment 
under such a contract, with the exception of payments to Federally 
qualified health centers as set forth at Sec. 422.316.
    (b) Standards of bid review. Subject to paragraphs (d) and (e) of 
this section, CMS can only accept bid amounts or proportions described 
in paragraph (a) of this section if CMS determines the following 
standards have been met:
    (1) The bid amount and proportions are supported by the actuarial 
bases provided by MA organizations under Sec. 422.254.
    (2) The bid amount and proportions reasonably and equitably reflects 
the plan's estimated revenue requirements for providing the benefits 
under that plan, as the term revenue requirements is used for purposes 
of section 1302(8) of the Public Health Service Act.
    (3) Limitation on enrollee cost sharing. For coordinated care plans 
(including regional MA plans and specialized MA plans) and private fee-
for-service plans:
    (i) The actuarial value of plan basic cost sharing, reduced by any 
supplemental benefits, may not exceed--
    (ii) The actuarial value of deductibles, coinsurance, and copayments 
that would be applicable for the benefits to individuals entitled to 
benefits under Part A and enrolled under Part B in the plan's service 
area with a national average risk profile for the factors described in 
Sec. 422.308(c) if they were not members of an MA organization for the 
year, except that cost sharing for non-network Medicare services in a 
regional MA plan is not counted under the amount described in paragraph 
(b)(2)(i) of this section.
    (c) Negotiation process. The negotiation process may include the 
resubmission of information to allow MA organizations to modify their 
initial bid submissions to account for the outcome of CMS' regional 
benchmark calculations required under Sec. 422.258(c) and the outcome 
of CMS' calculation of the national average monthly bid amount required 
under section 1860D-13(a)(4) of the Act.
    (d) Exception for private fee-for-service plans. For private fee-
for-service plans defined at Sec. 422.4(a)(3), CMS will not review, 
negotiate, or approve the bid amount, proportions of the bid, or the 
amounts of the basic beneficiary premium and supplemental premium.
    (e) Exception for MSA plans. CMS does not review, negotiate, or 
approve amounts submitted with respect to MA MSA plans, except to 
determine that the deductible does not exceed the statutory maximum, 
defined at Sec. 422.103(d).

63 FR 35085, June 26, 1998, as amended at 70 FR 52026, Sept. 1, 2005; 70 
FR 76198, Dec. 23, 2005]



Sec. 422.258  Calculation of benchmarks.

    (a) The term ``MA area-specific non-drug monthly benchmark amount'' 
means, for a month in a year:
    (1) For MA local plans with service areas entirely within a single 
MA local area, 1/12th of the annual MA capitation rate (described at 
Sec. 422.306) for the area, adjusted as appropriate for the purpose of 
risk adjustment.
    (2) For MA local plans with service areas including more than one MA 
local

[[Page 283]]

area, an amount equal to the weighted average of annual capitation rates 
for each local area (county) in the plan's service area, using as 
weights the projected number of enrollees in each MA local area that the 
plan used to calculate the bid amount, and adjusted as appropriate for 
the purpose of risk adjustment.
    (b) For MA regional plans, the term ``MA region-specific non-drug 
monthly benchmark amount'' is:
    (1) The sum of two components: the statutory component (based on a 
weighted average of local benchmarks in the region, as described in 
paragraph (c)(3) of this section; and the plan bid component (based on a 
weighted average of regional plan bids in the region as described in 
paragraph (c)(4) of this section).
    (2) Announced before November 15 of each year, but after CMS has 
received the plan bids.
    (c) Calculation of MA regional non-drug benchmark amount. CMS 
calculates the monthly regional non-drug benchmark amount for each MA 
region as follows:
    (1) Reference month. For all calculations that follow, CMS will 
determine the number of MA eligible individuals in each local area, in 
each region, and nationally as of the reference month, which is a month 
in the previous calendar year CMS identifies.
    (2) Statutory market share. CMS will determine the statutory 
national market share percentage as the proportion of the MA eligible 
individuals nationally who were not enrolled in an MA plan.
    (3) Statutory component of the region-specific benchmark. (i) CMS 
calculates the unadjusted region-specific non-drug amount by multiplying 
the county capitation rate by the county's share of the MA eligible 
individuals residing in the region (the number of MA eligible 
individuals in the county divided by the number of MA eligible 
individuals in the region), and then adding all the enrollment-weighted 
county rates to a sum for the region.
    (ii) CMS then multiplies the unadjusted region-specific non-drug 
amount from paragraph (c)(3)(i) of this section by the statutory market 
share to determine the statutory component of the regional benchmark.
    (4) Plan-bid component of the region-specific benchmark. For each 
regional plan offered in a region, CMS will multiply the plan's 
unadjusted region-specific non-drug bid amount by the plan's share of 
enrollment (as determined under paragraph (c)(5) of this section) and 
then sum these products across all plans offered in the region. CMS then 
multiples this by 1 minus the statutory market share to determine the 
plan-bid component of the regional benchmark.
    (5) Plan's share of enrollment. CMS will calculate the plan's share 
of MA enrollment in the region as follows:
    (i) In the first year that any MA regional plan is being offered in 
an MA region, and more than one MA regional plan is being offered, CMS 
will determine each regional plan's share of enrollment based on one of 
two possible approaches. CMS may base this factor on equal division 
among plans, so that each plan's share will be 1 divided by the number 
of plans offered. Alternatively, CMS may base this factor on each 
regional plan's estimate of projected enrollment. Plan enrollment 
projections are subject to review and adjustment by CMS to assure 
reasonableness.
    (ii) If two or more regional plans are offered in a region and were 
offered in the reference month: The plan's share of enrollment will be 
the number of MA eligible individuals enrolled in the plan divided by 
the number of MA eligible individuals enrolled in all of the plans in 
the region, as of the reference month.
    (iii) If a single regional plan is being offered in the region: The 
plan's share of enrollment is equal to 1.



Sec. 422.262  Beneficiary premiums.

    (a) Determination of MA monthly basic beneficiary premium. (1) For 
an MA plan with an unadjusted statutory non-drug bid amount that is less 
than the relevant unadjusted non-drug benchmark amount, the basic 
beneficiary premium is zero.
    (2) For an MA plan with an unadjusted statutory non-drug bid amount 
that is equal to or greater than the relevant unadjusted non-drug

[[Page 284]]

benchmark amount, the basic beneficiary premium is the amount by which 
(if any) the bid amount exceeds the benchmark amount. All approved basic 
premiums must be charged; they cannot be waived.
    (b) Consolidated monthly premiums. Except as specified in paragraph 
(b)(2) of this section, MA organizations must charge enrollees a 
consolidated monthly MA premium.
    (1) The consolidated monthly premium for an MA plan (other than a 
MSA plan) is the sum of the MA monthly basic beneficiary premium (if 
any), the MA monthly supplementary beneficiary premium (if any), and the 
MA monthly prescription drug beneficiary premium (if any).
    (2) Special rule for MSA plans. For an individual enrolled in an MSA 
plan offered by an MA organization, the monthly beneficiary premium is 
the supplemental premium (if any).
    (c) Uniformity of premiums--(1) General rule. Except as permitted 
for supplemental premiums pursuant to Sec. 422.106(d), for MA contracts 
with employers and labor organizations, the MA monthly bid amount 
submitted under Sec. 422.254, the MA monthly basic beneficiary premium, 
the MA monthly supplemental beneficiary premium, the MA monthly 
prescription drug premium, and the monthly MSA premium of an MA 
organization may not vary among individuals enrolled in an MA plan (or 
segment of the plan as provided for local MA plans under paragraph 
(c)(2) of this section). In addition, the MA organization cannot vary 
the level of cost-sharing charged for basic benefits or supplemental 
benefits (if any) among individuals enrolled in an MA plan (or segment 
of the plan).
    (2) Segmented service area option. An MA organization may apply the 
uniformity requirements in paragraph (c)(1) of this section to segments 
of an MA local plan service area (rather than to the entire service 
area) as long as such a segment is composed of one or more MA payment 
areas. The information specified under Sec. 422.254 is submitted 
separately for each segment. This provision does not apply to MA 
regional plans.
    (d) Monetary inducement prohibited. An MA organization may not 
provide for cash or other monetary rebates as an inducement for 
enrollment or for any other reason or purpose.
    (e) Timing of payments. The MA organization must permit payments of 
MA monthly basic and supplemental beneficiary premiums and monthly 
prescription drug beneficiary premiums on a monthly basis and may not 
terminate coverage for failure to make timely payments except as 
provided in Sec. 422.74(b).
    (f) Beneficiary payment options. An MA organization must permit each 
enrollee, at the enrollee's option, to make payment of premiums (if any) 
under this part to the organization through-
    (1) Withholding from the enrollee's Social Security benefit 
payments, or benefit payments by the Railroad Retirement Board or the 
Office of Personnel Management, in the manner that the Part B premium is 
withheld;
    (2) An electronic funds transfer mechanism (such as automatic 
charges of an account at a financial institution or a credit or debit 
card account);
    (3) According to other means that CMS may specify, including payment 
by an employer or under employment-based retiree health coverage on 
behalf of an employee, former employee (or dependent), or by other third 
parties such as a State.
    (i) Regarding the option in paragraph (f)(1) of this section, MA 
organizations may not impose a charge on beneficiaries for the election 
of this option.
    (ii) An enrollee may opt to make a direct payment of premium to the 
plan.



Sec. 422.264  Calculation of savings.

    (a) Computation of risk adjusted bids and benchmarks. (1) The risk 
adjusted MA statutory non-drug monthly bid amount is the unadjusted plan 
bid amount for coverage of original Medicare benefits (defined at Sec. 
422.254), adjusted using the factors described in paragraph (c) of this 
section for local plans and paragraph (e) of this section for regional 
plans.
    (2) The risk adjusted MA area-specific non-drug monthly benchmark 
amount is the unadjusted benchmark amount for coverage of original 
Medicare benefits by a local MA plan (defined at Sec. 422.258),

[[Page 285]]

adjusted using the factors described in paragraph (c) of this section.
    (3) The risk adjusted MA region-specific non-drug monthly benchmark 
amount is the unadjusted benchmark for coverage of original Medicare 
benefits amount by a regional MA plan (defined at Sec. 422.258) 
adjusted using the factors described in paragraph (e) of this section.
    (b) Computation of savings for MA local plans. The average per 
capita monthly savings for an MA local plan is 100 percent of the 
difference between the plan's risk-adjusted statutory non-drug monthly 
bid amount (described in paragraph (a)(1) of this section) and the 
plan's risk-adjusted area-specific non-drug monthly benchmark amount 
(described in paragraph (a)(2) of this section). Plans with bids equal 
to or greater than plan benchmarks will have zero savings.
    (c) Risk adjustment factors for determination of savings for local 
plans. CMS will publish the first Monday in April before the upcoming 
calendar year the risk adjustment factors described in paragraph (c)(1) 
or (c)(2) of this section determined for the purpose of calculating 
savings amounts for MA local plans.
    (1) For the purpose of calculating savings for MA local plans CMS 
has the authority to apply risk adjustment factors that are plan-
specific average risk adjustment factors, Statewide average risk 
adjustment factors, or factors determined on a basis other than plan-
specific factors or Statewide average factors.
    (2) In the event that CMS applies Statewide average risk adjustment 
factors, the statewide factor for each State is the average of the risk 
factors calculated under Sec. 422.308(c), based on all enrollees in MA 
local plans in that State in the previous year. In the case of a State 
in which no local MA plan was offered in the previous year, CMS will 
estimate an average and may base this average on average risk adjustment 
factors applied to comparable States or applied on a national basis.
    (d) Computation of savings for MA regional plans. The average per 
capita monthly savings for an MA regional plan and year is 100 percent 
of the difference between the plan's risk-adjusted statutory non-drug 
monthly bid amount (described in paragraph (a)(1) of this section) and 
the plan's risk-adjusted region-specific non-drug monthly benchmark 
amount (described in paragraph (a)(3) of this section), using the risk 
adjustment factors described in paragraph (e) of this section. Plans 
with bids equal to or greater than plan benchmarks will have zero 
savings.
    (e) Risk adjustment factors for determination of savings for 
regional plans. CMS will publish the first Monday in April before the 
upcoming calendar year the risk adjustment factors described in 
paragraph (e)(1)and (e)(2) of this section determined for the purpose of 
calculating savings amounts for MA regional plans.
    (1) For the purpose of calculating savings for MA regional plans, 
CMS has the authority to apply risk adjustment factors that are plan-
specific average risk adjustment factors, Region-wide average risk 
adjustment factors, or factors determined on a basis other than MA 
regions.
    (2) In the event that CMS applies region-wide average risk 
adjustment factors, the region-wide factor for each MA region is the 
average of the risk factors calculated under Sec. 422.308(c), based on 
all enrollees in MA regional plans in that region in the previous year. 
In the case of a region in which no regional plan was offered in the 
previous year, CMS will estimate an average and may base this average on 
average risk adjustment factors applied to comparable regions or applied 
on a national basis.



Sec. 422.266  Beneficiary rebates.

    (a) General rule. An MA organization must provide to the enrollee a 
monthly rebate equal to 75 percent of the average per capita savings (if 
any) described in Sec. 422.264(b) for MA local plans and Sec. 
422.264(d) for MA regional plans.
    (b) Form of rebate. The rebate required under this paragraph must be 
provided by crediting the rebate amount to one or more of the following:
    (1) Supplemental health care benefits. MA organizations may apply 
all or some portion of the rebate for a plan toward payment for non-drug 
supplemental health care benefits for enrollees as described in Sec. 
422.102, which may

[[Page 286]]

include the reduction of cost sharing for benefits under original 
Medicare and additional health care benefits that are not benefits under 
original Medicare. MA organizations also may apply all or some portion 
of the rebate for a plan toward payment for supplemental drug coverage 
described at Sec. 423.104(f)(1)(ii), which may include reduction in 
cost sharing and coverage of drugs not covered under Part D. The rebate, 
or portion of rebate, applied toward supplemental benefits may only be 
applied to a mandatory supplemental benefit, and cannot be used to fund 
an optional supplemental benefit.
    (2) Payment of premium for prescription drug coverage. MA 
organizations that offer a prescription drug benefit may credit some or 
all of the rebate toward reduction of the MA monthly prescription drug 
beneficiary premium.
    (3) Payment toward Part B premium. MA organizations may credit some 
or all of the rebate toward reduction of the Medicare Part B premium 
(determined without regard to the application of subsections (b), (h), 
and (i) of section 1839 of the Act).
    (c) Disclosure relating to rebates. MA organizations must disclose 
to CMS information on the amount of the rebate provided, as required at 
Sec. 422.254(d). MA organizations must distinguish, for each MA plan, 
the amount of rebate applied to enhance original Medicare benefits from 
the amount of rebate applied to enhance Part D benefits.



Sec. 422.270  Incorrect collections of premiums and cost-sharing.

    (a) Definitions. As used in this section-
    (1) Amounts incorrectly collected-
    (i) Means amounts that-
    (A) Exceed the limits approved under Sec. 422.262;
    (B) In the case of an MA private fee-for-service plan, exceed the MA 
monthly basic beneficiary premium or the MA monthly supplemental premium 
submitted under Sec. 422.262; and
    (C) In the case of an MA MSA plan, exceed the MA monthly beneficiary 
supplemental premium submitted under Sec. 422.262, or exceed 
permissible cost sharing amounts after the deductible has been met per 
Sec. 422.103; and
    (ii) Includes amounts collected from an enrollee who was believed to 
be entitled to Medicare benefits but was later found not to be entitled.
    (2) Other amounts due are amounts due for services that were--
    (i) Emergency, urgently needed services, or other services obtained 
outside the MA plan; or
    (ii) Initially denied but, upon appeal, found to be services the 
enrollee was entitled to have furnished by the MA organization.
    (b) Basic commitments. An MA organization must agree to refund all 
amounts incorrectly collected from its Medicare enrollees, or from 
others on behalf of the enrollees, and to pay any other amounts due the 
enrollees or others on their behalf.
    (c) Refund methods--(1) Lump-sum payment. The MA organization must 
use lump-sum payments for the following:
    (i) Amounts incorrectly collected that were not collected as 
premiums.
    (ii) Other amounts due.
    (iii) All amounts due if the MA organization is going out of 
business or terminating its MA contract for an MA plan(s).
    (2) Premium adjustment or lump-sum payment, or both. If the amounts 
incorrectly collected were in the form of premiums, or included premiums 
as well as other charges, the MA organization may refund by adjustment 
of future premiums or by a combination of premium adjustment and lump-
sum payments.
    (3) Refund when enrollee has died or cannot be located. If an 
enrollee has died or cannot be located after reasonable effort, the MA 
organization must make the refund in accordance with State law.
    (d) Reduction by CMS. If the MA organization does not make the 
refund required under this section by the end of the contract period 
following the contract period during which an amount was determined to 
be due to an enrollee, CMS will reduce the premium the MA organization 
is allowed to charge an MA plan enrollee by the amounts incorrectly 
collected or otherwise due. In addition, the MA organization would be 
subject to sanction under

[[Page 287]]

subpart O of this part for failure to refund amounts incorrectly 
collected from MA plan enrollees.



         Subpart G_Payments to Medicare Advantage Organizations

    Source: 70 FR 4729, Jan. 28, 2005, unless otherwise noted.



Sec. 422.300  Basis and scope.

    This subpart is based on sections 1853, 1854, and 1858 of the Act. 
It sets forth the rules for making payments to Medicare Advantage (MA) 
organizations offering local and regional MA plans, including 
calculation of MA capitation rates and benchmarks, conditions under 
which payment is based on plan bids, adjustments to capitation rates 
(including risk adjustment), and other payment rules.
    See Sec. 422.458 in subpart J for rules on risk sharing payments to 
MA regional organizations.



Sec. 422.304  Monthly payments.

    (a) General rules. Except as provided in paragraph (b) of this 
section, CMS makes advance monthly payments of the amounts determined 
under paragraphs (a)(1) and (a)(2) of this section for coverage of 
original fee-for-service benefits for an individual in an MA payment 
area for a month.
    (1) Payment of bid for plans with bids below benchmark. For MA plans 
that have average per capita monthly savings (as described at Sec. 
422.264(b) for local plans and Sec. 422.264(d) for regional plans), CMS 
pays:
    (i) The unadjusted MA statutory non-drug monthly bid amount defined 
in Sec. 422.252, risk-adjusted as described at Sec. 422.308(c) and 
adjusted (if applicable) for variations in rates within the plan's 
service area (described at Sec. 422.258(a)(2)) and for the effects of 
risk adjustment on beneficiary premiums under Sec. 422.262; and
    (ii) The amount (if any) of the rebate described in paragraph (a)(3) 
of this section.
    (2) Payment of benchmark for plans with bids at or above benchmark. 
For MA plans that do not have average per capita monthly savings (as 
described at Sec. 422.264(b) for local plans and Sec. 422.264(d) for 
regional plans), CMS pays the unadjusted MA area-specific non-drug 
monthly benchmark amount specified at Sec. 422.258, risk-adjusted as 
described at Sec. 422.308(c) and adjusted (if applicable) for 
variations in rates within the plan's service area (described at Sec. 
422.258(a)(2)) and for the effects of risk adjustment on beneficiary 
premiums under Sec. 422.262.
    (3) Payment of rebate for plans with bids below benchmarks. The 
rebate amount under paragraph (a)(1)(ii) of this section is the amount 
of the monthly rebate computed under Sec. 422.266(a) for that plan, 
less the amount (if any) applied to reduce the Part B premium, as 
provided under Sec. 422.266(b)(3)).
    (b) Separate payment for Federal drug subsidies. In the case of an 
enrollee in an MA-PD plan, defined at Sec. 422.252, the MA organization 
offering such a plan also receives-
    (1) Direct and reinsurance subsidy payments for qualified 
prescription drug coverage, described at section 1860D-15(a) and (b) of 
the Act (other than payments for fallback prescription drug plans 
described at section 1860D-11(g)(5) of the Act); and
    (2) Reimbursement for premium and cost sharing reductions for low-
income individuals, described at section 1860D-14 of the Act.
    (c) Special rules--(1) Enrollees with end-stage renal disease. (i) 
For enrollees determined to have end-stage renal disease (ESRD), CMS 
establishes special rates that are actuarially equivalent to rates in 
effect before the enactment of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003.
    (ii) CMS publishes annual changes in these capitation rates no later 
than the first Monday in April each year, as provided in Sec. 422.312.
    (iii) CMS applies appropriate adjustments when establishing the 
rates, including risk adjustment factors.
    (iv) CMS reduces the payment rate for each renal dialysis treatment 
by the same amount that CMS is authorized to reduce the amount of each 
composite rate payment for each treatment as set forth in section 
1881(b)(7) of the Act. These funds are to be used to help

[[Page 288]]

pay for the ESRD network program in the same manner as similar 
reductions are used in original Medicare.
    (2) MSA enrollees. In the case of an MSA plan, CMS pays the 
unadjusted MA area-specific non-drug monthly benchmark amount for the 
service area, determined in accordance with Sec. 422.314(c) and subject 
to risk adjustment as set forth at Sec. 422.308(c), less 1/12 of the 
annual lump sum amount (if any) CMS deposits to the enrollee's MA MSA.
    (3) RFB plan enrollees. For RFB plan enrollees, CMS adjusts the 
capitation payments otherwise determined under this subpart to ensure 
that the payment level is appropriate for the actuarial characteristics 
and experience of these enrollees. That adjustment can be made on an 
individual or organization basis.
    (d) Payment areas--(1) General rule. Except as provided in paragraph 
(e) of this section--
    (i) An MA payment area for an MA local plan is an MA local area 
defined at Sec. 422.252.
    (ii) An MA payment area for an MA regional plan is an MA region, 
defined at Sec. 422.455(b)(1).
    (2) Special rule for ESRD enrollees. For ESRD enrollees, the MA 
payment area is a State or other geographic area specified by CMS.
    (e) Geographic adjustment of payment areas for MA local plans--(1) 
Terminology. ``Metropolitan Statistical Area'' and ``Metropolitan 
Division'' mean any areas so designated by the Office of Management and 
Budget in the Executive Office of the President.
    (2) State request. A State's chief executive may request, no later 
than February 1 of any year, a geographic adjustment of the State's 
payment areas for MA local plans for the following calendar year. The 
chief executive may request any of the following adjustments to the 
payment area specified in paragraph (c)(1)(i) of this section:
    (i) A single statewide MA payment area.
    (ii) A metropolitan-based system in which all non-metropolitan areas 
within the State constitute a single payment area and any of the 
following constitutes a separate MA payment area:
    (A) All portions of each single Metropolitan Statistical Area within 
the State.
    (B) All portions of each Metropolitan Statistical Area within each 
Metropolitan Division within the State.
    (iii) A consolidation of noncontiguous counties.
    (3) CMS response. In response to the request, CMS makes the payment 
adjustment requested by the chief executive. This adjustment cannot be 
requested or made for payments to regional MA plans.
    (4) Budget neutrality adjustment for geographically adjusted payment 
areas. If CMS adjusts a State's payment areas in accordance with 
paragraph (d)(2) of this section, CMS at that time, and each year 
thereafter, adjusts the capitation rates so that the aggregate Medicare 
payments do not exceed the aggregate Medicare payments that would have 
been made to all the State's payments areas, absent the geographic 
adjustment.



Sec. 422.306  Annual MA capitation rates.

    Subject to adjustments at Sec. 422.308(b) and Sec. 422.308(g), the 
annual capitation rate for each MA local area is determined under 
paragraph (a) of this section for 2005 and each succeeding year, except 
for years when CMS announces under Sec. 422.312(b) that the annual 
capitation rates will be determined under paragraph (b) of this section.
    (a) Minimum percentage increase rate. The annual capitation rate for 
each MA local area is equal to the minimum percentage increase rate, 
which is the greater of--
    (1) 102 percent of the annual capitation rate for the preceding 
year; or
    (2) The annual capitation rate for the area for the preceding year 
increased by the national per capita MA growth percentage (defined at 
Sec. 422.308(a)) for the year, but not taking into account any 
adjustment under Sec. 422.308(b) for a year before 2004.
    (b) Greater of the minimum percentage increase rate or local area 
fee-for-service costs. The annual capitation rate for each MA local area 
is the greater of--
    (1) The minimum percentage increase rate under paragraph (a) of this 
section; or

[[Page 289]]

    (2) The amount determined, no less frequently than every 3 years, to 
be the adjusted average per capita cost for the MA local area, as 
determined under section 1876(a)(4) of the Act, based on 100 percent of 
fee-for-service costs for individuals who are not enrolled in an MA plan 
for the year, with the following adjustments:
    (i) Adjusted as appropriate for the purpose of risk adjustment;
    (ii) Adjusted to exclude costs attributable to payments under 
section 1886(h) of the Act for the costs of direct graduate medical 
education; and
    (iii) Adjusted to include CMS' estimate of the amount of additional 
per capita payments that would have been made in the MA local area if 
individuals entitled to benefits under this title had not received 
services from facilities of the Department of Defense or the Department 
of Veterans Affairs.



Sec. 422.308  Adjustments to capitation rates, benchmarks, bids, and payments.

    CMS performs the following calculations and adjustments to determine 
rates and payments:
    (a) National per capita growth percentage. The national per capita 
growth percentage for a year, applied under Sec. 422.306, is CMS' 
estimate of the rate of growth in per capita expenditures under this 
title for an individual entitled to benefits under Part A and enrolled 
under Part B. CMS may make separate estimates for aged enrollees, 
disabled enrollees, and enrollees who have ESRD.
    (b) Adjustment for over or under projection of national per capita 
growth percentages. CMS will adjust the minimum percentage increase rate 
at Sec. 422.306(a)(2) and the adjusted average per capita cost rate at 
Sec. 422.306(b)(2) for the previous year to reflect any differences 
between the projected national per capita growth percentages for that 
year and previous years, and the current estimates of those percentages 
for those years. CMS will not make this adjustment for years before 
2004.
    (c) Risk adjustment--(1) General rule. CMS will adjust the payment 
amounts under Sec. 422.304(a)(1), (a)(2), and (a)(3) for age, gender, 
disability status, institutional status, and other factors CMS 
determines to be appropriate, including health status, in order to 
ensure actuarial equivalence. CMS may add to, modify, or substitute for 
risk adjustment factors if those changes will improve the determination 
of actuarial equivalence.
    (2) Risk adjustment: Health status--(i) Data collection. To adjust 
for health status, CMS applies a risk factor based on data obtained in 
accordance with Sec. 422.310.
    (ii) Implementation. CMS applies a risk factor that incorporates 
inpatient hospital and ambulatory risk adjustment data. This factor is 
phased as follows:
    (A) 100 percent of payments for ESRD MA enrollees in 2005 and 
succeeding years.
    (B) 75 percent of payments for aged and disabled enrollees in 2006.
    (C) 100 percent of payments for aged and disabled enrollees in 2007 
and succeeding years.
    (3) Uniform application. Except as provided for MA RFB plans under 
Sec. 422.304(c)(3), CMS applies this adjustment factor to all types of 
plans.
    (d) Adjustment for intra-area variations. CMS makes the following 
adjustments to payments.
    (1) Intra-regional variations. For payments for an MA regional plan 
for an MA region, CMS will adjust the payment amount specified at Sec. 
422.304(a)(1) and (a)(2) to take into account variations in local 
payment rates among the different MA local areas included in the region.
    (2) Intra-service area variations. For payments to an MA local plan 
with a service area covering more than one MA local area (county), CMS 
will adjust the payment amount specified in Sec. 422.304(a)(1) and 
(a)(2) to take into account variations in local payment rates among the 
different MA local areas included in the plan's service area.
    (e) Adjustment relating to risk adjustment: the government premium 
adjustment. CMS will adjust payments to an MA plan as necessary to 
ensure that the sum of CMS' monthly payment made under Sec. 422.304(a) 
and the plan's monthly basic beneficiary premium equals the unadjusted 
MA statutory

[[Page 290]]

non-drug bid amount, adjusted for risk and for intra-area or intra-
regional payment variation.
    (f) Adjustment of payments to reflect number of Medicare enrollees--
(1) General rule. CMS adjusts payments retroactively to take into 
account any difference between the actual number of Medicare enrollees 
and the number on which it based an advance monthly payment.
    (2) Special rules for certain enrollees. (i) Subject to paragraph 
(f)(2)(ii) of this section, CMS may make adjustments, for a period (not 
to exceed 90 days) that begins when a beneficiary elects a group health 
plan (as defined in Sec. 411.1010) offered by an MA organization, and 
ends when the beneficiary is enrolled in an MA plan offered by the MA 
organization.
    (ii) CMS does not make an adjustment unless the beneficiary 
certifies that, at the time of enrollment under the MA plan, he or she 
received from the organization the disclosure statement specified in 
Sec. 422.111.
    (g) Adjustment for national coverage determination (NCD) services 
and legislative changes in benefits. If CMS determines that the cost of 
furnishing an NCD service or legislative change in benefits is 
significant, as defined in Sec. 422.109, CMS will adjust capitation 
rates, or make other payment adjustments, to account for the cost of the 
service or legislative change in benefits. Until the new capitation 
rates are in effect, the MA organization will be paid for the 
significant cost NCD service or legislative change in benefits on a fee-
for-service basis as provided under Sec. 422.109(b).
    (h) Adjustments to payments to regional MA plans for purposes of 
risk corridor payments. For the purpose of calculation of risk corridors 
under Sec. 422.458, MA organizations offering regional MA plans in 2006 
and/or 2007 must submit, after the end of a contract year and before a 
date CMS specifies, the following information:
    (1) Actual allowable costs (defined in Sec. 422.458(a)) for the 
previous contract year.
    (2) The portion of the costs attributable to administrative expenses 
incurred in providing these benefits.
    (3) The total costs for providing rebatable integrated benefits (as 
defined in Sec. 422.458(a)) and the portion of the costs that is 
attributable to administrative expenses in addition to the 
administrative expenses described in paragraph (h)(2) of this section.



Sec. 422.310  Risk adjustment data.

    (a) Definition of risk adjustment data. Risk adjustment data are all 
data that are used in the application of a risk adjustment payment 
model.
    (b) Data collection: Basic rule. Each MA organization must submit to 
CMS (in accordance with CMS instructions) the data necessary to 
characterize the context and purposes of each service provided to a 
Medicare enrollee by a provider, supplier, physician, or other 
practitioner. CMS may also collect data necessary to characterize the 
functional limitations of enrollees of each MA organization.
    (c) Sources and extent of data. (1) To the extent required by CMS, 
risk adjustment data must account for the following:
    (i) Services covered under the original Medicare program.
    (ii) Medicare covered services for which Medicare is not the primary 
payer.
    (iii) Other additional or supplemental benefits that the MA 
organization may provide.
    (2) The data must account separately for each provider, supplier, 
physician, or other practitioner that would be permitted to bill 
separately under the original Medicare program, even if they participate 
jointly in the same service.
    (d) Other data requirements. (1) MA organizations must submit data 
that conform to the requirements for equivalent data for Medicare fee-
for-service when appropriate, and to all relevant national standards. 
Alternatively, MA organizations may submit data according to an 
abbreviated format, as specified by CMS.
    (2) The data must be submitted electronically to the appropriate CMS 
contractor.
    (3) MA organizations must obtain the risk adjustment data required 
by CMS from the provider, supplier, physician,

[[Page 291]]

or other practitioner that furnished the services.
    (4) MA organizations may include in their contracts with providers, 
suppliers, physicians, and other practitioners, provisions that require 
submission of complete and accurate risk adjustment data as required by 
CMS. These provisions may include financial penalties for failure to 
submit complete data.
    (e) Validation of risk adjustment data. MA organizations and their 
providers and practitioners will be required to submit a sample of 
medical records for the validation of risk adjustment data, as required 
by CMS. There may be penalties for submission of false data.
    (f) Use of data. CMS uses the data obtained under this section to 
determine the risk adjustment factor used to adjust payments, as 
required under Sec. 422.304(a)(1), (a)(2), and (a)(3). CMS may also use 
the data for other purposes except for medical records data.
    (g) Deadlines for submission of risk adjustment data. Risk 
adjustment factors for each payment year are based on risk adjustment 
data submitted for services furnished during the 12-month period before 
the payment year that is specified by CMS. As determined by CMS, this 
12-month period may include a 6-month data lag that may be changed or 
eliminated as appropriate.
    (1) The annual deadline for risk adjustment data submission is the 
first Friday in September for risk adjustment data reflecting services 
furnished during the 12-month period ending the prior June 30, and the 
first Friday in March for data reflecting services furnished during the 
12-month period ending the prior December 31.
    (2) CMS allows a reconciliation process to account for late data 
submissions. CMS continues to accept risk adjustment data submitted 
after the March deadline until December 31 of the payment year. After 
the payment year is completed, CMS recalculates the risk factors for 
affected individuals to determine if adjustments to payments are 
necessary. Risk adjustment data that are received after the annual 
December 31 late data submission deadline will not be accepted for the 
purposes of reconciliation.



Sec. 422.312  Announcement of annual capitation rate, benchmarks, and methodology changes.

    (a) Capitation rates--(1) Initial announcement. Not later than the 
first Monday in April each year, CMS announces to MA organizations and 
other interested parties the following information for each MA payment 
area for the following calendar year:
    (i) The annual MA capitation rate.
    (ii) The risk and other factors to be used in adjusting those rates 
under Sec. 422.308 for payments for months in that year.
    (2) CMS includes in the announcement an explanation of assumptions 
used and a description of the risk and other factors.
    (3) Regional benchmark announcement. Before the beginning of each 
annual, coordinated election period under Sec. 422.62(a)(2), CMS will 
announce to MA organizations and other interested parties the MA region-
specific non-drug monthly benchmark amount for the year involved for 
each MA region and each MA regional plan for which a bid was submitted 
under Sec. 422.256.
    (b) Advance notice of changes in methodology. (1) No later than 45 
days before making the announcement under paragraph (a)(1) of this 
section, CMS notifies MA organizations of changes it proposes to make in 
the factors and the methodology it used in the previous determination of 
capitation rates.
    (2) The MA organizations have 15 days to comment on the proposed 
changes.



Sec. 422.314  Special rules for beneficiaries enrolled in MA MSA plans.

    (a) Establishment and designation of medical savings account (MSA). 
A beneficiary who elects coverage under an MA MSA plan--
    (1) Must establish an MA MSA with a trustee that meets the 
requirements of paragraph (b) of this section; and
    (2) If he or she has more than one MA MSA, designate the particular 
account to which payments under the MA MSA plan are to be made.
    (b) Requirements for MSA trustees. An entity that acts as a trustee 
for an MA MSA must--
    (1) Register with CMS;

[[Page 292]]

    (2) Certify that it is a licensed bank, insurance company, or other 
entity qualified, under sections 408(a)(2) or 408(h) of the Internal 
Revenue Code of 1986, to act as a trustee of individual retirement 
accounts;
    (3) Agree to comply with the MA MSA provisions of section 138 of the 
Internal Revenue Code of 1986; and
    (4) Provide any other information that CMS may require.
    (c) Deposit in the MA MSA. (1) The payment is calculated as follows:
    (i) The monthly MA MSA premium is compared with 1/12 of the annual 
capitation rate applied under this section for the.
    (ii) If the monthly MA MSA premium is less than 1/12 of the annual 
capitation rate applied under this section for the area, the difference 
is the amount to be deposited in the MA MSA for each month for which the 
beneficiary is enrolled in the MSA plan.
    (2) CMS deposits the full amount to which a beneficiary is entitled 
under paragraph (c)(1)(ii) of this section for the calendar year, 
beginning with the month in which MA MSA coverage begins.
    (3) If the beneficiary's coverage under the MA MSA plan ends before 
the end of the calendar year, CMS recovers the amount that corresponds 
to the remaining months of that year.

[70 FR 4729, Jan. 28, 2005, as amended at 70 FR 52027, Sept. 1, 2005]



Sec. 422.316  Special rules for payments to Federally qualified health centers.

    If an enrollee in an MA plan receives a service from a Federally 
qualified health center (FQHC) that has a written agreement with the MA 
organization offering the plan concerning the provision of this service 
(including the agreement required under section 1857(e)(3) of the Act 
and as codified in Sec. 422.527)--
    (a) CMS will pay the amount determined under section 1833(a)(3)(B) 
of the Act directly to the FQHC at a minimum on a quarterly basis, less 
the amount the FQHC would receive for the MA enrollee from the MA 
organization (which includes the cost sharing amount the FQHC may charge 
an enrollee, as established in the contract between the FQHC and the MA 
organization); and
    (b) CMS will not reduce the amount of the monthly payments under 
this section as a result of the application of paragraph (a) of this 
section.

[70 FR 4729, Jan. 28, 2005, as amended at 70 FR 76198, Dec. 23, 2005]



Sec. 422.318  Special rules for coverage that begins or ends during an inpatient hospital stay.

    (a) Applicability. This section applies to inpatient services in a 
``subsection (d) hospital'' as defined in section 1886(d)(1)(B) of the 
Act, a psychiatric hospital described in section 1886(d)(1)(B)(i) of the 
act, a rehabilitation hospital described in section 1886(d)(1)(B)(ii) of 
the Act, a distinct part rehabilitation unit described in the matter 
following clause (v) of section 1886(d)(1)(B) of the Act, or a long-term 
care hospital (described in section 1886(d)(1)(B)(iv)).
    (b) Coverage that begins during an inpatient stay. If coverage under 
an MA plan offered by an MA organization begins while the beneficiary is 
an inpatient in one of the facilities described in paragraph (a) of this 
section--
    (1) Payment for inpatient services until the date of the 
beneficiary's discharge is made by the previous MA organization or 
original Medicare, as appropriate;
    (2) The MA organization offering the newly-elected MA plan is not 
responsible for the inpatient services until the date after the 
beneficiary's discharge; and
    (3) The MA organization offering the newly-elected MA plan is paid 
the full amount otherwise payable under this subpart.
    (c) Coverage that ends during an inpatient stay. If coverage under 
an MA plan offered by an MA organization ends while the beneficiary is 
an inpatient in one of the facilities described in paragraph (a) of this 
section--
    (1) The MA organization is responsible for the inpatient services 
until the date of the beneficiary's discharge;
    (2) Payment for those services during the remainder of the stay is 
not made by original Medicare or by any succeeding MA organization 
offering a newly-elected MA plan; and

[[Page 293]]

    (3) The MA organization that no longer provides coverage receives no 
payment for the beneficiary for the period after coverage ends.



Sec. 422.320  Special rules for hospice care.

    (a) Information. An MA organization that has a contract under 
subpart K of this part must inform each Medicare enrollee eligible to 
select hospice care under Sec. 418.24 of this chapter about the 
availability of hospice care (in a manner that objectively presents all 
available hospice providers, including a statement of any ownership 
interest in a hospice held by the MA organization or a related entity) 
if--
    (1) A Medicare hospice program is located within the plan's service 
area; or
    (2) It is common practice to refer patients to hospice programs 
outside that area.
    (b) Enrollment status. Unless the enrollee disenrolls from the MA 
plan, a beneficiary electing hospice continues his or her enrollment in 
the MA plan and is entitled to receive, through the MA plan, any 
benefits other than those that are the responsibility of the Medicare 
hospice.
    (c) Payment. (1) No payment is made to an MA organization on behalf 
of a Medicare enrollee who has elected hospice care under Sec. 418.24 
of this chapter, except for the portion of the payment attributable to 
the beneficiary rebate for the MA plan, described in Sec. 422.266(b)(1) 
plus the amount of the monthly prescription drug payment described in 
Sec. 423.315 (if any). This no-payment rule is effective from the first 
day of the month following the month of election to receive hospice 
care, until the first day of the month following the month in which the 
election is terminated.
    (2) During the time the hospice election is in effect, CMS' monthly 
capitation payment to the MA organization is reduced to the sum of--
    (i) An amount equal to the beneficiary rebate for the MA plan, as 
described in Sec. 422.304(a)(3) or to zero for plans with no 
beneficiary rebate, described at Sec. 422.304(a)(2); and
    (ii) The amount of the monthly prescription drug payment described 
in Sec. 423.315 (if any).
    (3) In addition, CMS pays through the original Medicare program 
(subject to the usual rules of payment)--
    (i) The hospice program for hospice care furnished to the Medicare 
enrollee; and
    (ii) The MA organization, provider, or supplier for other Medicare-
covered services to the enrollee.

[70 FR 4729, Jan. 28, 2005, as amended at 70 FR 52027, Sept. 1, 2005]



Sec. 422.322  Source of payment and effect of MA plan election on payment.

    (a) Source of payments. (1) Payments under this subpart for original 
fee-for-service benefits to MA organizations or MA MSAs are made from 
the Federal Hospital Insurance Trust Fund or the Supplementary Medical 
Insurance Trust Fund. CMS determines the proportions to reflect the 
relative weight that benefits under Part A, and benefits under Part B 
represents of the actuarial value of the total benefits under title 
XVIII of the Act.
    (2) Payments to MA-PD organizations for statutory drug benefits 
provided under this title are made from the Medicare Prescription Drug 
Account in the Federal Supplementary Medical Insurance Trust Fund.
    (b) Payments to the MA organization. Subject to Sec. 412.105(g) and 
Sec. 413.86(d) of this chapter and Sec. 422.109, Sec. 422.316, and 
Sec. 422.320, CMS' payments under a contract with an MA organization 
(described in Sec. 422.304) with respect to an individual electing an 
MA plan offered by the organization are instead of the amounts which (in 
the absence of the contract) would otherwise be payable under original 
Medicare for items and services furnished to the individual.
    (c) Only the MA organization entitled to payment. Subject to Sec. 
422.314, Sec. 422.316, Sec. 422.318, Sec. 422.320, and Sec. 422.520 
and sections 1886(d)(11) and 1886(h)(3)(D) of the Act, only the MA 
organization is entitled to receive payment from CMS under title XVIII 
of the Act for items and services furnished to the individual.

[70 FR 4729, Jan. 28, 2005, as amended at 70 FR 52027, Sept. 1, 2005]

[[Page 294]]



Sec. 422.324  Payments to MA organizations for graduate medical education costs.

    (a) MA organizations may receive direct graduate medical education 
payments for the time that residents spend in non-hospital provider 
settings such as freestanding clinics, nursing homes, and physicians' 
offices in connection with approved programs.
    (b) MA organizations may receive direct graduate medical education 
payments if all of the following conditions are met:
    (1) The resident spends his or her time assigned to patient care 
activities.
    (2) The MA organization incurs ``all or substantially all'' of the 
costs for the training program in the non-hospital setting as defined in 
Sec. 413.86(b) of this chapter.
    (3) There is a written agreement between the MA organization and the 
non-hospital site that indicates the MA organization will incur the 
costs of the resident's salary and fringe benefits and provide 
reasonable compensation to the non-hospital site for teaching 
activities.
    (c) An MA organization's allowable direct graduate medical education 
costs, subject to the redistribution and community support principles 
specified in Sec. 413.85(c) of this chapter, consist of--
    (1) Residents' salaries and fringe benefits (including travel and 
lodging where applicable); and
    (2) Reasonable compensation to the non-hospital site for teaching 
activities related to the training of medical residents.
    (d) The direct graduate medical education payment is equal to the 
product of--
    (1) The lower of--
    (i) The MA organization's allowable costs per resident as defined in 
paragraph (c) of this section; or
    (ii) The national average per resident amount; and
    (2) Medicare's share, which is equal to the ratio of the number of 
Medicare beneficiaries enrolled to the total number of individuals 
enrolled in the MA organization.
    (e) Direct graduate medical education payments made to MA 
organizations under this section are made from the Federal Supplementary 
Medical Insurance Trust Fund.



               Subpart H_Provider-Sponsored Organizations

    Editorial Note: Nomenclature changes to subpart H appear at 63 FR 
35098, 35099, June 26, 1998.



Sec. 422.350  Basis, scope, and definitions.

    (a) Basis and scope. This subpart is based on sections 1851 and 1855 
of the Act which, in part,--
    (1) Authorize provider sponsored organizations, (PSOs), to contract 
as a MA plan;
    (2) Require that a PSO meet certain qualifying requirements; and
    (3) Provide for waiver of State licensure for PSOs under specified 
conditions.
    (b) Definitions. As used in this subpart (unless otherwise 
specified)--
    Capitation payment means a fixed per enrollee per month amount paid 
for contracted services without regard to the type, cost, or frequency 
of services furnished.
    Cash equivalent means those assets excluding accounts receivable 
that can be exchanged on an equivalent basis as cash, or converted into 
cash within 90 days from their presentation for exchange.
    Control means that an individual, group of individuals, or entity 
has the power, directly or indirectly, to direct or influence 
significantly the actions or policies of an organization or institution.
    Current ratio means total current assets divided by total current 
liabilities.
    Deferred acquisition costs are those costs incurred in starting or 
purchasing a business. These costs are capitalized as intangible assets 
and carried on the balance sheet as deferred charges since they benefit 
the business for periods after the period in which the costs were 
incurred.
    Engaged in the delivery of health care services means--
    (1) For an individual, that the individual directly furnishes health 
care services, or
    (2) For an entity, that the entity is organized and operated 
primarily for

[[Page 295]]

the purpose of furnishing health care services directly or through its 
provider members or entities.
    Generally accepted accounting principles (GAAP) means broad rules 
adopted by the accounting profession as guides in measuring, recording, 
and reporting the financial affairs and activities of a business to its 
owners, creditors and other interested parties.
    Guarantor means an entity that--
    (1) Has been approved by CMS as meeting the requirements to be a 
guarantor; and
    (2) Obligates its resources to a PSO to enable the PSO to meet the 
solvency requirements required to contract with CMS as an MA 
organization.
    Health care delivery assets (HCDAs) means any tangible assets that 
are part of a PSO's operation, including hospitals and other medical 
facilities and their ancillary equipment, and such property as may be 
reasonably required for the PSO's principal office or for such other 
purposes as the PSO may need for transacting its business.
    Insolvency means a condition in which the liabilities of the debtor 
exceed the fair valuation of its assets.
    Net worth means the excess of total assets over total liabilities, 
excluding fully subordinated debt or subordinated liabilities.
    Provider-sponsored organization (PSO) means a public or private 
entity that--
    (1) Is established or organized, and operated, by a provider or 
group of affiliated providers;
    (2) Provides a substantial proportion (as defined in Sec. 422.352) 
of the health care services under the MA contract directly through the 
provider or affiliated group of providers; and
    (3) When it is a group, is composed of affiliated providers who--
    (i) Share, directly or indirectly, substantial financial risk, as 
determined under Sec. 422.356, for the provision of services that are 
the obligation of the PSO under the MA contract; and
    (ii) Have at least a majority financial interest in the PSO.
    Qualified actuary means a member in good standing of the American 
Academy of Actuaries or a person recognized by the Academy as qualified 
for membership, or a person who has otherwise demonstrated competency in 
the field of actuarial determination and is satisfactory to CMS.
    Statutory accounting practices means those accounting principles or 
practices prescribed or permitted by the domiciliary State insurance 
department in the State that PSO operates.
    Subordinated debt means an obligation that is owed by an 
organization, that the creditor of the obligation, by law, agreement, or 
otherwise, has a lower repayment rank in the hierarchy of creditors than 
another creditor. The creditor would be entitled to repayment only after 
all higher ranking creditors' claims have been satisfied. A debt is 
fully subordinated if it has a lower repayment rank than all other 
classes of creditors.
    Subordinated liability means claims liabilities otherwise due to 
providers that are retained by the PSO to meet net worth requirements 
and are fully subordinated to all other creditors.
    Uncovered expenditures means those expenditures for health care 
services that are the obligation of an organization, for which an 
enrollee may also be liable in the event of the organization's 
insolvency and for which no alternative arrangements have been made that 
are acceptable to CMS. They include expenditures for health care 
services for which the organization is at risk, such as out-of-area 
services, referral services and hospital services. However, they do not 
include expenditures for services when a provider has agreed not to bill 
the enrollee.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 25376, May 7, 1998; 63 
FR 35098, June 26, 1998]



Sec. 422.352  Basic requirements.

    (a) General rule. An organization is considered a PSO for purposes 
of a MA contract if the organization--
    (1) Has obtained a waiver of State licensure as provided for under 
Sec. 422.370;
    (2) Meets the definition of a PSO set forth in Sec. 422.350 and 
other applicable requirements of this subpart; and
    (3) Is effectively controlled by the provider or, in the case of a 
group, by one or more of the affiliated providers that established and 
operate the PSO.
    (b) Provision of services. A PSO must demonstrate to CMS's 
satisfaction that it is capable of delivering to Medicare

[[Page 296]]

enrollees the range of services required under a contract with CMS. Each 
PSO must deliver a substantial proportion of those services directly 
through the provider or the affiliated providers responsible for 
operating the PSO. Substantial proportion means--
    (1) For a non-rural PSO, not less than 70% of Medicare services 
covered under the contract.
    (2) For a rural PSO, not less than 60% of Medicare services covered 
under the contract.
    (c) Rural PSO. To qualify as a rural PSO, a PSO must--
    (1) Demonstrate to CMS that--
    (i) It has available in the rural area, as defined in Sec. 
412.62(f) of this chapter, routine services including but not limited to 
primary care, routine specialty care, and emergency services; and
    (ii) The level of use of providers outside the rural area is 
consistent with general referral patterns for the area; and
    (2) Enroll Medicare beneficiaries, the majority of which reside in 
the rural area the PSO serves.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 35098, June 26, 1998; 
65 FR 40327, June 29, 2000]



Sec. 422.354  Requirements for affiliated providers.

    A PSO that consists of two or more providers must demonstrate to 
CMS'S satisfaction that it meets the following requirements:
    (a) The providers are affiliated. For purposes of this subpart, 
providers are affiliated if, through contract, ownership, or otherwise--
    (1) One provider, directly or indirectly, controls, is controlled 
by, or is under common control with another;
    (2) Each provider is part of a lawful combination under which each 
shares substantial financial risk in connection with the PSO's 
operations;
    (3) Both, or all, providers are part of a controlled group of 
corporations under section 1563 of the Internal Revenue Code of 1986; or
    (4) Both, or all, providers are part of an affiliated service group 
under section 414 of that Code.
    (b) Each affiliated provider of the PSO shares, directly or 
indirectly, substantial financial risk for the furnishing of services 
the PSO is obligated to provide under the contract.
    (c) Affiliated providers, as a whole or in part, have at least a 
majority financial interest in the PSO.
    (d) For purposes of paragraph(a)(1) of this section, control is 
presumed to exist if one party, directly or indirectly, owns, controls, 
or holds the power to vote, or proxies for, not less than 51 percent of 
the voting rights or governance right of another.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.356  Determining substantial financial risk and majority financial interest.

    (a) Determining substantial financial risk. The PSO must demonstrate 
to CMS's satisfaction that it apportions a significant part of the 
financial risk of the PSO enterprise under the MA contract to each 
affiliated provider. The PSO must demonstrate that the financial 
arrangements among its affiliated providers constitute ``substantial'' 
risk in the PSO for each affiliated provider. The following mechanisms 
may constitute risk-sharing arrangements, and may have to be used in 
combination to demonstrate substantial financial risk in the PSO 
enterprise.
    (1) Agreement by a provider to accept capitation payment for each 
Medicare enrollee.
    (2) Agreement by a provider to accept as payment a predetermined 
percentage of the PSO premium or the PSO's revenue.
    (3) The PSO's use of significant financial incentives for its 
affiliated providers, with the aim of achieving utilization management 
and cost containment goals. Permissible methods include the following:
    (i) Affiliated providers agree to a withholding of a significant 
amount of the compensation due them, to be used for any of the 
following:
    (A) To cover losses of the PSO.
    (B) To cover losses of other affiliated providers.
    (C) To be returned to the affiliated provider if the PSO meets its 
utilization management or cost containment goals for the specified time 
period.

[[Page 297]]

    (D) To be distributed among affiliated providers if the PSO meets 
its utilization management or cost-containment goals for the specified 
time period.
    (ii) Affiliated providers agree to preestablished cost or 
utilization targets for the PSO and to subsequent significant financial 
rewards and penalties (which may include a reduction in payments to the 
provider) based on the PSO's performance in meeting the targets.
    (4) Other mechanisms that demonstrate significant shared financial 
risk.
    (b) Determining majority financial interest. Majority financial 
interest means maintaining effective control of the PSO.

[63 FR 18134, Apr. 14, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.370  Waiver of State licensure.

    For an organization that seeks to contract to offer an MA plan under 
this subpart, CMS may waive the State licensure requirement of section 
1855(a)(1) of the Act if--
    (a) The organization requests a waiver no later than November 1, 
2002; and
    (b) CMS determines there is a basis for a waiver under Sec. 
422.372.

[63 FR 25376, May 7, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.372  Basis for waiver of State licensure.

    (a) General rule. Subject to this section and to paragraphs (a) and 
(e) of Sec. 422.374, CMS may waive the State licensure requirement if 
the organization has applied (except as provided in paragraph (b)(4) of 
this section) for the most closely appropriate State license or 
authority to conduct business as an MA plan.
    (b) Basis for waiver of State licensure. Any of the following may 
constitute a basis for CMS's waiver of State licensure.
    (1) Failure to act timely on application. The State failed to 
complete action on the licensing application within 90 days of the date 
the State received a substantially complete application.
    (2) Denial of application based on discriminatory treatment. The 
State has--
    (i) Denied the license application on the basis of material 
requirements, procedures, or standards (other than solvency 
requirements) not generally applied by the State to other entities 
engaged in a substantially similar business; or
    (ii) Required, as a condition of licensure that the organization 
offer any product or plan other than an MA plan.
    (3) Denial of application based on different solvency requirements. 
(i) The State has denied the application, in whole or in part, on the 
basis of the organization's failure to meet solvency requirements that 
are different from those set forth in Sec. Sec. 422.380 through 
422.390; or
    (ii) CMS determines that the State has imposed, as a condition of 
licensure, any documentation or information requirements relating to 
solvency or other material requirements, procedures, or standards 
relating to solvency that are different from the requirements, 
procedures, or standards set forth by CMS to implement, monitor, and 
enforce Sec. Sec. 422.380 through 422.390.
    (4) State declines to accept licensure application. The appropriate 
State licensing authority has given the organization written notice that 
it will not accept its licensure application.

[63 FR 35098, June 26, 1998]



Sec. 422.374  Waiver request and approval process.

    (a) Substantially complete waiver request. The organization must 
submit a substantially complete waiver request that clearly demonstrates 
and documents its eligibility for a waiver under Sec. 422.372.
    (b) CMS gives the organization written notice of granting or denial 
of waiver within 60 days of receipt of a substantially complete waiver 
request.
    (c) Subsequent waiver requests. An organization that has had a 
waiver request denied, may submit subsequent waiver requests until 
November 1, 2002.
    (d) Effective date. A waiver granted under Sec. 422.370 will be 
effective on the effective date of the organization's MA contract.
    (e) Consistency in application. CMS reserves the right to revoke 
waiver eligibility if it subsequently determines

[[Page 298]]

that the organization's MA application is significantly different from 
the application submitted by the organization to the State licensing 
authority.

[63 FR 25377, May 7, 1998, as amended at 63 FR 35098, June 26, 1998]



Sec. 422.376  Conditions of the waiver.

    A waiver granted under this section is subject to the following 
conditions:
    (a) Limitation to State. The waiver is effective only for the 
particular State for which it is granted and does not apply to any other 
State. For each State in which the organization wishes to operate 
without a State license, it must submit a waiver request and receive a 
waiver.
    (b) Limitation to 36-month period. The waiver is effective for 36 
months or through the end of the calendar year in which the 36 month 
period ends unless it is revoked based on paragraph (c) of this section.
    (c) Mid-period revocation. During the waiver period (set forth in 
paragraph (b) of this section), the waiver is automatically revoked 
upon--
    (1) Termination of the MA contract;
    (2) The organization's compliance with the State licensure 
requirement of section 1855(a)(1) of the Act; or
    (3) The organization's failure to comply with Sec. 422.378.

[63 FR 25377, May 7, 1998]



Sec. 422.378  Relationship to State law.

    (a) Preemption of State law. Any provisions of State law that relate 
to the licensing of the organization and that prohibit the organization 
from providing coverage under a contract as specified in this subpart, 
are superseded.
    (b) Consumer protection and quality standards. (1) A waiver of State 
licensure granted under this subpart is conditioned upon the 
organization's compliance with all State consumer protection and quality 
standards that--
    (i) Would apply to the organization if it were licensed under State 
law;
    (ii) Generally apply to other MA organizations and plans in the 
State; and
    (iii) Are consistent with the standards established under this part.
    (2) The standards specified in paragraph (b)(1) of this section do 
not include any standard preempted under section 1856(b)(3)(B) of the 
Act.
    (c) Incorporation into contract. In contracting with an organization 
that has a waiver of State licensure, CMS incorporates into the contract 
the requirements specified in paragraph (b) of this section.
    (d) Enforcement. CMS may enter into an agreement with a State for 
the State to monitor and enforce compliance with the requirements 
specified in paragraph (b) of this section by an organization that has 
obtained a waiver under this subpart.

[63 FR 25377, May 7, 1998]



Sec. 422.380  Solvency standards.

    General rule. A PSO or the legal entity of which the PSO is a 
component that has been granted a waiver under Sec. 422.370 must have a 
fiscally sound operation that meets the requirements of Sec. Sec. 
422.382 through 422.390.

[63 FR 25377, May 7, 1998]



Sec. 422.382  Minimum net worth amount.

    (a) At the time an organization applies to contract with CMS as a 
PSO under this part, the organization must have a minimum net worth 
amount, as determined under paragraph (c) of this section, of:
    (1) At least $1,500,000, except as provided in paragraph (a)(2) of 
this section.
    (2) No less than $1,000,000 based on evidence from the 
organization's financial plan (under Sec. 422.384) demonstrating to 
CMS's satisfaction that the organization has available to it an 
administrative infrastructure that CMS considers appropriate to reduce, 
control or eliminate start-up administrative costs.
    (b) After the effective date of a PSO's MA contract, a PSO must 
maintain a minimum net worth amount equal to the greater of--
    (1) One million dollars;
    (2) Two percent of annual premium revenues as reported on the most 
recent annual financial statement filed with CMS for up to and including 
the first $150,000,000 of annual premiums and 1 percent of annual 
premium revenues on premiums in excess of $150,000,000;

[[Page 299]]

    (3) An amount equal to the sum of three months of uncovered health 
care expenditures as reported on the most recent financial statement 
filed with CMS; or
    (4) Using the most recent financial statement filed with CMS, an 
amount equal to the sum of--
    (i) Eight percent of annual health care expenditures paid on a non-
capitated basis to non-affiliated providers; and
    (ii) Four percent of annual health care expenditures paid on a 
capitated basis to non-affiliated providers plus annual health care 
expenditures paid on a non-capitated basis to affiliated providers.
    (iii) Annual health care expenditures that are paid on a capitated 
basis to affiliated providers are not included in the calculation of the 
net worth requirement (regardless of downstream arrangements from the 
affiliated provider) under paragraphs (a) and (b)(4) of this section.
    (c) Calculation of the minimum net worth amount--(1) Cash 
requirement. (i) At the time of application, the organization must 
maintain at least $750,000 of the minimum net worth amount in cash or 
cash equivalents.
    (ii) After the effective date of a PSO's MA contract, a PSO must 
maintain the greater of $750,000 or 40 percent of the minimum net worth 
amount in cash or cash equivalents.
    (2) Intangible assets. An organization may include intangible 
assets, the value of which is based on Generally Accepted Accounting 
Principles (GAAP), in the minimum net worth amount calculation subject 
to the following limitations--
    (i) At the time of application. (A) Up to 20 percent of the minimum 
net worth amount, provided at least $1,000,000 of the minimum net worth 
amount is met through cash or cash equivalents; or
    (B) Up to 10 percent of the minimum net worth amount, if less than 
$1,000,000 of the minimum net worth amount is met through cash or cash 
equivalents, or if CMS has used its discretion under paragraph (a)(2) of 
this section.
    (ii) From the effective date of the contract. (A) Up to 20 percent 
of the minimum net worth amount if the greater of $1,000,000 or 67 
percent of the minimum net worth amount is met by cash or cash 
equivalents; or
    (B) Up to ten percent of the minimum net worth amount if the greater 
of $1,000,000 or 67 percent of the minimum net worth amount is not met 
by cash or cash equivalents.
    (3) Health care delivery assets. Subject to the other provisions of 
this section, a PSO may apply 100 percent of the GAAP depreciated value 
of health care delivery assets (HCDAs) to satisfy the minimum net worth 
amount.
    (4) Other assets. A PSO may apply other assets not used in the 
delivery of health care provided that those assets are valued according 
to statutory accounting practices (SAP) as defined by the State.
    (5) Subordinated debts and subordinated liabilities. Fully 
subordinated debt and subordinated liabilities are excluded from the 
minimum net worth amount calculation.
    (6) Deferred acquisition costs. Deferred acquisition costs are 
excluded from the calculation of the minimum net worth amount.

[63 FR 25377, May 7, 1998, as amended at 64 FR 71678, Dec. 22, 1999]



Sec. 422.384  Financial plan requirement.

    (a) General rule. At the time of application, an organization must 
submit a financial plan acceptable to CMS.
    (b) Content of plan. A financial plan must include--
    (1) A detailed marketing plan;
    (2) Statements of revenue and expense on an accrual basis;
    (3) Cash-flow statements;
    (4) Balance sheets;
    (5) Detailed justifications and assumptions in support of the 
financial plan including, where appropriate, certification of reserves 
and actuarial liabilities by a qualified actuary; and
    (6) If applicable, statements of the availability of financial 
resources to meet projected losses.
    (c) Period covered by the plan. A financial plan must--
    (1) Cover the first 12 months after the estimated effective date of 
a PSO's MA contract; or
    (2) If the PSO is projecting losses, cover 12 months beyond the end 
of the period for which losses are projected.

[[Page 300]]

    (d) Funding for projected losses. Except for the use of guarantees, 
LOC, and other means as provided in Sec. 422.384(e), (f) and (g), an 
organization must have the resources for meeting projected losses on its 
balance sheet in cash or a form that is convertible to cash in a timely 
manner, in accordance with the PSO's financial plan.
    (e) Guarantees and projected losses. Guarantees will be an 
acceptable resource to fund projected losses, provided that a PSO--
    (1) Meets CMS's requirements for guarantors and guarantee documents 
as specified in Sec. 422.390; and
    (2) Obtains from the guarantor cash or cash equivalents to fund the 
projected losses timely, as follows--
    (i) Prior to the effective date of a PSO's MA contract, the amount 
of the projected losses for the first two quarters;
    (ii) During the first quarter and prior to the beginning of the 
second quarter of a PSO's MA contract, the amount of projected losses 
through the end of the third quarter; and
    (iii) During the second quarter and prior to the beginning of the 
third quarter of a PSO's MA contract, the amount of projected losses 
through the end of the fourth quarter.
    (3) If the guarantor complies with the requirements in paragraph 
(e)(2) of this section, the PSO, in the third quarter, may notify CMS of 
its intent to reduce the period of advance funding of projected losses. 
CMS will notify the PSO within 60 days of receiving the PSO's request if 
the requested reduction in the period of advance funding will not be 
accepted.
    (4) If the guarantee requirements in paragraph (e)(2) of this 
section are not met, CMS may take appropriate action, such as requiring 
funding of projected losses through means other than a guarantee. CMS 
retains discretion to require other methods or timing of funding, 
considering factors such as the financial condition of the guarantor and 
the accuracy of the financial plan.
    (f) Letters of credit. Letters of credit are an acceptable resource 
to fund projected losses, provided they are irrevocable, unconditional, 
and satisfactory to CMS. They must be capable of being promptly paid 
upon presentation of a sight draft under the letters of credt without 
further reference to any other agreement, document, or entity.
    (g) Other means. If satisfactory to CMS, and for periods beginning 
one year after the effective date of a PSO's MA contract, a PSO may use 
the following to fund projected losses--
    (1) Lines of credit from regulated financial institutions;
    (2) Legally binding agreements for capital contributions; or
    (3) Legally binding agreements of a similar quality and reliability 
as permitted in paragraphs (g)(1) and (2) of this section.
    (h) Application of guarantees, Letters of credit or other means of 
funding projected losses. Notwithstanding any other provision of this 
section, a PSO may use guarantees, letters of credit and, beginning one 
year after the effective date of a PSO's MA contract, other means of 
funding projected losses, but only in a combination or sequence that CMS 
considers appropriate.

[63 FR 25378, May 7, 1998, as amended at 63 FR 35098, June 26, 1998; 64 
FR 71678, Dec. 22, 1999]



Sec. 422.386  Liquidity.

    (a) A PSO must have sufficient cash flow to meet its financial 
obligations as they become due and payable.
    (b) To determine whether the PSO meets the requirement in paragraph 
(a) of this section, CMS will examine the following--
    (1) The PSO's timeliness in meeting current obligations;
    (2) The extent to which the PSO's current ratio of assets to 
liabilities is maintained at 1:1 including whether there is a declining 
trend in the current ratio over time; and
    (3) The availability of outside financial resources to the PSO.
    (c) If CMS determines that a PSO fails to meet the requirement in 
paragraph (b)(1) of this section, CMS will require the PSO to initiate 
corrective action and pay all overdue obligations.
    (d) If CMS determines that a PSO fails to meet the requirement of 
paragraph (b)(2) of this section, CMS may require the PSO to initiate 
corrective action to--

[[Page 301]]

    (1) Change the distribution of its assets;
    (2) Reduce its liabilities; or
    (3) Make alternative arrangements to secure additional funding to 
restore the PSO's current ratio to 1:1.
    (e) If CMS determines that there has been a change in the 
availability of outside financial resources as required by paragraph 
(b)(3) of this section, CMS requires the PSO to obtain funding from 
alternative financial resources.

[63 FR 25378, May 7, 1998, as amended at 64 FR 71678, Dec. 22, 1999]



Sec. 422.388  Deposits.

    (a) Insolvency deposit. (1) At the time of application, an 
organization must deposit $100,000 in cash or securities (or any 
combination thereof) into an account in a manner that is acceptable to 
CMS.
    (2) The deposit must be restricted to use in the event of insolvency 
to help assure continuation of services or pay costs associated with 
receivership or liquidation.
    (3) At the time of the PSO's application for an MA contract and, 
thereafter, upon CMS's request, a PSO must provide CMS with proof of the 
insolvency deposit, such proof to be in a form that CMS considers 
appropriate.
    (b) Uncovered expenditures deposit. (1) If at any time uncovered 
expenditures exceed 10 percent of a PSO's total health care 
expenditures, then the PSO must place an uncovered expenditures deposit 
into an account with any organization or trustee that is acceptable to 
CMS.
    (2) The deposit must at all times have a fair market value of an 
amount that is 120 percent of the PSO's outstanding liability for 
uncovered expenditures for enrollees, including incurred, but not 
reported claims.
    (3) The deposit must be calculated as of the first day of each month 
required and maintained for the remainder of each month required.
    (4) If a PSO is not otherwise required to file a quarterly report, 
it must file a report within 45 days of the end of the calendar quarter 
with information sufficient to demonstrate compliance with this section.
    (5) The deposit required under this section is restricted and in 
trust for CMS's use to protect the interests of the PSO's Medicare 
enrollees and to pay the costs associated with administering the 
insolvency. It may be used only as provided under this section.
    (c) A PSO may use the deposits required under paragraphs (a) and (b) 
of this section to satisfy the PSO's minimum net worth amount required 
under Sec. 422.382(a) and (b).
    (d) All income from the deposits or trust accounts required under 
paragraphs (a) and (b) of this section, are considered assets of the 
PSO. Upon CMS's approval, the income from the deposits may be withdrawn.
    (e) On prior written approval from CMS, a PSO that has made a 
deposit under paragraphs (a) or (b) of this section, may withdraw that 
deposit or any part thereof if--
    (1) A substitute deposit of cash or securities of equal amount and 
value is made;
    (2) The fair market value exceeds the amount of the required 
deposit; or
    (3) The required deposit under paragraphs (a) or (b) of this section 
is reduced or eliminated.

[63 FR 25379, May 7, 1998]



Sec. 422.390  Guarantees.

    (a) General policy. A PSO, or the legal entity of which the PSO is a 
component, may apply to CMS to use the financial resources of a 
guarantor for the purpose of meeting the requirements in Sec. 422.384. 
CMS has the discretion to approve or deny approval of the use of a 
guarantor.
    (b) Request to use a guarantor. To apply to use the financial 
resources of a guarantor, a PSO must submit to CMS--
    (1) Documentation that the guarantor meets the requirements for a 
guarantor under paragraph (c) of this section; and
    (2) The guarantor's independently audited financial statements for 
the current year-to-date and for the two most recent fiscal years. The 
financial statements must include the guarantor's balance sheets, profit 
and loss statements, and cash flow statements.
    (c) Requirements for guarantor. To serve as a guarantor, an 
organization must meet the following requirements:

[[Page 302]]

    (1) Be a legal entity authorized to conduct business within a State 
of the United States.
    (2) Not be under Federal or State bankruptcy or rehabilitation 
proceedings.
    (3) Have a net worth (not including other guarantees, intangibles 
and restricted reserves) equal to three times the amount of the PSO 
guarantee.
    (4) If the guarantor is regulated by a State insurance commissioner, 
or other State official with authority for risk-bearing entities, it 
must meet the net worth requirement in Sec. 422.390(c)(3) with all 
guarantees and all investments in and loans to organizations covered by 
guarantees excluded from its assets.
    (5) If the guarantor is not regulated by a State insurance 
commissioner, or other similar State official it must meet the net worth 
requirement in Sec. 422.390(c)(3) with all guarantees and all 
investments in and loans to organizations covered by a guarantee and to 
related parties (subsidiaries and affiliates) excluded from its assets.
    (d) Guarantee document. If the guarantee request is approved, a PSO 
must submit to CMS a written guarantee document signed by an appropriate 
authority of the guarantor. The guarantee document must--
    (1) State the financial obligation covered by the guarantee;
    (2) Agree to--
    (i) Unconditionally fulfill the financial obligation covered by the 
guarantee; and
    (ii) Not subordinate the guarantee to any other claim on the 
resources of the guarantor;
    (3) Declare that the guarantor must act on a timely basis, in any 
case not more than 5 business days, to satisfy the financial obligation 
covered by the guarantee; and
    (4) Meet other conditions as CMS may establish from time to time.
    (e) Reporting requirement. A PSO must submit to CMS the current 
internal financial statements and annual audited financial statements of 
the guarantor according to the schedule, manner, and form that CMS 
requests.
    (f) Modification, substitution, and termination of a guarantee. A 
PSO cannot modify, substitute or terminate a guarantee unless the PSO--
    (1) Requests CMS's approval at least 90 days before the proposed 
effective date of the modification, substitution, or termination;
    (2) Demonstrates to CMS's satisfaction that the modification, 
substitution, or termination will not result in insolvency of the PSO; 
and
    (3) Demonstrates how the PSO will meet the requirements of this 
section.
    (g) Nullification. If at any time the guarantor or the guarantee 
ceases to meet the requirements of this section, CMS will notify the PSO 
that it ceases to recognize the guarantee document. In the event of this 
nullification, a PSO must--
    (1) Meet the applicable requirements of this section within 15 
business days; and
    (2) If required by CMS, meet a portion of the applicable 
requirements in less than the time period granted in paragraph (g)(1) of 
this section.

[63 FR 25379, May 7, 1998]



   Subpart I_Organization Compliance With State Law and Preemption by 
                               Federal Law

    Source: 63 FR 35099, June 26, 1998, unless otherwise noted.



Sec. 422.400  State licensure requirement.

    Except in the case of a PSO granted a waiver under subpart H of this 
part, each MA organization must--
    (a) Be licensed under State law, or otherwise authorized to operate 
under State law, as a risk-bearing entity (as defined in Sec. 422.2) 
eligible to offer health insurance or health benefits coverage in each 
State in which it offers one or more MA plans;
    (b) If not commercially licensed, obtain certification from the 
State that the organization meets a level of financial solvency and such 
other standards as the State may require for it to operate as an MA 
organization; and
    (c) Demonstrate to CMS that--
    (1) The scope of its license or authority allows the organization to 
offer the type of MA plan or plans that it intends to offer in the 
State; and

[[Page 303]]

    (2) If applicable, it has obtained the State certification required 
under paragraph (b) of this section.



Sec. 422.402  Federal preemption of State law.

    The standards established under this part supersede any State law or 
regulation (other than State licensing laws or State laws relating to 
plan solvency) with respect to the MA plans that are offered by MA 
organizations.

[70 FR 4733, Jan. 28, 2005]



Sec. 422.404  State premium taxes prohibited.

    (a) Basic rule. No premium tax, fee, or other similar assessment may 
be imposed by any State, the District of Columbia, the Commonwealth of 
Puerto Rico, the Virgin Islands, Guam, and American Samoa, or any of 
their political subdivisions or other governmental authorities with 
respect to any payment CMS makes on behalf of MA enrollees under subpart 
G of this part, or with respect to any payment made to MA plans by 
beneficiaries, or payment to MA plans by a third party on a 
beneficiary's behalf.
    (b) Construction. Nothing in this section shall be construed to 
exempt any MA organization from taxes, fees, or other monetary 
assessments related to the net income or profit that accrues to, or is 
realized by, the organization from business conducted under this part, 
if that tax, fee, or payment is applicable to a broad range of business 
activity.

[63 FR 35099, June 26, 1998, as amended at 70 FR 4733, Jan. 28, 2005]



              Subpart J_Special Rules for MA Regional Plans

    Source: 70 FR 4733, Jan. 28, 2005, unless otherwise noted.



Sec. 422.451  Moratorium on new local preferred provider organization plans.

    CMS will not approve the offering of a local preferred provider 
organization plan during 2006 or 2007 in a service area unless the MA 
organization seeking to offer the plan was offering a local preferred 
provider organization plan in the service area before December 31, 2005.



Sec. 422.455  Special rules for MA Regional Plans.

    (a) Coverage of entire MA region. The service area for an MA 
regional plan will consist of an entire MA region established under 
paragraph (b) of this section, and an MA region may not be segmented as 
described in Sec. 422.262(c)(2).
    (b) Establishment of MA regions--(1) MA region. The term ``MA 
region'' means a region within the 50 States and the District of 
Columbia as established by CMS under this section.
    (2) Establishment--(i) Initial establishment. By January 1, 2005, 
CMS will establish and publish the MA regions.
    (ii) Periodic review and revision of service areas. CMS may 
periodically review MA regions and may revise the regions if it 
determines the revision to be appropriate.
    (3) Requirements for MA regions. CMS will establish, and may revise, 
MA regions in a manner consistent with the following:
    (i) Number of regions. There will be no fewer than 10 regions, and 
no more than 50 regions.
    (ii) Maximizing availability of plans. The main purpose of the 
regions is to maximize the availability of MA regional plans to all MA 
eligible individuals without regard to health status, or geographic 
location, especially those residing in rural areas.
    (4) Market survey and analysis. Before establishing MA regions, CMS 
will conduct a market survey and analysis, including an examination of 
current insurance markets, to assist CMS in determining how the regions 
should be established.
    (c) National plan. An MA regional plan can be offered in more than 
one MA region (including all regions).



Sec. 422.458  Risk sharing with regional MA organizations for 2006 and 2007.

    (a) Terminology. For purposes of this section--
    Allowable costs means, with respect to an MA regional plan offered 
by an organization for a year, the total amount of costs that the 
organization incurred in providing benefits covered under the

[[Page 304]]

original Medicare fee-for-service program option for all enrollees under 
the plan in the region in the year and in providing rebatable integrated 
benefits, as defined in this paragraph, reduced by the portion of those 
costs attributable to administrative expenses incurred in providing 
these benefits.
    Rebatable integrated benefits means those non-drug supplemental 
benefits that are funded through beneficiary rebates (described at Sec. 
422.266(b)(1)) and that CMS determines are additional health benefits 
not covered under the original Medicare program option and that require 
expenditures by the plan. For purposes of the calculation of risk 
corridors, these are the only supplemental benefits that count toward 
allowable costs.
    Target amount means, with respect to an MA regional plan offered by 
an organization in a year, the total amount of payments made to the 
organization for enrollees in the plan for the year (which includes 
payments attributable to benefits under the original Medicare fee-for-
service program option as defined in Sec. 422.100(c)(1), the total of 
the MA monthly basic beneficiary premium collectable for those enrollees 
for the year, and the total amount of rebatable integrated benefits), 
reduced by the amount of administrative expenses assumed in the portion 
of the bid attributable to benefits under original Medicare fee-for-
service program option or to rebatable integrated benefits.
    (b) Application of risk corridors for benefits covered under 
original fee-for-service Medicare--(1) General rule. This section will 
only apply to MA regional plans offered during 2006 or 2007.
    (2) Notification of allowable costs under the plan. In the case of 
an MA organization that offers an MA regional plan in an MA region in 
2006 or 2007, the organization must notify CMS, before that date in the 
succeeding year as CMS specifies, of--
    (i) Its total amount of costs that the organization
    incurred in providing benefits covered under the original Medicare 
fee-for-service program option for all enrollees under the plan (as 
described in paragraph (a) of this section).
    (ii) Its total amount of costs that the organization incurred in 
providing rebatable integrated benefits for all enrollees under the plan 
(as described in paragraph (a) of this section), and, with respect to 
those benefits, the portion of those costs that is attributable to 
administrative expenses that is in addition to the administrative 
expense incurred in provision of benefits under the original Medicare 
fee-for-service program option.
    (c) Adjustment of payment--(1) No adjustment if allowable costs 
within 3 percent of target amount. If the allowable costs for the plan 
for the year are at least 97 percent, but do not exceed 103 percent, of 
the target amount for the plan and year, there will be no payment 
adjustment under this section for the plan and year.
    (2) Increase in payment if allowable costs above 103 percent of 
target amount--(i) Costs between 103 and 108 percent of target amount. 
If the allowable costs for the plan for the year are greater than 103 
percent, but not greater than 108 percent, of the target amount for the 
plan and year, CMS will increase the total of the monthly payments made 
to the organization offering the plan for the year under Sec. 
422.302(a) (section 1853(a) of the Act) by an amount equal to 50 percent 
of the difference between those allowable costs and 103 percent of that 
target amount.
    (ii) Costs above 108 percent of target amount. If the allowable 
costs for the plan for the year are greater than 108 percent of the 
target amount for the plan and year, CMS will increase the total of the 
monthly payments made to the organization offering the plan for the year 
under section 1853(a) of the Act by an amount equal to the sum of--
    (A) 2.5 percent of that target amount; and
    (B) 80 percent of the difference between those allowable costs and 
108 percent of that target amount.
    (3) Reduction in payment if allowable costs below 97 percent of 
target amount--(i) Costs between 92 and 97 percent of target amount. If 
the allowable costs for the plan for the year are less than 97 percent, 
but greater than or equal to 92 percent, of the target amount for the 
plan and year, CMS will reduce the

[[Page 305]]

total of the monthly payments made to the organization offering the plan 
for the year under Sec. 422.302(a) (section 1853(a) of the Act) by an 
amount (or otherwise recover from the plan an amount) equal to 50 
percent of the difference between 97 percent of the target amount and 
those allowable costs.
    (ii) Costs below 92 percent of target amount. If the allowable costs 
for the plan for the year are less than 92 percent of the target amount 
for the plan and year, CMS will reduce the total of the monthly payments 
made to the organization offering the plan for the year under Sec. 
422.302(a) (section 1853(a)of the Act) by an amount (or otherwise 
recover from the plan an amount) equal to the sum of-
    (A) 2.5 percent of that target amount; and
    (B) 80 percent of the difference between 92 percent of that target 
amount and those allowable costs.
    (d) Disclosure of information--(1) General rule. Each MA 
organization offering an MA regional plan must provide CMS with 
information as CMS determines is necessary to implement this section; 
and
    (2) According to Sec. 422.504(d)(1)(iii), CMS has the right to 
inspect and audit any books and records of the organization that pertain 
to the information regarding costs provided to CMS under paragraph 
(b)(2) of this section.
    (3) Restriction on use of information. Information disclosed or 
obtained for the purposes of this section may be used by officers, 
employees, and contractors of DHHS only for the purposes of, and to the 
extent necessary in, implementing this section.
    (e) Organizational and financial requirements--(1) General rule. 
Regional MA plans offered by MA organizations must be licensed under 
State law, or otherwise authorized under State law, as a risk-bearing 
entity (as defined in Sec. 422.2) eligible to offer health insurance or 
health benefits coverage in each State in which it offers one or more 
plans. However, as provided for under this section, MA organizations 
offering MA regional plans may obtain a temporary waiver of State 
licensure. In the case of an MA organization that is offering an MA 
regional plan in an MA region, and is not licensed in each State in 
which it offers such an MA regional plan, the following rules apply:
    (i) The MA organization must be licensed to bear risk in at least 
one State of the region.
    (ii) For the other States in a region in which the organization is 
not licensed to bear risk, if it demonstrates to CMS that it has filed 
the necessary application to meet those requirements, CMS may 
temporarily waive the licensing requirement with respect to each State 
for a period of time as CMS determines appropriate for the timely 
processing of the application by the State or States.
    (iii) If the State licensing application or applications are denied, 
CMS may extend the licensing waiver through the end of the plan year or 
as CMS determines appropriate to provide for a transition.
    (2) Selection of appropriate State. In the case of an MA 
organization to which CMS grants a waiver and that is licensed in more 
than one State in a region, the MA organization will select one of the 
States, the rules of which shall apply in States where the organization 
is not licensed for the period of the waiver.
    (f) Regional stabilization fund--(1) Establishment. The MA Regional 
Plan Stabilization Fund (referred to in this paragraph (f) as the 
``Fund'') is available beginning in 2007 for two purposes:
    (i) Plan entry. To provide incentives to have MA regional plans 
offered in each MA region under paragraph (f)(4) of this section.
    (ii) Plan retention. To provide incentives to retain MA regional 
plans in certain MA regions with below-national-average MA market 
penetration under paragraph (f)(5) of this section.
    (2) Availability of funding from savings. Funds made available under 
section 1853(f) of the Act are transferred into a special account in the 
Treasury from the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund in the proportion specified 
in section 1853(f) of the Act, ``payments From Trust Funds,'' on a 
monthly basis.
    (3) Funding limitation--(i) General rule. The total amount expended 
from the Fund as a result of the application of

[[Page 306]]

this section through the end of a calendar year may not exceed the 
amount available to the Fund as of the first day of that year. For 
purposes of this section, amounts that are expended under this title 
insofar as those amounts would not have been expended but for the 
application of this section will be counted as amounts expended as a 
result of that application.
    (ii) Application of limitation. CMS will obligate funds from the 
Fund for a year only if the Chief Actuary of CMS and the appropriate 
budget officer certify that there are available in the Fund at the 
beginning of the year sufficient amounts to cover all of those 
obligations incurred during the year consistent with paragraph (f)(3)(i) 
of this section. CMS will take those steps, in connection with computing 
additional payment amounts under paragraphs (f)(4) and (f)(5) of this 
section and including limitations on enrollment in MA regional plans 
receiving those payments or computing lower payment amounts, to ensure 
that sufficient funds are available to make those payments for the 
entire year.
    (4) Plan entry funding--(i) General rule. Funding is available under 
this paragraph for a year in the following situations:
    (A) National plan. For a national bonus payment described in 
paragraph (f)(4)(ii) of this section, when a single MA organization 
offers an MA regional plan in each MA region in the year, but only if 
there was not a national plan offered in each region in the previous 
year. Funding under this paragraph is only available with respect to any 
individual MA organization for a single year, but may be made available 
to more than one such organization in the same year.
    (B) MA Regional Plans. Subject to paragraph (f)(4)(i)(C) of this 
section, for an increased amount under paragraph (f)(4)(iv) of this 
section for an MA regional plan offered in an MA region that did not 
have any MA regional plan offered in the prior year.
    (C) Limitation on MA regional plan funding in case of national plan. 
There will be no payment adjustment under paragraph (f)(4)(iii) of this 
section for a year for which a national bonus payment is made under 
paragraph (f)(4)(ii) of this section.
    (ii) National bonus payment. The national bonus payment under this 
paragraph will--
    (A) Be available to an MA organization only if the organization 
offers MA regional plans in every MA region;
    (B) Be available for all MA regional plans of the organization 
regardless of whether any other MA regional plan is offered in any 
region; and
    (C) Be subject to amounts available under paragraph (f)(3) of this 
section for a year and be equal to 3 percent of the benchmark amount 
otherwise applicable for each MA regional plan offered by the 
organization.
    (iii) Regional payment adjustment--(A) General rule. The increased 
amount under this paragraph for an MA regional plan in an MA region for 
a year must be an amount, determined by CMS, based on the bid submitted 
for that plan (or plans) and will be available to all MA regional plans 
offered in that region and year. That amount may be based on the mean, 
mode, or median or other measure of those bids and may vary from region 
to region. CMS will not limit the number of plans or bids in a region.
    (B) Multi-year funding. Subject to amounts available under paragraph 
(f)(3) of this section, funding will be available for a period 
determined by CMS.
    (C) Application to all plans in a region. Funding under this 
paragraph for an MA region will be made available for all MA regional 
plans offered in the region.
    (D) Limitation on availability of plan retention funding in next 
year. If plans receive plan entry funding in a year, plans in that 
region are prohibited from receiving plan retention funding in the 
following year.
    (iv) Application. Any additional payment under this section provided 
for an MA regional plan for a year will be treated as if it were an 
addition to the benchmark amount otherwise applicable to that plan and 
year, but will not be taken into account in the computation of any 
benchmark amount for any subsequent year.
    (5) Plan retention funding--(i) General rule. Funding is available 
under this

[[Page 307]]

paragraph for a year with respect to MA regional plans offered in an MA 
region for the increased amount specified in paragraph (f)(5)(ii) of 
this section but only if the region meets the requirements of paragraphs 
(f)(5)(iii)(A), (f)(5)(iii)(B), (f)(5)(iii)(C) and (f)(5)(iii)(E) of 
this section.
    (ii) Payment increase. The increased amount under this paragraph for 
an MA regional plan in an MA region for a year will be an amount, 
determined by CMS, that does not exceed the greater of--
    (A) 3 percent of the benchmark amount applicable in the region; or
    (B) The amount as (when added to the benchmark amount applicable to 
the region) will result in the ratio of-
    (1) That additional amount plus the benchmark amount computed under 
section 1854(b)(4)(B)(i)of the Act, ``the risk-adjusted benchmark 
amount'' for the region and year, to the adjusted average per capita 
cost for the region and year, as estimated by CMS under section 
1876(a)(4) of the Act and adjusted as appropriate for the purpose of 
risk adjustment; being equal to--
    (2) The weighted average of those benchmark amounts for all the 
regions and that year, to the average per capita cost for the United 
States and that year, as estimated by CMS under section 1876(a)(4)of the 
Act and adjusted as appropriate for the purpose of risk adjustment.
    (iii) Regional requirements. The requirements of this paragraph for 
an MA region for a year are as follows:
    (A) Notification of plan exit. CMS has received notice (as specified 
by CMS), before a new contract year, that one or more MA regional plans 
that were offered in the region in the previous year will not be offered 
in the succeeding year.
    (B) Regional plans available from fewer than two MA organizations in 
the region. CMS determines that if the plans referred to in paragraph 
(f)(5)(iii)(A) of this section are not offered in the year, fewer than 
two MA organizations will be offering MA regional plans in the region in 
the year involved.
    (C) Percentage enrollment in MA regional plans below national 
average. For the previous year, CMS determines that the average 
percentage of MA eligible individuals residing in the region who are 
enrolled in MA regional plans is less than the average percentage of 
those individuals in the United States enrolled in those plans.
    (D) Application. Any additional payment under this paragraph 
provided for an MA regional plan for a year will be treated as if it 
were an addition to the benchmark amount otherwise applicable to that 
plan and year, but will not be taken into account in the computation of 
any benchmark amount for any subsequent year.
    (E) 2-consecutive-year limitation. In no case will plan retention 
funding be available under this paragraph in an MA region for more than 
2 consecutive years.

[70 FR 4732, Jan. 28, 2005, as amended at 70 FR 52027, Sept. 1, 2005]



        Subpart K_Contracts With Medicare Advantage Organizations

    Source: 63 FR 35099, June 26, 1998, unless otherwise noted.



Sec. 422.500  Scope and definitions.

    (a) Scope. This subpart sets forth application requirements for 
entities seeking a contract as a Medicare organization offering an MA 
plan. MA organizations offering prescription drug plans must, in 
addition to the requirements of this part, follow the requirements of 
part 423 of this chapter specifically related to the prescription drug 
benefit.
    (b) Definitions. For purposes of this subpart, the following 
definitions apply:
    Business transaction means any of the following kinds of 
transactions:
    (1) Sale, exchange, or lease of property.
    (2) Loan of money or extension of credit.
    (3) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (i) Salaries paid to employees for services performed in the normal 
course of their employment; or

[[Page 308]]

    (ii) Health services furnished to the MA organization's enrollees by 
hospitals and other providers, and by MA organization staff, medical 
groups, or independent practice associations, or by any combination of 
those entities.
    Clean claim means--
    (1) A claim that has no defect, impropriety, lack of any required 
substantiating documentation (consistent with Sec. 422.310(d)) or 
particular circumstance requiring special treatment that prevents timely 
payment; and
    (2) A claim that otherwise conforms to the clean claim requirements 
for equivalent claims under original Medicare.
    Downstream entity means any party that enters into an acceptable 
written arrangement below the level of the arrangement between an MA 
organization (or contract applicant) and a first tier entity. These 
written arrangements continue down to the level of the ultimate provider 
of both health and administrative services.
    First tier entity means any party that enters into an acceptable 
written arrangement with an MA organization or contract applicant to 
provide administrative services or health care services for a Medicare 
eligible individual.
    Party in interest includes the following:
    (1) Any director, officer, partner, or employee responsible for 
management or administration of an MA organization.
    (2) Any person who is directly or indirectly the beneficial owner of 
more than 5 percent of the organization's equity; or the beneficial 
owner of a mortgage, deed of trust, note, or other interest secured by 
and valuing more than 5 percent of the organization.
    (3) In the case of an MA organization organized as a nonprofit 
corporation, an incorporator or member of such corporation under 
applicable State corporation law.
    (4) Any entity in which a person described in paragraph (1), (2), or 
(3) of this definition:
    (i) Is an officer, director, or partner; or
    (ii) Has the kind of interest described in paragraphs (1), (2), or 
(3) of this definition.
    (5) Any person that directly or indirectly controls, is controlled 
by, or is under common control with, the MA organization.
    (6) Any spouse, child, or parent of an individual described in 
paragraph (1), (2), or (3) of this definition.
    Related entity means any entity that is related to the MA 
organization by common ownership or control and--
    (1) Performs some of the MA organization's management functions 
under contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the MA organization 
at a cost of more than $2,500 during a contract period.
    Significant business transaction means any business transaction or 
series of transactions of the kind specified in the above definition of 
``business transaction'' that, during any fiscal year of the MA 
organization, have a total value that exceeds $25,000 or 5 percent of 
the MA organization's total operating expenses, whichever is less.

[65 FR 35099, June 26, 1998, as amended at 65 FR 40327, June 29, 2000; 
70 FR 4736, Jan. 28, 2005; 70 FR 52027, Sept. 1, 2005]



Sec. 422.501  Application requirements.

    (a) Scope. This section sets forth application requirements for 
entities that seek a contract as an MA organization offering an MA plan.
    (b) Completion of an application. (1) In order to obtain a 
determination on whether it meets the requirements to become an MA 
organization and is qualified to provide a particular type of MA plan, 
an entity, or an individual authorized to act for the entity (the 
applicant) must complete a certified application, in the form and manner 
required by CMS, including the following:
    (i) Documentation of appropriate State licensure or State 
certification that the entity is able to offer health insurance or 
health benefits coverage that meets State-specified standards applicable 
to MA plans, and is authorized by the State to accept prepaid capitation 
for providing, arranging, or paying for the comprehensive health

[[Page 309]]

care services to be offered under the MA contract; or
    (ii) For regional plans, documentation of application for State 
licensure in any State in the region that the organization is not 
already licensed.
    (2) The authorized individual must thoroughly describe how the 
entity and MA plan meet, or will meet, the requirements described in 
this part.
    (c) Responsibility for making determinations. (1) CMS is responsible 
for determining whether an entity qualifies as an MA organization and 
whether proposed MA plans meet the requirements of this part.
    (2) A CMS determination that an entity is qualified to act as an MA 
organization is distinct from the bid negotiation that occurs under 
subpart F of this part and such negotiation is not subject to the 
appeals provisions included in subpart N of this part.
    (d) Resubmittal of application. An application that has been denied 
by CMS may not be resubmitted for 4 months after the date of the notice 
from CMS denying the application.
    (e) Disclosure of application information under the Freedom of 
Information Act. An applicant submitting material that he or she 
believes is protected from disclosure under 5 U.S.C. 552, the Freedom of 
Information Act, or because of exemptions provided in 45 CFR part 5 (the 
Department's regulations providing exceptions to disclosure), must label 
the material ``privileged'' and include an explanation of the 
applicability of an exception described in 45 CFR part 5. Any final 
decisions as to whether material is privileged is the final decision of 
the Secretary.

[70 FR 4736, Jan. 28, 2005]



Sec. 422.502  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
application for an MA contract on the basis of information contained in 
the application itself and any additional information that CMS obtains 
through other means such as on-site visits, public hearings, and any 
other appropriate procedures.
    (2) After evaluating all relevant information, CMS determines 
whether the applicant's application meets the applicable requirements of 
Sec. 422.501.
    (b) Use of information from a prior contracting period. If an MA 
organization has failed to comply with the terms of a previous contract 
with CMS under title XVIII of the Act, or has failed to complete a 
corrective action plan during the term of the contract, CMS may deny an 
application based on the applicant's failure to comply with that prior 
contract with CMS even if the contract applicant meets all of the 
current requirements.
    (c) Notice of determination. Within timeframes determined by CMS, it 
notifies each applicant that applies for an MA contract under this part 
of its determination and the basis for the determination. The 
determination is one of the following:
    (1) Approval of application. If CMS approves the application, it 
gives written notice to the applicant, indicating that it qualifies to 
contract as an MA organization.
    (2) Intent to deny. (i)If CMS finds that the applicant does not 
appear to be able to meet the requirements for an MA organization and/or 
has not provided enough information to evaluate the application, CMS 
gives the contract applicant notice of intent to deny the application 
for an MA contract and a summary of the basis for this preliminary 
finding.
    (ii) Within 10 days from the date of the intent to deny notice, the 
contract applicant must respond in writing to the issues or other 
matters that were the basis for CMS' preliminary finding and must revise 
its application to remedy any defects CMS identified.
    (3) Denial of application. If CMS denies the application, it gives 
written notice to the contract applicant indicating--
    (i) That the applicant is not qualified to contract as an MA 
organization under Part C of title XVIII of the Act;
    (ii) The reasons why the applicant is not qualified; and
    (iii) The applicant's right to request reconsideration in accordance 
with the procedures specified in subpart N of this part.
    (d) Oversight of continuing compliance. (1) CMS oversees an MA 
organization's continued compliance with the requirements for an MA 
organization.

[[Page 310]]

    (2) If an MA organization no longer meets those requirements, CMS 
terminates the contract in accordance with Sec. 422.510.

[70 FR 4736, Jan. 28, 2005]



Sec. 422.503  General provisions.

    (a) Basic rule. In order to qualify as an MA organization, enroll 
beneficiaries in any MA plans it offers, and be paid on behalf of 
Medicare beneficiaries enrolled in those plans, an MA organization must 
enter into a contract with CMS.
    (b) Conditions necessary to contract as an MA organization. Any 
entity seeking to contract as an MA organization must:
    (1) Complete an application as described in Sec. 422.501.
    (2) Be licensed by the State as a risk bearing entity in each State 
in which it seeks to offer an MA plan as defined in Sec. 422.2.
    (3) Meet the minimum enrollment requirements of Sec. 422.514, 
unless waived under Sec. 422.514(b).
    (4) Have administrative and management arrangements satisfactory to 
CMS, as demonstrated by at least the following:
    (i) A policy making body that exercises oversight and control over 
the MA organization's policies and personnel to ensure that management 
actions are in the best interest of the organization and its enrollees.
    (ii) Personnel and systems sufficient for the MA organization to 
organize, implement, control, and evaluate financial and marketing 
activities, the furnishing of services, the quality improvement program, 
and the administrative and management aspects of the organization.
    (iii) At a minimum, an executive manager whose appointment and 
removal are under the control of the policy making body.
    (iv) A fidelity bond or bonds, procured and maintained by the MA 
organization, in an amount fixed by its policymaking body but not less 
than $100,000 per individual, covering each officer and employee 
entrusted with the handling of its funds. The bond may have reasonable 
deductibles, based upon the financial strength of the MA organization.
    (v) Insurance policies or other arrangements, secured and maintained 
by the MA organization and approved by CMS to insure the MA organization 
against losses arising from professional liability claims, fire, theft, 
fraud, embezzlement, and other casualty risks.
    (vi) A compliance plan that consists of the following:
    (A) Written policies, procedures, and standards of conduct that 
articulate the organization's commitment to comply with all applicable 
Federal and State standards.
    (B) The designation of a compliance officer and compliance committee 
that are accountable to senior management.
    (C) Effective training and education between the compliance officer 
and organization employees.
    (D) Effective lines of communication between the compliance officer 
and the organization's employees.
    (E) Enforcement of standards through well-publicized disciplinary 
guidelines.
    (F) Procedures for internal monitoring and auditing.
    (G) Procedures for ensuring prompt response to detected offenses and 
development of corrective action initiatives relating to the 
organization's MA contract.
    (1) If the MA organization discovers evidence of misconduct related 
to payment or delivery of items or services under the contract, it must 
conduct a timely, reasonable inquiry into that conduct.
    (2) The MA organization must conduct appropriate corrective actions 
(for example, repayment of overpayments, disciplinary actions against 
responsible employees) in response to the potential violation referenced 
in paragraph (b)(4)(vi)(G)(1) of this section.
    (H) For MA-PDs, A comprehensive fraud and abuse plan to detect and 
prevent fraud, waste, and abuse as specified at Sec. 
423.504(b)(4)(vi)(H) of this chapter.
    (5) Not accept new enrollees under a section 1876 reasonable cost 
contract in any area in which it seeks to offer an MA plan.
    (6) The MA organization's contract must not have been non-renewed 
under Sec. 422.506 within the past 2 years unless--

[[Page 311]]

    (i) During the 6-month period beginning on the date the organization 
notified CMS of the intention to non-renew the most recent previous 
contract, there was a change in the statute or regulations that had the 
effect of increasing MA payments in the payment area or areas at issue; 
or
    (ii) CMS has otherwise determined that circumstances warrant special 
consideration.
    (c) Contracting authority. Under the authority of section 1857(c)(5) 
of the Act, CMS may enter into contracts under this part without regard 
to Federal and Departmental acquisition regulations set forth in title 
48 of the CFR and provisions of law or other regulations relating to the 
making, performance, amendment, or modification of contracts of the 
United States if CMS determines that those provisions are inconsistent 
with the efficient and effective administration of the Medicare program.
    (d) Protection against fraud and beneficiary protections. (1) CMS 
annually audits the financial records (including data relating to 
Medicare utilization, costs, and computation of the bid) of at least 
one-third of the MA organizations offering MA plans. These auditing 
activities are subject to monitoring by the Comptroller General.
    (2) Each contract under this section must provide that CMS, or any 
person or organization designated by CMS has the right to:
    (i) Inspect or otherwise evaluate the quality, appropriateness, and 
timeliness of services performed under the MA contract;
    (ii) Inspect or otherwise evaluate the facilities of the 
organization when there is reasonable evidence of some need for such 
inspection; and
    (iii) Audit and inspect any books, contracts, and records of the MA 
organization that pertain to--
    (A) The ability of the organization or its first tier or downstream 
providers to bear the risk of potential financial losses; or
    (B) Services performed or determinations of amounts payable under 
the contract.
    (e) Severability of contracts. The contract must provide that, upon 
CMS's request--
    (1) The contract will be amended to exclude any MA plan or State-
licensed entity specified by CMS; and
    (2) A separate contract for any such excluded plan or entity will be 
deemed to be in place when such a request is made.

[63 FR 35099, June 26, 1998, as amended at 65 FR 40327, June 29, 2000. 
Redesignated at 70 FR 4736, Jan. 28, 2005, and amended at 70 FR 4737, 
Jan. 28, 2005; 70 FR 52027, Sept. 1, 2005; 70 FR 76198, Dec. 23, 2005]



Sec. 422.504  Contract provisions.

    The contract between the MA organization and CMS must contain the 
following provisions:
    (a) Agreement to comply with regulations and instructions. The MA 
organization agrees to comply with all the applicable requirements and 
conditions set forth in this part and in general instructions. An MA 
organization's compliance with paragraphs (a)(1) through (a)(13) of this 
section is material to performance of the contract. The MA organization 
agrees--
    (1) To accept new enrollments, make enrollments effective, process 
voluntary disenrollments, and limit involuntary disenrollments, as 
provided in subpart B of this part.
    (2) That it will comply with the prohibition in Sec. 422.110 on 
discrimination in beneficiary enrollment.
    (3) To provide--
    (i) The basic benefits as required under Sec. 422.101 and, to the 
extent applicable, supplemental benefits under Sec. 422.102; and
    (ii) Access to benefits as required under subpart C of this part;
    (iii) In a manner consistent with professionally recognized 
standards of health care, all benefits covered by Medicare.
    (4) To disclose information to beneficiaries in the manner and the 
form prescribed by CMS as required under Sec. 422.111;
    (5) To operate a quality assurance and performance improvement 
program and have an agreement for external quality review as required 
under subpart D of this part;
    (6) To comply with all applicable provider requirements in subpart E 
of this part, including provider certification

[[Page 312]]

requirements, anti-discrimination requirements, provider participation 
and consultation requirements, the prohibition on interference with 
provider advice, limits on provider indemnification, rules governing 
payments to providers, and limits on physician incentive plans;
    (7) To comply with all requirements in subpart M of this part 
governing coverage determinations, grievances, and appeals;
    (8) To comply with the reporting requirements in Sec. 422.516 and 
the requirements in Sec. 422.310 for submitting data to CMS;
    (9) That it will be paid under the contract in accordance with the 
payment rules in subpart G of this part;
    (10) To develop its annual bid, and submit all required information 
on premiums, benefits, and cost-sharing by not later than the first 
Monday in June, as provided in subpart F of this part;
    (11) That its contract may not be renewed or may be terminated in 
accordance with this subpart and subpart N of this part.
    (12) To comply with all requirements that are specific to a 
particular type of MA plan, such as the special rules for private fee-
for-service plans in Sec. Sec. 422.114 and 422.216 and the MSA 
requirements in Sec. Sec. 422.56, 422.103, and 422.262; and
    (13) To comply with the confidentiality and enrollee record accuracy 
requirements in Sec. 422.118.
    (14) An MA organization's compliance with paragraphs (a)(1) through 
(a)(13) and (c) of this section is material to performance of the 
contract.
    (b) Communication with CMS. The MA organization must have the 
capacity to communicate with CMS electronically.
    (c) Prompt payment. The MA organization must comply with the prompt 
payment provisions of Sec. 422.520 and with instructions issued by CMS, 
as they apply to each type of plan included in the contract.
    (d) Maintenance of records. The MA organization agrees to maintain 
for 10 years books, records, documents, and other evidence of accounting 
procedures and practices that--
    (1) Are sufficient to do the following:
    (i) Accommodate periodic auditing of the financial records 
(including data related to Medicare utilization, costs, and computation 
of the bid) of MA organizations.
    (ii) Enable CMS to inspect or otherwise evaluate the quality, 
appropriateness and timeliness of services performed under the contract, 
and the facilities of the organization.
    (iii) Enable CMS to audit and inspect any books and records of the 
MA organization that pertain to the ability of the organization to bear 
the risk of potential financial losses, or to services performed or 
determinations of amounts payable under the contract.
    (iv) Properly reflect all direct and indirect costs claimed to have 
been incurred and used in the preparation of the bid proposal.
    (v) Establish component rates of the bid for determining additional 
and supplementary benefits.
    (vi) Determine the rates utilized in setting premiums for State 
insurance agency purposes and for other government and private 
purchasers; and
    (2) Include at least records of the following:
    (i) Ownership and operation of the MA organization's financial, 
medical, and other record keeping systems.
    (ii) Financial statements for the current contract period and 10 
prior periods.
    (iii) Federal income tax or informational returns for the current 
contract period and 10 prior periods.
    (iv) Asset acquisition, lease, sale, or other action.
    (v) Agreements, contracts, and subcontracts.
    (vi) Franchise, marketing, and management agreements.
    (vii) Schedules of charges for the MA organization's fee-for-service 
patients.
    (viii) Matters pertaining to costs of operations.
    (ix) Amounts of income received by source and payment.
    (x) Cash flow statements.
    (xi) Any financial reports filed with other Federal programs or 
State authorities.
    (e) Access to facilities and records. The MA organization agrees to 
the following:
    (1) HHS, the Comptroller General, or their designee may evaluate, 
through inspection or other means--

[[Page 313]]

    (i) The quality, appropriateness, and timeliness of services 
furnished to Medicare enrollees under the contract;
    (ii) The facilities of the MA organization; and
    (iii) The enrollment and disenrollment records for the current 
contract period and 10 prior periods.
    (2) HHS, the Comptroller General, or their designees may audit, 
evaluate, or inspect any books, contracts, medical records, patient care 
documentation, and other records of the MA organization, related entity, 
contractor, subcontractor, or its transferee that pertain to any aspect 
of services performed, reconciliation of benefit liabilities, and 
determination of amounts payable under the contract, or as the Secretary 
may deem necessary to enforce the contract.
    (3) The MA organization agrees to make available, for the purposes 
specified in paragraph (d) of this section, its premises, physical 
facilities and equipment, records relating to its Medicare enrollees, 
and any additional relevant information that CMS may require.
    (4) HHS, the Comptroller General, or their designee's right to 
inspect, evaluate, and audit extends through 10 years from the end of 
the final contract period or completion of audit, whichever is later 
unless--
    (i) CMS determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the MA 
organization at least 30 days before the normal disposition date;
    (ii) There has been a termination, dispute, or allegation of fraud 
or similar fault by the MA organization, in which case the retention may 
be extended to 6 years from the date of any resulting final resolution 
of the termination, dispute, fraud, or similar fault; or
    (iii) CMS determines that there is a reasonable possibility of fraud 
or similar fault, in which case CMS may inspect, evaluate, and audit the 
MA organization at any time.
    (f) Disclosure of information. The MA organization agrees to 
submit--
    (1) To CMS, certified financial information that must include the 
following:
    (i) Such information as CMS may require demonstrating that the 
organization has a fiscally sound operation.
    (ii) Such information as CMS may require pertaining to the 
disclosure of ownership and control of the MA organization.
    (2) To CMS, all information that is necessary for CMS to administer 
and evaluate the program and to simultaneously establish and facilitate 
a process for current and prospective beneficiaries to exercise choice 
in obtaining Medicare services. This information includes, but is not 
limited to:
    (i) The benefits covered under an MA plan;
    (ii) The MA monthly basic beneficiary premium and MA monthly 
supplemental beneficiary premium, if any, for the plan or in the case of 
an MSA plan, the MA monthly MSA premium.
    (iii) The service area and continuation area, if any, of each plan 
and the enrollment capacity of each plan;
    (iv) Plan quality and performance indicators for the benefits under 
the plan including--
    (A) Disenrollment rates for Medicare enrollees electing to receive 
benefits through the plan for the previous 2 years;
    (B) Information on Medicare enrollee satisfaction;
    (C) Information on health outcomes;
    (D) The recent record regarding compliance of the plan with 
requirements of this part, as determined by CMS; and
    (E) Other information determined by CMS to be necessary to assist 
beneficiaries in making an informed choice among MA plans and 
traditional Medicare;
    (v) Information about beneficiary appeals and their disposition;
    (vi) Information regarding all formal actions, reviews, findings, or 
other similar actions by States, other regulatory bodies, or any other 
certifying or accrediting organization;
    (vii) To CMS, any other information deemed necessary by CMS for the 
administration or evaluation of the Medicare program.
    (3) To its enrollees all informational requirements under Sec. 
422.64 and, upon

[[Page 314]]

an enrollee's, request the financial disclosure information required 
under Sec. 422.516.
    (g) Beneficiary financial protections. The MA organization agrees to 
comply with the following requirements:
    (1) Each MA organization must adopt and maintain arrangements 
satisfactory to CMS to protect its enrollees from incurring liability 
(for example, as a result of an organization's insolvency or other 
financial difficulties) for payment of any fees that are the legal 
obligation of the MA organization. To meet this requirement, the MA 
organization must--
    (i) Ensure that all contractual or other written arrangements with 
providers prohibit the organization's providers from holding any 
beneficiary enrollee liable for payment of any such fees; and
    (ii) Indemnify the beneficiary enrollee for payment of any fees that 
are the legal obligation of the MA organization for services furnished 
by providers that do not contract, or that have not otherwise entered 
into an agreement with the MA organization, to provide services to the 
organization's beneficiary enrollees.
    (2) The MA organization must provide for continuation of enrollee 
health care benefits--
    (i) For all enrollees, for the duration of the contract period for 
which CMS payments have been made; and
    (ii) For enrollees who are hospitalized on the date its contract 
with CMS terminates, or, in the event of an insolvency, through 
discharge.
    (3) In meeting the requirements of this paragraph, other than the 
provider contract requirements specified in paragraph (g)(1)(i) of this 
section, the MA organization may use--
    (i) Contractual arrangements;
    (ii) Insurance acceptable to CMS;
    (iii) Financial reserves acceptable to CMS; or
    (iv) Any other arrangement acceptable to CMS.
    (h) Requirements of other laws and regulations. The MA organization 
agrees to comply with-
    (1) Federal laws and regulations designed to prevent or ameliorate 
fraud, waste, and abuse, including, but not limited to, applicable 
provisions of Federal criminal law, the False Claims Act (31 U.S.C. 3729 
et. seq.), and the anti-kickback statute (section 1128B(b)) of the Act); 
and
    (2) HIPAA administrative simplification rules at 45 CFR parts 160, 
162, and 164.
    (i) MA organization relationship with related entities, contractors, 
and subcontractors. (1) Notwithstanding any relationship(s) that the MA 
organization may have with related entities, contractors, or 
subcontractors, the MA organization maintains ultimate responsibility 
for adhering to and otherwise fully complying with all terms and 
conditions of its contract with CMS.
    (2) The MA organization agrees to require all related entities, 
contractors, or subcontractors to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent contracts, books, 
documents, papers, and records of the related entity(s), contractor(s), 
or subcontractor(s) involving transactions related to the MA contract; 
and
    (ii) HHS', the Comptroller General's, or their designee's right to 
inspect, evaluate, and audit any pertinent information for any 
particular contract period will exist through 10 years from the final 
date of the contract period or from the date of completion of any audit, 
whichever is later.
    (3) All contracts or written arrangements between MA organizations 
and providers, related entities, contractors, subcontractors, first tier 
and downstream entities must contain the following:
    (i) Enrollee protection provisions that provide, consistent with 
paragraph (g)(1) of this section, arrangements that prohibit providers 
from holding an enrollee liable for payment of any fees that are the 
obligation of the MA organization.
    (ii) Accountability provisions that indicate that the MA 
organization may only delegate activities or functions to a provider, 
related entity, contractor, or subcontractor in a manner consistent with 
the requirements set forth at paragraph (i)(4)of this section.
    (iii) A provision requiring that any services or other activity 
performed by

[[Page 315]]

a related entity, contractor, subcontractor, or first-tier or downstream 
entity in accordance with a contract or written agreement are consistent 
and comply with the MA organization's contractual obligations.
    (4) If any of the MA organizations' activities or responsibilities 
under its contract with CMS are delegated to other parties, the 
following requirements apply to any related entity, contractor, 
subcontractor, or provider:
    (i) Written arrangements must specify delegated activities and 
reporting responsibilities.
    (ii) Written arrangements must either provide for revocation of the 
delegation activities and reporting requirements or specify other 
remedies in instances where CMS or the MA organization determine that 
such parties have not performed satisfactorily.
    (iii) Written arrangements must specify that the performance of the 
parties is monitored by the MA organization on an ongoing basis.
    (iv) Written arrangements must specify that either--
    (A) The credentials of medical professionals affiliated with the 
party or parties will be either reviewed by the MA organization; or
    (B) The credentialing process will be reviewed and approved by the 
MA organization and the MA organization must audit the credentialing 
process on an ongoing basis.
    (v) All contracts or written arrangements must specify that the 
related entity, contractor, or subcontractor must comply with all 
applicable Medicare laws, regulations, and CMS instructions.
    (5) If the MA organization delegates selection of the providers, 
contractors, or subcontractor to another organization, the MA 
organization's written arrangements with that organization must state 
that the CMS-contracting MA organization retains the right to approve, 
suspend, or terminate any such arrangement.
    (j) Additional contract terms. The MA organization agrees to include 
in the contract such other terms and conditions as CMS may find 
necessary and appropriate in order to implement requirements in this 
part.
    (k) Severability of contracts. The contract must provide that, upon 
CMS's request--
    (1) The contract will be amended to exclude any MA plan or State-
licensed entity specified by CMS; and
    (2) A separate contract for any such excluded plan or entity will be 
deemed to be in place when such a request is made.
    (l) Certification of data that determine payment. As a condition for 
receiving a monthly payment under subpart G of this part, the MA 
organization agrees that its chief executive officer (CEO), chief 
financial officer (CFO), or an individual delegated the authority to 
sign on behalf of one of these officers, and who reports directly to 
such officer, must request payment under the contract on a document that 
certifies (based on best knowledge, information, and belief) the 
accuracy, completeness, and truthfulness of relevant data that CMS 
requests. Such data include specified enrollment information, encounter 
data, and other information that CMS may specify.
    (1) The CEO, CFO, or an individual delegated the authority to sign 
on behalf of one of these officers, and who reports directly to such 
officer, must certify that each enrollee for whom the organization is 
requesting payment is validly enrolled in an MA plan offered by the 
organization and the information relied upon by CMS in determining 
payment (based on best knowledge, information, and belief) is accurate, 
complete, and truthful.
    (2) The CEO, CFO, or an individual delegated with the authority to 
sign on behalf of one of these officers, and who reports directly to 
such officer, must certify (based on best knowledge, information, and 
belief) that the data it submits under Sec. 422.310 are accurate, 
complete, and truthful.
    (3) If such data are generated by a related entity, contractor, or 
subcontractor of an MA organization, such entity, contractor, or 
subcontractor must similarly certify (based on best knowledge, 
information, and belief) the accuracy, completeness, and truthfulness of 
the data.
    (4) The CEO, CFO, or an individual delegated the authority to sign 
on behalf of one of these officers, and who

[[Page 316]]

reports directly to such officer, must certify (based on best knowledge, 
information, and belief) that the information in its bid submission is 
accurate, complete, and truthful and fully conforms to the requirements 
in Sec. 422.254.

[63 FR 35099, June 26, 1998; 63 FR 52614, Oct. 1, 1998, as amended at 64 
FR 7980, Feb. 17, 1999; 65 FR 40327, June 29, 2000. Redesignated at 70 
FR 4736, Jan. 28, 2005 and amended at 70 FR 4737, Jan. 28, 2005; 70 FR 
52027, Sept. 1, 2005]



Sec. 422.505  Effective date and term of contract.

    (a) Effective date. The contract is effective on the date specified 
in the contract between the MA organization and CMS and, for a contract 
that provides for coverage under an MSA plan, not earlier than January 
1999.
    (b) Term of contract. Each contract is for a period of at least 12 
months.
    (c) Renewal of contract. In accordance with Sec. 422.506, contracts 
are renewed annually only if--
    (1) CMS informs the MA organization that it authorizes a renewal; 
and
    (2) The MA organization has not provided CMS with a notice of 
intention not to renew.
    (d) Renewal of contract contingent on reaching agreement on the bid. 
Although an MA organization may be determined qualified to renew its 
contract under this section, if the organization and CMS cannot reach 
agreement on the bid under subpart F of this part, no renewal will take 
place, and the failure to reach an agreement is not subject to the 
appeals provisions in subpart N of this part.

[63 FR 35099, June 26, 1998, as amended at 65 FR 40328, June 29, 2000. 
Redesignated at 70 FR 4736, Jan. 28, 2005 and amended at 70 FR 4737, 
Jan. 28, 2005]



Sec. 422.506  Nonrenewal of contract.

    (a) Nonrenewal by an MA organization. (1) An MA organization may 
elect not to renew its contract with CMS as of the end of the term of 
the contract for any reason provided it meets the timeframes for doing 
so set forth in paragraphs (a)(2) and (a)(3) of this section.
    (2) If an MA organization does not intend to renew its contract, it 
must notify--
    (i) CMS in writing, by the first Monday in June of the year in which 
the contract would end;
    (ii) Each Medicare enrollee, at least 90 days before the date on 
which the nonrenewal is effective. This notice must include a written 
description of alternatives available for obtaining Medicare services 
within the service area, including alternative MA plans, Medigap 
options, and original Medicare and must receive CMS approval prior to 
issuance.
    (iii) The general public, at least 90 days before the end of the 
current calendar year, by publishing a notice in one or more newspapers 
of general circulation in each community located in the MA 
organization's service area.
    (3) CMS may accept a nonrenewal notice submitted after the first 
Monday in June if--
    (i) The MA organization notifies its Medicare enrollees and the 
public in accordance with paragraph (a)(2)(ii) and (a)(2)(iii) of this 
section; and
    (ii) Acceptance is not inconsistent with the effective and efficient 
administration of the Medicare program.
    (4) If an MA organization does not renew a contract under this 
paragraph (a), CMS will not enter into a contract with the organization 
for 2 years unless there are special circumstances that warrant special 
consideration, as determined by CMS.
    (b) CMS decision not to renew. (1) CMS may elect not to authorize 
renewal of a contract for any of the following reasons:
    (i) The MA organization has not fully implemented or shown 
discernable progress in implementing quality improvement projects as 
defined in Sec. 422.152(d).
    (ii) For any of the reasons listed in Sec. 422.510(a), which would 
also permit CMS to terminate the contract.
    (iii) The MA organization has committed any of the acts in Sec. 
422.752(a) that would support the imposition of intermediate sanctions 
or civil money penalties under subpart O of this part.
    (2) Notice. CMS provides notice of its decision whether to authorize 
renewal of the contract as follows:
    (i) To the MA organization by May 1 of the contract year.

[[Page 317]]

    (ii) If CMS decides not to authorize a renewal of the contract, to 
the MA organization's Medicare enrollees by mail at least 90 days before 
the end of the current calendar year.
    (iii) If CMS decides not to authorize a renewal of the contract, to 
the general public at least 90 days before the end of the current 
calendar year, by publishing a notice in one or more newspapers of 
general circulation in each community or county located in the MA 
organization's service area.
    (3) Notice of appeal rights. CMS gives the MA organization written 
notice of its right to appeal the decision not to renew in accordance 
with Sec. 422.644.

[63 FR 35099, June 26, 1998, as amended at 65 FR 40328, June 29, 2000; 
67 FR 13289, Mar. 22, 2002; 70 FR 4737, Jan. 28, 2005]



Sec. 422.508  Modification or termination of contract by mutual consent.

    (a) A contract may be modified or terminated at any time by written 
mutual consent.
    (1) If the contract is terminated by mutual consent, except as 
provided in paragraph (b) of this section, the MA organization must 
provide notice to its Medicare enrollees and the general public as 
provided in Sec. 422.512(b)(2) and (b)(3).
    (2) If the contract is modified by mutual consent, the MA 
organization must notify its Medicare enrollees of any changes that CMS 
determines are appropriate for notification within timeframes specified 
by CMS.
    (b) If the contract terminated by mutual consent is replaced the day 
following such termination by a new MA contract, the MA organization is 
not required to provide the notice specified in paragraph (a)(1) of this 
section.



Sec. 422.510  Termination of contract by CMS.

    (a) Termination by CMS. CMS may terminate a contract for any of the 
following reasons:
    (1) The MA organization has failed substantially to carry out the 
terms of its contract with CMS.
    (2) The MA organization is carrying out its contract with CMS in a 
manner that is inconsistent with the effective and efficient 
implementation of this part.
    (3) CMS determines that the MA organization no longer meets the 
requirements of this part for being a contracting organization.
    (4) There is credible evidence that the MA organization committed or 
participated in false, fraudulent, or abusive activities affecting the 
Medicare program, including submission of false or fraudulent data.
    (5) The MA organization experiences financial difficulties so severe 
that its ability to make necessary health services available is impaired 
to the point of posing an imminent and serious risk to the health of its 
enrollees, or otherwise fails to make services available to the extent 
that such a risk to health exists.
    (6) The MA organization substantially fails to comply with the 
requirements in subpart M of this part relating to grievances and 
appeals.
    (7) The MA organization fails to provide CMS with valid data as 
required under Sec. 422.310.
    (8) The MA organization fails to implement an acceptable quality 
assessment and performance improvement program as required under subpart 
D of this part.
    (9) The MA organization substantially fails to comply with the 
prompt payment requirements in Sec. 422.520.
    (10) The MA organization substantially fails to comply with the 
service access requirements in Sec. 422.112 or Sec. 422.114.
    (11) The MA organization fails to comply with the requirements of 
Sec. 422.208 regarding physician incentive plans.
    (12) The MA organization substantially fails to comply with the 
marketing requirements in Sec. 422.80.
    (b) Notice. If CMS decides to terminate a contract for reasons other 
than the grounds specified in Sec. 422.510(a)(5), it gives notice of 
the termination as follows:
    (1) Termination of contract by CMS. (i) CMS notifies the MA 
organization in writing 90 days before the intended date of the 
termination.
    (ii) The MA organization notifies its Medicare enrollees of the 
termination by mail at least 30 days before the effective date of the 
termination.

[[Page 318]]

    (iii) The MA organization notifies the general public of the 
termination at least 30 days before the effective date of the 
termination by publishing a notice in one or more newspapers of general 
circulation in each community or county located in the MA organization's 
service area.
    (2) Immediate termination of contract by CMS. (i) For terminations 
based on violations prescribed in Sec. 422.510(a)(5), CMS notifies the 
MA organization in writing that its contract has been terminated 
effective the date of the termination decision by CMS. If termination is 
effective in the middle of a month, CMS has the right to recover the 
prorated share of the capitation payments made to the MA organization 
covering the period of the month following the contract termination.
    (ii) CMS notifies the MA organization's Medicare enrollees in 
writing of CMS's decision to terminate the MA organization's contract. 
This notice occurs no later than 30 days after CMS notifies the plan of 
its decision to terminate the MA contract. CMS simultaneously informs 
the Medicare enrollees of alternative options for obtaining Medicare 
services, including alternative MA organizations in a similar geographic 
area and original Medicare.
    (iii) CMS notifies the general public of the termination no later 
than 30 days after notifying the plan of CMS's decision to terminate the 
MA contract. This notice is published in one or more newspapers of 
general circulation in each community or county located in the MA 
organization's service area.
    (c) Corrective action plan--(1) General. Before terminating a 
contract for reasons other than the grounds specified in paragraph 
(a)(5) of this section, CMS provides the MA organization with reasonable 
opportunity to develop and receive CMS approval of a corrective action 
plan to correct the deficiencies that are the basis of the proposed 
termination.
    (2) Exception. If a contract is terminated under Sec. 
422.510(a)(5), the MA organization will not have the opportunity to 
submit a corrective action plan.
    (d) Appeal rights. If CMS decides to terminate a contract, it sends 
written notice to the MA organization informing it of its termination 
appeal rights in accordance with subpart N of this part.

[63 FR 35099, June 26, 1998, as amended at 65 FR 40328, June 29, 2000; 
70 FR 52027, Sept. 1, 2005]



Sec. 422.512  Termination of contract by the MA organization.

    (a) Cause for termination. The MA organization may terminate the MA 
contract if CMS fails to substantially carry out the terms of the 
contract.
    (b) Notice. The MA organization must give advance notice as follows:
    (1) To CMS, at least 90 days before the intended date of 
termination. This notice must specify the reasons why the MA 
organization is requesting contract termination.
    (2) To its Medicare enrollees, at least 60 days before the 
termination effective date. This notice must include a written 
description of alternatives available for obtaining Medicare services 
within the services area, including alternative MA plans, Medigap 
options, original Medicare and must receive CMS approval.
    (3) To the general public at least 60 days before the termination 
effective date by publishing an CMS-approved notice in one or more 
newspapers of general circulation in each community or county located in 
the MA organization's geographic area.
    (c) Effective date of termination. The effective date of the 
termination is determined by CMS and is at least 90 days after the date 
CMS receives the MA organization's notice of intent to terminate.
    (d) CMS's liability. CMS's liability for payment to the MA 
organization ends as of the first day of the month after the last month 
for which the contract is in effect.
    (e) Effect of termination by the organization. CMS does not enter 
into an agreement with an organization that has terminated its contract 
within the preceding 2 years unless there are circumstances that warrant 
special consideration, as determined by CMS.

[63 FR 35099, June 26, 1998, as amended at 67 FR 13288, Mar. 22, 2002]

[[Page 319]]



Sec. 422.514  Minimum enrollment requirements.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
CMS does not enter into a contract under this subpart unless the 
organization meets the following minimum enrollment requirement--
    (1) At least 5,000 individuals (or 1,500 individuals if the 
organization is a PSO) are enrolled for the purpose of receiving health 
benefits from the organization; or
    (2) At least 1,500 individuals (or 500 individuals if the 
organization is a PSO) are enrolled for purposes of receiving health 
benefits from the organization and the organization primarily serves 
individuals residing outside of urbanized areas as defined in Sec. 
412.62(f) (or, in the case of a PSO, the PSO meets the requirements in 
Sec. 422.352(c)).
    (3) Except as provided for in paragraph (b) of this section, an MA 
organization must maintain a minimum enrollment as defined in paragraphs 
(a)(1) and (a)(2) of this section for the duration of its contract.
    (b) Minimum enrollment waiver. (1) For a contract applicant or MA 
organization that does not meet the applicable requirement of paragraph 
(a) of this section at application for an MA contract or during the 
first 3 years of the contract, CMS may waive the minimum enrollment 
requirement as provided for below. To receive a waiver, a contract 
applicant or MA organization must demonstrate to CMS's satisfaction that 
it is capable of administering and managing an MA contract and is able 
to manage the level of risk required under the contract. Factors that 
CMS takes into consideration in making this evaluation include the 
extent to which--
    (i) The contract applicant or MA organization's management and 
providers have previous experience in managing and providing health care 
services under a risk-based payment arrangement to at least as many 
individuals as the applicable minimum enrollment for the entity as 
described in paragraph (a) of this section, or
    (ii) The contract applicant or MA organization has the financial 
ability to bear financial risk under an MA contract. In determining 
whether an organization is capable of bearing risk, CMS considers 
factors such as the organization's management experience as described in 
paragraph (b)(1)(i) of this section and stop-loss insurance that is 
adequate and acceptable to CMS; and
    (iii) The contract applicant or MA organization is able to establish 
a marketing and enrollment process that allows it to meet the applicable 
enrollment requirement specified in paragraph (a) of this section before 
completion of the third contract year.
    (2) If an MA organization fails to meet the enrollment requirement 
in the first year, CMS may waive the minimum requirements for another 
year provided that the organization--
    (i) Requests an additional minimum enrollment waiver no later than 
120 days before the end of the first year;
    (ii) Continues to demonstrate it is capable of administering and 
managing an MA contract and is able to manage the level of risk; and,
    (iii) Demonstrates an acceptable marketing and enrollment process. 
Enrollment projections for the second year of the waiver will become the 
organization's transitional enrollment standard.
    (3) If an MA organization fails to meet the enrollment requirement 
in the second year, CMS may waive the minimum requirements for the third 
year only if the organization has attained the transitional enrollment 
standard as described in paragraph (b)(2)(iii) of this section.
    (c) Failure to meet enrollment requirements. CMS may elect not to 
renew its contract with an MA organization that fails to meet the 
applicable enrollment requirement in paragraph (a) of this section

[63 FR 35099, June 26, 1998, as amended at 65 FR 40328, June 29, 2000]



Sec. 422.516  Reporting requirements.

    (a) Required information. Each MA organization must have an 
effective procedure to develop, compile, evaluate, and report to CMS, to 
its enrollees, and to the general public, at the times and in the manner 
that CMS requires, and while safeguarding the confidentiality

[[Page 320]]

of the doctor-patient relationship, statistics and other information 
with respect to the following:
    (1) The cost of its operations.
    (2) The patterns of utilization of its services.
    (3) The availability, accessibility, and acceptability of its 
services.
    (4) To the extent practical, developments in the health status of 
its enrollees.
    (5) Information demonstrating that the MA organization has a 
fiscally sound operation.
    (6) Other matters that CMS may require.
    (b) Significant business transactions. Each MA organization must 
report to CMS annually, within 120 days of the end of its fiscal year 
(unless for good cause shown, CMS authorizes an extension of time), the 
following:
    (1) A description of significant business transactions (as defined 
in Sec. 422.500) between the MA organization and a party in interest.
    (2) With respect to those transactions--
    (i) A showing that the costs of the transactions listed in paragraph 
(c) of this section do not exceed the costs that would be incurred if 
these transactions were with someone who is not a party in interest; or
    (ii) If they do exceed, a justification that the higher costs are 
consistent with prudent management and fiscal soundness requirements.
    (3) A combined financial statement for the MA organization and a 
party in interest if either of the following conditions is met:
    (i) Thirty-five percent or more of the costs of operation of the MA 
organization go to a party in interest.
    (ii) Thirty-five percent or more of the revenue of a party in 
interest is from the MA organization.
    (c) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(3) of this section must 
display in separate columns the financial information for the MA 
organization and each of the parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) The statements must have been examined by an independent auditor 
in accordance with generally accepted accounting principles and must 
include appropriate opinions and notes.
    (4) Upon written request from an MA organization showing good cause, 
CMS may waive the requirement that the organization's combined financial 
statement include the financial information required in this paragraph 
(c) with respect to a particular entity.
    (d) Reporting and disclosure under ERISA. (1) For any employees' 
health benefits plan that includes an MA organization in its offerings, 
the MA organization must furnish, upon request, the information the plan 
needs to fulfill its reporting and disclosure obligations (with respect 
to the particular MA organization) under the Employee Retirement Income 
Security Act of 1974 (ERISA).
    (2) The MA organization must furnish the information to the employer 
or the employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.
    (e) Loan information. Each organization must notify CMS of any loans 
or other special financial arrangements it makes with contractors, 
subcontractors and related entities.
    (f) Enrollee access to Information. Each MA organization must make 
the information reported to CMS under Sec. 422.502(f)(1) available to 
its enrollees upon reasonable request.



Sec. 422.520  Prompt payment by MA organization.

    (a) Contract between CMS and the MA organization. (1) The contract 
between CMS and the MA organization must provide that the MA 
organization will pay 95 percent of the ``clean claims'' within 30 days 
of receipt if they are submitted by, or on behalf of, an enrollee of an 
MA private fee-for-service plan or are claims for services that are not 
furnished under a written agreement between the organization and the 
provider.
    (2) The MA organization must pay interest on clean claims that are 
not paid within 30 days in accordance with sections 1816(c)(2)(B) and 
1842(c)(2)(B).
    (3) All other claims from non-contracted providers must be paid or 
denied within 60 calendar days from the date of the request.

[[Page 321]]

    (b)(1) Contracts between MA organizations and providers and 
suppliers. Contracts or other written agreements between MA 
organizations and providers must contain a prompt payment provision, the 
terms of which are developed and agreed to by both the MA organization 
and the relevant provider.
    (2) The MA organization is obligated to pay contracted providers 
under the terms of the contract between the MA organization and the 
provider.
    (c) Failure to comply. If CMS determines, after giving notice and 
opportunity for hearing, that an MA organization has failed to make 
payments in accordance with paragraph (a) of this section, CMS may 
provide--
    (1) For direct payment of the sums owed to providers, or MA private 
fee-for-service plan enrollees; and
    (2) For appropriate reduction in the amounts that would otherwise be 
paid to the organization, to reflect the amounts of the direct payments 
and the cost of making those payments.
    (d) A CMS decision to not conduct a hearing under paragraph (c) of 
this section does not disturb any potential remedy under State law for 
1866(a)(1)(O) of the Act.

[63 FR 35099, June 26, 1998, as amended at 65 FR 40328, June 29, 2000; 
70 FR 4738, Jan. 28, 2005]



Sec. 422.521  Effective date of new significant regulatory requirements.

    CMS will not implement, other than at the beginning of a calendar 
year, requirements under this part that impose a new significant cost or 
burden on MA organizations or plans, unless a different effective date 
is required by statute.

[68 FR 50858, Aug. 22, 2003]



Sec. 422.524  Special rules for RFB societies.

    In order to participate as an MA organization, an RFB society--
    (a) May not impose any limitation on membership based on any factor 
related to health status; and
    (b) Must offer, in addition to the MA RFB plan, health coverage to 
individuals who are members of the church or convention or group of 
churches with which the society is affiliated, but who are not entitled 
to receive benefits from the Medicare program.



Sec. 422.527  Agreements with Federally qualified health centers.

    The contract between the MA organization and CMS must specify that--
    (a) The MA organization must pay a Federally qualified health center 
(FQHC) a similar amount to what it pays other providers for similar 
services.
    (b) Under such a contract, the FQHC must accept this payment as 
payment in full, except for allowable cost sharing which it may collect.
    (c) Financial incentives, such as risk pool payments or bonuses, and 
financial withholdings are not considered in determining the payments 
made by CMS under Sec. 422.316(a).

[70 FR 4738, Jan. 28, 2005]



Subpart L_Effect of Change of Ownership or Leasing of Facilities During 
                            Term of Contract

    Source: 63 FR 35067, June 26, 1998, unless otherwise noted.

    Editorial Note: Nomenclature changes to subpart L appear at 63 FR 
35106, June 26, 1998.



Sec. 422.550  General provisions.

    (a) What constitutes change of ownership--(1) Partnership. The 
removal, addition, or substitution of a partner, unless the partners 
expressly agree otherwise as permitted by applicable State law, 
constitutes a change of ownership.
    (2) Asset transfer. Transfer of title and property to another party 
constitutes change of ownership.
    (3) Corporation. (i) The merger of the MA organization's corporation 
into another corporation or the consolidation of the MA organization 
with one or more other corporations, resulting in a new corporate body, 
constitutes a change of ownership.
    (ii) Transfer of corporate stock or the merger of another 
corporation into the MA organization's corporation, with the MA 
organization surviving, does not ordinarily constitute change of 
ownership.

[[Page 322]]

    (b) Advance notice requirement. (1) An MA organization that has a 
Medicare contract in effect and is considering or negotiating a change 
in ownership must notify CMS at least 60 days before the anticipated 
effective date of the change. The MA organization must also provide 
updated financial information and a discussion of the financial and 
solvency impact of the change of ownership on the surviving 
organization.
    (2) If the MA organization fails to give CMS the required notice 
timely, it continues to be liable for capitation payments that CMS makes 
to it on behalf of Medicare enrollees after the date of change of 
ownership.
    (c) Novation agreement defined. A novation agreement is an agreement 
among the current owner of the MA organization, the prospective new 
owner, and CMS--
    (1) That is embodied in a document executed and signed by all three 
parties;
    (2) That meets the requirements of Sec. 422.552; and
    (3) Under which CMS recognizes the new owner as the successor in 
interest to the current owner's Medicare contract.
    (d) Effect of change of ownership without novation agreement. Except 
to the extent provided in paragraph (b)(2) of this section, the effect 
of a change of ownership without a novation agreement is that--
    (1) The existing contract becomes invalid; and
    (2) If the new owner wishes to participate in the Medicare program, 
it must apply for, and enter into, a contract in accordance with subpart 
K of this part.
    (e) Effect of change of ownership with novation agreement. If the MA 
organization submits a novation agreement that meets the requirements of 
Sec. 422.552, and CMS signs it, the new owner becomes the successor in 
interest to the current owner's Medicare contract.

[60 FR 45681, Sept. 1, 1995. Redesignated and amended at 63 FR 35067, 
35106, June 26, 1998; 63 FR 52614, Oct. 1, 1998; 65 FR 40328, June 29, 
2000; 70 FR 4738, Jan. 28, 2005]



Sec. 422.552  Novation agreement requirements.

    (a) Conditions for CMS approval of a novation agreement. CMS 
approves a novation agreement if the following conditions are met:
    (1) Advance notification. The MA organization notifies CMS at least 
60 days before the date of the proposed change of ownership. The MA 
organization also provides CMS with updated financial information and a 
discussion of the financial and solvency impact of the change of 
ownership on the surviving organization.
    (2) Advance submittal of agreement. The MA organization submits to 
CMS, at least 30 days before the proposed change of ownership date, 
three signed copies of the novation agreement containing the provisions 
specified in paragraph (b) of this section, and one copy of other 
relevant documents required by CMS.
    (3) CMS's determination. CMS determines that--
    (i) The proposed new owner is in fact a successor in interest to the 
contract;
    (ii) Recognition of the new owner as a successor in interest to the 
contract is in the best interest of the Medicare program; and
    (iii) The successor organization meets the requirements to qualify 
as an MA organization under subpart K of this part.
    (b) Provisions of a novation agreement--(1) Assumption of contract 
obligations. The new owner must assume all obligations under the 
contract.
    (2) Waiver of right to reimbursement. The previous owner must waive 
its rights to reimbursement for covered services furnished during the 
rest of the current contract period.
    (3) Guarantee of performance. (i) The previous owner must guarantee 
performance of the contract by the new owner during the contract period; 
or
    (ii) The new owner must post a performance bond that is satisfactory 
to CMS.
    (4) Records access. The previous owner must agree to make its books 
and records and other necessary information available to the new owner 
and to

[[Page 323]]

CMS to permit an accurate determination of costs for the final 
settlement of the contract period.

[50 FR 1346, Jan. 10, 1985, as amended at 56 FR 8853, Mar. 1, 1991; 58 
FR 38079, July 15, 1993; 60 FR 45681, Sept. 1, 1995. Redesignated and 
amended at 63 FR 35067, 35106, June 26, 1998; 70 FR 52027, Sept. 1, 
2005]



Sec. 422.553  Effect of leasing of an MA organization's facilities.

    (a) General effect of leasing. If an MA organization leases all or 
part of its facilities to another entity, the other entity does not 
acquire MA organization status under section 1876 of the Act.
    (b) Effect of lease of all facilities. (1) If an MA organization 
leases all of its facilities to another entity, the contract terminates.
    (2) If the other entity wishes to participate in Medicare as an MA 
organization, it must apply for and enter into a contract in accordance 
with subpart K of this part.
    (c) Effect of partial lease of facilities. If the MA organization 
leases part of its facilities to another entity, its contract with CMS 
remains in effect while CMS surveys the MA organization to determine 
whether it continues to be in compliance with the applicable 
requirements and qualifying conditions specified in subpart K of this 
part.

[50 FR 1346, Jan. 10, 1985; 50 FR 20570, May 17, 1985, as amended at 58 
FR 38079, July 15, 1993; 60 FR 45681, Sept. 1, 1995. Redesignated and 
amended at 63 FR 35067, 35106, June 26, 1998; 70 FR 52027, Sept. 1, 
2005]



      Subpart M_Grievances, Organization Determinations and Appeals

    Source: 63 FR 35107, June 26, 1998, unless otherwise noted.



Sec. 422.560  Basis and scope.

    (a) Statutory basis. (1) Section 1852(f) of the Act provides that an 
MA organization must establish meaningful grievance procedures.
    (2) Section 1852(g) of the Act establishes requirements that an MA 
organization must meet concerning organization determinations and 
appeals.
    (3) Section 1869 of the Act specifies the amount in controversy 
needed to pursue a hearing and judicial review and authorizes 
representatives to act on behalf of individuals that seek appeals. These 
provisions are incorporated for MA appeals by section 1852(g)(5) of the 
Act and part 405 of this chapter.
    (b) Scope. This subpart sets forth--
    (1) Requirements for MA organizations with respect to grievance 
procedures, organization determinations, and appeal procedures.
    (2) The rights of MA enrollees with respect to organization 
determinations, and grievance and appeal procedures.
    (3) The rules concerning notice of noncoverage of inpatient hospital 
care.
    (4) The rules that apply when an MA enrollee requests immediate QIO 
review of a determination that he or she no longer needs inpatient 
hospital care.
    (c) Relation to ERISA requirements. Consistent with section 
1857(i)(2) of the Act, provisions of this subpart may, to the extent 
applicable under regulations adopted by the Secretary of Labor, apply to 
claims for benefits under group health plans subject to the Employee 
Retirement Income Security Act.

[63 FR 35107, June 26, 1998, as amended at 70 FR 4738, Jan. 28, 2005]



Sec. 422.561  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Appeal means any of the procedures that deal with the review of 
adverse organization determinations on the health care services the 
enrollee believes he or she is entitled to receive, including delay in 
providing, arranging for, or approving the health care services (such 
that a delay would adversely affect the health of the enrollee), or on 
any amounts the enrollee must pay for a service, as defined under Sec. 
422.566(b). These procedures include reconsiderations by the MA 
organization, and if necessary, an independent review entity, hearings 
before ALJs, review by the Medicare Appeals Council (MAC), and judicial 
review.
    Enrollee means an MA eligible individual who has elected an MA plan 
offered by an MA organization.

[[Page 324]]

    Grievance means any complaint or dispute, other than one that 
constitutes an organization determination, expressing dissatisfaction 
with any aspect of an MA organization's or provider's operations, 
activities, or behavior, regardless of whether remedial action is 
requested.
    Physician has the meaning given the term in section 1861(r) of the 
Act.
    Representative means an individual appointed by an enrollee or other 
party, or authorized under State or other applicable law, to act on 
behalf of an enrollee or other party involved in the appeal. Unless 
otherwise stated in this subpart, the representative will have all of 
the rights and responsibilities of an enrollee or party in obtaining an 
organization determination or in dealing with any of the levels of the 
appeals process, subject to the applicable rules described in part 405 
of this chapter.

[63 FR 35067, June 26, 1998, as amended at 65 FR 40328, June 29, 2000; 
68 FR 16667, Apr. 4, 2003; 70 FR 4738, Jan. 28, 2005]



Sec. 422.562  General provisions.

    (a) Responsibilities of the MA organization. (1) An MA organization, 
with respect to each MA plan that it offers, must establish and 
maintain--
    (i) A grievance procedure as described in Sec. 422.564 for 
addressing issues that do not involve organization determinations;
    (ii) A procedure for making timely organization determinations;
    (iii) Appeal procedures that meet the requirements of this subpart 
for issues that involve organization determinations; and
    (2) An MA organization must ensure that all enrollees receive 
written information about the--
    (i) Grievance and appeal procedures that are available to them 
through the MA organization; and
    (ii) Complaint process available to the enrollee under the QIO 
process as set forth under section 1154(a)(14) of the Act.
    (3) In accordance with subpart K of this part, if the MA 
organization delegates any of its responsibilities under this subpart to 
another entity or individual through which the organization provides 
health care services, the MA organization is ultimately responsible for 
ensuring that the entity or individual satisfies the relevant 
requirements of this subpart.
    (b) Rights of MA enrollees. In accordance with the provisions of 
this subpart, enrollees have the following rights:
    (1) The right to have grievances between the enrollee and the MA 
organization heard and resolved, as described in Sec. 422.564.
    (2) The right to a timely organization determination, as provided 
under Sec. 422.566.
    (3) The right to request an expedited organization determination, as 
provided under Sec. 422.570.
    (4) If dissatisfied with any part of an organization determination, 
the following appeal rights:
    (i) The right to a reconsideration of the adverse organization 
determination by the MA organization, as provided under Sec. 422.578.
    (ii) The right to request an expedited reconsideration, as provided 
under Sec. 422.584.
    (iii) If, as a result of a reconsideration, an MA organization 
affirms, in whole or in part, its adverse organization determination, 
the right to an automatic reconsidered determination made by an 
independent, outside entity contracted by CMS, as provided in Sec. 
422.592.
    (iv) The right to an ALJ hearing if the amount in controversy is 
met, as provided in Sec. 422.600.
    (v) The right to request MAC review of the ALJ hearing decision, as 
provided in Sec. 422.608.
    (vi) The right to judicial review of the hearing decision if the 
amount in controversy is met, as provided in Sec. 422.612.
    (c) Limits on when this subpart applies. (1) If an enrollee receives 
immediate QIO review (as provided in Sec. 422.622) of a determination 
of noncoverage of inpatient hospital care--
    (i) The enrollee is not entitled to review of that issue by the MA 
organization; and
    (ii) The QIO review decision is subject only to the appeal 
procedures set forth in parts 476 and 478 of this chapter.

[[Page 325]]

    (2) If an enrollee has no further liability to pay for services that 
were furnished by an MA organization, a determination regarding these 
services is not subject to appeal.
    (d) When other regulations apply. Unless this subpart provides 
otherwise, the regulations in part 405 of this chapter (concerning the 
administrative review and hearing processes and representation of 
parties under titles II and XVIII of the Act), apply under this subpart 
to the extent they are appropriate.

[63 FR 35067, June 26, 1998, as amended at 65 FR 40329, June 29, 2000; 
70 FR 4738, Jan. 28, 2005; 70 FR 52027, Sept. 1, 2005]



Sec. 422.564  Grievance procedures.

    (a) General rule. Each MA organization must provide meaningful 
procedures for timely hearing and resolving grievances between enrollees 
and the organization or any other entity or individual through which the 
organization provides health care services under any MA plan it offers.
    (b) Distinguished from appeals. Grievance procedures are separate 
and distinct from appeal procedures, which address organization 
determinations as defined in Sec. 422.566(b). Upon receiving a 
complaint, an MA organization must promptly determine and inform the 
enrollee whether the complaint is subject to its grievance procedures or 
its appeal procedures.
    (c) Distinguished from the quality improvement organization (QIO) 
complaint process. Under section 1154(a)(14) of the Act, the QIO must 
review beneficiaries' written complaints about the quality of services 
they have received under the Medicare program. This process is separate 
and distinct from the grievance procedures of the MA organization. For 
quality of care issues, an enrollee may file a grievance with the MA 
organization; file a written complaint with the QIO, or both. For any 
complaint submitted to a QIO, the MA organization must cooperate with 
the QIO in resolving the complaint.
    (d) Method for filing a grievance. (1) An enrollee may file a 
grievance with the MA organization either orally or in writing.
    (2) An enrollee must file a grievance no later than 60 days after 
the event or incident that precipitates the grievance.
    (e) Grievance disposition and notification. (1) The MA organization 
must notify the enrollee of its decision as expeditiously as the case 
requires, based on the enrollee's health status, but no later than 30 
days after the date the organization receives the oral or written 
grievance.
    (2) The MA organization may extend the 30-day timeframe by up to 14 
days if the enrollee requests the extension or if the organization 
justifies a need for additional information and documents how the delay 
is in the interest of the enrollee. When the MA organization extends the 
deadline, it must immediately notify the enrollee in writing of the 
reasons for the delay.
    (3) The MA organization must inform the enrollee of the disposition 
of the grievance in accordance with the following procedures:
    (i) All grievances submitted in writing must be responded to in 
writing.
    (ii) Grievances submitted orally may be responded to either orally 
or in writing, unless the enrollee requests a written response.
    (iii) All grievances related to quality of care, regardless of how 
the grievance is filed, must be responded to in writing. The response 
must include a description of the enrollee's right to file a written 
complaint with the QIO. For any complaint submitted to a QIO, the MA 
organization must cooperate with the QIO in resolving the complaint.
    (f) Expedited grievances. An MA organization must respond to an 
enrollee's grievance within 24 hours if:
    (1) The complaint involves an MA organization's decision to invoke 
an extension relating to an organization determination or 
reconsideration.
    (2) The complaint involves an MA organization's refusal to grant an 
enrollee's request for an expedited organization determination under 
Sec. 422.570 or reconsideration under Sec. 422.584.
    (g) Recordkeeping. The MA organization must have an established 
process to track and maintain records on all grievances received both 
orally and in writing, including, at a minimum, the date of receipt, 
final disposition of the grievance, and the date that the MA

[[Page 326]]

organization notified the enrollee of the disposition.

[68 FR 16667, Apr. 4, 2003, as amended at 70 FR 4738, Jan. 28, 2005]



Sec. 422.566  Organization determinations.

    (a) Responsibilities of the MA organization. Each MA organization 
must have a procedure for making timely organization determinations (in 
accordance with the requirements of this subpart) regarding the benefits 
an enrollee is entitled to receive under an MA plan, including basic 
benefits as described under Sec. 422.100(c)(1) and mandatory and 
optional supplemental benefits as described under Sec. 422.102, and the 
amount, if any, that the enrollee is required to pay for a health 
service. The MA organization must have a standard procedure for making 
determinations, in accordance with Sec. 422.568, and an expedited 
procedure for situations in which applying the standard procedure could 
seriously jeopardize the enrollee's life, health, or ability to regain 
maximum function, in accordance with Sec. Sec. 422.570 and 422.572.
    (b) Actions that are organization determinations. An organization 
determination is any determination made by an MA organization with 
respect to any of the following:
    (1) Payment for temporarily out of the area renal dialysis services, 
emergency services, post-stabilization care, or urgently needed 
services.
    (2) Payment for any other health services furnished by a provider 
other than the MA organization that the enrollee believes--
    (i) Are covered under Medicare; or
    (ii) If not covered under Medicare, should have been furnished, 
arranged for, or reimbursed by the MA organization.
    (3) The MA organization's refusal to provide or pay for services, in 
whole or in part, including the type or level of services, that the 
enrollee believes should be furnished or arranged for by the MA 
organization.
    (4) Discontinuation or reduction of a service if the enrollee 
believes that continuation of the services is medically necessary.
    (5) Failure of the MA organization to approve, furnish, arrange for, 
or provide payment for health care services in a timely manner, or to 
provide the enrollee with timely notice of an adverse determination, 
such that a delay would adversely affect the health of the enrollee.
    (c) Who can request an organization determination. (1) Those 
individuals or entities who can request an organization determination 
are--
    (i) The enrollee (including his or her authorized representative);
    (ii) Any provider that furnishes, or intends to furnish, services to 
the enrollee; or
    (iii) The legal representative of a deceased enrollee's estate.
    (2) Those who can request an expedited determination are--
    (i) An enrollee (including his or her authorized representative); or
    (ii) A physician (regardless of whether the physician is affiliated 
with the MA organization).

[63 FR 35067, June 26, 1998, as amended at 65 FR 40329, June 29, 2000; 
68 FR 50858, Aug. 22, 2003; 70 FR 4739, Jan. 28, 2005]



Sec. 422.568  Standard timeframes and notice requirements for organization determinations.

    (a) Timeframe for requests for service. When a party has made a 
request for a service, the MA organization must notify the enrollee of 
its determination as expeditiously as the enrollee's health condition 
requires, but no later than 14 calendar days after the date the 
organization receives the request for a standard organization 
determination. The MA organization may extend the timeframe by up to 14 
calendar days if the enrollee requests the extension or if the 
organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an MA 
organization's decision to deny). When the MA organization extends the 
timeframe, it must notify the enrollee in writing of the reasons for the 
delay, and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension.
    (b) Timeframe for requests for payment. The MA organization must 
process requests for payment according to the

[[Page 327]]

``prompt payment'' provisions set forth in Sec. 422.520.
    (c) Written notice for MA organization denials. If an MA 
organization decides to deny service or payment in whole or in part, or 
if an enrollee disagrees with an MA organization's decision to 
discontinue or reduce the level of care for an ongoing course of 
treatment, the organization must give the enrollee written notice of the 
determination.
    (d) Written notice for MA Organization denials. If an enrollee 
requests an MA organization to provide an explanation of a 
practitioner's denial of an item or service, in whole or in part, the MA 
organization must give the enrollee a written notice.
    (e) Form and content of the MA organization notice. The notice of 
any denial under paragraph (d) of this section must--
    (1) Use approved notice language in a readable and understandable 
form;
    (2) State the specific reasons for the denial;
    (3) Inform the enrollee of his or her right to a reconsideration;
    (4)(i) For service denials, describe both the standard and expedited 
reconsideration processes, including the enrollee's right to, and 
conditions for, obtaining an expedited reconsideration and the rest of 
the appeal process; and
    (ii) For payment denials, describe the standard reconsideration 
process and the rest of the appeal process; and
    (5) Comply with any other notice requirements specified by CMS.
    (f) Effect of failure to provide timely notice. If the MA 
organization fails to provide the enrollee with timely notice of an 
organization determination as specified in this section, this failure 
itself constitutes an adverse organization determination and may be 
appealed.

[65 FR 40329, June 29, 2000, as amended at 70 FR 4739, Jan. 28, 2005; 70 
FR 52027, Sept. 1, 2005]



Sec. 422.570  Expediting certain organization determinations.

    (a) Request for expedited determination. An enrollee or a physician 
(regardless of whether the physician is affiliated with the MA 
organization) may request that an MA organization expedite an 
organization determination involving the issues described in Sec. 
422.566(b)(3) and (b)(4). (This does not include requests for payment of 
services already furnished.)
    (b) How to make a request. (1) To ask for an expedited 
determination, an enrollee or a physician must submit an oral or written 
request directly to the MA organization or, if applicable, to the entity 
responsible for making the determination, as directed by the MA 
organization.
    (2) A physician may provide oral or written support for a request 
for an expedited determination.
    (c) How the MA organization must process requests. The MA 
organization must establish and maintain the following procedures for 
processing requests for expedited determinations:
    (1) Establish an efficient and convenient means for individuals to 
submit oral or written requests. The MA organization must document all 
oral requests in writing and maintain the documentation in the case 
file.
    (2) Promptly decide whether to expedite a determination, based on 
the following requirements:
    (i) For a request made by an enrollee the MA organization must 
provide an expedited determination if it determines that applying the 
standard timeframe for making a determination could seriously jeopardize 
the life or health of the enrollee or the enrollee's ability to regain 
maximum function.
    (ii) For a request made or supported by a physician, the MA 
organization must provide an expedited determination if the physician 
indicates that applying the standard timeframe for making a 
determination could seriously jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function.
    (d) Actions following denial. If an MA organization denies a request 
for expedited determination, it must take the following actions:
    (1) Automatically transfer a request to the standard timeframe and 
make the determination within the 14-day timeframe established in Sec. 
422.568 for a standard determination. The 14-day period begins with the 
day the MA organization receives the request for expedited 
determination.

[[Page 328]]

    (2) Give the enrollee prompt oral notice of the denial and 
subsequently deliver, within 3 calendar days, a written letter that--
    (i) Explains that the MA organization will process the request using 
the 14-day timeframe for standard determinations;
    (ii) Informs the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision not 
to expedite; and
    (iii) Informs the enrollee of the right to resubmit a request for an 
expedited determination with any physician's support; and
    (iv) Provides instructions about the grievance process and its 
timeframes.
    (e) Action on accepted request for expedited determination. If an MA 
organization grants a request for expedited determination, it must make 
the determination and give notice in accordance with Sec. 422.572.
    (f) Prohibition of punitive action. An MA organization may not take 
or threaten to take any punitive action against a physician acting on 
behalf or in support of an enrollee in requesting an expedited 
determination.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40329, June 29, 2000; 
70 FR 4739, Jan. 28, 2005]



Sec. 422.572  Timeframes and notice requirements for expedited organization determinations.

    (a) Timeframe. Except as provided in paragraph (b) of this section, 
an MA organization that approves a request for expedited determination 
must make its determination and notify the enrollee (and the physician 
involved, as appropriate) of its decision, whether adverse or favorable, 
as expeditiously as the enrollee's health condition requires, but no 
later than 72 hours after receiving the request.
    (b) Extensions. The MA organization may extend the 72-hour deadline 
by up to 14 calendar days if the enrollee requests the extension or if 
the organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an MA 
organization's decision to deny). When the MA organization extends the 
deadline, it must notify the enrollee in writing of the reasons for the 
delay and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension. The MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than upon expiration of the extension.
    (c) Confirmation of oral notice. If the MA organization first 
notifies an enrollee of an adverse expedited determination orally, it 
must mail written confirmation to the enrollee within 3 calendar days of 
the oral notification.
    (d) How the MA organization must request information from 
noncontract providers. If the MA organization must receive medical 
information from noncontract providers, the MA organization must request 
the necessary information from the noncontract provider within 24 hours 
of the initial request for an expedited organization determination. 
Noncontract providers must make reasonable and diligent efforts to 
expeditiously gather and forward all necessary information to assist the 
MA organization in meeting the required timeframe. Regardless of whether 
the MA organization must request information from noncontract providers, 
the MA organization is responsible for meeting the timeframe and notice 
requirements of this section.
    (e) Content of the notice of expedited determination. (1) The notice 
of any expedited determination must state the specific reasons for the 
determination in understandable language.
    (2) If the determination is not completely favorable to the 
enrollee, the notice must--
    (i) Inform the enrollee of his or her right to a reconsideration;
    (ii) Describe both the standard and expedited reconsideration 
processes, including the enrollee's right to request, and conditions for 
obtaining, an expedited reconsideration, and the rest of the appeal 
process; and
    (iii) Comply with any other requirements specified by CMS.
    (f) Effect of failure to provide a timely notice. If the MA 
organization fails to provide the enrollee with timely notice

[[Page 329]]

of an expedited organization determination as specified in this section, 
this failure itself constitutes an adverse organization determination 
and may be appealed.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40329, June 29, 2000; 
70 FR 4739, Jan. 28, 2005]



Sec. 422.574  Parties to the organization determination.

    The parties to the organization determination are--
    (a) The enrollee (including his or her authorized representative);
    (b) An assignee of the enrollee (that is, a physician or other 
provider who has furnished a service to the enrollee and formally agrees 
to waive any right to payment from the enrollee for that service);
    (c) The legal representative of a deceased enrollee's estate; or
    (d) Any other provider or entity (other than the MA organization) 
determined to have an appealable interest in the proceeding.



Sec. 422.576  Effect of an organization determination.

    The organization determination is binding on all parties unless it 
is reconsidered under Sec. Sec. 422.578 through 422.596 or is reopened 
and revised under Sec. 422.616.



Sec. 422.578  Right to a reconsideration.

    Any party to an organization determination (including one that has 
been reopened and revised as described in Sec. 422.616) may request 
that the determination be reconsidered under the procedures described in 
Sec. 422.582, which address requests for a standard reconsideration. An 
enrollee or physician (acting on behalf of an enrollee) may request an 
expedited reconsideration as described in Sec. 422.584.



Sec. 422.580  Reconsideration defined.

    A reconsideration consists of a review of an adverse organization 
determination, the evidence and findings upon which it was based, and 
any other evidence the parties submit or the MA organization or CMS 
obtains.



Sec. 422.582  Request for a standard reconsideration.

    (a) Method and place for filing a request. A party to an 
organization determination must ask for a reconsideration of the 
determination by making a written request to the MA organization that 
made the organization determination. The MA organization may adopt a 
policy for accepting oral requests.
    (b) Timeframe for filing a request. Except as provided in paragraph 
(c) of this section, a party must file a request for reconsideration 
within 60 calendar days from the date of the notice of the organization 
determination.
    (c) Extending the time for filing a request--(1) General rule. If a 
party shows good cause, the MA organization may extend the timeframe for 
filing a request for reconsideration.
    (2) How to request an extension of timeframe. If the 60-day period 
in which to file a request for reconsideration has expired, a party to 
the organization determination may file a request for reconsideration 
with the MA organization. The request for reconsideration and to extend 
the timeframe must--
    (i) Be in writing; and
    (ii) State why the request for reconsideration was not filed on 
time.
    (d) Parties to the reconsideration. The parties to the 
reconsideration are the parties to the organization determination, as 
described in Sec. 422.574, and any other provider or entity (other than 
the MA organization) whose rights with respect to the organization 
determination may be affected by the reconsideration, as determined by 
the entity that conducts the reconsideration.
    (e) Withdrawing a request. The party who files a request for 
reconsideration may withdraw it by filing a written request for 
withdrawal at one of the places listed in paragraph (a) of this section.

[63 FR 35107, June 26, 1998, as amended at 70 FR 4739, Jan. 28, 2005]



Sec. 422.584  Expediting certain reconsiderations.

    (a) Who may request an expedited reconsideration. An enrollee or a 
physician (regardless of whether he or she is affiliated with the MA 
organization) may request that an MA organization

[[Page 330]]

expedite a reconsideration of a determination that involves the issues 
described in Sec. 422.566(b)(3) and (b)(4). (This does not include 
requests for payment of services already furnished.)
    (b) How to make a request. (1) To ask for an expedited 
reconsideration, an enrollee or a physician acting on behalf of an 
enrollee must submit an oral or written request directly to the MA 
organization or, if applicable, to the entity responsible for making the 
reconsideration, as directed by the MA organization.
    (2) A physician may provide oral or written support for a request 
for an expedited reconsideration.
    (c) How the MA organization must process requests. The MA 
organization must establish and maintain the following procedures for 
processing requests for expedited reconsiderations:
    (1) Handling of requests. The MA organization must establish an 
efficient and convenient means for individuals to submit oral or written 
requests, document all oral requests in writing, and maintain the 
documentation in the case file.
    (2) Prompt decision. Promptly decide on whether to expedite the 
reconsideration or follow the timeframe for standard reconsideration 
based on the following requirements:
    (i) For a request made by an enrollee, the MA organization must 
provide an expedited reconsideration if it determines that applying the 
standard timeframe for reconsidering a determination could seriously 
jeopardize the life or health of the enrollee or the enrollee's ability 
to regain maximum function.
    (ii) For a request made or supported by a physician, the MA 
organization must provide an expedited reconsideration if the physician 
indicates that applying the standard timeframe for conducting a 
reconsideration could seriously jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function.
    (d) Actions following denial. If an MA organization denies a request 
for expedited reconsideration, it must take the following actions:
    (1) Automatically transfer a request to the standard timeframe and 
make the determination within the 30-day timeframe established in Sec. 
422.590(a). The 30-day period begins the day the MA organization 
receives the request for expedited reconsideration.
    (2) Give the enrollee prompt oral notice, and subsequently deliver, 
within 3 calendar days, a written letter that--
    (i) Explains that the MA organization will process the enrollee's 
request using the 30-day timeframe for standard reconsiderations;
    (ii) Informs the enrollee of the right to file a grievance if he or 
she disagrees with the organization's decision not to expedite;
    (iii) Informs the enrollee of the right to resubmit a request for an 
expedited reconsideration with any physician's support; and
    (iv) Provides instructions about the grievance process and its 
timeframes.
    (e) Action following acceptance of a request. If an MA organization 
grants a request for expedited reconsideration, it must conduct the 
reconsideration and give notice in accordance with Sec. 422.590.
    (f) Prohibition of punitive action. An MA organization may not take 
or threaten to take any punitive action against a physician acting on 
behalf or in support of an enrollee in requesting an expedited 
reconsideration.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40330, June 29, 2000; 
70 FR 4739, Jan. 28, 2005]



Sec. 422.586  Opportunity to submit evidence.

    The MA organization must provide the parties to the reconsideration 
with a reasonable opportunity to present evidence and allegations of 
fact or law, related to the issue in dispute, in person as well as in 
writing. In the case of an expedited reconsideration, the opportunity to 
present evidence is limited by the short timeframe for making a 
decision. Therefore, the MA organization must inform the parties of the 
conditions for submitting the evidence.



Sec. 422.590  Timeframes and responsibility for reconsiderations.

    (a) Standard reconsideration: Request for services. (1) If the MA 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the MA organization must issue

[[Page 331]]

the determination (and effectuate it in accordance with Sec. 
422.618(a)) as expeditiously as the enrollee's health condition 
requires, but no later than 30 calendar days from the date it receives 
the request for a standard reconsideration. The MA organization may 
extend the timeframe by up to 14 calendar days if the enrollee requests 
the extension or if the organization justifies a need for additional 
information and how the delay is in the interest of the enrollee (for 
example, the receipt of additional medical evidence from noncontract 
providers may change an MA organization's decision to deny). When the MA 
organization extends the timeframe, it must notify the enrollee in 
writing of the reasons for the delay, and inform the enrollee of the 
right to file an expedited grievance if he or she disagrees with the MA 
organization's decision to grant an extension. For extensions, the MA 
organization must issue and effectuate its determination as 
expeditiously as the enrollee's health condition requires, but no later 
than upon expiration of the extension.
    (2) If the MA organization makes a reconsidered determination that 
affirms, in whole or in part, its adverse organization determination, it 
must prepare a written explanation and send the case file to the 
independent entity contracted by CMS as expeditiously as the enrollee's 
health condition requires, but no later than 30 calendar days from the 
date it receives the request for a standard reconsideration (or no later 
than the expiration of an extension described in paragraph (a)(1) of 
this section). The organization must make reasonable and diligent 
efforts to assist in gathering and forwarding information to the 
independent entity.
    (b) Standard reconsideration: Request for payment. (1) If the MA 
organization makes a reconsidered determination that is completely 
favorable to the enrollee, the MA organization must issue its 
reconsidered determination to the enrollee (and effectuate it in 
accordance with Sec. 422.618(a)) no later than 60 calendar days from 
the date it receives the request for a standard reconsideration.
    (2) If the MA organization affirms, in whole or in part, its adverse 
organization determination, it must prepare a written explanation and 
send the case file to the independent entity contracted by CMS no later 
than 60 calendar days from the date it receives the request for a 
standard reconsideration. The organization must make reasonable and 
diligent efforts to assist in gathering and forwarding information to 
the independent entity.
    (c) Effect of failure to meet timeframe for standard 
reconsideration. If the MA organization fails to provide the enrollee 
with a reconsidered determination within the timeframes specified in 
paragraph (a) or paragraph (b) of this section, this failure constitutes 
an affirmation of its adverse organization determination, and the MA 
organization must submit the file to the independent entity in the same 
manner as described under paragraphs (a)(2) and (b)(2) of this section.
    (d) Expedited reconsideration--(1) Timeframe. Except as provided in 
paragraph (d)(2) of this section, an MA organization that approves a 
request for expedited reconsideration must complete its reconsideration 
and give the enrollee (and the physician involved, as appropriate) 
notice of its decision as expeditiously as the enrollee's health 
condition requires but no later than 72 hours after receiving the 
request.
    (2) Extensions. The MA organization may extend the 72-hour deadline 
by up to 14 calendar days if the enrollee requests the extension or if 
the organization justifies a need for additional information and how the 
delay is in the interest of the enrollee (for example, the receipt of 
additional medical evidence from noncontract providers may change an MA 
organization's decision to deny). When the MA organization extends the 
timeframe, it must notify the enrollee in writing of the reasons for the 
delay, and inform the enrollee of the right to file an expedited 
grievance if he or she disagrees with the MA organization's decision to 
grant an extension. The MA organization must notify the enrollee of its 
determination as expeditiously as the enrollee's health condition 
requires but no later than upon expiration of the extension.
    (3) Confirmation of oral notice. If the MA organization first 
notifies an enrollee of a completely favorable expedited 
reconsideration, it must mail

[[Page 332]]

written confirmation to the enrollee within 3 calendar days.
    (4) How the MA organization must request information from 
noncontract providers. If the MA organization must receive medical 
information from noncontract providers, the MA organization must request 
the necessary information from the noncontract provider within 24 hours 
of the initial request for an expedited reconsideration. Noncontract 
providers must make reasonable and diligent efforts to expeditiously 
gather and forward all necessary information to assist the MA 
organization in meeting the required timeframe. Regardless of whether 
the MA organization must request information from noncontract providers, 
the MA organization is responsible for meeting the timeframe and notice 
requirements.
    (5) Affirmation of an adverse expedited organization determination. 
If, as a result of its reconsideration, the MA organization affirms, in 
whole or in part, its adverse expedited organization determination, the 
MA organization must submit a written explanation and the case file to 
the independent entity contracted by CMS as expeditiously as the 
enrollee's health condition requires, but not later than within 24 hours 
of its affirmation. The organization must make reasonable and diligent 
efforts to assist in gathering and forwarding information to the 
independent entity.
    (e) Notification of enrollee. If the MA organization refers the 
matter to the independent entity as described under this section, it 
must concurrently notify the enrollee of that action.
    (f) Failure to meet timeframe for expedited reconsideration. If the 
MA organization fails to provide the enrollee with the results of its 
reconsideration within the timeframe described in paragraph (d) of this 
section, this failure constitutes an adverse reconsidered determination, 
and the MA organization must submit the file to the independent entity 
within 24 hours of expiration of the timeframe set forth in paragraph 
(d) of this section.
    (g) Who must reconsider an adverse organization determination. (1) A 
person or persons who were not involved in making the organization 
determination must conduct the reconsideration.
    (2) When the issue is the MA organization's denial of coverage based 
on a lack of medical necessity (or any substantively equivalent term 
used to describe the concept of medical necessity), the reconsidered 
determination must be made by a physician with expertise in the field of 
medicine that is appropriate for the services at issue. The physician 
making the reconsidered determination need not, in all cases, be of the 
same specialty or subspecialty as the treating physician.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40330, June 29, 2000; 
70 FR 4739, Jan. 28, 2005]



Sec. 422.592  Reconsideration by an independent entity.

    (a) When the MA organization affirms, in whole or in part, its 
adverse organization determination, the issues that remain in dispute 
must be reviewed and resolved by an independent, outside entity that 
contracts with CMS.
    (b) The independent outside entity must conduct the review as 
expeditiously as the enrollee's health condition requires but must not 
exceed the deadlines specified in the contract.
    (c) When the independent entity conducts a reconsideration, the 
parties to the reconsideration are the same parties listed in Sec. 
422.582(d) who qualified during the MA organization's reconsideration, 
with the addition of the MA organization.



Sec. 422.594  Notice of reconsidered determination by the independent entity.

    (a) Responsibility for the notice. When the independent entity makes 
the reconsidered determination, it is responsible for mailing a notice 
of its reconsidered determination to the parties and for sending a copy 
to CMS.
    (b) Content of the notice. The notice must--
    (1) State the specific reasons for the entity's decisions in 
understandable language;
    (2) If the reconsidered determination is adverse (that is, does not 
completely reverse the MA organization's adverse organization 
determination), inform the parties of their right to an ALJ

[[Page 333]]

hearing if the amount in controversy is $100 or more;
    (3) Describe the procedures that a party must follow to obtain an 
ALJ hearing; and
    (4) Comply with any other requirements specified by CMS.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40330, June 29, 2000]



Sec. 422.596  Effect of a reconsidered determination.

    A reconsidered determination is final and binding on all parties 
unless a party other than the MA organization files a request for a 
hearing under the provisions of Sec. 422.602, or unless the 
reconsidered determination is revised under Sec. 422.616.

[65 FR 40331, June 29, 2000]



Sec. 422.600  Right to a hearing.

    (a) If the amount remaining in controversy after reconsideration 
meets the threshold requirement established annually by the Secretary, 
any party to the reconsideration (except the MA organization) who is 
dissatisfied with the reconsidered determination has a right to a 
hearing before an ALJ.
    (b) The amount remaining in controversy, which can include any 
combination of Part A and Part B services, is computed in accordance 
with part 405 of this chapter.
    (c) If the basis for the appeal is the MA organization's refusal to 
provide services, CMS uses the projected value of those services to 
compute the amount remaining in controversy.

[63 FR 35107, June 26, 1998, as amended at 70 FR 4740, Jan. 28, 2005]



Sec. 422.602  Request for an ALJ hearing.

    (a) How and where to file a request. A party must file a written 
request for a hearing with the entity specified in the IRE's 
reconsideration notice.
    (b) When to file a request. Except when an ALJ extends the time 
frame as provided in part 405 of this chapter, a party must file a 
request for a hearing within 60 days of the date of the notice of a 
reconsidered determination. The time and place for a hearing before an 
ALJ will be set in accordance with Sec. 405.1020.
    (c) Parties to a hearing. The parties to a hearing are the parties 
to the reconsideration, the MA organization, and any other person or 
entity whose rights with respect to the reconsideration may be affected 
by the hearing, as determined by the ALJ.
    (d) Insufficient amount in controversy. (1) If a request for a 
hearing clearly shows that the amount in controversy is less than that 
required under Sec. 422.600, the ALJ dismisses the request.
    (2) If, after a hearing is initiated, the ALJ finds that the amount 
in controversy is less than the amount required under Sec. 422.600, the 
ALJ discontinues the hearing and does not rule on the substantive issues 
raised in the appeal.

[63 FR 35107, June 26, 1998, as amended at 70 FR 4740, Jan. 28, 2005]



Sec. 422.608  Medicare Appeals Council (MAC) review.

    Any party to the hearing, including the MA organization, who is 
dissatisfied with the ALJ hearing decision, may request that the MAC 
review the ALJ's decision or dismissal. The regulations under part 405 
of this chapter regarding MAC review apply to matters addressed by this 
subpart to the extent that they are appropriate.

[70 FR 4740, Jan. 28, 2005]



Sec. 422.612  Judicial review.

    (a) Review of ALJ's decision. Any party, including the MA 
organization, may request judicial review (upon notifying the other 
parties) of an ALJ's decision if--
    (1) The Board denied the party's request for review; and
    (2) The amount in controversy meets the threshold requirement 
established annually by the Secretary.
    (b) Review of MAC decision. Any party, including the MA 
organization, may request judicial review (upon notifying the other 
parties) of the MAC decision if it is the final decision of CMS and the 
amount in controversy meets the threshold established in paragraph 
(a)(2) of this section.
    (c) How to request judicial review. In order to request judicial 
review, a

[[Page 334]]

party must file a civil action in a district court of the United States 
in accordance with section 205(g) of the Act. See part 405 of this 
chapter for a description of the procedures to follow in requesting 
judicial review.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998, as amended at 65 
FR 40331, June 29, 2000; 70 FR 4740, Jan. 28, 2005]



Sec. 422.616  Reopening and revising determinations and decisions.

    (a) An organization or reconsidered determination made by an MA 
organization, a reconsidered determination made by the independent 
entity described in Sec. 422.592, or the decision of an ALJ or the MAC 
that is otherwise final and binding may be reopened and revised by the 
entity that made the determination or decision, under the rules in part 
405 of this chapter.
    (b) Reopening may be at the instigation of any party.
    (c) The filing of a request for reopening does not relieve the MA 
organization of its obligation to make payment or provide services as 
specified in Sec. 422.618.
    (d) Once an entity issues a revised determination or decision, any 
party may file an appeal.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998, as amended at 70 
FR 4740, Jan. 28, 2005]



Sec. 422.618  How an MA organization must effectuate standard reconsidered determinations or decisions.

    (a) Reversals by the MA organization--(1) Requests for service. If, 
on reconsideration of a request for service, the MA organization 
completely reverses its organization determination, the organization 
must authorize or provide the service under dispute as expeditiously as 
the enrollee's health condition requires, but no later than 30 calendar 
days after the date the MA organization receives the request for 
reconsideration (or no later than upon expiration of an extension 
described in Sec. 422.590(a)(1)).
    (2) Requests for payment. If, on reconsideration of a request for 
payment, the MA organization completely reverses its organization 
determination, the organization must pay for the service no later than 
60 calendar days after the date the MA organization receives the request 
for reconsideration.
    (b) Reversals by the independent outside entity--(1) Requests for 
service. If, on reconsideration of a request for service, the MA 
organization's determination is reversed in whole or in part by the 
independent outside entity, the MA organization must authorize the 
service under dispute within 72 hours from the date it receives notice 
reversing the determination, or provide the service under dispute as 
expeditiously as the enrollee's health condition requires, but no later 
than 14 calendar days from that date. The MA organization must inform 
the independent outside entity that the organization has effectuated the 
decision.
    (2) Requests for payment. If, on reconsideration of a request for 
payment, the MA organization's determination is reversed in whole or in 
part by the independent outside entity, the MA organization must pay for 
the service no later than 30 calendar days from the date it receives 
notice reversing the organization determination. The MA organization 
must inform the independent outside entity that the organization has 
effectuated the decision.
    (c) Reversals other than by the MA organization or the independent 
outside entity.--(1) General rule. If the independent outside entity's 
determination is reversed in whole or in part by the ALJ, or at a higher 
level of appeal, the MA organization must pay for, authorize, or provide 
the service under dispute as expeditiously as the enrollee's health 
condition requires, but no later than 60 calendar days from the date it 
receives notice reversing the determination. The MA organization must 
inform the independent outside entity that the organization has 
effectuated the decision or that it has appealed the decision.
    (2) Effectuation exception when the MA organization files an appeal 
with the Medicare Appeals Council. If the MA organization requests 
Medicare Appeals Council (the Board) review consistent with Sec. 
422.608, the MA organization may await the outcome of the review before 
it pays for, authorizes, or provides the service under dispute. A MA 
organization that files an appeal with the Board must concurrently send 
a copy of its

[[Page 335]]

appeal request and any accompanying documents to the enrollee and must 
notify the independent outside entity that it has requested an appeal.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40331, June 29, 2000; 
68 FR 50858, Aug. 22, 2003]



Sec. 422.619  How an MA organization must effectuate expedited reconsidered determinations.

    (a) Reversals by the MA organization. If on reconsideration of an 
expedited request for service, the MA organization completely reverses 
its organization determination, the MA organization must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 72 hours after the date the 
MA organization receives the request for reconsideration (or no later 
than upon expiration of an extension described in Sec. 422.590(d)(2)).
    (b) Reversals by the independent outside entity. If the MA 
organization's determination is reversed in whole or in part by the 
independent outside entity, the MA organization must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires but no later than 72 hours from the date it 
receives notice reversing the determination. The MA organization must 
inform the independent outside entity that the organization has 
effectuated the decision.
    (c) Reversals other than by the MA organization or the independent 
outside entity--(1) General rule. If the independent outside entity's 
expedited determination is reversed in whole or in part by the ALJ, or 
at a higher level of appeal, the MA organization must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 60 days from the date it 
receives notice reversing the determination. The MA organization must 
inform the independent outside entity that the organization has 
effectuated the decision.
    (2) Effectuation exception when the MA organization files an appeal 
with the Medicare Appeals Council. If the MA organization requests 
Medicare Appeals Council (the Board) review consistent with Sec. 
422.608, the MA organization may await the outcome of the review before 
it authorizes or provides the service under dispute. A MA organization 
that files an appeal with the Board must concurrently send a copy of its 
appeal request and any accompanying documents to the enrollee and must 
notify the independent outside entity that it has requested an appeal.

[65 FR 40331, June 29, 2000, as amended at 68 FR 50859, Aug. 22, 2003]



Sec. 422.620  How enrollees of MA organizations must be notified of noncovered inpatient hospital care.

    (a) Enrollee's entitlement. (1) Where an MA organization has 
authorized coverage of the inpatient admission of an enrollee, either 
directly or by delegation (or the admission constitutes emergency or 
urgently needed care, as described in Sec. Sec. 422.2 and 422.113), the 
MA organization (or hospital that has been delegated the authority to 
make the discharge decision) must provide a written notice of 
noncoverage when--
    (i) The beneficiary disagrees with the discharge decision; or
    (ii) The MA organization (or the hospital that has been delegated 
the authority to make the discharge decision) is not discharging the 
individual but no longer intends to continue coverage of the inpatient 
stay.
    (2) An enrollee is entitled to coverage until at least noon of the 
day after such notice is provided. If QIO review is requested under 
Sec. 422.622, coverage is extended as provided in that section.
    (b) Physician concurrence required. Before discharging an individual 
or changing the level of care in an inpatient hospital setting, the MA 
organization must obtain the concurrence of the physician who is 
responsible for the enrollee's inpatient care.
    (c) Notice to the enrollee. When applicable, the written notice of 
non-coverage must be issued no later than the day before hospital 
coverage ends. The written notice must include the following elements:
    (1) The reason why inpatient hospital care is no longer needed or 
covered;
    (2) The effective date and time of the enrollee's liability for 
continued inpatient care;
    (3) The enrollee's appeal rights;

[[Page 336]]

    (4) If applicable, the new lower level of care being covered in the 
hospital setting; and
    (5) Any additional information specified by CMS.

[68 FR 16667, Apr. 4, 2003, as amended at 70 FR 4740, Jan. 28, 2005]

    Effective Date Note: At 68 FR 20349, Apr. 4, 2003, Sec. 422.620 was 
revised. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget



Sec. 422.622  Requesting immediate QIO review of noncoverage of inpatient hospital care.

    (a) Enrollee's right to review or reconsideration. (1) An enrollee 
who wishes to appeal a determination by an MA organization or hospital 
that inpatient care is no longer necessary must request immediate QIO 
review of the determination in accordance with paragraph (b) of this 
section. An enrollee who requests immediate QIO review may remain in the 
hospital with no additional financial liability as specified in 
paragraph (c) of this section.
    (2) An enrollee who fails to request immediate QIO review in 
accordance with the procedures in paragraph (b) of this section may 
request expedited reconsideration by the MA organization as described in 
Sec. 422.584, but the financial liability rules of paragraph (c) of 
this section do not apply.
    (b) Procedures enrollee must follow. For the immediate QIO review 
process, the following rules apply:
    (1) The enrollee must submit the request for immediate review--
    (i) To the QIO that has an agreement with the hospital under parts 
476 and 478 of this chapter.
    (ii) In writing or by telephone; and
    (iii) By noon of the first working day after he or she receives 
written notice that the MA organization or hospital has determined that 
the hospital stay is no longer necessary.
    (2) On the date it receives the enrollee's request, the QIO must 
notify the MA organization that the enrollee has filed a request for 
immediate review.
    (3) The MA organization must supply any information that the QIO 
requires to conduct its review and must make it available, by phone or 
in writing, by the close of business of the first full working day 
immediately following the day the enrollee submits the request for 
review.
    (4) In response to a request from the MA organization, the hospital 
must submit medical records and other pertinent information to the QIO 
by close of business of the first full working day immediately following 
the day the organization makes its request.
    (5) The QIO must solicit the views of the enrollee who requested the 
immediate QIO review.
    (6) The QIO must make a determination and notify the enrollee, the 
hospital, and the MA organization by close of business of the first 
working day after it receives all necessary information from the 
hospital, or the organization, or both.
    (c) Liability for hospital costs--(1) When the MA organization 
determines that hospital services are not, or are no longer, covered. 
(i) Except as provided in paragraph (c)(1)(ii) of this section, if the 
MA organization authorized coverage of the inpatient admission directly 
or by delegation (or the admission constitutes emergency or urgently 
needed care, as described in Sec. Sec. 422.2 and 422.112(c)), the 
organization continues to be financially responsible for the costs of 
the hospital stay when a timely appeal is filed under paragraph (a)(1) 
of this section until noon of the calendar day following the day the QIO 
notifies the enrollee of its review determination. If coverage of the 
hospital admission was never approved by the MA organization (or the 
admission does not constitute emergency or urgently needed care, as 
described in Sec. Sec. 422.2 and 422.112(c)), the MA organization is 
liable for the hospital costs only if it is determined on appeal that 
the hospital stay should have been covered under the MA plan.
    (ii) The hospital may not charge the MA organization (or the 
enrollee) if--
    (A) It was the hospital (acting on behalf of the enrollee) that 
filed the request for immediate QIO review; and
    (B) The QIO upholds the noncoverage determination made by the MA 
organization.
    (2) When the hospital determines that hospital services are no 
longer required. If the hospital determines that inpatient

[[Page 337]]

hospital services are no longer necessary, and the enrollee could not 
reasonably be expected to know that the services would not be covered, 
the hospital may not charge the enrollee for inpatient services received 
before noon of the calendar day following the day the QIO notifies the 
enrollee of its review determination.

[63 FR 35107, June 26, 1998; 63 FR 52614, Oct. 1, 1998, as amended at 70 
FR 4740, Jan. 28, 2005; 70 FR 52027, Sept. 1, 2005]



Sec. 422.624  Notifying enrollees of termination of provider services.

    (a) Applicability. (1) For purposes of Sec. Sec. 422.624 and 
422.626, the term provider includes home health agencies (HHAs), skilled 
nursing facilities (SNFs), and comprehensive outpatient rehabilitation 
facilities (CORFs).
    (2) Termination of service defined. For purposes of this section and 
Sec. 422.626, a termination of service is the discharge of an enrollee 
from covered provider services, or discontinuation of covered provider 
services, when the enrollee has been authorized by the MA organization, 
either directly or by delegation, to receive an ongoing course of 
treatment from that provider. Termination includes cessation of coverage 
at the end of a course of treatment preauthorized in a discrete 
increment, regardless of whether the enrollee agrees that such services 
should end.
    (b) Advance written notification of termination. Prior to any 
termination of service, the provider of the service must deliver valid 
written notice to the enrollee of the MA organization's decision to 
terminate services. The provider must use a standardized notice, 
required by the Secretary, in accordance with the following procedures--
    (1) Timing of notice. The provider must notify the enrollee of the 
MA organization's decision to terminate covered services no later than 
two days before the proposed end of the services. If the enrollee's 
services are expected to be fewer than two days in duration, the 
provider should notify the enrollee at the time of admission to the 
provider. If, in a non-institutional setting, the span of time between 
services exceeds two days, the notice should be given no later than the 
next to last time services are furnished.
    (2) Content of the notice. The standardized termination notice must 
include the following information:
    (i) The date that coverage of services ends.
    (ii) The date that the enrollee's financial liability for continued 
services begins.
    (iii) A description of the enrollee's right to a fast-track appeal 
under Sec. 422.626, including information about how to contact an 
independent review entity (IRE), an enrollee's right (but not 
obligation) to submit evidence showing that services should continue, 
and the availability of other MA appeal procedures if the enrollee fails 
to meet the deadline for a fast-track IRE appeal.
    (iv) The enrollee's right to receive detailed information in 
accordance with Sec. 422.626 (e)(1) and (2).
    (v) Any other information required by the Secretary.
    (c) When delivery of notice is valid. Delivery of the termination 
notice is not valid unless--
    (1) The enrollee (or the enrollee's authorized representative) has 
signed and dated the notice to indicate that he or she has received the 
notice and can comprehend its contents; and
    (2) The notice is delivered in accordance with paragraph (b)(1) of 
this section and contains all the elements described in paragraph (b)(2) 
of this section.
    (d) Financial liability for failure to deliver valid notice. An MA 
organization is financially liable for continued services until 2 days 
after the enrollee receives valid notice as specified under paragraph 
(c) of this section. An enrollee may waive continuation of services if 
he or she agrees with being discharged sooner than 2 days after 
receiving the notice.

    Effective Date Note: At 68 FR 20349, Apr. 4, 2003, Sec. 422.624 was 
added. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget

[[Page 338]]



Sec. 422.626  Fast-track appeals of service terminations to independent review entities (IREs).

    (a) Enrollee's right to a fast-track appeal of an MA organization's 
termination decision. An enrollee of an MA organization has a right to a 
fast-track appeal of an MA organization's decision to terminate provider 
services.
    (1) An enrollee who desires a fast-track appeal must submit a 
request for an appeal to an IRE under contract with CMS, in writing or 
by telephone, by noon of the first day after the day of delivery of the 
termination notice. If, due to an emergency, the IRE is closed and 
unable to accept the enrollee's request for a fast-track appeal, the 
enrollee must file a request by noon of the next day that the IRE is 
open for business.
    (2) When an enrollee fails to make a timely request to an IRE, he or 
she may request an expedited reconsideration by the MA organization as 
described in Sec. 422.584.
    (3) If, after delivery of the termination notice, an enrollee 
chooses to leave a provider or discontinue receipt of covered services 
on or before the proposed termination date, the enrollee may not later 
assert fast-track IRE appeal rights under this section relative to the 
services or expect the services to resume, even if the enrollee requests 
an appeal before the discontinuation date in the termination notice.
    (b) Coverage of provider services. Coverage of provider services 
continues until the date and time designated on the termination notice, 
unless the enrollee appeals and the IRE reverses the MA organization's 
decision. If the IRE's decision is delayed because the MA organization 
did not timely supply necessary information or records, the MA 
organization is liable for the costs of any additional coverage required 
by the delayed IRE decision. If the IRE finds that the enrollee did not 
receive valid notice, coverage of provider services by the MA 
organization continues until at least two days after valid notice has 
been received. Continuation of coverage is not required if the IRE 
determines that coverage could pose a threat to the enrollee's health or 
safety.
    (c) Burden of proof. When an enrollee appeals an MA organization's 
decision to terminate services to an IRE, the burden of proof rests with 
the MA organization to demonstrate that termination of coverage is the 
correct decision, either on the basis of medical necessity, or based on 
other Medicare coverage policies.
    (1) To meet this burden, the MA organization must supply any and all 
information that an IRE requires to sustain the MA organization's 
termination decision, consistent with paragraph (e) of this section.
    (2) The enrollee may submit evidence to be considered by an IRE in 
making its decision.
    (3) The MA organization or an IRE may require an enrollee to 
authorize release to the IRE of his or her medical records, to the 
extent that the records are necessary for the MA organization to 
demonstrate the correctness of its decision or for an IRE to determine 
the appeal.
    (d) Procedures an IRE must follow. (1) On the date an IRE receives 
the enrollee's request for an appeal, the IRE must immediately notify 
the MA organization and the provider that the enrollee has filed a 
request for a fast-track appeal, and of the MA organization's 
responsibility to submit documentation consistent with paragraph (e)(3) 
of this section.
    (2) When an enrollee requests a fast-track appeal, the IRE must 
determine whether the provider delivered a valid notice of the 
termination decision, and whether a detailed notice has been provided, 
consistent with paragraph (e)(1) of this section.
    (3) The IRE must notify CMS about each case in which it determines 
that improper notification occurs.
    (4) Before making its decision, the IRE must solicit the enrollee's 
views regarding the reason(s) for termination of services as specified 
in the detailed written notice provided by the MA organization, or 
regarding any other reason that the IRE uses as the basis of its review 
determination.
    (5) An IRE must make a decision on an appeal and notify the 
enrollee, the MA organization, and the provider of services, by close of 
business of the day

[[Page 339]]

after it receives the information necessary to make the decision. If the 
IRE does not receive the information needed to sustain an MA 
organization's decision to terminate services, it may make a decision on 
the case based on the information at hand, or it may defer its decision 
until it receives the necessary information. If the IRE defers its 
decision, coverage of the services by the MA organization would continue 
until the decision is made, consistent with paragraph (b) of this 
section, but no additional termination notice would be required.
    (e) Responsibilities of the MA organization. (1) When an IRE 
notifies an MA organization that an enrollee has requested a fast-track 
appeal, the MA organization must send a detailed notice to the enrollee 
by close of business of the day of the IRE's notification. The detailed 
termination notice must include the following information:
    (i) A specific and detailed explanation why services are either no 
longer reasonable and necessary or are no longer covered.
    (ii) A description of any applicable Medicare coverage rule, 
instruction or other Medicare policy including citations, to the 
applicable Medicare policy rules, or the information about how the 
enrollee may obtain a copy of the Medicare policy from the MA 
organization.
    (iii) Any applicable MA organization policy, contract provision, or 
rationale upon which the termination decision was based.
    (iv) Facts specific to the enrollee and relevant to the coverage 
determination that are sufficient to advise the enrollee of the 
applicability of the coverage rule or policy to the enrollee's case.
    (v) Any other information required by CMS.
    (2) Upon an enrollee's request, the MA organization must provide the 
enrollee a copy of, or access to, any documentation sent to the IRE by 
the MA organization, including records of any information provided by 
telephone. The MA organization may charge the enrollee a reasonable 
amount to cover the costs of duplicating the information for the 
enrollee and/or delivering the documentation to the enrollee. The MA 
organization must accommodate such a request by no later than close of 
business of the first day after the day the material is requested.
    (3) Upon notification by the IRE of a fast-track appeal, the MA 
organization must supply any and all information, including a copy of 
the notice sent to the enrollee, that the IRE needs to decide on the 
appeal. The MA organization must supply this information as soon as 
possible, but no later than by close of business of the day that the IRE 
notifies the MA organization that an appeal has been received from the 
enrollee. The MA organization must make the information available by 
phone (with a written record made of what is transmitted in this manner) 
and/or in writing, as determined by the IRE.
    (4) An MA organization is financially responsible for coverage of 
services as provided in paragraph (b) of this section, regardless of 
whether it has delegated responsibility for authorizing coverage or 
termination decisions to its providers.
    (5) If an IRE reverses an MA organization's termination decision, 
the MA organization must provide the enrollee with a new notice 
consistent with Sec. 422.624(b).
    (f) Reconsiderations of IRE decisions. (1) If the IRE upholds an MA 
organization's termination decision in whole or in part, the enrollee 
may request, no later than 60 days after notification that the IRE has 
upheld the decision that the IRE reconsider its original decision.
    (2) The IRE must issue its reconsidered determination as 
expeditiously as the enrollee's health condition requires but no later 
than within 14 days of receipt of the enrollee's request for a 
reconsideration.
    (3) If the IRE reaffirms its decision, in whole or in part, the 
enrollee may to appeal the IRE's reconsidered determination to an ALJ, 
the MAC, or a federal court, as provided for under this subpart.
    (4) If on reconsideration the IRE determines that coverage of 
provider services should terminate on a given date, the enrollee is 
liable for the costs of continued services after that date unless the 
IRE's decision is reversed on

[[Page 340]]

appeal. If the IRE's decision is reversed on appeal, the MA organization 
must reimburse the enrollee, consistent with the appealed decision, for 
the costs of any covered services for which the enrollee has already 
paid the MA organization or provider.

    Effective Date Note: At 68 FR 20349, Apr. 4, 2003, Sec. 422.626 was 
added. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget



         Subpart N_Medicare Contract Determinations and Appeals

    Source: 63 FR 35113, June 26, 1998, unless otherwise noted.



Sec. 422.641  Contract determinations.

    This subpart establishes the procedures for making and reviewing the 
following contract determinations:
    (a) A determination that an entity is not qualified to enter into a 
contract with CMS under Part C of title XVIII of the Act.
    (b) A determination to terminate a contract with an MA organization 
in accordance with Sec. 422.510(a).
    (c) A determination not to authorize a renewal of a contract with an 
MA organization in accordance with Sec. 422.506(b).



Sec. 422.644  Notice of contract determination.

    (a) When CMS makes a contract determination, it gives the MA 
organization written notice.
    (b) The notice specifies--
    (1) The reasons for the determination; and
    (2) The MA organization's right to request reconsideration.
    (c) For CMS-initiated terminations, CMS mails notice 90 days before 
the anticipated effective date of the termination. For terminations 
based on initial determinations described at Sec. 422.510(a)(5), CMS 
immediately notifies the MA organization of its decision to terminate 
the organization's MA contract.
    (d) When CMS determines that it will not authorize a contract 
renewal, CMS mails the notice to the MA organization by May 1 of the 
current contract year.



Sec. 422.646  Effect of contract determination.

    The contract determination is final and binding unless--
    (a) The determination is reconsidered in accordance with Sec. Sec. 
422.648 through 422.658;
    (b) A timely request for a hearing is filed under Sec. 422.662; or
    (c) The reconsideration decision is revised as a result of a 
reopening under Sec. 422.696.



Sec. 422.648  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing a contract 
determination specified in Sec. 422.641.
    (b) CMS reconsiders the specified determinations if the contract 
applicant or the MA organization files a written request in accordance 
with Sec. 422.650.
    (c) Notice of any redetermination favorable to the MA organization 
applicant, including those resulting from a hearing or Administrator 
review conducted under this subpart, must be issued by July 15 for the 
contract in question to be effective on January 1 of the following year.

[63 FR 35113, June 26, 1998, as amended at 65 FR 40331, June 29, 2000; 
70 FR 4741, Jan. 28, 2005]



Sec. 422.650  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with any CMS office.
    (b) Time for filing a request. The request for reconsideration must 
be filed within 15 days from the date of the notice of the initial 
determination.
    (c) Proper party to file a request. Only an authorized official of 
the contract applicant or MA organization that was the subject of a 
contract determination may file the request for reconsideration.
    (d) Withdrawal of a request. The MA organization or contract 
applicant who filed the request for a reconsideration may withdraw it at 
any time before the

[[Page 341]]

notice of the reconsidered determination is mailed. The request for 
withdrawal must be in writing and filed with CMS.

[63 FR 35113, June 26, 1998, as amended at 65 FR 40331, June 29, 2000]



Sec. 422.652  Opportunity to submit evidence.

    CMS provides the MA organization or contract applicant and the CMS 
official or officials who made the contract determination reasonable 
opportunity, not to exceed the timeframe in which an MA organization 
could choose to request a hearing as described at Sec. 422.662, to 
present as evidence any documents or written statements that are 
relevant and material to the matters at issue.

[65 FR 40332, June 29, 2000]



Sec. 422.654  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the contract determination, the evidence 
and findings upon which that was based, and any other written evidence 
submitted before notice of the reconsidered determination is mailed, 
including facts relating to the status of the MA organization subsequent 
to the contract determination; and
    (b) Affirms, reverses, or modifies the initial determination.



Sec. 422.656  Notice of reconsidered determination.

    (a) CMS gives the MA organization or contract applicant written 
notice of the reconsidered determination.
    (b) The notice--
    (1) Contains findings with respect to the contract applicant's 
qualifications to enter into, or the MA organization's qualifications to 
remain under, a contract with CMS under Part C of title XVIII of the 
Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the MA organization or contract applicant of its right 
to a hearing if it is dissatisfied with the determination.

[63 FR 35113, June 26, 1998, as amended at 65 FR 40332, June 29, 2000]



Sec. 422.658  Effect of reconsidered determination.

    A reconsidered determination is final and binding unless a request 
for a hearing is filed in accordance with Sec. 422.662 or it is revised 
in accordance with Sec. 422.696.



Sec. 422.660  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) A contract applicant that has been determined in a reconsidered 
determination to be unqualified to enter into a contract with CMS under 
Part C of title XVIII of the Act.
    (b) An MA organization whose contract with CMS has been terminated 
or has not been renewed as a result of a contract determination as 
provided in Sec. 422.641.

[63 FR 35113, June 26, 1998, as amended at 65 FR 40332, June 29, 2000]



Sec. 422.662  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
contract applicant or MA organization that was the party to the 
determination under appeal. The request for a hearing must be filed with 
any CMS office.
    (b) Time for filing a request. A request for a hearing must be filed 
within 15 days after the date of the reconsidered determination.
    (c) Parties to a hearing. The parties to a hearing must be--
    (1) The parties described in Sec. 422.660;
    (2) At the discretion of the hearing officer, any interested parties 
who make a showing that their rights may be prejudiced by the decision 
to be rendered at the hearing; and
    (3) CMS.

[63 FR 35113, June 26, 1998, as amended at 65 FR 40332, June 29, 2000]



Sec. 422.664  Postponement of effective date of a contract determination when 

a request for a hearing with respect to a contract determination is filed 

timely.

    (a) CMS postpones the proposed effective date of the contract 
determination to terminate a contract with an MA organization until a 
hearing decision is

[[Page 342]]

reached and affirmed by the Administrator following review under Sec. 
422.692 in instances where an MA organization requests review by the 
Administrator; and
    (b) CMS extends the current contract at the end of the contract 
period (in the case of a determination not to renew) only--
    (1) If CMS finds that an extension of the contract will be 
consistent with the purpose of this part; and
    (2) For such period as CMS and the MA organization agree.
    (c) Exception: A contract terminated in accordance with Sec. 
422.510(a)(5) will be immediately terminated and will not be postponed 
if a hearing is requested.



Sec. 422.666  Designation of hearing officer.

    CMS designates a hearing officer to conduct the hearing. The hearing 
officer need not be an ALJ.



Sec. 422.668  Disqualification of hearing officer.

    (a) A hearing officer may not conduct a hearing in a case in which 
he or she is prejudiced or partial to any party or has any interest in 
the matter pending for decision.
    (b) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest opportunity.
    (c) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.
    (1) If the hearing officer withdraws, CMS designates another hearing 
officer to conduct the hearing.
    (2) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted in writing to CMS.



Sec. 422.670  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing, 
which is not to exceed 30 days from the receipt of the request for the 
hearing, and sends written notice to the parties. The notice also 
informs the parties of the general and specific issues to be resolved 
and information about the hearing procedure.
    (b) The hearing officer may, on his or her own motion, or at the 
request of a party, change the time and place for the hearing. The 
hearing officer may adjourn or postpone the hearing.
    (c) The hearing officer will give the parties reasonable notice of 
any change in time or place of hearing, or of adjournment or 
postponement.



Sec. 422.672  Appointment of representatives.

    A party may appoint as its representative at the hearing anyone not 
disqualified or suspended from acting as a representative before the 
Secretary or otherwise prohibited by law.



Sec. 422.674  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec. 422.672 may, on behalf of the represented party--
    (1) Gives or accepts any notice or request pertinent to the 
proceedings set forth in this subpart;
    (2) Presents evidence and allegations as to facts and law in any 
proceedings affecting that party; and
    (3) Obtains information to the same extent as the party.
    (b) A notice or request sent to the representative has the same 
force and effect as if it had been sent to the party.



Sec. 422.676  Conduct of hearing.

    (a) The hearing is open to the parties and to the public.
    (b) The hearing officer inquires fully into all the matters at issue 
and receives in evidence the testimony of witnesses and any documents 
that are relevant and material.
    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The hearing officer decides the order in which the evidence and 
the arguments of the parties are presented and the conduct of the 
hearing.



Sec. 422.678  Evidence.

    The hearing officer rules on the admissibility of evidence and may 
admit

[[Page 343]]

evidence that would be inadmissible under rules applicable to court 
procedures.



Sec. 422.680  Witnesses.

    (a) The hearing officer may examine the witnesses.
    (b) The parties or their representatives are permitted to examine 
their witnesses and cross-examine witnesses of other parties.



Sec. 422.682  Discovery.

    (a) Prehearing discovery is permitted upon timely request of a 
party.
    (b) A request is timely if it is made before the beginning of the 
hearing.
    (c) A reasonable time for inspection and reproduction of documents 
is provided by order of the hearing officer.
    (d) The hearing officer's order on all discovery matters is final.



Sec. 422.684  Prehearing.

    The hearing officer may schedule a prehearing conference if he or 
she believes that a conference would more clearly define the issues.



Sec. 422.686  Record of hearing.

    (a) A complete record of the proceedings at the hearing is made and 
transcribed and made available to all parties upon request.
    (b) The record may not be closed until a hearing decision has been 
issued.



Sec. 422.688  Authority of hearing officer.

    In exercising his or her authority, the hearing officer must comply 
with the provisions of title XVIII and related provisions of the Act, 
the regulations issued by the Secretary, and general instructions issued 
by CMS in implementing the Act.



Sec. 422.690  Notice and effect of hearing decision.

    (a) As soon as practical after the close of the hearing, the hearing 
officer issues a written decision that--
    (1) Is based upon the evidence of record; and
    (2) Contains separately numbered findings of fact and conclusions of 
law.
    (b) The hearing officer provides a copy of the hearing decision to 
each party.
    (c) The hearing decision is final and binding unless it is reversed 
or modified by the Administrator following review under Sec. 422.692, 
or reopened and revised in accordance with Sec. 422.696.



Sec. 422.692  Review by the Administrator.

    (a) Request for review by Administrator. An MA organization that has 
received a hearing decision upholding a contract termination 
determination may request review by the Administrator within 15 days of 
receiving the hearing decision as provided under Sec. 422.690(b).
    (b) Review by the Administrator. The Administrator shall review the 
hearing officer's decision, and determine, based upon this decision, the 
hearing record, and any written arguments submitted by the MA 
organization, whether the termination decision should be upheld, 
reversed, or modified.
    (c) Decision by the Administrator. The Administrator issues a 
written decision, and furnishes the decision to the MA organization 
requesting review.



Sec. 422.694  Effect of Administrator's decision.

    A decision by the Administrator under section 422.692 is final and 
binding unless it is reopened and revised in accordance with Sec. 
422.696.



Sec. 422.696  Reopening of contract or reconsidered determination or decision of a hearing officer or the Administrator.

    (a) Initial or reconsidered determination. CMS may reopen and revise 
an initial or reconsidered determination upon its own motion within one 
year of the date of the notice of determination.
    (b) Decision of hearing officer. A decision of a hearing officer 
that is unfavorable to any party and is otherwise final may be reopened 
and revised by the hearing officer upon the officer's own motion within 
one year of the notice of the hearing decision. Another hearing officer 
designated by CMS may reopen and revise the decision if the hearing 
officer who issued the decision is unavailable.
    (c) Decision of Administrator. A decision by the Administrator that 
is otherwise final may be reopened and revised by the Administrator upon 
the Administrator's own motion within

[[Page 344]]

one year of the notice of the Administrator's decision.
    (d) Notices. (1) The notice of reopening and of any revisions 
following the reopening is mailed to the parties.
    (2) The notice of revision specifies the reasons for revisions.



Sec. 422.698  Effect of revised determination.

    The revision of a contract or reconsidered determination is binding 
unless a party files a written request for hearing of the revised 
determination in accordance with Sec. 422.662.



                    Subpart O_Intermediate Sanctions

    Source: 63 FR 35115, June 26, 1998, unless otherwise noted.



Sec. 422.750  Kinds of sanctions.

    (a) The following intermediate sanctions and civil money penalties 
may be imposed:
    (1) Civil money penalties ranging from $10,000 to $100,000 depending 
upon the violation.
    (2) Suspension of enrollment of Medicare beneficiaries.
    (3) Suspension of payment to the MA organization for Medicare 
beneficiaries who enroll.
    (4) Require the MA organization to suspend all marketing activities 
to Medicare beneficiaries for the MA plan subject to the intermediate 
sanctions.
    (b) The enrollment, payment, and marketing sanctions continue in 
effect until CMS is satisfied that the deficiency on which the 
determination was based has been corrected and is not likely to recur.



Sec. 422.752  Basis for imposing sanctions.

    (a) All intermediate sanctions. For the violations listed in this 
paragraph (a), we may impose one, or more, of the sanctions specified in 
Sec. 422.750(a)(2), (a)(3), or (a)(4) on any MA organization that has a 
contract in effect. The MA organization may also be subject to other 
applicable remedies available under law.
    (1) Fails substantially to provide, to an MA enrollee, medically 
necessary services that the organization is required to provide (under 
law or under the contract) to an MA enrollee, and that failure adversely 
affects (or is substantially likely to adversely affect) the enrollee.
    (2) Imposes on MA enrollees premiums in excess of the monthly basic 
and supplemental beneficiary premiums permitted under section 1854 of 
the Act and subpart F of this part.
    (3) Expels or refuses to reenroll a beneficiary in violation of the 
provisions of this part.
    (4) Engages in any practice that could reasonably be expected to 
have the effect of denying or discouraging enrollment of individuals 
whose medical condition or history indicates a need for substantial 
future medical services.
    (5) Misrepresents or falsifies information that it furnishes--
    (i) To CMS; or
    (ii) To an individual or to any other entity.
    (6) Fails to comply with the requirements of Sec. 422.206, which 
prohibits interference with practitioners' advice to enrollees.
    (7) Fails to comply with Sec. 422.216, which requires the 
organization to enforce the limit on balance billing under a private 
fee-for service plan.
    (8) Employs or contracts with an individual or entity who is 
excluded from participation in Medicare under section 1128 or 1128A of 
the Act (or with an entity that employs or contracts with such an 
excluded individual or entity) for the provision of any of the 
following:
    (i) Health care.
    (ii) Utilization review.
    (iii) Medical social work.
    (iv) Administrative services.
    (b) Suspension of enrollment and marketing. If CMS makes a 
determination under Sec. 422.510(a), CMS may impose the intermediate 
sanctions in Sec. 422.750(a)(2) and (a)(4).

[63 FR 35115, June 26, 1998; 63 FR 52614, Oct. 1, 1998, as amended at 69 
FR 78338, Dec. 30, 2004; 70 FR 4741, Jan. 28, 2005; 70 FR 52027, Sept. 
1, 2005]



Sec. 422.756  Procedures for imposing sanctions.

    (a) Notice of Sanction and opportunity to respond--(1) Notice of 
sanction. Before imposing the intermediate sanctions

[[Page 345]]

specified in paragraph (c) of this section CMS--
    (i) Sends a written notice to the MA organization stating the nature 
and basis of the proposed sanction; and
    (ii) Sends the OIG a copy of the notice.
    (2) Opportunity to respond. CMS allows the MA organization 15 days 
from receipt of the notice to provide evidence that it has not committed 
an act or failed to comply with the requirements described in Sec. 
422.752, as applicable. CMS may allow a 15-day addition to the original 
15 days upon receipt of a written request from the MA organization. To 
be approved, the request must provide a credible explanation of why 
additional time is necessary and be received by CMS before the end of 
the 15-day period following the date of receipt of the sanction notice. 
CMS does not grant an extension if it determines that the MA 
organization's conduct poses a threat to an enrollee's health and 
safety.
    (b) Informal reconsideration. If, consistent with paragraph (a)(2) 
of this section the MA organization submits a timely response to CMS's 
notice of sanction, CMS conducts an informal reconsideration that:
    (1) Consists of a review of the evidence by an CMS official who did 
not participate in the initial decision to impose a sanction; and
    (2) Gives the MA organization a concise written decision setting 
forth the factual and legal basis for the decision that affirms or 
rescinds the original determination.
    (c) Specific sanctions. If CMS determines that an MA organization 
has acted or failed to act as specified in Sec. 422.752 and affirms 
this determination in accordance with paragraph (b) of this section, CMS 
may--
    (1) Require the MA organization to suspend acceptance of 
applications made by Medicare beneficiaries for enrollment in the 
sanctioned MA plan during the sanction period;
    (2) In the case of a violation under Sec. 422.752(a), suspend 
payments to the MA organization for Medicare beneficiaries enrolled in 
the sanctioned MA plan during the sanction period; and
    (3) Require the MA organization to suspend all marketing activities 
for the sanctioned MA plan to Medicare enrollees.
    (d) Effective date and duration of sanctions--(1) Effective date. 
Except as provided in paragraph (d)(2) of this section, a sanction is 
effective 15 days after the date that the organization is notified of 
the decision to impose the sanction or, if the MA organization timely 
seeks reconsideration under paragraph (b) of this section, on the date 
specified in the notice of CMS's reconsidered determination.
    (2) Exception. If CMS determines that the MA organization's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on a date before issuance of CMS's reconsidered 
determination.
    (3) Duration of sanction. The sanction remains in effect until CMS 
notifies the MA organization that CMS is satisfied that the basis for 
imposing the sanction has been corrected and is not likely to recur.
    (e) Termination by CMS. In addition to or as an alternative to the 
sanctions described in paragraph (c) of this section, CMS may decline to 
authorize the renewal of an organization's contract in accordance with 
Sec. 422.506(b)(2) and (b)(3), or terminate the contract in accordance 
with Sec. 422.510.
    (f) Civil money penalties. (1) If CMS determines that an MA 
organization has committed an act or failed to comply with a requirement 
described in Sec. 422.752, CMS notifies the OIG of this determination, 
and also notifies OIG when CMS reverses or terminates a sanction imposed 
under this part.
    (2) In the case of a violation described in paragraph (a) of Sec. 
422.752, or a determination under paragraph (b) of Sec. 422.752 based 
upon a violation under Sec. 422.510(a)(4) (involving fraudulent or 
abusive activities), in accordance with the provisions of part 1003 of 
this chapter, the OIG may impose civil money penalties on the MA 
organization in accordance with part 1003 of this chapter in addition 
to, or in place of, the sanctions that CMS may impose under paragraph 
(c) of this section.
    (3) In the case of a determination under Sec. 422.752(b) other than 
a determination based upon a violation under Sec. 422.510(a)(4), CMS 
may impose civil

[[Page 346]]

money penalties on the MA organization in the amounts specified in Sec. 
422.758 in addition to, or in place of, the sanctions that CMS may 
impose under paragraph (c) of this section.

[63 FR 35113, June 26, 1998, as amended at 68 FR 50859, Aug. 22, 2003; 
70 FR 4741, Jan. 28, 2005]



Sec. 422.758  Maximum amount of civil money penalties imposed by CMS.

    If CMS makes a determination under Sec. 422.510(a), as described in 
Sec. 422.752(b) excepting those determinations under Sec. 
422.510(a)(4), CMS may impose civil money penalties in addition to, or 
in place of, the sanctions that CMS may impose under Sec. 422.756(c) in 
the following amounts:
    (a) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more Medicare Advantage enrollees--up to 
$25,000 for each determination.
    (b) For each week that a deficiency remains uncorrected after the 
week in which the Medicare Advantage organization receives CMS' notice 
of the determination--up to $10,000.
    (c) If CMS makes a determination that a MA organization has 
terminated its contract other than in a manner described under Sec. 
422.512 and that the MA organization has therefore failed to 
substantially carry out the terms of the contract--$250 per Medicare 
enrollee from the terminated MA plan or plans at the time the MA 
organization terminated its contract, or $100, 000, whichever is 
greater.

[69 FR 78338, Dec. 30, 2004, as amended at 70 FR 4741, Jan. 28, 2005]



Sec. 422.760  Other applicable provisions.

    The provisions of section 1128A of the Act (except subsections (a) 
and (b)) apply to civil money penalties under this subpart to the same 
extent that they apply to a civil money penalty or procedure under 
section 1128A of the Act.



PART 423_VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT--Table of Contents




                      Subpart A_General Provisions

Sec.
423.1 Basis and scope.
423.4 Definitions.
423.6 Cost-Sharing in beneficiary education and enrollment-related 
          costs.

                  Subpart B_Eligibility and Enrollment

423.30 Eligibility and enrollment.
423.32 Enrollment process.
423.34 Enrollment of full-benefit dual eligibles
423.36 Disenrollment process
423.38 Enrollment periods.
423.40 Effective dates.
423.44 Involuntary disenrollment by PDP.
423.46 Late enrollment penalty.
423.48 Information about Part D.
423.50 Approval of marketing materials and enrollment forms.
423.56 Procedures to determine and document creditable status of 
          prescription drug coverage.

             Subpart C_Benefits and Beneficiary Protections

423.100 Definitions.
423.104 Requirements related to qualified prescription drug coverage.
423.112 Establishment of prescription drug plan service areas.
423.120 Access to covered Part D drugs.
423.124 Special rules for out-of-network access to covered Part D drugs 
          at out-of-network pharmacies.
423.128 Dissemination of Part D plan information.
423.132 Public disclosure of pharmaceutical prices for equivalent drugs.
423.136 Privacy, confidentiality, and accuracy of enrollee records.

       Subpart D_Cost Control and Quality Improvement Requirements

423.150 Scope.
423.153 Drug utilization management, quality assurance, and medication 
          therapy management programs (MTMPs).
423.156 Consumer satisfaction surveys.
423.159 Electronic prescription drug program.
423.160 Standards for electronic prescribing.
423.162 Quality improvement organization activities.
423.165 Compliance deemed on the basis of accreditation.
423.168 Accreditation organizations.
423.171 Procedures for approval of accreditation as a basis for deeming 
          compliance.

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Subpart E [Reserved]

  Subpart F_Submission of Bids and Monthly Beneficiary Premiums; Plan 
                                Approval

423.251 Scope.
423.258 Definitions.
423.265 Submission of bids and related information.
423.272 Review and negotiation of bid and approval of plans submitted by 
          potential Part D sponsors .
423.279 National average monthly bid amount.
423.286 Rules regarding premiums.
423.293 Collection of monthly beneficiary premium.

 Subpart G_Payments to Part D Plan Sponsors For Qualified Prescription 
                              Drug Coverage

423.301 Scope.
423.308 Definitions and terminology.
423.315 General payment provisions.
423.322 Requirement for disclosure of information.
423.329 Determination of payments.
423.336 Risk-sharing arrangements.
423.343 Retroactive adjustments and reconciliations.
423.346 Reopening.
423.350 Payment appeals.

Subpart H [Reserved]

   Subpart I_Organization Compliance with State Law and Preemption by 
                               Federal Law

423.401 General requirements for PDP sponsors.
423.410 Waiver of certain requirements in order to expand choice.
423.415 Temporary waivers for entities seeking to offer a prescription 
          drug plan in more than one State in a region
423.420 Solvency standards for non-licensed entities.
423.425 Licensure does not substitute for or constitute certification.
423.440 Prohibition of State imposition of premium taxes; relation to 
          State laws.

 Subpart J_Coordination under Part D Plans with Other Prescription Drug 
                                Coverage

423.452 Scope.
423.453 Definitions.
423.458 Application of Part D rules to certain Part D plans on and after 
          January 1, 2006.
423.462 Medicare secondary payer procedures.
423.464 Coordination of benefits with other providers of prescription 
          drug coverage.

    Subpart K_Application Procedures and Contracts with PDP Sponsors

423.500 Scope and basis.
423.501 Definitions.
423.502 Application requirements.
423.503 Evaluation and determination procedures for applications to be 
          determined qualified to act as a sponsor.
423.504 General provisions.
423.505 Contract provisions.
423.506 Effective date and term of contract.
423.507 Nonrenewal of contract.
423.508 Modification or termination of contract by mutual consent.
423.509 Termination of contract by CMS.
423.510 Termination of contract by Part D sponsor.
423.512 Minimum enrollment requirements.
423.514 Reporting requirements.
423.516 Prohibition of midyear implementation of significant new 
          regulatory requirements.

Subpart L_Effect of Change of Ownership or Leasing of Facilities during 
                            Term of Contract

423.551 General provisions.
423.552 Novation agreement requirements.
423.553 Effect of leasing a PDP sponsor's facilities.

       Subpart M_Grievances, Coverage Determinations, and Appeals

423.560 Definitions.
423.562 General provisions.
423.564 Grievance procedures
423.566 Coverage determinations.
423.568 Standard timeframe and notice requirements for coverage 
          determinations.
423.570 Expediting certain coverage determinations.
423.572 Timeframes and notice requirements for expedited coverage 
          determinations.
423.576 Effect of a coverage determination.
423.578 Exceptions process.
423.580 Right to a redetermination.
423.582 Request for a standard redetermination.
423.584 Expediting certain redeterminations.
423.586 Opportunity to submit evidence.
423.590 Timeframes and responsibility for making redeterminations.
423.600 Reconsideration by an independent review entity (IRE).
423.602 Notice of reconsideration determination by the independent 
          review entity.
423.604 Effect of a reconsideration determination.
423.610 Right to an ALJ hearing.
423.612 Request for an ALJ hearing.
423.620 Medicare Appeals Council (MAC) review.
423.630 Judicial review.

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423.634 Reopening and revising determinations and decisions.
423.636 How a Part D plan sponsor must effectuate standard 
          redeterminations or reconsiderations, or decisions.
423.638 How a Part D plan sponsor must effectuate expedited 
          redeterminations or reconsiderations.

         Subpart N_Medicare Contract Determinations and Appeals

423.641 Contract determinations.
423.642 Notice of contract determination.
423.643 Effect of contract determination.
423.644 Reconsideration: Applicability.
423.645 Request for reconsideration.
423.646 Opportunity to submit evidence.
423.647 Reconsidered determination.
423.648 Notice of reconsidered determination.
423.649 Effect of reconsidered determination.
423.650 Right to a hearing.
423.651 Request for hearing.
423.652 Postponement of effective date of a contract determination when 
          a request for a hearing for a contract determination is filed 
          timely.
423.653 Designation of hearing officer.
423.654 Disqualification of hearing officer.
423.655 Time and place of hearing.
423.656 Appointment of representatives.
423.657 Authority of representatives.
423.658 Conduct of hearing.
423.659 Evidence.
423.660 Witnesses.
423.661 Discovery.
423.662 Preearing.
423.663 Record of hearing.
423.664 Authority of hearing officer.
423.665 Notice and effect of hearing decision.
423.666 Review by the Administrator.
423.667 Effect of Administrator's decision.
423.668 Reopening of contract or reconsidered determination or decision 
          of a hearing officer or the Administrator.
423.669 Effect of revised determination.

                    Subpart O_Intermediate Sanctions

423.750 Kinds of sanctions.
423.752 Basis for imposing sanctions.
423.756 Procedures for imposing sanctions.
423.758 Maximum amount of civil money penalties imposed by CMS.
423.760 Other applicable provisions.

 Subpart P_Premium and Cost-Sharing Subsidies for Low-Income Individuals

423.771 Basis and Scope.
423.772 Definitions.
423.773 Requirements for eligibility.
423.774 Eligibility determinations, redeterminations, and applications.
423.780 Premium subsidy.
423.782 Cost-sharing subsidy.
423.800 Administration of subsidy program.

    Subpart Q_Guaranteeing Access to a Choice of Coverage (Fallback 
                        prescription drug plans)

423.851 Scope.
423.855 Definitions.
423.859 Assuring access to a choice of coverage.
423.863 Submission and approval of bids.
423.867 Rules regarding premiums.
423.871 Contract terms and conditions.
423.875 Payments to fallback prescription drug plans.

    Subpart R_Payments to Sponsors of Retiree Prescription Drug Plans

423.880 Basis and scope.
423.882 Definitions.
423.884 Requirements for qualified retiree prescription drug plans.
423.886 Retiree drug subsidy amounts.
423.888 Payment methods, including provision of necessary information.
423.890 Appeals.
423.892 Change of Ownership.
423.894 Construction.

   Subpart S_Special Rules for States-Eligibility Determinations for 
                Subsidies and General Payment Provisions

423.900 Basis and scope.
423.902 Definitions.
423.904 Eligibility determinations for low-income subsidies.
423.906 General payment provisions.
423.907 Treatment of territories.
423.908 Phased-down State contribution to drug benefit costs assumed by 
          Medicare.
423.910 Requirements.

    Authority: Secs 1102, 1860D-1 through 1860D-42, and 1871 of the 
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, and 
1395hh).

    Source: 70 FR 4525, Jan. 28, 2005, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 423.1  Basis and scope.

    (a) Basis. (1) This part is based on the indicated provisions of the 
following sections of the Social Security Act:
    1860D-1. Eligibility, enrollment, and information.
    1860D-2. Prescription drug benefits.
    1860D-3. Access to a choice of qualified prescription drug coverage.
    1860D-4. Beneficiary protections for qualified prescription drug 
coverage.

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    1860D-11. PDP regions; submission of bids; plan approval.
    1860D-12. Requirements for and contracts with prescription drug plan 
(PDP) sponsors.
    1860D-13. Premiums; late enrollment penalty.
    1860D-14. Premium and cost-sharing subsidies for low-income 
individuals.
    1860D-15. Subsidies for Part D eligible individuals for qualified 
prescription drug coverage.
    1860D-16. Medicare Prescription Drug Account in the Federal 
Supplementary Medical Insurance Trust Fund.
    1860D-21. Application to Medicare Advantage program and related 
managed care programs.
    1860D-22. Special rules for Employer-Sponsored Programs
    1860D-23. State pharmaceutical assistance programs.
    1860D-24. Coordination requirements for plans providing prescription 
drug coverage.
    1860D-31. Medicare prescription drug discount card and transitional 
assistance program.
    1860D-41. Definitions; treatment of references to provisions in Part 
C.
    1860D-42. Miscellaneous provisions.
    (2) The following specific sections of the Medicare Modernization 
Act also address the prescription drug benefit program:
    Sec. 102 Medicare Advantage conforming amendments.
    Sec. 103 Medicaid amendments.
    Sec. 104 Medigap.
    Sec. 109 Expanding the work of Medicare Quality Improvement 
Organizations to include Parts C and D.
    (b) Scope. This part establishes standards for beneficiary 
eligibility, access, benefits, protections, and low-income subsidies in 
Part D, as well as establishes standards and sets forth requirements, 
limitations, procedures and payments for organizations participating in 
the Voluntary Medicare Prescription Drug Program.



Sec. 423.4  Definitions.

    The following definitions apply to this part, unless the context 
indicates otherwise:
    Actuarial equivalence means a state of equivalent value demonstrated 
through the use of generally accepted actuarial principles and in 
accordance with section 1860D-11(c) of the Act and with CMS actuarial 
guidelines.
    Brand name drug means a drug for which an application is approved 
under section 505(c) of the Federal Food, Drug, and Cosmetic Act (21 USC 
355(c)), including an application referred to in section 505(b)(2) of 
the Federal Food, Drug and Cosmetic Act (21 USC 355(b)(2)).
    Cost plan means a plan operated by a Health Maintenance Organization 
(HMO) or Competitive Medical Plan (CMP) in accordance with a cost-
reimbursement contract under section 1876(h) of the Act.
    Eligible fallback entity or fallback entity is defined at Sec. 
423.855.
    Fallback prescription drug plan is defined at Sec. 423.855.
    Formulary means the entire list of Part D drugs covered by a Part D 
plan.
    Full-benefit dual eligible individual has the meaning given the term 
at Sec. 423.772, except where otherwise provided.
    Generic drug means a drug for which an application under section 
505(j) of the Federal Food, Drug, and Cosmetic Act (21 USC 355(j)) is 
approved.
    Group health plan is defined at Sec. 423.882.
    Insurance risk means, for a participating pharmacy, risk of the type 
commonly assumed only by insurers licensed by a State and does not 
include payment variations designed to reflect performance-based 
measures of activities within the control of the pharmacy, such as 
formulary compliance and generic drug substitutions, nor does it include 
elements potentially in the control of the pharmacy (for example, labor 
costs or productivity).
    MA stands for Medicare Advantage, which refers to the program 
authorized under Part C of title XVIII of the Act.
    MA plan has the meaning given the term in Sec. 422.2 of this 
chapter.
    MA-PD plan means an MA plan that provides qualified prescription 
drug coverage.
    Medicare prescription drug account means the account created within 
the Federal Supplementary Medical Insurance Trust Fund for purposes of 
Medicare Part D.
    Monthly beneficiary premium means the amount calculated under Sec. 
423.286

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for Part D plans other than fallback prescription drug plans, and Sec. 
423.867(a) for fallback prescription drug plans.
    PACE Plan means a plan offered by a PACE organization.
    PACE organization is defined in Sec. 460.6 of this chapter.
    Part D eligible individual means an individual who meets the 
requirements at Sec. 423.30(a).
    Part D plan (or Medicare Part D plan) means a prescription drug 
plan, an MA-PD plan, a PACE Plan offering qualified prescription drug 
coverage, or a cost plan offering qualified prescription drug coverage.
    Part D plan sponsor or Part D sponsor refers to a PDP sponsor, MA 
organization offering a MA-PD plan, a PACE organization offering a PACE 
plan including qualified prescription drug coverage, and a cost plan 
offering qualified prescription drug coverage.
    PDP region means a prescription drug plan region as determined by 
CMS under Sec. 423.112.
    PDP sponsor means a nongovernmental entity that is certified under 
this part as meeting the requirements and standards of this part that 
apply to entities that offer prescription drug plans. This includes 
fallback entities.
    Prescription drug plan or PDP means prescription drug coverage that 
is offered under a policy, contract, or plan that has been approved as 
specified in Sec. 423.272 and that is offered by a PDP sponsor that has 
a contract with CMS that meets the contract requirements under subpart K 
of this part. This includes fallback prescription drug plans.
    Service area (Service area does not include facilities in which 
individuals are incarcerated.) means for--
    (1) A prescription drug plan, an area established in Sec. 
423.112(a) within which access standards under Sec. 423.120(a) are met;
    (2) An MA-PD plan, an area that meets the definition of MA service 
area as described in Sec. 422.2 of this chapter, and within which 
access standards under Sec. 423.120(a) are met;
    (3) A fallback prescription drug plan, the service area described in 
Sec. 423.859(b);
    (4) A PACE plan offering qualified prescription drug coverage, the 
service area described in Sec. 460.22 of this chapter; and
    (5) A cost plan offering qualified prescription drug coverage, the 
service area defined in Sec. 417.1 of this chapter.
    Subsidy-eligible individual means a full subsidy eligible individual 
(as defined at Sec. 423.772) or other subsidy eligible individual (as 
defined at Sec. 423.772).
    Tiered cost-sharing means a process of grouping Part D drugs into 
different cost sharing levels within a Part D sponsor's formulary.



Sec. 423.6  Cost-sharing in beneficiary education and enrollment-related costs.

    The requirements of section 1857(e)(2) of the Act and Sec. 422.6 of 
this chapter with regard to the payment of fees established by CMS for 
cost sharing of enrollment related costs apply to PDP sponsors under 
Part D.



                  Subpart B_Eligibility and Enrollment.



Sec. 423.30  Eligibility and enrollment.

    (a) General rule. (1) An individual is eligible for Part D if he or 
she:
    (i) Is entitled to Medicare benefits under Part A or enrolled in 
Medicare Part B; and
    (ii) Lives in the service area of a Part D plan, as defined under 
Sec. 423.4.
    (2) Except as provided in paragraphs (b), (c), and (d) of this 
section, an individual is eligible to enroll in a PDP if:
    (i) The individual is eligible for Part D in accordance with 
paragraph (a)(1) of this section;
    (ii) The individual resides in the PDP's service area; and
    (iii) The individual is not enrolled in another Part D plan.
    (3) Retroactive Part A or Part B determinations. Individuals who 
become entitled to Medicare Part A or enrolled in Medicare Part B for a 
retroactive effective date are Part D eligible as of the month in which 
a notice of entitlement Part A or enrollment in Part B is provided.
    (b) Coordination with MA plans. A Part D eligible individual 
enrolled in a MA-PD plan must obtain qualified prescription drug 
coverage through that plan. MA enrollees are not eligible to enroll in a 
PDP, except as follows:

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    (1) A Part D eligible individual is eligible to enroll in a PDP if 
the individual is enrolled in a MA private fee-for-service plan (as 
defined in section 1859(b)(2) of the Act) that does not provide 
qualified prescription drug coverage; and
    (2) A Part D eligible individual is eligible to enroll in a PDP if 
the individual is enrolled in a MSA plan (as defined in section 
1859(b)(3) of the Act).
    (c) Enrollment in a PACE plan. A Part D eligible individual enrolled 
in a PACE plan that offers qualified prescription drug coverage under 
this Part must obtain such coverage through that plan.
    (d) Enrollment in a cost-based HMO or CMP. A Part D eligible 
individual enrolled in a cost-based HMO or CMP (as defined under part 
417 of this chapter) that elects to receive qualified prescription drug 
coverage under such plan is ineligible to enroll in another Part D plan. 
A Part D eligible individual enrolled in a cost-based HMO or CMP 
offering qualified prescription drug coverage is eligible to enroll in a 
PDP if the individual does not elect to receive qualified prescription 
drug coverage under the cost-based HMO or CMP and otherwise meets the 
requirements of paragraph (a)(2) of this section.



Sec. 423.32  Enrollment process.

    (a) General rule. A Part D eligible individual who wishes to enroll 
in a PDP may enroll during the enrollment periods specified in Sec. 
423.38, by filing the appropriate enrollment form with the PDP or 
through other mechanisms CMS determines are appropriate.
    (b) Enrollment form or CMS-approved enrollment mechanism. The 
enrollment form or CMS-approved enrollment mechanism must comply with 
CMS instructions regarding content and format and must have been 
approved by CMS as described in Sec. 423.50.
    (i) The enrollment must be completed by the individual and include 
an acknowledgement by the beneficiary for disclosure and exchange of 
necessary information between the U.S. Department of Health and Human 
Services (or its designees) and the PDP sponsor. Individuals who assist 
beneficiaries in completing the enrollment, including authorized 
representatives, must indicate they have provided assistance and their 
relationship to the beneficiary.
    (ii) Part D eligible individuals enrolling or enrolled in a Part D 
plan must provide information regarding reimbursement for Part D costs 
through other insurance, group health plan or other third-party payment 
arrangement, and consent to the release of the information provided by 
the individual on other insurance, group health plan or other third-
party payment arrangements, as well as any other information on 
reimbursement of Part D costs collected or obtained from other sources, 
in a form and manner approved by CMS.
    (c) Timely process an individual's enrollment request. A PDP sponsor 
must timely process an individual's enrollment request in accordance 
with CMS enrollment guidelines and enroll Part D eligible individuals 
who are eligible to enroll in its plan under Sec. 423.30(a) and who 
elect to enroll or are enrolled in the plan during the periods specified 
in Sec. 423.38.
    (d) Notice requirement. The PDP sponsor must provide the individual 
with prompt notice of acceptance or denial of the individual's 
enrollment request, in a format and manner specified by CMS.
    (e) Maintenance of enrollment. An individual who is
    enrolled in a PDP remains enrolled in that PDP until one of the 
following occurs:
    (i) The individual successfully enrolls in another PDP or MA-PD 
plan;
    (ii) The individual voluntarily disenrolls from the PDP;
    (iii) The individual is involuntary disenrolled from the PDP in 
accordance with Sec. 423.44(b)(2);
    (iv) The PDP is discontinued within the area in which the individual 
resides; or
    (iv) The individual is enrolled after the initial enrollment, in 
accordance with Sec. 423.34(c).
    (f) Enrollees of cost-based HMOs or CMPs and PACE. Individuals 
enrolled in a cost-based HMO or CMP plan (as defined in part 417 of this 
chapter) or

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PACE (as defined in Sec. 460.6 of this chapter) that offers 
prescription drug coverage under this part as of December 31, 2005, 
remain enrolled in that plan as of January 1, 2006, and receive Part D 
benefits offered by that plan until one of the conditions in Sec. 
423.32(e) are met.



Sec. 423.34  Enrollment of full-benefit dual eligible individuals.

    (a) General rule. CMS must ensure the enrollment into Part D plans 
full-benefit dual eligible individuals who fail to enroll in a Part D 
plan.
    (b) Definition of full-benefit dual eligible individual. For 
purposes of this section, a full-benefit dual eligible individual means 
an individual who is:
    (1) Determined eligible by the State for--
    (i) Medical assistance for full-benefits under title XIX of the Act 
for the month under any eligibility category covered under the State 
plan or comprehensive benefits under a demonstration under section 1115 
of the Act. ; or
    (ii) Medical assistance under section 1902(a)(10)(C) of the Act 
(medically needy) or section 1902(f) of the Act (States that use more 
restrictive eligibility criteria than are used by the SSI program) for 
any month if the individual was eligible for medical assistance in any 
part of the month.
    (2) Eligible for Part D in accordance with Sec. 423.30(a).
    (c) Enrolling a full-benefit duel eligible individual. 
Notwithstanding Sec. 423.32(e), during the annual coordinated election 
period, CMS may enroll a full-benefit dual eligible individual in 
another PDP if CMS determines that the further enrollment is warranted.
    (d) Automatic enrollment rules--(1) General rule. CMS must 
automatically enroll full-benefit dual eligible individuals who fail to 
enroll in a Part D plan into a PDP offering basic prescription drug 
coverage in the area where the individual resides that has a monthly 
beneficiary premium that does not exceed the low-income premium subsidy 
amount (as defined in Sec. 423.780(b)). In the event that there is more 
than one PDP in an area with a monthly beneficiary premium at or below 
the low-income premium subsidy amount, individuals must be enrolled in 
such PDPs on a random basis.
    (2) Individuals enrolled in an MSA plan or one of the following that 
does not offer a Part D benefit. Full-benefit dual eligible individuals 
enrolled in an MA Private Fee For Service (PFFS) plan or cost-based HMO 
or CMP that does not offer qualified prescription drug coverage or an 
MSA plan and who fail to enroll in a Part D plan must be automatically 
enrolled into a PDP plan as described in paragraph (d)(1) of this 
section.
    (e) Declining enrollment and disenrollment. Nothing in this section 
prevents a full-benefit dual eligible individual from--
    (1) Affirmatively declining enrollment in Part D; or
    (2) Disenrolling from the Part D plan in which the individual is 
enrolled and electing to enroll in another Part D plan during the 
special enrollment period provided under Sec. 423.38.
    (f) Effective date of enrollment. Enrollment of full-benefit dual 
eligible individuals under this section must be effective as follows:
    (1) January 1, 2006 for individuals who are full-benefit dual 
eligible individuals as of December 31, 2005;
    (2) The first day of the month the individual is eligible for Part D 
under Sec. 423.30(a)(1) for individuals who are Medicaid eligible and 
subsequently become newly eligible for Part D under Sec. 423.30(a)(1) 
on or after January 1, 2006; and
    (3) For individuals who are eligible for Part D under Sec. 
423.30(a)(1) and subsequently become newly eligible for Medicaid on or 
after January 1, 2006, enrollment is effective as soon as practicable 
after being identified as a newly full-benefit dual eligible individual, 
in a process to be determined by CMS.



Sec. 423.36  Disenrollment process.

    (a) General rule. An individual may disenroll from a PDP during the 
periods specified in Sec. 423.38 by enrolling in a different PDP plan, 
submitting a disenrollment request to the PDP in the form and manner 
prescribed by CMS, or filing the appropriate disenrollment request 
through other mechanisms as determined by CMS.
    (b) Responsibilities of the PDP sponsor. The PDP sponsor must--

[[Page 353]]

    (1) Submit a disenrollment notice to CMS within timeframes CMS 
specifies;
    (2) Provide the enrollee with a notice of disenrollment as CMS 
determines and approves; and
    (3) File and retain disenrollment requests for the period specified 
in CMS instructions.
    (c) Retroactive disenrollment. CMS may grant retroactive 
disenrollment in the following cases:
    (1) There never was a legally valid enrollment; or
    (2) A valid request for disenrollment was properly made but not 
processed or acted upon.



Sec. 423.38  Enrollment periods.

    (a) Initial enrollment period for Part D--Basic rule. The initial 
enrollment period is the period during which an individual is first 
eligible to enroll in a Part D plan.
    (1) In 2005. An individual who is first eligible to enroll in a Part 
D plan on or prior to January 31, 2006, has an initial enrollment period 
from November 15, 2005 through May 15, 2006.
    (2) February 2006. An individual who is first eligible to enroll in 
a Part D plan in February 2006 has an initial enrollment period from 
November 15, 2005 through May 31, 2006.
    (3) March 2006 and subsequent months. (i) Except as provided in 
paragraph (a)(3)(ii) and (a)(3)(iii) of this section, the initial 
enrollment period for an individual who is first eligible to enroll in a 
Part D plan on or after March 2006 is the same as the initial enrollment 
period for Medicare Part B under Sec. 407.14 of this chapter.
    (ii) Exception. For those individuals who are not eligible to enroll 
in a Part D plan at any time during their initial enrollment period for 
Medicare Part B, their initial enrollment period under this Part is the 
3 months before becoming eligible for Part D, the month of eligibility, 
and the three months following eligibility to Part D.
    (iii) An individual who becomes entitled to Medicare Part A or 
enrolled in Part B for a retroactive effective date has an initial 
enrollment period under this Part beginning with the month in which 
notification of the Medicare determination is received and ending on the 
last day of the third month following the month in which the 
notification was received.
    (b) Annual coordinated election period--(1) For 2006. This period 
begins on November 15, 2005 and ends on May 15, 2006.
    (2) For 2007 and subsequent years. For coverage beginning 2007 or 
any subsequent year, the annual coordinated election period is November 
15th through December 31st for coverage beginning the following calendar 
year.
    (c) Special enrollment periods. A Part D eligible individual may 
enroll in a PDP or disenroll from a PDP and enroll in another PDP or MA-
PD plan (as provided at Sec. 422.62(b) of this chapter), as applicable, 
at any time under any of the following circumstances:
    (1) The individual involuntarily loses creditable prescription drug 
coverage or such coverage is involuntarily reduced so that it is no 
longer creditable coverage as defined under Sec. 423.56(a). Loss of 
credible prescription drug coverage due to failure to pay any required 
premium is not considered involuntary loss of the coverage.
    (2) The individual was not adequately informed, as required by 
standards established by CMS under Sec. 423.56, that he or she has lost 
his or her creditable prescription drug coverage, that he or she never 
had credible prescription drug coverage, or the coverage is 
involuntarily reduced so that it is no longer creditable prescription 
drug coverage.
    (3) The individual's enrollment or non-enrollment in a Part D plan 
is unintentional, inadvertent, or erroneous because of the error, 
misrepresentation, or inaction of a Federal employee, or any person 
authorized by the Federal government to act on its behalf.
    (4) The individual is a full-benefit dual eligible individual as 
defined under section 1935(c)(6) of the Act.
    (5) The individual elects to disenroll from a MA-PD plan and elects 
coverage under Medicare Part A and Part B in accordance with Sec. 
422.62(c) of this chapter.
    (6) The PDP sponsor's contract is terminated by the PDP sponsor or 
by CMS, as provided under Sec. 423.507 through Sec. 423.510, or the 
PDP plan is no longer offered in the area when the individual resides.

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    (7) The individual is no longer eligible for the PDP because of a 
change in his or her place of residence to a location outside of the PDP 
region(s) in which the PDP is offered.
    (8) The individual demonstrates to CMS, in accordance with 
guidelines issued by CMS, that--
    (i) The PDP sponsor offering the PDP substantially violated a 
material provision of its contract under this part in relation to the 
individual, including, but not limited to the following--
    (A) Failure to provide the individual on a timely basis benefits 
available under the plan;
    (B) Failure to provide benefits in accordance with applicable 
quality standards; or
    (C) The PDP (or its agent, representative, or plan provider) 
materially misrepresented the plan's provisions in marketing the plan to 
the individual.
    (ii) The individual meets other exceptional circumstances as CMS may 
provide.



Sec. 423.40  Effective dates.

    (a) Initial enrollment period. (1) An enrollment made prior to the 
month of entitlement to Part A or enrollment in Part B is effective the 
first day of the month the individual is entitled to or enrolled in Part 
A or enrolled in Part B.
    (2) Except as otherwise provided under Sec. 423.34(f), an 
enrollment made during or after the month of entitlement to Part A or 
enrollment in Part B is effective the first day of the calendar month 
following the month in which the enrollment in Part D is made.
    (3) If the individual is not eligible to enroll in Part D on the 
first day of the calendar month following the month in which the 
election to enroll in Part D is made, the enrollment in Part D is 
effective the first day of the month the individual is eligible for Part 
D.
    (4) In no case is an enrollment in Part D effective before January 
1, 2006 or before entitlement to Part A or enrollment Part B.
    (b) Annual coordinated election periods--(1) General rule. Except as 
provided under paragraph (b)(2) of this section, for an enrollment or 
change of enrollment in Part D made during an annual coordinated 
election period as described in Sec. 423.38(b), the coverage or change 
in coverage is effective as of the first day of the following calendar 
year.
    (2) Exception for January 1, 2006 through May 15, 2006. Enrollment 
elections made during the annual coordinated election period between 
January 1, 2006 and May 15, 2006 are effective the first day of the 
calendar month following the month in which the enrollment in Part D is 
made.
    (c) Special enrollment periods. For an enrollment or change of 
enrollment in Part D made during a special enrollment period specified 
in Sec. 423.38(c), the effective date is determined by CMS, which, to 
the extent practicable, is determined in a manner consistent with 
protecting the continuity of health benefits coverage.



Sec. 423.44  Involuntary disenrollment by the PDP.

    (a) General rule. Except as provided in paragraphs (b) through (d) 
of this section, a PDP sponsor may not--
    (1) Involuntarily disenroll an individual from any PDP it offers; or
    (2) Orally or in writing, or by any action or inaction, request or 
encourage an individual to disenroll.
    (b) Basis for disenrollment--(1) Optional involuntary disenrollment. 
A PDP sponsor may disenroll an individual from a PDP it offers in any of 
the following circumstances:
    (i) Any monthly premium is not paid on a timely basis, as specified 
under paragraph (d)(1) of this section; or
    (ii) The individual has engaged in disruptive behavior, as specified 
under paragraph (d)(2) of this section.
    (2) Required involuntary disenrollment. A PDP sponsor must disenroll 
an individual from a PDP it offers in any of the following 
circumstances:
    (i) The individual no longer resides in the PDP's service area.
    (ii) The individual loses eligibility for Part D.
    (iii) Death of the individual.
    (iv) The PDP sponsor's contract is terminated by CMS
    or by a PDP or through mutual consent. The PDP sponsor must 
disenroll affected enrollees in accordance with the procedures for 
disenrollment set forth at Sec. 423.507 through Sec. 423.510.

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    (v) The individual materially misrepresents
    information, as determined by CMS, to the PDP sponsor that the 
individual has or expects to receive reimbursement for third-party 
coverage.
    (c) Notice requirement. (1) If the disenrollment is for any of the 
reasons specified in paragraphs (b)(1), (b)(2)(i), or (b)(2)(iv) of this 
section (that is, other than death or loss of Part D eligibility, the 
PDP sponsor must give the individual timely notice of the disenrollment 
with an explanation of why the PDP is planning to disenroll the 
individual.
    (2) Notices for reasons specified in paragraphs (b)(1) through 
(b)(2)(i) and (b)(2)(iii) of this section must--
    (i) Be provided to the individual before submission of the 
disenrollment notice to CMS; and
    (ii) Include an explanation of the individual's right to file a 
grievance under the PDP's grievance procedures.
    (d) Process for disenrollment--(1) Monthly PDP premiums that are not 
paid timely. A PDP sponsor may disenroll an individual from the PDP for 
failure to pay any monthly premium under the following circumstances:
    (i) The PDP sponsor can demonstrate to CMS that it made reasonable 
efforts to collect the unpaid premium amount.
    (ii) The PDP sponsor gives the enrollee notice of
    disenrollment that meets the requirements set forth in paragraph (c) 
of this section.
    (iii) Reenrollment in the PDP. If an individual is
    disenrolled from the PDP for failure to pay monthly PDP premiums, 
the PDP sponsor has the option to decline future enrollment by the 
individual in any of its PDPs until the individual has paid any past 
premiums due to the PDP sponsor.
    (2) Disruptive behavior. (i) Definition. A PDP enrollee is 
disruptive if his or her behavior substantially impairs the plans 
ability to arrange or provide for services to the individual or other 
plan members. An individual cannot be considered disruptive if the 
behavior is related to the use of medical services or compliance (or 
noncompliance) with medical advice or treatment.
    (ii) Basis of disenrollment for disruptive behavior. A PDP may 
disenroll an individual whose behavior is disruptive as defined in Sec. 
423.44(d)(2)(i) only after the PDP sponsor meets the requirements 
described in this section and after CMS has reviewed and approved the 
request.
    (iii) Effort to resolve the problem. The PDP sponsor must make a 
serious effort to resolve the problems presented by the individual, 
including providing reasonable accommodations, as determined by CMS, for 
individuals with mental or cognitive conditions, including mental 
illness, Alzheimers disease, and developmental disabilities. In 
addition, the PDP sponsor must inform the individual of the right to use 
the PDP's grievance procedures. The individual has a right to submit any 
information or explanation that he or she may wish to the PDP.
    (iv) Documentation. The PDP sponsor must document the enrollee's 
behavior, its own efforts to resolve any problems, as described in 
paragraph (d)(2)(iii) of this section, and any extenuating 
circumstances. The PDP sponsor may request from CMS the ability to 
decline future enrollment by the individual. The PDP sponsor must submit 
this information and any documentation received by the individual to 
CMS.
    (v) CMS review of the proposed disenrollment. CMS reviews the 
information submitted by the PDP sponsor and any information submitted 
by the individual (which the PDP sponsor has submitted to CMS) to 
determine if the PDP sponsor has fulfilled the requirements to request 
disenrollment for disruptive behavior. If the PDP sponsor has fulfilled 
the necessary requirements, CMS reviews the information and make a 
decision to approve or deny the request for disenrollment, including 
conditions on future enrollment, within 20 working days. During the 
review, CMS ensures that staff with appropriate clinical or medical 
expertise reviews the case before making a final decision. The PDP 
sponsor is required to provide a reasonable accommodation, as determined 
by CMS, for the individual in exceptional circumstances that CMS deems 
necessary. CMS notifies the PDP sponsor within 5 working days after 
making its decision.

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    (vi) Exception for fallback prescription drug plans. CMS reserves 
the right to deny a request from a fallback prescription drug plan as 
defined in Sec. 423.855 to disenroll an individual for disruptive 
behavior.
    (vii) Effective date of disenrollment. If CMS permits a PDP to 
disenroll an individual for disruptive behavior, the termination is 
effective the first day of the calendar month after the month in which 
the PDP gives the individual written notice of the disenrollment that 
meets the requirements set forth in paragraph (c) of this section.
    (3) Loss of Part D eligiblity. If an individual is no longer 
eligible for Part D, CMS notifies the PDP that the disenrollment is 
effective the first day of the calendar month following the last month 
of Part D eligibility.
    (4) Death of the individual. If the individual dies,
    disenrollment is effective the first day of the calendar month 
following the month of death.
    (5) Individual no longer resides in the PDP service area--Basis for 
disenrollment. The PDP must disenroll an individual if the individual 
notifies the PDP that he or she has permanently moved out of the PDP 
service area.
    (6) Plan termination. (i) When a PDP contract terminates as provided 
in Sec. 423.507 through Sec. 423.510, the PDP sponsor must give each 
affected PDP enrollee notice of the effective date of the plan 
termination and a description of alternatives for obtaining prescription 
drug coverage under Part D, as specified by CMS.
    (ii) The notice must be sent before the effective date of the plan 
termination or area reduction, and in the timeframes specified by CMS.
    (7) Misrepresentation of third-party reimbursement. (i) If CMS 
determines an individual has materially misrepresented information to 
the PDP sponsor as described under Sec. 423.44(b)(2)(v), the 
termination is effective the first day of the calendar month after the 
month in which the PDP sponsor gives the individual written notice of 
the disenrollment that meets the requirements set forth in paragraph (c) 
of this section.
    (ii) Reenrollment in the PDP. Once an individual is disenrolled from 
the PDP for misrepresentation of third party reimbursement, the PDP 
sponsor has the option to decline future enrollment by the individual in 
any of its PDPs for a period of time CMS specifies.



Sec. 423.46  Late enrollment penalty.

    (a) General. A Part D eligible individual must pay the late penalty 
described under Sec. 423.286(d)(3) if there is a continuous period of 
63 days or longer at any time after the end of the individual's initial 
enrollment period during which the individual meets all of the following 
conditions:
    (1) The individual was eligible to enroll in a Part D plan;
    (2) The individual was not covered under any
    creditable prescription drug coverage; and
    (3) The individual was not enrolled in a Part D plan.
    (b) [Reserved]



Sec. 423.48  Information about Part D.

    Each Part D plan must provide, on an annual basis, and in a format 
and using standard terminology that CMS may specify in guidance, the 
information necessary to enable CMS to provide to current and potential 
Part D eligible individuals the information they need to make informed 
decisions among the available choices for Part D coverage.



Sec. 423.50  Approval of marketing materials and enrollment forms.

    (a) CMS review of marketing materials. (1) Except as provided in 
paragraph (a)(2) and (a)(3) of this section, a Part D plan may not 
distribute any marketing materials (as defined in paragraph (b) of this 
section), or enrollment forms, or make such materials or forms available 
to Part D eligible individuals, unless--
    (i) At least 45 days (or 10 days if using certain types of marketing 
materials that use, without modification, proposed model language as 
specified by CMS) before the date of distribution, the Part D sponsor 
submits the material or form to CMS for review under the guidelines in 
paragraph (c) of this section; and

[[Page 357]]

    (ii) CMS does not disapprove the distribution of the material or 
form.
    (2) If the Part D sponsor is deemed by CMS to meet certain 
performance requirements established by CMS, the Part D sponsor may 
distribute designated marketing materials 5 days following their 
submission to CMS.
    (3) Prior to distribution, the Part D sponsor submits and certifies 
that for certain types of marketing materials it followed all applicable 
marketing guidelines, or for certain other marketing materials that it 
used, without modification, proposed model language as specified by CMS.
    (b) Definition of marketing materials. Marketing materials include 
any informational materials targeted to Medicare beneficiaries which--
    (1) Promote the Part D plan.
    (2) Inform Medicare beneficiaries that they may enroll, or remain 
enrolled in a Part D plan.
    (3) Explain the benefits of enrollment in a Part D plan, or rules 
that apply to enrollees.
    (4) Explain how Medicare services are covered under a Part D plan, 
including conditions that apply to such coverage.
    (c) Examples of marketing materials. Examples of marketing materials 
include, but are not limited to--
    (1) General audience materials such as general circulation 
brochures, newspapers, magazines, television, radio, billboards, yellow 
pages, or the Internet.
    (2) Marketing representative materials such as scripts or outlines 
for telemarketing or other presentations.
    (3) Presentation materials such as slides and charts.
    (4) Promotional materials such as brochures or leaflets, including 
materials for circulation by third parties (for example, physicians or 
other providers).
    (5) Membership communication materials such as membership rules, 
subscriber agreements, member handbooks and wallet card instructions to 
enrollees.
    (6) Letters to members about contractual changes; changes in 
providers, premiums, benefits, plan procedures etc.
    (7) Membership or claims processing activities.
    (d) Guidelines for CMS review. In reviewing marketing material or 
enrollment forms under paragraph (a) of this section, CMS determines 
(unless otherwise specified in additional guidance) that the marketing 
materials--
    (1) Provide, in a format (and, where appropriate, print size), and 
using standard terminology that may be specified by CMS, the following 
information to Medicare beneficiaries interested in enrolling--
    (i) Adequate written description of rules (including any limitations 
on the providers from whom services can be obtained), procedures, basic 
benefits and services, and fees and other charges.
    (ii) Adequate written explanation of the grievance and appeals 
process, including differences between the two, and when it is 
appropriate to use each.
    (iii) Any other information necessary to enable beneficiaries to 
make an informed decision about enrollment.
    (2) Notify the general public of its enrollment period in an 
appropriate manner, through appropriate media, throughout its service 
area.
    (3) Include in the written materials notice that the Part D plan is 
authorized by law to refuse to renew its contract with CMS, that CMS 
also may refuse to renew the contract, and that termination or non-
renewal may result in termination of the beneficiary's enrollment in the 
Part D plan. In addition, the Part D plan may reduce its service area 
and no longer be offered in the area where a beneficiary resides.
    (4) Are not materially inaccurate or misleading or otherwise make 
material misrepresentations.
    (5) For markets with a significant non-English speaking population, 
provide materials in the language of these individuals.
    (e) Deemed approval. If CMS has not disapproved the distribution of 
a marketing materials or form submitted by a Part D sponsor for a Part D 
plan in a Part D region, CMS is deemed to not have disapproved the 
distribution of the marketing material or form in all other Part D 
regions covered by the Part D plan, with the exception of any portion of 
the material or form that is specific to the Part D region.

[[Page 358]]

    (f) Standards for Part D marketing. (1) In conducting
    marketing activities, a Part D plan may not--
    (i) Provide for cash or other remuneration as an inducement for 
enrollment or otherwise. This does not prohibit explanation of any 
legitimate benefits the beneficiary might obtain as an enrollee of the 
Part D plan.
    (ii) Engage in any discriminatory activity such as, including 
targeted marketing to Medicare beneficiaries from higher income areas 
without making comparable efforts to enroll Medicare beneficiaries from 
lower income areas.
    (iii) Solicit Medicare beneficiaries door-to-door.
    (iv) Engage in activities that could mislead or confuse Medicare 
beneficiaries, or misrepresent the Part D sponsor or its Part D plan. 
The Part D organization may not claim that it is recommended or endorsed 
by CMS or Medicare or the Department of Health and Human Services or 
that CMS or Medicare or the Department of Health and Human Services 
recommends that the beneficiary enroll in the Part D plan. The Part D 
organization may explain that the organization is approved for 
participation in Medicare.
    (v) Use providers, provider groups, or pharmacies to distribute 
printed information comparing the benefits of different Part D plans 
unless providers, provider groups or pharmacies accept and display 
materials from all Part D plan sponsors.
    (vi) Accept Part D plan enrollment forms in provider offices, 
pharmacies or other places where health care is delivered.
    (vii) Employ Part D plan names that suggest that a plan is not 
available to all Medicare beneficiaries.
    (viii) Engage in any other marketing activity prohibited by CMS in 
its marketing guidance.
    (2) In its marketing, the Part D organization must--
    (i) Demonstrate to CMS's satisfaction that marketing resources are 
allocated to marketing to the disabled Medicare population as well as 
beneficiaries age 65 and over.
    (ii) Establish and maintain a system for confirming that enrolled 
beneficiaries have in fact enrolled in the PDP and understand the rules 
applicable under the plan.



Sec. 423.56  Procedures to determine and document creditable status of prescription drug coverage.

    (a) Definition. Creditable prescription drug coverage means any of 
the following types of coverage listed in paragraph (b) of this section 
only if the actuarial value of the coverage equals or exceeds the 
actuarial value of defined standard prescription drug coverage as 
demonstrated through the use of generally accepted actuarial principles 
and in accordance with CMS actuarial guidelines.
    (b) Types of coverage. The following coverage is considered 
creditable if it meets the definition provided in paragraph (a) of this 
section:
    (1) Prescription drug coverage under a PDP or MA-PD plan.
    (2) Medicaid coverage under title XIX of the Act or under a waiver 
under section 1115 of the Act.
    (3) Coverage under a group health plan, including the Federal 
employees health benefits program, and qualified retiree prescription 
drug plans as defined in section 1860D-22(a)(2) of the Act.
    (4) Coverage under State Pharmaceutical
    Assistance Programs (SPAP) as defined at Sec. 423.454.
    (5) Coverage of prescription drugs for veterans, survivors and 
dependents under chapter 17 of title 38, U.S.C.
    (6) Coverage under a Medicare supplemental policy (Medigap policy) 
as defined at Sec. 423.205.
    (7) Military coverage under chapter 55 of title 10,
    U.S.C., including TRICARE.
    (8) Individual health insurance coverage (as defined in section 
2791(b)(5) of the Public Health Service Act) that includes coverage for 
outpatient prescription drugs and that does not meet the definition of 
an excepted benefit (as defined in section 2791(c) of the Public Health 
Service Act).
    (9) Coverage provided by the medical care program of the Indian 
Health Service, Tribe or Tribal organization, or Urban Indian 
organization (I/T/U).
    (10) Coverage provided by a PACE organization.

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    (11) Coverage provided by a cost-based HMO or CMP under part 417 of 
this chapter.
    (12) Coverage provided through a State High-Risk Pool as defined 
under 42 CFR 146.113(a)(1)(vii).
    (13) Other coverage as the Secretary may determine appropriate.
    (c) General disclosure requirements. With the exception of PDPs and 
MA-PD plans under Sec. 423.56(b)(1) and PACE or cost-based HMO or CMP 
that provide qualified prescription drug coverage under this Part, each 
entity that offers prescription drug coverage under any of the types 
described in Sec. 423.56(b), must disclose to all Part D eligible 
individuals enrolled in or seeking to enroll in the coverage whether the 
coverage is creditable prescription drug coverage.
    (d) Disclosure of non-creditable coverage. In the case that the 
coverage of the type described in Sec. 423.56(b) is not creditable 
prescription drug, the disclosure described in paragraph (c) of this 
section to Part D eligible individuals must also include:
    (1) The fact that the coverage is not creditable prescription drug 
coverage, as provided by CMS;
    (2) That there are limitations on the periods in a year in which the 
individual may enroll in Part D plans; and
    (3) That the individual may be subject to a late enrollment penalty, 
as described under Sec. 423.46.
    (e) Disclosure to CMS. With the exception of PDPs and MA-PD plans 
under Sec. 423.56(b)(1) and PACE or cost-based HMO or CMP that provide 
qualified prescription drug coverage under this Part, all other entities 
listed under paragraph (b) of this section must disclose whether the 
coverage they provide is creditable prescription drug coverage to CMS in 
a form and manner described by CMS.
    (f) Notification content and timing requirements. The disclosure 
notification to Part-D eligible individuals required in Sec. 423.56(c) 
and (d) must be provided in a form and manner prescribed by CMS. Notices 
must be provided, at minimum, at the following times:
    (1) Prior to an individual's initial enrollment period for Part D, 
as described under Sec. 423.38(a);
    (2) Prior to the effective date of enrollment in the prescription 
drug coverage and upon any change that affects whether the coverage is 
creditable prescription drug coverage;
    (3) Prior to the commencement of the Annual Coordinated Election 
Period that begins on November 15 of each year, as defined in Sec. 
423.38(b); and
    (4) Upon request by the individual.
    (g) When an individual is not adequately informed of coverage. If an 
individual establishes to CMS that he or she was not adequately informed 
that his or her prescription drug coverage was not creditable 
prescription drug coverage, the individual may apply to CMS to have the 
coverage treated as creditable prescription drug coverage for purposes 
of applying the late penalty described in Sec. 423.46.



             Subpart C_Benefits and Beneficiary Protections



Sec. 423.100  Definitions.

    As used in this part, unless otherwise specified-
    Actual cost means the negotiated price for a covered Part D drug 
when the drug is purchased at a network pharmacy, and the usual and 
customary price when a beneficiary purchases the drug at an out-of-
network pharmacy consistent with Sec. 423.124(a).
    Affected enrollee means a Part D enrollee who is currently taking a 
covered Part D drug that is either being removed from a Part D plan's 
formulary, or whose preferred or tiered cost-sharing status is changing.
    Alternative prescription drug coverage means coverage of Part D 
drugs, other than standard prescription drug coverage that meets the 
requirements of Sec. 423.104(e). The term alternative prescription drug 
coverage must be either--
    (1) Basic alternative coverage (alternative coverage that is 
actuarially equivalent to defined standard coverage, as determined 
through processes and methods established under Sec. 423.265(d)(2)); or
    (2) Enhanced alternative coverage (alternative coverage that meets 
the requirements of Sec. 423.104(f)(1)).
    Basic prescription drug coverage means coverage of Part D drugs that 
is either

[[Page 360]]

standard prescription drug coverage or basic alternative coverage.
    Bioequivalent has the meaning given such term in section 505(j)(8) 
of the Food, Drug, and Cosmetic Act.
    Contracted pharmacy network means pharmacies, including retail, 
mail-order, and institutional pharmacies, under contract with a Part D 
sponsor to provide covered Part D drugs at negotiated prices to Part D 
enrollees.
    Covered Part D drug means a Part D drug that is included in a Part D 
plan's formulary, or treated as being included in a Part D plan's 
formulary as a result of a coverage determination or appeal under Sec. 
423.566, Sec. 423.580, and Sec. 423.600, Sec. 423.610, Sec. 423,620, 
and Sec. 423.630, and obtained at a network pharmacy or an out-of-
network pharmacy in accordance with Sec. 423.124.
    Dispensing fees means costs that-
    (1) Are incurred at the point of sale and pay for costs in excess of 
the ingredient cost of a covered Part D drug each time a covered Part D 
drug is dispensed;
    (2) Include only pharmacy costs associated with ensuring that 
possession of the appropriate covered Part D drug is transferred to a 
Part D enrollee. Pharmacy costs include, but are not limited to, any 
reasonable costs associated with a pharmacist's time in checking the 
computer for information about an individual's coverage, performing 
quality assurance activities consistent with Sec. 423.153(c)(2), 
measurement or mixing of the covered Part D drug, filling the container, 
physically providing the completed prescription to the Part D enrollee, 
delivery, special packaging, and overhead associated with maintaining 
the facility and equipment necessary to operate the pharmacy. In the 
case of pharmacies owned and operated by a Part D plan itself, 
notwithstanding number (3) of this definition, dispensing fees are 
understood to be the equivalent of all reasonable costs discussed in the 
previous sentence, including the salaries of pharmacists and other 
pharmacy workers as well as the costs associated with maintaining the 
pharmacy facility and equipment necessary to operate the pharmacy; and
    (3) Do not include administrative costs incurred by the Part D plan 
in the operation of the Part D benefit, including systems costs for 
interfacing with pharmacies.
    Government-funded health program means any program established, 
maintained, or funded, in whole or in part, by the Government of the 
United States, by the government of any State or political subdivision 
of a State, or by any agency or instrumentality of any of the foregoing, 
which uses public funds, in whole or in part, to provide to, or pay on 
behalf of, an individual the cost of Part D drugs, including any of the 
following:
    (1) An approved State child health plan under title XXI of the Act 
providing benefits for child health assistance that meets the 
requirements of section 2103 of the Act;
    (2) The Medicaid program under title XIX of the Act or a waiver 
under section 1115 of the Act;
    (3) The veterans' health care program under Chapter 17 of title 38 
of the United States Code;
    (4) The Indian Health Service program under the Indian Health Care 
Improvement Act under Chapter 18 of title 25 of the United States Code; 
and
    (5) Any other government-funded program whose principal activity is 
the direct provision of health care to persons.
    Group health plan, for purposes of applying the definition of 
incurred costs in Sec. 423.100, has the meaning given such term in 29 
U.S.C. 1167(1), but specifically excludes a personal health savings 
vehicle, as used in this subpart.
    Incurred costs means costs incurred by a Part D enrollee for covered 
Part D drugs--
    (1) That are not paid for under the Part D plan as a result of 
application of any annual deductible or other cost-sharing rules for 
covered Part D drugs prior to the Part D enrollee satisfying the out-of-
pocket threshold under Sec. 423.104(d)(5)(iii), including any price 
differential for which the Part D enrollee is responsible under Sec. 
423.124(b); and
    (2) That are paid for--
    (i) By the Part D enrollee or on behalf of the Part D enrollee by 
another person, and the Part D enrollee (or person paying on behalf of 
the Part D enrollee) is not reimbursed through insurance or otherwise, a 
group health

[[Page 361]]

plan, or other third party payment arrangement, or the person paying on 
behalf of the Part D enrollee is not paying under insurance or 
otherwise, a group health plan, or third party payment arrangement;
    (ii) Under a State Pharmaceutical Assistance Program (as defined in 
Sec. 423.454); or
    (iii) Under Sec. 423.782.
    Insurance means a health plan that provides, or pays the cost of 
Part D drugs, including, but not limited to, any of the following:
    (1) Health insurance coverage (as defined in 42 U.S.C. 300gg-
91(b)(1));
    (2) A Medicare Advantage plan (as described under section 1851(a)(2) 
of the Act); and
    (3) A PACE organization (as defined under sections 1894(a)(3) and 
1934(a)(13) of the Act)
    but specifically excluding a personal health savings vehicle.
    I/T/U pharmacy means a pharmacy operated by the Indian Health 
Service, an Indian tribe or tribal organization, or an urban Indian 
organization, all of which are defined in section 4 of the Indian Health 
Care Improvement Act, 25 U.S.C. 1603.
    Long-term care facility means a skilled nursing facility as defined 
in section 1819(a) of the Act, or a medical institution or nursing 
facility for which payment is made for an institutionalized individual 
under section 1902(q)(1)(B) of the Act.
    Long-term care pharmacy means a pharmacy owned by or under contract 
with a long-term care facility to provide prescription drugs to the 
facility's residents.
    Long-term care network pharmacy means a long-term care pharmacy that 
is a network pharmacy.
    Negotiated prices means prices for covered Part D drugs that-
    (1) Are available to beneficiaries at the point of sale at network 
pharmacies;
    (2) Are reduced by those discounts, direct or indirect subsidies, 
rebates, other price concessions, and direct or indirect remunerations 
that the Part D sponsor has elected to pass through to Part D enrollees 
at the point of sale; and
    (3) Includes any dispensing fees.
    Network pharmacy means a licensed pharmacy that is under contract 
with a Part D sponsor to provide covered Part D drugs at negotiated 
prices to its Part D plan enrollees.
    Non-preferred pharmacy means a network pharmacy that offers covered 
Part D drugs at negotiated prices to Part D enrollees at higher cost-
sharing levels than apply at a preferred pharmacy.
    Or otherwise means through a government-funded health program.
    Out-of-network pharmacy means a licensed pharmacy that is not under 
contract with a Part D sponsor to provide negotiated prices to Part D 
plan enrollees.
    Part D drug means--
    (1) Unless excluded under number (2) of this definition, any of the 
following if used for a medically accepted indication (as defined in 
section 1927(k)(6) of the Act)--
    (i) A drug that may be dispensed only upon a prescription and that 
is described in sections 1927(k)(2)(A)(i) through (iii) of the Act;
    (ii) A biological product described in sections 1927(k)(2)(B)(i) 
through (iii) of the Act;
    (iii) Insulin described in section 1927(k)(2)(C) of the Act;
    (iv) Medical supplies associated with the injection of insulin, 
including syringes, needles, alcohol swabs, and gauze; or
    (v) A vaccine licensed under section 351 of the Public Health 
Service Act.
    (2) Does not include--
    (i) Drugs for which payment as so prescribed and dispensed or 
administered to an individual is available for that individual under 
Part A or Part B (even though a deductible may apply, or even though the 
individual is eligible for coverage under Part A or Part B but has 
declined to enroll in Part A or Part B); and
    (ii) Drugs or classes of drugs, or their medical uses, which may be 
excluded from coverage or otherwise restricted under Medicaid under 
sections 1927(d)(2) or (d)(3) of the Act, except for smoking cessation 
agents.
    Person means a natural person, corporation, mutual company, 
unincorporated association, partnership, joint venture, limited 
liability company,

[[Page 362]]

trust, estate, foundation, not-for-profit corporation, unincorporated 
organization, government or governmental subdivision or agency.
    Personal health savings vehicle means a vehicle through which 
individuals can set aside their own funds to pay for health care 
expenses, including covered Part D drugs, on a tax-free basis including 
any of the following--
    (1) A Health Savings Account (as defined under section 220 of the 
Internal Revenue Code);
    (2) A Flexible Spending Account (as defined in section 106(c)(2) of 
the Internal Revenue Code) offered in conjunction with a cafeteria plan 
under section 125 of the Internal Revenue Code; and
    (3) An Archer Medical Savings Account (as defined under section 223 
of the Internal Revenue Code);
    but specifically excluding a Health Reimbursement Arrangement (as 
described under Internal Revenue Ruling 2002-41 and Internal Revenue 
Notice 2002-45)
    Plan allowance means the amount Part D plans that offer coverage 
other than defined standard coverage may use to determine their payment 
and Part D enrollees' cost-sharing for covered Part D drugs purchased at 
an out-of-network pharmacy or in a physician's office in accordance with 
the requirements of Sec. 423.124(b).
    Preferred drug means a covered Part D drug on a Part D plan's 
formulary for which beneficiary cost-sharing is lower than for a non-
preferred drug in the plan's formulary.
    Preferred pharmacy means a network pharmacy that offers covered Part 
D drugs at negotiated prices to Part D enrollees at lower levels of 
cost-sharing than apply at a non-preferred pharmacy under its pharmacy 
network contract with a Part D plan.
    Qualified prescription drug coverage means any standard prescription 
drug coverage or alternative prescription drug coverage
    Retail pharmacy means any licensed pharmacy that is not a mail order 
pharmacy from which Part D enrollees could purchase a covered Part D 
drug without being required to receive medical services from a provider 
or institution affiliated with that pharmacy.
    Required prescription drug coverage means coverage of Part D drugs 
under an MA-PD plan that consists of either--
    (1) Basic prescription drug coverage; or
    (2) Enhanced alternative coverage, provided there is no MA monthly 
supplemental beneficiary premium (as defined under section 1854(b)(2)(C) 
of the Act) applied under the plan due to the application of a credit 
against the premium of a rebate under Sec. 422.266(b) of this chapter.
    Rural means a five-digit ZIP code in which the population density is 
less than 1,000 individuals per square mile.
    Standard prescription drug coverage means coverage of Part D drugs 
that meets the requirements of Sec. 423.104(d). The term standard 
prescription drug coverage must be either--
    (1) Defined standard coverage (standard prescription drug coverage 
that provides for cost-sharing as described in Sec. 423.104(d)(2)(i)(A) 
and (d)(5)(i)); or
    (2) Actuarially equivalent standard coverage (standard prescription 
drug coverage that provides for cost-sharing as described in Sec. 
423.104(d)(2)(i)(B) or cost-sharing as described in Sec. 
423.104(d)(5)(ii), or both).
    Suburban means a five-digit ZIP code in which the population density 
is between 1,000 and 3,000 individuals per square mile.
    Supplemental benefits means benefits that meet the requirements of 
Sec. 423.104(f)(1)(ii).
    Therapeutically equivalent refers to drugs that are rated as 
therapeutic equivalents under the Food and Drug Administration's most 
recent publication of ``Approved Drug Products with Therapeutic 
Equivalence Evaluations.''
    Third party payment arrangement means any contractual or similar 
arrangement under which a person has a legal obligation to pay for 
covered Part D drugs.
    Urban means a five-digit ZIP code in which the population density is 
greater than 3,000 individuals per square mile.
    Usual and customary (U&C) price means the price that an out-of-
network pharmacy or a physician's office charges a customer who does not 
have any form of prescription drug coverage for a covered Part D drug.

[[Page 363]]



Sec. 423.104  Requirements related to qualified prescription drug coverage.

    (a) General. Subject to the conditions and limitations set forth in 
this subpart, a Part D sponsor must provide enrollees with coverage of 
the benefits described in paragraph (c) of this section. The benefits 
may be provided directly by the Part D sponsor or through arrangements 
with other entities. CMS reviews and approves these benefits consistent 
with Sec. 423.272, and using written policy guidelines and requirements 
in this part and other CMS instructions.
    (b) Availability of prescription drug plans. A PDP sponsor offering 
a prescription drug plan must offer that plan to all Part D eligible 
beneficiaries residing in the plan's service area.
    (c) Types of benefits. The coverage provided by a Part D plan must 
be qualified prescription drug coverage.
    (d) Standard prescription drug coverage. Standard prescription drug 
coverage includes access to negotiated prices as described under 
paragraph (g)(1) of this section, provides coverage of Part D drugs, and 
must meet the following requirements
    (1) Deductible. An annual deductible equal to--
    (i) For 2006. $250; or
    (ii) For years subsequent to 2006. The amount specified in this 
paragraph for the previous year, increased by the annual percentage 
increase specified in paragraph (d)(5)(iv) of this section, and rounded 
to the nearest multiple of $5.
    (2) Cost-sharing under the initial coverage limit--(i) 25 Percent 
coinsurance. Coinsurance for actual costs for covered Part D drugs 
covered under the Part D plan above the annual deductible specified in 
paragraph (d)(1) of this section, and up to the initial coverage limit 
under paragraph (d)(3) of this section, that is--
    (A) Equal to 25 percent of actual cost; or
    (B) Actuarially equivalent to an average expected coinsurance of no 
more than 25 percent of actual cost, as determined through processes and 
methods established under Sec. 423.265(c) and (d).
    (ii) Tiered copayments. A Part D plan providing actuarially 
equivalent standard coverage may apply tiered copayments, provided that 
any tiered copayments are consistent with paragraph (d)(2)(i)(B) of this 
section and are approved as described in Sec. 423.272(b)(2).
    (3) Initial coverage limit. The initial coverage limit is equal to--
    (i) For 2006. $2,250.
    (ii) For years subsequent to 2006. The amount specified in this 
paragraph for the previous year, increased by the annual percentage 
increase specified in paragraph (d)(5)(iv) of this section, and rounded 
to the nearest multiple of $10.
    (4) Cost-sharing between the initial coverage limit and the annual 
out-of-pocket threshold. Coinsurance for costs for covered Part D drugs 
above the initial coverage limit described in paragraph (d)(3) of this 
section and annual out-of-pocket threshold described in paragraph 
(d)(5)(iii) of this section that is equal to 100 percent of actual 
costs.
    (5) Protection against high out-of-pocket expenditures. (i) After an 
enrollee's incurred costs exceed the annual out-of-pocket threshold 
described in paragraph (d)(5)(iii) of this section, cost-sharing equal 
to the greater of--
    (A) Copayments. (1) In 2006, $2 for a generic drug or preferred drug 
that is a multiple source drug (as defined in section 1927(k)(7)(A)(i) 
of the Act) and $5 for any other drug; and
    (2) For subsequent years, the copayment amounts specified in this 
paragraph for the previous year increased by the annual percentage 
increase described in paragraph (d)(5)(iv) of this section and rounded 
to the nearest multiple of 5 cents; or
    (B) Coinsurance. Coinsurance of five percent of actual cost.
    (ii) As determined through processes and methods established under 
Sec. 423.265(c) and (d), a Part D plan may substitute for cost-sharing 
under paragraph (d)(5)(i) of this section an amount that is actuarially 
equivalent to expected cost-sharing under paragraph (d)(5)(i) of this 
section.
    (iii) Annual out-of-pocket threshold. For purposes of this part, the 
annual out-of-pocket threshold equals--
    (A) For 2006. $3,600.
    (B) For years subsequent to 2006. The amount specified in this 
paragraph for the previous year, increased by the annual percentage 
increase specified in

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paragraph (d)(5)(iv) of this section, and rounded to the nearest 
multiple of $50.
    (iv) Annual percentage increase. The annual percentage increase for 
each year is equal to the annual percentage increase in average per 
capita aggregate expenditures for Part D drugs in the United States for 
Part D eligible individuals and is based on data for the 12-month period 
ending in July of the previous year.
    (e) Alternative prescription drug coverage. Alternative prescription 
drug coverage includes access to negotiated prices as described under 
paragraph (g)(1) of this section, provides coverage of Part D drugs, and 
must meet the following requirements--
    (1) Has an annual deductible that does not exceed the annual 
deductible specified in paragraph (d)(1) of this section;
    (2) Imposes cost-sharing no greater than that specified in 
paragraphs (d)(5)(i) or (ii) of this section once the annual out-of-
pocket threshold described in paragraph (d)(5)(iii) of this section is 
met;
    (3) Has a total or gross value that is at least equal to the total 
or gross value of defined standard coverage.
    (4) Has an unsubsidized value that is at least equal to the 
unsubsidized value of standard prescription drug coverage. For purposes 
of this subparagraph, the unsubsidized value of coverage is the amount 
by which the actuarial value of the coverage exceeds the actuarial value 
of the subsidy payments under Sec. 423.782 for the coverage; and
    (5) Provides coverage that is designed, based upon an actuarially 
representative pattern of utilization, to provide for the payment, for 
costs incurred for covered Part D drugs, that are equal to the initial 
coverage limit under paragraph (d)(3) of this section, of an amount 
equal to at least the product of -
    (i) The amount by which the initial coverage limit described in 
paragraph (d)(3) of this section for the year exceeds the deductible 
described in paragraph (d)(1) of this section; and
    (ii) 100 percent minus the coinsurance percentage specified in 
paragraph (d)(2)(i) of this section.
    (f) Enhanced alternative coverage. (1) Enhanced alternative coverage 
must meet the requirements under paragraph (e) of this section and 
includes-
    (i) Basic prescription drug coverage, as defined in Sec. 423.100; 
and
    (ii) Supplemental benefits, which include-
    (A) Coverage of drugs that are specifically excluded as Part D drugs 
under paragraph (2)(ii) of the definition of Part D drug under Sec. 
423.100; or
    (B) Any of the following changes or combination of changes that 
increase the actuarial value of benefits under the Part D plan above the 
actuarial value of defined standard prescription drug coverage, as 
determined through processes and methods established under Sec. 
423.265--
    (1) A reduction in the annual deductible described in paragraph 
(d)(1) of this section;
    (2) A reduction in the cost-sharing described in paragraphs (d)(2) 
or (d)(5) of this section, or
    (3) An increase in the initial coverage limit described in paragraph 
(d)(3) of this section.
    (C) Both the coverage described in paragraph (f)(1)(ii)(A) of this 
section and the changes or combination of changes described in paragraph 
(f)(1)(ii)(B) of this section.
    (2) Restrictions on the offering of enhanced alternative coverage by 
PDP sponsors. A PDP sponsor may not offer enhanced alternative coverage 
in a service area unless the PDP sponsor also offers a prescription drug 
plan in that service area that provides basic prescription drug 
coverage.
    (3) Restrictions on the offering of enhanced alternative coverage by 
MA organizations. Effective January 1, 2006, an MA organization--
    (i) May not offer an MA coordinated care plan, as defined in Sec. 
422.4 of this chapter, in an area unless either that plan (or another MA 
plan offered by the MA organization in that same service area) includes 
required prescription drug coverage; and
    (ii) May not offer prescription drug coverage (other than that 
required under Parts A and B of title XVIII of the Act) to an enrollee--
    (A) Under an MSA plan, as defined in Sec. 422.2 of this chapter; or

[[Page 365]]

    (B) Under another MA plan (including a private fee-for-service plan, 
as defined in Sec. 422.4 of this chapter) unless the drug coverage 
under the other plan provides qualified prescription drug coverage and 
unless the requirements of paragraph (f)(3)(i) of this section are met.
    (4) Restrictions on the offering of enhanced alternative coverage by 
cost plans. (i) A cost plan that elects to offer qualified prescription 
drug coverage may offer enhanced alternative coverage as an optional 
supplemental benefit under Sec. 417.440(b)(2)(ii) of this chapter only 
if the cost plan also offers basic prescription drug coverage. An 
enrollee in the cost plan may, at the individual's option, elect whether 
to receive qualified prescription drug coverage under the cost plan and, 
if so, whether to receive basic prescription drug coverage or, if 
offered by the cost plan, enhanced alternative coverage.
    (ii) A cost plan that offers qualified prescription drug coverage as 
an optional supplemental benefit under Sec. 417.440(b)(2)(ii) of this 
chapter may not offer prescription drug coverage that is not qualified 
prescription drug coverage. A cost plan that does not offer qualified 
prescription drug coverage under Sec. 417.440(b)(2)(ii) of this chapter 
may offer prescription drug coverage that is not qualified prescription 
drug coverage under Sec. 417.440(b)(2)(i) of this chapter.
    (g) Negotiated prices--(1) Access to negotiated prices. A Part D 
sponsor is required to provide its Part D enrollees with access to 
negotiated prices for covered Part D drugs included in its Part D plan's 
formulary. Negotiated prices must be provided even if no benefits are 
payable to the beneficiary for covered Part D drugs because of the 
application of any deductible or 100 percent coinsurance requirement 
following satisfaction of any initial coverage limit.
    (2) Interaction with Medicaid best price. Prices negotiated with a 
pharmaceutical manufacturer, including discounts, subsidies, rebates, 
and other price concessions, for covered Part D drugs by the following 
entities are not taken into account in establishing Medicaid's best 
price under section 1927(c)(1)(C) of the Act--
    (i) A Part D plan, as defined in Sec. 423.4; or
    (iii) A qualified retiree prescription drug plan (as defined in 
Sec. 423.882) for Part D eligible individuals.
    (3) Disclosure. (i) A Part D sponsor is required to disclose to CMS 
data on aggregate negotiated price concessions obtained from 
pharmaceutical manufacturers, as well as data on aggregate negotiated 
price concessions obtained from pharmaceutical manufacturers that are 
passed through to beneficiaries, via pharmacies and other dispensers, in 
the form of lower subsidies paid by CMS on behalf of low-income 
individuals described in Sec. 423.782, or in the form of lower monthly 
beneficiary premiums or lower covered Part D drug prices at the point of 
sale.
    (ii) Information on negotiated prices disclosed to CMS under 
paragraph (g)(3) of this section is protected under the confidentiality 
provisions applicable under section 1927(b)(3)(D) of the Act.
    (4) Audits. CMS and the Office of the Inspector General may conduct 
periodic audits of the financial statements and all records of Part D 
sponsors pertaining to any qualified prescription drug coverage they may 
offer under a Part D plan.



Sec. 423.112  Establishment of prescription drug plan service areas.

    (a) Service area for prescription drug plans. The service area for a 
prescription drug plan other than a fallback prescription drug plan 
consists of one or more PDP regions as established under paragraphs (b) 
and (c) of this section.
    (b) Establishment of PDP regions--(1) General. CMS establishes PDP 
regions in a manner consistent with the requirements for the 
establishment of MA regions as described at Sec. 422.455 of this 
chapter.
    (2) Relation to MA regions. To the extent practicable, PDP regions 
are the same as MA regions. CMS may establish PDP regions that are not 
the same as MA regions if CMS determines that the establishment of these 
regions improves access to prescription drug plan benefits for Part D 
eligible individuals.
    (c) Authority for territories. CMS establishes a PDP region or 
regions for

[[Page 366]]

States that are not within the 50 States and the District of Columbia.
    (d) Revision of PDP regions. CMS may revise the PDP regions 
established under paragraphs (b) and (c) of this section.
    (e) Regional or national plan. Nothing in this section prevents a 
prescription drug plan from being offered in two or more PDP regions in 
their entirety or in all PDP regions in their entirety.



Sec. 423.120  Access to covered Part D drugs.

    (a) Assuring pharmacy access--(1) Standards for convenient access to 
network pharmacies. Except as provided in paragraph (a)(7) of this 
section, a Part D plan must have a contracted pharmacy network 
consisting of retail pharmacies sufficient to ensure that for 
beneficiaries residing in each State in a prescription drug plan's 
service area(as defined in Sec. 423.112(a)), each State in a regional 
MA-PD plan's service area (as defined in Sec. 422.2 and Sec. 
422.455(a) of this chapter), a local MA-PD plan's service area (as 
defined in Sec. 422.2 of this chapter), or a cost plan's geographic 
area (as defined in Sec. 417.401 of this chapter), the following 
requirements are satisfied:
    (i) At least 90 percent of Medicare beneficiaries, on average, in 
urban areas served by the Part D plan live within 2 miles of a network 
pharmacy that is a retail pharmacy or a pharmacy described under 
paragraph (a)(2) of this section;
    (ii) At least 90 percent of Medicare beneficiaries, on average, in 
suburban areas served by the Part D plan live within 5 miles of a 
network pharmacy that is a retail pharmacy or a pharmacy described under 
paragraph (a)(2) of this section; and
    (iii) At least 70 percent of Medicare beneficiaries, on average, in 
rural areas served by the Part D plan live within 15 miles of a network 
pharmacy that is a retail pharmacy or a pharmacy described under 
paragraph (a)(2) of this section.
    (2) Applicability of some non-retail pharmacies to standards for 
convenient access. Part D plans may count I/T/U pharmacies and 
pharmacies operated by Federally Qualified Health Centers and Rural 
Health Centers toward the standards for convenient access to network 
pharmacies in paragraph (a)(1) of this section.
    (3) Access to non-retail pharmacies. A Part D plan's contracted 
pharmacy network may be supplemented by non-retail pharmacies, including 
pharmacies offering home delivery via mail-order and institutional 
pharmacies, provided the requirements of paragraph (a)(1) of this 
section are met.
    (4) Access to home infusion pharmacies. A Part D plan's contracted 
pharmacy network must provide adequate access to home infusion 
pharmacies consistent with written policy guidelines and other CMS 
instructions.
    (5) Access to long-term care pharmacies. A Part D plan must offer 
standard contracting terms and conditions, including performance and 
service criteria for long-term care pharmacies that CMS specifies, to 
all long-term care pharmacies in its service area. The plan must provide 
convenient access to long-term care pharmacies consistent with written 
policy guidelines and other CMS instructions.
    (6) Access to I/T/U pharmacies. A Part D plan must offer standard 
contracting terms and conditions conforming to the model addendum that 
CMS develops, to all I/T/U pharmacies in its service area. The plan must 
provide convenient access to I/T/U pharmacies consistent with written 
policy guidelines and other CMS instructions.
    (7) Waiver of pharmacy access requirements. CMS waives the 
requirements under paragraph (a)(1) of this section in the case of--
    (i) An MA-PD plan or cost plan (as described in section 1876(h) of 
the Act) that provides its enrollees with access to covered Part D drugs 
through pharmacies owned and operated by the MA organization or cost 
plan, provided the organization's or plan's pharmacy network meets the 
access standard set forth under Sec. 422.112 of this chapter for an MA 
plan, or Sec. 417.416(e) of this chapter for a cost plan.
    (ii) An MA private fee-for-service plan described in Sec. 422.4 of 
this chapter that--
    (A) Offers qualified prescription drug coverage; and
    (B) Provides plan enrollees with access to covered Part D drugs 
dispensed

[[Page 367]]

at all pharmacies, without regard to whether they are contracted network 
pharmacies and without charging cost-sharing in excess of that described 
in Sec. 423.104(d)(2) and (d)(5).
    (8) Pharmacy network contracting requirements. In establishing its 
contracted pharmacy network, a Part D sponsor offering qualified 
prescription drug coverage--
    (i) Must contract with any pharmacy that meets the Part D plan's 
standard terms and conditions; and
    (ii) May not require a pharmacy to accept insurance risk as a 
condition of participation in the Part D plan's contracted pharmacy 
network.
    (9) Differential cost-sharing for preferred pharmacies. A Part D 
sponsor offering a Part D plan that provides coverage other than defined 
standard coverage may reduce copayments or coinsurance for covered Part 
D drugs obtained through a preferred pharmacy relative to the copayments 
or coinsurance applicable for such drugs when obtained through a non-
preferred pharmacy. Such differentials are taken into account in 
determining whether the requirements under Sec. 423.104(d)(2) and 
(d)(5) and Sec. 423.104(e) are met. Any cost-sharing reduction under 
this section must not increase CMS payments to the Part D plan under 
Sec. 423.329.
    (10) Level playing field between mail-order and network pharmacies. 
A Part D sponsor must permit its Part D plan enrollees to receive 
benefits, which may include a 90-day supply of covered Part D drugs, at 
any of its network pharmacies that are retail pharmacies. A Part D plan 
may require an enrollee obtaining a covered Part D drug at a network 
pharmacy that is a retail pharmacy to pay any higher cost-sharing 
applicable to that covered Part D drug at the network pharmacy that is a 
retail pharmacy instead of the cost-sharing applicable to that covered 
Part D drug at the network pharmacy that is a mail-order pharmacy.
    (b) Formulary requirements. A Part D sponsor that uses a formulary 
under its qualified prescription drug coverage must meet the following 
requirements--
    (1) Development and revision by a pharmacy and therapeutic 
committee. A Part D sponsor's formulary must be developed and reviewed 
by a pharmacy and therapeutic committee that--
    (i) Includes a majority of members who are practicing physicians 
and/or practicing pharmacists.
    (ii) Includes at least one practicing physician and at least one 
practicing pharmacist who are independent and free of conflict relative 
to-
    (A) The Part D sponsor and Part D plan; and
    (B) Pharmaceutical manufacturers.
    (iii) Includes at least one practicing physician and one practicing 
pharmacist who are experts regarding care of elderly or disabled 
individuals.
    (iv) Bases clinical decisions on the strength of scientific evidence 
and standards of practice, including assessing peer-reviewed medical 
literature, pharmacoeconomic studies, outcomes research data, and other 
such information as it determines appropriate.
    (v) Considers whether the inclusion of a particular Part D drug in a 
formulary or formulary tier has any therapeutic advantages in terms of 
safety and efficacy.
    (vi) Reviews policies that guide exceptions and other utilization 
management processes, including drug utilization review, quantity 
limits, generic substitution, and therapeutic interchange.
    (vii) Evaluates and analyzes treatment protocols and procedures 
related to the plan's formulary at least annually consistent with 
written policy guidelines and other CMS instructions.
    (viii) Documents in writing its decisions regarding formulary 
development and revision and utilization management activities.
    (ix) Meets other requirements consistent with written policy 
guidelines and other CMS instructions.
    (2) Provision of an adequate benefit. A Part D plan's formulary 
must-
    (i) Except as provided in paragraph (b)(2)(ii) of this section, 
include within each therapeutic category and class of Part D drugs at 
least two Part D drugs that are not therapeutically equivalent and 
bioequivalent, with different strengths and dosage forms available for 
each of those drugs, except that only one Part D drug must be included

[[Page 368]]

in a particular category or class of covered Part D drugs if the 
category or class includes only one Part D drug.
    (ii) Include at least one Part D drug within a particular category 
or class of Part D drugs to the extent the Part D plan demonstrates, and 
CMS approves, the following-
    (A) That only two drugs are available in that category or class of 
Part D drugs; and
    (B) That one drug is clinically superior to the other drug in that 
category or class of Part D drugs.
    (iii) Include adequate coverage of the types of drugs most commonly 
needed by Part D enrollees, as recognized in national treatment 
guidelines.
    (iv) Be approved by CMS consistent with Sec. 423.272(b)(2).
    (3) Transition Process. A Part D sponsor must provide for an 
appropriate transition process for new enrollees prescribed Part D drugs 
that are not on its Part D plan's formulary. The transition policy must 
meet requirements consistent with written policy guidelines and other 
CMS instructions.
    (4) Limitation on changes in therapeutic classification. Except as 
CMS may permit to account for new therapeutic uses and newly approved 
Part D drugs, a Part D sponsor may not change the therapeutic categories 
and classes in a formulary other than at the beginning of each plan 
year.
    (5) Provision of notice regarding formulary changes (i) Prior to 
removing a covered Part D drug from its Part D plan's formulary, or 
making any change in the preferred or tiered cost-sharing status of a 
covered Part D drug, a Part D sponsor must provide at least 60 days 
notice to CMS, State Pharmaceutical Assistance Programs (as defined in 
Sec. 423.454), entities providing other prescription drug coverage (as 
described in Sec. 423.464(f)(1)), authorized prescribers, network 
pharmacies, and pharmacists prior to the date such change becomes 
effective, and must either--
    (A) Provide direct written notice to affected enrollees at least 60 
days prior to the date the change becomes effective; or
    (B) At the time an affected enrollee requests a refill of the Part D 
drug, provide such enrollee with a 60 day supply of the Part D drug 
under the same terms as previously allowed, and written notice of the 
formulary change.
    (ii) The written notice must contain the following information-
    (A) The name of the affected covered Part D drug;
    (B) Whether the plan is removing the covered Part D drug from the 
formulary, or changing its preferred or tiered cost-sharing status;
    (C) The reason why the plan is removing such covered Part D drug 
from the formulary, or changing its preferred or tiered cost-sharing 
status;
    (D) Alternative drugs in the same therapeutic category or class or 
cost-sharing tier and expected cost-sharing for those drugs; and
    (E) The means by which enrollees may obtain a coverage determination 
under Sec. 423.566 or exception under Sec. 423.578.
    (iii) Part D sponsors may immediately remove from their Part D plan 
formularies covered Part D drugs deemed unsafe by the Food and Drug 
Administration or removed from the market by their manufacturer without 
meeting the requirements of paragraphs (b)(5)((i) of this section. Part 
D sponsors must provide retrospective notice of any such formulary 
changes to affected enrollees, CMS, State Pharmaceutical Assistance 
Programs (as defined in Sec. 423.454), entities providing other 
prescription drug coverage (as described in Sec. 423.464(f)(1)), 
authorized prescribers, network pharmacies, and pharmacists consistent 
with the requirements of paragraphs (b)(5)(ii)(A), (b)(5)(ii)(B), 
(b)(5)(ii)(C), and (b)(5)(ii)(D) of this section.
    (6) Limitation on formulary changes prior to the beginning of a 
contract year. Except as provided under paragraph (b)(5)(iii) of this 
section, a Part D sponsor may not remove a covered Part D drug from its 
Part D plan's formulary, or make any change in the preferred or tiered 
cost-sharing status of a covered Part D drug on its plan's formulary, 
between the beginning of the annual coordinated election period 
described in Sec. 423.38(b) and 60 days after the beginning of the 
contract year associated with that annual coordinated election period.

[[Page 369]]

    (7) Provider and patient education. A Part D sponsor must establish 
policies and procedures to educate and inform health care providers and 
enrollees concerning its formulary.
    (c) Use of standardized technology. A Part D sponsor must issue and 
reissue, as necessary, a card or other type of technology that its 
enrollees may use to access negotiated prices for covered Part D drugs 
as provided under Sec. 423.104(g). The card or other technology must 
comply with standards CMS establishes.



Sec. 423.124  Special rules for out-of-network access to covered Part D drugs at out-of-network pharmacies.

    (a) Out-of-network access to covered part D drugs. (1) Out-of-
network pharmacy access. A Part D sponsor must ensure that Part D 
enrollees have adequate access to covered Part D drugs dispensed at out-
of-network pharmacies when the enrollees--
    (i) Cannot reasonably be expected to obtain such drugs at a network 
pharmacy; and
    (ii) Do not access covered Part D drugs at an out-of-network 
pharmacy on a routine basis.
    (2) Physician's office access. A Part D sponsor must ensure that 
Part D enrollees have adequate access to vaccines and other covered Part 
D drugs appropriately dispensed and administered by a physician in a 
physician's office.
    (b) Financial responsibility for out-of-network access to covered 
Part D drugs. A Part D sponsor that provides its Part D enrollees with 
coverage other than defined standard coverage may require its Part D 
enrollees accessing covered Part D drugs as provided in paragraph (a) of 
this section to assume financial responsibility for any differential 
between the out-of-network pharmacy's (or provider's) usual and 
customary price and the Part D sponsor's plan allowance, consistent with 
the requirements of Sec. 423.104(d)(2)(i)(B) and Sec. 423.104(e).
    (c) Limits on out-of-network access to covered Part D. A Part D 
sponsor must establish reasonable rules to appropriately limit out-of-
network access to covered Part D drugs.



Sec. 423.128  Dissemination of Part D plan information.

    (a) Detailed description. A Part D sponsor must disclose the 
information specified in paragraph (b) of this section in the manner 
specified by CMS--
    (1) To each enrollee of a Part D plan offered by the Part D sponsor 
under this part;
    (2) In a clear, accurate, and standardized form; and
    (3) At the time of enrollment and at least annually thereafter.
    (b) Content of Part D plan description. The Part D plan description 
must include the following information about the qualified prescription 
drug coverage offered under the Part D plan--
    (1) Service area. The plan's service area.
    (2) Benefits. The benefits offered under the plan, including-
    (i) Applicable conditions and limitations.
    (ii) Premiums.
    (iii) Cost-sharing (such as copayments,
    deductibles, and coinsurance), and cost-sharing for subsidy eligible 
individuals.
    (iv) Any other conditions associated with receipt or use of 
benefits.
    (3) Cost-sharing. A description of how a Part D eligible individual 
may obtain more information on cost-sharing requirements, including 
tiered or other copayment levels applicable to each drug (or class of 
drugs), in accordance with paragraph (d) of this section.
    (4) Formulary. Information about the plan's formulary, including-
    (i) A list of drugs included on the plan's formulary;
    (ii) The manner in which the formulary (including any tiered 
formulary structure and utilization management procedures used) 
functions;
    (iii) The process for obtaining an exception to a plan's formulary 
or tiered cost-sharing structure; and
    (iv) A description of how a Part D eligible individual may obtain 
additional information on the formulary, in accordance with paragraph 
(d) of this section.
    (5) Access. The number, mix, and distribution (addresses) of network 
pharmacies from which enrollees may reasonably be expected to obtain 
covered

[[Page 370]]

Part D drugs and how the Part D sponsor meets the requirements of Sec. 
423.120(a)(1) for access to covered Part D drugs;
    (6) Out-of-network coverage. Provisions for access to covered Part D 
drugs at out-of-network pharmacies, consistent with Sec. 423.124(a).
    (7) Grievance, coverage determinations, and appeals procedures. All 
grievance, reconsideration, exceptions, coverage determination, 
reconsideration, exceptions, and appeal rights and procedures required 
under Sec. 423.564 et. seq.
    (8) Quality assurance policies and procedures. A description of the 
quality assurance policies and procedures required under Sec. 
423.153(c), as well as the medication therapy management program 
required under Sec. 423.153(d).
    (9) Disenrollment rights and responsibilities.
    (10) Potential for contract termination. The fact that a Part D 
sponsor may terminate or refuse to renew its contract, or reduce the 
service area included in its contract, and the effect that any of those 
actions may have on individuals enrolled in a Part D plan;
    (c) Disclosure upon request of general coverage information, 
utilization, and grievance information. Upon request of a Part D 
eligible individual, a Part D sponsor must provide the following 
information--
    (1) General coverage information. General coverage information, 
including--
    (i) Enrollment procedures. Information and instructions on how to 
exercise election options under this part;
    (ii) Rights. A general description of procedural rights (including 
grievance, coverage determination, reconsideration, exceptions, and 
appeals procedures) under this part;
    (iii) Benefits. (A) Covered services under the Part D plan;
    (B) Any beneficiary cost-sharing, such as deductibles, coinsurance, 
and copayment amounts, including cost-sharing for subsidy eligible 
individuals;
    (C) Any maximum limitations on out-of-pocket expenses;
    (D) The extent to which an enrollee may obtain benefits from out-of-
network providers;
    (E) The types of pharmacies that participate in the Part D plan's 
network and the extent to which an enrollee may select among those 
pharmacies; and
    (F) The Part D plan's out-of-network pharmacy access policy.
    (iv) Premiums;
    (v) The Part D plan's formulary;
    (vi) The Part D plan's service area; and
    (vii) Quality and performance indicators for benefits under the Part 
D plan as determined by CMS.
    (2) The procedures the Part D sponsor uses to control utilization of 
services and expenditures.
    (3) The number of disputes, and the disposition in the aggregate, in 
a manner and form described by CMS. These disputes are categorized as--
    (i) Grievances according to Sec. 423.564;
    (ii) Appeals according to Sec. 423.580 et. seq.; and
    (iii) Exceptions according to Sec. 423.578.
    (4) Financial condition of the Part D sponsor, including the most 
recently audited information regarding, at a minimum, a description of 
the financial condition of the Part D sponsor offering the Part D plan.
    (d) Provision of specific information. Each Part D sponsor offering 
qualified prescription drug coverage under a Part D plan must have 
mechanisms for providing specific information on a timely basis to 
current and prospective enrollees upon request. These mechanisms must 
include--
    (1) A toll-free customer call center that--
    (i) Is open during usual business hours.
    (ii) Provides customer telephone service, including to pharmacists, 
in accordance with standard business practices.
    (2) An Internet website that--
    (i) Includes, at a minimum, the information required in paragraph 
(b) of this section.
    (ii) Includes a current formulary for its Part D plan, updated at 
least monthly.
    (iii) Provides current and prospective Part D enrollees with at 
least 60 days notice regarding the removal or change in the preferred or 
tiered cost-sharing status of a Part D drug on its Part D plan's 
formulary.
    (3) The provision of information in writing, upon request.

[[Page 371]]

    (e) Claims information. A Part D sponsor must furnish directly to 
enrollees, in the manner specified by CMS and in a form easily 
understandable to such enrollees, a written explanation of benefits when 
prescription drug benefits are provided under qualified prescription 
drug coverage. The explanation of benefits must--
    (1) List the item or service for which payment was made and the 
amount of the payment for each item or service.
    (2) Include a notice of the individual's right to request an 
itemized statement.
    (3) Include the cumulative, year-to-date total amount of benefits 
provided, in relation to--
    (i) The deductible for the current year.
    (ii) The initial coverage limit for the current year.
    (iii) The annual out-of-pocket threshold for the current year.
    (4) Include the cumulative, year-to-date total of incurred costs to 
the extent practicable.
    (5) Include any applicable formulary changes for which Part D plans 
are required to provide notice as described in Sec. 423.120(b)(5).
    (6) Be provided during any month when prescription drug benefits are 
provided under this part, including for covered Part D spending between 
the initial coverage limit described in Sec. 423.104(d)(3) and the out-
of-pocket threshold described in Sec. 423.104(d)(5)(iii).



Sec. 423.132  Public disclosure of pharmaceutical prices for equivalent drugs.

    (a) General requirements. Except as provided under paragraph (c) of 
this section, a Part D sponsor must require a pharmacy that dispenses a 
covered Part D drug to inform an enrollee of any differential between 
the price of that drug and the price of the lowest priced generic 
version of that covered Part D drug that is therapeutically equivalent 
and bioequivalent and available at that pharmacy, unless the particular 
covered Part D drug being purchased is the lowest-priced therapeutically 
equivalent and bioequivalent version of that drug available at that 
pharmacy.
    (b) Timing of notice. Subject to paragraph (d) of this section, the 
information under paragraph (a) of this section must be provided after 
the drug is dispensed at the point of sale or, in the case of dispensing 
by mail order, at the time of delivery of the drug.
    (c) Waiver of public disclosure requirement. CMS waives the 
requirement under paragraph (a) of this section in the case of--
    (1) An MA private fee-for-service plan described in Sec. 422.4 of 
this chapter that--
    (i) Offers qualified prescription drug coverage and provides plan 
enrollees with access to covered Part D drugs dispensed at all 
pharmacies, without regard to whether they are contracted network 
pharmacies; and
    (ii) Does not charge additional cost-sharing for access to covered 
Part D drugs dispensed at out-of-network pharmacies.
    (2) An out-of-network pharmacy;
    (3) An I/T/U network pharmacy;
    (4) A network pharmacy that is located in any of the U.S. 
territories; and
    (5) Other circumstances where CMS deems compliance with the 
requirements of paragraph (a) of this section to be impossible or 
impracticable.
    (d) Modification of timing requirement. CMS modifies the requirement 
under paragraph (b) of this section as follows--
    (1) For long-term care network pharmacies, which must meet the 
requirement in paragraph (a) of this section by providing such 
information to Part D plans for inclusion in the written explanations of 
benefits required under Sec. 423.128(e); and
    (2) Under other circumstances where CMS deems compliance with the 
requirement under paragraph (b) of this section to be impossible or 
impracticable.



Sec. 423.136  Privacy, confidentiality, and accuracy of enrollee records.

    For any medical records or other health and enrollment information 
it maintains with respect to enrollees, a PDP sponsor must establish 
procedures to do the following--
    (a) Abide by all Federal and State laws regarding confidentiality 
and disclosure of medical records, or other health and enrollment 
information. The PDP sponsor must safeguard the

[[Page 372]]

privacy of any information that identifies a particular enrollee and 
have procedures that specify--
    (1) For what purposes the information is used within the 
organization; and
    (2) To whom and for what purposes it discloses the information 
outside the organization.
    (b) Ensure that medical information is released only in accordance 
with applicable Federal or State law, or under court orders or 
subpoenas.
    (c) Maintain the records and information in an accurate and timely 
manner.
    (d) Ensure timely access by enrollees to the records and information 
that pertain to them.



       Subpart D_Cost Control and Quality Improvement Requirements



Sec. 423.150  Scope.

    This subpart sets forth the requirements relating to the following:
    (a) Drug utilization management programs, quality assurance measures 
and systems, and medication therapy management programs (MTMP) for Part 
D sponsors.
    (b) Consumer satisfaction surveys of Part D plans.
    (c) Electronic prescription drug programs for prescribers, 
dispensers, and Part D sponsors.
    (d) Quality improvement organization (QIO) activities.
    (e) Compliance deemed on the basis of accreditation.
    (f) Accreditation organizations.
    (g) Procedures for the approval of accreditation
    organizations as a basis for deeming compliance.

[70 FR 4525, Jan. 28, 2005, as amended at 70 FR 67593, Nov. 7, 2005]



Sec. 423.153  Drug utilization management, quality assurance, and medication therapy management programs (MTMPs).

    (a) General rule. Each Part D sponsor must have established, for 
covered Part D drugs furnished through a Part D plan, a drug utilization 
management program, quality assurance measures and systems, and an MTMP 
as described in paragraphs (b), (c), and (d) of this section.
    (b) Drug utilization management. A Part D sponsor must have 
established a reasonable and appropriate drug utilization management 
program that--
    (1) Includes incentives to reduce costs when medically appropriate;
    (2) Maintains policies and systems to assist in preventing over-
utilization and under-utilization of prescribed medications; and
    (3) Provides CMS with information concerning the procedures and 
performance of its drug utilization management program, according to 
guidelines specified by CMS.
    (c) Quality assurance. A Part D sponsor must have established 
quality assurance measures and systems to reduce medication errors and 
adverse drug interactions and improve medication use that include all of 
the following--
    (1) Representation that network providers are required to comply 
with minimum standards for pharmacy practice as established by the 
States.
    (2) Concurrent drug utilization review systems, policies, and 
procedures designed to ensure that a review of the prescribed drug 
therapy is performed before each prescription is dispensed to an 
enrollee in a sponsor's Part D plan, typically at the point-of-sale or 
point of distribution. The review must include, but not be limited to,
    (i) Screening for potential drug therapy problems due to therapeutic 
duplication.
    (ii) Age/gender-related contraindications.
    (iii) Over-utilization and under-utilization.
    (iv) Drug-drug interactions.
    (v) Incorrect drug dosage or duration of drug therapy. (vi) Drug-
allergy contraindications.
    (vii) Clinical abuse/misuse.
    (3) Retrospective drug utilization review systems, policies, and 
procedures designed to ensure ongoing periodic examination of claims 
data and other records, through computerized drug claims processing and 
information retrieval systems, in order to identify patterns of 
inappropriate or medically unnecessary care among enrollees in a

[[Page 373]]

sponsor's Part D plan, or associated with specific drugs or groups of 
drugs.
    (4) Internal medication error identification and reduction systems.
    (5) Provision of information to CMS regarding its quality assurance 
measures and systems, according to guidelines specified by CMS.
    (d) Medication therapy management program (MTMP)--(1) General rule. 
A Part D sponsor must have established a MTMP that--
    (i) Is designed to ensure that covered Part D drugs prescribed to 
targeted beneficiaries described in paragraph (d)(2) of this section are 
appropriately used to optimize therapeutic outcomes through improved 
medication use;
    (ii) Is designed to reduce the risk of adverse events, including 
adverse drug interactions, for targeted beneficiaries described in 
paragraph (d)(2) of this section;
    (iii) May be furnished by a pharmacist or other qualified provider; 
and
    (iv) May distinguish between services in ambulatory and 
institutional settings.
    (2) Targeted beneficiaries. Targeted beneficiaries for the MTMP 
described in paragraph (d)(1) of this section are enrollees in the 
sponsor's Part D plan who--
    (i) Have multiple chronic diseases;
    (ii) Are taking multiple Part D drugs; and
    (iii) Are likely to incur annual costs for covered Part D drugs that 
exceed a predetermined level as specified by the Secretary.
    (3) Use of experts. The MTMP must be developed in cooperation with 
licensed and practicing pharmacists and physicians.
    (4) Coordination with care management plans. The MTMP must be 
coordinated with any care management plan established for a targeted 
individual under a chronic care improvement program (CCIP) under section 
1807 of the Act. A Part D sponsor must provide drug claims data to CCIPs 
for those beneficiaries that are enrolled in CCIPs in a manner specified 
by CMS.
    (5) Considerations in pharmacy fees. An applicant to become a Part D 
sponsor must--
    (i) Describe in its application how it takes into account the 
resources used and time required to implement the MTMP it chooses to 
adopt in establishing fees for pharmacists or others providing MTMP 
services for covered Part D drugs under a Part D plan.
    (ii) Disclose to CMS upon request the amount of the management and 
dispensing fees and the portion paid for MTMP services to pharmacists 
and others upon request. Reports of these amounts are protected under 
the provisions of section 1927(b)(3)(D) of the Act.
    (6) MTMP reporting. A Part D sponsor must provide CMS with 
information regarding the procedures and performance of its MTMP, 
according to guidelines specified by CMS.
    (e) Exception for private fee-for-service MA plans offering 
qualified prescription drug coverage. In the case of an MA plan 
described in Sec. 422.4(a)(3) of this chapter providing qualified 
prescription drug coverage, the requirements under paragraphs (b) and 
(d) of this section do not apply.



Sec. 423.156  Consumer satisfaction surveys.

    CMS conducts consumer satisfaction surveys of Part D plan enrollees 
similar to the surveys it conducts of MA enrollees under Sec. 422.152 
(b) of this chapter.



Sec. 423.159  Electronic prescription drug program.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Dispenser means a person or other legal entity licensed, registered, 
or otherwise permitted by the jurisdiction in which the person practices 
or the entity is located to provide drug products for human use by 
prescription in the course of professional practice.
    Electronic media has the same meaning given this term in 45 CFR 
160.103.
    E-prescribing means the transmission using electronic media, of 
prescription or prescription-related information between a prescriber, 
dispenser, pharmacy benefit manager, or health plan, either directly or 
through an intermediary, including an e-prescribing network. E-
prescribing includes, but is not limited to, two-way transmissions 
between the point of care and the dispenser.

[[Page 374]]

    Electronic prescription drug program means a program that provides 
for e-prescribing for covered Part D drugs prescribed for Part D 
eligible individuals.
    Prescriber means a physician, dentist, or other person licensed, 
registered, or otherwise permitted by the U.S. or the jurisdiction in 
which he or she practices, to issue prescriptions for drugs for human 
use.
    Prescription-related information means information regarding 
eligibility for drug benefits, medication history, or related health or 
drug information for Part D eligible individuals.
    (b) [Reserved]
    (c) Requirement. Part D sponsors must support and comply with 
electronic prescription standards relating to covered Part D drugs for 
Part D enrollees developed by CMS once final standards are effective.
    (d) Promotion of electronic prescribing by MA-PD plans. An MA 
organization offering an MA-PD plan may provide for a separate or 
differential payment to a participating physician that prescribes 
covered Part D drugs in accordance with electronic prescription 
standards, including initial standards and final standards established 
by CMS once final standards are effective. Any payments must be in 
compliance with applicable Federal and State laws related to fraud and 
abuse, including the physician self-referral prohibition (section 1877 
of the Act) and the Federal anti kickback statute (section 1128B(b) of 
the Act).

[70 FR 4525, Jan. 28, 2005, as amended at 70 FR 67593, Nov. 7, 2005]



Sec. 423.160  Standards for electronic prescribing.

    (a) General rules. (1) Part D sponsors must establish and maintain 
an electronic prescription drug program that complies with the 
applicable standards in paragraph (b) of this section when transmitting, 
directly or through an intermediary, prescriptions and prescription-
related information using electronic media for covered Part D drugs for 
Part D eligible individuals.
    (2) Except as provided in paragraph (a)(3) of this section, 
prescribers and dispensers that transmit, directly or through an 
intermediary, prescriptions and prescription-related information using 
electronic media must comply with the applicable standards in paragraph 
(b) of this section when e-prescribing for covered Part D drugs for Part 
D eligible individuals.
    (3) Exemptions. (i) Entities transmitting prescriptions or 
prescription-related information by means of computer-generated 
facsimile are exempt from the requirement to use the NCPDP SCRIPT 
Standard adopted by this section in transmitting such prescriptions or 
prescription-related information.
    (ii) Entities may use either HL7 messages or the NCPDP SCRIPT 
Standard to transmit prescriptions or prescription-related information 
internally when the sender and the recipient are part of the same legal 
entity. If an entity sends prescriptions outside the entity (for 
example, from an HMO to a non-HMO pharmacy), it must use the adopted 
NCPDP SCRIPT Standard or other applicable adopted standards. Any 
pharmacy within an entity must be able to receive electronic 
prescription transmittals for Medicare beneficiaries from outside the 
entity using the adopted NCPDP SCRIPT Standard. This exemption does not 
supersede any HIPAA requirement that may require the use of a HIPAA 
transaction standard within an organization.
    (iii) Entities transmitting prescriptions or prescription-related 
information where the prescriber is required by law to issue a 
prescription for a patient to a non-prescribing provider (such as a 
nursing facility) that in turn forwards the prescription to a dispenser 
are exempt from the requirement to use the NCPDP SCRIPT Standard adopted 
by this section in transmitting such prescriptions or prescription-
related information.
    (4) In accordance with section 1860D-4(e)(5) of the Act, the 
standards under this paragraph (b) of this section supersede any State 
law or regulation that--
    (i) Is contrary to the standards or restricts the ability to carry 
out Part D of Title XVIII of the Act; and
    (ii) Pertains to the electronic transmission of medication history 
and of information on eligibility, benefits,

[[Page 375]]

and prescriptions with respect to covered Part D drugs under Part D of 
Title XVIII of the Act.
    (b) Standards. (1) Prescription. The National Council for 
Prescription Drug Programs SCRIPT Standard, Implementation Guide, 
Version 5, Release 0, May 12, 2004, or Prescriber/Pharmacist Interface 
SCRIPT Standard, Implementation Guide, Version 8, Release 1, October 
2005, to provide for the communication of a prescription or 
prescription-related information between prescribers and dispensers, for 
the following:
    (i) Get message transaction.
    (ii) Status response transaction.
    (iii) Error response transaction.
    (iv) New prescription transaction.
    (v) Prescription change request transaction.
    (vi) Prescription change response transaction.
    (vii) Refill prescription request transaction.
    (viii) Refill prescription response transaction.
    (ix) Verification transaction.
    (x) Password change transaction.
    (xi) Cancel prescription request transaction.
    (xii) Cancel prescription response transaction.
    (2) Eligibility. (i) The Accredited Standards Committee X12N 270/
271-Health Care Eligibility Benefit Inquiry and Response, Version 4010, 
May 2000, Washington Publishing Company, 004010X092 and Addenda to 
Health Care Eligibility Benefit Inquiry and Response, Version 4010, A1, 
October 2002, Washington Publishing Company, 004010X092A1, for 
transmitting eligibility inquiries and responses between prescribers and 
Part D sponsors.
    (ii) The National Council for Prescription Drug Programs 
Telecommunication Standard Specification, Version 5, Release 1 (Version 
5.1), September 1999, and equivalent NCPDP Batch Standard Batch 
Implementation Guide, Version 1, Release 1 (Version 1.1), January 2000 
supporting Telecommunications Standard Implementation Guide, Version 5, 
Release 1 (Version 5.1), September 1999, for the NCPDP Data Record in 
the Detail Data Record, for transmitting eligibility inquiries and 
responses between dispensers and Part D sponsors.
    (c) Incorporation by reference. The Director of the Federal Register 
approves, in accordance with 5 U.S.C. 552(a) and 1 CFR part 51, the 
incorporation by reference of the National Council for Prescription Drug 
Programs SCRIPT Standard, Implementation Guide, Version 5, Release 0, 
May 12, 2004, excluding the Prescription Fill Status Notification 
Transaction (and its three business cases; Prescription Fill Status 
Notification Transaction--Filled, Prescription Fill Status Notification 
Transaction--Not Filled, and Prescription Fill Status Notification 
Transaction--Partial Fill), Prescriber/Pharmacist Interface SCRIPT 
Standard, Implementation Guide, Version 8, Release 1, October 2005, 
excluding the Prescription Fill Status Notification Transaction (and its 
three business cases; Prescription Fill Status Notification 
Transaction--Filled, Prescription Fill Status Notification Transaction--
Not Filled, and Prescription Fill Status Notification Transaction--
Partial Fill); the Accredited Standards Committee X12N 270/271--Health 
Care Eligibility Benefit Inquiry and Response, Version 4010, May 2000, 
004010X092 and Addenda to Health Care Eligibility Benefit Inquiry and 
Response, Version 4010, October 2002, Washington Publishing Company, 
004010X092A1, and the National Council for Prescription Drug Programs 
Telecommunication Standard Specification, Version 5, Release 1 (Version 
5.1), September 1999, and equivalent NCPDP Batch Standard Batch 
Implementation Guide, Version 1, Release 1 (Version 1.1), January 2000 
supporting Telecommunications Standard Implementation Guide, Version 5, 
Release 1 (Version 5.1), September 1999, for the NCPDP Data Record in 
the Detail Data Record. You may inspect copies of these materials at the 
headquarters of the Centers for Medicare & Medicaid Services (CMS), 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday 
from 8:30 a.m. to 4 p.m. or at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at CMS, call 410-786-0273. For information on the availability 
of this

[[Page 376]]

material at NARA, call 202-741-6030, or go to http://www.archives.gov/
federal--register/code--of--federal--regulations/ibr--locations.html. 
You may obtain a copy of the National Council for Prescription Drug 
Programs SCRIPT Standard, Version 5, Release 0, May 12, 2004 or the 
Prescriber/Pharmacist Interface SCRIPT Standard, Implementation Guide, 
Version 8, Release 1, October 2005, from the National Council for 
Prescription Drug Programs, Incorporated, 9240 E. Raintree Drive, 
Scottsdale, AZ 85260-7518; Telephone (480) 477-1000; and fax (480) 767-
1042 or http://www.ncpdp.org. You may obtain a copy of the Accredited 
Standards Committee X12N 270/271--Health Care Eligibility Benefit 
Inquiry and Response, Version 4010, May 2000, Washington Publishing 
Company, 004010X092 and Addenda to Health Care Eligibility Benefit 
Inquiry and Response, Version 4010, 004010X092A1, October 2002, from the 
Washington Publishing Company,301 West North Bend Way, Suite 107, P.O. 
Box 15388, North Bend, WA 98045; Telephone (425) 831-4999; and fax (425) 
831-3233 or http://www.wpc-edi.com/. You may obtain a copy of the 
National Council for Prescription Drug Programs Telecommunication 
Standard Guide, Version 5, Release 1 (Version 5.1), September 1999, and 
equivalent NCPDP Batch Standard Batch Implementation Guide, Version 1, 
Release 1 (Version 1.1), January 2000 supporting Telecommunications 
Standard Implementation Guide, Version 5, Release 1 (Version 5.1), 
September 1999, for the NCPDP Data Record in the Detail Data Record, 
from the National Council for Prescription Drug Programs, Incorporated, 
9240 E. Raintree Drive, Scottsdale, AZ 85260-7518; Telephone (480) 477-
1000; and FAX (480) 767-1042 or http://www.ncpdp.org.

Authority: Section 1860D-4(e) of the Social Security Act (42 U.S.C. 
1395w-104(e))

[70 FR 67593, Nov. 7, 2005, as amended at 71 FR 36023, June 23, 2006]



Sec. 423.162  Quality improvement organization activities.

    (a) General rule. Quality improvement organizations (QIOs) are 
required to offer providers, practitioners, and Part D sponsors quality 
improvement assistance pertaining to health care services, including 
those related to prescription drug therapy, in accordance with contracts 
established with the Secretary.
    (b) Collection of information. Information collected, acquired, or 
generated by a QIO in the performance of its responsibilities under this 
section is subject to the confidentiality provisions of part 480 of this 
chapter. Part D sponsors are required to provide specified information 
to CMS for distribution to the QIOs as well as directly to QIOs.
    (c) Applicability of QIO confidentiality provisions. The provisions 
of part 480 of this chapter apply to Part D sponsors in the same manner 
as such provisions apply to institutions under part 480 of this chapter.



Sec. 423.165  Compliance deemed on the basis of accreditation.

    (a) General rule. A Part D sponsor is deemed to meet all of the 
requirements of any of the areas described in paragraph (b) of this 
section if--
    (1) The Part D sponsor is fully accredited (and periodically 
reaccredited) for the standards related to the applicable area under 
paragraph (b) of this section by a private, national accreditation 
organization approved by CMS; and
    (2) The accreditation organization uses the standards approved by 
CMS for the purposes of assessing the Part D sponsor's compliance with 
Medicare requirements.
    (b) Deemable requirements. The requirements relating to the 
following areas are deemable:
    (1) Access to covered drugs, as provided under Sec. 423.120 and 
Sec. 423.124.
    (2) Drug utilization management programs, quality assurance measures 
and systems, and MTMPs as provided under Sec. 423.153.
    (3) Privacy, confidentiality, and accuracy of enrollee records, as 
provided under Sec. 423.136.
    (4) A program to protect against fraud, waste and abuse, as 
described in Sec. 423.504(b)(4)(vi)(H).
    (c) Effective date of deemed status. The date the Part D sponsor is 
deemed to meet the applicable requirements is the later of the 
following:
    (1) The date the accreditation organization is approved by CMS.

[[Page 377]]

    (2) The date the Part D sponsor is accredited by the accreditation 
organization.
    (d) Obligations of deemed Part D sponsors. A Part D sponsor deemed 
to meet Medicare requirements must--
    (1) Submit to surveys by CMS to validate its accreditation 
organization's accreditation process; and
    (2) Authorize its accreditation organization to release to CMS a 
copy of its most recent accreditation survey, together with any survey-
related information that CMS may require (including corrective action 
plans and summaries of unmet CMS requirements).
    (e) Removal of deemed status. CMS removes part or all of a Part D 
sponsor's deemed status for any of the following reasons--
    (1) CMS determines, on the basis of its own investigation, that the 
Part D sponsor does not meet the Medicare requirements for which deemed 
status was granted.
    (2) CMS withdraws its approval of the accreditation organization 
that accredited the Part D sponsor.
    (3) The Part D sponsor fails to meet the requirements of paragraph 
(d) of this section.
    (f) Enforcement authority. CMS retains the authority to initiate 
enforcement action against any Part D sponsor that it determines, on the 
basis of its own survey or the results of an accreditation survey, no 
longer meets the Medicare requirements for which deemed status was 
granted.



Sec. 423.168  Accreditation organizations.

    (a) Conditions for approval. CMS may approve an accreditation 
organization for a given standard under this part if the organization 
meets the following conditions:
    (1) In accrediting Part D sponsors and Part D plans, it applies and 
enforces standards that are at least as stringent as Medicare 
requirements for the standard or standards in question.
    (2) It complies with the application and reapplication procedures 
set forth in Sec. 423.171.
    (3) It ensures that--
    (i) Any individual associated with it, who is also associated with 
an entity it accredits, does not influence the accreditation decision 
concerning that entity;
    (ii) The majority of the membership of its governing body is not 
comprised of managed care organizations, Part D sponsors or their 
representatives; and
    (iii) Its governing body has a broad and balanced representation of 
interests and acts without bias.
    (b) Notice and comment--(1) Proposed notice. CMS publishes a notice 
in the Federal Register whenever it is considering granting an 
accreditation organization's application for approval. The notice-
    (i) Announces CMS's receipt of the accreditation organization's 
application for approval;
    (ii) Describes the criteria CMS uses in evaluating the application; 
and
    (iii) Provides at least a 30-day comment period.
    (2) Final notice. (i) After reviewing public comments, CMS publishes 
a final notice in the Federal Register indicating whether it has granted 
the accreditation organization's request for approval.
    (ii) If CMS grants the request, the final notice specifies the 
effective date and the term of the approval that may not exceed 6 years.
    (c) Ongoing responsibilities of an approved accreditation 
organization. An accreditation organization approved by CMS must 
undertake the following activities on an ongoing basis:
    (1) Provide to CMS in written form and on a monthly basis all of the 
following:
    (i) Copies of all accreditation surveys, together with any survey-
related information that CMS may require including corrective action 
plans and summaries of unmet CMS requirements).
    (ii) Notice of all accreditation decisions.
    (iii) Notice of all complaints related to deemed Part D sponsors.
    (iv) Information about any Part D sponsor against which the 
accrediting organization has taken remedial or adverse action, including 
revocation, withdrawal, or revision of the Part D sponsor's 
accreditation. (The accreditation organization must provide this 
information within 30 days of taking the remedial or adverse action.)

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    (v) Notice of any proposed changes in its accreditation standards or 
requirements or survey process. If the organization implements the 
changes before or without CMS approval, CMS may withdraw its approval of 
the accreditation organization.
    (2) Within 30 days of a change in CMS requirements, submit the 
following to CMS--
    (i) An acknowledgment of CMS's notification of the change.
    (ii) A revised crosswalk reflecting the new requirements.
    (iii) An explanation of how the accreditation organization plans to 
alter its standards to conform to CMS's new requirements, within the 
timeframes specified in the notification of change it receives from CMS.
    (3) Permit its surveyors to serve as witnesses if CMS takes an 
adverse action based on accreditation findings.
    (4) Within 3 days of identifying, in an accredited Part D sponsor, a 
deficiency that as determined by the accrediting organization poses 
immediate jeopardy to the plan's enrollees or to the general public, 
give CMS written notice of the deficiency.
    (5) Within 10 days of CMS's notice of withdrawal of approval, give 
written notice of the withdrawal to all accredited Part D sponsors.
    (6) On an annual basis, provide summary data specified by CMS that 
relate to the past year's accreditation activities and trends.
    (d) Continuing Federal oversight of approved accreditation 
organizations. Specific criteria and procedures for continuing oversight 
and for withdrawing approval of an accreditation organization include 
the following:
    (1) Equivalency review. CMS compares the accreditation 
organization's standards and its application and enforcement of those 
standards to the comparable CMS requirements and processes when--
    (i) CMS imposes new requirements or changes its survey process;
    (ii) An accreditation organization proposes to adopt new standards 
or changes in its survey process; or
    (iii) The term of an accreditation organization's approval expires.
    (2) Validation review. CMS or its agent may conduct a survey of an 
accredited organization, examine the results of the accreditation 
organization's own survey, or attend the accreditation organization's 
survey to validate the organization's accreditation process. At the 
conclusion of the review, CMS identifies any accreditation programs for 
which validation survey results indicate--
    (i) A 20 percent rate of disparity between certification by the 
accreditation organization and certification by CMS or its agent on 
standards that do not constitute immediate jeopardy to patient health 
and safety if unmet;
    (ii) Any disparity between certification by the accreditation 
organization and certification by CMS or its agent on standards that 
constitute immediate jeopardy to patient health and safety if unmet; or
    (iii) That, regardless of the rate of disparity, there are 
widespread or systematic problems in an organization's accreditation 
process that accreditation no longer provides assurance that the 
Medicare requirements are met or exceeded.
    (3) Onsite observation. CMS may conduct an onsite inspection of the 
accreditation organization's operations and offices to verify the 
organization's representations and assess the organization's compliance 
with its own policies and procedures. The onsite inspection may include, 
but is not limited to the following:
    (i) Reviewing documents.
    (ii) Auditing meetings concerning the accreditation process.
    (iii) Evaluating survey results or the accreditation status 
decision-making process.
    (iv) Interviewing the organization's staff.
    (4) Notice of intent to withdraw approval. If an equivalency review, 
validation review, onsite observation, or CMS's daily experience with 
the accreditation organization suggests that the accreditation 
organization is not meeting the requirements of this subpart, CMS gives 
the organization written notice of its intent to withdraw approval.
    (5) Withdrawal of approval. CMS may withdraw its approval of an 
accreditation organization at any time if CMS determines that--

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    (i) Deeming, based on accreditation, no longer guarantees that the 
Part D sponsor meets the requirements for offering qualified 
prescription drug coverage, and failure to meet those requirements may 
jeopardize the health or safety of Medicare enrollees and constitute a 
significant hazard to the public health; or
    (ii) The accreditation organization has failed to meet its 
obligations under this section or under Sec. 423.165 or Sec. 423.171.
    (6) Reconsideration of withdrawal of approval. An accreditation 
organization dissatisfied with a determination to withdraw CMS approval 
may request a reconsideration of that determination in accordance with 
subpart D of part 488 of this chapter.



Sec. 423.171  Procedures for approval of accreditation as a basis for deeming compliance.

    (a) Required information and materials. A private, national 
accreditation organization applying for approval must furnish to CMS all 
of the following information and materials (when reapplying for 
approval, the organization need furnish only the particular information 
and materials requested by CMS):
    (1) The types of Part D plans and sponsors that it reviews as part 
of its accreditation process.
    (2) A detailed comparison of the organization's accreditation 
requirements and standards with the Medicare requirements (for example, 
a crosswalk).
    (3) Detailed information about the organization's survey process, 
including the following:
    (i) Frequency of surveys and whether surveys are announced or 
unannounced.
    (ii) Copies of survey forms, and guidelines and instructions to 
surveyors.
    (iii) Descriptions of--
    (A) The survey review process and the accreditation status decision 
making process;
    (B) The procedures used to notify accredited Part D sponsors of 
deficiencies and to monitor the correction of those deficiencies; and
    (C) The procedures used to enforce compliance with accreditation 
requirements.
    (4) Detailed information about the individuals who perform surveys 
for the accreditation organization, including the--
    (i) Size and composition of accreditation survey teams for each type 
of plan reviewed as part of the accreditation process;
    (ii) Education and experience requirements surveyors must meet;
    (iii) Content and frequency of the in-service training provided to 
survey personnel;
    (iv) Evaluation systems used to monitor the performance of 
individual surveyors and survey teams; and
    (v) Organization's policies and practice for the participation, in 
surveys or in the accreditation decision process by an individual who is 
professionally or financially affiliated with the entity being surveyed.
    (5) A description of the organization's data management and analysis 
system for its surveys and accreditation decisions, including the kinds 
of reports, tables, and other displays generated by that system.
    (6) A description of the organization's procedures for responding to 
and investigating complaints against accredited organizations, including 
policies and procedures regarding coordination of these activities with 
appropriate licensing bodies and ombudsmen programs.
    (7) A description of the organization's policies and procedures for 
the withholding or removal of accreditation for failure to meet the 
accreditation organization's standards or requirements, and other 
actions the organization takes in response to noncompliance with its 
standards and requirements.
    (8) A description of all types (for example, full or partial) and 
categories (for example, provisional, conditional, or temporary) of 
accreditation offered by the organization, the duration of each type and 
category of accreditation, and a statement identifying the types and 
categories that serve as a basis for accreditation if CMS approves the 
accreditation organization.
    (9) A list of all currently accredited Part D sponsors and MA 
organizations and the type, category, and expiration date of the 
accreditation held by each of them.

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    (10) A list of all full and partial accreditation surveys scheduled 
to be performed by the accreditation organization as requested by CMS.
    (11) The name and address of each person with an ownership or 
control interest in the accreditation organization.
    (b) Required supporting documentation. A private, national 
accreditation organization applying or reapplying for approval also must 
submit the following supporting documentation--
    (1) A written presentation that demonstrates its ability to furnish 
CMS with electronic data in CMS compatible format.
    (2) A resource analysis that demonstrates that it's staffing, 
funding, and other resources are adequate to perform the required 
surveys and related activities.
    (3) A statement acknowledging that, as a condition for approval, it 
agrees to comply with the ongoing responsibility requirements of Sec. 
423.168(c).
    (c) Additional information. If CMS determines that it needs 
additional information for a determination to grant or deny the 
accreditation organization's request for approval, it notifies the 
organization and allows time for the organization to provide the 
additional information.
    (d) Onsite visit. CMS may visit the accreditation organization's 
offices to verify representations made by the organization in its 
application, including, but not limited to, review of documents and 
interviews with the organization's staff.
    (e) Notice of determination. CMS gives the accreditation 
organization, within 210 days of receipt of its completed application, a 
formal notice that--
    (1) States whether the request for approval is granted or denied;
    (2) Gives the rationale for any denial; and
    (3) Describes the reconsideration and reapplication procedures.
    (f) Withdrawal. An accreditation organization may withdraw its 
application for approval at any time before it receives the formal 
notice specified in paragraph (e) of this section.
    (g) Reconsideration of adverse determination. An accreditation 
organization that has received a notice of denial of its request for 
approval may request a reconsideration in accordance with subpart D of 
part 488 of this chapter.
    (h) Request for approval following denial. (1) Except as provided in 
paragraph (h)(2) of this section, an accreditation organization that has 
received notice of denial of its request for approval may submit a new 
request if it--
    (i) Has revised its accreditation program to correct the 
deficiencies on which the denial was based.
    (ii) Can demonstrate that the Part D sponsors that it has accredited 
meet or exceed applicable Medicare requirements; and
    (iii) Resubmits the application in its entirety.
    (2) An accreditation organization that has requested reconsideration 
of CMS' denial of its request for approval may not submit a new request 
until the reconsideration is administratively final.

Subpart E [Reserved]



  Subpart F_Submission of Bids and Monthly Beneficiary Premiums; Plan 
                                Approval



Sec. 423.251  Scope.

    This section sets forth the requirements and limitations on 
submission, review, negotiation and approval of competitive bids for 
prescription drug plans and MA-PD plans; the calculation of the national 
average bid amount; and the determination of enrollee premiums.



Sec. 423.258  Definitions.

    For the purposes of this subpart, the following definitions apply:
    Full risk plan means a prescription drug plan that is not a limited 
risk plan or a fallback prescription drug plan.
    Limited risk plan means a prescription drug plan that provides basic 
prescription drug coverage and for which the PDP sponsor includes a 
modification of risk level described in Sec. 423.265(d) in its bid 
submitted for the plan. This term does not include a fallback 
prescription drug plan.

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    Standardized bid amount means, for a prescription drug plan that 
provides basic prescription drug coverage, the PDP approved bid; for a 
prescription drug plan that provides supplemental prescription drug 
coverage, the portion of the PDP approved bid that is attributable to 
basic prescription drug coverage; for a MA-PD plan, the portion of the 
accepted bid amount that is attributable to basic prescription drug 
coverage.



Sec. 423.265  Submission of bids and related information.

    (a) Eligibility for bidding. An applicant may submit a bid to become 
a Part D plan sponsor.
    (b) Bid submission. Not later than the first Monday in June, each 
potential Part D sponsor must submit bids and supplemental information 
described in this section for each Part D plan it intends to offer in 
the subsequent calendar year.
    (c) Basic rule for bid. Each potential Part D sponsor must submit a 
bid and supplemental information in a format to be specified by CMS for 
each Part D plan it offers. Each bid must reflect a uniform benefit 
package, including premium (except as provided for the late enrollment 
penalty described in Sec. 423.286(d)(3)) and all applicable cost 
sharing, for all individuals enrolled in the plan. Each bid must reflect 
the applicant's estimate of its average monthly revenue requirements to 
provide qualified prescription drug coverage (including any supplemental 
coverage) for a Part D eligible individual with a national average risk 
profile for the factors described in Sec. 423.329(b)(1).
    (1) Included costs. The bid includes costs (including administrative 
costs and return on investment/profit) for which the plan is responsible 
in providing basic and supplemental benefits.
    (2) Excluded costs. The bid does not include costs associated with 
payments by the enrollee for deductible, co-payments, coinsurance, and 
liability above the plan allowance in the case of out-of-network claims, 
payments projected to be made by CMS for reinsurance, or any other costs 
for which the sponsor is not responsible.
    (3) Actuarial valuation. The bid must be prepared in accordance with 
CMS actuarial guidelines based on generally accepted actuarial 
principles. A qualified actuary must certify the plan's actuarial 
valuation (which may be prepared by others under his or her direction or 
review), and must be a member of the American Academy of Actuaries to be 
deemed qualified. Applicants may use qualified outside actuaries to 
prepare their bids.
    (d) Specific requirements for bids. The bid and supplemental 
information submission must include the following information:
    (1) Coverage. A description of the coverage to be provided under the 
plan, including any supplemental coverage and the deductible and other 
cost sharing.
    (2) Actuarial value of bid components. The applicant must provide 
the following information on bid components, as well as actuarial 
certification that the values are calculated according to CMS guidelines 
on actuarial valuation, including adjustment for the effect that 
providing alternative prescription drug coverage (rather than defined 
standard prescription drug coverage) has on drug utilization, if 
applicable.
    (i) The actuarial value of the qualified prescription drug coverage 
to be offered under each plan for a Part D eligible individual with a 
national average risk profile for the factors described in Sec. 
423.329(b)(1) and the basis for the estimate.
    (ii) The portion of the bid attributable to basic prescription drug 
coverage and the portion (if any) attributable to supplemental benefits.
    (iii) The assumptions regarding reinsurance amounts payable under 
Sec. 423.329(c) used in calculating the bid.
    (iv) The assumptions regarding low-income cost-sharing payable under 
Sec. 423.329(d) used in calculating the bid.
    (v) The amount of administrative costs and return on investment or 
profit included in the bid.
    (3) Service area. A description of the service area of the plan.
    (4) Level of risk assumed. For a potential Part D sponsor, the level 
of risk assumed in the bid specified in paragraph (e) of this section.
    (5) Plan Average Risk Score. An estimate of the plan's average 
prescription drug risk score (as established under Sec. 423.329(b)) for 
all projected enrollees

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for purposes of risk adjusting any supplemental premium.
    (6) Additional information. Additional information CMS requests to 
support bid amounts and facilitate negotiation.
    (e) Special rule for PDP sponsors. Bids for all plans offered by a 
potential PDP sponsor in a region, but not those of potential MA 
organizations offering MA-PD plans, PACE organizations offering PACE 
plans including qualified prescription drug coverage, and cost-based 
HMOs or CMPs offering section 1876 cost plans including qualified 
prescription drug coverage, may include a uniform modification of the 
amount of risk assumed (based on a process to be specified) as described 
in one or more of the following paragraphs. Any such modification 
applies to all plans offered by the PDP sponsor in a PDP region.
    (1) Increase in Federal percentage assumed in initial risk corridor. 
An equal percentage point increase in the percents applied for costs 
between the first and second threshold limits under Sec. 
423.336(b)(2)(i) and (b)(2)(ii)(A) and Sec. 423.336 (b)(3)(i) and 
(b)(3)(ii)(A). This provision does not affect the application of a 
higher percentage for plans in 2006 or 2007 under Sec. 
423.336(b)(2)(iii).
    (2) Increase in Federal percentage assumed in second risk corridor. 
An equal percentage point increase in the percents applied for costs 
above the second threshold upper limit or below the second threshold 
upper limit under paragraphs Sec. 423.336(b)(2)(ii)(B) and 
(b)(3)(ii)(B).
    (3) Decrease in size of risk corridors. A decrease in the size of 
the risk corridors by means of reductions in the threshold risk 
percentages specified in Sec. 423.336(a)(2)(ii)(A) and/or 
(a)(2)(ii)(B).
    (f) Special rule for fallback prescription drug plans. Fallback 
prescription drug plan bids are not subject to the rules in this 
section. They must follow requirements specified in Sec. 423.863.



Sec. 423.272  Review and negotiation of bid and approval of plans submitted by potential Part D sponsors.

    (a) Review and negotiation regarding information, terms and 
conditions. CMS reviews the information filed under Sec. 423.265(c) in 
order to conduct negotiations regarding the terms and conditions of the 
proposed bid and benefit plan. In addition to its general negotiating 
authority under section 1860D-11(d)(2)(A) of the Act, CMS has authority 
similar to that of the Director of the Office of Personnel Management 
for health benefit plans under Chapter 89 of title 5, U.S.C.
    (b) Approval of proposed plans. CMS approves the Part D plan only if 
the plan and the Part D sponsor offering the plan comply with all 
applicable CMS Part D requirements, including those related to the 
provision of qualified prescription drug coverage and actuarial 
determinations.
    (1) Application of revenue requirements standard. CMS approves a bid 
submitted under Sec. 423.265 only if it determines that the portions of 
the bid attributable to basic and supplemental prescription drug 
coverage are supported by the actuarial bases provided and reasonably 
and equitably reflect the revenue requirements (as used for purposes of 
section 1302(8)(C) of the Public Health Service Act) for benefits 
provided under that plan, less the sum (determined on a monthly per 
capita basis) of the actuarial value of the reinsurance payments under 
section Sec. 423.329(c).
    (2) Plan design. (i) CMS does not approve a bid if it finds that the 
design of the plan and its benefits (including any formulary and tiered 
formulary structure) or its utilization management program are likely to 
substantially discourage enrollment by certain Part D eligible 
individuals under the plan.
    (ii) If the design of the categories and classes within a formulary 
is consistent with the model guidelines (if any) established by the 
United States Pharmacopeia, the formulary categories and classes alone 
will not be found to discourage enrollment.
    (iii) A plan that adopts the categories and classes discussed in 
paragraph (b)(2)(ii) of this section may nevertheless be found to 
discourage enrollment because it excludes specific drugs from the 
formulary.
    (c) Limited risk plans. (1) Application of limited risk plans. There 
is no limit on the number of full risk plans that CMS approves under 
paragraph (b) of this section. CMS approves a limited

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risk plan in accordance with paragraphs (c)(2) and (c)(3) of this 
section only if the access requirements under Sec. 423.859 are not 
otherwise met for a PDP region.
    (2) Maximizing assumption of risk. CMS gives priority in approval 
for those limited risk plans bearing the highest level of risk, but may 
take into account the level of the bids submitted by the plans and is 
not required to accept the limited risk plan with the highest assumption 
of risk. In no case does CMS approve a limited risk plan under which the 
modification of risk level provides for no (or a minimal) level of 
financial risk.
    (3) Limited exercise of authority. CMS approves only the minimum 
number of limited risk plans needed to meet the access requirements.
    (d) Special rules for private fee-for-service (PFFS) plans that 
offer prescription drug coverage. PFFS plans (as defined at Sec. 
422.4(a)(3)) choosing to offer prescription drug coverage are subject to 
all MA-PD bid submission and approval requirements applicable to MA-PD 
plans with the following exceptions:
    (1) Exemption from negotiations. These plans are exempt from the 
review and negotiation process in paragraph (a) of this section, and are 
not held to the revenue requirements standard in paragraph (b)(1) of 
this section.
    (2) Requirements regarding negotiated prices. These plans are not 
required to provide access to negotiated prices. However, if they do, 
they must meet the applicable requirements of Sec. 423.104(h).
    (3) Modification of pharmacy access standard and disclosure 
requirement. If the plan provides coverage for drugs purchased from all 
pharmacies, without charging additional cost sharing and without regard 
to whether they are network pharmacies, Sec. 423.120(a) and Sec. 
423.132 requiring certain network access standards and the disclosure of 
the availability of lower cost bioequivalent generic drugs does not 
apply to the plan.
    (e) Special rule for plans with standardized bids sufficiently below 
the national average monthly bid to result in a negative premium. In the 
event of a negative premium, as described in Sec. 423.286(d)(1), CMS 
negotiates the incorporation of the negative premium amount into the bid 
as either a reduction in the supplemental premium if the Part D plan 
already submitted a bid with an enhanced alternative benefit, or CMS 
requires the addition of new enhanced alternative benefit of no less 
value than the amount of the negative premium.



Sec. 423.279  National average monthly bid amount.

    (a) Bids included. For each year (beginning with 2006) CMS computes 
a national average monthly bid amount from approved bids submitted under 
Sec. 423.265 in order to calculate the base beneficiary premium, as 
provided in Sec. 423.286(c). The national average monthly bid amount is 
equal to a weighted average of the standardized bid amounts for each 
prescription drug plan (not including fallbacks) and for each MA-PD plan 
described in section 1851(a)(2)(A)(i) of the Act. The calculation does 
not include bids submitted by MSA plans, MA private fee-for-service 
plans, specialized MA plans for special needs individuals, PACE programs 
under section 1894, and contracts under reasonable cost reimbursement 
contracts under section 1876(h) of the Act.
    (b) Calculation of weighted average. (1) The national average 
monthly bid amount is a weighted average, with the weight for each plan 
equal to a percentage with the numerator equal to the number of Part D 
eligible individuals enrolled in the plan in the reference month (as 
defined in Sec. 422.258(c)(1) of this chapter) and the denominator 
equal to the total number of Part D eligible individuals enrolled in a 
reference month in all Part D plans except MSA plans, fallbacks, MA 
private fee-for-service plans, specialized MA plans for special needs 
individuals, PACE programs under section 1894, and contracts under 
reasonable cost reimbursement contracts under section 1876(h) of the 
Act.
    (2) For purposes of calculating the monthly national average monthly 
bid amount for 2006, CMS assigns equal weighting to PDP sponsors (other 
than fallback entities) and assigns MA-PD plans included in the national 
average bid a weight based on prior enrollment (new MA-PD plans are 
assigned zero weight).

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    (c) Geographic adjustment. (1) Upon the development of an 
appropriate methodology, the national average monthly bid amount for 
Part D plans will be adjusted to take into account differences in prices 
for Part D drugs among PDP regions.
    (2) CMS does not apply any geographic adjustments if CMS determines 
that price variations among PDP regions are negligible.
    (3) CMS applies any geographic adjustment in a budget neutral manner 
so as to not result in a change in the aggregate payments that may have 
been made if CMS had not applied an adjustment.
    (4) CMS does not apply any geographic adjustment until an 
appropriate methodology is developed.



Sec. 423.286  Rules regarding premiums.

    (a) General rule. Except as provided in paragraphs (d)(3) and (e) of 
this section, and with regard to employer group waivers, the monthly 
beneficiary premium for a Part D plan in a PDP region is the same for 
all Part D eligible individuals enrolled in the plan. The monthly 
beneficiary premium for a Part D plan is the base beneficiary premium, 
as determined in paragraph (c) of this section, adjusted as described in 
paragraph (d) of this section for the difference between the bid and the 
national average monthly bid amount, any supplemental benefits and for 
any late enrollment penalties.
    (b) Beneficiary premium percentage. The beneficiary premium 
percentage for any year is a fraction, the--
    (1) Numerator of which is 25.5 percent; and
    (2) Denominator of which is as follows:
    (i) 100 percent minus the percentage established in paragraph 
(b)(2)(ii) of this section.
    (ii) The percentage established in this paragraph equals:
    (A) The total reinsurance payments that CMS estimates will be paid 
under Sec. 423.329(c) for the coverage year; divided by--
    (B) The amount estimated under paragraph (b)(2)(ii)(A) of this 
section for the year plus total payments that CMS estimates will be paid 
to Part D plans that are attributable to the standardized bid amount 
during the year, taking into account amounts paid by both CMS and 
enrollees.
    (c) Base beneficiary premium. The base beneficiary premium for a 
Part D plan for a month is equal to the product of the--
    (1) Beneficiary premium percentage as specified in paragraph (b) of 
this section; and
    (2) National average monthly bid amount (computed under Sec. 
423.279) for the month.
    (d) Adjustments to base beneficiary premium. The base beneficiary 
premium may be adjusted to reflect any of the following scenarios, if 
applicable.
    (1) Adjustment to reflect difference between bid and national 
average bid. If the amount of the standardized bid amount exceeds the 
adjusted national average monthly bid amount, the monthly base 
beneficiary premium is increased by the amount of the excess. If the 
amount of the adjusted national average monthly bid amount exceeds the 
standardized bid amount, the monthly base beneficiary premium is 
decreased by the amount of the excess. If the amount of the adjusted 
national average monthly bid amount exceeds the standardized bid amount 
by an amount greater than the base beneficiary premium and results in a 
negative premium, then the beneficiary premium is zero, and the excess 
amount is applied to supplemental Part D benefits as described in Sec. 
423.272(e).
    (2) Increase for supplemental prescription drug benefits. The 
portion of the Part D plan approved bid that is attributable to 
supplemental prescription drug benefits increases the beneficiary 
premium. This supplemental portion of the bid may be adjusted to reflect 
the average risk of enrollees in the plan as determined based on 
negotiations between CMS and the Part D sponsor offering the plan.
    (3) Increase for late enrollment penalty. The base beneficiary 
premium for a Part D enrollee subject to the late enrollment penalty is 
increased by the amount of any late enrollment penalty.
    (i) Late enrollment penalty amount. The penalty amount for a Part D 
eligible individual for a continuous period of eligibility (as provided 
in Sec. 423.46(a)) is the greater of--

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    (A) An amount that CMS determines is actuarially sound for each 
uncovered month in the same continuous period of eligibility; or
    (B) 1 percent of the base beneficiary premium (computed under 
paragraph (c) of this section) for each uncovered month in the period.
    (ii) Special rule for 2006 and 2007. In 2006 and 2007 the penalty 
amount discussed in paragraph (d)(3) of this chapter equals the amount 
referenced in paragraph (d)(3)(i)(B) of this section unless another 
amount is specified in a separate issuance based on available analysis 
or other information as determined by the Secretary.
    (e) Decrease in monthly beneficiary premium for low-income 
assistance. The monthly beneficiary premium may be eliminated or 
decreased in the case of a subsidy-eligible individual under Sec. 
423.780.
    (f) Special rules for fallback prescription drug plans. The monthly 
beneficiary premium charged under a fallback prescription drug plan is 
calculated under Sec. 423.867(a) and not under this section, except 
that enrollees in fallback prescription drug plans are subject to late 
enrollment penalties under paragraph (d)(3) of this section and fallback 
prescription drug plan premiums are reduced or eliminated in the case of 
a subsidy-eligible individual, as described in paragraph (e) of this 
section.



Sec. 423.293  Collection of monthly beneficiary premium.

    (a) General rule. Part D sponsors must charge enrollees a 
consolidated monthly Part D premium equal to the sum of the Part D 
monthly premium for basic prescription drug coverage (if any) and the 
premium for supplemental coverage (if any and if the beneficiary has 
enrolled in such supplemental coverage). Part D sponsors must also 
permit each enrollee, at the enrollee's option, to make payment of 
premiums (if any) under this part to the sponsor using any of the 
methods listed in Sec. 422.262(f) of this chapter.
    (b) Crediting of late enrollment penalty. CMS estimates and 
specifies the portion of the late enrollment penalty imposed under Sec. 
423.286(d)(3) attributable to increased actuarial costs assumed by the 
Part D sponsor and not taken into account through risk adjustment 
provided under Sec. 423.329(b)(1) or through reinsurance payments under 
Sec. 423.329(c)) as a result of the late enrollment.
    (c) Collection of late enrollment penalty--(1) Collection through 
withholding. In the case of a late enrollment penalty that is collected 
by the government from a Part D eligible individual in the manner 
described in Sec. 422.262(f)(1) of this chapter, CMS pays only the 
portion of the late enrollment penalty described in paragraph (b) of 
this section to the Part D sponsor offering the Part D plan in which the 
individual is enrolled.
    (2) Collection by plan. In the case of a late enrollment penalty 
collected from a Part D eligible individual in a manner other than the 
manner described in Sec. 422.262(f)(1) of this chapter, CMS reduces 
payments otherwise made to the Part D plan by an amount equal to the 
portion of the late enrollment penalty.
    (d) Special rule for fallback plans. This section does not apply to 
fallback prescription drug plans. The fallback plans follow the 
requirements set forth in Sec. 423.867(b).



 Subpart G_Payments to Part D Plan Sponsors For Qualified Prescription 
                              Drug Coverage



Sec. 423.301  Scope.

    This subpart sets forth rules for the calculation and payment of CMS 
direct and reinsurance subsidies for Part D plans; the application of 
risk corridors and risk-sharing adjustments to payments; and retroactive 
adjustments and reconciliations to actual enrollment and interim 
payments. This subpart does not apply to fallback entities or fallback 
prescription drug plans.



Sec. 423.308  Definitions and terminology.

    For the purposes of this subpart, the following definitions apply-
    Actually paid means that the costs must be actually incurred by the 
Part D sponsor and must be net of any direct or indirect remuneration 
(including discounts, chargebacks or rebates, cash discounts, free goods 
contingent on a purchase agreement, up-front payments, coupons, goods in 
kind, free or reduced-price services, grants, or other

[[Page 386]]

price concessions or similar benefits offered to some or all purchasers) 
from any source (including manufacturers, pharmacies, enrollees, or any 
other person) that would serve to decrease the costs incurred by the 
Part D sponsor for the drug.
    Allowable reinsurance costs means the subset of gross covered 
prescription drug costs actually paid that are attributable to basic 
prescription drug coverage for covered Part D drugs only and that are 
actually paid by the Part D sponsor or by (or on behalf of) an enrollee 
under the Part D plan. The costs for any Part D plan offering enhanced 
alternative coverage must be adjusted not only to exclude any costs 
attributable to benefits beyond basic prescription drug coverage, but 
also to exclude any costs determined to be attributable to increased 
utilization over the standard prescription drug coverage as the result 
of the insurance effect of enhanced alternative coverage in accordance 
with CMS guidelines on actuarial valuation.
    Allowable risk corridor costs means the subset of actually paid 
costs for covered Part D drugs (not including administrative costs, but 
including dispensing fees) that are attributable to basic prescription 
drug coverage only and that are incurred and actually paid by the Part D 
sponsor under the Part D plan. Costs must be based upon imposition of 
the maximum amount of copayments permitted under Sec. 423.782. The 
costs for any Part D plan offering enhanced alternative coverage must be 
adjusted not only to exclude any costs attributable to benefits beyond 
basic prescription drug coverage, but also to exclude any prescription 
drug coverage costs determined to be attributable to increased 
utilization over standard prescription drug coverage as the result of 
the insurance effect of enhanced alternative coverage in accordance with 
CMS guidelines on actuarial valuation.
    Coverage year means a calendar year in which covered Part D drugs 
are dispensed if the claim for those drugs (and payment on the claim) is 
made not later than 3 months after the end of the year
    Gross covered prescription drug costs means those actually paid 
costs incurred under a Part D plan, excluding administrative costs, but 
including dispensing fees during the coverage year and costs relating to 
the deductible. They equal-
    (1) All reimbursement paid by a Part D sponsor to a pharmacy (or 
other intermediary) or to indemnify an enrollee when the reimbursement 
is associated with an enrollee obtaining drugs under the Part D plan; 
plus
    (2) All amounts paid under the Part D plan by or on behalf of an 
enrollee (such as the deductible, coinsurance, cost-sharing, or amounts 
between the initial coverage limit and the out-of-pocket threshold) in 
order to obtain drugs covered under the Part D plan. These costs are 
determined regardless of whether the coverage under the plan exceeds 
basic prescription drug coverage.
    Target amount for any Part D plan equals the total amount of 
payments (from both CMS and by or on behalf of enrollees) to that plan 
for the coverage year for all standardized bid amounts as risk adjusted 
under Sec. 423.329(b)(1), less the administrative expenses (including 
return on investment) assumed in the standardized bids.



Sec. 423.315  General payment provisions.

    (a) Source of payments. CMS payments under this section are made 
from the Medicare Prescription Drug Account.
    (b) Monthly payments. CMS provides a direct subsidy in the form of 
advance monthly payments equal to the Part D plan's standardized bid, 
risk adjusted for health status as provided in Sec. 423.329(b), minus 
the monthly beneficiary premium as determined in Sec. 423.286.
    (c) Reinsurance subsidies. CMS provides reinsurance subsidy payments 
described in Sec. 423.329(c) on a monthly basis during a year based on 
either estimated or incurred allowable reinsurance costs as provided 
under Sec. 423.329(c)(2)(i), and final reconciliation to actual 
allowable reinsurance costs as provided in Sec. 423.343(c).
    (d) Low-income subsidies. CMS makes payments for premium and cost 
sharing subsidies, including additional coverage above the initial 
coverage limit, on behalf of certain subsidy-eligible individuals as 
provided in Sec. 423.780 and Sec. 423.782. CMS provides low-income

[[Page 387]]

cost-sharing subsidy payments described in Sec. 423.782 through interim 
payments of amounts as provided under Sec. 423.329(d)(2)(i) and 
reconciliation to actual allowable reinsurance costs as provided in 
Sec. 423.343(d).
    (e) Risk-sharing arrangements. CMS may issue lump-sum payments or 
adjust monthly payments in the following payment year based on the 
relationship of the Part D plan's adjusted allowable risk corridor costs 
to predetermined risk corridor thresholds in the coverage year as 
provided in Sec. 423.336.
    (f) Retroactive adjustments and reconciliations. CMS reconciles 
payment year disbursements with updated enrollment and health status 
data, actual low-income cost-sharing costs and actual allowable 
reinsurance costs as provided in Sec. 423.343.
    (g) Special rules for private fee-for-service plans--(1) Application 
of reinsurance. For private fee-for-service plans (as defined by Sec. 
422.4(a)(3) of this chapter) offering qualified prescription drug 
coverage, CMS determines the amount of reinsurance payments as provided 
under Sec. 423.329(c)(3).
    (2) Exemption from risk corridor provisions. The provisions of Sec. 
423.336 regarding risk sharing do not apply.



Sec. 423.322  Requirement for disclosure of information.

    (a) Payment conditional upon provision of information. Payments to a 
Part D sponsor are conditioned upon provision of information to CMS that 
is necessary to carry out this subpart, or as required by law.
    (b) Restriction on use of information. Officers, employees and 
contractors of the Department of Health and Human Services may use the 
information disclosed or obtained in accordance with the provisions of 
this subpart only for the purposes of, and to the extent necessary in, 
carrying out this subpart including, but not limited to, determination 
of payments and payment-related oversight and program integrity 
activities. This restriction does not limit OIG's authority to fulfill 
the Inspector General's responsibilities in accordance with applicable 
Federal law.



Sec. 423.329  Determination of payments.

    (a) Subsidy payments--(1) Direct subsidy. CMS makes a direct subsidy 
payment for each Part D eligible beneficiary enrolled in a Part D plan 
for a month equal to the amount of the plan's approved standardized bid, 
adjusted for health status (as determined under Sec. 423.329(b)(1)), 
and reduced by the base beneficiary premium for the plan (as determined 
under Sec. 423.286(c) and adjusted in Sec. 423.286(d)(1)). The direct 
subsidy payment may be increased by the excess amount of a negative 
premium as described in Sec. 423.286(d)(1), if applicable.
    (2) Subsidy through reinsurance. CMS makes reinsurance subsidy 
payments as provided under paragraph (c) of this section.
    (3) Low-income cost-sharing subsidy. CMS makes low-income cost-
sharing subsidy payments as provided under paragraph (d) of this 
section.
    (b) Health status risk adjustment--(1) Establishment of risk 
factors. CMS establishes an appropriate methodology for adjusting the 
standardized bid amount to take into account variation in costs for 
basic prescription drug coverage among Part D plans based on the 
differences in actuarial risk of different enrollees being served. Any 
risk adjustment is designed in a manner so as to be budget neutral in 
the aggregate to the risk of the Part D eligible individuals who enroll 
in Part D plans.
    (2) Considerations. In establishing the methodology under paragraph 
(b)(1) of this section, CMS takes into account the similar methodologies 
used under Sec. 422.308(c) of this chapter to adjust payments to MA 
organizations for benefits under the original Medicare fee-for-service 
program option.
    (3) Data collection. In order to carry out this paragraph, CMS 
requires--
    (i) PDP sponsors to submit data regarding drug claims that can be 
linked at the individual level to Part A and Part B data in a form and 
manner similar to the process provided under Sec. 422.310 of this 
chapter and other information as CMS determines necessary; and
    (ii) MA organizations that offer MA-PD plans to submit data 
regarding drug claims that can be linked at the individual level to 
other data that the

[[Page 388]]

organizations are required to submit to CMS in a form and manner similar 
to the process provided under Sec. 422.310 of this chapter and other 
information as CMS determines necessary.
    (4) Publication. At the time of publication of risk adjustment 
factors under Sec. 422.312(a)(1)(ii) of this chapter, CMS publishes the 
risk adjusters established under this paragraph of this section for the 
upcoming calendar year.
    (c) Reinsurance payment amount--(1) General rule. The reinsurance 
payment amount for a Part D eligible individual enrolled in a Part D 
plan for a coverage year is an amount equal to 80 percent of the 
allowable reinsurance costs attributable to that portion of gross 
covered prescription drug costs incurred in the coverage year after the 
individual has incurred true out-of-pocket costs that exceed the annual 
out-of-pocket threshold specified in Sec. 423.104(d)(5)(iii).
    (2) Payment method. Payments under this section are based on a 
method that CMS determines.
    (i) Payments during the coverage year. CMS establishes a payment 
method by which payments of amounts
    under this section are made on a monthly basis during a year based 
on either estimated or incurred allowable reinsurance costs.
    (ii) Final payments. CMS reconciles the payments made during the 
coverage year to final actual allowable reinsurance costs as provided in 
Sec. 423.343(c).
    (3) Special rules for private fee-for-service Plans offering 
prescription drug coverage. CMS determines the amount of reinsurance 
payments for private fee-for-service plans as defined by Sec. 
422.4(a)(3) of this chapter offering qualified prescription drug 
coverage using a methodology that--
    (i) Bases the amount on CMS' estimate of the amount of the payments 
that are payable if the plan were an MA-PD plan described in section 
1851(a)(2)(A)(i) of the Act; and
    (ii) Takes into account the average reinsurance payments made under 
Sec. 423.329(c) for populations of similar risk under MA-PD plans 
described in section 1851(a)(2)(A)(i) of the Act.
    (d) Low-income cost sharing subsidy payment amount--(1) General 
rule. The low-income cost-sharing subsidy payment amount on behalf of a 
low-income subsidy eligible individual enrolled in a Part D plan for a 
coverage year is the amount described in Sec. 423.782.
    (2) Payment method. Payments under this section are based on a 
method that CMS determines.
    (i) Interim payments. CMS establishes a payment method by which 
interim payments of amounts under this section are made during a year 
based on the low-income cost-sharing assumptions submitted with plan 
bids under Sec. 423.265(d)(2)(iv) and negotiated and approved under 
Sec. 423.272.
    (ii) Final payments. CMS reconciles the interim payments to actual 
incurred low-income cost-sharing costs as provided in Sec. 423.343(d).



Sec. 423.336  Risk-sharing arrangements.

    (a) Portion of total payments to a Part D sponsor subject to risk--
(1) Adjusted allowable risk corridor costs. For purposes of this 
paragraph, the term adjusted allowable risk corridor costs means--
    (i) The allowable risk corridor costs for the Part D plan for the 
coverage year, reduced by--
    (ii) The sum of--
    (A) The total reinsurance payments made under Sec. 423.329(c) to 
the Part D sponsor of the Part D plan for the year; and
    (B) The total non-premium subsidy payments made under Sec. 423.782 
to the Part D sponsor of the Part D plan for the coverage year.
    (2) Establishment of risk corridors. (i) Risk corridors. For each 
year, CMS establishes a risk corridor for each Part D plan. The risk 
corridor for a plan for a coverage year is equal to a range as follows:
    (A) First threshold lower limit. The first threshold lower limit of 
the corridor is equal to--
    (1) The target amount for the plan; minus
    (2) An amount equal to the first threshold risk percentage for the 
plan (as determined under paragraph (a)(2)(ii)(A) of this section) of 
the target amount.
    (B) Second threshold lower limit. The second threshold lower limit 
of the corridor is equal to--
    (1) The target amount for the plan; minus

[[Page 389]]

    (2) An amount equal to the second threshold risk percentage for the 
plan (as determined under paragraph (a)(2)(ii)(B) of this section) of 
the target amount.
    (C) First threshold upper limit. The first threshold upper limit of 
the corridor is equal to the sum of--
    (1) The target amount; and
    (2) An amount equal to the first threshold risk percentage for the 
plan (as determined under paragraph (a)(2)(ii)(A) of this section) of 
the target amount.
    (D) Second threshold upper limit. The second threshold upper limit 
of the corridor is equal to the sum of--
    (1) The target amount; and
    (2) An amount equal to the second threshold risk percentage for the 
plan (as determined under paragraph (a)(2)(ii)(B) of this section) of 
the target amount.
    (ii) First and second threshold risk percentage defined. (A) First 
threshold risk percentage. Subject to paragraph (a)(2)(iii) of this 
section, the first threshold risk percentage is for--
    (1) 2006 and 2007, 2.5 percent;
    (2) 2008 through 2011, 5 percent; and
    (3) 2012 and subsequent years, a percentage CMS establishes, but in 
no case less than 5 percent.
    (B) Second threshold risk percentage. Subject to paragraph 
(a)(2)(iii) of this section, the second threshold risk percentage is 
for--
    (1) 2006 and 2007, 5.0 percent;
    (2) 2008 through 2011, 10 percent
    (3) 2012 and subsequent years, a percentage CMS establishes that is 
greater than the percent established for the year under paragraph 
(a)(2)(ii)(A)(3) of this section, but in no case less than 10 percent.
    (iii) Reduction of risk percentage to ensure two Plans in an area. 
In accordance with Sec. 423.265(e), a PDP sponsor may submit a bid that 
requests a decrease in the applicable first or second threshold risk 
percentages or an increase in the percents applied under paragraph (b) 
of this section. Only a PDP sponsor may request a reduction of risk 
under this paragraph. An MA organization offering an MA-PD plan, a PACE 
program offering qualified prescription drug coverage, and a cost-based 
HMO or CMP offering qualified prescription drug coverage may not request 
a reduction of risk under this paragraph.
    (3) Plans at risk for entire amount of supplemental prescription 
drug coverage. A Part D sponsor that offers a Part D plan that provides 
supplemental prescription drug benefits is at full financial risk for 
the provision of the supplemental benefits.
    (b) Payment adjustments--(1) No adjustment if adjusted allowable 
risk corridor costs within risk corridor. If the adjusted allowable risk 
corridor costs for the Part D plan for the coverage year are at least 
equal to the first threshold lower limit of the risk corridor (specified 
in paragraph (a)(2)(i)(A) of this section) but not greater than the 
first threshold upper limit of the risk corridor (specified in paragraph 
(a)(2)(i)(C) of this section) for the Part D plan for the coverage year, 
CMS makes no payment adjustment.
    (2) Increase in payment if adjusted allowable risk corridor costs 
above upper limit of risk corridor--(i) Costs between first and second 
threshold upper limits. If the adjusted allowable risk corridor costs 
for the Part D plan for the year are greater than the first threshold 
upper limit, but not greater than the second threshold upper limit, of 
the risk corridor for the Part D plan for the year, CMS increases the 
total of the payments made to the Part D sponsor offering the Part D 
plan for the year under this section by an amount equal to 50 percent 
(or, for 2006 and 2007, 75 percent or 90 percent if the conditions 
described in paragraph (b)(2)(iii) of this section are met for the year) 
of the difference between the adjusted allowable risk corridor costs and 
the first threshold upper limit of the risk corridor.
    (ii) Costs above second threshold upper limits. If the adjusted 
allowable risk corridor costs for the Part D plan for the year are 
greater than the second threshold upper limit of the risk corridor for 
the Part D plan for the year, CMS increases the total of the payments 
made to the Part D sponsor offering the Part D plan for the year under 
this section by an amount equal to the sum of--
    (A) 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if 
the conditions specified in paragraph (b)(2)(iii) of this

[[Page 390]]

section are met for the year) of the difference between the second 
threshold upper limit and the first threshold upper limit; and
    (B) 80 percent of the difference between the adjusted allowable risk 
corridor costs and the second threshold upper limit of the risk 
corridor.
    (iii) Conditions for application of higher percentage for 2006 and 
2007. The conditions specified in this paragraph are met for 2006 or 
2007 if CMS determines for the year that--
    (A) At least 60 percent of Part D plans to which this paragraph 
applies have adjusted allowable risk corridor costs for the Part D plan 
for the year that are more than the first threshold upper limit of the 
risk corridor for the Part D plan for the year; and
    (B) Such plans represent at least 60 percent of Part D eligible 
individuals enrolled in any Part D plan.
    (3) Reduction in payment if adjusted allowable risk corridor costs 
below lower limit of risk corridor--(i) Costs between first and second 
threshold lower limits. If the adjusted allowable risk corridor costs 
for the Part D plan for the coverage year are less than the first 
threshold lower limit, but not less than the second threshold lower 
limit, of the risk corridor for the Part D plan for the coverage year, 
CMS reduces the total of the payments made to the Part D plan for the 
coverage year under this section by an amount (or otherwise recovers 
from the Part D sponsor an amount) equal to 50 percent (or, for 2006 and 
2007, 75 percent) of the difference between the first threshold lower 
limit of the risk corridor and the adjusted allowable risk corridor 
costs.
    (ii) Costs below second threshold lower limit. If the adjusted 
allowable risk corridor costs for the Part D plan for the coverage year 
are less the second threshold lower limit of the risk corridor for the 
Part D plan for the coverage year, CMS reduces the total of the payments 
made to the Part D sponsor for the coverage year under this section by 
an amount (or otherwise recovers from the Part D sponsor an amount) 
equal to the sum of--
    (A) 50 percent (or, for 2006 and 2007, 75 percent) of the difference 
between the first threshold lower limit and the second threshold lower 
limit; and
    (B) 80 percent of the difference between the second threshold upper 
limit of the risk corridor and the adjusted allowable risk corridor 
costs.
    (c) Payment methods. CMS makes payments after a coverage year after 
obtaining all of the cost data information in paragraph (c)(1) of this 
section necessary to determine the amount of payment. CMS will not make 
payments under this section if the Part D sponsor fails to provide the 
cost data information in paragraph (c)(1) of this section.
    (1) Submission of cost data. Within 6 months of the end of a 
coverage year, the Part D sponsor must provide the information that CMS 
requires.
    (2) Lump sum and adjusted monthly payments. CMS at its discretion 
makes either lump-sum payments or adjusts monthly payments in the 
following payment year based on the relationship of the plan's adjusted 
allowable risk corridor costs to the predetermined risk corridor 
thresholds in the coverage year, as determined under this section.
    (d) No effect on monthly premium. No adjustment in payments made by 
reason of this section may affect the monthly beneficiary premium for 
qualified prescription drug coverage.



Sec. 423.343  Retroactive adjustments and reconciliations.

    (a) Application of enrollee adjustment. The provisions of Sec. 
422.308(f) of this chapter apply to payments to Part D sponsors under 
this section in the same manner as they apply to payments to MA 
organizations under section 1853(a) of the Act.
    (b) Health status. CMS makes adjustments to payments made under 
Sec. 423.329(a)(1) to account for updated health status risk adjustment 
data as provided under Sec. 422.310(g)(2) of this chapter. CMS may 
recover payments associated with health status adjustments if the Part D 
sponsor fails to provide the information described in Sec. 
423.329(b)(3).
    (c) Reinsurance. CMS makes final payment for reinsurance after a 
coverage year after obtaining all of the information necessary to 
determine the amount of payment.
    (1) Submission of cost data. Within 6 months of the end of a 
coverage year,

[[Page 391]]

the Part D sponsor must provide the information that CMS requires.
    (2) Payments. CMS at its discretion either makes lump-sum payments 
or adjusts monthly payments throughout the remainder of the payment year 
following the coverage year based on the difference between monthly 
reinsurance payments made during the coverage year and the amount 
payable in Sec. 423.329(c) for the coverage year. CMS may recover 
payments made through a lump sum recovery or by adjusting monthly 
payments throughout the remainder of the coverage year if the monthly 
reinsurance payments made during the coverage year exceed the amount 
payable under Sec. 423.329(c) or if the Part D sponsor does not provide 
the data in paragraph (c)(1) of this section.
    (d) Low-income cost-sharing subsidy. CMS makes final payment for 
low-income cost-sharing subsidies after a coverage year after obtaining 
all of the information necessary to determine the amount of payment.
    (1) Submission of cost data. Within 6 months of the end of a 
coverage year, the Part D sponsor must provide the information that CMS 
requires.
    (2) Payments. CMS at its discretion either makes lump-sum payments 
or adjusts monthly payments throughout the remainder of the payment year 
following the coverage year based on the difference between interim low-
income cost-sharing subsidy payments and total low-income cost-sharing 
subsidy costs eligible for subsidy under Sec. 423.782 submitted by the 
plan for the coverage year. CMS may recover payments made through a lump 
sum recovery or by adjusting monthly payments throughout the remainder 
of the coverage year if interim low-income cost-sharing subsidy payments 
exceed the amount payable under Sec. 423.782 or if the Part D sponsor 
does not provide the data in paragraph (d)(1) of this section. In the 
event adequate data is not provided for risk corridor costs, CMS assumes 
that the Part D plan's adjusted allowable risk corridor costs are 50 
percent of the target amount.



Sec. 423.346  Reopening.

    (a) CMS may reopen and revise an initial or reconsidered final 
payment determination (including a determination on the final amount of 
direct subsidy described in Sec. 423.329(a)(1), final reinsurance 
payments described in Sec. 423.329(c), the final amount of the low 
income subsidy described in Sec. 423.329(d), or final risk corridor 
payments as described in Sec. 423.336)--
    (1) For any reason, within 12 months from the date of the notice of 
the final determination to the Part D sponsor
    (2) After that 12-month period, but within 4 years after the date of 
the notice of the initial or reconsidered determination to the Part D 
sponsor, upon establishment of good cause for reopening; or
    (3) At any time, in instances of fraud or similar fault of the Part 
D sponsor or any subcontractor of the Part D sponsor.
    (b) For purposes of this section, CMS will find good cause if--
    (1) New and material evidence that was not readily available at the 
time the final determination was made is furnished;
    (2) A clerical error in the computation of payments was made; or
    (3) The evidence that was considered in making the determination 
clearly shows on its face that an error was made.
    (c) For purposes of this section, CMS will not find good cause if 
the only reason for reopening is a change of legal interpretation or 
administrative ruling upon which the final determination was made.
    (d) A decision not to reopen under this section is final and is not 
subject to review.



Sec. 423.350  Payment appeals.

    (a) Payment determinations--(1) Payment methods subject to appeal. 
If CMS did not apply its stated payment methodology correctly, a Part D 
sponsor may appeal the following:
    (i) The reconciled health status risk adjustment of the direct 
subsidy as provided in Sec. 423.343(b).
    (ii) The reconciled reinsurance payments under Sec. 423.343(c).
    (iii) The reconciled final payments made for low-income cost sharing 
subsidies provided in Sec. 423.343(d); or
    (iv) Final risk-sharing payments made under Sec. 423.336).

[[Page 392]]

    (2) Payment information not subject to appeal. Payment information 
submitted to CMS under Sec. 423.322 and reconciled under Sec. 423.343 
is final and may not be appealed nor may the appeals process be used to 
submit new information after the submission of information necessary to 
determine retroactive adjustments and reconciliations.
    (b) Request for reconsideration--(1) Time for filing a request. The 
request for reconsideration must be filed within 15 days from the date 
of the notice of the adverse determination.
    (2) Content of request. The request for reconsideration must specify 
the findings or issues with which the Part D sponsor disagrees and the 
reasons for the disagreements. Excluding new payment information, the 
request for reconsideration may include additional documentary evidence 
the sponsor wishes CMS to consider.
    (3) Conduct of informal written reconsideration. In conducting the 
reconsideration, CMS reviews the payment determination, the evidence and 
findings upon which it was based, and any other written evidence 
submitted by the Part D sponsor or by CMS before notice of the 
reconsidered determination is made.
    (4) Decision of the informal written reconsideration. CMS informs 
the sponsor of the decision orally or through electronic mail. CMS sends 
a written decision to the Part D sponsor on the sponsor's request.
    (5) Effect of CMS informal written reconsideration. A 
reconsideration decision, whether delivered orally or in writing, is 
final and binding unless a request for hearing is filed in accordance 
with paragraph (c) of this section, or it is revised in accordance with 
Sec. 423.346.
    (c) Right to informal hearing. A Part D sponsor dissatisfied with 
the CMS reconsideration decision is entitled to an informal hearing as 
provided in this section.
    (1) Manner and timing for request. A request for a hearing must be 
made in writing and filed with CMS within 15 days of the date the Part D 
sponsor receives the CMS reconsideration decision.
    (2) Content of request. The request for informal hearing must 
include a copy of the CMS reconsideration decision (if any) and must 
specify the findings or issues in the decision with which the Part D 
sponsor disagrees and the reasons for the disagreements.
    (3) Informal hearing procedures. (i) CMS provides written notice of 
the time and place of the informal hearing at least 10 days before the 
scheduled date.
    (ii) The hearing are conducted by a CMS hearing officer who neither 
receives testimony nor accepts any new evidence that was not presented 
with the reconsideration request. The CMS hearing officer is limited to 
the review of the record that was before CMS when CMS made both its 
initial and reconsideration determinations.
    (iii) If CMS did not issue a written reconsideration decision, the 
hearing officer may request, but not require, a written statement from 
CMS or its contractors explaining CMS' determination, or CMS or its 
contractors may, on their own, submit the written statement to the 
hearing officer. Failure of CMS to submit a written statement does not 
result in any adverse findings against CMS and may not in any way be 
taken into account by the hearing officer in reaching a decision.
    (4) Decision of the CMS hearing officer. The CMS hearing officer 
decides the case and sends a written decision to the Part D sponsor, 
explaining the basis for the decision.
    (5) Effecting of hearing officer decision. The hearing officer 
decision is final and binding, unless the decision is reversed or 
modified by the Administrator in accordance with paragraph (d) of this 
section.
    (d) Review by the Administrator. (1) A Part D sponsor that has 
received a hearing officer decision upholding a CMS initial or 
reconsidered determination may request review by the Administrator 
within 15 days of receipt of the hearing officer's decision.
    (2) The Administrator may review the hearing officer's decision, any 
written documents submitted to CMS or to the hearing officer, as well as 
any other information included in the record of the hearing officer's 
decision and determine whether to uphold, reverse or modify the hearing 
officer's decision.

[[Page 393]]

    (3) The Administrator's determination is final and binding.

Subpart H [Reserved]



   Subpart I_Organization Compliance with State Law and Preemption by 
                               Federal Law



Sec. 423.401  General requirements for PDP sponsors.

    (a) General requirements. Each PDP sponsor of a prescription drug 
plan must meet the following requirements:
    (1) Licensure. Except in cases where there is a waiver as specified 
at Sec. 423.410 or Sec. 423.415, the sponsor is organized and licensed 
under State law as a risk bearing entity eligible to offer health 
insurance or health benefits coverage in each State in which it offers a 
prescription drug plan. If not otherwise licensed, the sponsor obtains 
certification from the State that the organization meets a level of 
financial solvency and other standards as the State may require for it 
to operate as a PDP sponsor.
    (2) Assumption of financial risk for unsubsidized coverage. The PDP 
sponsor assumes financial risk on a prospective basis for benefits that 
it offers under a prescription drug plan and that is not covered under 
section 1860D-15(b) of the Act.
    (b) Reinsurance permitted. The PDP sponsor may obtain insurance or 
make other arrangements for the cost of coverage provided to any 
enrollee to the extent that the sponsor is at risk for providing the 
coverage.
    (c) Solvency for unlicensed sponsors. In the case of a PDP sponsor 
that is not described in Sec. 423.401(a)(1) and for which a waiver is 
approved under Sec. 423.410 or Sec. 423.415, the sponsor must meet the 
requirements in Sec. 423.420.



Sec. 423.410  Waiver of certain requirements to expand choice.

    (a) Authorizing waiver. In the case of an entity that seeks to offer 
a prescription drug plan in a State, CMS waives the licensure 
requirement at Sec. 423.401(a)(1), which requires that the entity be 
licensed in that State if CMS determines, based on the application and 
other evidence presented, that any of the grounds for approval of the 
application described in paragraphs (b), (c), or (d) of this section are 
met.
    (b) Grounds for approval of waivers. Subject to the waiver 
requirements specified in Sec. 423.410(e), waivers may be granted under 
any of the following conditions:
    (1) Failure to act on licensure application on a timely basis. The 
State failed to complete action on the licensing application within 90 
days of the date that the State received a substantially complete 
application.
    (2) Denial of application based on discriminatory treatment. The 
State denied the license application on either of the following bases---
    (i) The State imposed material requirements,
    procedures, or standards (other than solvency requirements) not 
generally applied by the State to other entities engaged in a 
substantially similar business; or
    (ii) The State required, as a condition of licensure, that the 
organization offer any product or plan other than a prescription drug 
plan.
    (3) Denial of application based on application of solvency 
requirements. The State denied the licensure application, in whole or in 
part, on the basis of the PDP sponsor's failure to meet solvency 
requirements and
    (i) The solvency requirements are different from the solvency 
standards CMS establishes in accordance with Sec. 423.420; or
    (ii) CMS determines that the State imposed, as a condition of 
licensing, any documentation or information requirements relating to 
solvency that are different from the standards CMS establishes in 
accordance with Sec. 423.420.
    (4) Grounds other than those required by Federal Law. The 
application by a State of any grounds other than those required under 
Federal law.
    (c) Waiver when licensing process not in effect. The grounds for 
approval specified in paragraph (b)(1) of this section are deemed met if 
CMS determines that the State does not have a licensing process in 
effect for PDP sponsors.
    (d) Special waiver for plan years beginning before January 1, 2008. 
For plan years beginning before January 1, 2008, if the State has a 
prescription drug plan or PDP sponsor licensing process

[[Page 394]]

in effect, CMS grants a waiver upon a demonstration that an applicant to 
become a PDP sponsor has submitted a fully completed application for 
licensure to the State.
    (e) Waiver requirements. The following rules apply to waiver 
applications or waivers granted under this section.
    (1) Treatment of waiver. The waiver applies only to that State, is 
effective for 36 months, and cannot be renewed.
    (2) Prompt action on application. CMS grants or denies a waiver 
application under this section within 60 days after CMS determines that 
a substantially complete waiver application is received by CMS.
    (3) A State that does not have a PDP sponsor. In the case of a State 
that does not have a PDP sponsor licensing process, the 36 month 
limitation on the waiver discussed in paragraph (e)(1) of this section 
does not apply, and the waiver may continue in effect for a given State 
as long as CMS determines that the State does not have a PDP sponsor 
licensing process in effect, and the PDP sponsor meets the solvency 
standards of Sec. 423.420(a).



Sec. 423.415  Temporary waivers for entities seeking to offer a prescription drug plan in more than one State in a region

    (a) General rule. Subject to paragraphs (b) and (c) of this section, 
if an applicant seeking to become a PDP sponsor wishes to operate in 
more than one State in a region, and is licensed as a risk bearing 
entity in at least one State in the region, then the applicant may 
receive a temporary regional plan waiver for the States in which it is 
not licensed.
    (b) Filing of application. The applicant must demonstrate to the 
satisfaction of CMS that it filed the necessary licensure applications 
with each State in the region for which it does not already have State 
licensure, except that no application is necessary if CMS determines 
that the State does not have a licensing process for potential PDP 
sponsors.
    (c) Processing of application for temporary waiver. The Secretary 
determines the time period appropriate for the timely processing of the 
application for temporary waiver.
    (d) Time limit for temporary waiver. The temporary waiver expires at 
the end of time period that the Secretary determines is appropriate for 
timely processing of the application by the State or States, but in no 
case is a waiver extend beyond the end of the calendar year.



Sec. 423.420  Solvency standards for non-licensed entities.

    (a) Establishment and publication. CMS establishes and publishes 
reasonable financial solvency and capital adequacy standards for 
entities specified in paragraph (b) of this section.
    (b) Compliance with standards. A PDP sponsor that is not licensed by 
a State and for which a waiver application is approved by CMS under 
Sec. 423.410 or Sec. 423.415 must maintain reasonable financial 
solvency and capital adequacy in accordance with the standards 
established by CMS under paragraph (a) of this section.



Sec. 423.425  Licensure does not substitute for or constitute certification.

    The fact that a Part D sponsor is State licensed or has a waiver 
application approved under Sec. 423.410 or Sec. 423.415 does not deem 
the sponsor to meet other requirements imposed under this part for a 
Part D sponsor.



Sec. 423.440  Prohibition of State imposition of premium taxes; relation to State laws.

    (a) Federal preemption of State law. The standards established under 
this part supersede any State law or regulation (other than State 
licensing laws or State laws relating to plan solvency) for Part D plans 
offered by Part D plan sponsors.
    (b) State premium taxes prohibited--(1) Basic rule. No premium tax, 
fee, or other similar assessment may be imposed by any State, the 
District of Columbia, the Commonwealth of Puerto Rico, the Virgin 
Islands, Guam, and American Samoa, the Mariana Islands or any of their 
political subdivisions or other governmental authorities for any payment 
CMS makes on behalf of Part D plan or enrollees under this part 
(including the direct subsidy, reinsurance payments, and risk corridor 
payments); or for any payment made to Part D

[[Page 395]]

plans by a beneficiary or by a third party on behalf of a beneficiary.
    (2) Construction. Nothing in this section may be construed to exempt 
any Part D plan sponsor from taxes, fees, or other monetary assessments 
related to the net income or profit that accrues to, or is realized by, 
the organization from business conducted under this part, if that tax, 
fee, or payment is applicable to a broad range of business activity.



  Subpart J_Coordination of Part D Plans With Other Prescription Drug 
                                Coverage



Sec. 423.452  Scope.

    This section sets forth the application of Part D rules to Part C 
plans; establishes waivers for MA-PD plans, employer-sponsored group 
prescription drug plans, cost plans, and PACE organizations; and 
establishes requirements for coordination of benefits with State 
Pharmaceutical Assistance Programs and other providers of prescription 
drug coverage.



Sec. 423.454  Definitions.

    For purposes of this part, the following definitions apply--
    Employer-sponsored group prescription drug plan means prescription 
drug coverage offered to retirees who are Part D eligible individuals 
under employment-based retiree health coverage (as defined in Sec. 
423.882) approved by CMS as a prescription drug plan.
    State Pharmaceutical Assistance Program (SPAP) means a State program 
that meets the requirements described under Sec. 423.464(e)(1).



Sec. 423.458  Application of Part D rules to certain Part D plans on and after January 1, 2006.

    (a) Relationship to Part C. Except as otherwise provided in this 
Part, the requirements of this Part apply to prescription drug coverage 
provided by MA-PD plans offered by MA organizations beginning on or 
after January 1, 2006.
    (b) MA waiver. CMS waives any provision of this Part otherwise 
applicable to MA-PD plans or MA organizations under paragraph (a) of 
this section to the extent CMS determines that the provision duplicates, 
or is in conflict with, provisions otherwise applicable to the MA 
organizations or MA-PD plans under Part C of Medicare, or as may be 
necessary in order to improve coordination of this part with the 
benefits under Part C.
    (1) Application of waiver. Any waiver or modification granted by CMS 
under this section applies to any other similarly situated organization 
offering or seeking to offer a MA-PD plan that meets the conditions of 
the waiver.
    (2) Request for waivers. Organizations offering or
    seeking to offer a MA-PD plan may request from CMS in writing--
    (i) A waiver of those requirements under this part otherwise 
applicable to the MA-PD plan or MA organization under paragraph (a) of 
this section that are duplicative of, or that are in conflict with, 
provisions otherwise applicable to the MA-PD plan, proposed MA-PD plan, 
or a MA organization under Part C of Medicare.
    (ii) A waiver of a requirement under this part otherwise applicable 
to the MA-PD plan or MA organization under paragraph (a) of this 
section, if such waiver improves coordination of benefits provided under 
Part C of Medicare with benefits under this Part.
    (c) Employer group waiver--(1) General rule. CMS may waive or modify 
any requirement under this part that hinders the design of, the offering 
of, or the enrollment in an employer-sponsored group prescription drug 
plan, including authorizing the establishment of separate premium 
amounts for enrollees of the employer-sponsored group prescription drug 
plan and limitations on enrollment in such plan to Part D eligible 
individuals participating in the sponsor's employment-based retiree 
health coverage. Any entity seeking to offer, sponsor, or administer an 
employer-sponsored group prescription drug plan may request, in writing, 
a waiver or modification of additional requirements under this Part that 
hinder its design of, the offering of, or the enrollment in, such 
employer-sponsored group prescription drug plan.

[[Page 396]]

    (2) Use of waiver. Waivers or modifications approved by CMS under 
this section apply to any similarly situated entity seeking to offer, 
sponsor, or administer an employer-sponsored group prescription drug 
plan, meeting the conditions of the waiver or modification.
    (d) Other waivers. CMS waives any provision of this Part as applied 
to a cost plan (as defined in Sec. 417.401 of this chapter) or PACE 
organization (as defined in Sec. 460.6 of this chapter) that offers 
qualified prescription drug coverage under Part D to the extent CMS 
determines that the provision duplicates, or is in conflict with, 
provisions otherwise applicable to the cost plan under section 1876 of 
the Act or provisions applicable to PACE organizations under sections 
1894 and 1934 of the Act, or as necessary in order to improve 
coordination of this Part with the benefits offered by cost plans or 
PACE organizations.
    (1) Application of waiver. Any waiver or modification granted by CMS 
under this paragraph applies to any other similarly situated 
organization offering or seeking to offer qualified prescription drug 
coverage as a cost plan under section 1876 of the Act or as a PACE 
organization under sections 1894 and 1934 of the Act.
    (2) Request for waivers. Cost plans or PACE organizations seeking to 
offer qualified prescription drug coverage may request from CMS in 
writing-
    (i) A waiver of those requirements under this part otherwise 
applicable to cost plans or PACE organizations that are duplicative of, 
or that are in conflict with, provisions otherwise applicable to cost 
plans or PACE organizations.
    (ii) A waiver of a requirement under this part otherwise applicable 
to cost plans or PACE organizations, if such waiver improves 
coordination of benefits provided by the cost plan under section 1876 of 
the Act, or by the PACE organization under section 1934 of the Act, with 
the benefits under Part D.



Sec. 423.462  Medicare secondary payer procedures.

    The provisions of Sec. 422.108 of this chapter regarding Medicare 
secondary payer procedures apply to Part D sponsors and Part D plans 
(with respect to the offering of qualified prescription drug coverage) 
in the same way as they apply to MA organizations and MA plans under 
Part C of title XVIII of the Act, except all references to MA 
organizations and MA plans are considered references to Part D sponsors 
and Part D plans.



Sec. 423.464  Coordination of benefits with other providers of prescription drug coverage.

    (a) General rule. A Part D plan must permit SPAPs (described in 
paragraph (e)(1) of this section) and entities providing other 
prescription drug coverage (described in paragraph (f)(1) of this 
section) to coordinate benefits with such plan. A Part D plan must 
comply with all administrative processes and requirements established by 
CMS to ensure effective exchange of information and coordination between 
such plan and SPAPs and entities providing other prescription drug 
coverage for--
    (1) Payment of premiums and coverage; and
    (2) Payment for supplemental prescription drug benefits as described 
in Sec. 423.104(f)(1)(ii)(including payment to a Part D plan on a lump 
sum per capita basis) for Part D eligible individuals enrolled in the 
Part D plan and the SPAP or entity providing other prescription drug 
coverage.
    (b) Medicare as primary payer. The requirements of this subpart do 
not change or affect the primary or secondary payer status of a Part D 
plan and a SPAP or other prescription drug coverage. A Part D plan is 
always the primary payer relative to a State Pharmaceutical Assistance 
Program.
    (c) User fees. CMS may impose user fees on Part D plans for the 
transmittal of information necessary for benefit coordination in 
accordance with administrative processes and requirements established by 
CMS to ensure effective exchange of information and coordination between 
a Part D plan and SPAPs and entities providing other prescription drug 
coverage in a manner similar to the manner in which user fees are 
imposed under section 1842(h)(3)(B) of the Act, except that CMS may 
retain a portion of user fees to defray its costs in carrying out such

[[Page 397]]

procedures. CMS will not impose user fees under this subpart on a SPAP 
or entities providing other prescription drug coverage.
    (d) Cost management tools. The requirements of this subpart do not 
prevent a Part D sponsor from using cost management tools (including 
differential payments) under all methods of operation.
    (e) Coordination with State Pharmaceutical Assistance Programs--(1) 
Requirements to be a State Pharmaceutical Assistance Program (SPAP). A 
State program is considered to be a State Pharmaceutical Assistance 
Program for purposes of this part if it-
    (i) Provides financial assistance for the purchase or provision of 
supplemental prescription drug coverage or benefits on behalf of Part D 
eligible individuals;
    (ii) Provides assistance to Part D eligible individuals in all Part 
D plans without discriminating based upon the Part D plan in which an 
individual enrolls;
    (iii) Meets the benefit coordination requirements specified in this 
subpart;
    (iv) Does not follow or adopt rules that change or affect the 
primary payer status of a Part D plan.
    The definition of SPAP excludes State Medicaid programs, section 
1115 demonstration programs, and any other program where program funding 
is from Federal grants, awards, contracts, entitlement programs, or 
other Federal sources of funding; and
    (v) Provides supplemental drug coverage to individuals based on 
financial need, age, or medical condition, and not based on current or 
former employment status.
    (2) Use of a single card. A card that is issued under Sec. 
423.120(c) for use under a Part D plan may also be used in connection 
with coverage of benefits provided under a SPAP and, in such a case, may 
contain an emblem or symbol indicating such connection.
    (3) Construction. Nothing in this subpart requires a SPAP to 
coordinate with, or provide financial assistance to enrollees in, any 
Part D plan.
    (f) Coordination with other prescription drug coverage--(1) 
Definition of other prescription drug coverage. Entities that provide 
other prescription drug coverage include any of the following:
    (i) Medicaid programs. A State plan under title XIX of the Act, 
including such a plan operating under a waiver under section 1115 of the 
Act, if it meets the requirements of paragraph (e)(1)(ii) of this 
section.
    (ii) Group health plans.
    (iii) FEHBP. The Federal Employee Health Benefits Program under 
chapter 89 of title 5, United States Code.
    (iv) Military coverage (including TRICARE). Coverage under chapter 
55 of title 10, United States Code.
    (v) Indian Health Service. Coverage under Chapter 18 of title 28 of 
the United States Code.
    (vi) Federally qualified health centers. Federally qualified health 
centers as defined under section 1861(aa)(4) of the Act.
    (vii) Rural health centers. Rural health centers as defined under 
section 1861(aa)(2) of the Act.
    (viii) Other prescription drug coverage. Other health benefit plans 
or programs that provide coverage or financial assistance for the 
purchase or provision of Part D drugs on behalf of Part D eligible 
individuals as CMS may specify.
    (2) Treatment under out-of-pocket rule. A Part D plan must exclude 
expenditures for covered Part D drugs made by insurance or otherwise, a 
group health plan, or other third party payment arrangements, including 
expenditures by plans offering other prescription drug coverage for 
purposes of determining whether a Part D plan enrollee has satisfied the 
out-of-pocket threshold provided under Sec. 423.104(d)(5)(iii). A Part 
D enrollee must disclose all these expenditures to a Part D plan in 
accordance with requirements under Sec. 423.32(b)(ii).
    (3) Imposition of fees. A Part D sponsor may not impose fees on 
SPAPs and entities offering other prescription drug coverage that are 
unrelated to the cost of the coordination of benefits.
    (4) Authority to recover expenditures due to incorrect information 
on true out-of-pocket costs. In the event that a Part D plan learns that 
it has made an erroneous payment due to inaccurate or incomplete 
information on the satisfaction of the out-of-pocket threshold under 
Sec. 423.104(d)(5)(iii), that plan is authorized to recover such costs 
directly

[[Page 398]]

from the Part D enrollee on whose behalf the costs were incurred. A Part 
D enrollee must reimburse the Part D plan for payment made for these 
costs.



Subpart K_Application Procedures and Contracts with Part D plan sponsors



Sec. 423.500  Scope.

    This subpart sets forth application procedures and contracts with 
Part D plans: application procedures and requirements; contract terms; 
procedures for termination of contracts; reporting by Part D plans. For 
purposes of this subpart, Medicare Advantage (MA) organizations offering 
Part D plans follow the requirements of part 422 of this chapter for MA 
organizations, except in cases where the requirements for the qualified 
prescription drug coverage involve additional requirements.



Sec. 423.501  Definitions

    For purposes of this subpart, the following definitions apply:
    Business transaction means any of the following kinds of 
transactions:
    (1) Sale, exchange, or lease of property.
    (2) Loan of money or extension of credit.
    (3) Goods, services, or facilities furnished for a monetary 
consideration, including management services, but not including--
    (i) Salaries paid to employees for services performed in the normal 
course of their employment; or
    (ii) Health services furnished to the Part D plan sponsor's 
enrollees by pharmacies and other providers, by Part D plan sponsor 
staff, medical groups, or independent practice associations, or by any 
combination of those entities.
    Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, below the level of the arrangement 
between a Part D plan sponsor (or applicant) and a first tier entity. 
These written arrangements continue down to the level of the ultimate 
provider of both health and administrative services.
    First tier entity means any party that enters into a written 
arrangement, acceptable to CMS, with a Part D plan sponsor or applicant 
to provide administrative services or health care services for a 
Medicare eligible individual under Part D.
    Party in interest means the following:
    (1) Any director, officer, partner, or employee responsible for 
management or administration of a Part D plan sponsor.
    (2) Any person who is directly or indirectly the beneficial owner of 
more than 5 percent of the organization's equity; or the beneficial 
owner of a mortgage, deed of trust, note, or other interest secured by 
and valuing more than 5 percent of the organization.
    (3) In the case of a PDP sponsor organized as a nonprofit 
corporation, an incorporator or member of the corporation under 
applicable State corporation law.
    (4) Any entity in which a person specified in paragraphs (1), (2), 
or (3) of this definition--
    (i) Is an officer, director, or partner; or
    (ii) Has the kind of interest described in paragraphs (1), (2), or 
(3) of this definition.
    (5) Any person that directly or indirectly controls, is controlled 
by, or is under common control with the Part D plan sponsor.
    (6) Any spouse, child, or parent of an individual specified in 
paragraphs (1), (2), or (3) of this definition.
    Related entity means any entity that is related to the PDP sponsor 
by common ownership or control and--
    (1) Performs some of the Part D plan sponsor's management functions 
under contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the Part D plan 
sponsor at a cost of more than $2,500 during a contract period.
    Significant business transaction means any business transaction or 
series of transactions of the kind specified in the above definition of 
business transaction that, during any fiscal year of the Part D plan 
sponsor, have a total value that exceeds $25,000 or 5 percent of the PDP 
sponsor's total operating expenses, whichever is less.

[[Page 399]]



Sec. 423.502  Application requirements.

    (a) Scope. This section sets forth application requirements for an 
entity that seeks a determination from CMS that it is qualified to 
contract as a sponsor of a Part D plan.
    (b) Completion of an application. (1) In order to obtain a 
determination on whether it meets the requirements to become a Part D 
plan sponsor, an entity, or an individual authorized to act for the 
entity (the applicant), must complete a certified application in the 
form and manner required by CMS, including the following:
    (i) Documentation of appropriate State licensure or State 
certification that the entity is able to offer health insurance or 
health benefits coverage that meets State-specified standards as 
specified in subpart I of this part; or
    (ii) A Federal waiver as specified in subpart I of this part.
    (2) The authorized individual must describe thoroughly how the 
entity is qualified to meet the requirements described in this part.
    (c) Responsibility for making determinations. (1) CMS is responsible 
for determining whether an entity is qualified to contract as a Part D 
plan sponsor and meets the requirements of this part.
    (2) A CMS determination that an entity is qualified to act as a Part 
D plan sponsor is distinct from the bid negotiations that occur under 
subpart F of part 423 and such negotiations are not subject to the 
appeals provisions included in subpart N of this part.
    (d) Disclosure of application information under the Freedom of 
Information Act. An applicant submitting material that he or she 
believes is protected from disclosure under 5 USC 552, the Freedom of 
Information Act, or because of exemptions provided in 45 CFR part 5 (the 
Department's regulations providing exemptions to disclosure), must label 
the material ``privileged'' and include an explanation of the 
applicability of an exemption specified in 45 CFR part 5.



Sec. 423.503  Evaluation and determination procedures for applications to be determined qualified to act as a sponsor.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
entity's application on the basis of information contained in the 
application itself and any additional information that CMS obtains 
through on-site visits, publicly available information, and any other 
appropriate procedures.
    (2) After evaluating all relevant information, CMS determines 
whether the application meets the applicable requirements specified in 
Sec. 423.504 and Sec. 423.505.
    (b) Use of information from a prior contracting period. If a Part D 
plan sponsor fails to comply with the terms of a previous year's 
contract (or in the case of a fallback entity, the previous 3-year 
contract) with CMS under title XVIII of the Act, or fails to complete a 
corrective action plan during the term of the contract, CMS may deny an 
application based on the applicant's failure to comply with that prior 
contract with CMS even if the applicant currently meets all of the 
requirements of this part.
    (c) Notice of determination. Except for fallback entities, which are 
governed under subpart Q of this part, CMS notifies each applicant that 
applies to be determined qualified to contract as a Part D plan sponsor, 
under this part, of its determination on the application and the basis 
for the determination. The determination may be one of the following:
    (1) Approval of application. If CMS approves the application, it 
gives written notice to the applicant, indicating that it qualifies to 
contract as Part D plan sponsor.
    (2) Intent to deny. (i) If CMS finds that the applicant does not 
appear qualified to contract as a Part D plan sponsor and/or has not 
provided enough information to evaluate the application, it gives the 
applicant notice of intent to deny the application and a summary of the 
basis for this preliminary finding.
    (ii) Within 10 days from the date of the notice, the applicant may 
respond

[[Page 400]]

in writing to the issues or other matters that were the basis for CMS's 
preliminary finding and may revise its application to remedy any defects 
CMS identified.
    (3) Denial of application. If CMS denies the application, it gives 
written notice to the applicant indicating--
    (i) That the applicant is not qualified to contract as a Part D 
sponsor under Part D of title XVIII of the Act;
    (ii) The reasons why the applicant does is not so qualified; and
    (iii) The applicant's right to request reconsideration in accordance 
with the procedures specified in subpart N.
    (d) Oversight of continuing compliance. (1) CMS oversees a Part D 
plan sponsor's continued compliance with the requirements for a Part D 
plan sponsor.
    (2) If a Part D plan sponsor no longer meets those requirements, CMS 
terminates the contract in accordance with Sec. 423.509.



Sec. 423.504  General provisions.

    (a) General rule. Subject to the provisions at Sec. 423.265(a)(1) 
concerning submission of bids, to enroll beneficiaries in any Part D 
drug plan it offers and be paid on behalf of Part D eligible individuals 
enrolled in those plans, a Part D plan sponsor must enter into a 
contract with CMS. The contract may cover more than one Part D plan.
    (b) Conditions necessary to contract as a Part D plan sponsor. Any 
entity seeking to contract as a Part D plan sponsor must--
    (1) Complete an application as described in Sec. 423.502 
demonstrating that the entity has the capability to meet the 
requirements of this Part, including those listed in Sec. 423.505.
    (2) Be organized and licensed under State law as a risk bearing 
entity eligible to offer health insurance or health benefits coverage in 
each State in which it offers a Part D plan, or have secured a Federal 
waiver, as described in subpart I of this part. (Fallback entity 
applicants need not be licensed as risk-bearing entities, nor are they 
required to obtain State licensure demonstrating that the applicant is 
eligible to offer health insurance or health benefits coverage in each 
State in which it applies to operate.)
    (3) Meet the minimum enrollment requirements of Sec. 423.512(a) 
unless waived under Sec. 423.512(b).
    (4) Have administrative and management arrangements satisfactory to 
CMS, as demonstrated by at least the following:
    (i) A policy making body that exercises oversight and control over 
the Part D plan sponsor's policies and personnel to ensure that 
management actions are in the best interest of the organization and its 
enrollees.
    (ii) Personnel and systems sufficient for the Part D plan sponsor to 
organize, implement, control, and evaluate financial and marketing 
activities, the furnishing of prescription drug services, the quality 
assurance, medical therapy management, and drug and or utilization 
management programs, and the administrative and management aspects of 
the organization.
    (iii) At a minimum, an executive manager whose appointment and 
removal are under the control of the policy making body.
    (iv) A fidelity bond or bonds, procured and maintained by the Part D 
sponsor, in an amount fixed by its policymaking body but not less than 
$100,000 per individual, covering each officer and employee entrusted 
with the handling of its funds. The bond may have reasonable 
deductibles, based upon the financial strength of the Part D plan 
sponsor.
    (v)Insurance policies or other arrangements, secured and maintained 
by the Part D plan sponsor and approved by CMS to insure the Part D plan 
sponsor against losses arising from professional liability claims, fire, 
theft, fraud, embezzlement, and other casualty risks.
    (vi) A compliance plan that consists of the following--
    (A)Written policies, procedures, and standards of conduct 
articulating the organization's commitment to comply with all applicable 
Federal and State standards.
    (B)The designation of a compliance officer and compliance committee 
accountable to senior management.
    (C)Effective training and education between the compliance officer 
and organization employees, contractors, agents, and directors.

[[Page 401]]

    (D)Effective lines of communication between the compliance officer 
and the organization's employees, contractors, agents, directors, and 
members of the compliance committee.
    (E)Enforcement of standards through well-publicized disciplinary 
guidelines.
    (F) Procedures for effective internal monitoring and auditing.
    (G) Procedures for ensuring prompt responses to detected offenses 
and development of corrective action initiatives relating to the 
organization's contract as a Part D plan sponsor.
    (1) If the Part D sponsor discovers evidence of misconduct related 
to payment or delivery of prescription drug items or services under the 
contract, it must conduct a timely, reasonable inquiry into that 
conduct;
    (2) The Part D sponsor must conduct appropriate corrective actions 
(for example, repayment of overpayments and disciplinary actions against 
responsible individuals) in response to the potential violation 
referenced above.
    (H) A comprehensive fraud and abuse plan to detect, correct, and 
prevent fraud, waste, and abuse. This fraud and abuse plan should 
include procedures to voluntarily self-report potential fraud or 
misconduct related to the Part D program to the appropriate government 
authority.
    (5) Not have non-renewed a contract under Sec. 423.507 within the 
past 2 years unless--
    (i) During the 6-month period, beginning on the date the entity 
notified CMS of the intention to non-renew the most recent previous 
contract, there was a change in the statute or regulations that had the 
effect of increasing Part D sponsor payments in the payment area or 
areas at issue; or
    (ii) CMS has otherwise determined that circumstances warrant special 
consideration.
    (6) For a full risk or limited risk PDP applicant, not submitted a 
bid or offered a fallback prescription drug plan in accordance with the 
following rules.
    (i) CMS does not contract with a potential PDP sponsor for the 
offering of a full risk or limited risk prescription drug plan in a PDP 
region for a year if the applicant--
    (A) Submitted a bid under Sec. 423.863 for the year (as the first 
year of a contract period under Sec. 423.863 to offer a fallback 
prescription drug plan in any PDP region;
    (B) Offers a fallback prescription drug plan in any PDP region 
during the year; or
    (C) Offered a fallback prescription drug plan in that PDP region 
during the previous year.
    (ii) Construction. For purposes of this paragraph (b)(6), an entity 
is treated as submitting an application to become qualified to contract 
as a full risk or limited risk PDP sponsor, if the entity is acting as a 
subcontractor for an integral part of the drug benefit management 
activities of a full risk or limited risk PDP sponsor or applicant. The 
previous sentence does not apply to entities that are subcontractors of 
an MA organization except insofar as the MA organization is applying to 
act as a full risk or limited risk PDP sponsor.
    (c) Contracting authority. CMS may enter into contracts under this 
part, or in order to carry out this part, without regard to Federal and 
Departmental acquisition regulations set forth in Title 48 of the CFR 
and provisions of law or other regulations relating to the making, 
performance, amendment, or modification of contracts of the United 
States if CMS determines that those provisions are inconsistent with the 
efficient and effective administration of the Medicare program.
    (d) Protection against fraud and beneficiary protections. (1) CMS 
annually audits the financial records (including, but not limited to, 
data relating to Medicare utilization and costs, including allowable 
reinsurance and risk corridor costs as well as low income subsidies and 
other costs) under this part of at least one-third of the Part D 
sponsors offering Part D drug plans.
    (2) Each contract under this section must provide that CMS, or any 
person or organization designated by CMS, has the right to--
    (i) Inspect or otherwise evaluate the quality, appropriateness, and 
timeliness of services performed under the Part D plan sponsor's 
contract;
    (ii) Inspect or otherwise evaluate the facilities of the Part D 
sponsor when there is reasonable evidence of some need for the 
inspection; and

[[Page 402]]

    (iii) Audit and inspect any books, contracts, and records of the 
Part D plan sponsor that pertain to--
    (A) The ability of the organization or its first tier or downstream 
providers to bear the risk of potential financial losses; or
    (B) Services performed or determinations of amounts payable under 
the contract.
    (e) Severability of contracts. The contract must provide that, upon 
CMS' request--
    (1) The contract could be amended to exclude any State-licensed 
entity, or a Part D plan specified by CMS; and
    (2) A separate contract for any excluded plan or entity must be 
deemed to be in place when a request is made.



Sec. 423.505  Contract provisions.

    (a) General rule. The contract between the Part D plan sponsor and 
CMS must contain the provisions specified in paragraph (b) of this 
section.
    (b) Requirements for contracts. The Part D plan sponsor agrees to--
    (1) All the applicable requirements and conditions set forth in this 
part and in general instructions.
    (2) Accept new enrollments, make enrollments effective, process 
voluntary disenrollments, and limit involuntary disenrollments, as 
provided in subpart B of this part.
    (3) Comply with the prohibition in Sec. 423.34(a) on discrimination 
in beneficiary enrollment.
    (4) Provide the basic prescription drug coverage as defined under 
Sec. 423.100 and, to the extent applicable, supplemental benefits as 
defined in Sec. 423.100. (Fallback entities may offer only standard 
prescription drug coverage as specified in Sec. 423.855.)
    (5) Disclose information to beneficiaries in the manner and the form 
specified by CMS under Sec. 423.128.
    (6) Operate quality assurance, cost and utilization management, 
medication therapy management, and support e-prescribing as required 
under subpart D of this part.
    (7) Comply with all requirements in subpart M of this part governing 
coverage determinations, grievances, and appeals, and formulary 
exceptions.
    (8) Comply with the reporting requirements in Sec. 423.514 and the 
requirements in Sec. 423.329(b) for submitting drug claims and related 
information to CMS for its use in risk adjustment calculations.
    (9) Provide CMS with the information CMS determines is necessary to 
carry out payment provisions in subpart G of this part (or for fallback 
entities, the information necessary to carry out the payment provisions 
in subpart Q of this part).
    (10) Allow CMS to inspect and audit any books and records of a Part 
D plan sponsor that pertain to the information regarding costs provided 
to CMS under paragraph (b)(9) of this section, or, if a fallback entity, 
the information submitted under subpart Q.
    (11) Be paid under the contract in accordance with the payment rules 
in subpart G of this part, or, if a fallback entity, in accordance with 
the payment rules of subpart Q of this part.
    (12) Except for fallback entities, submit a future year's bid, 
including all required information on premiums, benefits, and cost-
sharing, by any applicable due date, as provided in subpart F so that 
CMS and the Part D plan sponsor may conduct negotiations regarding the 
terms and conditions of the proposed bid and benefit plan renewal.
    (13) Permit CMS to determine that it is not qualified to renew its 
contract or that its contract may be terminated in accordance with this 
subpart and subpart N of this part. (Subpart N applies to fallback 
entities only to the extent a fallback contract is terminated.)
    (14) Comply with the confidentiality and enrollee record accuracy 
specified in Sec. 423.136.
    (15) Comply with State law and preemption by Federal law 
requirements described in subpart I of this part.
    (16) Comply with the coordination requirements with SPAPs and plans 
that provide other prescription drug coverage as described in subpart J 
of this part.
    (17) Provide benefits by means of point of service systems to 
adjudicate in a drug claims in a timely and efficient manner in 
compliance with CMS standards, except when necessary to provide access 
in underserved areas, I/T/U pharmacies (as defined in Sec. 423.100), 
and long-term care pharmacies (as defined in Sec. 423.100).

[[Page 403]]

    (18) To agree to have a standard contract with reasonable and 
relevant terms and conditions of participation whereby any willing 
pharmacy may access the standard contract and participate as a network 
pharmacy.
    (c) Communication with CMS. The Part D plan sponsor must have the 
capacity to communicate with CMS electronically in accordance with CMS 
requirements.
    (d) Maintenance of records. The Part D plan sponsor agrees to 
maintain, for 10 years, books, records, documents, and other evidence of 
accounting procedures and practices that-
    (1) Are sufficient to do the following:
    (i) Accommodate periodic auditing of the financial records 
(including data related to Medicare utilization, costs, and computation 
of the bid of part D plan sponsors).
    (ii) Enable CMS to inspect or otherwise evaluate the quality, 
appropriateness, and timeliness of services performed under the contract 
and the facilities of the organization.
    (iii) Enable CMS to audit and inspect any books and records of the 
Part D plan sponsor that pertain to the ability of the organization to 
bear the risk of potential financial losses, or to services performed or 
determinations of amounts payable under the contract.
    (iv) Except for fallback entities, properly reflect all direct and 
indirect costs claimed to have been incurred and used in the preparation 
of the Part D plan sponsor's bid and necessary for the calculation of 
gross covered prescription drug costs, allowable reinsurance costs, and 
allowable risk corridor costs (as defined in Sec. 423.308).
    (v) Except for fallback entities, establish the basis for the 
components, assumptions, and analysis used by the Part D plan in 
determining the actuarial valuation of standard, basic alternative, or 
enhanced alternative coverage offered in accordance with the CMS 
guidelines specified in Sec. 423.265(c)(3).
    (2) Include records of the following:
    (i) Ownership and operation of the Part D sponsor's financial, 
medical, and other record keeping systems.
    (ii) Financial statements for the current contract period and 10 
prior periods.
    (iii) Federal income tax or informational returns for the current 
contract period and 10 prior periods.
    (iv) Asset acquisition, lease, sale, or other actions.
    (v) Agreements, contracts, and subcontracts.
    (vi) Franchise, marketing, and management agreements.
    (vii) Matters pertaining to costs of operations.
    (viii) Amounts of income received by source and payment.
    (ix) Cash flow statements.
    (x) Any financial reports filed with other Federal programs or State 
authorities.
    (xi) All prescription drug claims for the current contract period 
and 10 prior periods.
    (xii) All price concessions (including concessions offered by 
manufacturers) for the current contract period and 10 prior periods 
accounted for separately from other administrative fees.
    (e) Access to facilities and records. The Part D plan sponsor agrees 
to the following:
    (1) HHS, the Comptroller General, or their designee may evaluate, 
through inspection or other means--
    (i) The quality, appropriateness, and timeliness of services 
furnished to Medicare enrollees under the contract;
    (ii) The facilities of the Part D plan sponsor; and
    (iii) The enrollment and disenrollment records for the current 
contract period and 10 prior periods.
    (2) HHS, the Comptroller General, or their designees may audit, 
evaluate, or inspect any books, contracts, medical record s, patient 
care documentation, and other records of the Part D plan sponsor, 
related entity(s), contractor(s), subcontractor(s), or its transferee 
that pertain to any aspect of services performed, reconciliation of 
benefit liabilities, and determination of amounts payable under the 
contract, or as the Secretary may deem necessary to enforce the 
contract.
    (3) The Part D plan sponsor agrees to make available, for the 
purposes specified in paragraph (d) of this section, its premises, 
physical facilities and equipment, records relating to its Medicare 
enrollees, and any additional relevant information that CMS may require.

[[Page 404]]

    (4) HHS, the Comptroller General, or their designee's right to 
inspect, evaluate, and audit extends through 10 years from the end of 
the final contract period or completion of audit, whichever is later 
unless--
    (i) CMS determines there is a special need to retain a particular 
record or group of records for a longer period and notifies the Part D 
plan sponsor at least 30 days before the normal disposition date;
    (ii) There is a termination, dispute, or allegation of fraud or 
similar fault by the Part D plan sponsor, in which case the retention 
may be extended to 6 years from the date of any resulting final 
resolution of the termination, dispute, or fraud or similar fault; or
    (iii) CMS determines that there is a reasonable possibility of fraud 
or similar fault, in which case CMS may inspect, evaluate, and audit the 
Part D plan sponsor at any time.
    (f) Disclosure of information. The Part D plan sponsor agrees to 
submit to CMS--
    (1) Certified financial information that must include the following:
    (i) Information as CMS may require demonstrating that the 
organization has a fiscally sound operation.
    (ii) Information as CMS may require pertaining to the disclosure of 
ownership and control of the Part D plan sponsor.
    (2) All information to CMS that is necessary for CMS to administer 
and evaluate the program and to simultaneously establish and facilitate 
a process for current and prospective beneficiaries to exercise choice 
in obtaining prescription drug coverage. This information includes, but 
is not limited to:
    (i) The benefits covered under a Part D plan.
    (ii) The Part D plan monthly basic beneficiary premium and Part D 
plan monthly supplemental beneficiary premium, if any, for the plan. 
Fallback entities submit the monthly beneficiary premium for standard 
prescription drug coverage.
    (iii) The service area of each plan.
    (iv) Plan quality and performance indicators for the benefits under 
the plan including--
    (A) Disenrollment rates for Medicare enrollees electing to receive 
benefits through the plan for the previous 2 years;
    (B) Information on Medicare enrollee satisfaction;
    (C) The recent records regarding compliance of the plan with 
requirements of this part, as determined by CMS; and
    (D) Other information determined by CMS to be necessary to assist 
beneficiaries in making an informed choice regarding Part D plans.
    (v) Information about beneficiary appeals and their disposition, and 
formulary exceptions.
    (vi) Information regarding all formal actions, reviews, findings, or 
other similar actions by States, other regulatory bodies, or any other 
certifying or accrediting organization.
    (vii) Information on other matters that CMS may require, including, 
but not limited to, program monitoring and oversight, performance 
measures, quality assessment, research and evaluation, CMS outreach 
activities, payment-related oversight*, and fraud, abuse, and waste*, as 
specified in CMS guidelines.
    (viii) Any other information deemed necessary to CMS for the 
administration or evaluation of the Medicare program.
    (3)To its enrollees, all informational requirements under Sec. 
423.128 and, upon an enrollee's request, the financial disclosure 
information required under Sec. 423.128(c)(4).
    (g) Beneficiary financial protections. The Part D plan sponsor 
agrees to comply with the following requirements:
    (1) Each Part D plan sponsor must adopt and maintain arrangements 
satisfactory to CMS to protect its enrollees from incurring liability 
for payment of any fees that are the legal obligation of the Part D 
sponsor. To meet this requirement, the Part D plan sponsor must--
    (i) Ensure that all contractual or other written arrangements 
prohibit the sponsor's contracting agents from holding any beneficiary 
enrollee liable for payment of any such fees; and
    (ii) Indemnify the beneficiary enrollee for payment of any fees that 
are the legal obligation of the Part D plan sponsor for covered 
prescription drugs

[[Page 405]]

furnished by non-contracting pharmacists, or that have not otherwise 
entered into an agreement with the Part D plan sponsor, to provide 
services to the organization's beneficiary enrollees.
    (2) In meeting the requirements of this paragraph, other than the 
provider contract requirements specified in paragraph (g)(1)(i) of this 
section, the Part D plan sponsor may use--
    (i) Contractual arrangements;
    (ii) Insurance acceptable to CMS;
    (iii) Financial reserves acceptable to CMS; or
    (iv) Any other arrangement acceptable to CMS.
    (h) Requirements of other laws and regulations. The Part D plan 
sponsor agrees to comply with--
    (1) Federal laws and regulations designed to prevent fraud, waste, 
and abuse, including, but not limited to applicable provisions of 
Federal criminal law, the False Claims Act (32 U.S.C. Sec. Sec. 3729 et 
seq.), and the anti-kickback statute (section 1128B(b) of the Act).
    (2) HIPAA Administrative Simplification rules at 45 CFR parts 160, 
162, and 164.
    (i) Relationship with related entities, contractors, and 
subcontractors. (1) Notwithstanding any relationship(s) that the Part D 
plan sponsor may have with related entities, contractors, or 
subcontractors, the Part D sponsor maintains ultimate responsibility for 
adhering to and otherwise fully complying with all terms and conditions 
of its contract with CMS.
    (2) The Part D plan sponsor agrees to require all related entities, 
contractors, or subcontractors to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent contracts, books, 
documents, papers, and records of the related entity(s), contractor(s), 
or subcontractor(s) involving transactions related to CMS' contract with 
the Part D plan sponsor; and
    (ii) HHS', the Comptroller General's, or their designee's right to 
inspect, evaluate, and audit any pertinent information for any 
particular contract period exists through 10 years from the final date 
of the contract period or from the date of completion of any audit, 
whichever is later.
    (3) All contracts or written arrangements between Part D plan 
sponsors and pharmacies or other providers, related entities, 
contractors, subcontractors, first tier and downstream entities must 
contain the following:
    (i) Enrollee protection provisions that provide, consistent with 
paragraph (g)(1) of this section, arrangements that prohibit pharmacies 
or other providers from holding an enrollee liable for payment of any 
fees that are the obligation of the Part D plan sponsor.
    (ii) Accountability provisions that indicate that the Part D sponsor 
may delegate activities or functions to a pharmacy, related entity, 
contractor, or subcontractor only in a manner consistent with 
requirements set forth at paragraph (i)(4) of this section.
    (iii) A provision requiring that any services or other activity 
performed by a related entity, contractor, subcontractor, or first-tier 
or downstream entity in accordance with a contract or written agreement 
are consistent and comply with the Part D plan sponsor's contractual 
obligations.
    (4) If any of the Part D plan sponsors' activities or 
responsibilities under its contract with CMS is delegated to other 
parties, the following requirements apply to any related entity, 
contractor, subcontractor, or pharmacy:
    (i) Written arrangements must specify delegated activities and 
reporting responsibilities.
    (ii) Written arrangements must either provide for revocation of the 
delegation activities and reporting responsibilities described in 
paragraph (i)(4)(i) of this section or specify other remedies in 
instances when CMS or the Part D plan sponsor determine that the parties 
have not performed satisfactorily.
    (iii) Written arrangements must specify that the Part D plan sponsor 
on an ongoing basis monitors the performance of the parties.
    (iv) All contracts or written arrangements must specify that the 
related entity, contractor, or subcontractor must comply with all 
applicable Federal laws, regulations, and CMS instructions.

[[Page 406]]

    (5) If the Part D plan sponsor delegates selection of its 
prescription drug providers to another organization, the Part D 
sponsor's written arrangements with that organization must state that 
the CMS-contracting Part D plan sponsor retains the right to approve, 
suspend, or terminate any such arrangement.
    (j) Additional contract terms. The Part D plan sponsor agrees to 
include in the contract other terms and conditions as CMS may find 
necessary and appropriate in order to implement requirements in this 
part.
    (k) Certification of data that determine payment--(1) General rule. 
As a condition for receiving a monthly payment under subpart G of this 
part (or for fallback entities, payment under subpart Q of this part),, 
the Part D plan sponsor agrees that its chief executive officer (CEO), 
chief financial officer (CFO), or an individual delegated the authority 
to sign on behalf of one of these officers, and who reports directly to 
the officer, must request payment under the contract on a document that 
certifies (based on best knowledge, information, and belief) the 
accuracy, completeness, and truthfulness of all data related to payment. 
The data may include specified enrollment information, claims data, bid 
submission data, and other data that CMS specifies.
    (2) Certification of enrollment and payment information. The CEO, 
CFO, or an individual delegated the authority to sign on behalf of one 
of these officers, and who reports directly to the officer, must certify 
(based on best knowledge, information, and belief) that each enrollee 
for whom the organization is requesting payment is validly enrolled in a 
program offered by the organization and the information CMS relies on in 
determining payment is accurate, complete, and truthful and acknowledge 
that this information will be used for the purposes of obtaining Federal 
reimbursement.
    (3) Certification of claims data. The CEO, CFO, or an individual 
delegated with the authority to sign on behalf of one of these officers, 
and who reports directly to the officer, must certify (based on best 
knowledge, information, and belief) that the claims data it submits 
under Sec. 423.329(b)(3) (or for fallback entities, under Sec. 
423.871(f)) are accurate, complete, and truthful and acknowledge that 
the claims data will be used for the purpose of obtaining Federal 
reimbursement. If the claims data are generated by a related entity, 
contractor, or subcontractor of a Part D plan sponsor, the entity, 
contractor, or subcontractor must similarly certify (based on best 
knowledge, information, and belief) the accuracy, completeness, and 
truthfulness of the data and acknowledge that the claims data will be 
used for the purposes of obtaining Federal reimbursement.
    (4) Certification of bid submission information. The CEO, CFO, or an 
individual delegated the authority to sign on behalf of one of these 
officers, and who reports directly to the officer, must certify (based 
on best knowledge, information, and belief) that the information in its 
bid submission and assumptions related to projected reinsurance and low 
income cost sharing subsidies is accurate, complete, and truthful and 
fully conforms to the requirements in Sec. 423.265.
    (5) Certification of allowable costs for risk corridor and 
reinsurance information. The CEO, CFO, or an individual delegated the 
authority to sign on behalf of one of these officers, and who reports 
directly to the officer, must certify (based on best knowledge, 
information, and belief) that the information provided for purposes of 
supporting allowable costs, as defined in Sec. 423.308, is accurate, 
complete, and truthful and fully conforms to the requirements in Sec. 
423.336 and Sec. 423.343 and acknowledge that this information will be 
used for the purposes of obtaining Federal reimbursement.
    (6) Certification of Accuracy of Data for Price Comparison. The CEO, 
CFO, or an individual delegated the authority to sign on behalf of one 
of these officers, and who reports directly to the officer, must certify 
(based on best knowledge, information, and belief) that the information 
provided for purposes of price comparison is accurate, complete, and 
truthful.

[[Page 407]]



Sec. 423.506  Effective date and term of contract.

    (a) Effective date. The contract is effective on the date specified 
in the contract between the Part D plan sponsor and CMS.
    (b) Term of contract. Each contract is for a period of 12 months.
    (c) Qualification to renew a contract. In accordance with Sec. 
423.507 of this subpart, an entity is determined qualified to renew its 
contract annually only if--
    (1) CMS informs the Part D plan sponsor that it is qualified to 
renew its contract; and
    (2) The Part D plan sponsor has not provided CMS with a notice of 
intention not to renew.
    (d) Renewal of contract contingent on reaching agreement on the bid. 
Although a Part D plan sponsor may be determined qualified to renew its 
contract under this section, if the sponsor and CMS cannot reach 
agreement on the bid under subpart F, no renewal takes place, and the 
failure to reach agreement is not subject to the appeals provisions in 
subpart N of this part.
    (e) The provisions of this section do not apply to fallback 
entities.



Sec. 423.507  Nonrenewal of contract.

    (a) Nonrenewal by a Part D plan sponsor. (1) Except for fallback 
entities, a Part D plan sponsor may elect not to renew its contract with 
CMS, effective at the end of the term of the contract for any reason 
provided it meets the timeframes for doing so set forth in paragraphs 
(a)(2) and (a)(3) of this section.
    (2) If a Part D plan sponsor does not intend to renew its contract, 
it must notify--
    (i) CMS in writing by the first Monday of June in the year in which 
the contract ends;
    (ii) Each Medicare enrollee, at least 90 days before the date on 
which the nonrenewal is effective. This notice must include a written 
description of alternatives available for obtaining qualified 
prescription drug coverage within the PDP region, including MA-PD plans 
, and other PDPs, and must receive CMS approval prior to issuance; and
    (iii) The general public, at least 90 days before the end of the 
current calendar year, by publishing a notice in one or more newspapers 
of general circulation in each community or county located in the Part D 
plan sponsor's service area.
    (3) If a Part D plan sponsor does not renew a contract under this 
paragraph (a), CMS cannot enter into a contract with the organization 
for 2 years unless there are special circumstances that warrant special 
consideration, as determined by CMS.
    (4) If a Part D plan sponsor does not renew a contract under this 
paragraph (a), it must ensure the timely transfer of any data or files.
    (b) CMS decision that a Part D plan sponsor is not qualified to 
renew. (1) Except for fallback entities, CMS may determine that a Part D 
plan sponsor is not qualified to renew its contract for any of the 
following reasons:
    (i) The reasons listed in Sec. 423.509(a) that also permit CMS to 
terminate the contract.
    (ii) The Part D plan sponsor has committed any of the acts in Sec. 
423.752 that support the imposition of intermediate sanctions or civil 
money penalties under Sec. 423.750.
    (2) Notice of decision. CMS provides notice of its decision of 
whether a Part D plan sponsor is qualified to renew its contract as 
follows:
    (i) To the Part D plan sponsor by May 1 of the current contract 
year.
    (ii) If CMS decides that a Part D plan sponsor is not qualified to 
renew its contract, to the Part D plan sponsor's Medicare enrollees by 
mail at least 90 days before the end of the current calendar year.
    (iii) If CMS determines that the Part D plan sponsor is not 
qualified to renew its contract, to the general public at least 90 days 
before the end of the current calendar year, by publishing a notice in 
one or more newspapers of general circulation in each community or 
county located in the Part D plan sponsor's service area.
    (iv) The notice provisions in paragraphs (b)(2)(ii) and (iii) of 
this section also apply in cases where a non-renewal results because CMS 
and the Part D plan sponsor are unable to reach agreement on the bid 
under subpart F.

[[Page 408]]

    (3) Notice of appeal rights. CMS gives the Part D plan sponsor 
written notice of its right to appeal the decision that the sponsor is 
not qualified renew its contract in accordance with Sec. 423.642(b).



Sec. 423.508  Modification or termination of contract by mutual consent.

    (a) General rule. A contract may be modified or terminated at any 
time by written mutual consent.
    (b) Notification of termination. If the contract is terminated by 
mutual consent, the Part D plan sponsor must provide notice to its 
Medicare enrollees and the general public as provided in paragraph (c) 
of this section.
    (c) Notification of modification. If the contract is modified by 
mutual consent, the Part D plan sponsor must notify its Medicare 
enrollees of any changes that CMS determines are appropriate for 
notification within timeframes specified by CMS.
    (d) Timely transfer of data and files. If a contract is terminated 
under paragraph (a) of this section, the Part D plan sponsor must ensure 
the timely transfer of any data or files.



Sec. 423.509  Termination of contract by CMS.

    (a) Termination by CMS. CMS may terminate a contract for any of the 
following reasons if the Part D sponsor--
    (1) Failed substantially to carry out the terms of its contract with 
CMS;
    (2) Is carrying out its contract with CMS in a manner that is 
inconsistent with the effective and efficient implementation of this 
part;
    (3) No longer meets the requirements of this part for being a 
contracting organization;
    (4) There is credible evidence that the Part D sponsor committed or 
participated in false, fraudulent, or abusive activities affecting the 
Medicare program, including submission of false or fraudulent data;
    (5) Experiences financial difficulties so severe that its ability to 
provide necessary prescription drug coverage is impaired to the point of 
posing an imminent and serious risk to the health of its enrollees, or 
otherwise fails to make services available to the extent that a risk to 
health exists;
    (6) Substantially fails to comply with the requirements in subpart M 
of this part relating to grievances and appeals;
    (7) Fails to provide CMS with valid risk adjustment, reinsurance and 
risk corridor related data as required under Sec. 423.322 and Sec. 
423.329 (or, for fallback entities, fails to provide the information in 
Sec. 423.871(f)).
    (8) Substantially fails to comply with the service access 
requirements in Sec. 423.120;
    (9) Substantially fails to comply with the marketing requirements in 
Sec. 423.128;
    (10) Substantially fails to comply with the coordination with plans 
and programs that provide prescription drug coverage as described in 
subpart J of this part; or
    (11) Substantially fails to comply with the cost and utilization 
management, quality improvement, medication therapy management and 
fraud, abuse and waste program requirements as specified in subparts D 
and K of this part.
    (b) Notice of termination. If CMS decides to terminate a contract 
for reasons other than the grounds specified in paragraph (a)(4) or 
(a)(5) of this section, it gives notice of the termination as follows:
    (1) Termination of contract by CMS. (i) CMS notifies the Part D plan 
in writing 90 days before the intended date of the termination.
    (ii) The Part D plan sponsor notifies its Medicare enrollees of the 
termination by mail at least 30 days before the effective date of the 
termination.
    (iii) The Part D plan sponsor notifies the general public of the 
termination at least 30 days before the effective date of the 
termination by publishing a notice in one or more newspapers of general 
circulation in each community or county located in the Part D plan 
sponsor's service area.
    (iv) If a Part D plan sponsor's contract is terminated under 
paragraph (a) of this section, it must ensure the timely transfer of any 
data or files.
    (2) Immediate termination of contract by CMS. (i) For terminations 
based on violations specified in paragraph (a)(4) or paragraph (a)(5) of 
this section, CMS notifies the Part D plan sponsor in writing that its 
contract is terminated

[[Page 409]]

effective the date of the termination decision by CMS. If termination is 
effective in the middle of a month, CMS has the right to recover the 
prorated share of the prospective monthly payments made to the Part D 
sponsor covering the period of the month following the contract 
termination.
    (ii) CMS notifies the Part D plan sponsor's Medicare enrollees in 
writing of CMS's decision to terminate the Part D plan sponsor's 
contract. This notice occurs no later than 30 days after CMS notifies 
the plan of its decision to terminate the Part D plan sponsor's 
contract. CMS simultaneously informs the Medicare enrollees of 
alternative options for obtaining qualified prescription drug coverage, 
including alternative PDP sponsors and MA-PDs in a similar geographic 
area.
    (iii) CMS notifies the general public of the termination no later 
than 30 days after notifying the plan of CMS's decision to terminate the 
Part D plan sponsor's contract. This notice is published in one or more 
newspapers of general circulation in each community or county located in 
the Part D plan sponsor's service area.
    (c) Corrective action plan--(1) General rule. Before terminating a 
contract for reasons other than the grounds specified in paragraph 
(a)(4) or (a)(5) of this section, CMS provides the Part D plan sponsor 
with reasonable opportunity to develop and receive CMS approval of a 
corrective action plan to correct the deficiencies that are the basis of 
the proposed termination.
    (2) Exception. If a contract is terminated under paragraph (a)(4) or 
(a)(5) of this section, the Part D plan sponsor does not have the 
opportunity to submit a corrective action plan.
    (d) Appeal rights. If CMS decides to terminate a contract, it sends 
written notice to the Part D plan sponsor informing it of its 
termination appeal rights in accordance with Sec. 423.642.



Sec. 423.510  Termination of contract by the Part D sponsor.

    (a) Cause for termination. The Part D plan sponsor may terminate its 
contract if CMS fails to substantially carry out the terms of the 
contract.
    (b) Notice of termination. The Part D plan sponsor must give advance 
notice as follows:
    (1) To CMS, at least 90 days before the intended date of 
termination. This notice must specify the reasons why the Part D sponsor 
is requesting contract termination.
    (2) To its Medicare enrollees, at least 60 days before the 
termination effective date. This notice must include a written 
description of alternatives available for obtaining qualified 
prescription drug coverage within the services area, including 
alternative PDPs, MA-PDPs, and original Medicare and must receive CMS 
approval.
    (3) To the general public, at least 60 days before the termination 
effective date by publishing a CMS-approved notice in one or more 
newspapers of general circulation in each community or county located in 
the Part D plan sponsor's geographic area.
    (c) Effective date of termination. The effective date of the 
termination is determined by CMS and is at least 90 days after the date 
CMS receives the Part D plan sponsor's notice of intent to terminate.
    (d) CMS's liability. CMS's liability for payment to the Part D plan 
sponsor ends as of the first day of the month after the last month for 
which the contract is in effect.
    (e) Effect of termination by the organization. CMS does not enter 
into an agreement with an organization that has terminated its contract 
within the preceding 2 years unless there are circumstances that warrant 
special consideration, as determined by CMS.
    (f) Timely transfer of data and files. If a contract is terminated 
under paragraph (a) of this section, the Part D plan sponsor must ensure 
the timely transfer of any data or files.



Sec. 423.512  Minimum enrollment requirements.

    (a) Basic rule. Except as provided in paragraph (b) of this section, 
CMS does not enter into a contract under this subpart unless the 
organization meets the following minimum enrollment requirement:

[[Page 410]]

    (1) At least 5,000 individuals are enrolled for the purpose of 
receiving prescription drug benefits from the organization; or
    (2) At least 1,500 individuals are enrolled for purposes of 
receiving prescription drug benefits from the organization and the 
organization primarily serves individuals residing outside of urbanized 
areas as defined in Sec. 412.62(f) of this chapter;
    (3) Except as provided for in paragraph (b) of this section, a Part 
D plan sponsor must maintain a minimum enrollment as defined in 
paragraphs (a)(1) and (a)(2) of this section for the duration of its 
contract.
    (b) Minimum enrollment waiver. CMS waives the requirement of 
paragraphs (a)(1) and (a)(2) of this section during the first contract 
year for a sponsor in a region.



Sec. 423.514  Reporting requirements.

    (a) Required information. Each Part D plan sponsor must have an 
effective procedure to develop, compile, evaluate, and report to CMS, to 
its enrollees, and to the general public, at the times and in the manner 
that CMS requires, statistics indicating the following--
    (1) The cost of its operations.
    (2) The patterns of utilization of its services.
    (3) The availability, accessibility, and acceptability of its 
services.
    (4) Information demonstrating that the Part D plan sponsor has a 
fiscally sound operation.
    (5) Other matters that CMS may require.
    (b) Significant business transactions. Each Part D plan sponsor must 
report to CMS annually, within 120 days of the end of its fiscal year 
(unless, for good cause shown, CMS authorizes an extension of time), the 
following:
    (1) A description of significant business transactions, as defined 
in Sec. 423.501, between the Part D plan sponsor and a party in 
interest, including the following:
    (i) Indication that the costs of the transactions listed in 
paragraph (c) of this section do not exceed the costs that would be 
incurred if these transactions were with someone who is not a party in 
interest; or
    (ii) If they do exceed, a justification that the higher costs are 
consistent with prudent management and fiscal soundness requirements.
    (2) A combined financial statement for the Part D plan sponsor and a 
party in interest if either of the following conditions is met:
    (i) Thirty five percent or more of the costs of operation of the 
Part D sponsor go to a party in interest.
    (ii) Thirty five percent or more of the revenue of a party in 
interest is from the Part D plan sponsor.
    (c) Requirements for combined financial statements. (1) The combined 
financial statements required by paragraph (b)(2) of this section must 
display in separate columns the financial information for the Part D 
plan sponsor and each of the parties in interest.
    (2) Inter-entity transactions must be eliminated in the consolidated 
column.
    (3) The statements must be examined by an independent auditor in 
accordance with generally accepted accounting principles and must 
include appropriate opinions and notes.
    (4) Upon written request from a Part D plan sponsor showing good 
cause, CMS may waive the requirement that the organization's combined 
financial statement include the financial information required in this 
paragraph (c) of this section for a particular entity.
    (d) Reporting and disclosure under Employee Retirement Income 
Security Act of 1974 (ERISA). (1) For any employees' health benefits 
plan that includes a Part D plan sponsor in its offerings, the PDP 
sponsor must furnish, upon request, the information the plan needs to 
fulfill its reporting and disclosure obligations (for the particular PDP 
sponsor) under the Employee Retirement Income Security Act of 1974 
(ERISA).
    (2) The PDP sponsor must furnish the information to the employer or 
the employer's designee, or to the plan administrator, as the term 
``administrator'' is defined in ERISA.
    (e) Loan information. Each Part D plan sponsor must notify CMS of 
any loans or other special financial arrangements it makes with 
contractors, subcontractors and related entities.

[[Page 411]]

    (f) Enrollee access to information. Each Part D plan sponsor must 
make the information reported to CMS under this section available to its 
enrollees upon reasonable request.



Sec. 423.516  Prohibition of midyear implementation of significant new regulatory requirements.

    CMS may not implement, other than at the beginning of a calendar 
year, regulations under this section that impose new, significant 
regulatory requirements on a PDP sponsor or a prescription drug plan.



Subpart L_Effect of Change of Ownership or Leasing of Facilities During 
                            Term of Contract



Sec. 423.551  General provisions.

    (a) Change of ownership. The following constitute a change of 
ownership:
    (1) Partnership. The removal, addition, or substitution of a 
partner, unless the partners expressly agree otherwise as permitted by 
applicable State law, constitutes a change of ownership.
    (2) Asset transfer. Transfer of substantially all the assets of the 
sponsor to another party constitutes a change of ownership.
    (3) Corporation. The merger of the PDP sponsor's corporation into 
another corporation or the consolidation of the PDP sponsor's 
organization with one or more other corporations, resulting in a new 
corporate body.
    (b) Change of ownership, exception. Transfer of corporate stock or 
the merger of another corporation into the PDP sponsor's corporation, 
with the PDP sponsor surviving, does not ordinarily constitute change of 
ownership.
    (c) Advance notice requirement. (1) A PDP sponsor that has a 
Medicare contract in effect under Sec. 423.502 and is considering or is 
negotiating a change in ownership must notify CMS at least 60 days 
before the anticipated effective date of the change. The PDP sponsor 
must also provide updated financial information and a discussion of the 
financial and solvency impact of the change of ownership on the 
surviving organization.
    (2) If the PDP sponsor fails to give CMS the required notice in a 
timely manner, it continues to be liable for payments that CMS makes to 
it on behalf of Medicare enrollees after the date of change of 
ownership.
    (d) Novation agreement defined. A novation agreement is an agreement 
among the current owner of the PDP sponsor, the prospective new owner, 
and CMS that--
    (1) Is embodied in a document executed and signed by all 3 parties;
    (2) Meets the requirements of Sec. 423.552; and
    (3) Recognizes the new owner as the successor in interest to the 
current owner's Medicare contract.
    (e) Effect of change of ownership without novation agreement. Except 
to the extent provided in paragraph (c)(2) of this section, the effect 
of a change of ownership without a novation agreement is that--
    (1) The existing contract becomes invalid; and
    (2) If the new owner wishes to participate in the Medicare program, 
it must apply for, and enter into, a contract in accordance with subpart 
K of this part.
    (f) Effect of change of ownership with novation agreement. If the 
PDP sponsor submits a novation agreement that meets the requirements of 
Sec. 423.552 and CMS signs it, the new owner becomes the successor in 
interest to the current owner's Medicare contract under Sec. 423.502.



Sec. 423.552  Novation agreement requirements.

    (a) Conditions for CMS approval of a novation agreement. CMS 
approves a novation agreement if the following conditions are met:
    (1) Advance notification. The PDP sponsor notifies CMS at least 60 
days before the date of the proposed change of ownership. The PDP 
sponsor also provides CMS with updated financial information and a 
discussion of the financial and solvency impact of the change of 
ownership on the surviving organization.
    (2) Advance submittal of agreement. The PDP sponsor submits to CMS, 
at least 30 days before the proposed change of ownership date, three 
signed

[[Page 412]]

copies of the novation agreement containing the provisions specified in 
paragraph (b) of this section, and one copy of other relevant documents 
required by CMS.
    (3) CMS's determination. When reviewing a novation agreement, CMS 
makes a determination concerning the following:
    (i) The proposed new owner is in fact a successor in interest to the 
contract.
    (ii) Recognition of the new owner as a successor in interest to the 
contract is in the best interest of the Medicare program.
    (iii) The successor organization meets the requirements to qualify 
as a PDP sponsor under subpart K of this part.
    (b) Provisions of a novation agreement. A valid novation agreement 
requires the following:
    (1) Assumption of contract obligations. The new owner must assume 
all obligations under the contract.
    (2) Waiver of right to reimbursement. The previous owner must waive 
its rights to reimbursement for covered services furnished during the 
rest of the current contract period.
    (3) Guarantee of performance. The previous owner must--
    (i) Guarantee performance of the contract by the new owner during 
the contract period; or
    (ii) Post a performance bond that is satisfactory to CMS.
    (4) Records access. The previous owner must agree to make its books 
and records and other necessary information available to the new owner 
and to CMS to permit an accurate determination of costs for the final 
settlement of the contract period.



Sec. 423.553  Effect of leasing of a PDP sponsor's facilities.

    (a) General effect of leasing. If a PDP sponsor leases all or part 
of its facilities to another entity, the other entity does not acquire 
PDP sponsor status under section 1860D-12(b) of the Act.
    (b) Effect of lease of all facilities. (1) If a PDP sponsor leases 
all of its facilities to another entity, the contract terminates.
    (2) If the other entity wishes to participate in Medicare as a PDP 
sponsor, it must apply for and enter into a contract in accordance with 
Sec. 423.502.
    (c) Effect of partial lease of facilities. If the PDP sponsor leases 
part of its facilities to another entity, its contract with CMS remains 
in effect while CMS surveys the PDP sponsor to determine whether it 
continues to be in compliance with the applicable requirements and 
qualifying conditions specified in subpart K of this part.



       Subpart M_Grievances, Coverage Determinations, and Appeals



Sec. 423.560  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Appeal means any of the procedures that deal with the review of 
adverse coverage determinations made by the Part D plan sponsor on the 
benefits under a Part D plan the enrollee believes he or she is entitled 
to receive, including delay in providing or approving the drug coverage 
(when a delay would adversely affect the health of the enrollee), or on 
any amounts the enrollee must pay for the drug coverage, as defined in 
Sec. 423.566(b). These procedures include redeterminations by the Part 
D plan sponsor, reconsiderations by the independent review entity, ALJ 
hearings, reviews by the Medicare Appeals Council (MAC), and judicial 
reviews.
    Appointed representative means an individual either appointed by an 
enrollee or authorized under State or other applicable law to act on 
behalf of the enrollee in obtaining a coverage determination or in 
dealing with any of the levels of the appeals process. Unless otherwise 
stated in this subpart, the appointed representative has all of the 
rights and responsibilities of an enrollee in obtaining a coverage 
determination or in dealing with any of the levels of the appeals 
process, subject to the rules described in part 422, subpart M of this 
chapter.
    Drug Use means an enrollee is receiving the drug in the course of 
treatment, including time off if it is part of the treatment.
    Enrollee means a Part D eligible individual who has elected or has 
been enrolled in a Part D plan.

[[Page 413]]

    Grievance means any complaint or dispute, other than one that 
involves a coverage determination, expressing dissatisfaction with any 
aspect of the operations, activities, or behavior of a Part D plan 
sponsor, regardless of whether remedial action is requested.
    Physician has the meaning given the term in section 1861(r) of the 
Act.
    Projected value means the charges incurred by the enrollee and 
future charges that are incurred within 12 months from the date the 
request for coverage determination or exception is received by the plan. 
Projected value includes enrollee co-payments, all expenditures incurred 
after an enrollee's expenditures exceed the initial coverage limit, and 
expenditures paid by other entities.
    Reconsideration means a review of an adverse coverage determination 
by an independent review entity (IRE), the evidence and findings upon 
which it was based, and any other evidence the enrollee submits or the 
IRE obtains.
    Redetermination means a review of an adverse coverage determination 
by a Part D plan sponsor, the evidence and findings upon which it is 
based, and any other evidence the enrollee submits or the Part D plan 
sponsor obtains.



Sec. 423.562  General provisions.

    (a) Responsibilities of the Part D plan sponsor. A Part D plan 
sponsor must meet all of the following requirements.
    (1) A Part D plan sponsor, for each Part D plan that it offers, must 
establish and maintain--
    (i) A grievance procedure as described in Sec. 423.564 for 
addressing issues that do not involve coverage determinations;
    (ii) A procedure for making timely coverage determinations, 
including determinations on requests for exceptions to a tiered cost-
sharing structure or to a formulary; and
    (iii) Appeal procedures that meet the requirements of this subpart 
for issues that involve coverage determinations.
    (2) A Part D plan sponsor must ensure that all enrollees receive 
written information about the--
    (i) Grievance and appeal procedures that are available to them 
through the Part D plan sponsor; and
    (ii) Complaint process available to the enrollee under the QIO 
process as set forth under section 1154(a)(14) of the Act.
    (3) A Part D plan sponsor must arrange with its network pharmacies 
to post or distribute notices instructing enrollees to contact their 
plans to obtain a coverage determination or request an exception if they 
disagree with the information provided by the pharmacist.
    (4) In accordance with subpart K of this part, if the Part D plan 
sponsor delegates any of its responsibilities under this subpart to 
another entity or individual through which the Part D plan sponsor 
provides covered benefits, the Part D plan sponsor is ultimately 
responsible for ensuring that the entity or individual satisfies the 
relevant requirements of this subpart.
    (b) Rights of enrollees. In accordance with the provisions of this 
subpart, enrollees have all of the following rights under Part D plans:
    (1) The right to have grievances between the enrollee and the Part D 
plan sponsor heard and resolved by the plan sponsor, as described in 
Sec. 423.564.
    (2) The right to a timely coverage determination by the Part D plan 
sponsor, as specified in Sec. 423.566 and Sec. 423.568, including the 
right to request from the Part D plan sponsor an exception to its tiered 
cost-sharing structure or formulary, as specified in Sec. 423.578.
    (3) The right to request from the Part D plan sponsor an expedited 
coverage determination, as specified in Sec. 423.570.
    (4) If dissatisfied with any part of a coverage determination, all 
of the following appeal rights:
    (i) The right to a redetermination of the adverse coverage 
determination by the Part D plan sponsor, as specified in Sec. 423.580.
    (ii) The right to request an expedited redetermination, as provided 
under Sec. 423.584.
    (iii) If, as a result of a redetermination, a Part D plan sponsor 
affirms, in whole or in part, its adverse coverage determination, the 
right to a reconsideration or expedited reconsideration by an 
independent review entity (IRE) contracted by CMS, as specified in Sec. 
423.600.

[[Page 414]]

    (iv) If the IRE affirms the plan's adverse coverage determination, 
in whole or in part, the right to an ALJ hearing if the amount in 
controversy meets the requirements in Sec. 423.610.
    (v) If the ALJ affirms the IRE's adverse coverage determination, in 
whole or in part, the right to request MAC review of the ALJ hearing 
decision, as specified in Sec. 423.620.
    (vi) If the MAC affirms the ALJ's adverse coverage determination, in 
whole or in part, the right to judicial review of the hearing decision 
if the amount in controversy meets the requirements in Sec. 423.630.
    (c) When other regulations apply. Unless this subpart provides 
otherwise, the regulations in part 422, subpart M of this chapter 
(concerning the administrative review and hearing processes under titles 
II and XVIII, and representation of parties under title XVIII of the 
Act) and any interpretive rules or CMS rulings issued under these 
regulations, apply under this subpart to the extent they are 
appropriate.
    (d) Relation to ERISA Requirements. Consistent with section 1860D-
22(b) of the Act, provisions of this subpart may, to the extent 
applicable under the regulations adopted by the Secretary of Labor, 
apply to claims for benefits under group health plans subject to the 
Employee Retirement Income Security Act.



Sec. 423.564  Grievance procedures.

    (a) General rule. Each Part D plan sponsor must provide meaningful 
procedures for timely hearing and resolving grievances between enrollees 
and the Part D plan sponsor or any other entity or individual through 
whom the Part D plan sponsor provides covered benefits under any Part D 
plan it offers.
    (b) Distinguished from appeals. Grievance procedures are separate 
and distinct from appeal procedures, which address coverage 
determinations as defined in Sec. 423.566(b). Upon receiving a 
complaint, a Part D plan sponsor must promptly determine and inform the 
enrollee whether the complaint is subject to its grievance procedures or 
its appeal procedures.
    (c) Distinguished from the quality improvement organization 
complaint process. Under section 1154(a)(14) of the Act, the quality 
improvement organization (QIO) must review enrollees' written complaints 
about the quality of services they have received under the Medicare 
program. This process is separate and distinct from the grievance 
procedures of the Part D plan sponsor. For quality of care issues, an 
enrollee may file a grievance with the Part D plan sponsor, file a 
written complaint with the QIO, or both. For any complaint submitted to 
a QIO, the Part D plan sponsor must cooperate with the QIO in resolving 
the complaint.
    (d) Method for filing a grievance. (1) An enrollee may file a 
grievance with the Part D plan sponsor either orally or in writing.
    (2) An enrollee must file a grievance no later than 60 days after 
the event or incident that precipitates the grievance.
    (e) Grievance disposition and notification. (1) The Part D plan 
sponsor must notify the enrollee of its decision as expeditiously as the 
case requires, based on the enrollee's health status, but no later than 
30 days after the date the Part D plan sponsor receives the oral or 
written grievance.
    (2) The Part D plan sponsor may extend the 30-day timeframe by up to 
14 days if the enrollee requests the extension or if the Part D plan 
sponsor justifies a need for additional information and documents how 
the delay is in the interest of the enrollee. When the Part D plan 
sponsor extends the deadline, it must immediately notify the enrollee in 
writing of the reason(s) for the delay.
    (3) The Part D plan sponsor must inform the enrollee of the 
disposition of the grievance in accordance with the following 
procedures:
    (i) All grievances submitted in writing must be responded to in 
writing.
    (ii) Grievances submitted orally may be responded to either orally 
or in writing, unless the enrollee requests a written response.
    (iii) All grievances related to quality of care, regardless of how 
the grievance is filed, must be responded to in writing. The response 
must include a description of the enrollee's right to file a written 
complaint with the QIO. For any complaint submitted to a QIO, the

[[Page 415]]

Part D plan sponsor must cooperate with the QIO in resolving the 
complaint.
    (f) Expedited grievances. A Part D plan sponsor must respond to an 
enrollee's grievance within 24 hours if the complaint involves a refusal 
by the Part D plan sponsor to grant an enrollee's request for an 
expedited coverage determination under Sec. 423.570 or an expedited 
redetermination under Sec. 423.584, and the enrollee has not yet 
purchased or received the drug that is in dispute.
    (g) Record keeping. The Part D plan sponsor must have an established 
process to track and maintain records on all grievances received both 
orally and in writing, including, at a minimum, the date of receipt, 
final disposition of the grievance, and the date that the enrollee was 
notified of the disposition.



Sec. 423.566  Coverage determinations.

    (a) Responsibilities of the Part D plan sponsor. Each Part D plan 
sponsor must have a procedure for making timely coverage determinations 
in accordance with the requirements of this subpart regarding the 
prescription drug benefits an enrollee is entitled to receive under the 
plan, including basic prescription drug coverage as specified in Sec. 
423.100 and supplemental benefits as specified in Sec. 
423.104(f)(1)(ii), and the amount, including cost sharing, if any, that 
the enrollee is required to pay for a drug. The Part D plan sponsor must 
have a standard procedure for making determinations, in accordance with 
Sec. 423.568, and an expedited procedure for situations in which 
applying the standard procedure may seriously jeopardize the enrollee's 
life, health, or ability to regain maximum function, in accordance with 
Sec. 423.570.
    (b) Actions that are coverage determinations. The following actions 
by a Part D plan sponsor are coverage determinations:
    (1) A decision not to provide or pay for a Part D drug (including a 
decision not to pay because the drug is not on the plan's formulary, 
because the drug is determined not to be medically necessary, because 
the drug is furnished by an out-of-network pharmacy, or because the Part 
D plan sponsor determines that the drug is otherwise excludable under 
section 1862(a) of the Act if applied to Medicare Part D) that the 
enrollee believes may be covered by the plan;
    (2) Failure to provide a coverage determination in a timely manner, 
when a delay would adversely affect the health of the enrollee;
    (3) A decision concerning an exceptions request under Sec. 
423.578(a);
    (4) A decision concerning an exceptions request under Sec. 
423.578(b); or
    (5) A decision on the amount of cost sharing for a drug.
    (c) Who can request a coverage determination. Individuals who can 
request a standard or expedited coverage determination are--
    (1) The enrollee;
    (2) The enrollee's appointed representative, on behalf of the 
enrollee; or
    (3) The prescribing physician, on behalf of the enrollee.



Sec. 423.568  Standard timeframe and notice requirements for coverage determinations.

    (a) Timeframe for requests for drug benefits. When a party makes a 
request for a drug benefit, the Part D plan sponsor must notify the 
enrollee (and the prescribing physician involved, as appropriate) of its 
determination as expeditiously as the enrollee's health condition 
requires, but no later than 72 hours after receipt of the request, or, 
for an exceptions request, the physician's supporting statement.
    (b) Timeframe for requests for payment. When a party makes a request 
for payment, the Part D plan sponsor must notify the enrollee of its 
determination no later than 72 hours after receipt of the request.
    (c) Written notice for denials by a Part D plan sponsor. If a Part D 
plan sponsor decides to deny a drug benefit, in whole or in part, it 
must give the enrollee written notice of the determination.
    (d) Form and content of the denial notice. The notice of any denial 
under paragraph (c) of this section must--
    Use approved notice language in a readable and understandable form;
    State the specific reasons for the denial;
    Inform the enrollee of his or her right to a redetermination;

[[Page 416]]

    (i) For drug coverage denials, describe both the standard and 
expedited redetermination processes, including the enrollee's right to, 
and conditions for, obtaining an expedited redetermination and the rest 
of the appeals process;
    (ii) For payment denials, describe the standard redetermination 
process and the rest of the appeals process; and
    Comply with any other notice requirements specified by CMS.
    (e) Effect of failure to meet the adjudicatory timeframes. If the 
Part D plan sponsor fails to notify the enrollee of its determination in 
the appropriate timeframe under paragraphs (a) or (b) of this section, 
the failure constitutes an adverse coverage determination, and the plan 
sponsor must forward the enrollee's request to the IRE within 24 hours 
of the expiration of the adjudication timeframe.



Sec. 423.570  Expediting certain coverage determinations.

    (a) Request for expedited determination. An enrollee or an 
enrollee's prescribing physician may request that a Part D plan sponsor 
expedite a coverage determination involving issues described in Sec. 
423.566(b). This does not include requests for payment of Part D drugs 
already furnished.
    (b) How to make a request. (1) To ask for an expedited 
determination, an enrollee or an enrollee's prescribing physician on 
behalf of the enrollee must submit an oral or written request directly 
to the Part D plan sponsor, or if applicable, to the entity responsible 
for making the determination, as directed by the Part D plan sponsor.
    (2) A prescribing physician may provide oral or written support for 
an enrollee's request for an expedited determination.
    (c) How the Part D plan sponsor must process requests. The Part D 
plan sponsor must establish and maintain the following procedures for 
processing requests for expedited determinations:
    (1) An efficient and convenient means for accepting oral or written 
requests submitted by enrollees or prescribing physicians.
    (2) A method for documenting all oral requests and maintaining the 
documentation in the case file; and
    (3) A means for issuing prompt decisions on expediting a 
determination, based on the following requirements:
    (i) For a request made by an enrollee, provide an expedited 
determination if it determines that applying the standard timeframe for 
making a determination may seriously jeopardize the life or health of 
the enrollee or the enrollee's ability to regain maximum function.
    (ii) For a request made or supported by an enrollee's prescribing 
physician, provide an expedited determination if the physician indicates 
that applying the standard timeframe for making a determination may 
seriously jeopardize the life or health of the enrollee or the 
enrollee's ability to regain maximum function.
    (d) Actions following denial. If a Part D plan sponsor denies a 
request for expedited determination, it must take the following actions:
    (1) Make the determination within the 72 hour timeframe established 
in Sec. 423.568(a) for a standard determination. The 72 hour period 
begins on the day the Part D plan sponsor receives the request for 
expedited determination, or, for an exceptions request, the physician's 
supporting statement.
    (2) Give the enrollee and prescribing physician prompt oral notice 
of the denial that--
    (i) Explains that the Part D plan sponsor must process the request 
using the 72 hour timeframe for standard determinations;
    (ii) Informs the enrollee of the right to file an expedited 
grievance if he or she disagrees with the decision by the Part D plan 
sponsor not to expedite;
    (iii) Informs the enrollee of the right to resubmit a request for an 
expedited determination with the prescribing physician's support; and
    (iv) Provides instructions about the plan's grievance process and 
its timeframes.
    (3) Subsequently deliver, within 3 calendar days, equivalent written 
notice.
    (e) Actions on accepted requests for expedited determination. If a 
Part D plan sponsor grants a request for expedited determination, it 
must make the determination and give notice in accordance with Sec. 
423.572.

[[Page 417]]



Sec. 423.572  Timeframes and notice requirements for expedited coverage determinations.

    (a) Timeframe for determinations and notification. Except as 
provided in paragraph (b) of this section, a Part D plan sponsor that 
approves a request for expedited determination must make its 
determination and notify the enrollee (and the prescribing physician 
involved, as appropriate) of its decision, whether adverse or favorable, 
as expeditiously as the enrollee's health condition requires, but no 
later than 24 hours after receiving the request, or, for an exceptions 
request, the physician's supporting statement.
    (b) Confirmation of oral notice. If the Part D plan sponsor first 
notifies an enrollee of an adverse expedited determination orally, it 
must mail written confirmation to the enrollee within 3 calendar days of 
the oral notification.
    (c) Content of the notice of expedited determination.
    (1) The notice of any expedited determination must state the 
specific reasons for the determination in understandable language.
    (2) If the determination is not completely favorable to the 
enrollee, the notice must--
    (i) Inform the enrollee of his or her right to a redetermination;
    (ii) Describe both the standard and expedited redetermination 
processes, including the enrollee's right to request, and conditions for 
obtaining, an expedited redetermination, and the rest of the appeal 
process; and
    (iii) Comply with any other requirements specified by CMS.
    (d) Effect of failure to meet the adjudicatory timeframes. If the 
Part D plan sponsor fails to notify the enrollee of its determination in 
the timeframe specified in paragraph (a) of this section, the failure 
constitutes an adverse coverage determination, and the Part D plan 
sponsor must forward the enrollee's request to the IRE within 24 hours 
of the expiration of the adjudication timeframe.



Sec. 423.576  Effect of a coverage determination.

    The coverage determination is binding on the Part D plan sponsor and 
the enrollee unless it is reviewed and revised under Sec. 423.580 
through Sec. 423.630 or is reopened and revised under Sec. 423.634.



Sec. 423.578  Exceptions process.

    (a) Requests for exceptions to a plan's tiered cost-sharing 
structure. Each Part D plan sponsor that provides prescription drug 
benefits for Part D drugs and manages this benefit through the use of a 
tiered formulary must establish and maintain reasonable and complete 
exceptions procedures subject to CMS' approval for this type of coverage 
determination. The Part D plan sponsor grants an exception whenever it 
determines that the non-preferred drug for treatment of the enrollee's 
condition is medically necessary, consistent with the physician's 
statement under paragraph (a)(4) of this section.
    (1) The exceptions procedures must address situations where a 
formulary's tiering structure changes during the year and an enrollee is 
using a drug affected by the change.
    (2) The exceptions criteria of a Part D plan sponsor must include, 
but are not limited to--
    (i) A description of the criteria a Part D plan sponsor uses to 
evaluate a determination made by the enrollee's prescribing physician 
under paragraph (a)(4) of this section.
    (ii) Consideration of whether the requested Part D drug that is the 
subject of the exceptions request is the therapeutic equivalent, as 
defined in Sec. 423.100, of any other drug on the plan's formulary.
    (iii) Consideration of the number of drugs on the plan's formulary 
that are in the same class and category as the requested prescription 
drug that is the subject of the exceptions request.
    (3) An enrollee or the enrollee's prescribing physician may file a 
request for an exception.
    (4) A prescribing physician must provide an oral or written 
supporting statement that the preferred drug for the treatment of the 
enrollee's condition--
    (i) Would not be as effective for the enrollee as the requested 
drug;
    (ii) Would have adverse effects for the enrollee; or
    (iii) Both paragraphs (a)(4)(i) and (a)(4)(ii) of this section 
apply.

[[Page 418]]

    (5) If the physician provides an oral supporting statement, the Part 
D plan sponsor may require the physician to subsequently provide a 
written supporting statement to demonstrate the medical necessity of the 
drug. The Part D plan sponsor may require the prescribing physician to 
provide additional supporting medical documentation as part of the 
written follow-up.
    (6) In no case is a Part D plan sponsor required to cover a non-
preferred drug at the generic drug cost-sharing level if the plan 
maintains a separate tier dedicated to generic drugs.
    (7) If a Part D plan sponsor maintains a formulary tier in which it 
places very high cost and unique items, such as genomic and biotech 
products, the sponsor may design its exception process so that very high 
cost or unique drugs are not eligible for a tiering exception.
    (b) Request for exceptions involving a non-formulary Part D drug. 
Each Part D plan sponsor that provides prescription drug benefits for 
Part D drugs and manages this benefit through the use of a formulary 
must establish and maintain exceptions procedures subject to CMS' 
approval for receipt of an off-formulary drug. The Part D plan sponsor 
must grant an exception whenever it determines that the drug is 
medically necessary, consistent with the physician's statement under 
paragraph (b)(5) of this section, and that the drug would be covered but 
for the fact that it is an off-formulary drug. Formulary use includes 
the application of cost utilization tools, such as a dose restriction, 
including the dosage form, that causes a particular Part D drug not to 
be covered for the number of doses prescribed or a step therapy 
requirement that causes a particular Part D drug not to be covered until 
the requirements of the plan's coverage policy are met, or a therapeutic 
substitution requirement.
    (1) The plan's formulary exceptions process must address each of the 
following circumstances:
    (i) Situations where a formulary changes during the year, and 
situations where an enrollee is already using a given drug.
    (ii) Continued coverage of a particular Part D prescription drug 
that the Part D plan sponsor is discontinuing coverage on the formulary 
for reasons other than safety or because the Part D prescription drug 
cannot be supplied by or was withdrawn from the market by the drug's 
manufacturer.
    (iii) An exception to a plan's coverage policy that causes a Part D 
prescription drug not to be covered because of cost utilization tools, 
such as a requirement for step therapy, dosage limitations, or 
therapeutic substitution.
    (2) The exception criteria of a Part D plan sponsor must include, 
but are not limited to--
    (i) A description of the criteria a Part D plan sponsor uses to 
evaluate a prescribing physician's determination made under paragraph 
(b)(5) of this section;
    (ii) A process for gathering and comparing applicable medical and 
scientific evidence on the safety and effectiveness of the requested 
non-formulary drug with the formulary drug for the enrollee, including 
safety information generated by an authoritative government body; and
    (iii) A description of the cost-sharing scheme that will be applied 
when coverage is provided for a non-formulary drug.
    (3) If the Part D plan sponsor covers a non-formulary drug, the 
cost(s) incurred by the enrollee for that drug are treated as being 
included for purposes of calculating and meeting the annual out-of-
pocket threshold.
    (4) An enrollee, the enrollee's appointed representative, or the 
prescribing physician (on behalf of the enrollee) may file a request for 
an exception.
    (5) A prescribing physician must provide an oral or written 
supporting statement that the requested prescription drug is medically 
necessary to treat the enrollee's disease or medical condition because--
    (i) All of the covered Part D drugs on any tier of a plan's 
formulary for treatment for the same condition would not be as effective 
for the enrollee as the non-formulary drug, would have adverse effects 
for the enrollee, or both;

[[Page 419]]

    (ii) The prescription drug alternative(s) listed on the formulary or 
required to be used in accordance with step therapy requirements--
    (A) Has been ineffective in the treatment of the enrollee's disease 
or medical condition or, based on both sound clinical evidence and 
medical and scientific evidence and the known relevant physical or 
mental characteristics of the enrollee and known characteristics of the 
drug regimen, is likely to be ineffective or adversely affect the drug's 
effectiveness or patient compliance; or
    (B) Has caused or based on sound clinical evidence and medical and 
scientific evidence, is likely to cause an adverse reaction or other 
harm to the enrollee; or
    (iii) The number of doses that is available under a dose restriction 
for the prescription drug has been ineffective in the treatment of the 
enrollee's disease or medical condition or, based on both sound clinical 
evidence and medical and scientific evidence and the known relevant 
physical or mental characteristics of the enrollee and known 
characteristics of the drug regimen, is likely to be ineffective or 
adversely affect the drug's effectiveness or patient compliance.
    (6) If the physician provides an oral supporting statement, the Part 
D plan sponsor may require the physician to subsequently provide a 
written supporting statement. The Part D plan sponsor may require the 
prescribing physician to provide additional supporting medical 
documentation as part of the written follow-up.
    (c) Requirements for exceptions--(1) General rule. A decision by a 
Part D plan sponsor concerning an exceptions request under this section 
constitutes a coverage determination as specified at Sec. 423.566.
    (2) When a Part D plan sponsor does not make a timely decision. If 
the Part D plan sponsor fails to make a decision on an exceptions 
request and provide notice of the decision within the timeframe required 
under Sec. 423.568(a) or Sec. 423.572(a), as applicable, the failure 
constitutes an adverse coverage determination, and the Part D plan 
sponsor must forward the enrollee's request to the IRE within 24 hours 
of the expiration of the adjudication timeframe.
    (3) When a tiering exceptions request is approved. Whenever an 
exceptions request made under Sec. 423.578(a) is approved, the Part D 
plan sponsor must provide coverage for the approved prescription drug at 
the cost-sharing level that applies for preferred drugs, and may not 
require the enrollee to request approval for a refill, or a new 
prescription to continue using the Part D prescription drug after the 
refills for the initial prescription are exhausted, as long as--
    (i) The enrollee's prescribing physician continues to prescribe the 
drug;
    (ii) The drug continues to be considered safe for treating the 
enrollee's disease or medical condition; and
    (iii) The enrollment period has not expired. If an enrollee renews 
his or her membership after the plan year, the plan may choose to 
continue coverage into the subsequent plan year.
    (4) When a non-formulary exceptions request is approved. Whenever an 
exceptions request made under Sec. 423.578(b) is approved--
    (i) The Part D plan sponsor may not require the enrollee to request 
approval for a refill, or a new prescription to continue using the Part 
D prescription drug after the refills for the initial prescription are 
exhausted, as long as--
    (A) The enrollee's prescribing physician continues to prescribe the 
drug;
    (B) The drug continues to be considered safe for treating the 
enrollee's disease or medical condition; and
    (C) The enrollment period has not expired. If an enrollee renews his 
or her membership after the plan year, the plan may choose to continue 
coverage into the subsequent plan year.
    (ii) The Part D plan sponsor must not establish a special formulary 
tier or co-payment or other cost-sharing requirement that is applicable 
only to prescription drugs approved for coverage under this section.
    (iii) An enrollee may not request a tiering exception for a non-
formulary prescription drug approved under Sec. 423.578(b).
    (d) Notice regarding formulary changes. Whenever a Part D plan 
sponsor removes a covered part D drug from its formulary or makes any 
changes in the

[[Page 420]]

preferred or tiered cost-sharing status of such a drug, the Part D plan 
sponsor must provide notice in accordance with Sec. 423.120(b)(5).
    (e) Limitation of the exceptions procedures to Part D drugs. Nothing 
in this section may be construed to allow an enrollee to use the 
exceptions processes set out in this section to request or be granted 
coverage for a prescription drug that does not meet the definition of a 
Part D drug.
    (f) Implication of the physician's supporting statement. Nothing in 
this section should be construed to mean that the physician's supporting 
statement required for an exceptions request will result in an automatic 
favorable determination.



Sec. 423.580  Right to a redetermination.

    An enrollee who has received a coverage determination (including one 
that is reopened and revised as described in Sec. 423.634) may request 
that it be redetermined under the procedures described in Sec. 423.582, 
which address requests for a standard redetermination. An enrollee or an 
enrollee's prescribing physician (acting on behalf of an enrollee) may 
request an expedited redetermination specified in Sec. 423.584.



Sec. 423.582  Request for a standard redetermination.

    (a) Method and place for filing a request. An enrollee must ask for 
a redetermination by making a written request with the Part D plan 
sponsor that made the coverage determination. The Part D plan sponsor 
may adopt a policy for accepting oral requests.
    (b) Timeframe for filing a request. Except as provided in paragraph 
(c) of this section, an enrollee must file a request for a 
redetermination within 60 calendar days from the date of the notice of 
the coverage determination.
    (c) Extending the time for filing a request--(1) General rule. If an 
enrollee shows good cause, the Part D plan sponsor may extend the 
timeframe for filing a request for redetermination.
    (2) How to request an extension of timeframe. If the 60-day period 
in which to file a request for a redetermination has expired, an 
enrollee may file a request for redetermination and extension of time 
frame with the Part D plan sponsor. The request for redetermination and 
to extend the timeframe must--
    (i) Be in writing; and
    (ii) State why the request for redetermination was not filed on 
time.
    (d) Withdrawing a request. The person who files a request for 
redetermination may withdraw it by filing a written request with the 
Part D sponsor.



Sec. 423.584  Expediting certain redeterminations.

    (a) Who may request an expedited redetermination. An enrollee or an 
enrollee's prescribing physician may request that a Part D plan sponsor 
expedite a redetermination that involves the issues specified in Sec. 
423.566(b). (This does not include requests for payment of drugs already 
furnished.)
    (b) How to make a request. (1) To ask for an expedited 
redetermination, an enrollee or a prescribing physician acting on behalf 
of an enrollee must submit an oral or written request directly to the 
Part D plan sponsor or, if applicable, to the entity responsible for 
making the redetermination, as directed by the Part D plan sponsor.
    (2) A prescribing physician may provide oral or written support for 
an enrollee's request for an expedited redetermination.
    (c) How the Part D plan sponsor must process requests. The Part D 
plan sponsor must establish and maintain the following procedures for 
processing requests for expedited redetermination:
    (1) Handling of requests. The Part D plan sponsor must establish an 
efficient and convenient means for individuals to submit oral or written 
requests, document all oral requests in writing, and maintain the 
documentation in the case file.
    (2) Prompt decision making. The Part D plan sponsor must promptly 
decide whether to expedite the redetermination or follow the timeframe 
for standard redetermination based on the following requirements:
    (i) For a request made by an enrollee, the Part D plan sponsor must 
provide an expedited redetermination if it determines that applying the 
standard timeframe for making a redetermination may seriously jeopardize 
the life

[[Page 421]]

or health of the enrollee or the enrollee's ability to regain maximum 
function.
    (ii) For a request made or supported by a prescribing physician, the 
Part D plan sponsor must provide an expedited redetermination if the 
physician indicates that applying the standard timeframe for conducting 
a redetermination may seriously jeopardize the life or health of the 
enrollee or the enrollee's ability to regain maximum function.
    (d) Actions following denial of a request. If a Part D plan sponsor 
denies a request for expedited redetermination, it must take the 
following actions:
    (1) Make the determination within the 7-day timeframe established in 
Sec. 423.590(a). The 7-day period begins the day the Part D plan 
sponsor receives the request for expedited redetermination.
    (2) Give the enrollee prompt oral notice of the denial that--
    (i) Explains that the Part D plan sponsor processes the enrollee's 
request using the 7-day timeframe for standard redetermination;
    (ii) Informs the enrollee of the right to file an expedited 
grievance if he or she disagrees with the decision by the Part D plan 
sponsor not to expedite;
    (iii) Informs the enrollee of the right to resubmit a request for an 
expedited redetermination with the prescribing physician's support; and
    (iv) Provides instructions about the expedited grievance process and 
its timeframes.
    (3) Subsequently deliver, within three calendar days, equivalent 
written notice.
    (e) Action following acceptance of a request. If a Part D plan 
sponsor grants a request for expedited redetermination, it must conduct 
the redetermination and give notice in accordance with Sec. 423.590(d).



Sec. 423.586  Opportunity to submit evidence.

    The Part D plan sponsor must provide the enrollee or the prescribing 
physician, as appropriate, with a reasonable opportunity to present 
evidence and allegations of fact or law, related to the issue in 
dispute, in person as well as in writing. In the case of an expedited 
redetermination, the opportunity to present evidence is limited by the 
short timeframe for making a decision. Therefore, the Part D plan 
sponsor must inform the enrollee or the prescribing physician of the 
conditions for submitting the evidence.



Sec. 423.590  Timeframes and responsibility for making redeterminations.

    (a) Standard redetermination--request for covered drug benefits. (1) 
If the Part D plan sponsor makes a redetermination that is completely 
favorable to the enrollee, the Part D plan sponsor must notify the 
enrollee in writing of its redetermination (and effectuate it in 
accordance with Sec. 423.636(a)(1)) as expeditiously as the enrollee's 
health condition requires, but no later than 7 calendar days from the 
date it receives the request for a standard redetermination.
    (2) If the Part D plan sponsor makes a redetermination that affirms, 
in whole or in part, its adverse coverage determination, it must notify 
the enrollee in writing of its redetermination as expeditiously as the 
enrollee's health condition requires, but no later than 7 calendar days 
from the date it receives the request for a standard redetermination.
    (b) Standard redetermination--request for payment. (1) If the Part D 
plan sponsor makes a redetermination that is completely favorable to the 
enrollee, the Part D plan sponsor must issue its redetermination (and 
effectuate it in accordance with Sec. 423.636(a)(2)) no later than 7 
calendar days from the date it receives the request for redetermination.
    (2) If the Part D plan sponsor affirms, in whole or in part, its 
adverse coverage determination, it must notify the enrollee in writing 
of its redetermination no later than 7 calendar days from the date it 
receives the request for redetermination.
    (c) Effect of failure to meet timeframe for standard 
redeterminations. If the Part D plan sponsor fails to provide the 
enrollee with a redetermination within the timeframes specified in 
paragraphs (a) or (b) of this section, the failure constitutes an 
adverse redetermination decision, and the Part D plan sponsor must 
forward the enrollee's request to

[[Page 422]]

the IRE within 24 hours of the expiration of the adjudication timeframe.
    (d) Expedited redetermination--(1) Timeframe. A Part D plan sponsor 
that approves a request for expedited redetermination must complete its 
redetermination and give the enrollee (and the prescribing physician 
involved, as appropriate), notice of its decision as expeditiously as 
the enrollee's health condition requires but no later than 72 hours 
after receiving the request.
    (2) How the Part D plan sponsor must request additional information. 
If the Part D plan sponsor must receive medical information, the Part D 
plan sponsor must request the necessary information within 24 hours of 
the initial request for an expedited redetermination. Regardless of 
whether the Part D plan sponsor requests additional information, the 
Part D plan sponsor is responsible for meeting the timeframe and notice 
requirements.
    (e) Failure to meet timeframe for expedited redetermination. If the 
Part D plan sponsor fails to provide the enrollee or the prescribing 
physician, as appropriate, with the results of its expedited 
redetermination within the timeframe described in paragraph (d) of this 
section, the failure constitutes an adverse redetermination decision, 
and the Part D plan sponsor must forward the enrollee's request to the 
IRE within 24 hours of the expiration of the adjudication timeframe.
    (f) Who must conduct the review of an adverse coverage 
determination. (1) A person or persons who were not involved in making 
the coverage determination must conduct the redetermination.
    (2) When the issue is the denial of coverage based on a lack of 
medical necessity (or any substantively equivalent term used to describe 
the concept of medical necessity), the redetermination must be made by a 
physician with expertise in the field of medicine that is appropriate 
for the services at issue. The physician making the redetermination need 
not, in all cases, be of the same specialty or subspecialty as the 
prescribing physician.
    (g) Form and content of an adverse redetermination notice. The 
notice of any adverse determination under paragraphs (a)(2) or (b)(2) of 
this section must--
    (1) Use approved notice language in a readable and understandable 
form;
    (2) State the specific reasons for the denial;
    (3) Inform the enrollee of his or her right to a reconsideration;
    (i) For adverse drug coverage redeterminations, describe both the 
standard and expedited reconsideration processes, including the 
enrollee's right to, and conditions for, obtaining an expedited 
reconsideration and the rest of the appeals process;
    (ii) For adverse payment redeterminations, describe the standard 
reconsideration process and the rest of the appeals process; and
    (4) Comply with any other notice requirements specified by CMS.



Sec. 423.600  Reconsideration by an independent review entity (IRE).

    (a) An enrollee who is dissatisfied with the redetermination of a 
Part D plan sponsor has a right to a reconsideration by an independent 
review entity that contracts with CMS. An enrollee must file a written 
request for reconsideration with the IRE within 60 days of the date of 
the redetermination by the Part D plan sponsor.
    (b) When an enrollee files an appeal, the IRE is required to solicit 
the views of the prescribing physician. The IRE may solicit the views of 
the prescribing physician orally or in writing. A written account of the 
prescribing physician's views (prepared by either the prescribing 
physician or IRE, as appropriate) must be contained in the IRE's record.
    (c) In order for an enrollee to request an IRE reconsideration of a 
determination by a Part D plan sponsor not to provide for a Part D drug 
that is not on the formulary, the prescribing physician must determine 
that all covered Part D drugs on any tier of the formulary for treatment 
of the same condition would not be as effective for the individual as 
the non-formulary drug, would have adverse effects for the individual, 
or both.
    (d) The independent review entity must conduct the reconsideration 
as expeditiously as the enrollee's health condition requires but must 
not exceed

[[Page 423]]

the deadlines applicable in Sec. 423.590, including those deadlines 
that are applicable when a request for an expedited reconsideration is 
received and granted.
    (e) When the issue is the denial of coverage based on a lack of 
medical necessity (or any substantively equivalent term used to describe 
the concept of medical necessity), the reconsideration must be made by a 
physician with expertise in the field of medicine that is appropriate 
for the services at issue. The physician making the reconsideration need 
not, in all cases, be of the same specialty or subspecialty as the 
prescribing physician.



Sec. 423.602  Notice of reconsideration determination by the independent review entity.

    (a) Responsibility for the notice. When the IRE makes its 
reconsideration determination, it is responsible for mailing a notice of 
its determination to the enrollee and the Part D plan sponsor, and for 
sending a copy to CMS.
    (b) Content of the notice. The notice must--
    (1) State the specific reasons for the IRE's decision in 
understandable language;
    (2) If the reconsideration determination is adverse (that is, does 
not completely reverse the adverse coverage determination by the Part D 
plan sponsor), inform the enrollee of his or her right to an ALJ hearing 
if the amount in controversy meets the threshold requirement under Sec. 
423.610;
    (3) Describe the procedures that must be followed to obtain an ALJ 
hearing; and
    (4) Comply with any other requirements specified by CMS.



Sec. 423.604  Effect of a reconsideration determination.

    A reconsideration determination is final and binding on the enrollee 
and the Part D plan sponsor, unless the enrollee files a request for a 
hearing under the provisions of Sec. 423.612.



Sec. 423.610  Right to an ALJ hearing.

    (a) If the amount remaining in controversy after the IRE 
reconsideration meets the threshold requirement established annually by 
the Secretary, an enrollee who is dissatisfied with the IRE 
reconsideration determination has a right to a hearing before an ALJ.
    (b) If the basis for the appeal is the refusal by the Part D plan 
sponsor to provide drug benefits, CMS uses the projected value of those 
benefits to compute the amount remaining in controversy. The projected 
value of a Part D drug or drugs shall include any costs the enrollee 
could incur based on the number of refills prescribed for the drug(s) in 
dispute during the plan year.
    (c) Aggregating appeals to meet the amount in controversy--(1) 
Enrollee. Two or more appeals may be aggregated by an enrollee to meet 
the amount in controversy for an ALJ hearing if--
    (i) The appeals have previously been reconsidered by an IRE;
    (ii) The request for ALJ hearing lists all of the appeals to be 
aggregated and each aggregated appeal meets the filing requirement 
specified in Sec. 423.612(b); and
    (iii) The ALJ determines that the appeals the enrollee seeks to 
aggregate involve the delivery of prescription drugs to a single 
enrollee.
    (2) Multiple enrollees. Two or more appeals may be aggregated by 
multiple enrollees to meet the amount in controversy for an ALJ hearing 
if--
    The appeals have previously been reconsidered by an IRE;
    The request for ALJ hearing lists all of the appeals to be 
aggregated and each aggregated appeal meets the filing requirement 
specified in Sec. 423.612(b); and
    The ALJ determines that the appeals the enrollees seek to aggregate 
involve the same prescription drug.



Sec. 423.612  Request for an ALJ hearing.

    (a) How and where to file a request. The enrollee must file a 
written request for a hearing with the entity specified in the IRE's 
reconsideration notice.
    (b) When to file a request. Except when an ALJ extends the timeframe 
as provided in part 422, subpart M of this chapter, the enrollee must 
file a request for a hearing within 60 days of the date of the notice of 
an IRE reconsideration determination. The time and place for a hearing 
before an ALJ will

[[Page 424]]

be set in accordance with Sec. 405.1020 of this chapter.
    (c) Insufficient amount in controversy. (1) If a request for a 
hearing clearly shows that the amount in controversy is less than that 
required under Sec. 423.610, the ALJ dismisses the request.
    (2) If, after a hearing is initiated, the ALJ finds that the amount 
in controversy is less than the amount required under Sec. 423.610, the 
ALJ discontinues the hearing and does not rule on the substantive issues 
raised in the appeal.



Sec. 423.620  Medicare Appeals Council (MAC) review.

    An enrollee who is dissatisfied with an ALJ hearing decision may 
request that the MAC review the ALJ's decision or dismissal. The 
regulations under part 422, subpart M of this chapter regarding MAC 
review apply to matters addressed by this subpart, to the extent 
applicable.



Sec. 423.630  Judicial review.

    (a) Review of ALJ's decision. The enrollee may request judicial 
review of an ALJ's decision if--
    (1) The MAC denied the enrollee's request for review; and
    (2) The amount in controversy meets the threshold requirement 
established annually by the Secretary.
    (b) Review of MAC decision. The enrollee may request judicial review 
of the MAC decision if it is the final decision of CMS and the amount in 
controversy meets the threshold established in paragraph (a)(2) of this 
section.
    (c) How to request judicial review. In order to request judicial 
review, an enrollee must file a civil action in a district court of the 
United States in accordance with section 205(g) of the Act. (See part 
422, subpart M of this chapter, for a description of the procedures to 
follow in requesting judicial review.)



Sec. 423.634  Reopening and revising determinations and decisions.

    (a) A coverage determination or redetermination made by a Part D 
plan sponsor, a reconsideration made by the independent review entity 
specified in Sec. 423.600, or the decision of an ALJ or the MAC that is 
otherwise final and binding may be reopened and revised by the entity 
that made the determination or decision, under the rules in part 422, 
subpart M of this chapter.
    (b) The filing of a request for reopening does not relieve the Part 
D plan sponsor of its obligation to make payment or provide benefits as 
specified in Sec. 423.636 or Sec. 423.638.
    (c) Once an entity issues a revised determination or decision, the 
revisions made by the decision may be appealed.
    (d) A decision not to reopen by the Part D plan sponsor or any other 
entity is not subject to review.



Sec. 423.636  How a Part D plan sponsor must effectuate standard redeterminations, reconsiderations, or decisions.

    (a) Reversals by the Part D plan sponsor--(1) Requests for benefits. 
If, on redetermination of a request for benefit, the Part D plan sponsor 
reverses its coverage determination, the Part D plan sponsor must 
authorize or provide the benefit under dispute as expeditiously as the 
enrollee's health condition requires, but no later than 7 calendar days 
from the date it receives the request for redetermination.
    (2) Requests for payment. If, on redetermination of a request for 
payment, the Part D plan sponsor reverses its coverage determination, 
the Part D plan sponsor must authorize payment for the benefit within 7 
calendar days from the date it receives the request for redetermination, 
and make payment no later than 30 calendar days after the date the plan 
sponsor receives the request for redetermination.
    (b) Reversals other than by the Part D plan sponsor--(1) Requests 
for benefits. If, on appeal of a request for benefit, the determination 
by the Part D plan sponsor is reversed in whole or in part by the 
independent review entity, or at a higher level of appeal, the Part D 
plan sponsor must authorize or provide the benefit under dispute within 
72 hours from the date it receives notice reversing the determination. 
The Part D plan sponsor must inform the independent review entity that 
the Part D plan sponsor has effectuated the decision.
    (2) Requests for payment. If, on appeal of a request for payment, 
the determination by the Part D plan sponsor is

[[Page 425]]

reversed in whole or in part by the independent review entity, or at a 
higher level of appeal, the Part D plan sponsor must authorize payment 
for the benefit within 72 hours, but make payment no later than 30 
calendar days from the date it receives notice reversing the coverage 
determination. The Part D plan sponsor must inform the independent 
review entity that the Part D plan sponsor has effectuated the decision.



Sec. 423.638  How a Part D plan sponsor must effectuate expedited redeterminations or reconsiderations.

    (a) Reversals by the Part D plan sponsor. If, on an expedited 
redetermination of a request for benefits, the Part D plan sponsor 
reverses its coverage determination, the Part D plan sponsor must 
authorize or provide the benefit under dispute as expeditiously as the 
enrollee's health condition requires, but no later than 72 hours after 
the date the Part D plan sponsor receives the request for 
redetermination.
    (b) Reversals other than by the Part D plan sponsor. If the 
expedited determination or expedited redetermination for benefits by the 
Part D plan sponsor is reversed in whole or in part by the independent 
review entity, or at a higher level of appeal, the Part D plan sponsor 
must authorize or provide the benefit under dispute as expeditiously as 
the enrollee's health condition requires but no later than 24 hours from 
the date it receives notice reversing the determination. The Part D plan 
sponsor must inform the independent review entity that the Part D plan 
sponsor has effectuated the decision.



         Subpart N_Medicare Contract Determinations and Appeals



Sec. 423.641  Contract determinations.

    This subpart establishes the procedures for reviewing the following 
contract determinations:
    (a) A determination that an entity is not qualified to enter into a 
contract with CMS under Part D of title XVIII of the Act.
    (b) A determination not to authorize a renewal of a contract with a 
PDP sponsor in accordance with Sec. 423.507(b).
    (c) A determination to terminate a contract with a PDP sponsor in 
accordance with Sec. 423.509.
    (d) Fallback entities are governed under subpart Q of this part, and 
are not subject to this subpart, except to the extent a fallback 
prescription drug plan contract is terminated by CMS.



Sec. 423.642  Notice of contract determination.

    (a) When CMS makes a contract determination under Sec. 423.641, it 
gives the PDP sponsor written notice.
    (b) The notice specifies the--
    (1) Reasons for the determination; and
    (2) PDP sponsor's right to request reconsideration.
    (c) For CMS-initiated terminations, CMS mails notice 90 days before 
the anticipated effective date of the termination. For terminations 
based on initial determinations described at Sec. 423.509(a)(4) or 
(a)(5), CMS immediately notifies the PDP sponsor of its decision to 
terminate the organization's PDP contract.
    (d) When CMS determines that it is not going to authorize a contract 
renewal, CMS mails the notice to the PDP sponsor by May 1 of the current 
contract year.



Sec. 423.643  Effect of contract determination.

    The contract determination is final and binding unless--
    (a) The determination is reconsidered in accordance with Sec. 
423.644 through Sec. 423.649;
    (b) A timely request for a hearing is filed under Sec. 423.651; or
    (c) The reconsideration decision is revised as a result of a 
reopening under Sec. 423.668.



Sec. 423.644  Reconsideration: Applicability.

    (a) Reconsideration is the first step for appealing a contract 
determination specified in Sec. 423.641.
    (b) CMS reconsiders the specified determinations if the contract 
applicant or the PDP sponsor files a written request in accordance with 
Sec. 423.645.

[[Page 426]]



Sec. 423.645  Request for reconsideration.

    (a) Method and place for filing a request. A request for 
reconsideration must be made in writing and filed with any CMS office.
    (b) Time for filing a request. The request for reconsideration must 
be filed within 15 days from the date of the notice of the initial 
determination.
    (c) Proper party to file a request. Only an authorized official of 
the contract applicant or PDP sponsor that was the subject of a contract 
determination may file the request for reconsideration.
    (d) Withdrawal of a request. The PDP sponsor or contract applicant 
who filed the request for a reconsideration may withdraw it at any time 
before the notice of the reconsidered determination is mailed. The 
request for withdrawal must be in writing and filed with CMS.



Sec. 423.646  Opportunity to submit evidence.

    CMS provides the PDP sponsor or contract applicant and the CMS 
official or officials who made the contract determination reasonable 
opportunity, not to exceed the timeframe in which a PDP sponsor chooses 
to request a hearing as described at Sec. 423.651, to present as 
evidence any documents or written statements that are relevant and 
material to the matters at issue.



Sec. 423.647  Reconsidered determination.

    A reconsidered determination is a new determination that--
    (a) Is based on a review of the contract determination, the evidence 
and findings upon which that was based, and any other written evidence 
submitted before notice of the reconsidered determination is mailed, 
including facts relating to the status of the PDP sponsor subsequent to 
the contract determination; and
    (b) Affirms, reverses, or modifies the initial determination.
    (c) Any favorable redetermination, including those resulting from a 
hearing or Administrator review, must be made by July 15 for the 
contract in question to be effective on January of the following year.



Sec. 423.648  Notice of reconsidered determination.

    (a) CMS gives the PDP sponsor or contract applicant written notice 
of the reconsidered determination.
    (b) The notice--
    (1) Contains findings for the contract applicant's qualifications to 
enter into, or the PDP sponsor's qualifications to remain under, a 
contract with CMS under Part D of the Act;
    (2) States the specific reasons for the reconsidered determination; 
and
    (3) Informs the PDP sponsor or contract applicant of its right to a 
hearing if it is dissatisfied with the determination.



Sec. 423.649  Effect of reconsidered determination.

    A reconsidered determination is final and binding unless a request 
for a hearing is filed in accordance with Sec. 423.651 or it is revised 
in accordance with Sec. 423.668.



Sec. 423.650  Right to a hearing.

    The following parties are entitled to a hearing:
    (a) A contract applicant that is determined in a reconsidered 
determination to be unqualified to enter into a contract with CMS under 
Part D of title XVIII of the Act.
    (b) A PDP sponsor whose contract with CMS is terminated or is not 
renewed as a result of a contract determination as provided in Sec. 
423.641.



Sec. 423.651  Request for hearing.

    (a) Method and place for filing a request. A request for a hearing 
must be made in writing and filed by an authorized official of the 
contract applicant or PDP sponsor that was the party to the 
determination under appeal. The request for a hearing must be filed with 
any CMS office.
    (b) Time for filing a request. A request for a hearing must be filed 
within 15 days after the date of the reconsidered determination.
    (c) Parties to a hearing. The parties to a hearing must be--
    (1) The parties described in Sec. 423.650;
    (2) At the discretion of the hearing officer, any interested parties 
who make a showing that their rights may

[[Page 427]]

be prejudiced by the decision to be rendered at the hearing; and
    (3) CMS.



Sec. 423.652  Postponement of effective date of a contract determination when a request for a hearing for a contract determination is filed timely.

    (a) CMS postpones the proposed effective date of the contract 
determination to terminate a contract with a PDP sponsor until a hearing 
decision is reached and affirmed by the Administrator following review 
under Sec. 423.666 in instances where a PDP sponsor requests review by 
the Administrator; and
    (b) CMS extends the current contract at the end of the contract 
period (in the case of a determination not to renew) only--
    (1) If CMS finds that an extension of the contract is consistent 
with the purpose of this part; and
    (2) For the period as CMS and the PDP sponsor agree.
    (c) Exception: A contract terminated in accordance with Sec. 
423.509(a)(4) or (a)(5) is immediately terminated and is not postponed 
if a hearing is requested.



Sec. 423.653  Designation of hearing officer.

    CMS designates a hearing officer to conduct the hearing. The hearing 
officer need not be an ALJ.



Sec. 423.654  Disqualification of hearing officer.

    (a) A hearing officer may not conduct a hearing in a case in which 
he or she is prejudiced or partial to any party or has any interest in 
the matter pending for decision.
    (b) A party to the hearing who objects to the designated hearing 
officer must notify that officer in writing at the earliest opportunity.
    (c) The hearing officer must consider the objections, and may, at 
his or her discretion, either proceed with the hearing or withdraw.
    (1) If the hearing officer withdraws, CMS designates another hearing 
officer to conduct the hearing.
    (2) If the hearing officer does not withdraw, the objecting party 
may, after the hearing, present objections and request that the 
officer's decision be revised or a new hearing be held before another 
hearing officer. The objections must be submitted in writing to CMS.



Sec. 423.655  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing, 
which is not to exceed 30 days from the receipt of the request for the 
hearing, and sends written notice to the parties. The notice also 
informs the parties of the general and specific issues to be resolved 
and information about the hearing procedure.
    (b) The hearing officer may, on his or her own motion, or at the 
request of a party, change the time and place for the hearing. The 
hearing officer may adjourn or postpone the hearing.
    (c) The hearing officer gives the parties reasonable notice of any 
change in time or place of hearing, or of adjournment or postponement.



Sec. 423.656  Appointment of representatives.

    A party may appoint as its representative at the hearing anyone not 
disqualified or suspended from acting as a representative before the 
Secretary or otherwise prohibited by law.



Sec. 423.657  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec. 423.656, on behalf of the represented party--
    (1) Gives or accepts any notice or request pertinent to the 
proceedings set forth in this subpart;
    (2) Presents evidence and allegations as to facts and law in any 
proceedings affecting that party; and
    (3) Obtains information to the same extent as the party.
    (b) A notice or request sent to the representative has the same 
force and effect as if it is sent to the party.



Sec. 423.658  Conduct of hearing.

    (a) The hearing is open to the parties and to the public.
    (b) The hearing officer inquires fully into all the matters at issue 
and receives in evidence the testimony of witnesses and any documents 
that are relevant and material.

[[Page 428]]

    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The hearing officer decides the order in which the evidence and 
the arguments of the parties are presented and the conduct of the 
hearing.



Sec. 423.659  Evidence.

    The hearing officer rules on the admissibility of evidence and may 
admit evidence that is inadmissible under rules applicable to court 
procedures.



Sec. 423.660  Witnesses.

    (a) The hearing officer may examine the witnesses.
    (b) The parties or their representatives are permitted to examine 
their witnesses and cross-examine witnesses of other parties.



Sec. 423.661  Discovery.

    (a) Prehearing discovery is permitted upon timely request of a 
party.
    (b) A request is timely if it is made before the beginning of the 
hearing.
    (c) A reasonable time for inspection and reproduction of documents 
is provided by order of the hearing officer.
    (d) The hearing officer's order on all discovery matters is final.



Sec. 423.662  Prehearing.

    The hearing officer may schedule a prehearing conference if he or 
she believes that a conference may more clearly define the issues.



Sec. 423.663  Record of hearing.

    (a) A complete record of the proceedings at the hearing is made and 
transcribed and made available to all parties upon request.
    (b) The record may not be closed until a hearing decision is issued.



Sec. 423.664  Authority of hearing officer.

    In exercising his or her authority, the hearing officer must comply 
with the provisions of title XVIII and related provisions of the Act, 
the regulations issued by the Secretary, and general instructions issued 
by CMS in implementing the Act.



Sec. 423.665  Notice and effect of hearing decision.

    (a) As soon as practical after the close of the hearing, the hearing 
officer issues a written decision that--
    (1) Is based upon the evidence of record; and
    (2) Contains separately numbered findings of fact and conclusions of 
law.
    (b) The hearing officer provides a copy of the hearing decision to 
each party.
    (c) The hearing decision is final and binding unless it is reversed 
or modified by the Administrator following review under Sec. 423.666, 
or reopened and revised in accordance with Sec. 423.668.



Sec. 423.666  Review by the Administrator.

    (a) Request for review by the Administrator. A PDP sponsor that 
receives a hearing decision upholding a contract termination 
determination may request review by the Administrator within 15 days of 
receiving the hearing decision as provided under Sec. 423.665(b).
    (b) Review by the Administrator. The Administrator must review the 
hearing officer's decision, and determine, based upon this decision, the 
hearing record, and any written arguments submitted by the PDP sponsor, 
whether the termination decision must be upheld, reversed, or modified.
    (c) Decision by the Administrator. The Administrator issues a 
written decision, and furnishes the decision to the PDP sponsor 
requesting review.



Sec. 423.667  Effect of Administrator's decision.

    A decision by the Administrator under section Sec. 423.666(c) is 
final and binding unless it is reopened and revised in accordance with 
Sec. 423.668.



Sec. 423.668  Reopening of contract or reconsidered determination or decision of a hearing officer or the Administrator.

    (a) Initial or reconsidered determination. CMS may reopen and revise 
an initial or reconsidered determination upon its own motion within 1 
year of the date of the notice of determination.
    (b) Decision of hearing officer. A decision of a hearing officer 
that is unfavorable to any party and is otherwise final may be reopened 
and revised by

[[Page 429]]

the hearing officer upon the officer's own motion within 1 year of the 
notice of the hearing decision. Another hearing officer designated by 
CMS may reopen and revise the decision if the hearing officer who issued 
the decision is unavailable.
    (c) Decision of Administrator. A decision by the Administrator that 
is otherwise final may be reopened and revised by the Administrator upon 
the Administrator's own motion within 1 year of the notice of the 
Administrator's decision.
    (d) Notices. (1) The notice of reopening and of any revisions 
following the reopening is mailed to the parties.
    (2) The notice of revision specifies the reasons for revisions.



Sec. 423.669  Effect of revised determination.

    The revision of a contract or reconsidered determination is binding 
unless a party files a written request for hearing of the revised 
determination in accordance with Sec. 423.651.



                    Subpart O_Intermediate Sanctions



Sec. 423.750  Kinds of sanctions.

    (a) The following intermediate sanctions and civil money penalties 
may be imposed:
    (1) Civil money penalties ranging from $10,000 to $100,000 depending 
upon the violation.
    (2) Suspension of enrollment of Medicare beneficiaries.
    (3) Suspension of payment to the Part D sponsor for Medicare 
beneficiaries who enroll.
    (4) Suspension of all Part D plan marketing activities to Medicare 
beneficiaries for the Part D plan subject to the intermediate sanctions.
    (b) The enrollment, payment, and marketing sanctions continue in 
effect until CMS is satisfied that the deficiency on which the 
determination was based is corrected and is not likely to recur.



Sec. 423.752  Basis for imposing sanctions.

    (a) All intermediate sanctions. For the violations listed below, we 
may impose one, or more, of the sanctions specified in Sec. 
423.750(a)(2), (a)(3) or (a)(4) on any Part D sponsor that has a 
contract in effect. The Part D sponsor may also be subject to other 
applicable remedies available under law.
    (1) Fails substantially to provide, to a Part D plan enrollee, 
medically necessary services that the organization is required to 
provide (under law or under the contract) to a Part D plan enrollee, and 
that failure adversely affects (or is substantially likely to adversely 
affect) the enrollee.
    (2) Imposes on Part D plan enrollees premiums in excess of the 
monthly basic and supplemental beneficiary premiums permitted under 
section 1860D-1 et seq. of the Act and subpart F of this part.
    (3) Acts to expel or refuses to reenroll a beneficiary in violation 
of the provisions of this part.
    (4) Engages in any practice that may reasonably be expected to have 
the effect of denying or discouraging enrollment of individuals whose 
medical condition or history indicates a need for substantial future 
medical services.
    (5) Misrepresents or falsifies information that it furnishes--
    (i) To CMS; or
    (ii) To an individual or to any other entity under the Part D drug 
benefit program.
    (6) Employs or contracts with an individual or entity who is 
excluded from participation in Medicare under section 1128 or 1128A of 
the Act (or with an entity that employs or contracts with an excluded 
individual or entity) for the provision of any of the following:
    (i) Health care.
    (ii) Utilization review.
    (iii) Medical social work.
    (iv) Administrative services.
    (b) Suspension of enrollment and marketing. If CMS makes a 
determination that could lead to a contract termination under Sec. 
423.509(a), CMS may instead impose the intermediate sanctions in Sec. 
423.750(a)(2) and (a)(4).



Sec. 423.756  Procedures for imposing sanctions.

    (a) Notice of sanction and opportunity to respond--(1) Notice of 
sanction. Before imposing the intermediate sanctions specified in 
paragraph (c) of this section, CMS--

[[Page 430]]

    (i) Sends a written notice to the Part D sponsor stating the nature 
and basis of the proposed sanction; and
    (ii)Sends the Office of the Inspector General a copy of the notice.
    (2) Opportunity to respond. CMS allows the Part D sponsor 15 days 
from receipt of the notice to provide evidence that it has not committed 
an act or failed to comply with the requirements described in Sec. 
423.752, as applicable. CMS may allow a 15-day addition to the original 
15 days upon receipt of a written request from the Part D sponsor. To be 
approved, the request must provide a credible explanation of why 
additional time is necessary and be received by CMS before the end of 
the 15-day period following the date of receipt of the sanction notice. 
CMS does not grant an extension if it determines that the Part D 
sponsor's conduct poses a threat to an enrollee's health and safety.
    (b) Informal reconsideration. If, consistent with paragraph (a)(2) 
of this section, the Part D sponsor submits a timely response to CMS' 
notice of sanction, CMS conducts an informal reconsideration that--
    (1) Consists of a review of the evidence by an CMS official who did 
not participate in the initial decision to impose a sanction; and
    (2) Gives the Part D sponsor a concise written decision setting 
forth the factual and legal basis for the decision that affirms or 
rescinds the original determination.
    (c) Specific sanctions. If CMS determines that a Part D sponsor has 
acted or failed to act as specified in Sec. 423.752 and affirms this 
determination in accordance with paragraph (b) of this section, CMS 
may--
    (1) Require the Part D sponsor to suspend acceptance of applications 
made by Medicare beneficiaries for enrollment in the sanctioned plan 
during the sanction period;
    (2) In the case of a violation under Sec. 423.752(a), suspend 
payments to the Part D sponsor for Medicare beneficiaries enrolled in 
the sanctioned plan during the sanction period; and
    (3) Require the Part D sponsor to suspend all marketing activities 
for the sanctioned plan to Medicare enrollees.
    (d) Effective date and duration of sanctions--(1) Effective date. 
Except as provided in paragraph (d)(2) of this section, a sanction is 
effective 15 days after the date that the organization is notified of 
the decision to impose the sanction or, if the Part D sponsor seeks 
reconsideration in a timely manner under paragraph (b) of this section, 
on the date specified in the notice of CMS' reconsidered determination.
    (2) Exception. If CMS determines that the Part D sponsor's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on a date before issuance of CMS' reconsidered 
determination.
    (3) Duration of sanction. The sanction remains in effect until CMS 
notifies the Part D sponsor that CMS is satisfied that the basis for 
imposing the sanction is corrected and is not likely to recur.
    (e) Termination by CMS. In addition to or as an alternative to the 
sanctions described in paragraph (c) of this section, CMS may decline to 
authorize the renewal of an organization's contract in accordance with 
Sec. 423.507(b)(2) and (b)(3), or terminate the contract in accordance 
with Sec. 423.509.
    (f) Civil money penalties. (1) If CMS determines that a Part D 
sponsor has committed an act or failed to comply with a requirement 
described in Sec. 423.752, CMS notifies the OIG of this determination, 
and also notifies OIG when CMS reverses or terminates a sanction imposed 
under this part.
    (2) In the case of a violation described in Sec. 423.752(a), or a 
determination under Sec. 423.752(b) based upon a violation under Sec. 
423.509(a)(4) (involving fraudulent or abusive activities), in 
accordance with the provisions of part 1003 of this chapter, the OIG may 
impose civil money penalties on the Part D sponsor in accordance with 
part 1003 of this chapter in addition to, or in place of, the sanctions 
that CMS may impose under paragraph (c) of this section.
    (3) In the case of a determination under Sec. 423.752(b) other than 
a determination based upon a violation under Sec. 423.509(a)(4), CMS 
may impose civil money penalties on the Part D sponsor in the amounts 
specified in Sec. 423.758 in

[[Page 431]]

addition to, or in place of, the sanctions that CMS may impose under 
paragraph (c) of this section.



Sec. 423.758  Maximum amount of civil money penalties imposed by CMS.

    If CMS makes a determination under Sec. 423.509(a), as described in 
Sec. 423.752(b), excepting those determinations under Sec. 
423.509(a)(4), CMS may impose civil money penalties, in addition to, or 
in place of, the sanctions that CMS may impose under Sec. 423.756(c), 
in the following amounts:
    (a) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more Part D plan enrollees--up to $25,000 
for each determination.
    (b) For each week that a deficiency remains uncorrected after the 
week in which the Part D sponsor receives CMS' notice of the 
determination--up to $10,000 per week.
    (c) If CMS makes a determination that a Part D sponsor has 
terminated its contract with CMS other than in a manner described in 
Sec. 423.510 and that the sponsor has therefore failed to substantially 
carry of the terms of the contract, $250 per Medicare enrollee from the 
terminated Part D plan or plans at the time the Part D sponsor 
terminated its contract, or $100,000, whichever is greater.



Sec. 423.760  Other applicable provisions.

    The provisions of section 1128A of the Act (except paragraphs (a) 
and (b)) apply to civil money penalties under this subpart to the same 
extent that they apply to a civil money penalty or procedure under 
section 1128A of the Act.



Subpart P_Premiums and Cost-Sharing Subsidies for Low-Income Individuals



Sec. 423.771  Basis and scope.

    (a) Basis. This subpart is based on section 1860D-14 of the Act.
    (b) Scope. This subpart sets forth the requirements and limitations 
for payments by and on behalf of low-income Medicare beneficiaries who 
enroll in a Part D plan.



Sec. 423.772  Definitions.

    For purposes of this subpart, the following definitions apply:
    Applicant means the Part D eligible individual applying for the 
subsidies available to subsidy eligible individuals under this subpart.
    Family size means the applicant, the spouse who is living in the 
same household, if any and the number of individuals who are related to 
the applicant or applicants, who are living in the same household and 
who are dependent on the applicant or the applicant's spouse for at 
least one-half of their financial support.
    Federal poverty line (FPL) has the meaning given that term in 
section 673(2) of the Community Services Block Grant Act (42 USC 
9902(2)), including any revision required by that section.
    Full-benefit dual eligible individual means an individual who, for 
any month--
    (1) Has coverage for the month under a prescription drug plan under 
Part D of title XVIII, or under an MA-PD plan under Part C of title 
XVIII; and
    (2) Is determined eligible by the State for medical assistance for 
full benefits under title XIX for the month under any eligibility 
category covered under the State plan or comprehensive benefits under a 
demonstration under section 1115 of the Act. (This does not include 
individuals under Pharmacy Plus program demonstrations or under a 
section 1115 demonstration that provides pharmacy-only benefits to these 
individuals.). It also includes any individual who is determined by the 
State to be eligible for medical assistance under section 1902(a)(10)(C) 
of the Act (medically needy) or section 1902(f) of the Act (States that 
use more restrictive eligibility criteria than are used by the SSI 
program) of the Act for any month if the individual was eligible for 
medical assistance in any part of the month.
    Full subsidy means the subsidies available to full subsidy eligible 
individuals under Sec. 423.780(a) and Sec. 423.782(a).
    Full subsidy eligible individuals means individuals meeting the 
eligibility requirements under Sec. 423.773(b).

[[Page 432]]

    Income means income as described under section 1905(p)(1) of the Act 
without use of any more liberal disregards under section 1902(r)(2) of 
the Act (that is, as defined by section 1612 of the Act). This 
definition includes the income of the applicant and spouse who is living 
in the same household, if any, regardless of whether the spouse is also 
an applicant.
    Institutionalized individual means a full-benefit dual eligible 
individual who is an inpatient in a medical institution or nursing 
facility for which payment is made under Medicaid throughout a month, as 
defined under section 1902(q)(1)(B) of the Act.
    Other subsidy eligible individuals means those individuals meeting 
the eligibility requirements under Sec. 423.773(d).
    Personal representative for purposes of this subpart means--
    (1) An individual who is authorized to act on behalf of the 
applicant;
    (2) If the applicant is incapacitated; or incompetent, someone 
acting responsibly on their behalf, or
    (3)An individual of the applicant's choice who is requested by the 
applicant to act as his or her representative in the application 
process.
    Resources means liquid resources of the applicant (and, if married, 
his or her spouse who is living in the same household), such as checking 
and savings accounts, stocks, bonds, and other resources that can be 
readily converted to cash within 20 days, that are not excluded from 
resources in section 1613 of the Act, and real estate that is not the 
applicant's primary residence or the land on which the primary residence 
is located.
    State means for purposes of this subpart each of the 50 States and 
the District of Columbia.



Sec. 423.773  Requirements for eligibility

    (a) Subsidy eligible individual. A subsidy eligible individual is a 
Part D eligible individual residing in a State who is enrolled in, or 
seeking to enroll in a Part D plan and meets the following requirements:
    (1) Has income below 150 percent of the FPL applicable to the 
individual's family size.
    (2) Has resources at or below the resource thresholds set forth in 
Sec. 423.773(b)(2) or (d)(2).
    (b) Full subsidy eligible individual. A full subsidy eligible 
individual is a subsidy eligible individual who--
    (1) Has income below 135 percent of the FPL applicable to the 
individual's family size; and
    (2)Has resources that do not exceed--
    (i) For 2006, 3 times the amount of resources an individual may have 
and still be eligible for benefits under the Supplemental Security 
Income (SSI) program under title XVI of the Act (including the assets or 
resources of the individual's spouse).
    (ii) For subsequent years, the amount of resources allowable for the 
previous year under this paragraph (b)(2) increased by the annual 
percentage increase in the consumer price index (all items, U.S. city 
average) as of September of that previous year, rounded to the nearest 
multiple of $10. The nearest multiple are rounded up if it is equal to 
or greater than $5 and down if it is less than $5.
    (c)(1) Individuals treated as full subsidy eligible. An individual 
must be treated as meeting the eligibility requirements for full subsidy 
eligible individuals under paragraph (b) of this section if the 
individual is a--
    (i) Full-benefit dual eligible individual;
    (ii) Recipient of SSI benefits under title XVI of the Act; or
    (iii) Eligible for Medicaid as a Qualified Medicare Beneficiary 
(QMB), Specified Low Income Medicare Beneficiary (SLMB), or a Qualifying 
Individual (QI) under a State's plan.
    (2) CMS notifies an individual treated as a full subsidy eligible 
under this paragraph (c) of this section that he or she does not need to 
apply for the subsidies available under this subpart, and is deemed 
eligible for a full subsidy for a period up to one year.
    (d) Other low-income subsidy individuals. Other low-income subsidy 
individuals are subsidy eligible individuals who--
    (1) Have income less than 150 percent of the FPL applicable to the 
individual's family size; and
    (2) Have resources that do not exceed--

[[Page 433]]

    (i) For 2006, $10,000 if single or $20,000 if married (including the 
assets or resources of the individual's spouse).
    (ii) For subsequent years, the resource amount
    allowable for the previous year under this paragraph (d)(2), 
increased by the annual percentage increase in the consumer price index 
(all items, U.S. city average) as of September of the previous year, 
rounded to the nearest multiple of $10. The nearest multiple will be 
rounded up if it is equal to or greater than $5 and down if it is less 
than $5.



Sec. 423.774  Eligibility determinations, redeterminations, and applications.

    (a) Determinations of whether an individual is a subsidy eligible 
individual. Determinations of eligibility for subsidies under this 
subpart are made by the State under its State plan under title XIX of 
the Act if the individual applies with the Medicaid agency, or if the 
individual applies with the Social Security Administration (SSA), the 
Commissioner of Social Security in accordance with the requirements of 
section 1860D-14(a)(3) of the Act.
    (b) Effective date of initial eligibility determinations. Initial 
eligibility determinations are effective beginning with the first day of 
the month in which the individual applies, but no earlier than January 
1, 2006 and remain in effect for a period not to exceed 1 year.
    (c) Redeterminations and appeals of low-income subsidy eligibility--
(1) Redeterminations and appeals of low-income subsidy eligibility 
determinations--eligibility determinations made by States. 
Redeterminations and appeals of low-income subsidy eligibility 
determinations by States must be made in the same manner and frequency 
as the redeterminations and appeals are made under the State's plan.
    (2) Redeterminations and appeals of low-income subsidy eligibility--
eligibility determinations made by Commissioner of Social Security. 
Redeterminations and appeals of eligibility determinations made by the 
Commissioner will be made in the manner specified by the Commissioner of 
Social Security.
    (d) Application requirements. (1) In order for applications for the 
subsidies under this subpart to be considered complete, applicants or 
personal representatives applying on the individual's behalf, must--
    (i) Complete all required elements of the application; (ii) Provide 
any statements from financial institutions, as requested, to support 
information in the application; and
    (iii) Certify, under penalty of perjury or similar sanction for 
false statements, as to the accuracy of the information provided on the 
application form.
    (2) Multiple applications. If the individual or his or her personal 
representative has previously filed an application with the State or SSA 
which seeks subsidy eligibility for any portion of the eligibility 
period covered by a subsequent application, the later application is 
void if the individual has received a positive subsidy determination on 
that earlier application from the State or SSA.



Sec. 423.780  Premium subsidy.

    (a) Full subsidy eligible individuals. Full subsidy eligible 
individuals are entitled to a premium subsidy equal to 100 percent of 
the premium subsidy amount.
    (b) Premium subsidy amount. (1) The premium subsidy amount is equal 
to an amount which is the lesser of:
    (i) Under the Part D plan selected by the beneficiary, the monthly 
beneficiary premium for a Part D plan other than a MA-PD plan that is 
basic prescription drug coverage, the portion of the monthly beneficiary 
premium attributable to basic prescription drug coverage for a Part D 
plan other than a MA-PD plan that is enhanced alternative coverage, or 
the MA monthly prescription drug beneficiary premium as defined under 
section 1854(b)(2)(B) of the Act, or
    (ii) The greater of the low-income benchmark premium amount for a 
PDP region as determined under paragraph (b)(2) of this section or the 
lowest monthly beneficiary premium for a prescription drug plan that 
offers basic prescription drug coverage in the PDP region.
    (2) Calculation of the low-income benchmark premium amount. (i) The 
low-income benchmark premium amount for a PDP region is a weighted 
average of the premium amounts described in

[[Page 434]]

this paragraph (b)(2)(ii) of this section , with the weight for each PDP 
and MA-PD plan equal to a percentage, the numerator being equal to the 
number of Part D eligible individuals enrolled in the plan in the 
reference month (as defined in Sec. 422.258(c)(1) of this chapter) and 
the denominator equal to the total number of Part D eligible individuals 
enrolled in all PDP and MA-PD plans (but not including PACE, private 
fee-for-service plans or 1876 cost plans)in a PDP region in the 
reference month.
    (ii) Premium amounts: The premium amounts used to calculate the low-
income benchmark premium amount are as follows:
    (A) The monthly beneficiary premium for a PDP that is basic 
prescription drug coverage;
    (B) The portion of the monthly beneficiary premium attributable to 
basic prescription drug coverage for a PDP that is enhanced alternative 
coverage; or,
    (C)The MA monthly prescription drug beneficiary premium (as defined 
under section 1854(b)(2)(B) of the Act) for a MA-PD plan.
    (c) Special rule for 2006 to weight the low-income benchmark 
premium. For purposes of calculating the low-income benchmark premium 
amount for 2006, CMS assigns equal weighting to PDP sponsors (including 
fallback entities) and assigns MA-PD plans a weight based on prior 
enrollment. New MA-PD plans are assigned a zero weight. PACE, private 
fee-for-service plans and 1876 cost plans are not included.
    (d) Other low-income subsidy eligible individuals--sliding scale 
premium. Other low-income subsidy eligible individuals are entitled to a 
premium subsidy based on a linear sliding scale ranging from 100 percent 
of the premium subsidy amount described in paragraph (b) of this section 
as follows:
    (1) For individuals with income at or below 135 percent of the FPL 
applicable to their family size, the full premium subsidy amount.
    (2) For individuals with income greater than 135 percent but at or 
below 140 percent of the FPL applicable to the family size, a premium 
subsidy equal to 75 percent of the premium subsidy amount.
    (3) For individual with income greater than 140 percent but at or 
below 145 percent of the FPL applicable to the family size a premium 
subsidy equal to 50 percent of the premium subsidy amount.
    (4) For individuals with income greater than 145 percent but below 
150 percent of FPL applicable to the family size a premium subsidy equal 
to 25 percent of the premium subsidy amount.
    (e) Premium subsidy for late enrollment penalty. Full subsidy 
eligible individuals who are subject to late enrollment penalties under 
Sec. 423.46 are entitled to an additional premium subsidy equal to 80 
percent of the late enrollment penalty for the first 60 months during 
which the penalty is imposed and 100 percent of their late enrollment 
penalty thereafter.



Sec. 423.782  Cost-sharing subsidy.

    (a) Full subsidy eligible individuals. Full subsidy eligible 
individuals are entitled to the following:
    (1) Elimination of the annual deductible under Sec. 423.104(d)(1).
    (2) Reduction in cost-sharing for all covered Part D drugs covered 
under the PDP or MA-PD plan below the out-of-pocket limit (under Sec. 
423.104), including Part D drugs covered under the PDP or MA-PD plan 
obtained after the initial coverage limit (under Sec. 423.104(d)(4)), 
as follows:
    (i) Except as provided under paragraphs (a)(2)(ii) and (a)(2)(iii) 
of this section, copayment amounts not to exceed the copayment amounts 
specified in Sec. 423.104(d)(5)(A). This applies to both:
    (A) those full-benefit dual eligible individuals who are not 
institutionalized and who have income above 100 percent of the Federal 
poverty line applicable to the individual's family size and
    (B) those individuals who have income under 135 percent of the 
Federal poverty line applicable to the individual's family size who meet 
the resources test described at Sec. 423.773(b)(2).
    (ii) Full-benefit dual eligible individuals who are 
institutionalized have no cost-sharing for covered Part D drugs covered 
under their PDP or MA-PD plans.

[[Page 435]]

    (iii) Full-benefit dual eligible individuals with incomes that do 
not exceed 100 percent of the Federal poverty line applicable to the 
individual's family size are subject to cost-sharing for covered Part D 
drugs equal to the lesser of:
    (A) A copayment amount of not more than $1 for a generic drug or 
preferred drugs that are multiple source (as defined under section 
1927(k)(7)(A)(i) of the Act) or $3 for any other drug in 2006, or for 
years after 2006 the amounts specified in this paragraph (a)(2)(iii)(A) 
for the percentage increase in the Consumer Price Index, rounded to the 
nearest multiple of 5 cents or 10 cents, respectively; or
    (B) The copayment amount charged to other individuals under this 
paragraph (a)(2)(i) of this section.
    (3) Elimination of all cost-sharing for covered Part D drugs covered 
under the PDP or MA-PD plan above the out-of-pocket limit (under Sec. 
423.104(d)(5)).
    (b) Other low-income subsidy eligible individuals. Other low-income 
subsidy eligible individuals are entitled to the following:
    (1) In 2006, reduction in the annual deductible to $50. This amount 
is increased each year beginning in 2007 by the annual percentage 
increase in average per capita aggregate expenditures for Part D drugs, 
rounded to the nearest multiple of $1.
    (2) Fifteen percent coinsurance for all covered Part D drugs 
obtained after the annual deductible under the plan up to the out-of-
pocket limit (under Sec. 423.104(d)(5)(iii)).
    (3) For covered Part D drugs above the out-of-pocket limit (under 
Sec. 423.104(d)(5)(iii)), in 2006, copayments not to exceed $2 for a 
generic drug or preferred drugs that are multiple source drugs (as 
defined under section 1927(k)(7)(A)(i) of the Act) and $5 for any other 
drug. For years beginning in 2007, the amounts specified in section 
paragraph (b)(3) for the previous year increased by the annual 
percentage increase in average per capita aggregate expenditures for 
covered Part D drugs, rounded to the nearest multiple of 5 cents.



Sec. 423.800  Administration of subsidy program.

    (a) Notification of eligibility for low-income subsidy. CMS notifies 
the Part D sponsor offering the Part D plan, in which a subsidy eligible 
individual is enrolled, of the individual's eligibility for a subsidy 
under this section and the amount of the subsidy.
    (b) Reduction of premium or cost-sharing by PDP sponsor or 
organization. The Part D sponsor offering the Part D plan, in which a 
subsidy eligible individual is enrolled must reduce the individual's 
premiums and cost-sharing as applicable, and provide information to CMS 
on the amount of those reductions, in a manner determined by CMS. The 
Part D sponsor must track the application of the subsidies under this 
subpart to be applied to the out-of-pocket threshold.
    (c) Reimbursement for cost-sharing paid before notification of 
eligibility for low-income subsidy. The Part D sponsor offering the Part 
D plan must reimburse subsidy eligible individuals, and organizations 
paying cost-sharing on behalf of such individuals, any excess premiums 
and cost-sharing paid by such individual or organization after the 
effective date of the individual's eligibility for a subsidy under this 
subpart.



    Subpart Q_Guaranteeing Access to a Choice of Coverage (Fallback 
                        Prescription Drug Plans)



Sec. 423.851  Scope.

    This subpart sets forth--the rights of beneficiaries to a choice of 
at least two sources of qualified prescription drug coverage; 
requirements and limitations on the bid submission, review and approval 
of fallback prescription drug plans, and the determination of enrollee 
premium and plan payments for these plans.



Sec. 423.855  Definitions.

    As used in this subpart, unless specified otherwise-
    Actual costs means the subset of prescription drug costs (not 
including administrative costs or return on investment, but including 
costs directly related to the dispensing of covered Part

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D drugs during the year) that are attributable to standard benefits only 
and that are incurred and actually paid by the sponsor or organization 
under the plan.
    Actually paid has the same meaning described in Sec. 423.308.
    Eligible fallback entity or fallback entity means an entity that, 
for a particular contract period-
    (1) Is a PDP sponsor that does not have to be a risk-bearing entity 
(or, if applying to become a fallback entity, an entity that meets all 
the requirements to become a Part D plan sponsor except that it does not 
have to be a risk-bearing entity); and
    (2) Does not submit a risk bid under Sec. 423.265 for offering a 
prescription drug plan for any PDP region for the first year of that 
contract period. An entity is treated as submitting a risk bid if the 
entity is acting as a subcontractor for an integral part of the drug 
benefit management activities of an entity that is or applies to become 
a non-fallback PDP sponsor. An entity is not treated as submitting a bid 
if it is a subcontractor of an MA organization, unless that organization 
is acting as or applies to become a non-fallback PDP sponsor for a 
prescription drug plan.
    Fallback prescription drug plan means a prescription drug plan (PDP) 
offered by a fallback entity that--
    (1) Offers only defined standard or actuarially equivalent standard 
prescription drug coverage as defined in Sec. 423.100;
    (2) Provides access to negotiated prices, including discounts from 
manufacturers; and
    (3) Meets all other requirements established for prescription drug 
plans, except as otherwise specified by CMS in this subpart or in 
separate guidance.
    Qualifying plan means a full-risk or limited-risk prescription drug 
plan, as defined in Sec. 423.258, or an MA-PD plan described in section 
1851(a)(2)(A)(i) of the Act, that provides required prescription drug 
coverage, as defined in Sec. 423.100 An MA-PD plan must be open for 
enrollment and not operating under a capacity waiver to be counted as a 
qualifying plan. A PDP must not be operating under a restricted 
enrollment waiver, such as those that may be granted to special needs 
plans or employer group plans, in order to be counted as a qualifying 
plan in an area.



Sec. 423.859  Assuring access to a choice of coverage.

    (a) Choice of at least 2 qualifying plans in each area. Each Part D 
eligible individual must have available a choice of enrollment in at 
least 2 qualifying plans (as defined in Sec. 423.855) in the area in 
which the individual resides. This requirement is not satisfied if only 
one entity offers all the qualifying plans in the area. At least 1 of 
the 2 qualifying plans must be a prescription drug plan.
    (b) Fallback service area--(1) For coverage year. Before the start 
of each coverage year CMS determines if Part D eligible individuals 
residing in a PDP region have access to a choice of enrollment in a 
minimum of 2 qualifying plans, as described in paragraph (a) of this 
section. If CMS determines that Part D eligible individuals in a PDP 
region, or some portion of the region, do not have available a choice of 
enrollment in a minimum of two qualified plans, CMS designates the 
region or portion of a region as a fallback service area. Each Part D 
eligible individual in a fallback service area is given the opportunity 
to enroll in a fallback prescription drug plan.
    (2) For mid-year changes. If a contract with a qualifying plan is 
terminated in the middle of a contract year (as provided for in Sec. 
423.508, Sec. 423.509, or Sec. 423.510), CMS determines if Part D 
eligible individuals residing in the affected PDP region still have 
access to a choice of enrollment in a minimum of 2 qualifying plans, as 
described in paragraph (a) of this section. If CMS determines that Part 
D eligible individuals in a PDP region, or some portion of the region, 
no longer have available a choice of enrollment in a minimum of two 
qualifying plans, CMS designates the region or portion of a region as a 
fallback service area.
    (c) Access to coverage in the territories. CMS may waive or modify 
the requirements of this part if--
    (1) CMS determines that waiver or modification is necessary to 
secure access to qualified prescription drug coverage for Part D 
eligible individuals residing in a State other than the 50 States or the 
District of Columbia; or

[[Page 437]]

    (2) An entity seeking to become a prescription drug plan in an area 
such as a territory, other than the 50 States or the District of 
Columbia requests waiver or modification of any Part D requirement in 
order to provide qualified prescription drug coverage.



Sec. 423.863  Submission and approval of bids.

    (a) Submission of Bids--(1) Solicitation of bids. Separate from the 
risk bidding process under Sec. 423.265, CMS solicits bids from 
eligible fallback entities for the offering in all fallback service 
areas in one or more PDP regions of a fallback prescription drug plan 
during the contract period specified in Sec. 423.871(b).
    (2) Timing of bids. CMS determines when to solicit bids for 2006 so 
that potential fallback prescription drug plans have enough time to 
prepare a bid. After that, bids are solicited on 3 year cycles, or 
annually thereafter as needed to replace contractors between contracting 
cycles.
    (3) Format of bid. CMS specifies the form and manner in which 
fallback bids are submitted in separate guidance to bidders.
    (b) Negotiation and acceptance of bids--(1) General rule. Except as 
provided in this section, the provisions of Sec. 423.272 apply for the 
approval or disapproval of fallback prescription drug plans. CMS enters 
into contracts under this paragraph with eligible fallback entities for 
the offering of approved fallback prescription drug plans in potential 
fallback service areas.
    (2) Flexibility in risk assumed and application of fallback 
prescription drug plan. In order to ensure access in an area in 
accordance with Sec. 423.859(a), CMS may approve limited risk plans 
under Sec. 423.272(c) for that area. If the access requirement is still 
not met after applying Sec. 423.272(c), CMS provides for the offering 
of a fallback prescription drug plan in that area.
    (3) Limitation of 1 Plan for all fallback service areas in a PDP 
region. All fallback service areas in any PDP region for a contract 
period must be served by the same fallback prescription drug plan.
    (4) Competitive procedures. CMS uses competitive procedures (as 
defined in section 4(5) of the Office of Federal Procurement Policy Act 
(41 U.S.C. 403(5)) to enter into a contract under this paragraph. The 
provisions of section 1874A(d) of the Act apply to a contract under this 
section in the same manner as they apply to a contract under that 
section.
    (5) Timing of contracts. CMS approves a fallback prescription drug 
plan for a PDP region in a manner so that, if there are any fallback 
service areas in the region for a year, the fallback prescription drug 
plan is offered at the same time as prescription drug plans are 
otherwise offered. In the event of mid-year changes and as required by 
Sec. 423.859(b)(2), CMS approves a fallback prescription drug plan for 
a PDP region in a manner so that the fallback prescription drug plan is 
offered within 90 days of notice.
    (6) No national fallback prescription drug plan. CMS may not enter 
into a contract with a single fallback entity for the offering of 
fallback prescription drug plans throughout the United States.



Sec. 423.867  Rules regarding premiums.

    (a) Monthly beneficiary premium. Except as provided in Sec. 
423.286(d)(3) (relating to late enrollment penalty) and subject to 
subpart P (relating to low-income assistance), the monthly beneficiary 
premium under a fallback prescription drug plan must be uniform for all 
fallback service areas in a PDP region. It must equal 25.5 percent of 
CMS's estimate of the average monthly per capita actuarial cost, 
including administrative expenses, of providing coverage in the PDP 
region based on similar expenses of prescription drug plans that are not 
fallback prescription drug plans.
    (b) Special rule for collection of premiums in fallback prescription 
drug plans. In the case of a fallback prescription drug plan, the 
provisions of Sec. 423.293 (b) concerning payments of the late 
enrollment penalty to the PDP sponsor do not apply and the monthly 
beneficiary premium is collected in the manner specified in Sec. 
422.262(f)(1) of this chapter, or paid directly to the fallback entity 
by the beneficiary if there are either no benefits, or insufficient 
benefits available to be collected in the

[[Page 438]]

manner specified under Sec. 422.262(f)(1) of this chapter. The amount 
of any premiums collected by the fallback entity is deducted from 
management fees due from CMS.



Sec. 423.871  Contract terms and conditions.

    (a) General. Except as may be appropriate to carry out the 
requirements of this section, the terms and conditions of contracts with 
eligible fallback entities offering fallback prescription drug plans are 
the same as the terms and conditions of contracts at Sec. 423.504 and 
Sec. 423.505 for Part D plans.
    (b) Period of contract. A contract with a fallback entity for 
fallback service areas for a PDP region is in effect for a period of 3 
years. However, a fallback prescription drug plan may be offered for any 
year within the contract period for a particular area only if the area 
is a fallback service area for that year.
    (c) Entity not permitted to market or brand fallback prescription 
drug plans. Notwithstanding any other provisions of this part, an 
eligible fallback entity with a contract under this part may not engage 
in any marketing or branding of a fallback prescription drug plan.
    (d) Performance measures. CMS issues guidance establishing 
performance measures for fallback prescription drug plans based on the 
following:
    (1) Types of performance measures. Performance measures include at 
least measures for each of the following:
    (i) Costs. The entity contains costs to the Medicare Prescription 
Drug Account and to Part D eligible individuals enrolled in a fallback 
prescription drug plan offered by the entity through mechanisms such as 
generic substitution and price discounts.
    (ii) Quality programs. The entity provides the enrollees in its 
fallback prescription drug plan with quality programs that avoid adverse 
drug reactions, monitor for appropriate utilization, and reduce medical 
errors.
    (iii) Customer service. The entity provides timely and accurate 
delivery of services and pharmacy and beneficiary support services.
    (iv) Benefit administration and claims adjudication. The entity 
provides efficient and effective benefit administration and claims 
adjudication.
    (2) Development of performance measures. CMS establishes detailed 
performance measures for use in evaluating fallback entity performance 
and determination of certain management fees based on criteria from 
historical performance, application of acceptable statistical measures 
of variation to fallback entity and PDP sponsor (other than fallback 
entities) experience nationwide during a base period, or changing 
program emphases or requirements.
    (e) Payment terms. A contract approved with a fallback entity 
includes terms for payment for--
    (1) The actual costs of covered Part D drugs provided to Part D 
eligible individuals enrolled in a fallback prescription drug plan 
offered by the entity; and
    (2) Management fees that consist of administrative costs and return 
on investment and are tied to the performance measures established by 
CMS for the management, administration, and delivery of the benefits 
under the contract as provided under paragraph (d) of this section.
    (f) Requirement for the submission of information. Each contract for 
a fallback prescription drug plan requires an eligible fallback entity 
offering a fallback prescription drug plan to provide CMS with the 
information CMS determines is necessary to carry out the payment 
provisions under subpart G or under this subpart, or as required by law. 
Information disclosed to determine Medicare payment or reimbursement to 
the fallback entity may be used by the officers, employees and 
contractors of the Department of Health and Human Services only for the 
purposes of, and to the extent necessary in, determining such payment or 
reimbursement. This restriction does not limit CMS or OIG authority to 
conduct audits and evaluations necessary to ensure accurate and correct 
payment and to otherwise oversee Medicare reimbursement
    (g) Amendment to reflect changes in service area. The contract may 
be amended by CMS at any time as needed to reflect the exact regions or 
counties where the fallback plan are required to

[[Page 439]]

operate within the contracted service area(s).



Sec. 423.875  Payment to fallback plans.

    The amount payable for a fallback prescription drug plan is the 
amount determined under the contract for the plan in accordance with 
Sec. 423.871(e).



    Subpart R_Payments to Sponsors of Retiree Prescription Drug Plans



Sec. 423.880  Basis and scope.

    (a) Basis. This subpart is based on section 1860D-22 of the Act, as 
amended by section 101 of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA).
    (b) Scope. This section implements the statutory requirement that a 
subsidy payment be made to sponsors of qualified retiree prescription 
drug plans.



Sec. 423.882  Definitions.

    For the purposes of this subpart, the following definitions apply:
    Allowable retiree costs, in accordance with section 1860D-
22(a)(3)(C)(i) of the Act, means gross covered retiree plan-related 
prescription drug costs that are actually paid (net any manufacturer or 
pharmacy discounts, chargebacks, rebates, and similar price concessions) 
by either the qualified retiree prescription drug plan or the qualifying 
covered retiree (or on the qualifying covered retiree's behalf).
    Benefit option means a particular benefit design, category of 
benefits, or cost-sharing arrangement offered within a group health 
plan.
    Employment-based retiree health coverage means coverage of health 
care costs under a group health plan based on an individual's status as 
a retired participant in the plan, or as the spouse or dependent of a 
retired participant. The term includes coverage provided by voluntary 
insurance coverage, or coverage as a result of a statutory or 
contractual obligation.
    Gross covered retiree plan-related prescription drug costs, or gross 
retiree costs means, for a qualifying covered retiree who is enrolled in 
a qualified retiree prescription drug plan during a plan year, non-
administrative costs incurred under the plan for Part D drugs during the 
year, whether paid for by the plan or the retiree, including costs 
directly related to the dispensing of Part D drugs.
    Group health plans include plans as defined in section 607(1) of 
ERISA, 29 U.S.C. Sec. 1167(1). They also include the following plans:
    (1) A Federal or State governmental plan, which is a plan providing 
medical care that is established or maintained for its employees by the 
Government of the United States, by the government of any State or 
political subdivision of a State (including a county or local 
government), or by any agency or instrumentality or any of the 
foregoing, including a health benefits plan offered under chapter 89 of 
Title 5, United States Code (the Federal Employee Health Benefit Plan 
(FEHBP)).
    (2) A collectively bargained plan, which is a plan providing medical 
care that is established or maintained under or by one or more 
collective bargaining agreements.
    (3) A church plan, which is a plan providing medical care that is 
established and maintained for its employees or their beneficiaries by a 
church or by a convention or association of churches that is exempt from 
tax under section 501 of the Internal Revenue Code of 1986 (26 U.S.C. 
501).
    (4) An account-based medical plan such as a Health Reimbursement 
Arrangement (HRA) as defined in Internal Revenue Service Notice 2002-45, 
2002-28 I.R.B. 93, a health Flexible Spending Arrangement (FSA) as 
defined in Internal Revenue Code (Code) section 106(c)(2), a health 
savings account (HSA) as defined in Code section 223, or an Archer MSA 
as defined in Code section 220, to the extent they are subject to ERISA 
as employee welfare benefit plans providing medical care (or would be 
subject to ERISA but for the exclusion in ERISA section 4(b), 29 
U.S.C.Sec. . Sec. 1003(b), for governmental plans or church plans).
    Part D drug is defined in Sec. 423.100 of this part.
    Part D eligible individual is defined in Sec. 423.4 of this part.
    Qualified retiree prescription drug plan means employment-based 
retiree health coverage that meets the requirements set forth in Sec. 
423.884 of this

[[Page 440]]

chapter for a Part D eligible individual who is a retired participant or 
the spouse or dependent of a retired participant under the coverage.
    Qualifying covered retiree means a Part D eligible individual who 
is: a participant or the spouse or dependent of a participant; covered 
under employment-based retiree health coverage that qualifies as a 
qualified retiree prescription drug plan; and not enrolled in a Part D 
plan. For this purpose, the determination of whether an individual is 
covered under employment-based retiree health coverage is made by the 
sponsor in accordance with the rules of its plan. For purposes of this 
subpart, however, an individual is presumed not to be covered under 
employment-based retiree health coverage if, under the Medicare 
Secondary Payer rules in Sec. 411.104 of this chapter and related CMS 
guidance, the person is considered to be receiving coverage by reason of 
current employment status. The presumption applies whether or not the 
Medicare Secondary Payer rules actually apply to the sponsor. For this 
purpose, a sponsor also may treat a person receiving coverage under its 
qualified retiree prescription drug plan as the dependent of a 
qualifying covered retiree in accordance with the rules of its plan, 
regardless of whether that person constitutes the qualifying covered 
retiree's dependent for Federal or State tax purposes.
    Retiree drug subsidy amount, or subsidy payment, means the subsidy 
amount paid to sponsors of qualified retiree prescription drug coverage 
under Sec. 423.886(a).
    Standard prescription drug coverage is defined in Sec. 423.100 of 
this part.
    Sponsor is a plan sponsor as defined in section 3(16)(B) of the 
Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 
1002(16)(B), except that, in the case of a plan maintained jointly by 
one employer and an employee organization and for which the employer is 
the primary source of financing, the term means the employer.
    Sponsor agreement means an agreement by the sponsor to comply with 
the provisions of this subpart.



Sec. 423.884  Requirements for qualified retiree prescription drug plans.

    (a) General. Employment-based retiree health coverage is considered 
to be a qualified retiree prescription drug plan if all of the following 
requirements are satisfied:
    (1) An actuarial attestation is submitted in accordance with 
paragraph (d) of this section. The rules for submitting attestations as 
part of subsidy applications are described in paragraph (c) of this 
section.
    (2) Part D eligible individuals covered under the plan are provided 
with creditable coverage notices in accordance with Sec. 423.56.
    (3) Records are maintained and made available for audit in 
accordance with paragraph (f) of this section and Sec. 423.888(d).
    (b) Disclosure of information. The sponsor must have a written 
agreement with its health insurance issuer (as defined in 45 CFR 
160.103), or group health plan (as applicable) regarding disclosure of 
information to CMS, and the issuer or plan must disclose to CMS, on 
behalf of the sponsor, the information necessary for the sponsor to 
comply with this subpart.
    (c) Application--(1) Submitting an application. The sponsor (or its 
designee) must submit an application for the subsidy to CMS that is 
signed by an authorized representative of the sponsor. The application 
must be provided in a form and manner specified by CMS.
    (2) Required information. In connection with each application the 
sponsor (either directly or through its designee) must submit the 
following:
    (i) Employer Tax ID Number (if applicable).
    (ii) Sponsor name and address.
    (iii) Contact name and email address.
    (iv) Actuarial attestation that satisfies the standards specified in 
paragraph (d) of this section and any other supporting documentation 
required by CMS for each qualified retiree prescription drug plan for 
which the sponsor seeks subsidy payments.
    (v) A list of all individuals the sponsor believes (using 
information reasonably available to the sponsor when it submits the 
application) are qualifying covered retirees enrolled in each 
prescription drug plan (including spouses

[[Page 441]]

and dependents, if Medicare-eligible), along with the information about 
each person listed below in this paragraph:
    (A) Full name.
    (B) Health Insurance Claim (HIC) number or Social Security number.
    (C) Date of birth.
    (D) Gender.
    (E) Relationship to the retired employee.
    (vi) A sponsor may satisfy paragraph (c)(2)(v) of this section by 
entering into a voluntary data sharing agreement (VDSA) with CMS (or any 
other arrangement CMS may make available).
    (vii) A signed sponsor agreement.
    (viii) Any other information specified by CMS.
    (3) Terms and conditions. To receive a subsidy payment, the sponsor 
(through the signed sponsor agreement or as otherwise specified by CMS) 
must specifically accept and agree to:
    (i) Comply with the terms and conditions of eligibility for a 
subsidy payment set forth in this regulation and in any related CMS 
guidance;
    (ii) Acknowledge that the information in the application is being 
provided to obtain Federal funds; and
    (iii) Require that all subcontractors, including plan 
administrators, acknowledge that information provided in connection with 
the subcontract is used for purposes of obtaining Federal funds.
    (4) Signature by sponsor. An authorized representative of the 
requesting sponsor must sign the completed application and certify that 
the information contained in the application is true and accurate to the 
best of the sponsor's knowledge and belief.
    (5) Timing. (i) General rule. An application for a given plan year 
must be submitted by no later than 90 days prior to the beginning of the 
plan year, unless a request for an extension has been filed and approved 
under procedures established by CMS.
    (ii) Transition rule. For plan years that end in 2006, an 
application must be submitted by September 30, 2005 unless a request for 
an extension has been filed and approved under procedures established by 
CMS.
    (6) Updates. The sponsor (or the designee) must provide updates to 
CMS in a manner specified by CMS of the information required in 
paragraph (c)(2) of this section on a monthly basis or at a frequency 
specified by CMS.
    (7) Data match. Once the full application for the subsidy payment is 
submitted, CMS--
    (i) Matches the names and identifying information of the individuals 
submitted as qualifying covered retirees with the Medicare Beneficiary 
Database (MBD) to determine which retirees are Part D eligible 
individuals who are not enrolled in a Part D plan.
    (ii) Provides information concerning the results of the search in 
paragraph (c)(7)(i) of this paragraph (such as names and other 
identifying information, if necessary) to the sponsor (or to a 
designee).
    (d) Actuarial attestation-general. The sponsor of the plan must 
provide to CMS an attestation in a form and manner specified by CMS that 
the actuarial value of the retiree prescription drug coverage under the 
plan is at least equal to the actuarial value of the defined standard 
prescription drug coverage (as defined at Sec. 423.100). The 
attestation must meet all of the following standards.
    (1) Contents of the attestation include the following assurances:
    (i) The actuarial gross value of the retiree prescription drug 
coverage under the plan for the plan year is at least equal to the 
actuarial gross value of the defined standard prescription drug coverage 
under Part D for the plan year in question.
    (ii) The actuarial net value of the retiree prescription drug 
coverage under the plan for that plan year is at least equal to the 
actuarial net value of the defined standard prescription drug coverage 
under Part D for the plan year in question.
    (iii) The actuarial values must be determined using the methodology 
in paragraph (d)(5) of this section.
    (2) The attestation must be made by a qualified actuary who is a 
member of the American Academy of Actuaries. Applicants may use 
qualified outside actuaries, including (but not limited to) actuaries 
employed by the plan administrator or an insurer providing benefits 
under the plan. If an applicant

[[Page 442]]

uses an outside actuary, the attestation can be submitted directly by 
the outside actuary or by the plan sponsor.
    (3)The attestation must be signed by a qualified actuary and must 
state that the attestation is true and accurate to the best of the 
attester's knowledge and belief.
    (4) The attestation must contain an acknowledgement that the 
information being provided in the attestation is being used to obtain 
Federal funds.
    (5) Methodology. (i) Basis of the attestation. The attestation must 
be based on generally accepted actuarial principles and any actuarial 
guidelines established by CMS in this section or in future guidance. To 
the extent CMS has not provided guidance on a specific aspect of the 
actuarial equivalence standard under this section, an actuary providing 
the attestation may rely on any reasonable interpretation of this 
section and section 1860D-22(a) of the Act consistent with generally 
accepted actuarial principles in determining actuarial values.
    (ii) Specific rules for determining the actuarial value of the 
sponsor's retiree prescription drug coverage. (A) The gross value of 
coverage under the sponsor's retiree prescription drug plan must be 
determined using the actual claims experience and demographic data for 
Part D eligible individuals who are participants and beneficiaries in 
the sponsor's plan, provided that sponsors without creditable data due 
to their size or other factors, may use normative databases as specified 
by CMS. Sponsors may use other actuarial approaches specified by CMS as 
an alternative to the actuarial valuation specified by this paragraph 
(d)(5)(ii)(A).
    (B) The net value of coverage provided under the sponsor's retiree 
prescription drug plan must be determined by reducing the gross value of 
such coverage as determined under paragraph (d)(5)(ii)(A) of this 
section by the expected premiums paid by Part D eligible individuals who 
are plan participants or their spouses and dependents. For sponsors of 
plans that charge a single, integrated premium or contribution to their 
retirees for both prescription drug coverage and other types of medical 
coverage, the attestation must allocate a portion of the premium/
contribution to prescription drug coverage under the sponsor's plan, 
under any method determined by the sponsor or its actuary.
    (iii) Specific rules for calculating the actuarial value of defined 
standard prescription drug coverage under Part D. (A) The gross value of 
defined standard prescription drug coverage under Part D must be 
determined using the actual claims experience and demographic data for 
Part D eligible individuals in the sponsor's plan, provided that 
sponsors without credible data due to their size or other factors may 
use normative databases as specified by CMS. Sponsors may use other 
actuarial approaches specified by CMS as an alternative to the actuarial 
valuation specified by this paragraph (d)(5)(iii)(A).
    (B) To calculate the net value of defined standard prescription drug 
coverage under Part D, the gross value of defined standard prescription 
drug coverage under Part D as determined by paragraph (d)(5)(iii)(A) of 
this section is reduced by the following amounts:
    (1) The monthly beneficiary premiums (as defined in Sec. 423.286) 
expected to be paid for standard prescription drug coverage; and
    (2) An amount calculated to reflect the impact on the value of 
defined standard prescription drug coverage of supplemental coverage 
provided by the sponsor. Sponsors may use other actuarial approaches 
specified by CMS as an alternative to the actuarial valuation specified 
in this paragraph (d)(5)(iii)(B)(2).
    (C) The valuation of defined standard prescription drug coverage for 
a given plan year is based on the initial coverage limit cost-sharing 
and out-of-pocket threshold for defined standard prescription drug 
coverage under Part D in effect at the start of such plan year. The 
attestation, however, must be submitted to CMS no later than 60 days 
after the publication of the Part D coverage limits for the upcoming 
calendar year otherwise, such valuation is based on the initial coverage 
limit, cost-sharing amounts, and out-of-pocket threshold for defined 
standard prescription drug coverage under Part D for the upcoming 
calendar year.
    (D) Example. If a sponsor's retiree prescription drug plan operates 
under a

[[Page 443]]

plan year that ends March 30, the attestation for the year April 1, 
2007-March 30, 2008 is based on the coverage limit, cost-sharing and 
out-of-pocket threshold that apply to defined standard prescription drug 
coverage under Part D in 2007 provided the attestation is submitted 
within 60 days after the publication of the Part D coverage limits for 
2008. If the attestation is submitted more than 60 days after the 2008 
coverage limits have been published, the 2008 coverage limits would 
apply.
    (iv) Employment-based retiree health coverage with two or more 
benefit options. For the assurance required under paragraph (d)(1)(i) of 
this section, the assurance must be provided separately for each benefit 
option for which the sponsor requests a subsidy under this subpart. For 
the assurance required under paragraph (d)(1)(ii) of this section, the 
assurance may be provided either separately for each benefit option for 
which the sponsor provided assurances under paragraph (d)(1)(i) of this 
section, or in the aggregate for all benefit options for which the 
sponsor provided assurances under paragraph (d)(1)(i) of this section.
    (6) Timing. (i) Annual submission. The attestation must be provided 
annually at the time the sponsor's subsidy application is submitted, or 
at such other times as specified by CMS in further guidance.
    (ii) Submission following material change. The attestation must be 
provided no later than 90 days before the implementation of a material 
change to the drug coverage of the sponsor's plan that impacts the 
actuarial value of the coverage.
    (e) Disclosure of creditable prescription drug coverage status. The 
sponsor must disclose to all of its retirees and their spouses and 
dependents eligible to participate in its plan who are Part D eligible 
individuals whether the coverage is creditable prescription drug 
coverage under Sec. 423.56 in accordance with the notification 
requirements under that section.
    (f) Access to records for audit. The sponsor (and where applicable, 
its designee) must meet the requirements of Sec. 423.888(d). Failure to 
comply with Sec. 423.888(d) may result in nonpayment or recoupment of 
all or part of a subsidy payment.



Sec. 423.886  Retiree drug subsidy amounts.

    (a) Amount of subsidy payment. (1) For each qualifying covered 
retiree enrolled with the sponsor of a qualified retiree prescription 
drug plan in a plan year, the sponsor receives a subsidy payment in the 
amount of 28 percent of the allowable retiree costs (as defined in Sec. 
423.882) in the plan year for such retiree attributable to gross retiree 
costs between the cost threshold and the cost limit as defined in 
paragraph (b) of this section. The subsidy payment is calculated by 
first determining gross retiree costs between the cost threshold and 
cost limit, and then determining allowable retiree costs attributable to 
the gross retiree costs. For this purpose and where otherwise relevant 
in this subpart, plan year is the calendar, policy, or fiscal year on 
which the records of a plan are kept.
    (2) Transition provision. For a qualified retiree prescription drug 
plan that has a plan year which begins in calendar year 2005 and ends in 
calendar year 2006, the subsidy for the plan year must be determined in 
the following manner. Claims incurred in all months of the plan year 
(including claims incurred in 2005) are taken into account in 
determining which claims fall within the cost threshold and cost limit 
for the plan year. The subsidy amount is determined based only on costs 
incurred on and after January 1, 2006.
    (b) Cost threshold and cost limit. The following cost threshold and 
cost limits apply--
    (1) Subject to paragraph (b)(3) of this section, the cost threshold 
under this section is equal to $250 for plan years that end in 2006.
    (2) Subject to paragraph (b)(3) of this section, the cost limit 
under this section is equal to $5,000 for plan years that end in 2006.
    (3) The cost threshold and cost limit specified in paragraphs (b)(1) 
and (b)(2) of this section, for plan years that end in years after 2006, 
are adjusted in the same manner as the annual Part D deductible and the 
annual Part D out-of-pocket threshold are adjusted annually

[[Page 444]]

under Sec. 423.104(d)(1)(ii) and (d)(5)(iii)(B), respectively.



Sec. 423.888  Payment methods, including provision of necessary information.

    (a) Basis. The provisions of Sec. 423.301 through Sec. 423.343, 
including requirements to provide information necessary to ensure 
accurate subsidy payments, govern payment under Sec. 423.886 except to 
the extent the provisions in this section specify otherwise.
    (b) General payment rules. Payment under Sec. 423.886 is 
conditioned on provision of accurate information. The information must 
be submitted, in a form and manner and at the times provided in this 
paragraph and under other guidance specified by CMS, by the sponsor or 
its designee.
    (1) Timing. Payment can be made on a monthly, quarterly or annual 
basis, as elected by the plansponsor under guidance specified by CMS, 
unless CMS determines that the options must be restricted because of 
operational limitations.
    (i) Monthly or quarterly payments. If the plan sponsor elects for 
payment on a monthly or quarterly basis, it must provide information 
described in paragraph (b)(2)(i) of this section on the same monthly or 
quarterly basis, or at such time as CMS specifies.
    (ii) Annual payments. If the sponsor elects an annual payment, it 
must submit to CMS actual rebate and other price concession data within 
15 months after the end of the plan year.
    (2) Submission of cost data. (i) Monthly or quarterly payments. If 
the plan sponsor elects to receive payment on a monthly or quarterly 
basis, it must submit to CMS, in a manner specified by CMS, the gross 
covered retiree plan-related prescription drug costs (as defined in 
Sec. 423.882) incurred for its qualifying covered retirees during the 
payment period for which it is claiming a subsidy payment and any other 
data CMS may require. Except as otherwise provided by CMS in future 
guidance, the sponsor must also submit, using historical data and 
generally accepted actuarial principles, an estimate of the extent to 
which its expected allowable retiree costs differs from the gross 
covered retiree plan-related prescription drug costs, based on expected 
rebates and other price concessions for the upcoming plan year. The 
estimate must be used to reduce the periodic payments for the plan year. 
Final allocation of price concession data must occur after the end of 
the year under the reconciliation provisions of paragraph (b)(4) of this 
section
    (ii) Annual payments. If the plan sponsor elects a one-time final 
annual payment, it must submit, in a manner specified by CMS, within 15 
months, or within any other longer time limit specified by CMS, after 
the end of the plan year, the total gross covered retiree plan-related 
prescription drug costs (as defined in Sec. 423.882) for the plan year 
for which it is claiming a subsidy payment, actual rebate and other 
price concession data described in paragraph (b)(1)(ii) of this section, 
and any other data CMS may require. The alternative is that the sponsor 
can elect an interim annual payment, in which case it must submit the 
following to CMS, at a time and in a manner specified by CMS: the gross 
covered retiree plan-related prescription drug costs (as defined in 
Sec. 423.882) incurred for all of its qualifying covered retirees 
during the payment period for which it is claiming a subsidy payment; an 
estimate (using historical data and generally accepted actuarial 
principles) of the difference between such gross costs and allowable 
costs (based on expected rebates and other price concessions for the 
upcoming plan year); and any other data CMS may require.
    (3) Payment by CMS. CMS makes payment after the sponsor's submission 
of the cost data at a time and in a manner to be specified by CMS.
    (4) Reconciliation. (i) Sponsors who elect either monthly, quarterly 
or an interim annual payment must submit to CMS, within 15 months, or 
within any other longer time limit specified by CMS, after the end of 
its plan year, the total gross covered retiree plan-related prescription 
drug costs (as defined in Sec. 423.882), in a manner specified by CMS; 
actual rebate and other price concession data for the plan year in 
question; and any other data CMS may require.
    (ii) Upon receiving this data, CMS adjusts the payments made for the 
plan

[[Page 445]]

year in question in a manner to be specified by CMS.
    (5) Special rule for insured plans. (i) Interim payments. Sponsors 
of group health plans that provide benefits through health insurance 
coverage (as defined in 45 CFR 144.103) and that choose either monthly 
payments, quarterly payments or an interim annual payment in paragraphs 
(b)(1) and (b)(2) of this section , may elect to determine gross covered 
plan-related retiree prescription drug costs for purposes of the 
monthly, quarterly or interim annual payments based on a portion of the 
premium costs paid by the sponsor (or by the qualifying covered 
retirees) for coverage of the covered retirees under the group health 
plan. Premium costs that are determined, using generally accepted 
actuarial principles, may be attributable to the gross prescription drug 
costs incurred by the health insurance issuer (as defined in 45 CFR 
Sec. 144.103) for the sponsor's qualifying covered retirees, except 
that administrative costs and risk charges must be subtracted from the 
premium.
    (ii) Final payments. At the end of the plan year, actual gross 
retiree plan-related prescription drug costs incurred by the insurer (or 
the retiree), and the allowable costs attributable to the gross costs, 
are determined for each of the sponsor's qualifying covered retirees and 
submitted for reconciliation after the end of the plan year as specified 
in paragraph (b)(4)of this section. The data for the reconciliation can 
be submitted directly to CMS by the insurer in a manner to be specified 
by CMS. Upon receiving this data, CMS adjusts the payments made for the 
relevant plan year in a manner to be specified by CMS.
    (c) Use of information provided. Officers, employees and contractors 
of the Department of Health and Human Services, including the Office of 
Inspector General (OIG), may use information collected under this 
section only for the purposes of, and to the extent necessary in, 
carrying out this subpart including, but not limited to, determination 
of payments and payment-related oversight and program integrity 
activities, or as otherwise required by law. This restriction does not 
limit OIG authority to conduct audits and evaluations necessary for 
carrying out these regulations.
    (d) Maintenance of records. (1) The sponsor of the qualified retiree 
prescription drug plan (or a designee), as applicable, must maintain, 
and furnish to CMS or the OIG upon request, the records enumerated in 
paragraph (d)(3) of this section. The records must be maintained for 6 
years after the expiration of the plan year in which the costs were 
incurred for the purposes of audits and other oversight activities 
conducted by CMS to assure the accuracy of the actuarial attestation and 
the accuracy of payments.
    (2) CMS or the OIG may extend the 6-year retention requirement for 
the records enumerated in paragraph (d)(3) of this section in the event 
of an ongoing investigation, litigation, or negotiation involving civil, 
administrative or criminal liability. In addition, the sponsor of the 
qualified retiree prescription drug plan (or a designee), as applicable, 
must maintain the records enumerated in paragraph (d)(3) of this section 
longer than 6 years if it knows or should know that the records are the 
subject of an ongoing investigation, litigation or negotiation involving 
civil, administrative or criminal liability.
    (3) The records that must be retained are:
    (i) Reports and working documents of the actuaries who wrote the 
attestation submitted in accordance with Sec. 423.884(a).
    (ii) All documentation of costs incurred and other relevant 
information utilized for calculating the amount of the subsidy payment 
made in accordance with Sec. 423.886, including the underlying claims 
data.
    (iii) Any other records specified by CMS.
    (4) CMS may issue additional guidance addressing recordkeeping 
requirements, including (but not limited to) the use of electronic 
media.



Sec. 423.890  Appeals.

    (a) Informal written reconsideration--(1) Initial determinations. A 
sponsor is entitled to an informal written reconsideration of an adverse 
initial determination. An initial determination is a determination 
regarding the following:

[[Page 446]]

    (i) The amount of the subsidy payment.
    (ii) The actuarial equivalence of the sponsor's retiree prescription 
drug plan.
    (iii) If an enrollee in a retiree prescription drug plan is a 
qualifying covered retiree; or
    (iv) Any other similar determination (as determined by CMS) that 
affects eligibility for, or the amount of, a subsidy payment.
    (2) Effect of an initial determination regarding the retiree drug 
subsidy. An initial determination is final and binding unless 
reconsidered in accordance with this paragraph (a) of this section.
    (3) Manner and timing for request. A request for reconsideration 
must be made in writing and filed with CMS within 15 days of the date on 
the notice of adverse determination.
    (4) Content of request. The request for reconsideration must specify 
the findings or issues with which the sponsor disagrees and the reasons 
for the disagreements. The request for reconsideration may include 
additional documentary evidence the sponsor wishes CMS to consider.
    (5) Conduct of informal written reconsideration. In conducting the 
reconsideration, CMS reviews the subsidy determination, the evidence and 
findings upon which it was based, and any other written evidence 
submitted by the sponsor or by CMS before notice of the reconsidered 
determination is made.
    (6) Decision of the informal written reconsideration. CMS informs 
the sponsor of the decision orally or through electronic mail. CMS sends 
a written decision to the sponsor on the sponsor's request.
    (7) Effect of CMS informal written reconsideration. A 
reconsideration decision, whether delivered orally or in writing, is 
final and binding unless a request for hearing is filed in accordance 
with paragraph (b) of this section, or it is revised in accordance 
paragraph (d) of this section.
    (b) Right to informal hearing. A sponsor dissatisfied with the CMS 
reconsideration decision is entitled to an informal hearing as provided 
in this section.
    (1) Manner and timing for request. A request for a hearing must be 
made in writing and filed with CMS within 15 days of the date the 
sponsor receives the CMS reconsideration decision.
    (2) Content of request. The request for informal hearing must 
include a copy of the CMS reconsideration decision (if any) and must 
specify the findings or issues in the decision with which the sponsor 
disagrees and the reasons for the disagreements.
    (3) Informal hearing procedures. (i)CMS provides written notice of 
the time and place of the informal hearing at least 10 days before the 
scheduled date.
    (ii) The hearing is conducted by a CMS hearing officer who neither 
receives testimony nor accepts any new evidence that was not presented 
with the reconsideration request. The CMS hearing officer is limited to 
the review of the record that was before CMS when CMS made both its 
initial and reconsideration determinations.
    (iii) If CMS did not issue a written reconsideration decision, the 
hearing officer may request, but not require, a written statement from 
CMS or its contractors explaining CMS' determination, or CMS or its 
contractors may, on their own, submit the written statement to the 
hearing officer. Failure of CMS to submit a written statement does not 
result in any adverse findings against CMS and may not in any way be 
taken into account by the hearing officer in reaching a decision.
    (4) Decision of the CMS hearing officer. The CMS hearing officer 
decides the case and sends a written decision to the sponsor, explaining 
the basis for the decision.
    (5) Effect of hearing officer decision. The hearing officer decision 
is final and binding, unless the decision is reversed or modified by the 
Administrator in accordance with paragraph (c) of this section.
    (c) Review by the Administrator. (1) A sponsor that has received a 
hearing officer decision upholding a CMS initial or reconsidered 
determination may request review by the Administrator within 15 days of 
receipt of the hearing officer's decision.
    (2) The Administrator may review the hearing officer's decision, any 
written documents submitted to CMS or to the hearing officer, as well as 
any other information included in the record of the hearing officer's 
decision

[[Page 447]]

and determine whether to uphold, reverse or modify the hearing officer's 
decision.
    (3) The Administrator's determination is final and binding.
    (d) Reopening--(1) Ability to reopen. CMS may reopen and revise an 
initial or reconsidered determination upon its own motion or upon the 
request of a sponsor:
    (i) Within 1 year of the date of the notice of determination for any 
reason.
    (ii) Within 4 years for good cause.
    (iii) At any time when the underlying decision was obtained through 
fraud or similar fault.
    (2) Notice of reopening. (i) Notice of reopening and any revisions 
following the reopening are mailed to the sponsor.
    (ii) Notice of reopening specifies the reasons for revision.
    (3) Effect of reopening. The revision of an initial or reconsidered 
determination is final and binding unless-
    (i) The sponsor requests reconsideration in accordance with 
paragraph (a) of this section;
    (ii) A timely request for a hearing is filed under paragraph (b) of 
this section;
    (iii) The determination is reviewed by the Administrator in 
accordance with paragraph (c) of this section; or
    (iv) The determination is reopened and revised in accordance with 
paragraph (d) of this section.
    (4) Good cause. For purposes of this section, CMS finds good cause 
if--
    (i) New and material evidence exists that was not readily available 
at the time the initial determination was made;
    (ii) A clerical error in the computation of payments was made; or
    (iii) The evidence that was considered in making the determination 
clearly shows on its face that an error was made.
    (5) For purposes of this section, CMS does not find good cause if 
the only reason for reopening is a change of legal interpretation or 
administrative ruling upon which the initial determination was made.
    (6) A decision by CMS not to reopen an initial or reconsidered 
determination is final and binding and cannot be appealed.



Sec. 423.892  Change of ownership.

    (a) Change of ownership. Any of the following constitutes a change 
of ownership:
    (1) Partnership. The removal, addition, or substitution of a 
partner, unless the partners expressly agree otherwise as permitted by 
applicable State law.
    (2) Asset sale. Transfer of all or substantially all of the assets 
of the sponsor to another party.
    (3) Corporation. The merger of the sponsor's corporation into 
another corporation or the consolidation of the sponsor's organization 
with one or more other corporations, resulting in a new corporate body.
    (b) Change of ownership, exception. Transfer of corporate stock or 
the merger of another corporation into the sponsor's corporation, with 
the sponsor surviving, does not ordinarily constitute change of 
ownership.
    (c) Advance notice requirement. A sponsor that has a sponsor 
agreement in effect under this part and is considering or negotiating a 
change in ownership must notify CMS at least 60 days before the 
anticipated effective date of the change.
    (d) Assignment of agreement. When there is a change of ownership as 
specified in paragraph (a) of this section, and this results in a 
transfer of the liability for prescription drug costs, the existing 
sponsor agreement is automatically assigned to the new owner.
    (e) Conditions that apply to assigned agreements. The new owner to 
whom a sponsor agreement is assigned is subject to all applicable 
statutes and regulations and to the terms and conditions of the sponsor 
agreement.



Sec. 423.894  Construction.

    Nothing in this part must be interpreted as prohibiting or 
restricting:
    (a) A Part D eligible individual who is covered under employment-
based retiree health coverage, including a qualified retiree 
prescription drug plan, from enrolling in a Part D plan;
    (b) A sponsor or other person from paying all or any part of the 
monthly beneficiary premium (as defined in Sec. 423.286) for a Part D 
plan on behalf of a retiree (or his or her spouse or dependents);

[[Page 448]]

    (c) A sponsor from providing coverage to Part D eligible individuals 
under employment-based retiree health coverage that is--
    (1) Supplemental to the benefits provided under a Part D plan; or
    (2) Of higher actuarial value than the actuarial value of standard 
prescription drug coverage (as defined in Sec. 423.104(d)); or
    (d) Sponsors from providing for flexibility in the benefit design 
and pharmacy network for their qualified retiree prescription drug 
coverage, without regard to the requirements applicable to Part D plans 
under Sec. 423.104, as long as the requirements under Sec. 423.884 are 
met.



   Subpart S_Special Rules for States-Eligibility Determinations for 
                Subsidies and General Payment Provisions



Sec. 423.900  Basis and scope.

    (a) Basis. This subpart is based on sections 1935(a) through (d) of 
the Act as amended by section 103 of the MMA.
    (b) Scope. This subpart specifies State agency obligations for the 
Part D prescription drug benefit.



Sec. 423.902  Definitions.

    The following definitions apply to this subpart:
    Actuarial value of capitated prescription drug benefits is the 
estimated actuarial value of prescription drug benefits provided under a 
comprehensive Medicaid managed care plan per full-benefit dual eligible 
individual for 2003, as determined using data as the Secretary 
determines appropriate. This value will be established using data 
determined by the Secretary to be the best available among the following 
options:
    (1) State rate setting documentation for drug costs to the full dual 
eligible population;
    (2) State encounter and enrollment record databases including cost 
data; and
    (3) State managed care plan-specific financial cost data; and
    (4) Other appropriate data.
    Applicable growth factor for each of 2004, 2005, and 2006, is the 
average annual percent change (to that year from the previous year) of 
the per capita amount of prescription drug expenditures (as determined 
based on the most recent National Total Drug National Health Expenditure 
projections for the years involved). The growth factor for 2007 and 
succeeding years will equal the annual percentage increase in average 
per capita aggregate expenditures for covered Part D drugs in the United 
States for Part D eligible individuals for the 12-month period ending in 
July of the previous year, as described in Sec. 423.104(d)(5)(iv). CMS 
provides further detail regarding the sources of data to be used and how 
the annual percentage increase will be determined via operational 
guidance to States.
    Base year Medicaid per capita expenditures are equal to the weighted 
average of:
    (1) The gross base year (calendar year 2003) per capita Medicaid 
expenditures for prescription drugs, reduced by the rebate adjustment 
factor; and
    (2) The estimated actuarial value of prescription drug benefits 
provided under a comprehensive capitated Medicaid managed care plan per 
full-benefit dual eligible for 2003. The per capita payments for full-
benefit dual eligibles with comprehensive managed care and non-managed 
care are weighted by the respective average monthly full dual eligible 
enrollment populations reported through the Medicaid Statistical 
Information System (MSIS).
    Full-benefit dual eligible individual means an individual who, for 
any month-
    (1) Has coverage for the month under a prescription drug plan under 
Part D of title XVIII, or under an MA-PD plan under Part C of title 
XVIII; and
    (2) Is determined eligible by the State for medical assistance for 
full benefits under title XIX for the month under any eligibility 
category covered under the State plan or comprehensive benefits under a 
demonstration under section 1115 of the Act. (This does not include 
individuals under Pharmacy Plus demonstrations or under a section 1115 
of the Act demonstration that provides pharmacy only benefits to these 
individuals.) It also includes any individual who is determined by the 
State to be eligible for medical assistance under section 1902(a)(10)(C) 
of the Act

[[Page 449]]

(medically needy) or section 1902(f) of the Act (States that use more 
restrictive eligibility criteria than are used by the SSI program) of 
the Act for any month if the individual was eligible for medical 
assistance in any part of the month. For the 2003 baseline calculations, 
the full-benefit dual eligibles are those individuals reported in MSIS 
as having Medicaid drug benefit coverage and Medicare Part A or Part B 
coverage. Dual eligibility status will be established by CMS using an 
algorithm that incorporates the quarterly MSIS dual eligibility code for 
the prescription fill date and the dual eligibility code for the prior 
quarter.
    Gross base year Medicaid per capita expenditures are equal to the 
expenditures, including dispensing fees, made by the State and reported 
in MSIS during calendar year 2003 for covered outpatient drugs, 
excluding drugs or classes of drugs, or their medical uses, which may be 
excluded from coverage or otherwise restricted under section 1860D-2 of 
the Act, other than smoking cessation agents determined per full-benefit 
dual eligible individual for the individuals not receiving medical 
assistance for the drugs through a comprehensive Medicaid managed care 
plan. This amount is determined based on MSIS drug claims paid during 
the four quarters of calendar year 2003 and the corresponding dual 
eligibility enrollment status of the beneficiary. MSIS drug claims 
having National Drug Codes determined by CMS to be in the Part D 
excluded drug class, and claims having a program type code indicating 
Indian Health Service or Family Planning will be excluded from the 
calculation.
    Phased-down State contribution factor for a month in 2006 is 90 
percent; in 2007 is 88 1/3 percent; in 2008 is 86 2/3 percent; in 2009 
is 85 percent; in 2010 is 83 1/3 percent; in 2011 is 81 2/3 percent; in 
2012 is 80 percent; in 2013 is 78 1/3 percent; in 2014 is 76 2/3 
percent; or after December 2014, is 75 percent.
    Phased-down State contribution payment refers to the States' monthly 
payment made to the Federal government beginning in 2006 to defray a 
portion of the Medicare drug expenditures for full-benefit dual eligible 
individuals whose Medicaid drug coverage is assumed by Medicare Part D. 
The contribution is calculated as 1/12th of the base year (2003) 
Medicaid per capita expenditures for prescription drugs (that is, 
covered Part D drugs) for full-benefit dual eligible individuals,
    (1) Multiplied by the State medical assistance percentage;
    (2) Increased for each year (beginning with 2004 up to and including 
the year involved) by the applicable growth factor;
    (3) Multiplied by the number of the State's full-benefit dual 
eligible individuals for the given month; and
    (4) Multiplied by the phased-down State contribution factor.
    Rebate adjustment factor takes into account drug rebates and, for a 
State, is equal to the ratio of the four quarters of calendar year 2003 
of aggregate rebate payments received by the State under section 1927 of 
the Act to the gross expenditures for covered outpatient drugs.
    State medical assistance percentage means the proportion equal to 
100 percent minus the State's Federal medical assistance percentage, 
applicable to the State for the fiscal year in which the month occurs.



Sec. 423.904  Eligibility determinations for low-income subsidies.

    (a) General rule. The State agency must make eligibility 
determinations and redeterminations for low-income premium and cost-
sharing subsidies in accordance with subpart P of part 423.
    (b) Notification to CMS. The State agency must inform CMS of cases 
where eligibility is established or redetermined, in a manner determined 
by CMS.
    (c) Screening for eligibility for Medicare cost-sharing and 
enrollment under the State plan. States must--
    (1) Screen individuals who apply for subsidies under this part for 
eligibility for Medicaid programs that provide assistance with Medicare 
cost-sharing specified in section 1905(p)(3) of the Act.
    (2) Offer enrollment for the programs under the State plan (or under 
a waiver of the plan) for those meeting the eligibility requirements.
    (d) Application form and process--(1) Assistance with application. 
No later

[[Page 450]]

than July 1, 2005, States must make available--
    (i) Low-income subsidy application forms;
    (ii) Information on the nature of, and eligibility requirements for, 
the subsidies under this section; and
    (iii) Assistance with completion of low-income subsidy application 
forms.
    (2) Completion of application. The State must require an individual 
or personal representative applying for the low-income subsidy to--
    (i) Complete all required elements of the application and provide 
documents, as necessary, consistent with paragraph (d)(3) of this 
section; and
    (ii) Certify, under penalty of perjury or similar sanction for false 
statements, as to the accuracy of the information provided on the 
application form.
    (3) The application process and States. (i) States may require 
submission of statements from financial institutions for an application 
for low-income subsidies to be considered complete; and
    (ii) May require that information submitted on the application be 
subject to verification in a manner the State determines to be most 
cost-effective and efficient.
    (4) Other information. States must provide CMS with other 
information as specified by CMS that may be needed to carry out the 
requirements of the Part D prescription drug benefit.



Sec. 423.906  General payment provisions.

    (a) Regular Federal matching. Regular Federal matching applies to 
the eligibility determination and notification activities specified in 
Sec. 423.904(a) and (b).
    (b) Medicare as primary payer. Medicare is the primary payer for 
covered drugs for Part D eligible individuals. Medical assistance is not 
available to full-benefit dual eligible individuals, including those not 
enrolled in a Part D plan, for--
    (1) Covered Part D drugs; or
    (2) Any cost-sharing obligations under Part D relating to covered 
Part D drugs.
    (3) The effective date of paragraphs (b)(1) and (b)(2) of this 
section is January 1, 2006.
    (c) Non-covered drugs. States may elect to provide coverage for 
outpatient drugs other than covered Part D drugs in the same manner as 
provided for non-full benefit dual eligible individuals or through an 
arrangement with a prescription drug plan or a MA-PD plan.



Sec. 423.907  Treatment of territories.

    (a) General rules. (1) Low-income Part D eligible individuals who 
reside in the territories are not eligible to receive premium and cost-
sharing subsidies under subpart P of this part.
    (2) A territory may submit a plan to the Secretary under which 
medical assistance is to be provided to low-income individuals for the 
provision of covered Part D drugs.
    (3) Territories with plans approved by the Secretary will receive 
increased grants under section 1935(e)(3) of the Act as described in 
paragraph (c) of this section.
    (b) Plan requirements. Plans submitted to the Secretary must include 
the following:
    (1) A description of the medical assistance to be
    provided.
    (2) The low-income population (income less than 150
    percent of the Federal poverty level) to receive medical assistance.
    (3) An assurance that no more than 10 percent of the
    amount of the increased grant will be used for administrative 
expenses.
    (c) Increased grant amounts. The amount of the grant provided under 
section 1108 (f) of the Act as increased by section 1108 (g) of the Act 
for each territory with an approved plan for a year is the amount in 
paragraph (d) of this section multiplied by the ratio of--
    (1) The number of individuals who are entitled to benefits under 
Part A or enrolled under Part B and who reside in the territory (as 
determined by the Secretary based on the most recent available data for 
the beginning of the year); and
    (2) The sum of the number of individuals in all territories in 
paragraph (c)(1) of this section with approved plans.

[[Page 451]]

    (d) Total grant amount. The total grant amount is--
    (1) For the last three quarters of fiscal year 2006, $28,125,000;
    (2) For fiscal year 2007, $37,500,000; and
    (3) For each subsequent year, the amount for the prior fiscal year 
increased by the annual percentage increase described in Sec. 
423.104(d)(5)(iv).



Sec. 423.908.  Phased-down State contribution to drug benefit costs assumed by Medicare.

    This subpart sets forth the requirements for State contributions for 
Part D drug benefits based on full-benefit dual eligible individual drug 
expenditures.



Sec. 423.910  Requirements.

    (a) General rule. Each of the 50 States and the District of Columbia 
is required to provide for payment to CMS a phased-down contribution to 
defray a portion of the Medicare drug expenditures for individuals whose 
projected Medicaid drug coverage is assumed by Medicare Part D.
    (b) State contribution payment--(1) Calculation of payment. The 
State contribution payment is calculated by CMS on a monthly basis, as 
indicated in the following chart. For States that do not meet the 
quarterly reporting requirement for the monthly enrollment reporting, 
the State contribution payment is calculated using a methodology 
determined by CMS.

                   Illustrative Calculation of State Phased-down Monthly Contribution for 2006
----------------------------------------------------------------------------------------------------------------
                                                  Item                 Illustrative Value          Source
----------------------------------------------------------------------------------------------------------------
(i)...............................  Gross per capita Medicaid         $2,000..............  CY MSIS data
                                     expenditures for prescription
                                     drugs for 2003 for full-benefit
                                     dual eligibles not receiving
                                     drug coverage through a
                                     comprehensive Medicaid managed
                                     care plan, excluding drugs not
                                     covered by Part D.
(ii)..............................  Aggregate State rebate receipts   $100,000,000........  CMS-64
                                     in calendar year 2003.
(iii).............................  Gross State Medicaid              $500,000,000........  CMS-64
                                     expenditures for prescription
                                     drugs in calendar year 2003.
(iv)..............................  Rebate adjustment factor........  0.2000..............  (2) / (3)
(v)...............................  Adjusted 2003 gross per capita    $1,600..............  (1) x [1 - (4)]
                                     Medicaid expenditures for
                                     prescription drugs for full-
                                     benefit dual eligibles not in
                                     comprehensive managed care
                                     plans.
(vi)..............................  Estimated actuarial value of      $1,500..............  To be Determined
                                     prescription drug benefits
                                     under comprehensive capitated
                                     managed care plans for full-
                                     benefit dual eligibles for 2003.
(vii).............................  Average number of full-benefit    90,000..............  CY MSIS data
                                     dual eligibles in 2003 who did
                                     not receive covered outpatient
                                     drugs through comprehensive
                                     Medicaid managed care plans.
(viii)............................  Average number of full-benefit    10,000..............  CY MSIS data
                                     dual eligibles in 2003 who
                                     received covered outpatient
                                     drugs through comprehensive
                                     Medicaid managed care plans.
(ix)..............................  Base year State Medicaid per      $1,590..............  [(7) x (5) + (8) x
                                     capita expenditures for covered                         (6)] / [(7) + (8)]
                                     Part D drugs for full-benefit
                                     dual eligible individuals
                                     (weighted average of (5) and
                                     (6)).
(x)...............................  100 minus Federal Medical         0.4000..............  Federal Register
                                     Assistance Percentage (FMAP)
                                     applicable to month of State
                                     contribution (as a proportion).
(xi)..............................  Applicable growth factor          50.0%...............  NHE projections
                                     (cumulative increase from 2003
                                     through 2006).
(xii).............................  Number of full-benefit dual       120,000.............  State submitted data
                                     eligibles for the month.
(xiii)............................  Phased-down State reduction       0.9000..............  specified in statute
                                     factor for the month.
(xiv).............................  Phased-down State contribution    $8,586,000..........  1 / 12 x (9) x (10)
                                     for the month.                                          x [1 + (11)] x (12)
                                                                                             x (13)
----------------------------------------------------------------------------------------------------------------

    (2) Method of payment. Payments for the phased down State 
contribution begins in January 2006, and are made on a monthly basis for 
each subsequent month. State payment must be made in a manner specified 
by CMS that is similar to the manner in which State payments are made 
under the State Buy-in Program except that all payments must be 
deposited into the Medicare Prescription Drug Account in the Federal 
Supplementary Medical Insurance Trust Fund. The policy on collection of 
the Phased-down State contribution payment is the same as the policy 
that governs collection of Part A and Part B Medicare premiums for State 
Buy-in.

[[Page 452]]

    (c) State Medicaid Statistical Information System (MSIS) Reporting. 
Effective with calendar year (CY) 2003 and all subsequent MSIS data 
submittals, States are required to provide accurate and complete coding 
to identify the numbers and types of Medicaid and Medicare dual 
eligibles. Calendar year 2003 submittals must be complete and must be 
accepted, based on CMS' data quality review, by December 31, 2004.
    (d) State monthly enrollment reporting. Effective June 2005, and 
each subsequent month, States must submit an electronic file, in a 
manner specified by CMS, identifying each full-benefit dual eligible 
individual enrolled in the State for each month. This file must include 
specified information including identifying information, a dual eligible 
type code, available income data and institutional status. The file 
includes data on enrollment for the current month, plus retroactive 
changes in enrollment characteristics for prior months. This file will 
be used by CMS to establish the monthly enrollment for those individuals 
with Part D drug coverage who are also determined by the State to be 
eligible for full Medicaid benefits subject to the phased down State 
contribution payment. This file is due to CMS no later than the last day 
of the reporting month. For States that do not submit an acceptable file 
by the end of the month, the phased down State contribution for that 
month is based on data deemed appropriate by CMS.
    (e) Data match. CMS performs those periodic data matches as may be 
necessary to identify and compute the number of full-benefit dual 
eligible individuals needed to establish the State contribution payment.
    (f) Rebate adjustment factor. CMS establishes the rebate adjustment 
factor using total drug expenditures made and drug rebates received 
during calendar year 2003 as reported on CMS 64 Medicaid expenditure 
reports for the four quarters of calendar year 2003 that were received 
by CMS on or before March 31, 2004. Rebates include rebates received 
under the national rebate agreement and under a State supplemental 
rebate program, as reported on CMS-64 expenditure reports for the four 
quarters of calendar year 2003.
    (g) Annual per capita drug expenditures. CMS notifies each State no 
later than October 15 before each calendar year, beginning October 15, 
2005, of their annual per capita drug payment expenditure amount for the 
next year.



PART 424_CONDITIONS FOR MEDICARE PAYMENT--Table of Contents




                      Subpart A_General Provisions

Sec.
424.1 Basis and scope.
424.3 Definitions.
424.5 Basic conditions.
424.7 General limitations.

       Subpart B_Certification and Plan of Treatment Requirements

424.10 Purpose and scope.
424.11 General procedures.
424.13 Requirements for inpatient services of hospitals other than 
          psychiatric hospitals.
424.14 Requirements for inpatient services of inpatient psychiatric 
          facilities.
424.15 Requirements for inpatient CAH services.
424.16 Timing of certification for individual admitted to a hospital 
          before entitlement to Medicare benefits.
424.20 Requirements for posthospital SNF care.
424.22 Requirements for home health services.
424.24 Requirements for medical and other health services furnished by 
          providers under Medicare Part B.
424.27 Requirements for comprehensive outpatient rehabilitation facility 
          (CORF) services.

                      Subpart C_Claims for Payment

424.30 Scope.
424.32 Basic requirements for all claims.
424.33 Additional requirements: Claims for services of providers and 
          claims by suppliers and nonparticipating hospitals.
424.34 Additional requirements: Beneficiary's claim for direct payment.
424.36 Signature requirements.
424.37 Evidence of authority to sign on behalf of the beneficiary.
424.40 Request for payment effective for more than one claim.
424.44 Time limits for filing claims.

              Subpart D_To Whom Payment is Ordinarily Made

424.50 Scope.
424.51 Payment to the provider.

[[Page 453]]

424.52 Payment to a nonparticipating hospital.
424.53 Payment to the beneficiary.
424.54 Payment to the beneficiary's legal representative or 
          representative payee.
424.55 Payment to the supplier.
424.56 Payment to a beneficiary and to a supplier.
424.57 Special payment rules for items furnished by DMEPOS suppliers and 
          issuance of DMEPOS supplier billing privileges.
424.58 Accreditation.

         Subpart E_To Whom Payment is Made in Special Situations

424.60 Scope.
424.62 Payment after beneficiary's death: Bill has been paid.
424.64 Payment after beneficiary's death: Bill has not been paid.
424.66 Payment to entities that provide coverage complementary to 
          Medicare Part B.

     Subpart F_Limitations on Assignment and Reassignment of Claims

424.70 Basis and scope.
424.71 Definitions.
424.73 Prohibition of assignment of claims by providers.
424.74 Termination of provider agreement.
424.80 Prohibition of reassignment of claims by suppliers.
424.82 Revocation of right to receive assigned benefits.
424.83 Hearings on revocation of right to receive assigned benefits.
424.84 Final determination on revocation of right to receive assigned 
          benefits.
424.86 Prohibition of assignment of claims by beneficiaries.
424.90 Court ordered assignments: Conditions and limitations.

    Subpart G_Special Conditions: Emergency Services Furnished by a 
                        Nonparticipating Hospital

424.100 Scope.
424.101 Definitions.
424.102 Situations that do not constitute an emergency.
424.103 Conditions for payment for emergency services.
424.104 Election to claim payment for emergency services furnished 
          during a calendar year.
424.106 Criteria for determining whether the hospital was the most 
          accessible.
424.108 Payment to a hospital.
424.109 Payment to the beneficiary.

  Subpart H_Special Conditions: Services Furnished in a Foreign Country

424.120 Scope.
424.121 Scope of payments.
424.122 Conditions for payment for emergency inpatient hospital 
          services.
424.123 Conditions for payment for nonemergency inpatient services 
          furnished by a hospital closer to the individual's residence.
424.124 Conditions for payment for physician services and ambulance 
          services.
424.126 Payment to the hospital.
424.127 Payment to the beneficiary.

Subparts I-L [Reserved]

       Subpart M_Replacement and Reclamation of Medicare Payments

424.350 Replacement of checks that are lost, stolen, defaced, mutilated, 
          destroyed, or paid on forged endorsements.
424.352 Intermediary and carrier checks that are lost, stolen, defaced, 
          mutilated, destroyed, or paid on forged endorsements.

Subparts N-O [Reserved]

Subpart P_Requirements for Establishing and Maintaining Medicare Billing 
                               Privileges

424.500 Scope.
424.502 Definitions.
424.505 Basic enrollment requirement.
424.510 Requirements for enrolling in the Medicare program.
424.515 Requirements for reporting changes and updates to, and the 
          periodic revalidation of Medicare enrollment information.
424.520 Additional provider and supplier requirements for enrolling and 
          maintaining active enrollment status in the Medicare program.
424.525 Rejection of a provider or supplier's enrollment application for 
          Medicare enrollment.
424.530 Denial of enrollment.
424.535 Revocation of enrollment and billing privileges in the Medicare 
          program.
424.540 Deactivation of Medicare billing privileges.
424.545 Provider and supplier appeal rights.
424.550 Prohibitions on the sale or transfer of billing privileges.
424.555 Payment liability.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh).

    Source: 53 FR 6634, Mar. 2, 1988, unless otherwise noted.

[[Page 454]]



                      Subpart A_General Provisions



Sec. 424.1  Basis and scope.

    (a) Statutory basis. (1) This part is based on the indicated 
provisions of the following sections of the Act:

    1814--Basic conditions for, and limitations on, Medicare payments 
for Part A services.
    1815--Payment to providers for Part A services.
    1820--Conditions for designating certain hospitals as critical 
assess hospitals.
    1833(e)--Requirement to furnish information to determine payment.
    1835--Procedures for payment to providers for Part B services.
    1842(b)(3)(B)(ii)--Assignment of Part B Medicare claims.
    1842(b)(6)--Payment to entities other than the supplier.
    1848--Payment for physician services.
    1870(e) and (f)--Settlement of claims after death of the 
beneficiary.

    (2) Section 424.444(c) is also based on section 216(j) of the Act.
    (b) Scope. This part sets forth certain specific conditions and 
limitations applicable to Medicare payments and cites other conditions 
and limitations set forth elsewhere in this chapter. This subpart A 
provides a general overview. Other subparts deal specifically with--
    (1) The requirement that the need for services be certified and that 
a physician establish a plan of treatment (subpart B);
    (2) The procedures and time limits for filing claims (subpart C);
    (3) The individuals or entities to whom payment may be made 
(subparts D and E);
    (4) The limitations on assignment and reassignment of claims 
(subpart F);
    (5) Special requirements that apply to services furnished by 
nonparticipating U.S. hospitals and foreign hospitals (subparts G and 
H); and
    (6) The replacement and reclamation of Medicare payment checks 
(subpart M).
    (c) Other applicable rules. Except for Sec. 424.40(c)(3), this part 
does not deal with the conditions for payment of rural health clinic 
(RHC) services, Federally qualified health center (FQHC) services, or 
ambulatory surgical center (ASC) services. Those conditions are set 
forth in part 405, subpart X, and part 481 subpart A of this chapter for 
RHC and FQHC services; and in part 416 of this chapter, for ASC 
services. The rules for physician certification of terminal illness, 
required in connection with hospice care, are set forth in Sec. 418.22 
of this chapter.

[53 FR 6634, Mar. 2, 1988, as amended at 60 FR 38271, July 26, 1995; 60 
FR 50442, Sept. 29, 1995; 62 FR 46035, Aug. 29, 1997; 71 FR 20775, Apr. 
21, 2006]

    Effective Date Note: At 71 FR 48409, Aug. 18, 2006, Sec. 424.1 was 
amended by adding in two statutory sections, effective October 2, 2006. 
For the convenience of the user, the added text appears as follows:



Sec. 424.1  Basis and scope.

                                * * * * *

    1834(a)--Payment for durable medical equipment.
    1834(j)--Requirements for suppliers of medical equipment and 
supplies.

                                * * * * *



Sec. 424.3  Definitions.

    As used in this part, unless the context indicates otherwise--
    HCPCS means Healthcare Common Procedure Coding System.
    ICD-9-CM means International Classification of Diseases, Ninth 
Revision, Clinical Modification.
    Nonparticipating hospital means a hospital that does not have in 
effect a provider agreement to participate in Medicare.
    Participating hospital means a hospital that has in effect a 
provider agreement to participate in Medicare.

[53 FR 6634, Mar. 2, 1988, as amended at 59 FR 10299, Mar. 4, 1994; 63 
FR 26311, May 12, 1998; 70 FR 45055, Aug. 4, 2005]



Sec. 424.5  Basic conditions.

    (a) As a basis for Medicare payment, the following conditions must 
be met:
    (1) Types of services. The services must be--
    (i) Covered services, as specified in part 409 or part 410 of this 
chapter; or
    (ii) Services excluded from coverage as custodial care or services 
not reasonable and necessary, but reimbursable in accordance with 
Sec. Sec. 405.332 through 405.334 of this chapter, pertaining to 
limitation of liability.

[[Page 455]]

    (2) Sources of services. The services must have been furnished by a 
provider, nonparticipating hospital, or supplier that was, at the time 
it furnished the services, qualified to have payment made for them.
    (3) Recipient of services. Except as provided in Sec. 409.68 of 
this chapter, the services must have been furnished while the individual 
was eligible to have payment made for them. (Section 409.68 provides for 
payment of inpatient hospital services furnished before the hospital is 
notified that the beneficiary has exhausted the Medicare benefits 
available for the current benefit period.)
    (4) Certification of need for services. When required, the provider 
must obtain certification and recertification of the need for the 
services in accordance with subpart B of this part.
    (5) Claim for payment. The provider, supplier, or beneficiary, as 
appropriate, must file a claim that includes or makes reference to a 
request for payment, in accordance with subpart C of this part.
    (6) Sufficient information. The provider, supplier, or beneficiary, 
as appropriate, must furnish to the intermediary or carrier sufficient 
information to determine whether payment is due and the amount of 
payment.
    (b) Additional conditions applicable in certain circumstances or to 
certain services are set forth in other sections of this part.

[53 FR 6635, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 60 FR 38271, July 
26, 1995]



Sec. 424.7  General limitations.

    (a) Utilization review finding on medical necessity. When a QIO or a 
UR committee notifies a hospital or SNF of its finding that further 
services are not medically necessary, the following rules apply:
    (1) Hospitals subject to PPS. Payment may not be made for inpatient 
hospital services furnished by a PPS hospital after the second day after 
the day on which the hospital received the notice.
    (2) Hospitals not subject to PPS and SNFs--(i) Basic rule. Except as 
provided in paragraph (a)(2)(ii) of this section, payment may not be 
made for inpatient hospital services or posthospital SNF care furnished 
after the day on which the hospital or SNF received the notice.
    (ii) Exception. Payment may be made for 1 or 2 additional days if 
the QIO or UR committee approves them as necessary for planning for 
post-discharge care.
    (b) Failure to make timely utilization review. Payment may not be 
made for inpatient hospital services or posthospital SNF care furnished, 
after the 20th consecutive day of a stay, to an individual who is 
admitted to the hospital or SNF after CMS has determined that the 
hospital or SNF has failed to make timely utilization review in long 
stay cases. (This provision does not apply to a hospital or SNF for 
which a QIO has assumed binding review.)

[53 FR 6635, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



       Subpart B_Certification and Plan of Treatment Requirements



Sec. 424.10  Purpose and scope.

    (a) Purpose. The physician has a major role in determining 
utilization of health services furnished by providers. The physician 
decides upon admissions, orders tests, drugs, and treatments, and 
determines the length of stay. Accordingly, sections 1814(a)(2) and 
1835(a)(2) of the Act establish as a condition for Medicare payment that 
a physician certify the necessity of the services and, in some 
instances, recertify the continued need for those services.

Section 1814(a)(2) of the Act also permits nurse practitioners or 
clinical nurse specialists to certify and recertify the need for post-
hospital extended care services.
    (b) Scope. This subpart sets forth the timing, content, and 
signature requirements for certification and recertification with 
respect to certain Medicare services furnished by providers.

[60 FR 38271, July 26, 1995]



Sec. 424.11  General procedures.

    (a) Responsibility of the provider. The provider must--
    (1) Obtain the required certification and recertification 
statements;

[[Page 456]]

    (2) Keep them on file for verification by the intermediary, if 
necessary; and
    (3) Certify, on the appropriate billing form, that the statements 
have been obtained and are on file.
    (b) Obtaining the certification and recertification statements. No 
specific procedures or forms are required for certification and 
recertification statements. The provider may adopt any method that 
permits verification. The certification and recertification statements 
may be entered on forms, notes, or records that the appropriate 
individual signs, or on a special separate form. Except as provided in 
paragraph (d) of this section for delayed certifications, there must be 
a separate signed statement for each certification or recertification.
    (c) Required information. The succeeding sections of this subpart 
set forth specific information required for different types of services. 
If that information is contained in other provider records, such as 
physicians' progress notes, it need not be repeated. It will suffice for 
the statement to indicate where the information is to be found.
    (d) Timeliness. (1) The succeeding sections of this subpart also 
specify the time frames for certifications and for initial and 
subsequent recertifications.
    (2) A hospital or SNF may provide for obtaining a certification or 
recertification earlier than required by these regulations, or vary the 
time frame (within the prescribed outer limits) for different diagnostic 
or clinical categories.
    (3) Delayed certification and recertification statements are 
acceptable when there is a legitimate reason for delay. (For instance, 
the patient was unaware of his or her entitlement when he or she was 
treated.) Delayed certification and recertification statements must 
include an explanation of the reason for the delay.
    (4) A delayed certification may be included with one or more 
recertifications on a single signed statement.
    (e) Limitation on authorization to sign statements. A certification 
or recertification statement may be signed only by one of the following:
    (1) A physician who is a doctor of medicine or osteopathy.
    (2) A dentist in the circumstances specified in Sec. 424.13(c).
    (3) A doctor of podiatric medicine if his or her certification is 
consistent with the functions he or she is authorized to perform under 
State law.
    (4) A nurse practitioner or clinical nurse specialist, as defined in 
paragraph (e)(5) or (e)(6) of this section, in the circumstances 
specified in Sec. 424.20(e).
    (5) For purposes of this section, to qualify as a nurse 
practitioner, an individual must--
    (i) Be a registered professional nurse who is currently licensed to 
practice nursing in the State where he or she practices; be authorized 
to perform the services of a nurse practitioner in accordance with State 
law; and have a master's degree in nursing;
    (ii) Be certified as a nurse practitioner by a professional 
association recognized by CMS that has, at a minimum, eligibility 
requirements that meet the standards in paragraph (e)(5)(i) of this 
section; or
    (iii) Meet the requirements for a nurse practitioner set forth in 
paragraph (e)(5)(i) of this section, except for the master's degree 
requirement, and have received before August 25, 1998 a certificate of 
completion from a formal advanced practice program that prepares 
registered nurses to perform an expanded role in the delivery of primary 
care.
    (6) For purposes of this section, to qualify as a clinical nurse 
specialist, an individual must--
    (i) Be a registered professional nurse who is currently licensed to 
practice nursing in the State where he or she practices; be authorized 
to perform the services of a clinical nurse specialist in accordance 
with State law; and have a master's degree in a defined clinical area of 
nursing;
    (ii) Be certified as a clinical nurse specialist by a professional 
association recognized by CMS that has at a minimum, eligibility 
requirements that meet the standards in paragraph (e)(6)(i) of this 
section; or
    (iii) Meet the requirements for a clinical nurse specialist set 
forth in paragraph (e)(6)(i) of this section, except for the master's 
degree requirement, and have received before August 25, 1998 a

[[Page 457]]

certificate of completion from a formal advanced practice program that 
prepares registered nurses to perform an expanded role in the delivery 
of primary care.

[53 FR 6634, Mar. 2, 1988, as amended at 56 FR 8845, Mar. 1, 1991; 60 FR 
38272, July 26, 1995]



Sec. 424.13  Requirements for inpatient services of hospitals other than psychiatric hospitals.

    (a) Content of certification and recertification. Medicare Part A 
pays for inpatient hospital services of hospitals other than psychiatric 
hospitals only if a physician certifies and recertifies the following:
    (1) The reasons for either--
    (i) Continued hospitalization of the patient for medical treatment 
or medically required inpatient diagnostic study; or
    (ii) Special or unusual services for cost outlier cases (under the 
prospective payment system set forth in subpart F of part 412 of this 
chapter).
    (2) The estimated time the patient will need to remain in the 
hospital.
    (3) The plans for posthospital care, if appropriate.
    (b) Certification of need for hospitalization when a SNF bed is not 
available. (1) A physician may certify or recertify need for continued 
hospitalization if the physician finds that the patient could receive 
proper treatment in a SNF but no bed is available in a participating 
SNF.
    (2) If this is the basis for the physician's certification or 
recertification, the required statement must so indicate; and the 
physician is expected to continue efforts to place the patient in a 
participating SNF as soon as a bed becomes available.
    (c) Signatures--(1) Basic rule. Except as specified in paragraph 
(c)(2) of this section, certifications and recertifications must be 
signed by the physician responsible for the case, or by another 
physician who has knowledge of the case and who is authorized to do so 
by the responsible physician or by the hospital's medical staff.
    (2) Exception. If the intermediary requests certification of the 
need to admit a patient in connection with dental procedures, because 
his or her underlying medical condition and clinical status or the 
severity of the dental procedures require hospitalization, that 
certification may be signed by the dentist caring for the patient.
    (d) Timing of certifications and recertifications: Cases not subject 
to the prospective payment system (PPS). (1) For cases that are not 
subject to PPS, certification is required no later than as of the 12th 
day of hospitalization. A hospital may, at its option, provide for the 
certification to be made earlier, or it may vary the timing of the 
certification within the 12-day period by diagnostic or clinical 
categories.
    (2) The first recertification is required no later than as of the 
18th day of hospitalization.
    (3) Subsequent recertifications are required at intervals 
established by the UR committee (on a case-by-case basis if it so 
chooses), but no less frequently than every 30 days.
    (e) Timing of certification and recertification: Cases subject to 
PPS. For cases subject to PPS, certification is required as follows:
    (1) For day-outlier cases, certification is required no later than 
one day after the hospital reasonably assumes that the case meets the 
outlier criteria, established in accordance with Sec. 412.80(a)(1)(i) 
of this chapter, or no later than 20 days into the hospital stay, 
whichever is earlier. The first and subsequent recertifications are 
required at intervals established by the UR committee (on a case-by-case 
basis if it so chooses) but not less frequently than every 30 days.
    (2) For cost-outlier cases, certification is required no later than 
the date on which the hospital requests cost outlier payment or 20 days 
into the hospital stay, whichever is earlier. If possible, certification 
must be made before the hospital incurs costs for which it will seek 
cost outlier payment. In cost outlier cases, the first and subsequent 
recertifications are required at intervals established by the UR 
committee (on a case-by-case basis if it so chooses).
    (f) Recertification requirement fulfilled by utilization review. (1) 
At the hospital's option, extended stay review by its UR committee may 
take the place of the second and subsequent physician recertifications 
required for cases not

[[Page 458]]

subject to PPS and for PPS day-outlier cases.
    (2) A utilization review that is used to fulfill the recertification 
requirement is considered timely if performed no later than the seventh 
day after the day the physician recertification would have been 
required. The next physician recertification would need to be made no 
later than the 30th day following such review; if review by the UR 
committee took the place of this physician recertification, the review 
could be performed as late as the seventh day following the 30th day.
    (g) Description of procedures. The hospital must have available on 
file a written description that specifies the time schedule for 
certifications and recertifications, and indicates whether utilization 
review of long-stay cases fulfills the requirement for second and 
subsequent recertifications of all cases not subject to PPS and of PPS 
day outlier cases.



Sec. 424.14  Requirements for inpatient services of inpatient psychiatric facilities.

    (a) Content of certification and recertification: General 
considerations. The content requirements differ from those for other 
hospitals because the care furnished in psychiatric hospitals is often 
purely custodial and thus not covered under Medicare. The purpose of the 
statements, therefore, is to help ensure that Medicare pays only for 
services of the type appropriate for Medicare coverage. Accordingly, 
Medicare Part A pays for inpatient care in a psychiatric hospital only 
if a physician certifies and recertifies the need for services 
consistent with the content of paragraphs (b) or (c) of this section, as 
appropriate.
    (b) Content of certification. Inpatient psychiatric services were 
required--
    (1) For treatment that could reasonably be expected to improve the 
patient's condition; or
    (2) For diagnostic study.
    (c) Content of recertification. (1) Inpatient services furnished 
since the previous certification or recertification were, and continue 
to be, required--
    (i) For treatment that could reasonably be expected to improve the 
patient's condition; or
    (ii) For diagnostic study; and
    (2) The hospital records show that the services furnished were--
    (i) Intensive treatment services;
    (ii) Admission and related services necessary for diagnostic study; 
or
    (iii) Equivalent services.
    (3) The patient continues to need, on a daily basis, active 
treatment furnished directly by or requiring the supervision of 
inpatient psychiatric facility personnel.
    (d) Timing of certification and recertification. (1) Certification 
is required at the time of admission or as soon thereafter as is 
reasonable and practicable.
    (2) The first recertification is required as of the 12th day of 
hospitalization. Subsequent recertifications are required at intervals 
established by the UR committee (on a case-by-case basis if it so 
chooses), but no less frequently than every 30 days.
    (e) Other requirements. Psychiatric hospitals must also meet the 
requirements set forth in Sec. 424.13 (b), (c), (f), and (g).

[53 FR 6634, Mar. 2, 1988, as amended at 71 FR 27087, May 9, 2006; 71 FR 
37504, June 30, 2006]



Sec. 424.15  Requirements for inpatient CAH services.

    (a) Content of certification. Medicare Part A pays for inpatient CAH 
services only if a physician certifies that the individual may 
reasonably be expected to be discharged or transferred to a hospital 
within 96 hours after admission to the CAH.
    (b) Timing of certification. Certification is required no later than 
1 day before the date on which the claim for payment for the inpatient 
CAH services is submitted.

[58 FR 30671, May 26, 1993, as amended at 60 FR 45850, Sept. 1, 1995; 62 
FR 46035, 46037, Aug. 29, 1997]



Sec. 424.16  Timing of certification for individual admitted to a hospital before entitlement to Medicare benefits.

    (a) Basic rule. If an indivdual is admitted to a hospital before 
becoming entitled to Medicare benefits (for instance, before attaining 
age 65), the day of entitlement (instead of the day of admission) is the 
starting point for

[[Page 459]]

the time limits specified in Sec. 424.13(e) for certification and 
recertification.
    (b) Example. (Hospital that is not a psychiatric hospital and is not 
subject to PPS). For a patient who is admitted on August 15 and becomes 
entitled on September 1--
    (1) The certification is required no later than September 12;
    (2) The first recertification is required no later than September 
18; and
    (3) Subsequent recertifications are required at least every 30 days 
after September 18.

[53 FR 6635, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.20  Requirements for posthospital SNF care.

    Medicare Part A pays for posthospital SNF care furnished by an SNF, 
or a hospital or CAH with a swing-bed approval, only if the 
certification and recertification for services are consistent with the 
content of paragraph (a) or (c) of this section, as appropriate.
    (a) Content of certification--(1) General requirements. Posthospital 
SNF care is or was required because--
    (i) The individual needs or needed on a daily basis skilled nursing 
care (furnished directly by or requiring the supervision of skilled 
nursing personnel) or other skilled rehabilitation services that, as a 
practical matter, can only be provided in an SNF or a swing-bed hospital 
on an inpatient basis, and the SNF care is or was needed for a condition 
for which the individual received inpatient care in a participating 
hospital or a qualified hospital, as defined in Sec. 409.3 of this 
chapter; or
    (ii) The individual has been correctly assigned to one of the 
Resource Utilization Groups designated as representing the required 
level of care, as provided in Sec. 409.30 of this chapter.
    (2) Special requirement for certifications performed prior to July 
1, 2002: A swing-bed hospital with more than 49 beds (but fewer than 
100) that does not transfer a swing-bed patient to a SNF within 5 days 
of the availability date. Transfer of the extended care patient to the 
SNF is not medically appropriate.
    (b) Timing of certification--(1) General rule. The certification 
must be obtained at the time of admission or as soon thereafter as is 
reasonable and practicable.
    (2) Special rules for certain swing-bed hospitals. For swing-bed 
hospitals with more than 49 beds that are approved after March 31, 1988, 
the extended care patient's physician has 5 days (excluding weekends and 
holidays) beginning on the availability date as defined in Sec. 
413.114(b), to certify that the transfer of the extended care patient is 
not medically appropriate.
    (c) Content of recertifications. (1) The reasons for the continued 
need for posthopsital SNF care:
    (2) The estimated time the individual will need to remain in the 
SNF;
    (3) Plans for home care, if any; and
    (4) If appropriate, the fact that continued services are needed for 
a condition that arose after admission to the SNF and while the 
individual was still under treatment for the condition for which he or 
she had received inpatient hospital services.
    (d) Timing of recertifications. (1) The first recertification is 
required no later than the 14th day of posthospital SNF care.
    (2) Subsequent recertifications are required at least every 30 days 
after the first recertification.
    (e) Signature. Certification and recertification statements may be 
signed by--
    (1) The physician responsible for the case or, with his or her 
authorization, by a physician on the SNF staff or a physician who is 
available in case of an emergency and has knowledge of the case; or
    (2) A nurse practitioner or clinical nurse specialist, neither of 
whom has a direct or indirect employment relationship with the facility 
but who is working in collaboration with a physician. For purposes of 
this section--
    (i) Collaboration means a process whereby a nurse practitioner or 
clinical nurse specialist works with a doctor of medicine or osteopathy 
to deliver health care services. The services are delivered within the 
scope of the nurse's professional expertise, with medical direction and 
appropriate supervision as provided for in guidelines jointly developed 
by the nurse and the physician or other mechanisms defined by Federal 
regulations and the law of

[[Page 460]]

the State in which the services are performed.
    (ii) A direct employment relationship with the facility is one in 
which the nurse practitioner or clinical nurse specialist meets the 
common law definition of the facility's ``employee,'' as specified in 
Sec. 404.1005, Sec. 404.1007, and Sec. 404.1009 of title 20 of the 
regulations. When a nurse practitioner or clinical nurse specialist 
meets this definition with respect to an entity other than the facility 
itself, and that entity has an agreement with the facility for the 
provision of nursing services under Sec. 409.21 of this subchapter, the 
facility is considered to have an indirect employment relationship with 
the nurse practitioner or clinical nurse specialist. An indirect 
employment relationship does not exist if the agreement between the 
entity and the facility involves only the performance of delegated 
physician tasks under Sec. 483.40(e) of this chapter.
    (f) Recertification requirement fulfilled by utilization review. A 
SNF may substitute utilization review of extended stay cases for the 
second and subsequent recertifications, if it includes this procedure in 
its utilization review plan.
    (g) Description of procedures. The SNF must have available on file a 
written description that specifies the certification and recertification 
time schedule and indicates whether utilization review is used as an 
alternative to the second and subsequent recertifications.

[53 FR 6634, Mar. 2, 1988, as amended at 54 FR 37275, Sept. 7, 1989; 58 
FR 30671, May 26, 1993; 60 FR 38272, July 26, 1995; 62 FR 46037, Aug. 
29, 1997; 63 FR 26311, May 12, 1998; 63 FR 53307, Oct. 5, 1998; 66 FR 
39600, July 31, 2001; 70 FR 45055, Aug. 4, 2005]



Sec. 424.22  Requirements for home health services.

    Medicare Part A or Part B pays for home health services only if a 
physician certifies and recertifies the content specified in paragraphs 
(a)(1) and (b)(2) of this section, as appropriate.
    (a) Certification--(1) Content of certification. As a condition for 
payment of home health services under Medicare Part A or Medicare Part 
B, a physician must certify as follows:
    (i) The individual needs or needed intermittent skilled nursing 
care, or physical or speech therapy, or (for the period from July 
through November 30, 1981) occupational therapy.
    (ii) Home health services were required because the individual was 
confined to the home except when receiving outpatient services.
    (iii) A plan for furnishing the services has been established and is 
periodically reviewed by a physician who is a doctor of medicine, 
osteopathy, or podiatric medicine, and who is not precluded from 
performing this function under paragraph (d) of this section. (A doctor 
of podiatric medicine may perform only plan of treatment functions that 
are consistent with the functions he or she is authorized to perform 
under State law.)
    (iv) The services were furnished while the individual was under the 
care of a physician who is a doctor of medicine, osteopathy, or 
podiatric medicine. \1\
---------------------------------------------------------------------------

    \1\ As a condition of Medicare Part A payment for home health 
services furnished before July 1981, the physician was also required to 
certify that the services were needed for a condition for which the 
individual had received inpatient hospital or SNF services.
---------------------------------------------------------------------------

    (2) Timing and signature. The certification of need for home health 
services must be obtained at the time the plan of treatment is 
established or as soon thereafter as possible and must be signed by the 
physician who establishes the plan.
    (b) Recertification--(1) Timing and signature of recertification. 
Recertification is required at least every 60 days, preferably at the 
time the plan is reviewed, and must be signed by the physician who 
reviews the plan of care. The recertification is required at least every 
60 days when there is a--
    (i) Beneficiary elected transfer; or
    (ii) Discharge and return to the same HHA during the 60-day episode.
    (2) Content and basis of recertification. The recertification 
statement must indicate the continuing need for services and estimate 
how much longer the services will be required. Need for occupational 
therapy may be the basis for continuing services that were initiated 
because the individual needed skilled nursing care or physical or speech 
therapy.
    (c) [Reserved]

[[Page 461]]

    (d) Limitation on the performance of certification and plan of 
treatment functions. The need for home health services to be provided by 
an HHA may not be certified or recertified, and a plan of treatment may 
not be established and reviewed, by any physician who has a financial 
relationship, as defined in Sec. 411.354 of this chapter, with that 
HHA, unless the physician's relationship meets one of the exceptions in 
section 1877 of the Act, which sets forth general exceptions to the 
referral prohibition related to both ownership/investment and 
compensation; exceptions to the referral prohibition related to 
ownership or investment interests; and exceptions to the referral 
prohibition related to compensation arrangements.

[53 FR 6638, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 56 FR 8845, Mar. 
1, 1991, as amended at 65 FR 41211, July 3, 2000; 66 FR 962, Jan. 4, 
2001; 70 FR 70334, Nov. 21, 2005]



Sec. 424.24  Requirements for medical and other health services furnished by providers under Medicare Part B.

    (a) Exempted services. Certification is not required for the 
following: (1) Hospital services and supplies incident to physicians' 
services furnished to outpatients. The exemption applies to drugs and 
biologicals that cannot be self-administered, but not to partial 
hospitalization services, as set forth in paragraph (e) of this section.
    (2) Outpatient hospital diagnostic services, including necessary 
drugs and biologicals, ordinarily furnished or arranged for by a 
hospital for the purpose of diagnostic study.
    (b) General rule. Medicare Part B pays for medical and other health 
services furnished by providers (and not exempted under paragraph (a) of 
this section) only if a physician certifies the content specified in 
paragraph (c)(1), (c)(4) or (e)(1) of this section, as appropriate.
    (c) Outpatient physical therapy and speech-language pathology 
services--(1) Content of certification. (i) The individual needs, or 
needed, physical therapy or speech pathology services.
    (ii) The services were furnished while the individual was under the 
care of a physician, nurse practitioner, clinical nurse specialist, or 
physician assistant.
    (iii) The services were furnished under a plan of treatment that 
meets the requirements of Sec. 410.61 of this chapter.
    (2) Timing. The certification statement must be obtained at the time 
the plan of treatment is established, or as soon thereafter as possible.
    (3) Signature. (i) If the plan of treatment is established by a 
physician, nurse practitioner, clinical nurse specialist, or physician 
assistant, the certification must be signed by that physician or 
nonphysician practitioner.
    (ii) If the plan of treatment is established by a physical therapist 
or speech-language pathologist, the certification must be signed by a 
physician or by a nurse practitioner, clinical nurse specialist, or 
physician assistant who has knowledge of the case.
    (4) Recertification--(i) Timing. Recertification statements are 
required at least every 30 days and must be signed by the physician, 
nurse practitioner, clinical nurse specialist, or physician assistant 
who reviews the plan of treatment.
    (ii) Content. The recertification statement must indicate the 
continuing need for physical therapy or speech-language pathology 
services and an estimate of how much longer the services will be needed.
    (iii) Signature. Recertifications must be signed by the physician, 
nurse practitioner, clinical nurse specialist, or physician assistant 
who reviews the plan of treatment.
    (d) [Reserved]
    (e) Partial hospitalization services: Content of certification and 
plan of treatment requirements--(1) Content of certification. (i) The 
individual would require inpatient psychiatric care if the partial 
hospitalization services were not provided.
    (ii) The services are or were furnished while the individual was 
under the care of a physician.
    (iii) The services were furnished under a written plan of treatment 
that meets the requirements of paragraph (e)(2) of this section.
    (2) Plan of treatment requirements. (i) The plan is an 
individualized plan that is established and is periodically reviewed by 
a physician in consultation

[[Page 462]]

with appropriate staff participating in the program, and that sets 
forth--
    (A) The physician's diagnosis;
    (B) The type, amount, duration, and frequency of the services; and
    (C) The treatment goals under the plan.
    (ii) The physician determines the frequency and duration of the 
services taking into account accepted norms of medical practice and a 
reasonable expectation of improvement in the patient's condition.
    (3) Recertification requirements--(i) Signature. The physician 
recertification must be signed by a physician who is treating the 
patient and has knowledge of the patient's response to treatment.
    (ii) Timing. The first recertification is required as of the 18th 
day of partial hospitalization services. Subsequent recertifications are 
required at intervals established by the provider, but no less 
frequently than every 30 days.
    (iii) Content. The recertification must specify that the patient 
would otherwise require inpatient psychiatric care in the absence of 
continued stay in the partial hospitalization program and describe the 
following:
    (A) The patient's response to the therapeutic interventions provided 
by the partial hospitalization program.
    (B) The patient's psychiatric symptoms that continue to place the 
patient at risk of hospitalization.
    (C) Treatment goals for coordination of services to facilitate 
discharge from the partial hospitalization program.
    (f) All other covered medical and other health services furnished by 
providers--(1) Content of certification. The services were medically 
necessary,
    (2) Signature. The certificate must be signed by a physician, nurse 
practioner, clinical nurse specialist, or physician assistant who has 
knowledge of the case.
    (3) Timing. The physician, nurse practioner, clinical nurse 
specialist, or physician assistant may provide certification at the time 
the services are furnished or, if services are provided on a continuing 
basis, either at the beginning or at the end of a series of visits.
    (4) Recertification. Recertification of continued need for services 
is not required.

[53 FR 6638, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 56 FR 8845, 8853, 
Mar. 1, 1991; 63 FR 58912, Nov. 2, 1998; 65 FR 18548, Apr. 7, 2000]



Sec. 424.27  Requirements for comprehensive outpatient rehabilitation facility (CORF) services.

    Medicare Part B pays for CORF services only if a physician 
certifies, and the facility physician recertifies, the content specified 
in paragraphs (a) and (b)(2) of this section, as appropriate.
    (a) Certification: Content. (1) The services were required because 
the individual needed skilled rehabilitation services;
    (2) The services were furnished while the individual was under the 
care of a physician; and
    (3) A written plan of treatment has been established and is reviewed 
periodically by a physician.
    (b) Recertification--(1) Timing. Recertification is required at 
least every 60 days, based on review by a facility physician who, when 
appropriate, consults with the professional personnel who furnish the 
services.
    (2) Content. (i) The plan is being followed;
    (ii) The patient is making progress in attaining the rehabilitation 
goals; and,
    (iii) The treatment is not having any harmful effect on the patient.



                      Subpart C_Claims for Payment



Sec. 424.30  Scope.

    This subpart sets forth the requirements, procedures, and time 
limits for claiming Medicare payments. Claims must be filed in all cases 
except when services are furnished on a prepaid capitation basis by a 
health maintenance organization (HMO), a competitive medical plan (CMP), 
or a health care prepayment plan (HCPP). Special procedures for claiming 
payment after the beneficiary has died and for certain bills paid by 
organizations are set forth in subpart E of this part.

[53 FR 6639, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]

[[Page 463]]



Sec. 424.32  Basic requirements for all claims.

    (a) A claim must meet the following requirements:
    (1) A claim must be filed with the appropriate intermediary or 
carrier on a form prescribed by CMS in accordance with CMS instructions.
    (2) A claim for physician services, clinical psychologist services, 
or clinical social worker services must include appropriate diagnostic 
coding for those services using ICD-9-CM.
    (3) A claim must be signed by the beneficiary or the beneficiary's 
representative (in accordance with Sec. 424.36(b)).
    (4) A claim must be filed within the time limits specified in Sec. 
424.44.
    (5) All Part B claims for services furnished to SNF residents 
(whether filed by the SNF or by another entity) must include the SNF's 
Medicare provider number and appropriate HCPCS coding.
    (b) The prescribed forms for claims are the following:

CMS-1450--Uniform Institutional Provider Bill. (This form is for 
institutional provider billing for Medicare inpatient, outpatient and 
home health services.)
CMS-1490S--Request for Medicare payment. (For use by a patient to 
request payment for medical expenses.)
CMS-1500--Health Insurance Claim Form. (For use by physicians and other 
suppliers to request payment for medical services.)
CMS-1660--Request for Information-Medicare Payment for Services to a 
Patient now Deceased. (For use in requesting amounts payable under title 
XVIII to a deceased beneficiary.)

    (c) Where claims forms are available. Excluding forms CMS-1450 and 
CMS-1500, all claims forms prescribed for use in the Medicare program 
are distributed free-of-charge to the public, institutions, or 
organizations. The CMS-1450 and CMS-1500 may be obtained only by 
commercial purchase. All other claims forms can be obtained upon request 
from CMS or any Social Security branch or district office, or from 
Medicare intermediaries or carriers. The CMS-1490S is also available at 
local Social Security Offices.
    (d) Submission of electronic claims--(1) Definitions. For purposes 
of this paragraph, the following terms have the following meanings:
    (i) Claim means a transaction defined at 45 CFR 162.1101(a).
    (ii) Electronic claim means a claim that is submitted via electronic 
media. A claim submitted via direct data entry is considered to be an 
electronic claim.
    (iii) Direct data entry is defined at 45 CFR 162.103.
    (iv) Electronic media is defined at 45 CFR 160.103.
    (v) Initial Medicare claim means a claim submitted to Medicare for 
payment under Part A or Part B of the Medicare Program under title XVIII 
of the Act for initial processing, including claims sent to Medicare for 
the first time for secondary payment purposes. Initial Medicare claim 
excludes any adjustment or appeal of a previously submitted claim, and 
claims submitted for payment under Part C of the Medicare program under 
title XVIII of the Act.
    (vi) Physician, practitioner, facility, or supplier is a Medicare 
provider or supplier other than a provider of services.
    (vii) Provider of services means a provider of services as defined 
in section 1861(u) of the Act.
    (viii) Small provider of services or small supplier means--
    (A) A provider of services with fewer than 25 full-time equivalent 
employees; or
    (B) A physician, practitioner, facility, or supplier with fewer than 
10 full-time equivalent employees.
    (2) Submission of electronic claims required. Except for claims to 
which paragraph (d)(3) or (d)(4) of this section applies, an initial 
Medicare claim may be paid only if submitted as an electronic claim for 
processing by the Medicare fiscal intermediary or carrier that serves 
the physician, practitioner, facility, supplier, or provider of 
services. This requirement does not apply to any other transactions, 
including adjustment or appeal of the initial Medicare claim.
    (3) Exceptions to requirement to submit electronic claims. The 
requirement of paragraph (d)(2) of this section is waived for any 
initial Medicare claim when--
    (i) There is no method available for the submission of an electronic 
claim. This exception includes claims submitted by Medicare 
beneficiaries and

[[Page 464]]

situations in which the standard adopted by the Secretary at 45 FR 
162.1102 does not support all of the information necessary for payment 
of the claim. The Secretary may identify situations coming within this 
exception in guidance.
    (ii) The entity submitting the claim is a small provider of services 
or small supplier.
    (4) Unusual cases. The Secretary may waive the requirement of 
paragraph (d)(2) of this section in unusual cases as the Secretary finds 
appropriate. Unusual cases are deemed to exist in the following 
situations:
    (i) The submission of dental claims.
    (ii) There is a service interruption in the mode of submitting the 
electronic claim that is outside the control of the entity submitting 
the claim, for the period of the interruption.
    (iii) The entity submitting the claim submits fewer than 10 claims 
to Medicare per month, on average.
    (iv) The entity submitting the claim only furnishes services outside 
of the U.S. territory.
    (v) On demonstration, satisfactory to the Secretary, of other 
extraordinary circumstances precluding submission of electronic claims.
    (5) Effective date. This paragraph (d) is effective October 16, 
2003, and applies to claims submitted on or after October 16, 2003.

[53 FR 6639, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988, as amended at 59 
FR 10299, Mar. 4, 1994; 63 FR 26311, May 12, 1998; 63 FR 53307, Oct. 5, 
1998; 66 FR 39601, July 31, 2001; 68 FR 48813, Aug. 15, 2003; 70 FR 
71020, Nov. 25, 2005; 71 FR 48143, Aug. 18, 2006]



Sec. 424.33  Additional requirements: Claims for services of providers and claims by suppliers and nonparticipating hospitals.

    All claims for services of providers and all claims by suppliers and 
nonparticipating hospitals must be--
    (a) Filed by the provider, supplier, or hospital; and
    (b) Signed by the provider, supplier, or hospital unless CMS 
instructions waive this requirement.



Sec. 424.34  Additional requirements: Beneficiary's claim for direct payment.

    (a) Basic rule. A beneficiary's claim for direct payment for 
services furnished by a supplier, or by a nonparticipating hospital that 
has not elected to claim payment for emergency services, must include an 
itemized bill or a ``report of services'', as specified in paragraphs 
(b) and (c) of this section.
    (b) Itemized bill from the hospital or supplier. The itemized bill 
for the services, which may be receipted or unpaid, must include all of 
the following information:
    (1) The name and address of--
    (i) The beneficiary;
    (ii) The supplier or nonparticipating hospital that furnished the 
services; and
    (iii) The physician who prescribed the services if they were 
furnished by a supplier other than the physician.
    (2) The place where each service was furnished, e.g., home, office, 
independent laboratory, hospital.
    (3) The date each service was furnished.
    (4) A listing of the services in sufficient detail to permit 
determination of payment under the fee schedule for physicians' 
services; for itemized bills from physicians, appropriate diagnostic 
coding using ICD-9-CM must be used.
    (5) The charges for each service.
    (c) Report of services furnished by a supplier. For Medicare Part B 
services furnished by a supplier, the beneficiary claims may include the 
``Report of Services'' portion of the appropriate claims form, completed 
by the supplier in accordance with CMS instructions, in lieu of an 
itemized bill.

[53 FR 6634, Mar. 2, 1988, as amended at 59 FR 10299, Mar. 4, 1994; 59 
FR 26740, May 24, 1994]



Sec. 424.36  Signature requirements.

    (a) General rule. The beneficiary's own signature is required on the 
claim unless the beneficiary has died or the provisions of paragraph 
(b), (c), or (d) of this section apply.
    (b) Who may sign when the beneficiary is incapable. If the 
beneficiary is physically or mentally incapable of signing the claim, 
the claim may be signed on

[[Page 465]]

his or her behalf by one of the following:
    (1) The beneficiary's legal guardian.
    (2) A relative or other person who receives social security or other 
governmental benefits on the beneficiary's behalf.
    (3) A relative or other person who arranges for the beneficiary's 
treatment or exercises other responsibility for his or her affairs.
    (4) A representative of an agency or institution that did not 
furnish the services for which payment is claimed but furnished other 
care, services, or assistance to the beneficiary.
    (5) A representative of the provider or of the nonparticipating 
hospital claiming payment for services it has furnished if the provider 
or nonparticipating hospital is unable to have the claim signed in 
accordance with paragraph (b) (1), (2), (3), or (4) of this section.
    (c) Who may sign if the beneficiary was not present for the service. 
If a provider, nonparticipating hospital, or supplier files a claim for 
services that involved no personal contact between the provider, 
hospital, or supplier and the beneficiary (for example, a physician sent 
a blood sample to the provider for diagnostic tests), a representative 
of the provider, hospital, or supplier may sign the claim on the 
beneficiary's behalf.
    (d) Claims by entities that provide coverage complementary to 
Medicare. A claim by an entity that provides coverage complementary to 
Medicare Part B may be signed by the entity on the beneficiary's behalf.
    (e) Acceptance of other signatures for good cause. If good cause is 
shown, CMS may honor a claim signed by a party other than those 
specified in paragraphs (a) through (c) of this section.

[53 FR 6640, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988, as amended at 53 
FR 28388, July 28, 1988]



Sec. 424.37  Evidence of authority to sign on behalf of the beneficiary.

    (a) Beneficiary incapable. When a party specified in Sec. 424.36(b) 
signs a claim or request for payment statement, he or she must also 
submit a brief statement that--
    (1) Describes his or her relationship to the beneficiary; and
    (2) Explains the circumstances that make it impractical for the 
beneficiary to sign the claim or statement.
    (b) Beneficiary not present for services. When a representative of 
the provider, nonparticipating hospital, or supplier signs a claim or 
request for payment statement under Sec. 424.36(c), he or she must 
explain why it was not possible to obtain the beneficiary's signature. 
(For example: ``Patient not physically present for test.'')

[53 FR 6640, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.40  Request for payment effective for more than one claim.

    (a) Basic procedure. A separate request for payment statement 
prescribed by CMS and signed by the beneficiary (or by his or her 
representative) may be included in claims by reference, in the 
circumstances specified in paragraphs (b) through (d) of this section.
    (b) Claims filed by a provider or nonparticipating hospital--(1) 
Inpatient services. A signed request for payment statement, included in 
the first claim for Part A services furnished by a facility (a 
participating hospital or SNF, or a nonparticipating hospital that has 
elected to claim payment) during a beneficiary's period of confinement, 
may be effective for all claims for Part A services the facility 
furnishes that beneficiary during that confinement.
    (2) Home health services and outpatient physical therapy or speech 
pathology services. A signed request for payment statement, included in 
the first claim for home health services or outpatient physical therapy 
or speech pathology services furnished by a provider under a plan of 
treatment, may be effective for all claims for home health services or 
outpatient physical therapy or speech pathology services furnished by 
the provider under that plan of treatment.
    (c) Signed statement in the provider record--(1) Services to 
inpatients. A signed request for payment statement in the files of a 
participating hospital or SNF may be effective for all claims for 
services furnished to the beneficiary during a single inpatient stay in 
that facility--
    (i) By the hospital or SNF;

[[Page 466]]

    (ii) By physicians, if their services are billed by the hospital or 
SNF in its name; or
    (iii) By physicians who bill separately, if the services were 
furnished in the hospital or SNF.
    (2) Services to outpatients: Providers and renal dialysis 
facilities. A signed request for payment statement retained in the 
provider's or facility's files may be effective indefinitely, for all 
claims for services furnished to that beneficiary on an outpatient 
basis--
    (i) By the provider or facility;
    (ii) By physicians whose services are billed by the provider or 
facility in its name; or
    (iii) By physicians who bill separately, if the services were 
furnished in the provider or facility.
    (3) Services to outpatients: Independent rural health clinics and 
Federally qualified health centers. A signed request for payment 
statement retained in the clinic's or center's files may be effective 
indefinitely for all claims for services furnished to that beneficiary 
by the clinic.
    (d) Signed statement in the supplier's record. A signed request for 
payment statement retained in the supplier's file may be effective 
indefinitely subject to the following restrictions:
    (1) This policy does not apply to unassigned claims for rental of 
durable medical equipment (DME).
    (2) With respect to assigned claims for rental or purchase of DME, a 
new statement is required if another item of equipment is rented or 
purchased.

[53 FR 6634, Mar. 2, 1988, as amended at 57 FR 24982, June 12, 1992]



Sec. 424.44  Time limits for filing claims.

    (a) Basic limits. Except as provided in paragraph (b) of this 
section, the claim must be mailed or delivered to the intermediary or 
carrier, as appropriate--
    (1) On or before December 31 of the following year for services that 
were furnished during the first 9 months of a calendar year; and
    (2) On or before December 31 of the second following year for 
services that were furnished during the last 3 months of the calendar 
year.
    (b) Extension of filing time because of error or misrepresentation. 
(1) The time for filing a claim will be extended if failure to meet the 
deadline in paragraph (a) of this section was caused by error or 
misrepresentation of an employee, intermediary, carrier, or agent of the 
Department that was performing Medicare functions and acting within the 
scope of its authority.
    (2) The time will be extended through the last day of the 6th 
calendar month following the month in which the error or 
misrepresentation is corrected.
    (c) Extension of period ending on a nonworkday. If the last day of 
the period allowed under paragraph (a) or (b) of this section falls on a 
Federal nonworkday (a Saturday, Sunday, legal holiday, or a day which by 
statute or Executive Order is declared to be a nonworkday for Federal 
employees), the time is extended to the next succeeding workday.
    (d) Outpatient diabetes self-management training. CMS makes payment 
in half-hour increments to an entity for the furnishing of outpatient 
diabetes self-management training on or after the approval date CMS 
approves the entity to furnish the services under part 410, subpart H of 
this chapter.

[53 FR 6634, Mar. 2, 1988, as amended at 65 FR 83153, Dec. 29, 2000]



              Subpart D_To Whom Payment Is Ordinarily Made



Sec. 424.50  Scope.

    (a) This subpart specifies to whom Medicare payment is ordinarily 
made for different kinds of services.
    (b) Subpart E of this part sets forth provisions applicable in 
special situations.
    (c) Subpart F of this part specifies the exceptional circumstances 
under which payment may be made to an assignee or reassignee.



Sec. 424.51  Payment to the provider.

    (a) Basic rule. Except as specified in paragraph (b) of this 
section, Medicare pays the provider for services furnished by a 
provider.
    (b) Exception. Medicare pays the beneficiary for outpatient hospital 
services if the hospital has collected an

[[Page 467]]

amount in excess of the unmet deductible and coinsurance, as specified 
in Sec. 489.30(b)(4) of this chapter.



Sec. 424.52  Payment to a nonparticipating hospital.

    Medicare pays a nonparticipating hospital for the following 
services, if covered, in the specified circumstances:
    (a) Emergency inpatient and outpatient services furnished by a U.S. 
hospital, if the hospital has in effect an election to claim payment in 
accordance with subpart G of this part.
    (b) Certain medical and other health services covered under Medicare 
Part B and furnished by a U.S. hospital, if the hospital meets the 
requirements of Sec. 424.55 for payment as a supplier.
    (c) Emergency or nonemergency inpatient services furnished by a 
foreign hospital if the hospital has in effect an election to claim 
payment in accordance with subpart G of this part.



Sec. 424.53  Payment to the beneficiary.

    Medicare pays the beneficiary for the following services, if 
covered, in the specified circumstances:
    (a) Emergency inpatient and outpatient services furnished by a 
nonparticipating U.S. hospital that has not elected to claim payment in 
accordance with subpart G of this part.
    (b) Certain medical and other health services covered under Medicare 
Part B and furnished by a nonparticipating U.S. hospital, if the 
hospital does not receive assigned payment as a supplier under Sec. 
424.55.
    (c) Emergency or nonemergency services furnished by a foreign 
hospital if the hospital does not have in effect an election to claim 
payment in accordance with subpart H of this part.
    (d) Physician and ambulance services furnished outside the United 
States.
    (e) Services furnished by a supplier if the claim has not been 
assigned to the supplier.



Sec. 424.54  Payment to the beneficiary's legal guardian or representative payee.

    Medicare may pay amounts due a beneficiary to the beneficiary's 
legal guardian or representative payee.



Sec. 424.55  Payment to the supplier.

    (a) Medicare pays the supplier for covered services if the 
beneficiary (or the person authorized to request payment on the 
beneficiary's behalf) assigns the claim to the supplier and the supplier 
accepts assignment.
    (b) In accepting assignment, the supplier agrees to the following:
    (1) To accept, as full charge for the service, the amount approved 
by the carrier as the basis for determining the Medicare Part B payment 
(the reasonable charge or the lesser of the fee schedule amount and the 
actual charge).
    (2) To limit charges to the beneficiary or any other source as 
follows:
    (i) To collect nothing for those services for which Medicare pays 
100 percent of the Medicare approved amount.
    (ii) To collect only the difference between the Medicare approved 
amount and the Medicare Part B payment (for example, the amount of any 
reduction in incurred expenses under Sec. 410.155(c), any applicable 
deductible amount, and any applicable coinsurance amount) for services 
for which Medicare pays less than 100 percent of the approved amount.
    (3) Not to charge the beneficiary when Medicare paid for services 
determined to be ``not reasonable or necessary'' if--
    (i) The beneficiary was without fault in the overpayment; and
    (ii) The determination that the payment was incorrect was made by 
the carrier after the third year following the year in which the carrier 
sent notice to the beneficiary that it approved the payment.
    (c) Exception. In situations when payment under the Act can only be 
made on an assignment-related basis or when payment is for services 
furnished by a participating physician or supplier, the beneficiary (or 
the person authorized to request payment on the beneficiary's behalf) is 
not required to assign the claim to the supplier in order for an 
assignment to be effective.

[53 FR 6634, Mar. 2, 1988, as amended at 63 FR 20130, Apr. 23, 1998; 69 
FR 66426, Nov. 15, 2004]

[[Page 468]]



Sec. 424.56  Payment to a beneficiary and to a supplier.

    (a) Conditions for split payment. If the beneficiary assigns the 
claim after paying part of the bill, payment may be made partly to the 
beneficiary and partly to the supplier.
    (b) Payment to the supplier. Payment to the supplier who submits the 
assigned claim is for whichever of the following amounts is less:
    (1) The reasonable charge minus the amount the beneficiary had 
already paid to the supplier; or
    (2) The full Part B benefit due for the services furnished.
    (c) Payment to the beneficiary. Any part of the Part B benefit 
which, on the basis of paragraph (b) of this section, is not payable to 
the supplier, is paid to the beneficiary.
    (d) Examples.

    Example 1. An assigned bill of $300 on which partial payment of $100 
has been made is submitted to the carrier. The carrier determines that 
$300 is the reasonable charge for the service furnished. Total payment 
due is 80 percent of $300 or $240. Of this amount, $200 (the difference 
between the $100 partial payment and the $300 reasonable charge) is paid 
to the supplier. The remaining $40 is paid to the beneficiary.
    Example 2. An assigned bill of $325 on which partial payment of $275 
has been made is submitted to the carrier. The carrier determines that 
$275 is the reasonable charge for the services. Total payment due is 80 
percent of $275 or $220. The $220 is paid to the beneficiary, since any 
payment to the supplier, when added to the $275 partial payment would 
exceed the reasonable charge for the services furnished.

[53 FR 6641, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.57  Special payment rules for items furnished by DMEPOS suppliers and issuance of DMEPOS supplier billing privileges.

    (a) Definitions. As used in this section, the following definitions 
apply:
    DMEPOS stands for durable medical equipment, prosthetics, orthotics 
and supplies.
    DMEPOS supplier means an entity or individual, including a physician 
or a Part A provider, which sells or rents Part B covered items to 
Medicare beneficiaries and which meets the standards in paragraph (c) of 
this section.
    Medicare covered items means medical equipment and supplies as 
defined in section 1834(j)(5) of the Act.
    (b) General rule. A DMEPOS supplier must meet the following 
conditions in order to be eligible to receive payment for a Medicare-
covered item:
    (1) The supplier has submitted a completed application to CMS to 
furnish Medicare-covered items including required enrollment forms. (The 
supplier must enroll separate physical locations it uses to furnish 
Medicare-covered DMEPOS, with the exception of locations that it uses 
solely as warehouses or repair facilities.)
    (2) The item was furnished on or after the date CMS issued to the 
supplier a DMEPOS supplier number conveying billing privileges. (CMS 
issues only one supplier number for each location.) This requirement 
does not apply to items furnished incident to a physician's service.
    (3) CMS has not revoked or excluded the DMEPOS supplier's privileges 
during the period which the item was furnished has not been revoked or 
excluded.
    (4) A supplier that furnishes a drug used as a Medicare-covered 
supply with durable medical equipment or prosthetic devices must be 
licensed by the State to dispense drugs (A supplier of drugs must bill 
and receive payment for the drug in its own name. A physician, who is 
enrolled as a DMEPOS supplier, may dispense, and bill for, drugs under 
this standard if authorized by the State as part of the physician's 
license.)
    (5) The supplier has furnished to CMS all information or 
documentation required to process the claim.
    (c) Application certification standards. The supplier must meet and 
must certify in its application for billing privileges that it meets and 
will continue to meet the following standards. The supplier:
    (1) Operates its business and furnishes Medicare-covered items in 
compliance with all applicable Federal and State licensure and 
regulatory requirements;
    (2) Has not made, or caused to be made, any false statement or 
misrepresentation of a material fact on its application for billing 
privileges. (The

[[Page 469]]

supplier must provide complete and accurate information in response to 
questions on its application for billing privileges. The supplier must 
report to CMS any changes in information supplied on the application 
within 30 days of the change.);
    (3) Must have the application for billing privileges signed by an 
individual whose signature binds a supplier;
    (4) Fills orders, frabicates, or fits items from its own inventory 
or by contracting with other companies for the purchase of items 
necessary to fill the order. If it does, it must provide, upon request, 
copies of contracts or other documentation showing compliance with this 
standard. A supplier may not contract with any entity that is currently 
excluded from the Medicare program, any State health care programs, or 
from any other Federal Government Executive Branch procurement or 
nonprocurement program or activity;
    (5) Advises beneficiaries that they may either rent or purchase 
inexpensive or routinely purchased durable medical equipment, and of the 
purchase option for capped rental durable medical equipment, as defined 
in Sec. 414.220(a) of this subchapter. (The supplier must provide, upon 
request, documentation that it has provided beneficiaries with this 
information, in the form of copies of letters, logs, or signed 
notices.);
    (6) Honors all warranties expressed and implied under applicable 
State law. A supplier must not charge the beneficiary or the Medicare 
program for the repair or replacement of Medicare covered items or for 
services covered under warranty. This standard applies to all purchased 
and rented items, including capped rental items, as described in Sec. 
414.229 of this subchapter. The supplier must provide, upon request, 
documentation that it has provided beneficiaries with information about 
Medicare covered items covered under warranty, in the form of copies of 
letters, logs, or signed notices;
    (7) Maintains a physical facility on an appropriate site. The 
physical facility must contain space for storing business records 
including the supplier's delivery, maintenance, and beneficiary 
communication records. For purposes of this standard, a post office box 
or commercial mailbox is not considered a physical facility. In the case 
of a multi-site supplier, records may be maintained at a centralized 
location;
    (8) Permits CMS, or its agents to conduct on-site inspections to 
ascertain supplier compliance with the requirements of this section. The 
supplier location must be accessible during reasonable business hours to 
beneficiaries and to CMS, and must maintain a visible sign and posted 
hours of operation;
    (9) Maintains a primary business telephone listed under the name of 
the business locally or toll-free for beneficiaries. The supplier must 
furnish information to beneficiaries at the time of delivery of items on 
how the beneficiary can contact the supplier by telephone. The exclusive 
use of a beeper number, answering service, pager, facsimile machine, car 
phone, or an answering machine may not be used as the primary business 
telephone for purposes of this regulation;
    (10) Has a comprehensive liability insurance policy in the amount of 
at least $300,000 that covers both the supplier's place of business and 
all customers and employees of the supplier. In the case of a supplier 
that manufactures its own items, this insurance must also cover product 
liability and completed operations. Failure to maintain required 
insurance at all times will result in revocation of the supplier's 
billing privileges retroactive to the date the insurance lapsed;
    (11) Must agree not to contact a beneficiary by telephone when 
supplying a Medicare-covered item unless one of the following applies:
    (i) The individual has given written permission to the supplier to 
contact them by telephone concerning the furnishing of a Medicare-
covered item that is to be rented or purchased.
    (ii) The supplier has furnished a Medicare-covered item to the 
individual and the supplier is contacting the individual to coordinate 
the delivery of the item.
    (iii) If the contact concerns the furnishing of a Medicare-covered 
item other than a covered item already furnished to the individual, the 
supplier has furnished at least one covered item to the individual 
during the 15-month

[[Page 470]]

period preceding the date on which the supplier makes such contact.
    (12) Must be responsible for the delivery of Medicare covered items 
to beneficiaries and maintain proof of delivery. (The supplier must 
document that it or another qualified party has at an appropriate time, 
provided beneficiaries with necessary information and instructions on 
how to use Medicare-covered items safely and effectively);
    (13) Must answer questions and respond to complaints a beneficiary 
has about the Medicare-covered item that was sold or rented. A supplier 
must refer beneficiaries with Medicare questions to the appropriate 
carrier. A supplier must maintain documentation of contacts with 
beneficiaries regarding complaints or questions;
    (14) Must maintain and replace at no charge or repair directly, or 
through a service contract with another company, Medicare-covered items 
it has rented to beneficiaries. The item must function as required and 
intended after being repaired or replaced;
    (15) Must accept returns from beneficiaries of substandard (less 
than full quality for the particular item or unsuitable items, 
inappropriate for the beneficiary at the time it was fitted and rented 
or sold);
    (16) Must disclose these supplier standards to each beneficiary to 
whom it supplies a Medicare-covered item;
    (17) Must comply with the disclosure provisions in Sec. 420.206 of 
this subchapter;
    (18) Must not convey or reassign a supplier number;
    (19) Must have a complaint resolution protocol to address 
beneficiary complaints that relate to supplier standards in paragraph 
(c) of this section and keep written complaints, related correspondence 
and any notes of actions taken in response to written and oral 
complaints. Failure to maintain such information may be considered 
evidence that supplier standards have not been met. (This information 
must be kept at its physical facility and made available to CMS, upon 
request.);
    (20) Must maintain the following information on all written and oral 
beneficiary complaints, including telephone complaints, it receives:
    (i) The name, address, telephone number, and health insurance claim 
number of the beneficiary.
    (ii) A summary of the complaint; the date it was received; the name 
of the person receiving the complaint, and a summary of actions taken to 
resolve the complaint.
    (iii) If an investigation was not conducted, the name of the person 
making the decision and the reason for the decision.
    (21) Provides to CMS, upon request, any information required by the 
Medicare statute and implementing regulations.
    (d) Failure to meet standards. CMS will revoke a supplier's billing 
privileges if it is found not to meet the standards in paragraphs (b) 
and (c) of this section. (The revocation is effective 15 days after the 
entity is sent notice of the revocation, as specified in Sec. 405.874 
of this subchapter.)
    (e) Renewal of billing privileges. A supplier must renew its 
application for billing privileges every 3 years after the billing 
privileges are first granted. (Each supplier must complete a new 
application for billing privileges 3 years after its last renewal of 
privileges.)

[65 FR 60377, Oct. 11, 2000]

    Effective Date Note: At 71 FR 48409, Aug. 18, 2006, Sec. 424.57 was 
amended by adding the definitions ``Accredited DMEPOS suppliers,'' ``CMS 
approved accreditation organization'' and ``Independent accreditation 
organization'' in paragraph (a) and by adding paragraphs (c)(22) through 
(25), effective October 2, 2006. For the convenience of the user, the 
added text is set forth as follows:



Sec. 424.57  Special payment rules for items furnished by DMEPOS 
          Suppliers and issuance of DMEPOS Supplier billing privileges.

    (a) Definitions. * * *
    Accredited DMEPOS suppliers means suppliers that have been 
accredited by a recognized independent accreditation organization 
approved by CMS in accordance with the requirements at Sec. 424.58.
    CMS approved accreditation organization means a recognized 
independent accreditation organization approved by CMS under Sec. 
424.58.

                                * * * * *

[[Page 471]]

    Independent accreditation organization means an accreditation 
organization that accredits a supplier of DMEPOS and other items and 
services for a specific DMEPOS product category or a full line of DMEPOS 
product categories.

                                * * * * *

    (c) Application certification standards. * * *
    (22) All suppliers of DMEPOS and other items and services must be 
accredited by a CMS-approved accreditation organization in order to 
receive and retain a supplier billing number. The accreditation must 
indicate the specific products and services, for which the supplier is 
accredited in order for the supplier to receive payment for those 
specific products and services.
    (23) All DMEPOS suppliers must notify their accreditation 
organization when a new DMEPOS location is opened. The accreditation 
organization may accredit the new supplier location for three months 
after it is operational without requiring a new site visit.
    (24) All DMEPOS supplier locations, whether owned or subcontracted, 
must meet the DMEPOS quality standards and be separately accredited in 
order to bill Medicare. An accredited supplier may be denied enrollment 
or their enrollment may be revoked, if CMS determines that they are not 
in compliance with the DMEPOS quality standards.
    (25) All DMEPOS suppliers must disclose upon enrollment all products 
and services, including the addition of new product lines for which they 
are seeking accreditation. If a new product line is added after 
enrollment, the DMEPOS supplier will be responsible for notifying the 
accrediting body of the new product so that the DMEPOS supplier can be 
re-surveyed and accredited for these new products.

                                * * * * *



Sec. 424.58  Accreditation.

    Effective Date Note: At 71 FR 48409, Aug. 18, 2006, Sec. 424.58 was 
added, effective October 2, 2006.
    (a) Scope and purpose. This part implements section 1834(a)(20)(B) 
of the Act, which requires the Secretary to designate and approve one or 
more independent accreditation organizations for purposes of enforcing 
the DMEPOS quality standards for suppliers of DMEPOS and other items or 
services. Section 1847(b)(2)(A)(i) of the Act requires a DMEPOS supplier 
to meet the DMEPOS quality standards under section 1834(a)(20) of the 
Act before being awarded a contract.
    (b) Application and reapplication procedures for accreditation 
organizations. (1) An independent accreditation organization applying 
for approval or re-approval of authority to survey suppliers for 
compliance with the DMEPOS quality standards is required to furnish the 
following to CMS:
    (i) A list of the types of DMEPOS supplies, and a list of products 
and services for which the organization is requesting approval.
    (ii) A detailed comparison of the organization's accreditation 
requirements and standards with the applicable DMEPOS quality standards, 
such as a crosswalk.
    (iii) A detailed description of the organization's operational 
processes, including procedures for performing unannounced surveys, 
frequency of the surveys performed, copies of the organization's survey 
forms, guidelines and instructions to surveyors, quality review 
processes for deficiencies identified with accreditation requirements, 
and dispute resolution processes and policies when there is a negative 
survey finding or decision.
    (iv) Procedures used to notify DMEPOS suppliers of compliance or 
noncompliance with the accreditation requirements.
    (v) Procedures used to monitor the correction of deficiencies found 
during an accreditation survey.
    (vi) Procedures for coordinating surveys with another accrediting 
organization if the organization does not accredit all products the 
supplier provides.
    (vii) Detailed professional information about the individuals who 
perform surveys for the accreditation organization, including the size 
and composition of accreditation survey teams for each type of DMEPOS 
supplier accredited, and the education and experience requirements 
surveyors must meet. The information must include the following:
    (A) The content and frequency of the continuing education training 
provided to survey personnel.
    (B) The evaluation systems used to monitor the performance of 
individual surveyors and survey teams.
    (C) Policies and procedures for a surveyor or institutional 
affiliate of the

[[Page 472]]

independent accrediting organization that participates in a survey or 
accreditation decision regarding a DMEPOS supplier with which that 
individual or institution is professionally or financially affiliated.
    (viii) A description of the organization's data management, analysis 
and reporting system for its surveys and accreditation decisions, 
including the kinds of reports, tables, and other displays generated by 
that system.
    (ix) Procedures for responding to, and investigating complaints 
against, accredited facilities, including policies and procedures 
regarding coordination of these activities with appropriate licensing 
bodies, ombudsman programs, the National Supplier Clearinghouse, and 
CMS.
    (x) The organization's policies and procedures for notifying CMS of 
facilities that fail to meet the accreditation organization's 
requirements.
    (xi) A description of all types, categories, and durations of 
accreditations offered by the organization.
    (xii) A list of the following:
    (A) All currently accredited DMEPOS suppliers.
    (B) The types and categories of accreditation currently held by each 
supplier.
    (C) The expiration date of each supplier's current accreditation.
    (D) The upcoming survey cycles for all DMEPOS suppliers' 
accreditation surveys scheduled to be performed by the organization.
    (xiii) A written presentation that demonstrates the organization's 
ability to furnish CMS with electronic data in ASCII comparable code.
    (xiv) A resource analysis that demonstrates that the organization's 
staffing, funding, and other resources are adequate to perform fully the 
required surveys and related activities.
    (xv) An agreement that the accreditation organization will permit 
its surveyors to serve as witnesses if CMS takes an adverse action based 
on accreditation findings.
    (2) Validation survey. CMS surveys suppliers of DMEPOS and other 
items and services accredited under this section on a representative 
sample basis, or in response to substantial allegations of 
noncompliance, in order to validate the accreditation organization's 
survey process. When conducted--
    (i) On a representative sample basis, the CMS survey may be 
comprehensive or focus on a specific standard;
    (ii) In response to a substantial allegation, CMS surveys for any 
standard that CMS determines is related to the allegations.
    (3) Discovery of a deficiency. If CMS discovers that a DMEPOS 
supplier was not in compliance with the DMEPOS supplier quality 
standards, CMS may revoke the supplier's billing number or require the 
accreditation organization to perform a subsequent full accreditation 
survey at the accreditation organization's expense.
    (4) Authorization. A supplier selected for a validation survey must 
authorize the--
    (i) Validation survey to take place; and
    (ii) CMS survey team to monitor the correction of any deficiencies 
found through the validation survey.
    (5) Refusal to cooperate with survey. If a supplier selected for a 
validation survey fails to comply with the requirements specified at 
paragraph (b)(4) of this section, it is deemed to no longer meet the 
DMEPOS supplier quality standards and may have its supplier billing 
number revoked.
    (6) Validation survey findings. If a validation survey results in a 
finding that the supplier was not in compliance with one or more DMEPOS 
supplier quality standards, the supplier no longer meets the DMEPOS 
quality standards and may have its supplier billing number revoked.
    (c) Ongoing responsibilities of a CMS-approved accreditation 
organization. An accreditation organization approved by CMS must 
undertake the following activities on an ongoing basis:
    (1) Provide to CMS all of the following in written format (either 
electronic or hard copy) and on a monthly basis all of the following:
    (i) Copies of all accreditation surveys, together with any survey-
related information that CMS may require (including corrective action 
plans and summaries of findings with respect to unmet CMS requirements).

[[Page 473]]

    (ii) Notice of all accreditation decisions.
    (iii) Notice of all complaints related to suppliers of DMEPOS and 
other items and services.
    (iv) Information about any supplier of DMEPOS and other items and 
services against which the CMS-approved accreditation organization has 
taken remedial or adverse action, including revocation, withdrawal, or 
revision of the supplier's accreditation.
    (v) Notice of any proposed changes in its accreditation standards or 
requirements or survey process. If the organization implements the 
changes before or without CMS' approval, CMS may withdraw its approval 
of the accreditation organization.
    (2) Within 30 calendar days of a change in CMS requirements, submit 
to CMS:
    (i) An acknowledgment of CMS's notification of the change.
    (ii) A revised cross walk reflecting the new requirements.
    (iii) An explanation of how the accreditation organization plans to 
alter its standards to conform to CMS's new requirements, within the 
timeframes specified in the notification of change it receives from CMS.
    (3) Permit its surveyors to serve as witnesses if CMS takes an 
adverse action based on accreditation findings.
    (4) Within 2 calendar days of identifying a deficiency of an 
accredited DMEPOS supplier that poses immediate jeopardy to a 
beneficiary or to the general public, provide CMS with written notice of 
the deficiency and any adverse action implemented by the accreditation 
organization.
    (5) Within 10 calendar days after CMS's notice to a CMS-approved 
accreditation organization that CMS intends to withdraw approval of the 
accreditation organization, provide written notice of the withdrawal to 
all of the CMS-approved accreditation organization's accredited 
suppliers.
    (6) Provide, on an annual basis, summary data specified by CMS that 
relate to the past year's accreditation activities and trends.
    (d) Continuing Federal oversight of approved accreditation 
organizations. This paragraph establishes specific criteria and 
procedures for continuing oversight and for withdrawing approval of a 
CMS-approved accreditation organization.
    (1) Equivalency review. CMS compares the accreditation 
organization's standards and its application and enforcement of those 
standards to the comparable CMS requirements and processes when--
    (i) CMS imposes new requirements or changes its survey process;
    (ii) An accreditation organization proposes to adopt new standards 
or changes in its survey process; or
    (iii) The term of an accreditation organization's approval expires.
    (2) Validation survey. CMS or its designated survey team may conduct 
a survey of an accredited DMEPOS supplier, examine the results of a CMS-
approved accreditation organization's survey of a supplier, or observe a 
CMS-approved accreditation organization's onsite survey of a DMEPOS 
supplier, in order to validate the CMS-approved accreditation 
organization's accreditation process. At the conclusion of the review, 
CMS identifies any accreditation programs for which validation survey 
results indicate--
    (i) A 10 percent rate of disparity between findings by the 
accreditation organization and findings by CMS or its designated survey 
team on standards that do not constitute immediate jeopardy to patient 
health and safety if unmet;
    (ii) Any disparity between findings by the accreditation 
organization and findings by CMS on standards that constitute immediate 
jeopardy to patient health and safety if unmet; or
    (iii) That, irrespective of the rate of disparity, there are 
widespread or systemic problems in an organization's accreditation 
process such that accreditation by that accreditation organization no 
longer provides CMS with adequate assurance that suppliers meet or 
exceed the Medicare requirements.
    (3) Notice of intent to withdraw approval. CMS provides the 
organization written notice of its intent to withdraw approval if an 
equivalency review, validation review, onsite observation, or CMS's 
daily experience with the accreditation organization suggests that the 
accreditation organization is not

[[Page 474]]

meeting the requirements of this section.
    (4) Withdrawal of approval. CMS may withdraw its approval of an 
accreditation organization at any time if CMS determines that--
    (i) Accreditation by the organization no longer adequately assures 
that the suppliers of DMEPOS and other items and services are meeting 
the DMEPOS quality standards, and that failure to meet those 
requirements could jeopardize the health or safety of Medicare 
beneficiaries and could constitute a significant hazard to the public 
health; or
    (ii) The accreditation organization has failed to meet its 
obligations with respect to application or reapplication procedures.
    (e) Reconsideration. (1) An accreditation organization dissatisfied 
with a determination that its accreditation requirements do not provide 
or do not continue to provide reasonable assurance that the entities 
accredited by the accreditation organization meet the applicable 
supplier quality standards is entitled to a reconsideration. CMS 
reconsiders any determination to deny, remove, or not renew the approval 
of deeming authority to accreditation organizations if the accreditation 
organization files a written request for reconsideration by its 
authorized officials or through its legal representative.
    (2) The request must be filed within 30 calendar days of the receipt 
of CMS notice of an adverse determination or non-renewal.
    (3) The request for reconsideration must specify the findings or 
issues with which the accreditation organization disagrees and the 
reasons for the disagreement.
    (4) A requestor may withdraw its request for reconsideration at any 
time before the issuance of a reconsideration determination.
    (5) In response to a request for reconsideration, CMS provides the 
accreditation organization the opportunity for an informal hearing to be 
conducted by a hearing officer appointed by the Administrator of CMS and 
provide the accreditation organization the opportunity to present, in 
writing and in person, evidence or documentation to refute the 
determination to deny approval, or to withdraw or not renew deeming 
authority.
    (6) CMS provides written notice of the time and place of the 
informal hearing at least 10 calendar days before the scheduled date.
    (7) The informal reconsideration hearing is open to CMS and the 
organization requesting the reconsideration, including authorized 
representatives; technical advisors (individuals with knowledge of the 
facts of the case or presenting interpretation of the facts); and legal 
counsel.
    (i) The hearing is conducted by the hearing officer who receives 
testimony and documents related to the proposed action.
    (ii) Testimony and other evidence may be accepted by the hearing 
officer even though it is inadmissible under the rules of court 
procedures.
    (iii) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (8) Within 45 calendar days of the close of the hearing, the hearing 
officer presents the findings and recommendations to the accreditation 
organization that requested the reconsideration.
    (9) The written report of the hearing officer includes separate 
numbered findings of fact and the legal conclusions of the hearing 
officer. The hearing officer's decision is final.



         Subpart E_To Whom Payment is Made in Special Situations



Sec. 424.60  Scope.

    (a) This subpart sets forth provisions applicable to payment after 
the beneficiary's death and payment to entities that provide coverage 
complementary to Medicare Part B.
    (b) The provisions applicable to payment for services excluded as 
custodial care or services not reasonable and necessary are set forth in 
Sec. Sec. 405.332 through 405.336 of this chapter.

[53 FR 6634, Mar. 2, 1988, as amended at 53 FR 28388, July 28, 1988]



Sec. 424.62  Payment after beneficiary's death: Bill has been paid.

    (a) Scope. This section specifies the persons whom Medicare pays, 
and the

[[Page 475]]

conditions for payments, when the beneficiary has died and the bill has 
been paid.
    (b) Situation. (1) The beneficiary has received covered services for 
which he could receive direct payment under Sec. 424.53.
    (2) The beneficiary died without receiving Medicare payment.
    (3) The bill has been paid.
    (c) Persons whom Medicare pays. In the situation described in 
paragraph (b) of this section, Medicare pays the following persons in 
the specified circumstances:
    (1) The person or persons who, without a legal obligation to do so, 
paid for the services with their own funds, before or after the 
beneficiary's death.
    (2) The legal representative of the beneficiary's estate if the 
services were paid for by the beneficiary before he or she died, or with 
funds from the estate.
    (3) If the deceased beneficiary or his or her estate paid for the 
services and no legal representative of the estate has been appointed, 
the survivors, in the following order of priority:
    (i) The person found by SSA to be the surviving spouse, if he or she 
was either living in the same household with the deceased at the time of 
death, or was, for the month of death, entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased beneficiary;
    (ii) The child or children, who were, for the month of death, 
entitled to monthly social security or railroad retirement benefits on 
the basis of the same earnings record as the deceased (and, if there is 
more than one child, in equal parts to each child);
    (iii) The parent or parents, who were, for the month of death, 
entitled to monthly social security or railroad retirement benefits on 
the basis of the same earnings record as the deceased (and, if there is 
more than one parent, in equal parts to each parent);
    (iv) The person found by SSA to be the surviving spouse who was not 
living in the same household with the deceased at the time of death and 
was not, for the month of death, entitled to monthly social security or 
railroad retirement benefits on the basis of the same earnings record as 
the deceased beneficiary;
    (v) The child or children who were not entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased (and, if there is more than one child, 
in equal parts to each child);
    (vi) The parent or parents who were not entitled to monthly social 
security or railroad retirement benefits on the basis of the same 
earnings record as the deceased (and, if there is more than one parent, 
in equal parts to each parent).
    (4) If none of the listed relatives survive, no payment is made.
    (5) If the services were paid for by a person other than the 
deceased beneficiary, and that person died before payment was completed, 
Medicare does not pay that person's estate. Medicare pays a surviving 
relative of the deceased beneficiary in accordance with the priorities 
in paragraph (c)(3) of this section. If none of those relatives survive. 
Medicare pays the legal representative of the deceased beneficiary's 
estate. If there is no legal representative of the estate, no payment is 
made.
    (d) Amount of payment. The amount of payment is the amount due, 
including unnegotiated checks issued for the purpose of making direct 
payment to the beneficiary.
    (e) Conditions for payment. For payment to be made under this 
section--
    (1) The person who claims payment must meet the following 
requirements:
    (i) Submit a claim on a CMS-prescribed form and an itemized bill in 
accordance with the requirements of this subpart. (See paragraph (g) of 
this section for an exception.)
    (ii) Provide evidence that the services were furnished if the 
intermediary or carrier requests it.
    (iii) Provide evidence of payment of the bill and of the identity of 
the person who paid it.
    (2) If a person claims payment as the legal representative of the 
deceased beneficiary's estate, he or she must also submit a copy of the 
papers showing appointment as legal representative.
    (3) If a person claims payment as a survivor of the beneficiary, he 
or she

[[Page 476]]

must also submit evidence, if the intermediary or carrier requests it, 
that he or she is highest on the priority list of paragraph (c)(3) of 
this section.
    (f) Evidence of payment. Evidence of payment may be--
    (1) A receipted bill, or a properly completed ``Report of Services'' 
section of a claim form, showing who paid the bill;
    (2) A cancelled check;
    (3) A written statement from the provider or supplier or an 
authorized staff member; or
    (4) Other probative evidence.
    (g) Exception: Claim submitted before beneficiary died. If a claim 
and itemized bill has been submitted by or on behalf of the beneficiary 
before he or she died, submission of another claim form and itemized 
bill is not required; any written request by the person seeking payment 
is sufficient.



Sec. 424.64  Payment after beneficiary's death: Bill has not been paid.

    (a) Scope. This section specifies whom Medicare pays, and the 
conditions for payment when the beneficiary has died and the bill has 
not been paid.
    (b) Situation. (1) The beneficiary has received covered Part B 
services furnished by a physician or other supplier.
    (2) The beneficiary died without making an assignment to the 
physician or other supplier or receiving Medicare payment.
    (3) The bill has not been paid.
    (c) To whom payment is made. In the situation described in paragraph 
(b) of this section, Medicare pays as follows:
    (1) Payment to the supplier. Medicare pays the physician or other 
supplier if he or she--
    (i) Files a claim on a CMS-prescribed form in accordance with the 
applicable requirements of this subpart;
    (ii) Upon request from the carrier, provides evidence that the 
services for which it claims payment were, in fact, furnished; and
    (iii) Agrees in writing to accept the reasonable charge as the full 
charge for the services.
    (2) Payment to a person who assumes legal obligation to pay for the 
services. If the physician or other supplier does not agree to accept 
the reasonable charge as full charge for the service, Medicare pays any 
person who submits to the carrier all of the following:
    (i) A statement indicating that he or she has assumed legal 
obligation to pay for the services.
    (ii) A claim on a CMS-prescribed form in accordance with the 
requirements of this subpart. (If a claim had been submitted by or on 
behalf of the beneficiary before he or she died, submission of another 
claim form is not required; a written request by the person seeking 
payment meets the requirement for a claim.)
    (iii) An itemized bill that identifies the claimant as the person to 
whom the physician or other supplier holds responsible for payment. (If 
such an itemized bill had been submitted by or on behalf of the 
beneficiary before he or she died, submission of another itemized bill 
is not required.)
    (iv) If the intermediary or carrier requests it, evidence that the 
services were actually furnished.

[53 FR 6634, Mar. 2, 1988, as amended at 53 FR 28388, July 28, 1988]



Sec. 424.66  Payment to entities that provide coverage complementary to Medicare Part B.

    (a) Conditions for payment. Medicare may pay an entity for Part B 
services furnished by a physician or other supplier if the entity meets 
all of the following requirements:
    (1) Provides coverage of the service under a complementary health 
benefit plan (this is, the coverage that the plan provides is 
complementary to Medicare benefits and covers only the amount by which 
the Part B payment falls short of the approved charge for the service 
under the plan).
    (2) Has paid the person who provided the service an amount 
(including the amount payable under the Medicare program) that the 
person accepts as full payment.
    (3) Has the written authorization of the beneficiary (or of a person 
authorized to sign claims on his behalf under Sec. 424.36) to receive 
the Part B payment for the services for which the entity pays.
    (4) Relieves the beneficiary of liability for payment for the 
service and will not seek any reimbursement from the

[[Page 477]]

beneficiary, his or her survivors or estate.
    (5) Submits any information CMS or the carrier may request, 
including an itemized physician or supplier bill, in order to apply the 
requirements under the Medicare program.
    (6) Identifies and excludes from its requests for payment all 
services for which Medicare is the secondary payer.
    (b) Services paid for by the entity. An entity is not required to 
pay and claim reimbursement for all Part B services furnished to members 
of its plans. However, if it does not pay and claim reimbursement for 
all those services, it must establish in advance precise criteria for 
identifying the services for which it will pay and claim reimbursement.

[53 FR 28388, July 28, 1988; 53 FR 40231, Oct. 14, 1988]



     Subpart F_Limitations on Assignment and Reassignment of Claims



Sec. 424.70  Basis and scope.

    (a) Statutory basis. This subpart implements sections 1815(c) and 
1842(b)(6) of the Act, which establish limitations on who may receive 
payments due a provider or supplier of services or a beneficiary.
    (b) Scope. This subpart--
    (1) Prohibits the assignment, reassignment, or other transfer of the 
right to Medicare payments except under specified conditions;
    (2) Sets forth the sanctions that CMS may impose on a provider or 
supplier that violates this prohibition, or on a supplier that violates 
the conditions to which it agreed in accepting assignment from the 
individual; and
    (3) Specifies the conditions for payment under court-ordered 
assignments or reassignments.



Sec. 424.71  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Court of competent jurisdiction means a court that has jurisdiction 
over the subject matter and the parties before it.
    Facility means a hospital or other institution that furnishes health 
care services to inpatients.
    Entity means a person, group, or facility that is enrolled in the 
Medicare program.
    Power of attorney means any written documents by which a principal 
authorizes an agent to--
    (1) Receive, in the agent's name, any payments due the principal;
    (2) Negotiate checks payable to the principal; or
    (3) Receive, in any other manner, direct payment of amounts due the 
principal.

[53 FR 6634, Mar. 2, 1988, as amended at 69 FR 66426, Nov. 15, 2004]



Sec. 424.73  Prohibition of assignment of claims by providers.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a provider to any 
other person under assignment, or power of attorney, or any other direct 
payment arrangement.
    (b) Exceptions to the prohibition--(1) Payment to a government 
agency or entity. Subject to the requirements of the Assignment of 
Claims Act (31 U.S.C. 3727), Medicare may pay a government agency or 
entity under an assignment by the provider.
    (2) Payment under assignment established by court order. Medicare 
may pay under an assignment established by, or in accordance with, the 
order of a court of competent jurisdiction if the assignment meets the 
conditions set forth in Sec. 424.90.
    (3) Payment to an agent. Medicare may pay an agent who furnishes 
billing and collection services to the provider if the following 
conditions are met:
    (i) The agent receives the payment under an agency agreement with 
the provider;
    (ii) The agent's compensation is not related in any way to the 
dollar amounts billed or collected;
    (iii) The agent's compensation is not dependent upon the actual 
collection of payment;
    (iv) The agent acts under payment disposition instructions that the 
provider may modify or revoke at any time; and

[[Page 478]]

    (v) The agent, in receiving the payment, acts only on behalf of the 
provider.

Payment to an agent will always be made in the name of the provider.



Sec. 424.74  Termination of provider agreement.

    CMS may terminate a provider agreement, in accordance with Sec. 
489.53(a)(1) of this chapter, if the provider--
    (a) Executes or continues a power of attorney, or enters into or 
continues any other arrangement, that authorizes or permits payment 
contrary to the provisions of this subpart; or
    (b) Fails to furnish, upon request by CMS or the intermediary, 
evidence necessary to establish compliance with the requirements of this 
subpart.



Sec. 424.80  Prohibition of reassignment of claims by suppliers.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a supplier under an 
assignment to any other person under reassignment, power of attorney, or 
any other direct arrangement. Nothing in this section alters a party's 
obligations under the anti-kickback statute (section 1128B(b) of the 
Act), the physician self-referral prohibition (section 1877 of the Act), 
the rules regarding physician billing for purchased diagnostic tests 
(Sec. 414.50 of this chapter), the rules regarding payment for services 
and supplies incident to a physician's professional services (Sec. 
410.26 of this chapter), or any other applicable Medicare laws, rules, 
or regulations.
    (b) Exceptions to the basic rule--(1) Payment to employer. Medicare 
may pay the supplier's employer if the supplier is required, as a 
condition of employment, to turn over to the employer the fees for his 
or her services.
    (2) Payment to an entity under a contractual arrangement. Medicare 
may pay an entity enrolled in the Medicare program if there is a 
contractual arrangement between the entity and the supplier under which 
the entity bills for the supplier's services, subject to the provisions 
of paragraph (d) of this section.
    (3) Payment to a government agency or entity. Subject to the 
requirements of the Assignment of Claims Act (31 U.S.C. 3727), Medicare 
may pay a government agency or entity under a reassignment by the 
supplier.
    (4) Payment under a reassignment established by court order. 
Medicare may pay under a reassignment established by, or in accordance 
with, the order of a court competent jurisdiction, if the reassignment 
meets the conditions set forth in Sec. 424.90.
    (5) Payment to an agent. Medicare may pay an agent who furnishes 
billing and collection services to the supplier, or to the employer, 
facility, or system specified in paragraphs (b) (1), (2) and (3) of this 
section, if the conditions of Sec. 424.73(b)(3) for payment to a 
provider's agent are met by the agent of the supplier or of the 
employer, facility, or system. Payment to an agent will always be made 
in the name of the supplier or the employer, facility, or system.
    (c) Rules applicable to an employer or entity. An employer or entity 
that may receive payment under paragraph (b)(1) or (b)(2) of this 
section is considered the supplier of those services for purposes of 
subparts C, D, and E of this part, subject to the provisions of 
paragraph (d) of this section.
    (d) Reassignment to an entity under a contractual arrangement: 
Conditions and limitations--(1) Liability of the parties. An entity 
enrolled in the Medicare program that receives payment under a 
contractual arrangement under paragraph (b)(2) of this section and the 
supplier that otherwise receives payment are jointly and severally 
responsible for any Medicare overpayment to that entity.
    (2) Access to records. The supplier furnishing the service has 
unrestricted access to claims submitted by an entity for services 
provided by that supplier.

[53 FR 6634, Mar. 2, 1988, as amended at 54 FR 4027, Jan. 27, 1989; 69 
FR 66426, Nov. 15, 2004; 70 FR 16722, Apr. 1, 2005]



Sec. 424.82  Revocation of right to receive assigned benefits.

    (a) Scope. This section sets forth the conditions and procedures for 
revocation of the right of a supplier or other party to receive Medicare 
payments.

[[Page 479]]

    (b) Definition. As used in this section, other party means an 
employer, facility, or health care delivery system to which Medicare may 
make payment under Sec. 424.80(b) (1), (2), or (3).
    (c) Basis for revocation. CMS may revoke the right of a supplier or 
other party to receive Medicare payments if the supplier or other party, 
after warning by CMS or the carrier--
    (1) Violates the terms of assignment in Sec. 424.55(b).
    (2) Continues collection efforts or fails to refund moneys 
incorrectly collected, in violation of the terms of assignment in Sec. 
424.55(b).
    (3) Executes or continues in effect a reassignment or power of 
attorney or any other arrangement that seeks to obtain payment contrary 
to the provisions of Sec. 424.80; or
    (4) Fails to furnish evidence necessary to establish its compliance 
with the requirements of Sec. 424.80.
    (d) Proposed revocation: Notice and opportunity for review. If CMS 
proposes to revoke the right to payment in accordance with paragraph (c) 
of this section, it will send the supplier or other party a written 
notice that--
    (1) States the reasons for the proposed revocation; and
    (2) Provides an opportunity for the supplier or other party to 
submit written argument and evidence against the proposed revocation. 
CMS usually allows 15 days from the date on the notice, but may extend 
or reduce the time as circumstances require.
    (e) Actual revocation: Timing, notice, and opportunity for hearing--
(1) Timing. CMS determines whether to revoke after considering any 
written argument or evidence submitted by the supplier or other party 
or, if none is submitted, at the expiration of the period specified in 
the notice of proposed revocation.
    (2) Notice and opportunity for hearing. The notice of revocation 
specifies--
    (i) The reasons for the revocation;
    (ii) That the revocation is effective as of the date on the notice;
    (iii) That the supplier or other party may, within 60 days from the 
date on the notice (or a longer period if the notice so specifies), 
request an administrative hearing and may be represented by counsel or 
other qualified representative.
    (iv) That the carrier will withhold payment on any claims submitted 
by the supplier or other party until the period for requesting a hearing 
expires or, if a hearing is requested, until the hearing officer issues 
a decision;
    (v) That if the hearing decision reverses the revocation, the 
carrier will pay the supplier's or other party's claims; and
    (vi) That if a hearing is not requested or the hearing decision 
upholds the revocation, payment will be made to the beneficiary or to 
another person or agency authorized to receive payment on his or her 
behalf.

[53 FR 6644, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.83  Hearings on revocation of right to receive assigned benefits.

    If the supplier or other party requests a hearing under Sec. 
424.82(e)(2)--
    (a) The hearing is conducted--
    (1) By a CMS hearing official who was not involved in the decision 
to revoke; and
    (2) In accordance with the procedures set forth in Sec. Sec. 
405.824 through 405.833 (but excepting Sec. 405.832(d)) and 405.860 
through 405.872 of this chapter. In applying those procedures, ``CMS'' 
is substituted for ``carrier''; and ``hearing official'', for ``hearing 
officer''.
    (b) As soon as practicable after the close of the hearing, the 
official who conducted it issues a hearing decision that--
    (1) Is based on all the evidence presented at the hearing and 
included in the hearing record; and
    (2) Contains findings of fact and a statement of reasons.



Sec. 424.84  Final determination on revocation of right to receive assigned benefits.

    (a) Basis of final determination--(1) Final determination without a 
hearing. If the supplier or other party does not request a hearing, 
CMS's revocation determination becomes final at the end of the period 
specified in the notice of revocation.

[[Page 480]]

    (2) Final determination following a hearing. If there is a hearing, 
the hearing decision constitutes CMS's final determination.
    (b) Notice of final determination. CMS sends the supplier or other 
party a written notice of the final determination and, if there was a 
hearing, includes a copy of the hearing decision.
    (c) Application of the final determination--(1) A final 
determination not to revoke is the final administrative decision by CMS 
on the matter.
    (2) A final determination to revoke remains in effect until CMS 
finds that the reason for the revocation has been removed and that there 
is reasonable assurance that it will not recur.
    (d) Effect of revocation when supplier or other party has a 
financial interest in another entity. Revocation of the party's right to 
accept assignment also applies to any corporation, partnership, or other 
entity in which the party, directly or indirectly, has or acquires all 
or all but a nominal part of the financial interest.

[53 FR 6644, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988]



Sec. 424.86  Prohibition of assignment of claims by beneficiaries.

    (a) Basic prohibition. Except as specified in paragraph (b) of this 
section, Medicare does not pay amounts that are due a beneficiary under 
Sec. 424.53 to any other person under assignment, power of attorney, or 
any other direct payment arrangement.
    (b) Exceptions--(1) Payment to a government agency or entity. 
Subject to the requirements of the Assignment of Claims Act (31 U.S.C. 
3727), Medicare may pay a government agency or entity under an 
assignment by a beneficiary (or by the beneficiary's legal guardian or 
representative payee).
    (2) Payment under an assignment established by court order. Medicare 
may pay under an assignment established by, or in accordance with, a 
court order if the assignment meets the conditions set forth in Sec. 
424.90.



Sec. 424.90  Court ordered assignments: Conditions and limitations.

    (a) Conditions for acceptance. An assignment or reassignment 
established by or in accordance with a court order is effective for 
Medicare payments only if--
    (1) Someone files a certified copy of the court order and of the 
executed assignment or reassignment (if it was necessary to execute one) 
with the intermediary or carrier responsible for processing the claim; 
and
    (2) The assignment or reassignment--
    (i) Applies to all Medicare benefits payable to a particular person 
or entity during a specified or indefinite time period; or
    (ii) Specifies a particular amount of money, payable to a particular 
person or entity by a particular intermediary or carrier.
    (b) Retention of authority to reduce interim payments to providers. 
A court-ordered assignment does not preclude the intermediary or carrier 
from reducing interim payments, as set forth in Sec. 413.64(i) of this 
chapter, if the provider or assignee is in imminent danger of insolvency 
or bankruptcy.
    (c) Liability of the parties. The party that receives payments under 
a court-ordered assignment or reassignment that meets the conditions of 
paragraph (a) of this section and the party that would have received 
payment if the court order had not been issued are jointly and severally 
responsible for any Medicare overpayment to the former.



    Subpart G_Special Conditions: Emergency Services Furnished by a 
                        Nonparticipating Hospital



Sec. 424.100  Scope.

    This subpart sets forth procedures and criteria that are followed in 
determining whether Medicare will pay for emergency services furnished 
by a hospital that is located in the United States and does not have in 
effect a provider agreement, that is, an agreement to participate in 
Medicare.



Sec. 424.101  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Emergency services means inpatient or outpatient hospital services 
that are necessary to prevent death or serious impairment of health and, 
because of

[[Page 481]]

the danger to life or health, require use of the most accessible 
hospital available and equipped to furnish those services.
    Hospital means a facility that--
    (1) Is primarily engaged in providing, by or under the supervision 
of doctors of medicine or osteopathy, inpatient services for the 
diagnosis, treatment, and care or rehabilitation of persons who are 
sick, injured, or disabled;
    (2) Is not primarily engaged in providing skilled nursing care and 
related services for patients who require medical or nursing care, as 
described in section 1861(j)(1)(A) of the Act;
    (3) Provides 24-hour nursing service in accordance with section 
1861(e)(5) of the Act; and
    (4) Is licensed, or is approved as meeting the standards for 
licensing, by the State or local licensing agency.
    Reasonable charges means customary charges insofar as they are 
reasonable.



Sec. 424.102  Situations that do not constitute an emergency.

    Without additional evidence of a threat to life or health, the 
following situations do not in themselves indicate a need for emergency 
services:
    (a) Lack of care at home.
    (b) Lack of transportation to a participating hospital.
    (c) Death of the patient in the hospital.



Sec. 424.103  Conditions for payment for emergency services.

    Medicare pays for emergency services furnished to a beneficiary by a 
nonparticipating hospital or under arrangements made by such a hospital 
if the conditions of this section are met.
    (a) General requirements. (1) The services are of the type that 
Medicare would pay for if they were furnished by a participating 
hospital.
    (2) The hospital has in effect an election to claim payment for all 
emergency services furnished in a calendar year in accordance with Sec. 
424.104.
    (3) The need for emergency services arose while the beneficiary was 
not an inpatient in a hospital.
    (4) In the case of inpatient hospital services, the services are 
furnished during a period in which the beneficiary could not be safely 
discharged or transferred to a participating hospital or other 
institution.
    (5) The determination that the hospital was the most accessible 
hospital available and equipped to furnish the services is made in 
accordance with Sec. 424.106.
    (b) Medical information requirements. A physician (or, if 
appropriate, the hospital) submits medical information that--
    (1) Describes the nature of the emergency and specifies why it 
required that the beneficiary be treated in the most accessible 
hospital;
    (2) Establishes that all the conditions in paragraph (a) of this 
section are met; and
    (3) Indicates when the emergency ended, which, for inpatient 
hospital services, is the earliest date on which the beneficiary could 
be safely discharged or transferred to a participating hospital or other 
institution.



Sec. 424.104  Election to claim payment for emergency services furnished during a calendar year.

    (a) Terms of the election. The hospital agrees to the following:
    (1) To comply with the provisions of subpart C of part 489 of this 
chapter relating to charges for items and services the hospital may make 
to the beneficiary, or any other person on his or her behalf.
    (2) To comply with the provisions of subpart D of part 489 of this 
chapter relating to proper disposition of monies incorrectly collected 
from, or on behalf of a beneficiary.
    (3) To request payment under the Medicare program based on amounts 
specified in Sec. 413.74 of this chapter.
    (b) Filing of election statement. An election statement must be 
filed on a form designated by CMS, signed by an authorized official of 
the hospital, and either received by CMS, or postmarked, before the 
close of the calendar year of election.
    (c) Acceptance and effective date of election. If CMS accepts the 
election statement, the election is effective as of the earliest day of 
the calendar year of election from which CMS determines the hospital has 
been in continuous compliance with the requirements of section 1814(d) 
of the Act.

[[Page 482]]

    (d) Appeal by hospital. Any hospital dissatisfied with a 
determination that it does not qualify to claim reimbursement shall be 
entitled to appeal the determination as provided in part 498 of this 
chapter.
    (e) Conditions for reinstatement after notice of failure to continue 
to qualify. If CMS has notified a hospital that it no longer qualifies 
to receive reimbursement for a calendar year, CMS will not accept 
another election statement from that hospital until CMS finds that--
    (1) The reason for its failure to qualify has been removed; and
    (2) There is reasonable assurance that it will not recur.



Sec. 424.106  Criteria for determining whether the hospital was the most accessible.

    (a) Basic requirement. (1) The hospital must be the most accessible 
one available and equipped to furnish the services.
    (2) CMS determines accessibility based on the factors specified in 
paragraphs (b) and (c) of this section and the conditions set forth in 
paragraph (d) of this section.
    (b) Factors that are considered. CMS considers the following factors 
in determining whether a nonparticipating hospital in a rural area meets 
the accessibility requirements:
    (1) The relative distances of participating and nonparticipating 
hospitals in the area.
    (2) The transportation facilities available to these hospitals.
    (3) The quality of the roads to each hospital.
    (4) The availability of beds at each hospital.
    (5) Any other factors that bear on whether or not the services could 
be provided sooner in the nonparticipating hospitals than in a 
participating hospital in the general area.

In urban and suburban areas where both participating and 
nonparticipating hospitals are similarly available, CMS presumes that 
the services could have been provided in a participating hospital unless 
clear and convincing evidence shows that there was a medical or 
practical need to use the nonparticipating hospital.
    (c) Factors that are not considered. CMS gives no consideration to 
the following factors in determining whether the nonparticipating 
hospital was the most accessible hospital:
    (1) The personal preference of the beneficiary, the physician, or 
members of the family.
    (2) The fact that the attending physician did not have staff 
privileges in a participating hospital which was available and the most 
accessible to the beneficiary.
    (3) The location of previous medical records.
    (d) Conditions under which the accessibility requirement is met. If 
a beneficiary must be taken to a hospital immediately for required 
diagnosis and treatment, the nonparticipating hospital meets the 
accessibility requirement if--
    (1) It was the nearest hospital to the point where the emergency 
occurred, it was medically equipped to handle the type of emergency, and 
it was the most accessible, on the basis of the factors specified in 
paragraph (b) of this section; or
    (2) There was a closer participating hospital equipped to handle the 
emergency, but the participating hospital did not have a bed available 
or would not accept the individual.



Sec. 424.108  Payment to a hospital.

    (a) Conditions for payment. Medicare pays the hospital for emergency 
services if the hospital--
    (1) Has in effect a statement of election to claim payment for all 
covered emergency services furnished during a calendar year, in 
accordance with Sec. 424.104;
    (2) Claims payment in accordance with Sec. 424.32; and
    (3) Submits evidence requested by CMS to establish that the services 
meet the requirements of this subpart.
    (b) Subsequent claims. If the hospital files subsequent claims 
because the initial claim did not include all the services furnished, 
those claims must include physicians' statements that--
    (1) Contain sufficient information to clearly establish that, when 
the additional services were furnished, the emergency still existed; and

[[Page 483]]

    (2) Indicate when the emergency ended, which, for inpatient hospital 
services, is the earliest date on which the beneficiary could be safely 
discharged or transferred to a participating hospital or other 
institution.



Sec. 424.109  Payment to the beneficiary.

    Medicare pays the beneficiary for emergency services if the 
following conditions are met:
    (a) The hospital does not have in effect an election to claim 
payment.
    (b) The beneficiary, or someone on his or her behalf, submits--
    (1) A claim that meets the requirements of Sec. 424.32;
    (2) An itemized hospital bill; and
    (3) Evidence requested by CMS to establish that the services meet 
the requirements of this subpart.



  Subpart H_Special Conditions: Services Furnished in a Foreign Country



Sec. 424.120  Scope.

    This subpart sets forth the conditions for payment for services 
furnished in a foreign country.



Sec. 424.121  Scope of payments.

    Subject to the conditions set forth in this subpart--
    (a) Medicare Part A pays, in the amounts specified in Sec. 413.74 
of this chapter, for emergency and nonemergency inpatient hospital 
services furnished by a foreign hospital.
    (b) Medicare Part B pays for certain physicians' services and 
ambulance services furnished in connection with covered inpatient care 
in a foreign hospital, as specified in Sec. 424.124.
    (c) All other services furnished outside the United States are 
excluded from Medicare coverage, as specified in Sec. 411.9 of this 
chapter.

[53 FR 6634, Mar. 2, 1988, as amended at 71 FR 48143, Aug. 18, 2006]



Sec. 424.122  Conditions for payment for emergency inpatient hospital services.

    Medicare Part A pays for emergency inpatient hospital services 
furnished by a foreign hospital if the following conditions are met:
    (a) At the time of the emergency that required the inpatient 
hospital services, the beneficiary was--
    (1) In the United States; or
    (2) In Canada traveling between Alaska and another State without 
unreasonable delay and by the most direct route.
    (b) The foreign hospital was closer to, or more accessible from, the 
site of the emergency than the nearest United States hospital equipped 
to deal with, and available to treat, the individual's illness or 
injury.
    (c) The conditions for payment for emergency services set forth in 
Sec. 424.103 are met.
    (d) The hospital is a hospital as defined in Sec. 424.101, and is 
licensed, or approved as meeting the conditions for licensing, by the 
appropriate agency of the country in which it is located.
    (e) The determination of whether the hospital was more accessible is 
made in accordance with Sec. 424.106.



Sec. 424.123  Conditions for payment for nonemergency inpatient services furnished by a hospital closer to the individual's residence.

    Medicare Part A pays for inpatient hospital services furnished by a 
foreign hospital if the following conditions are met:
    (a) The beneficiary is a resident of the United States.
    (b) The foreign hospital is closer or more accessible to the 
beneficiary's residence than the nearest United States hospital equipped 
to deal with, and available to treat, the individual's illness or 
injury.
    (c) The foreign hospital is--
    (1) A hospital as defined in Sec. 424.101 and, it is licensed, or 
approved as meeting the conditions for licensing, by the appropriate 
agency of the country in which it is located; and
    (2) Accredited by the Joint Commission on Accreditation of 
Healthcare Organizations (JCAHO) or accredited or approved by a program 
of the country where it is located under standards the CMS finds to be 
essentially equivalent to those of the JCAHO.
    (d) The services are covered services that Medicare would pay for if 
they

[[Page 484]]

were furnished by a participating hospital.

[53 FR 6634, Mar. 2, 1988, as amended at 71 FR 48143, Aug. 18, 2006]



Sec. 424.124  Conditions for payment for physician services and ambulance services.

    (a) Basic rules. Medicare Part B pays for physician and ambulance 
services if--
    (1) They are furnished--
    (i) To an individual who is entitled to Part B benefits; and
    (ii) In connection with covered inpatient hospital services; and
    (2) They meet the conditions set forth in paragraphs (b) and (c) of 
this section.
    (b) Physician services. (1) The physician services are services 
covered under Medicare Part B and are furnished--
    (i) In the hospital, during a period of covered inpatient services; 
or
    (ii) Outside the hospital, on the day of admission and for the same 
condition that required inpatient admission; and
    (2) The physician is legally authorized to practice in the country 
where he or she furnishes the services.
    (c) Ambulance services. The ambulance services are--
    (1) Necessary because the use of other means of transportation is 
contraindicated by the beneficiary's condition; and
    (2) Furnished by an ambulance that meets the definition in Sec. 
410.41 of this chapter.

[53 FR 6646, Mar. 2, 1988; 53 FR 12945, Apr. 20, 1988; 64 FR 3649, Jan. 
25, 1999]



Sec. 424.126  Payment to the hospital.

    (a) Conditions for payment. Medicare pays the hospital if it--
    (1) Has in effect an election that--
    (i) Meets the requirements set forth in Sec. 424.104; and
    (ii) Reflects the hospital's intent to claim for all covered 
services furnished during a calendar year.
    (2) Claims payment in accordance with Sec. Sec. 424.32 and 413.74 
of this chapter; and
    (3) Submits evidence requested by CMS to establish that the services 
meet the requirements of this subpart.
    (b) Amount of payment. Payment is made (in accordance with Sec. 
413.74 of this chapter) on the basis of 100 percent of the hospital's 
customary charges, subject to the applicable deductible and coinsurance 
provisions set forth elsewhere in this chapter.



Sec. 424.127  Payment to the beneficiary.

    (a) Conditions for payment of inpatient hospital services. Medicare 
pays the beneficiary if--
    (1) The hospital does not have in effect an election to claim 
payment; and
    (2) The beneficiary, or someone on his or her behalf, submits--
    (i) A claim in accordance with Sec. 424.32;
    (ii) An itemized hospital bill; and
    (iii) Evidence requested by CMS to establish that the services meet 
the requirements of this subpart.
    (b) Amount payable for inpatient hospital services. The amount 
payable to the beneficiary is determined in accordance with Sec. 
424.109(b).
    (c) Conditions for payment for Part B services. Medicare pays the 
beneficiary for physicians' services and ambulance services as specified 
in Sec. 424.121, if an itemized bill for the services is submitted by 
the beneficiary or someone on his or her behalf and the conditions of 
Sec. 424.126(a) (2) and (3) are met.
    (d) The amount payable to the beneficiary is determined in 
accordance with Sec. 410.152 of this chapter.

Subparts I-L [Reserved]



       Subpart M_Replacement and Reclamation of Medicare Payments



Sec. 424.350  Replacement of checks that are lost, stolen, defaced, mutilated, destroyed, or paid on forged endorsements.

    (a) U.S. Government checks--(1) Responsibility. The Treasury 
Department is responsible for the investigation and settlement of claims 
in connection with Treasury checks issued on behalf of CMS.
    (2) Action by CMS. CMS forwards reports of lost, stolen, defaced, 
mutilated, destroyed, or forged Treasury checks to the Treasury 
Department

[[Page 485]]

disbursing center responsible for issuing checks.
    (3) Action by the Treasury Department. The Treasury Department will 
replace and begin reclamation of Treasury checks in accordance with 
Treasury Department regulations (31 CFR parts 235, 240, and 245).
    (b) Intermediary and carrier benefit checks. Checks issued by 
intermediaries and carriers are drawn on commercial banks and are not 
subject to the Federal laws and Treasury Department regulations that 
govern Treasury checks. Replacement procedures are carried out in 
accordance with Sec. 424.352 under applicable State law (including any 
Federal banking laws or regulations that may affect the relevant State 
proceedings).

[58 FR 65129, Dec. 13, 1993]



Sec. 424.352  Intermediary and carrier checks that are lost, stolen, defaced, mutilated, destroyed or paid on forged endorsements.

    (a) When an intermediary or carrier is notified by a payee that a 
check has been lost, stolen, defaced, mutilated, destroyed, or paid on 
forged endorsement, the intermediary or carrier contacts the commercial 
bank on whose paper the check was drawn and determines whether the check 
has been negotiated.
    (b) If the check has been negotiated--
    (1) The intermediary or carrier provides the payee with a copy of 
the check and other pertinent information (such as a claim form, 
affidavit or questionnaire to be completed by the payee) required to 
pursue his or her claim in accordance with State law and commercial 
banking regulations.
    (2) To pursue the claim, the payee must examine the check and 
certify (by completing the claim form, questionnaire or affidavit) that 
the endorsement is not the payee's.
    (3) The claim form and other pertinent information is sent to the 
intermediary or carrier for review and processing of the claim.
    (4) The intermediary or carrier reviews the payee's claim. If the 
intermediary or carrier determines that the claim appears to be valid, 
it forwards the claim and a copy of the check to the issuing bank. The 
intermediary or carrier takes further action to recover the proceeds of 
the check in accordance with the State law and regulations.
    (5) Once the intermediary or carrier recovers the proceeds of the 
initial check, the intermediary or carrier issues a replacement check to 
the payee.
    (6) If the bank of first deposit refuses to settle on the check for 
good cause, the payee must pursue the claim on his or her own and the 
intermediary or carrier will not reissue the check to the payee.
    (c) If the check has not been negotiated--
    (1) The intermediary or carrier arranges with the bank to stop 
payment on the check; and
    (2) Except as provided in paragraph (d), the intermediary or carrier 
reissues the check to the payee.
    (d) No check may be reissued under (c)(2) unless the claim for a 
replacement check is received by the intermediary or carrier no later 
than 1 year from the date of issuance of the original check, unless 
State law (including any applicable Federal banking laws or regulations 
that may affect the relevant State proceeding) provides a longer period 
which will control.

[58 FR 65130, Dec. 13, 1993]

Subparts N-O [Reserved]



Subpart P_Requirements for Establishing and Maintaining Medicare Billing 
                               Privileges

    Source: 71 FR 20776, Apr. 21, 2006, unless otherwise noted.



Sec. 424.500  Scope.

    The provisions of this subpart contain the requirements for 
enrollment, periodic resubmission and certification of enrollment 
information for revalidation, and timely reporting of updates and 
changes to enrollment information. These requirements apply to all 
providers and suppliers except for physicians and practitioners who have 
entered into a private contract with a beneficiary as described in part 
405, subpart D of this chapter. Providers and suppliers must meet and 
maintain

[[Page 486]]

these enrollment requirements to bill either the Medicare program or its 
beneficiaries for Medicare covered services or supplies.



Sec. 424.502  Definitions.

    As used in this subpart, unless the context indicates otherwise--
    Approve/Approval means the enrolling provider or supplier has been 
determined to be eligible under Medicare rules and regulations to 
receive a Medicare billing number and be granted Medicare billing 
privileges.
    Authorized official means an appointed official (for example, chief 
executive officer, chief financial officer, general partner, chairman of 
the board, or direct owner) to whom the organization has granted the 
legal authority to enroll it in the Medicare program, to make changes or 
updates to the organization's status in the Medicare program, and to 
commit the organization to fully abide by the statutes, regulations, and 
program instructions of the Medicare program.
    Deactivate means that the provider or supplier's billing privileges 
were stopped, but can be restored upon the submission of updated 
information.
    Delegated official means an individual who is delegated by the 
``Authorized Official,'' the authority to report changes and updates to 
the enrollment record. The delegated official must be an individual with 
ownership or control interest in, or be a W-2 managing employee of the 
provider or supplier.
    Deny/Denial means the enrolling provider or supplier has been 
determined to be ineligible to receive Medicare billing privileges for 
Medicare covered items or services provided to Medicare beneficiaries.
    Enroll/Enrollment means the process that Medicare uses to establish 
eligibility to submit claims for Medicare covered services and supplies. 
The process includes--
    (1) Identification of a provider or supplier;
    (2) Validation of the provider's or supplier's eligibility to 
provide items or services to Medicare beneficiaries;
    (3) Identification and confirmation of the provider or supplier's 
practice location(s) and owner(s); and
    (4) Granting the provider or supplier Medicare billing privileges.
    Enrollment application means a CMS-approved paper enrollment 
application or an electronic Medicare enrollment process approved by 
OMB.
    Managing employee means a general manager, business manager, 
administrator, director, or other individual that exercises operational 
or managerial control over, or who directly or indirectly conducts, the 
day-to-day operation of the provider or supplier, either under contract 
or through some other arrangement, whether or not the individual is a W-
2 employee of the provider or supplier.
    Operational means the provider or supplier has a qualified physical 
practice location, is open to the public for the purpose of providing 
health care related services, is prepared to submit valid Medicare 
claims, and is properly staffed, equipped, and stocked (as applicable, 
based on the type of facility or organization, provider or supplier 
specialty, or the services or items being rendered), to furnish these 
items or services.
    Owner means any individual or entity that has any partnership 
interest in, or that has 5 percent or more direct or indirect ownership 
of the provider or supplier as defined in sections 1124 and 1124A(A) of 
the Act.
    Reject/Rejected means that the provider or supplier's enrollment 
application was not processed due to incomplete information, or that 
additional information or corrected information was not received from 
the provider or supplier in a timely manner.
    Revoke/Revocation means that the provider or supplier's billing 
privileges are terminated.



Sec. 424.505  Basic enrollment requirement.

    To receive payment for covered Medicare items or services from 
either Medicare (in the case of an assigned claim) or a Medicare 
beneficiary (in the case of an unassigned claim), a provider or supplier 
must be enrolled in the Medicare program. Once enrolled, the provider or 
supplier receives billing privileges and is issued a valid billing 
number effective for the date a claim was submitted for an item that was

[[Page 487]]

furnished or a service that was rendered. (See 45 CFR Part 162 for 
information on the National Provider Identifier and its use as the 
Medicare billing number.)



Sec. 424.510  Requirements for enrolling in the Medicare program.

    (a) Providers and suppliers must submit enrollment information on 
the applicable enrollment application. Once the provider or supplier 
successfully completes the enrollment process, including, if applicable, 
a State survey and certification or accreditation process, CMS enrolls 
the provider or supplier into the Medicare program. To be enrolled, a 
provider or supplier must meet enrollment requirements specified in 
paragraph (c) of this section.
    (b) The effective dates for reimbursement are specified in Sec. 
489.13 of this chapter for providers and suppliers requiring State 
survey or certification or accreditation, Sec. 424.5 and Sec. 424.44 
for non-surveyed or certified/accredited suppliers, and Sec. 424.57 and 
section 1834(j)(1)(A) of the Act for DMEPOS suppliers.
    (c) The effective date for reimbursement for providers and suppliers 
seeking accreditation from a CMS-approved accreditation organization as 
specified in Sec. 489.13(d).
    (d) Providers and suppliers must meet the following enrollment 
requirements:
    (1) Submittal of the enrollment application. A provider or supplier 
must submit a complete enrollment application and supporting 
documentation to the designated Medicare fee-for-service contractor.
    (2) Content of the enrollment application. Each submitted enrollment 
application must include the following:
    (i) Complete, accurate, and truthful responses to all information 
requested within each section as applicable to the provider or supplier 
type.
    (ii) Submission of all documentation required by CMS under this or 
other statutory or regulatory authority, or under the Paperwork 
Reduction Act of 1995, to uniquely identify the provider or supplier. 
This documentation may include, but is not limited to, proof of the 
legal business name, practice location, social security number (SSN), 
tax identification number (TIN), National Provider Identifier (NPI), if 
issued, and owners of the business.
    (iii) Submission of all documentation, including all applicable 
Federal and State licensure and regulatory requirements that apply to 
the specific provider or supplier type that relate to providing health 
care services, required by CMS under this or other statutory or 
regulatory authority, or under the Paperwork Reduction Act of 1995, to 
establish the provider or supplier's eligibility to furnish Medicare 
covered items or services to beneficiaries in the Medicare program.
    (3) Signature(s) required on the enrollment application. The 
certification statement found on the enrollment application must be 
signed by an individual who has the authority to bind the provider or 
supplier, both legally and financially, to the requirements set forth in 
this chapter. This person must also have an ownership or control 
interest in the provider or supplier, as that term is defined in section 
1124(a)(3) of the Act, such as, the general partner, chairman of the 
board, chief financial officer, chief executive officer, president, or 
hold a position of similar status and authority within the provider or 
supplier organization. The signature attests that the information 
submitted is accurate and that the provider or supplier is aware of, and 
abides by, all applicable statutes, regulations, and program 
instructions.
    (i) Requirements. The signature requirements specified in paragraphs 
(d)(3)(i)(A) through (C) of this section outline who must sign the 
enrollment application for an enrolling provider or supplier. In the 
case of--
    (A) An individual practitioner, the applying practitioner.
    (B) A sole proprietorship, the applying sole proprietor.
    (C) A corporation, partnership, group, limited liability company, or 
other organization (hereafter referred to collectively in this section 
as an organization), an authorized official, as defined in Sec. 
424.502. When an authorized official signs the certification statement 
on behalf of an organization, the signed statement is considered legally 
binding upon the organization.

[[Page 488]]

    (ii) Delegation of authority. The original enrollment application 
submitted for an organization's initial enrollment and all subsequent 
enrollment applications submitted for periodic revalidation of the 
organization's enrollment data (as required to maintain enrollment in 
the Medicare program) must be signed by an authorized official. Any 
updates or changes reported outside of the initial enrollment or 
periodic revalidation process may be signed by a delegated official(s) 
of the organization. The delegated official's signature binds the 
organization both legally and financially, as if the signature was that 
of the authorized official. Before the delegation of authority is 
established, the only acceptable signature on the enrollment application 
to report updates or changes to the enrollment information is that of 
the authorized official currently on file with Medicare. Once the 
delegation of authority is established, the only acceptable signatures 
on correspondence to report updates or changes to the enrollment 
information are those of the authorized official and the person(s) to 
whom this authority is delegated in accordance with the requirements 
described in this section. Individual practitioners and sole proprietors 
cannot delegate signature authority when submitting an enrollment 
application for any reason. All enrollment applications submitted by 
individual practitioners and sole proprietors must be signed by the 
enrolling or enrolled individual. Each delegation of authority to a 
delegated official must--
    (A) Be assigned by the authorized official currently on file with 
CMS;
    (B) Be submitted to CMS using the appropriate enrollment application 
or CMS established electronic enrollment process;
    (C) Include the title and SSN of each person delegated authority to 
update or change the organization's enrollment information;
    (D) Be an individual that has an ownership or control interest in 
the organization or is a W-2 managing employee as defined in section 
1126(b) of the Act; and
    (E) Be signed by the authorized official and the delegated 
official(s) of the organization.
    (4) Verification of information. The information submitted by the 
provider or supplier on the applicable enrollment application must be 
such that CMS can validate it for accuracy at the time of submission.
    (5) Completion of any applicable State surveys, certifications, and 
provider agreements. The providers or suppliers who are mandated under 
the provision in part 488 of this chapter to be surveyed or certified by 
the State survey and certification agency, and to also enter into and 
sign a provider agreement as outlined in part 489 of this chapter, must 
also meet those requirements as part of the process to obtain Medicare 
billing privileges.
    (6) Ability to furnish Medicare covered items or services. The 
provider or supplier must be operational to furnish Medicare covered 
items or services before being granted Medicare billing privileges.
    (7) Additional requirements. Providers and suppliers must meet the 
provisions of Sec. 424.520 regarding additional compliance and 
reporting requirements.
    (8) On-site review. CMS reserves the right, when deemed necessary, 
to perform on-site inspections of a provider or supplier to verify that 
the enrollment information submitted to CMS or its agents is accurate 
and to determine compliance with Medicare enrollment requirements. Site 
visits for enrollment purposes do not affect those site visits performed 
for establishing compliance with conditions of participation.
    (i) Medicare Part A providers. CMS determines, upon on-site review, 
that the provider is no longer operational to furnish Medicare covered 
items or services, or the provider fails to satisfy any of the Medicare 
enrollment requirements.
    (ii) Medicare Part B suppliers. CMS determines, upon review that the 
supplier is no longer operational to furnish Medicare covered items or 
services, or the supplier has failed to satisfy any or all of the 
Medicare enrollment requirements, or has failed to furnish Medicare 
covered items or services as required by the statute or regulations.

[[Page 489]]



Sec. 424.515  Requirements for reporting changes and updates to, and the periodic revalidation of Medicare enrollment information.

    To maintain Medicare billing privileges, a provider or supplier 
(other than a DMEPOS supplier) must resubmit and recertify the accuracy 
of its enrollment information every 5 years. All providers and suppliers 
currently billing the Medicare program or initially enrolling in the 
Medicare program are required to complete the applicable enrollment 
application. The provider or supplier then enters a 5-year revalidation 
cycle once a completed enrollment application is submitted and 
validated. (Ambulance service providers must continue to resubmit 
enrollment information in accordance with Sec. 410.41(c)(2) of this 
chapter and DMEPOS suppliers must continue to renew enrollment in 
accordance with Sec. 424.57(e)). The requirements for the resubmission, 
recertification and reverification of enrollment information include the 
following:
    (a) Submission of the enrollment application and supporting 
documentation. The provider or supplier must meet the submission, 
content, signature, verification, operational, inspection, and other 
requirements outlined in Sec. 424.510.
    (1) CMS contacts each provider or supplier directly when it is time 
to revalidate their enrollment information.
    (2) A provider or supplier must submit to CMS the applicable 
enrollment application with complete and accurate information and 
applicable supporting documentation within 60 calendar days of our 
notification to resubmit and certify to the accuracy of its enrollment 
information.
    (b) Completion of any applicable State surveys, certifications and 
provider agreements. A new certification and a new provider agreement 
are not required for the purpose of resubmission and certification for 
revalidation of enrollment information. Providers and suppliers must 
continue to meet the requirements of parts 488 and 489 of this chapter, 
or any currently established supplier agreement, if applicable.
    (c) On-site inspections. CMS reserves the right to perform on-site 
inspections of a provider or supplier to verify that the information 
submitted to CMS or its agents is accurate and to determine compliance 
with Medicare enrollment requirements. Site visits for enrollment 
purposes do not affect those site visits performed for establishing 
compliance with conditions of participation.
    (1) Medicare Part A providers. CMS determines, upon on-site review, 
that the provider is no longer operational to furnish Medicare covered 
items or services, or the provider fails to satisfy any of the Medicare 
enrollment requirements.
    (2) Medicare Part B suppliers. CMS determines, upon review that the 
supplier is no longer operational to furnish Medicare covered items or 
services, or the supplier has failed to satisfy any or all of the 
Medicare enrollment requirements, or has failed to furnish Medicare 
covered items or services as required by the statute or regulations.
    (d) Off Cycle revalidations. (1) CMS reserves the right to perform 
off cycle revalidations in addition to the regular 5-year revalidations 
and may request that a provider or supplier recertify the accuracy of 
the enrollment information when warranted to assess and confirm the 
validity of the enrollment information maintained by CMS. Off cycle 
revalidations may be triggered as a result of random checks, information 
indicating local health care fraud problems, national initiatives, 
complaints, or other reasons that cause CMS to question the compliance 
of the provider or supplier with Medicare enrollment requirements. Off 
cycle revalidations may be accompanied by site visits.
    (2) CMS reserve the right to adjust the routine 5-year revalidation 
schedule if we determine that revalidation should occur on a more 
frequent basis due to complaints or evidence we receive indicating 
noncompliance with the statute or regulations by specific provider or 
supplier types. The schedule may also be on a less frequent basis if we 
determine that the integrity of and compliance with the statute and 
regulations by specific provider or supplier types indicates that less 
frequent

[[Page 490]]

validation is justified. If a change occurs, CMS notifies all affected 
providers and suppliers at least 90 days in advance of implementing the 
change.
    (3) CMS revalidates enrollment information for ambulance service 
suppliers in accordance with Sec. 410.41(c)(2) of this chapter 
(Requirements for ambulance suppliers), and DMEPOS suppliers renews 
enrollment in accordance with Sec. 424.57(e) (Special payment rules for 
items furnished by DMEPOS suppliers and issuance of DMEPOS supplier 
billing numbers).



Sec. 424.520  Additional provider and supplier requirements for enrolling and maintaining active enrollment status in the Medicare program.

    (a) Certifying compliance. CMS enrolls and maintains an active 
enrollment status for a provider or supplier when that provider or 
supplier certifies that it meets, and continues to meet, and CMS 
verifies that it meets, and continues to meet, all of the following 
requirements:
    (1) Compliance with title XVIII of the Act and applicable Medicare 
regulations.
    (2) Compliance with Federal and State licensure, certification and 
regulatory requirements, as required, based on the type of services or 
supplies the provider or supplier type will furnish and bill Medicare.
    (3) Not employing or contracting with individuals or entities--
    (i) Excluded from participation in any Federal health care programs, 
for the provision of items and services covered under the programs, in 
violation of section 1128A (a)(6) of the Act; or
    (ii) Debarred by the General Services Administration (GSA) from any 
other Executive Branch procurement or nonprocurement programs or 
activities, in accordance with the Federal Acquisition and Streamlining 
Act of 1994, and with the HHS Common Rule at 45 CFR part 76.
    (b) Reporting requirements. Following enrollment, a provider or 
supplier must report to CMS any changes to the information furnished on 
the enrollment application and furnish supporting documentation within 
90 calendar days of the change, with the exception of DMEPOS suppliers 
which are required to report changes of information within 30 days as 
specified in Sec. 424.57(c)(2), or a change of ownership or control of 
the provider or supplier that must also be reported within 30 calendar 
days. Failure to do so may result in the deactivation or revocation of 
the provider or supplier's Medicare billing privileges.



Sec. 424.525  Rejection of a provider or supplier's enrollment application for Medicare enrollment.

    (a) Reasons for rejection. CMS may reject a provider or supplier's 
enrollment application for the following reasons:
    (1) The provider or supplier fails to furnish complete information 
on the provider/supplier enrollment application within 60 calendar days 
from the date of the contractor request for the missing information.
    (2) The provider or supplier fails to furnish all required 
supporting documentation within 60 calendar days of submitting the 
enrollment application.
    (b) Extension of 60-day period. CMS, at its discretion, may choose 
to extend the 60-day period if CMS determines that the provider or 
supplier is actively working with CMS to resolve any outstanding issues.
    (c) Resubmission after rejection. To enroll in Medicare and obtain 
Medicare billing privileges after notification of a rejected enrollment 
application, the provider or supplier must complete and submit a new 
enrollment application and submit all supporting documentation for CMS 
review and approval.
    (d) Additional review. Enrollment applications that are rejected are 
not afforded appeal rights.



Sec. 424.530  Denial of enrollment.

    (a) Reasons for denial. CMS may deny a provider's or supplier's 
enrollment in the Medicare program for the following reasons:
    (1) Compliance. The provider or supplier at any time is found not to 
be in compliance with the Medicare enrollment requirements described in 
this section or on the applicable enrollment application to the type of 
provider or supplier enrolling, and has not submitted a plan of 
corrective action as outlined in part 488 of this chapter.

[[Page 491]]

    (2) Provider or supplier conduct. A provider, supplier, an owner, 
managing employee, an authorized or delegated official, medical 
director, supervising physician, or other health care personnel 
furnishing Medicare reimbursable services who is required to be reported 
on the enrollment application, in accordance with section 1862(e)(1) of 
the Act, is--
    (i) Excluded from the Medicare, Medicaid and any other Federal 
health care programs, as defined in Sec. 1001.2 of this chapter, in 
accordance with section 1128, 1128A, 1156, 1842, 1862, 1867 or 1892 of 
the Act.
    (ii) Debarred, suspended, or otherwise excluded from participating 
in any other Federal procurement or nonprocurement activity in 
accordance with section 2455 of the Federal Acquisition Streamlining Act 
(FASA).
    (3) Felonies. If within the 10 years preceding enrollment or 
revalidation of enrollment, the provider, supplier, or any owner of the 
provider or supplier, was convicted of a Federal or State felony offense 
that CMS has determined to be detrimental to the best interests of the 
program and its beneficiaries. CMS considers the severity of the 
underlying offense.
    (i) Offenses include--(A) Felony crimes against persons, such as 
murder, rape, or assault, and other similar crimes for which the 
individual was convicted, including guilty pleas and adjudicated 
pretrial diversions.
    (B) Financial crimes, such as extortion, embezzlement, income tax 
evasion, insurance fraud and other similar crimes for which the 
individual was convicted, including guilty pleas and adjudicated 
pretrial diversions.
    (C) Any felony that placed the Medicare program or its beneficiaries 
at immediate risk (such as a malpractice suit that results in a 
conviction of criminal neglect or misconduct).
    (D) Any felonies outlined in section 1128 of the Act.
    (ii) Denials based on felony convictions are for a period to be 
determined by the Secretary, but not less than 10 years from the date of 
conviction if the individual has been convicted on one previous occasion 
for one or more offenses.
    (4) False or misleading information. The provider or supplier has 
submitted false or misleading information on the enrollment application 
to gain enrollment in the Medicare program. (Offenders may be referred 
to the Office of Inspector General for investigation and possible 
criminal, civil, or administrative sanctions.)
    (5) On-site review. Upon on-site review or other reliable evidence, 
we determine that the provider or supplier is not operational, or is not 
meeting Medicare enrollment requirements to furnish Medicare covered 
items or services. Upon on-site review, CMS determines that--
    (i) A Medicare Part A provider is no longer operational to furnish 
Medicare covered items or services, or the provider fails to satisfy any 
of the Medicare enrollment requirements.
    (ii) A Medicare Part B supplier is no longer operational to furnish 
Medicare covered items or services, or the supplier has failed to 
satisfy any or all of the Medicare enrollment requirements, or has 
failed to furnish Medicare covered items or services as required by the 
statute or regulations.
    (b) Resubmission after denial. A provider or supplier that is denied 
enrollment in the Medicare program cannot submit a new enrollment 
application until the following has occurred if the denial:
    (1) Was not appealed, the provider or supplier may reapply after its 
appeal rights have lapsed.
    (2) Was appealed, the provider or supplier may reapply after 
notification that the determination was upheld.
    (c) Reversal of denial. If the denial was due to adverse activity 
(sanction, exclusion, debt, felony) of an owner, managing employee, an 
authorized or delegated official, medical director, supervising 
physician, or other health care personnel of the provider or supplier 
furnishing Medicare reimbursable services, the denial may be reversed if 
the provider or supplier terminates and submits proof that it has 
terminated its business relationship with that individual or 
organization within 30 days of the denial notification.
    (d) Additional review. When a provider or supplier is denied 
enrollment in Medicare, CMS automatically reviews

[[Page 492]]

all other related Medicare enrollment files that the denied provider or 
supplier has an association with (for example, as an owner or managing 
employee) to determine if the denial warrants an adverse action of the 
associated Medicare provider or supplier.
    (e) Effective date of denial. Denial becomes effective within 30 
days of the initial denial notification.



Sec. 424.535  Revocation of enrollment and billing privileges in the Medicare program.

    (a) Reasons for revocation. CMS may revoke a currently enrolled 
provider or supplier's Medicare billing privileges and any corresponding 
provider agreement or supplier agreement for the following reasons:
    (1) Noncompliance. The provider or supplier is determined not to be 
in compliance with the enrollment requirements described in this section 
or in the enrollment application applicable for its provider or supplier 
type and has not submitted a plan of corrective action as outlined in 
part 488 of this chapter. All providers and suppliers are granted an 
opportunity to correct the deficient compliance requirement prior to a 
final determination to revoke billing privileges.
    (i) CMS may request additional documentation from the provider or 
supplier to determine compliance if adverse information is received or 
otherwise found concerning the provider or supplier.
    (ii) Requested additional documentation must be submitted within 60 
calendar days of request.
    (2) Provider or supplier conduct. The provider or supplier, or any 
owner, managing employee, authorized or delegated official, medical 
director, supervising physician, or other health care personnel of the 
provider or supplier is--
    (i) Excluded from the Medicare, Medicaid, and any other Federal 
health care program, as defined in Sec. 1001.2 of this chapter, in 
accordance with section 1128, 1128A, 1156, 1842, 1862, 1867 or 1892 of 
the Act.
    (ii) Is debarred, suspended, or otherwise excluded from 
participating in any other Federal procurement or nonprocurement program 
or activity in accordance with the FASA implementing regulations and the 
Department of Health and Human Services nonprocurement common rule at 45 
CFR part 76.
    (3) Felonies. The provider, supplier, or any owner of the provider 
or supplier, within the 10 years preceding enrollment or revalidation of 
enrollment, was convicted of a Federal or State felony offense that CMS 
has determined to be detrimental to the best interests of the program 
and its beneficiaries.
    (i) Offenses include--
    (A) Felony crimes against persons, such as murder, rape, assault, 
and other similar crimes for which the individual was convicted, 
including guilty pleas and adjudicated pretrial diversions.
    (B) Financial crimes, such as extortion, embezzlement, income tax 
evasion, insurance fraud and other similar crimes for which the 
individual was convicted, including guilty pleas and adjudicated 
pretrial diversions.
    (C) Any felony that placed the Medicare program or its beneficiaries 
at immediate risk, such as a malpractice suit that results in a 
conviction of criminal neglect or misconduct.
    (D) Any felonies that would result in mandatory exclusion under 
section 1128(a) of the Act.
    (ii) Denials based on felony convictions are for a period to be 
determined by the Secretary, but not less than 10 years from the date of 
conviction if the individual has been convicted on one previous occasion 
for one or more offenses.
    (4) False or misleading information. The provider or supplier 
certified as ``true'' misleading or false information on the enrollment 
application to be enrolled or maintain enrollment in the Medicare 
program. (Offenders may be subject to either fines or imprisonment, or 
both, in accordance with current law and regulations.)
    (5) On-site review. CMS determines, upon on-site review, that the 
provider or supplier is no longer operational to furnish Medicare 
covered items or services, or is not meeting Medicare enrollment 
requirements under statute or regulation to supervise treatment of, or 
to provide Medicare covered items or services for, Medicare patients.

[[Page 493]]

Upon on-site review, CMS determines that--
    (i) A Medicare Part A provider is no longer operational to furnish 
Medicare covered items or services, or the provider fails to satisfy any 
of the Medicare enrollment requirements.
    (ii) A Medicare Part B supplier is no longer operational to furnish 
Medicare covered items or services, or the supplier has failed to 
satisfy any or all of the Medicare enrollment requirements, or has 
failed to furnish Medicare covered items or services as required by the 
statute or regulations.
    (6) Inadequate reverification information. The provider or supplier 
fails to furnish complete and accurate information and all supporting 
documentation within 60 calendar days of the provider or supplier's 
notification from CMS to submit an enrollment application and supporting 
documentation, or resubmit and certify to the accuracy of its enrollment 
information.
    (7) Misuse of billing number. The provider or supplier knowingly 
sells to or allows another individual or entity to use its billing 
number. This does not include those providers or suppliers who enter 
into a valid reassignment of benefits as specified in Sec. 424.80 or a 
change of ownership as outlined in Sec. 489.18 of this chapter.
    (b) Effect of revocation on provider agreements. When a provider's 
or supplier's billing privilege is revoked, any provider agreement in 
effect at the time of revocation is terminated effective with the date 
of revocation.
    (c) Re-enrollment after revocation. If a provider or supplier seeks 
to re-establish enrollment in the Medicare program after notification 
that its billing privileges is revoked (either after the appeals process 
is exhausted or in place of the appeals process), the following 
conditions apply:
    (1) The provider or supplier must re-enroll in the Medicare program 
through the completion and submission of a new applicable enrollment 
application and applicable documentation, as a new provider or supplier, 
for validation by CMS.
    (2) Providers must be resurveyed and recertified by the State survey 
agency as a new provider and must establish a new provider agreement 
with CMS's Regional Office.
    (d) Reversal of revocation. If the revocation was due to adverse 
activity (sanction, exclusion, or felony) against an owner, managing 
employee, or an authorized or delegated official; or a medical director, 
supervising physician, or other personnel of the provider or supplier 
furnishing Medicare reimbursable services, the revocation may be 
reversed if the provider or supplier terminates and submits proof that 
it has terminated its business relationship with that individual within 
30 days of the revocation notification.
    (e) Additional review. When a provider or supplier is revoked from 
the Medicare program, CMS automatically reviews all other related 
Medicare enrollment files that the revoked provider or supplier has an 
association with (for example, as an owner or managing employee) to 
determine if the revocation warrants an adverse action of the associated 
Medicare provider or supplier.
    (f) Effective date of revocation. Revocation becomes effective 
within 30 days of the initial revocation notification.



Sec. 424.540  Deactivation of Medicare billing privileges.

    (a) Reasons for deactivation. CMS may deactivate a provider or 
supplier's Medicare billing privileges for the following reasons:
    (1) The provider or supplier does not submit any Medicare claims for 
12 consecutive calendar months. The 12 month period will begin the 1st 
day of the 1st month without a claims submission through the last day of 
the 12th month without a submitted claim.
    (2) The provider or supplier does not report a change to the 
information supplied on the enrollment application within 90 calendar 
days of when the change occurred. Changes that must be reported include, 
but are not limited to, a change in practice location, a change of any 
managing employee, and a change in billing services. A change in 
ownership or control must be reported within 30 calendar days as 
specified in Sec. 424.520(b) and Sec. 424.550(b).
    (b) Reactivation of billing privileges. (1) When deactivated for any 
reason other than nonsubmission of a claim, the provider or supplier 
must complete and

[[Page 494]]

submit a new enrollment application to reactivate its Medicare billing 
privileges or, when deemed appropriate, at a minimum, recertify that the 
enrollment information currently on file with Medicare is correct.
    (2) Providers and suppliers deactivated for nonsubmission of a claim 
are required to recertify that the enrollment information currently on 
file with Medicare is correct and furnish any missing information as 
appropriate. The provider or supplier must meet all current Medicare 
requirements in place at the time of reactivation, and be prepared to 
submit a valid Medicare claim.
    (3) Reactivation of Medicare billing privileges does not require a 
new certification of the provider or supplier by the State survey agency 
or the establishment of a new provider agreement.
    (c) Effect of deactivation. Deactivation of Medicare billing 
privileges is considered an action to protect the provider or supplier 
from misuse of its billing number and to protect the Medicare Trust 
Funds from unnecessary overpayments. The deactivation of Medicare 
billing privileges does not have any effect on a provider or supplier's 
participation agreement or any conditions of participation.



Sec. 424.545  Provider and supplier appeal rights.

    (a) A provider or supplier that is denied enrollment in the Medicare 
program or whose Medicare enrollment has been revoked may appeal CMS' 
decision in accordance with part 405, subpart H, for suppliers, or part 
498, subpart A for providers, of this chapter, which set forth the 
appeals process for providers and suppliers. When revocation of billing 
privileges also results in the termination of a corresponding provider 
agreement, the provider may appeal CMS' decision in accordance with part 
498 of this chapter with the final decision of the appeal applying to 
both the billing privileges and the provider agreement. Payment is not 
made during the appeals process. If the provider or supplier is 
successful in overturning a denial or revocation, unpaid claims for 
services furnished during the overturned period may be resubmitted.
    (b) A provider or supplier whose billing privileges are deactivated 
may file a rebuttal in accordance with Sec. 405.374 of this chapter.
    (c) The provider or supplier must be able to demonstrate that it 
meets the enrollment requirements and it must be able to make available 
any documents and records that support the provisions of this regulation 
and the Medicare enrollment application if requested by CMS or its 
agents.



Sec. 424.550  Prohibitions on the sale or transfer of billing privileges.

    (a) General rule. A provider or supplier is prohibited from selling 
its Medicare billing number or privileges to any individual or entity, 
or allowing another individual or entity to use its Medicare billing 
number.
    (b) Change of ownership. In the case of a provider undergoing a 
change of ownership in accordance with part 489, subpart A of this 
chapter, the current owner and the prospective new owner must complete 
and submit enrollment applications before completion of the change of 
ownership. If the current owner fails to complete and submit an 
enrollment application to report the change, the current owner may be 
sanctioned or penalized, even after the date of ownership change, in 
accordance with Sec. 424.520, Sec. 424.540, and Sec. 489.53 of this 
chapter. If the prospective new owner fails to submit a new enrollment 
application containing information concerning the new owner within 30 
days of the change of ownership, CMS may deactivate the Medicare billing 
number. If an incomplete enrollment application is submitted, CMS may 
also deactivate the Medicare billing number based upon material 
omissions on the submitted enrollment application, or based on 
preliminary information received or determined by CMS that makes CMS 
question whether the new owner is ultimately granted a final 
transference of the provider agreement.
    (c) Suppliers not covered by part 489 of this chapter. For those 
suppliers not covered by part 489 of this chapter, any change in the 
ownership or control of that supplier must be reported on the enrollment 
application within 30 days of the change as noted in Sec. 
424.540(a)(2). Generally, a change of ownership that

[[Page 495]]

also changes the tax identification number requires the completion and 
submission of a new enrollment application from the new owner.



Sec. 424.555  Payment liability.

    (a) No payment may be made for otherwise Medicare covered items or 
services furnished to a Medicare beneficiary by suppliers of durable 
medical equipment, prosthetics, orthotics, and other supplies unless the 
supplier obtains (and renews, as set forth in section 1834(j) of the 
Act) Medicare billing privileges.
    (b) No payment may be made for otherwise Medicare covered items or 
services furnished to a Medicare beneficiary by a provider or supplier 
if the billing privileges of the provider or supplier are deactivated, 
denied, or revoked. The Medicare beneficiary has no financial 
responsibility for expenses, and the provider or supplier must refund on 
a timely basis to the Medicare beneficiary any amounts collected from 
the Medicare beneficiary for these otherwise Medicare covered items or 
services.
    (c) If any provider or supplier furnishes an otherwise Medicare 
covered item or service for which payment may not be made by reason of 
paragraph (b) of this section, any expense incurred for such otherwise 
Medicare covered item or service shall be the responsibility of the 
provider or supplier. The provider or supplier may also be criminally 
liable for pursuing payments that may not be made by reason of paragraph 
(b) of this section, in accordance with section 1128B(a)(3) of the Act.



PART 426_REVIEW OF NATIONAL COVERAGE DETERMINATIONS AND LOCAL COVERAGE DETERMINATIONS--Table of Contents




                      Subpart A_General Provisions

Sec.
426.100 Basis and scope.
426.110 Definitions.
426.120 Calculation of deadlines.
426.130 Party submissions.

Subpart B [Reserved]

      Subpart C_General Provisions for the Review of LCDs and NCDs

426.300 Review of LCDs, NCDs, and deemed NCDs.
426.310 LCD and NCD reviews and individual claim appeals.
426.320 Who may challenge an LCD or NCD.
426.325 What may be challenged.
426.330 Burden of proof.
426.340 Procedures for review of new evidence.

                       Subpart D_Review of an LCD

426.400 Procedure for filing an acceptable complaint concerning a 
          provision (or provisions) of an LCD.
426.403 Submitting new evidence once an acceptable complaint is filed.
426.405 Authority of the ALJ.
426.406 Ex parte contacts.
426.410 Docketing and evaluating the acceptability of LCD complaints.
426.415 CMS' role in the LCD review.
426.416 Role of Medicare Managed Care Organizations (MCOs) and State 
          agencies in the LCD review.
426.417 Contractor's statement regarding new evidence.
426.418 LCD record furnished to the aggrieved party.
426.419 LCD record furnished to the ALJ.
426.420 Retiring or revising an LCD under review.
426.423 Withdrawing a complaint regarding an LCD under review.
426.425 LCD review.
426.431 ALJ's review of the LCD to apply the reasonableness standard.
426.432 Discovery.
426.435 Subpoenas.
426.440 Evidence.
426.444 Dismissals for cause.
426.445 Witness fees.
426.446 Record of hearing.
426.447 Issuance and notification of an ALJ's decision.
426.450 Mandatory provisions of an ALJ's decision.
426.455 Prohibited provisions of an ALJ's decision.
426.457 Optional provisions of an ALJ's decision.
426.458 ALJ's LCD review record.
426.460 Effect of an ALJ's decision.
426.462 Notice of an ALJ's decision.
426.463 Future new or revised LCDs.
426.465 Appealing part or all of an ALJ's decision.
426.468 Decision to not appeal an ALJ's decision.
426.470 Board's role in docketing and evaluating the acceptability of 
          appeals of ALJ decisions.
426.476 Board review of an ALJ's decision.

[[Page 496]]

426.478 Retiring or revising an LCD during the Board's review of an 
          ALJ's decision.
426.480 Withdrawing an appeal of an ALJ's decision.
426.482 Issuance and notification of a Board decision.
426.484 Mandatory provisions of a Board decision.
426.486 Prohibited provisions of a Board decision.
426.487 Board's record on appeal of an ALJ's decision.
426.488 Effect of a Board decision.
426.489 Board remands.
426.490 Board decision.

                       Subpart E_Review of an NCD

426.500 Procedure for filing an acceptable complaint concerning a 
          provision (or provisions) of an NCD.
426.503 Submitting new evidence once an acceptable complaint is filed.
426.505 Authority of the Board.
426.506 Ex parte contacts.
426.510 Docketing and evaluating the acceptability of NCD complaints.
426.513 Participation as amicus curiae.
426.515 CMS' role in making the NCD record available.
426.516 Role of Medicare Managed Care Organizations (MCOs) and State 
          agencies in the NCD review process.
426.517 CMS' statement regarding new evidence.
426.518 NCD record furnished to the aggrieved party.
426.519 NCD record furnished to the Board.
426.520 Withdrawing an NCD under review or issuing a revised or 
          reconsidered NCD.
426.523 Withdrawing a complaint regarding an NCD under review.
426.525 NCD review.
426.531 Board's review of the NCD to apply the reasonableness standard.
426.532 Discovery.
426.535 Subpoenas.
426.540 Evidence.
426.544 Dismissals for cause.
426.545 Witness fees.
426.546 Record of hearing.
426.547 Issuance, notification, and posting of a Board's decision.
426.550 Mandatory provisions of the Board's decision.
426.555 Prohibited provisions of the Board's decision.
426.557 Optional provisions of the Board's decision.
426.560 Effect of the Board's decision.
426.562 Notice of the Board's decision.
426.563 Future new or revised or reconsidered NCDs.
426.565 Board's role in making an LCD or NCD review record available.
426.566 Board decision.
426.587 Record for appeal of a Board NCD decision.

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 
1302 and 1395hh)

    Source: 68 FR 63716, Nov. 7, 2003, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 426.100  Basis and scope.

    (a) Basis. This part implements sections 1869(f)(1) and (f)(2) of 
the Act, which provide for the review of LCDs, NCDs, and certain 
determinations that are deemed to be NCDs by statute.
    (b) Scope. This subpart establishes the requirements and procedures 
for the review of LCDs and NCDs.



Sec. 426.110  Definitions.

    For the purposes of this part, the following definitions apply:
    Aggrieved party means a Medicare beneficiary, or the estate of a 
Medicare beneficiary, who--
    (1) Is entitled to benefits under Part A, enrolled under Part B, or 
both (including an individual enrolled in fee-for-service Medicare, in a 
Medicare+Choice plan, or in another Medicare managed care plan);
    (2) Is in need of coverage for a service that is denied based on an 
applicable LCD (in the relevant jurisdiction) or an NCD, regardless of 
whether the service was received; and
    (3) Has obtained documentation of the need by the beneficiary's 
treating physician.
    Board means the Departmental Appeals Board.
    Clinical and scientific experts mean experts that are consulted by 
the ALJ or Board as independent and impartial individuals, with 
significant experience and/or published work, pertaining to the subject 
of the review.
    Contractor means a carrier (including a Durable Medical Equipment 
Regional Carrier), or a fiscal intermediary (including a Regional Home 
Health Intermediary) that has jurisdiction for the LCD at issue.
    Deemed NCD means a determination that the Secretary makes, in 
response to a request for an NCD under section 1869(f)(4)(B) and (C) of 
the Act, that no

[[Page 497]]

national coverage or noncoverage determination is appropriate, or the 
Secretary's failure to meet the deadline under section 1869(f)(4)(A)(iv) 
of the Act.
    New evidence means clinical or scientific evidence that was not 
previously considered by the contractor or CMS before the LCD or NCD was 
issued.
    Party means an aggrieved party, which is an individual, or estate 
who has a right to participate in the LCD or NCD review process, and, as 
appropriate, a contractor or CMS.
    Proprietary data and Privileged information means information from a 
source external to CMS or a contractor, or protected health information, 
that meets the following criteria:
    (1) It is ordinarily protected from disclosure in accordance with 45 
CFR part 164, under the Trade Secrets Act (18 U.S.C. 1905) or under 
Exemptions 4 or 5 of the Freedom of Information Act (5 U.S.C. 552) as 
specified in 45 CFR 5.65.
    (2) The party who possesses the right to protection of the 
information from public release or disclosure has not provided its 
consent to the public release or disclosure of the information. Any 
information submitted by the public that is not marked proprietary is 
not considered proprietary.
    Reasonableness standard means the standard that an ALJ or the Board 
must apply when conducting an LCD or an NCD review. In determining 
whether LCDs or NCDs are valid, the adjudicator must uphold a challenged 
policy (or a provision or provisions of a challenged policy) if the 
findings of fact, interpretations of law, and applications of fact to 
law by the contractor or CMS are reasonable based on the LCD or NCD 
record and the relevant record developed before the ALJ or the Board.
    Supplemental LCD/NCD record is a record that the contractor/CMS 
provides to the ALJ/Board and any aggrieved party and consists of all 
materials received and considered during a reconsideration. Materials 
that are already in the record before the ALJ/Board (for example, new 
evidence presented in the taking of evidence or hearing) need not be 
provided but may be incorporated by reference in the supplement to the 
LCD/NCD record. The contractor/CMS may provide statements, evidence, or 
other submissions to the ALJ/Board during the proceedings, as provided 
elsewhere in these regulations, but these submissions are not considered 
as supplementing the LCD/NCD record.
    Treating physician means the physician who is the beneficiary's 
primary clinician with responsibility for overseeing the beneficiary's 
care and either approving or providing the service at issue in the 
challenge.



Sec. 426.120  Calculation of deadlines.

    In counting days, Saturdays, Sundays, and Federal holidays are 
included. If a due date falls on a Saturday, Sunday, or Federal holiday, 
the due date is the next Federal working day.



Sec. 426.130  Party submissions.

    Any party submitting material, except for material for which a 
privilege is asserted, or proprietary data, to the ALJ or the Board 
after that party's initial challenge must serve the material on all 
other parties at the same time.

Subpart B [Reserved]



      Subpart C_General Provisions for the Review of LCDs and NCDs



Sec. 426.300  Review of LCDs, NCDs, and deemed NCDs.

    (a) Upon the receipt of an acceptable LCD complaint as described in 
Sec. 426.400, an ALJ conducts a review of a challenged provision (or 
provisions) of an LCD using the reasonableness standard.
    (b) Upon the receipt of an acceptable NCD complaint as described in 
Sec. 426.500, the Board conducts an NCD review of a challenged 
provision (or provisions) of an NCD using the reasonableness standard.
    (c) The procedures established in this part governing the review of 
NCDs also apply in cases in which a deemed NCD is challenged.



Sec. 426.310  LCD and NCD reviews and individual claim appeals.

    (a) LCD and NCD reviews are distinct from the claims appeal 
processes set

[[Page 498]]

forth in part 405, subparts G and H; part 417, subpart Q; and part 422, 
subpart M of this chapter.
    (b) An aggrieved party must notify the ALJ or the Board, as 
appropriate, regarding the submission and disposition of any pending 
claim or appeal relating to the subject of the aggrieved party's LCD or 
NCD complaint. This reporting obligation continues through the entire 
LCD or NCD review process.



Sec. 426.320  Who may challenge an LCD or NCD.

    (a) Only an aggrieved party may initiate a review of an LCD or NCD 
(including a deemed NCD), or provisions of an LCD or NCD by filing an 
acceptable complaint.
    (b) Neither an ALJ nor the Board recognizes as valid any attempt to 
assign rights to request review under section 1869(f) of the Act.



Sec. 426. 325  What may be challenged.

    (a) Only LCDs or NCDs (including deemed NCDs) that are currently 
effective may be challenged.
    (b) Some items are not reviewable under this part, including the 
following:
    (1) Pre-decisional materials, including--
    (i) Draft LCDs;
    (ii) Template LCDs or suggested LCDs; and
    (iii) Draft NCDs, including national coverage decision memoranda.
    (2) Retired LCDs or withdrawn NCDs.
    (3) LCD or NCD provisions that are no longer in effect due to 
revisions or reconsiderations.
    (4) Interpretive policies that are not an LCD or NCD.
    (5) Contractor decisions that are not based on section 1862(a)(1)(A) 
of the Act.
    (6) Contractor claims processing edits.
    (7) Payment amounts or methodologies.
    (8) Procedure coding issues, including determinations, 
methodologies, definitions, or provisions.
    (9) Contractor bulletin articles, educational materials, or Web site 
frequently asked questions.
    (10) Any M+C organization or managed care plan policy, rule, or 
procedure.
    (11) An individual claim determination.
    (12) Any other policy that is not an LCD or an NCD as set forth in 
Sec. 400.202 of this chapter.



Sec. 426.330  Burden of proof.

    During an LCD or NCD review, an aggrieved party bears the burden of 
proof and the burden of persuasion for the issue(s) raised in a 
complaint. The burden of persuasion is judged by a preponderance of the 
evidence.



Sec. 426.340  Procedures for review of new evidence.

    (a) The process for review of new evidence is initiated once the 
ALJ/Board completes the taking of evidence.
    (b) If an aggrieved party has submitted new evidence pertaining to 
the LCD/NCD provision(s) in question, and the ALJ or the Board finds 
that evidence admissible, the ALJ or the Board reviews the record as a 
whole and decide whether the new evidence has the potential to 
significantly affect the ALJ's or the Board's evaluation of the LCD/NCD 
provision(s) in question under the reasonableness standard.
    (c) If the ALJ or the Board determines that the new evidence does 
not have the potential to significantly affect the ALJ's or the Board's 
evaluation of the LCD/NCD provision(s) in question under the 
reasonableness standard, this evidence is included in the review record, 
and the review goes forward to a decision on the merits.
    (d) If the ALJ or the Board determines that the new evidence has the 
potential to significantly affect the ALJ's or the Board's evaluation of 
the LCD or NCD provision(s) in question under the reasonableness 
standard, then the ALJ or the Board--
    (1) Stays the proceedings and ensures that the contractor or CMS, 
whichever is appropriate, has a copy of the new evidence for its 
examination; and
    (2) Allows the contractor/CMS 10 days, generally, to examine the new 
evidence, and to decide whether the contractor or CMS initiates a 
reconsideration.

[[Page 499]]

    (e) If the contractor or CMS informs the ALJ or the Board by the end 
of the 10 days that a reconsideration is initiated, and then the ALJ or 
the Board--
    (1) Continues the stay in proceedings; and
    (2) Sets a reasonable timeframe--
    (i) For LCDs, of not more than 90 days, by which the contractor 
completes the reconsideration; or
    (ii) For NCDs, in compliance with the timeframes specified in 
section 1862(1) of the Act, by which CMS completes the reconsideration.
    (f) The ALJ or Board lifts the stay in proceedings and continues the 
review on the challenged provision(s) of the original LCD or NCD, 
including the new evidence in the review record, if the contractor or 
CMS--
    (1) Informs the ALJ or Board that a reconsideration is not 
initiated; or
    (2) Does not meet--
    (i) For LCDs, the 90-day reconsideration timeframe; or
    (ii) For NCDs, the reconsideration timeframe specified by the Board, 
in compliance with section 1862(l) of the Act.
    (g) If an LCD or NCD is reconsidered and revised within the 
timeframe allotted by the ALJ or Board, then the revised LCD or NCD and 
any supplement to the LCD or NCD record is forwarded to the ALJ or the 
Board and all parties and the review proceeds on the LCD or NCD.

[68 FR 63716, Nov. 7, 2003, as amended at 70 FR 70335, Nov. 21, 2005; 71 
FR 9461, Feb. 24, 2006]



                       Subpart D_Review of an LCD



Sec. 426.400  Procedure for filing an acceptable complaint concerning a provision (or provisions) of an LCD.

    (a) The complaint. An aggrieved party may initiate a review of an 
LCD by filing a written complaint with the office designated by CMS on 
the Medicare Web site, http://www.medicare.gov/coverage/static/
appeals.asp.
    (b) Timeliness of a complaint. An LCD complaint is not considered 
timely unless it is filed with the office designated by CMS within--
    (1) 6 months of the issuance of a written statement from each 
aggrieved party's treating practitioner, in the case of aggrieved 
parties who choose to file an LCD challenge before receiving the 
service; or
    (2) 120 days of the initial denial notice, in the case of aggrieved 
parties who choose to file an LCD challenge after receiving the service.
    (c) Components of a valid complaint. A complaint must include the 
following:
    (1) Beneficiary-identifying information:
    (i) Name.
    (ii) Mailing address.
    (iii) State of residence, if different from mailing address.
    (iv) Telephone number, if any.
    (v) Health Insurance Claim number, if applicable.
    (vi) E-mail address, if applicable.
    (2) If the beneficiary has a representative, the representative-
identifying information must include the following:
    (i) Name.
    (ii) Mailing address.
    (iii) Telephone number.
    (iv) E-mail address, if any.
    (v) Copy of the written authorization to represent the beneficiary.
    (3) Treating physician written statement. A copy of a written 
statement from the treating physician that the beneficiary needs the 
service that is the subject of the LCD. This statement may be in the 
form of a written order for the service or other documentation from the 
beneficiary's medical record (such as progress notes or discharge 
summary) indicating that the beneficiary needs the service.
    (4) LCD-identifying information:
    (i) Name of the contractor using the LCD.
    (ii) Title of LCD being challenged.
    (iii) The specific provision (or provisions) of the LCD adversely 
affecting the aggrieved party.
    (5) Aggrieved party statement. A statement from the aggrieved party 
explaining what service is needed and why the aggrieved party thinks 
that the provision(s) of the LCD is (are) not valid under the 
reasonableness standard.
    (6) Clinical or scientific evidence. (i) Copies of clinical or 
scientific evidence that support the complaint and an explanation for 
why the aggrieved party thinks that this evidence shows that the LCD is 
not reasonable.
    (ii) Any documents or portions of documents that include proprietary

[[Page 500]]

data must be marked ``proprietary data,'' and include a legal basis for 
that assertion.
    (iii) Proprietary data submitted by a manufacturer concerning a drug 
or device for which the manufacturer has submitted information to the 
Food and Drug Administration, must be considered and given substantive 
weight only when supported by an affidavit certifying that the 
submission contains true and correct copies of all data submitted by the 
manufacturer to the Food and Drug Administration in relation to that 
drug or device.
    (d) Joint complaints--(1) Conditions for a joint complaint. Two or 
more aggrieved parties may initiate the review of an LCD by filing a 
single written complaint with the ALJ if all of the following conditions 
are met:
    (i) Each aggrieved party named in the joint complaint has a similar 
medical condition or there are other bases for combining the complaints.
    (ii) Each aggrieved party named in the joint complaint is filing the 
complaint in regard to the same provision(s) of the same LCD.
    (2) Components of a valid joint complaint. A joint complaint must 
contain the following information:
    (i) The beneficiary-identifying information described in paragraph 
(c)(1) of this section for each aggrieved party named in the joint 
complaint.
    (ii) The LCD-identifying information described in paragraph (c)(2) 
of this section.
    (iii) The documentation described in paragraphs (c)(3) and (c)(4) of 
this section.
    (3) Timeliness of a joint complaint. Aggrieved parties, who choose 
to seek review of an LCD--
    (i) Before receiving the service, must file with the ALJ a joint 
complaint within 6 months of the written statement from each aggrieved 
party's treating physician.
    (ii) After receiving the service, must file with the ALJ a complaint 
within 120 days of each aggrieved party's initial denial notice.



Sec. 426.403  Submitting new evidence once an acceptable complaint is filed.

    Once an acceptable complaint is filed, the aggrieved party may 
submit additional new evidence without withdrawing the complaint until 
the ALJ closes the record.



Sec. 426.405  Authority of the ALJ.

    (a) An ALJ conducts a fair and impartial hearing, avoids unnecessary 
delay, maintains order, and ensures that all proceedings are recorded.
    (b) An ALJ defers only to reasonable findings of fact, reasonable 
interpretations of law, and reasonable applications of fact to law by 
the Secretary.
    (c) The ALJ has the authority to do any of the following:
    (1) Review complaints by an aggrieved party (or aggrieved parties).
    (2) Dismiss complaints that fail to comply with Sec. 426.400.
    (3) Set and change the date, time, and place of a hearing upon 
reasonable notice to the parties.
    (4) Continue or recess a hearing for a reasonable period of time.
    (5) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding.
    (6) Consult with scientific and clinical experts on his or her own 
motion concerning clinical or scientific evidence.
    (7) Set schedules for submission of exhibits and written reports of 
experts.
    (8) Administer oaths and affirmations.
    (9) Examine witnesses.
    (10) Issue subpoenas requiring the attendance of witnesses at 
hearings as permitted by this part.
    (11) Issue subpoenas requiring the production of existing documents 
before, and relating to, the hearing as permitted by this part.
    (12) Rule on motions and other procedural matters.
    (13) Stay the proceedings in accordance with Sec. 426.340.
    (14) Regulate the scope and timing of documentary discovery as 
permitted by this part.
    (15) Regulate the course of a hearing and the conduct of 
representatives, parties, and witnesses.

[[Page 501]]

    (16) Receive, rule on, exclude, or limit evidence, as provided in 
Sec. 426.340.
    (17) Take official notice of facts, upon motion of a party.
    (18) Decide cases, upon the motion of a party, by summary judgment 
when there is no disputed issue of material fact.
    (19) Conduct any conference, argument, or hearing in person or, upon 
agreement of the parties, by telephone, picture-tel, or any other means.
    (20) Issue decisions.
    (21) Exclude a party from an LCD review for failure to comply with 
an ALJ order or procedural request without good cause shown.
    (22) Stay the proceedings for a reasonable time when all parties 
voluntarily agree to mediation or negotiation, and provide mediation 
services upon request.
    (d) The ALJ does not have authority to do any of the following under 
this part:
    (1) Conduct an LCD review or conduct LCD hearings on his or her own 
motion or on the motion of a nonaggrieved party.
    (2) Issue a decision based on any new evidence without following 
Sec. 426.340, regarding procedures for review of new evidence.
    (3) Review any decisions by contractors to develop a new or revised 
LCD.
    (4) Conduct a review of any draft, retired, archived, template, or 
suggested LCDs.
    (5) Conduct a review of any policy that is not an LCD, as defined in 
Sec. 400.202 of this chapter.
    (6) Conduct a review of any NCD according to section 
1869(f)(1)(A)(i) of the Act.
    (7) Conduct a review of the merits of an unacceptable LCD complaint 
as discussed in Sec. 426.410.
    (8) Allow participation by individuals or entities other than--
    (i) The aggrieved party and/or his/her representative;
    (ii) CMS and/or the contractor; and
    (iii) Experts called by the parties or the ALJ.
    (9) Compel the parties to participate in a mediation process or to 
engage in settlement negotiations.
    (10) Deny a request for withdrawal of a complaint by an aggrieved 
party.
    (11) Compel the contractor to conduct studies, surveys, or develop 
new information to support an LCD record.
    (12) Deny a contractor the right to reconsider, revise or retire an 
LCD.
    (13) Find invalid applicable Federal statutes, regulations, rulings, 
or NCDs.
    (14) Enter a decision specifying terms to be included in an LCD.



Sec. 426.406  Ex parte contacts.

    No party or person (except employees of the ALJ's office) 
communicates in any way with the ALJ on any substantive matter at issue 
in a case, unless on notice and opportunity for all parties to 
participate. This provision does not prohibit a person or party from 
inquiring about the status of a case or asking routine questions 
concerning administrative functions or procedures.



Sec. 426.410  Docketing and evaluating the acceptability of LCD complaints.

    (a) Docketing the complaint. The office designated by CMS does the 
following upon receiving a complaint regarding an LCD:
    (1) Dockets the complaint.
    (2) Determines whether the complaint is--
    (i) The first challenge to a particular LCD; or
    (ii) Related to a pending LCD review.
    (3) Forwards the complaint to the ALJ that conducts the review. In 
cases related to pending reviews, the complaint generally is forwarded 
to the ALJ who is conducting the review.
    (b) Evaluating the acceptability of the complaint. The ALJ assigned 
to the LCD review determines if the complaint is acceptable by 
confirming all of the following:
    (1) The complaint is being submitted by an aggrieved party or, in 
the case of a joint complaint, that each individual named in the joint 
complaint is an aggrieved party. (In determining if a complaint is 
acceptable, the ALJ assumes that the facts alleged by the treating 
physician's documentation regarding the aggrieved party's (or parties') 
clinical condition are true.)
    (2) The complaint meets the requirements for a valid complaint in 
Sec. 426.400 and does not challenge one of the documents in Sec. 
426.325(b).

[[Page 502]]

    (c) Unacceptable complaint. (1) If the ALJ determines that the 
complaint is unacceptable, the ALJ must provide the aggrieved party (or 
parties) one opportunity to amend the unacceptable complaint.
    (2) If the aggrieved party (or parties) fail(s) to submit an 
acceptable amended complaint within a reasonable timeframe as determined 
by the ALJ, the ALJ must issue a decision dismissing the unacceptable 
complaint.
    (3) If a complaint is determined unacceptable after one amendment, 
the beneficiary is precluded from filing again for 6 months after being 
informed that it is unacceptable.
    (d) Acceptable complaint. If the ALJ determines that the complaint 
(or amended complaint) is acceptable, the ALJ does the following:
    (1) Sends a letter to the aggrieved party (or parties) acknowledging 
the complaint and informing the aggrieved party (or parties) of the 
docket number and the deadline for the contractor to produce the LCD 
record.
    (2) Forwards a copy of the complaint, any evidence submitted in the 
complaint, and the letter described in paragraph (d)(1) of this section 
to the applicable contractor and CMS.
    (3) Requires CMS or the contractor to send a copy of the LCD record 
to the ALJ and all parties to the LCD review within 30 days of receiving 
the ALJ's letter, the copy of the complaint, and any associated 
evidence, subject to extension for good cause shown.
    (e) Consolidation of complaints regarding an LCD--(1) Criteria for 
consolidation. If a review is pending regarding a particular LCD 
provision(s) and no decision has been issued ending the review, and a 
new acceptable complaint is filed, the ALJ consolidates the complaints 
and conducts a consolidated LCD review if all of the following criteria 
are met:
    (i) The complaints are in regard to the same provision(s) of the 
same LCD or there are other bases for consolidating the complaints.
    (ii) The complaints contain common questions of law, common 
questions of fact, or both.
    (iii) Consolidating the complaints does not unduly delay the ALJ's 
decision.
    (2) Decision to consolidate complaints. If an ALJ decides to 
consolidate complaints, the ALJ does the following:
    (i) Provides notification that the LCD review is consolidated and 
informs all parties of the docket number of the consolidated review.
    (ii) Makes a single record of the proceeding.
    (iii) Considers the relevant evidence introduced in each LCD 
complaint as introduced in the consolidated review.
    (3) Decision not to consolidate complaints. If an ALJ decides not to 
consolidate complaints, the ALJ conducts separate LCD reviews for each 
complaint.

[68 FR 63716, Nov. 7, 2003; 68 FR 65346, Nov. 19, 2003]



Sec. 426.415  CMS' role in the LCD review.

    CMS may provide to the ALJ, and all parties to the LCD review, 
information identifying the person who represents the contractor or CMS, 
if necessary, in the LCD review process.



Sec. 426.416  Role of Medicare Managed Care Organizations (MCOs) and State agencies in the LCD review.

    Medicare MCOs and Medicaid State agencies have no role in the LCD 
review process. However, once the ALJ has issued its decision, the 
decision is made available to all Medicare MCOs and State agencies.



Sec. 426.417  Contractor's statement regarding new evidence.

    (a) The contractor may review any new evidence that is submitted, 
regardless of whether the ALJ has stayed the proceedings, including but 
not limited to--
    (1) New evidence submitted with the initial complaint;
    (2) New evidence submitted with an amended complaint;
    (3) New evidence produced during discovery;
    (4) New evidence produced when the ALJ consults with scientific and 
clinical experts; and
    (5) New evidence presented during any hearing.
    (b) The contractor may submit a statement regarding whether the new 
evidence is significant under Sec. 426.340,

[[Page 503]]

within such deadline as the ALJ may set.



Sec. 426.418  LCD record furnished to aggrieved party.

    (a) Elements of a contractor's LCD record furnished to the aggrieved 
party. Except as provided in paragraph (b) of this section, the 
contractor's LCD record consists of any document or material that the 
contractor considered during the development of the LCD, including, but 
not limited to, the following:
    (1) The LCD being challenged.
    (2) Any medical evidence considered on or before the date the LCD 
was issued, including, but not limited to, the following:
    (i) Scientific articles.
    (ii) Technology assessments.
    (iii) Clinical guidelines.
    (iv) Statements from clinical experts, medical textbooks, claims 
data, or other indication of medical standard of practice.
    (3) Comment and Response Document (a summary of comments received by 
the contractor concerning the draft LCD).
    (4) An index of documents considered that are excluded under 
paragraph (b) of this section.
    (b) Elements of the LCD record not furnished to the aggrieved party. 
The LCD record furnished to the aggrieved party does not include the 
following:
    (1) Proprietary data or privileged information.
    (2) Any new evidence.



Sec. 426.419  LCD record furnished to the ALJ.

    The LCD record furnished to the ALJ includes the following:
    (a) Documents included in Sec. 426.418(a).
    (b) Privileged information and proprietary data considered that must 
be filed with the ALJ under seal.



Sec. 426.420  Retiring or revising an LCD under review.

    (a) A contractor may retire an LCD or LCD provision under review 
before the date the ALJ issues a decision regarding that LCD. Retiring 
an LCD or LCD provision under review has the same effect as a decision 
under Sec. 426.460(b).
    (b) A contractor may revise an LCD under review to remove or amend 
the LCD provision listed in the complaint through the reconsideration 
process before the date the ALJ issues a decision regarding that LCD. 
Revising an LCD under review to remove the LCD provision in question has 
the same effect as a decision under Sec. 426.460(b).
    (c) A contractor must notify the ALJ within 48 hours of--
    (1) Retiring an LCD or LCD provision that is under review; or
    (2) Issuing a revised version of the LCD that is under review.
    (d) If the contractor issues a revised LCD, the contractor forwards 
a copy of the revised LCD to the ALJ.
    (e) The ALJ must take the following actions upon receiving a notice 
that the contractor has retired or revised an LCD under review:
    (1) If, before the ALJ issues a decision, the ALJ receives notice 
that the contractor has retired the LCD or revised the LCD to completely 
remove the provision in question, the ALJ must dismiss the complaint and 
inform the aggrieved party(ies) who sought the review that he or she or 
they receive individual claim review without the retired/withdrawn 
provision(s).
    (2) If, before the ALJ issues a decision, the ALJ receives notice 
that the contractor has revised the LCD provision in question but has 
not removed it altogether, the ALJ must continue the review based on the 
revised LCD. In this case, the contractor must send a copy of the 
supplemental record to the ALJ and all parties. In that circumstance, 
the ALJ permits the aggrieved party to respond to the revised LCD and 
supplemental record.



Sec. 426.423  Withdrawing a complaint regarding an LCD under review.

    (a) Circumstance under which an aggrieved party may withdraw a 
complaint regarding an LCD. An aggrieved party who filed a complaint 
regarding an LCD may withdraw the complaint before the ALJ issues a 
decision regarding that LCD. The aggrieved party may not file another 
complaint concerning the same coverage determination for 6 months.
    (b) Process for an aggrieved party withdrawing a complaint regarding 
an LCD.

[[Page 504]]

To withdraw a complaint regarding an LCD, the aggrieved party who filed 
the complaint must send a written withdrawal notice to the ALJ (see 
Sec. 426.400), CMS (if applicable), and the applicable contractor. 
Supplementing an acceptable complaint with new evidence does not 
constitute a withdrawal of a complaint, as described in Sec. 426.403.
    (c) Actions the ALJ must take upon receiving a notice announcing the 
intent to withdraw a complaint regarding an LCD--(1) LCD reviews 
involving one aggrieved party. If the ALJ receives a withdrawal notice 
regarding an LCD before the date the ALJ issued a decision regarding 
that LCD, the ALJ issues a decision dismissing the complaint under Sec. 
426.444 and informs the aggrieved party that he or she may not file 
another complaint to the same coverage determination for 6 months.
    (2) LCD reviews involving joint complaints. If the ALJ receives a 
notice from an aggrieved party who is named in a joint complaint 
withdrawing a complaint regarding an LCD before the date the ALJ issued 
a decision regarding that LCD, the ALJ issues a decision dismissing only 
that aggrieved party from the complaint under Sec. 426.444. The ALJ 
continues the LCD review if there is one or more aggrieved party who 
does not withdraw from the joint complaint.
    (3) Consolidated LCD reviews. If the ALJ receives a notice from an 
aggrieved party who is part of a consolidated LCD review withdrawing a 
complaint regarding an LCD before the date the ALJ issued a decision 
regarding that LCD, the ALJ removes that aggrieved party from the 
consolidated LCD review and issues a decision dismissing that aggrieved 
party's complaint under Sec. 426.444. The ALJ continues the LCD review 
if there are one or more aggrieved parties who does not withdraw from 
the joint complaint.



Sec. 426.425  LCD review.

    (a) Opportunity for the aggrieved party, after his or her review of 
the LCD record, to state why the LCD is not valid. Upon receipt of the 
contractor's LCD record, the aggrieved party files a statement 
explaining why the contractor's LCD record is not complete, or not 
adequate to support the validity of the LCD under the reasonableness 
standard. This statement must be submitted to the ALJ and to the 
contractor, or CMS, as appropriate, within 30 days (or within the 
additional time as allowed by the ALJ for good cause shown) of the date 
the aggrieved party receives the contractor's LCD record.
    (b) Contractor response. The contractor has 30 days after receiving 
the aggrieved party's statement to submit a response to the ALJ in order 
to defend the LCD.
    (c) ALJ evaluation. (1) After the aggrieved party files a statement 
and the contractor responds, as described in Sec. 426.425(a) and Sec. 
426.425(b), or the time for filing has expired, the ALJ applies the 
reasonableness standard to determine whether the LCD record is complete 
and adequate to support the validity of the LCD.
    (2) Issuance of a decision finding the record complete and adequate 
to support the validity of the LCD ends the review process.
    (3) If the ALJ determines that the LCD record is not complete and 
adequate to support the validity of the LCD, the ALJ permits discovery 
and the taking of evidence in accordance with Sec. 426.432 and Sec. 
426.440 and evaluates the LCD in accordance with Sec. 426.431.
    (d) The process described in paragraphs (a), (b), and (c) of this 
section applies when an LCD record has been supplemented, except that 
discovery and the taking of evidence are not repeated. The period for 
the aggrieved party to file a statement begins when the aggrieved party 
receives the supplement.



Sec. 426.431  ALJ's review of the LCD to apply the reasonableness standard.

    (a) Required steps. To review the provision(s) listed in the 
aggrieved party's complaint based on the reasonableness standard, an ALJ 
must:
    (1) Confine the LCD review to the provision(s) of the LCD raised in 
the aggrieved party's complaint.
    (2) Conduct a hearing, unless the matter can be decided on the 
written record.
    (3) Close the LCD review record to the taking of evidence.

[[Page 505]]

    (4) Treat as precedential any previous Board decision under Sec. 
426.482 that involves the same LCD provison(s), same specific issue and 
facts in question, and the same clinical conditions.
    (5) Issue a decision as described in Sec. 426.447.
    (b) Optional steps. The ALJ may do the following to apply the 
reasonableness standard to the provision(s) listed in the aggrieved 
party's complaint:
    (1) Consult with appropriate scientific or clinical experts 
concerning evidence.
    (2) Consider any previous ALJ decision made under Sec. 426.447 
regarding the same provision(s) of the LCD under review and for the same 
clinical conditions.
    (c) Authority for ALJs in LCD reviews when applying the 
reasonableness standard. In applying the reasonableness standard to a 
provision (or provisions) of an LCD, the ALJ must follow all applicable 
laws, regulations, rulings, and NCDs.



Sec. 426.432  Discovery.

    (a) General rule. If the ALJ orders discovery, the ALJ must 
establish a reasonable timeframe for discovery.
    (b) Protective order--(1) Request for a protective order. Any party 
receiving a discovery request may file a motion for a protective order 
before the date of production of the discovery.
    (2) The ALJ granting of a protective order. The ALJ may grant a 
motion for a protective order if (s)he finds that the discovery sought--
    (i) Is irrelevant or unduly repetitive;
    (ii) Is unduly costly or burdensome; or
    (iii) Unduly delays the proceeding.
    (c) Types of discovery available. A party may obtain discovery via a 
request for the production of documents, and/or via the submission of up 
to 10 written interrogatory questions, relating to a specific LCD.
    (d) Types of documents. For the purpose of this section, the term 
``documents'' includes relevant information, reports, answers, records, 
accounts, papers, and other data and documentary evidence. Nothing 
contained in this section is interpreted to require the creation of a 
document.
    (e) Types of discovery not available. Requests for admissions, 
depositions, or any other forms of discovery, other than those permitted 
under paragraph (c) of this section, are not authorized.
    (f) Privileged information and proprietary data. The ALJ must not, 
under any circumstance, order the disclosure of privileged information 
or proprietary data filed under seal without the consent of the party 
who possesses the right to protection of the information.
    (g) Notification. The ALJ notifies all parties in writing when the 
discovery period closes.



Sec. 426.435  Subpoenas.

    (a) Purpose of a subpoena. A subpoena requires the attendance of an 
individual at a hearing and may also require a party to produce evidence 
authorized under Sec. 426.440 at or before the hearing.
    (b) Filing a motion for a subpoena. A party seeking a subpoena must 
file a written motion with the ALJ not less than 30 days before the date 
fixed for the hearing. The motion must do all of the following:
    (1) Designate the witnesses.
    (2) Specify any evidence to be produced.
    (3) Describe the address and location with sufficient particularity 
to permit the witnesses to be found.
    (4) State the pertinent facts that the party expects to establish by 
the witnesses or documents and whether other evidence may establish 
without the use of a subpoena.
    (c) Response to a motion for a subpoena. Within 15 days after the 
written motion requesting issuance of a subpoena is served on all 
parties, any party may file an opposition to the motion or other 
response.
    (d) Extension for good cause shown. The ALJ may modify the deadlines 
specified in paragraphs (b) and (c) of this section for good cause 
shown.
    (e) Motion for a subpoena granted. If the ALJ grants a motion 
requesting issuance of a subpoena, the subpoena must do the following:
    (1) Be issued in the name of the ALJ.
    (2) Include the docket number and title of the LCD under review.

[[Page 506]]

    (3) Provide notice that the subpoena is issued according to sections 
1872 and 205(d) and (e) of the Act.
    (4) Specify the time and place at which the witness is to appear and 
any evidence the witness is to produce.
    (f) Delivery of the subpoena. The party seeking the subpoena serves 
it by personal delivery to the individual named, or by certified mail 
return receipt requested, addressed to the individual at his or her last 
dwelling place or principal place of business.
    (g) Motion to quash a subpoena. The individual to whom the subpoena 
is directed may file with the ALJ a motion to quash the subpoena within 
10 days after service.
    (h) Refusal to obey a subpoena. The exclusive remedy for contumacy 
by, or refusal to obey, a subpoena duly served upon any person is 
specified in section 205(e) of the Act (42 U.S.C. 405(e)) except that 
any reference to the ``Commissioner of Social Security'' shall be 
considered a reference to the ``Secretary.''



Sec. 426.440  Evidence.

    (a) Except as provided in this part, the ALJ is not bound by the 
Federal Rules of Evidence. However, the ALJ may apply the Federal Rules 
of Evidence when appropriate, for example, to exclude unreliable 
evidence.
    (b) The ALJ must exclude evidence that (s)he determines is clearly 
irrelevant, immaterial, or unduly repetitive.
    (c) The ALJ may accept privileged information or proprietary data, 
but must maintain it under seal.
    (d) The ALJ may permit the parties to introduce the testimony of 
expert witnesses on scientific and clinical issues, rebuttal witnesses, 
and other relevant evidence. The ALJ may require that the testimony of 
expert witnesses be submitted in the form of a written report, 
accompanied by the curriculum vitae of the expert preparing the report.
    (e) Experts submitting reports must be available for cross-
examination at an evidentiary hearing upon request of the ALJ or a party 
to the proceeding, or the reports will be excluded from the record.
    (f) Except as set forth in paragraph (c) of this section or unless 
otherwise ordered by the ALJ for good cause shown, all documents and 
other evidence offered or taken for the record are open to examination 
by all parties.



Sec. 426.444  Dismissals for cause.

    (a) The ALJ may, at the request of any party, or on his or her own 
motion, dismiss a complaint if the aggrieved party fails to do either of 
the following:
    (1) Attend or participate in a prehearing conference (the pre-
hearing may be conducted by telephone) or hearing without good cause 
shown.
    (2) Comply with a lawful order of the ALJ without good cause shown.
    (b) The ALJ must dismiss any complaint concerning LCD provision(s) 
if the following conditions exist:
    (1) The ALJ does not have the authority to rule on that provision 
under Sec. 426.405(d).
    (2) The complaint is not timely. (See Sec. 426.400(b).)
    (3) The complaint is not filed by an aggrieved party.
    (4) The complaint is filed by an individual who fails to provide an 
adequate statement of need for the service from the treating physician.
    (5) The complaint challenges a provision or provisions of an NCD. 
(See Sec. 426.405, regarding the authority of the ALJ.)
    (6) The contractor notifies the ALJ that the LCD provision(s) is 
(are) no longer in effect.
    (7) The aggrieved party withdraws the complaint. (See Sec. 426.423 
for requirements related to withdrawing a complaint regarding an LCD 
under review.)



Sec. 426.445  Witness fees.

    (a) A witness testifying at a hearing before an ALJ receives the 
same fees and mileage as witnesses in Federal district courts of the 
United States. If the witness qualifies as an expert, he or she is 
entitled to an expert witness fee. Witness fees are paid by the party 
seeking to present the witness.
    (b) If an ALJ requests expert testimony, the appropriate office 
overseeing the ALJ is responsible for paying all applicable fees and 
mileage, unless the expert waives payment.

[[Page 507]]



Sec. 426.446  Record of hearing.

    The ALJ must ensure that all hearings are open to the public and are 
electronically, mechanically or stenographically reported. Except for 
privileged information and proprietary data that are filed under seal, 
all evidence upon which the ALJ relies for decision must be admitted 
into the public record. All medical reports, exhibits, and any other 
pertinent document, either in whole or in material part, must be 
offered, marked for identification, and retained in the case record.



Sec. 426.447  Issuance and notification of an ALJ's decision.

    An ALJ must issue to all parties to the LCD review, within 90 days 
of closing the LCD review record to the taking of evidence, one of the 
following:
    (a) A written decision, including a description of appeal rights.
    (b) A written notification stating that a decision is pending, and 
an approximate date of issuance for the decision.



Sec. 426.450  Mandatory provisions of an ALJ's decision.

    (a) Findings. An ALJ's decision must include one of the following:
    (1) A determination that the provision of the LCD is valid under the 
reasonableness standard.
    (2) A determination that the provision of the LCD is not valid under 
the reasonableness standard.
    (3) A statement dismissing the complaint regarding the LCD and a 
rationale for the dismissal.
    (4) A determination that the LCD record is complete and adequate to 
support the validity of the LCD provisions under the reasonableness 
standard.
    (b) Other information. An ALJ's decision must include all of the 
following:
    (1) The date of issuance.
    (2) The docket number of the LCD review.
    (3) A statement as to whether the aggrieved party has filed a claim 
for the service(s) named in the complaint, the date(s)-of-service, and 
the disposition, if known.
    (4) A basis for concluding that the LCD was or was not valid based 
on the application of the reasonableness standard to the record before 
the ALJ, including the contractor's:
    (i) Findings of fact.
    (ii) Interpretations of law.
    (iii) Applications of fact to law.
    (5) A summary of the evidence reviewed. If proprietary or privileged 
data were submitted under seal, the decision must state whether the data 
were material and what role they played in the determination, but 
without disclosing the substance or contents of the evidence under seal. 
A separate statement of the rationale for the ALJ's treatment of the 
sealed evidence must be prepared and kept under seal itself. If the ALJ 
decision is appealed to the Board, this statement must be provided to 
the Board under seal.
    (6) A statement regarding appeal rights.



Sec. 426.455  Prohibited provisions of an ALJ's decision.

    An ALJ's decision may not do any of the following:
    (a) Order CMS or its contractors to add any language to a provision 
or provisions of an LCD.
    (b) Order CMS or its contractors to pay a specific claim.
    (c) Set a time limit for CMS or its contractors to establish a new 
or revised LCD.
    (d) Review or evaluate an LCD other than the LCD under review.
    (e) Include a requirement for CMS or its contractors that specifies 
payment, coding, or systems changes for an LCD, or deadlines for 
implementing these types of changes.
    (f) Order or address how a contractor(s) must implement an LCD.



Sec. 426.457  Optional provisions of an ALJ's decision.

    When appropriate, the ALJ may limit a decision holding invalid a 
specific provision(s) of an LCD to specific clinical indications and for 
similar conditions.



Sec. 426.458  ALJ's LCD review record.

    (a) Elements of the ALJ's LCD review record furnished to the public. 
Except as provided in paragraph (b) of this section, the ALJ's LCD 
review record consists of any document or material that

[[Page 508]]

the ALJ compiled or considered during the LCD review, including, but not 
limited to, the following:
    (1) The LCD complaint.
    (2) The LCD and LCD record.
    (3) The supplemental LCD record, if applicable.
    (4) Transcripts of record.
    (5) Any other relevant evidence gathered under Sec. 426.440.
    (6) The ALJ's decision.
    (b) Elements of the ALJ's LCD review record furnished to the Board 
under seal. The ALJ's review record must include, under seal, any 
proprietary data or privileged information maintained under seal, and 
such data or information must not be included in the review record 
furnished to the public.



Sec. 426.460  Effect of an ALJ's decision.

    (a) Valid under the reasonableness standard. If the ALJ finds that 
the provision or provisions of the LCD named in the complaint is (are) 
valid under the reasonableness standard, the aggrieved party or parties 
may appeal that (those) part(s) of the ALJ decision to the Board under 
Sec. 426.465.
    (b) Not valid under the reasonableness standard. If the ALJ finds 
that the provision or provisions of the LCD named in the complaint is 
(are) invalid under the reasonableness standard, and no appeal is filed 
by the contractor or CMS under Sec. 426.465(b), the contractor, the M+C 
organization, or other Medicare managed care organization must provide 
the following--
    (1) Individual claim review. (i) If neither the contractor nor CMS 
appeals the ALJ decision under Sec. 426.425(b), and if the party's 
claim or appeal(s) was previously denied, the contractor, an M+C 
organization or another Medicare managed care organization must reopen 
the claim of the party who challenged the LCD and adjudicate the claim 
without using the provision(s) of the LCD that the ALJ found invalid.
    (ii) If a revised LCD is issued, the contractor, the M+C 
organization, and any other Medicare managed care organization within 
the contractor's jurisdiction uses the revised LCD in reviewing claim or 
appeal submissions or request for services delivered or services 
performed on or after the effective date of the revised LCD.
    (iii) If the aggrieved party who sought the review has not yet 
submitted a claim, the contractor adjudicates the claim without using 
the provision(s) of the LCD that the ALJ found invalid.
    (iv) In either case, the claim and any subsequent claims for the 
service provided under the same circumstances is adjudicated without 
using the LCD provision(s) found invalid.
    (2) Coverage determination relief. If neither the contractor nor CMS 
appeals the ALJ decision under Sec. 426.425(b), the contractor 
implements the ALJ decision within 30 days. Any change in policy applies 
prospectively to requests for service or claims filed with dates of 
service after the implementation of the ALJ decision.



Sec. 426.462  Notice of an ALJ's decision.

    After the ALJ has made a decision regarding an LCD complaint, the 
ALJ sends a written notice of the decision to each party. The notice 
must--
    (a) State the outcome of the review; and
    (b) Inform each party to the determination of his or her rights to 
seek further review if he or she is dissatisfied with the determination, 
and the time limit under which an appeal must be requested.



Sec. 426.463  Future new or revised LCDs.

    The contractor may not reinstate an LCD provision(s) found to be 
unreasonable unless the contractor has a different basis (such as 
additional evidence) than what the ALJ evaluated.



Sec. 426.465  Appealing part or all of an ALJ's decision.

    (a) Circumstances under which an aggrieved party may appeal part or 
all of an ALJ's decision. An aggrieved party (including one or more 
aggrieved parties named in a joint complaint and an aggrieved party who 
is part of a consolidated LCD review) may appeal to the Board any part 
of an ALJ's decision that does the following:
    (1) States that a provision of an LCD is valid under the 
reasonableness standard; or
    (2) Dismisses a complaint regarding an LCD (except as prohibited in 
paragraph (b) of this section).

[[Page 509]]

    (b) Circumstance under which a contractor or CMS may appeal part or 
all of an ALJ's decision. A contractor or CMS may appeal to the Board 
any part of an ALJ's decision that states that a provision (or 
provisions) of an LCD is (are) unreasonable.
    (c) Stay of an implementation pending appeal. (1) If an ALJ's 
decision finds a provision or provisions of an LCD unreasonable, an 
appeal by a contractor or CMS stays implementation as described under 
Sec. 426.460(b) until the Board issues a final decision.
    (2) The appeal request must be submitted to the Board in accordance 
with paragraph (e) of this section.
    (d) Circumstances under which an ALJ's decision may not be appealed. 
An ALJ's decision dismissing a complaint is not subject to appeal in 
either of the following circumstances:
    (1) The contractor has retired the LCD provision(s) under review.
    (2) The aggrieved party who filed the complaint has withdrawn the 
complaint.
    (e) Receipt of the appeal by the Board. Unless there is good cause 
shown, an appeal described in paragraphs (a) or (b) of this section must 
be filed with the Board within 30 days of the date the ALJ's decision 
was issued.
    (f) Filing an appeal. (1) To file an appeal described in paragraph 
(a) of this section, an aggrieved party, who sought LCD review, a 
contractor, or CMS must send the following to the Board:
    (i) The full names and addresses of the parties, including the name 
of the LCD.
    (ii) The date of issuance of the ALJ's decision.
    (iii) The docket number that appears on the ALJ's decision.
    (iv) A statement identifying the part(s) of the ALJ's decision that 
are being appealed.
    (2) If an appeal described in paragraph (a) of this section is filed 
with the Board later than the date described in paragraph (c) of this 
section, it must include a rationale stating why the Board must accept 
the late appeal.
    (3) An appeal described in paragraph (a) of this section must 
include a statement explaining why the ALJ's decision should be 
reversed.



Sec. 426.468  Decision to not appeal an ALJ's decision.

    (a) Failure to timely appeal without good cause shown waives the 
right to challenge any part(s) of the ALJ's decision under Sec. 
426.465.
    (b) Unless the Board finds good cause shown for late filing, an 
untimely appeal is dismissed.
    (c) If a party does not timely appeal any part(s) of the ALJ's 
decision on an LCD review to the Board, as provided in this subpart, 
then the ALJ's decision is final and not subject to further review.



Sec. 426.470  Board's role in docketing and evaluating the acceptability of appeals of ALJ decisions.

    (a) Docketing the appeal. The Board does the following upon 
receiving an appeal of part or all of an ALJ's decision:
    (1) Dockets the appeal either separately or with similar appeals.
    (2) Assigns a docket number.
    (b) Evaluating the acceptability of the appeal. The Board determines 
if the appeal is acceptable by confirming that the appeal meets all of 
the criteria in Sec. 426.465.
    (c) Unacceptable appeal. If the Board determines that an appeal is 
unacceptable, the Board must dismiss the appeal.
    (d) Acceptable appeal. If the Board determines that an appeal is 
acceptable, the Board does the following:
    (1) Sends a letter to the appellant to acknowledge that the appeal 
is acceptable, and informs them of the docket number.
    (2) Forwards a copy of the appeal and the letter described in 
paragraph (d)(1) of this section to all parties involved in the appeal.
    (3) Requires the ALJ to send a copy of the ALJ's LCD review record 
(maintaining any sealed documents) to the Board and a copy of the public 
record to all parties involved in the appeal.
    (e) No participation as amicus curiae. The Board may not allow 
participation by amicus participants in the review of an LCD.

[[Page 510]]



Sec. 426.476  Board review of an ALJ's decision.

    (a) Review steps. If the Board determines that an appeal is 
acceptable, the Board--
    (1) Permits the party that did not file the appeal an opportunity to 
respond to the appeal;
    (2) Hears oral argument (which may be held by telephone) if the 
Board determines that oral argument would be helpful to the Board's 
review of the ALJ decision;
    (3) Reviews the LCD review record and the parties' arguments; and
    (4) Issues a written decision either upholding, modifying, or 
reversing the ALJ decision, or remanding the case to the ALJ for further 
proceedings.
    (b) Standard of review--(1) In general. The Board determines whether 
the ALJ decision contains any material error, including any failure to 
properly apply the reasonableness standard.
    (2) If the ALJ erred in determining that the contractor's record was 
complete and adequate to support the validity of the LCD, the Board 
remands the case to the ALJ for discovery and the taking of evidence.
    (3) If a party alleges a prejudicial error of procedure, and the 
Board determines that such an error was made, the Board may remand the 
case to the ALJ for further proceedings consistent with the Board 
decision or may take other appropriate steps to correct the procedural 
error.
    (4) Harmless error is not a basis for reversing an ALJ decision.
    (c) Scope of review. In reaching its conclusions, the Board is bound 
by applicable laws, regulations, and NCDs.
    (d) Dismissal as moot. The Board dismisses an appeal by an aggrieved 
party of an ALJ decision finding that an LCD was valid if the contractor 
notifies the Board that it has retired the LCD or revised the LCD to 
remove the LCD provision in question.



Sec. 426.478  Retiring or revising an LCD during the Board's review of an ALJ's decision.

    A contractor may retire or revise an LCD during the Board's review 
of an ALJ's decision using the same process described in Sec. 426.420. 
If an LCD is retired or revised to remove completely the challenged 
provision(s), the aggrieved party who sought the review is entitled to 
individual claim review provided at Sec. 426.488(b).



Sec. 426.480  Withdrawing an appeal of an ALJ's decision.

    (a) Withdrawal of an appeal of an ALJ's decision. A party who filed 
an appeal of an ALJ's decision may withdraw the appeal before the Board 
issues a decision regarding the ALJ's decision.
    (b) Process of withdrawing an appeal of an ALJ's decision. To 
withdraw an appeal of an ALJ's decision, the party who filed the appeal 
must send a written notice announcing the intent to withdraw to the 
Board and to any other party.
    (c) Actions the Board must take upon receiving a notice announcing 
the intent to withdraw an appeal of an ALJ's decision--(1) Appeals 
involving one aggrieved party, or initiated by CMS or a contractor. If 
the Board receives a notice withdrawing an appeal of an ALJ's decision 
before the Board has issued its decision, the Board must issue a 
decision dismissing the appeal.
    (2) Appeals involving joint complaints. If the Board receives a 
notice withdrawing an appeal from an aggrieved party who is named in a 
joint appeal before the Board issues its decision, the Board must issue 
a decision dismissing only that aggrieved party from the appeal. The 
Board must continue its review of the ALJ's decision for the remaining 
aggrieved party or parties.



Sec. 426.482  Issuance and notification of a Board decision.

    The Board must issue a written decision, including a description of 
appeal rights, to all parties to the review of the ALJ decision.



Sec. 426.484  Mandatory provisions of a Board decision.

    (a) Findings. A Board decision must include at least one of the 
following:
    (1) A statement upholding the part(s) of the ALJ decision named in 
the appeal.
    (2) A statement reversing the part(s) of the ALJ decision named in 
the appeal.

[[Page 511]]

    (3) A statement modifying the part(s) of the ALJ decision named in 
the appeal.
    (4) A statement dismissing the appeal of an ALJ decision and a 
rationale for the dismissal.
    (b) Other information. A Board decision must include all of the 
following:
    (1) The date of issuance.
    (2) The docket number of the review of the ALJ decision.
    (3) A summary of the ALJ's decision.
    (4) A rationale for the basis of the Board's decision.



Sec. 426.486  Prohibited provisions of a Board decision.

    A Board decision must not do any of the following:
    (a) Order CMS or its contractors to add any language to a provision 
or provisions of an LCD.
    (b) Order CMS or its contractors to pay a specific claim.
    (c) Set a time limit to establish a new or revised LCD.
    (d) Review or evaluate an LCD other than the LCD named in the ALJ's 
decision.
    (e) Include a requirement for CMS or its contractors that specifies 
payment, coding, or system changes for an LCD or deadlines for 
implementing these changes.
    (f) Order CMS or its contractors to implement an LCD in a particular 
manner.



Sec. 426.487  Board's record on appeal of an ALJ's decision.

    (a) Elements of the Board's LCD review record furnished to the 
public. Except as provided in paragraph (b) of this section, the Board's 
LCD review record consists of any document or material that the Board 
compiled or considered during an LCD review, including, but not limited 
to, the following:
    (1) The LCD complaint.
    (2) The LCD and LCD record.
    (3) The supplemental LCD record, if applicable.
    (4) Transcripts of record.
    (5) Any other relevant evidence gathered under Sec. 426.440.
    (6) The ALJ's decision.
    (7) The Board's decision.
    (b) Elements of the Board's LCD appeal record furnished to the court 
under seal. The Board's LCD review record must include, under seal, any 
proprietary data or privileged information submitted and reviewed in the 
LCD review process, and that data or information must not be included in 
the review record furnished to the public, but the information must be 
maintained, under seal, by the Board.
    (c) Protective order. In any instance where proprietary data or 
privileged information is used in the LCD process and a court seeks to 
obtain or require disclosure of any proprietary data or privileged 
information contained in the LCD record, CMS or the Department will seek 
to have a protective order issued for that information, as appropriate.



Sec. 426.488  Effect of a Board decision.

    (a) The Board's decision upholds an ALJ decision that an LCD is 
valid or reverses an ALJ decision that an LCD is invalid. If the Board's 
decision upholds the ALJ decision that an LCD is valid under the 
reasonableness standard or reverses an ALJ decision that an LCD is 
invalid, the contractor or CMS is not required to take any action.
    (b) The Board's decision upholds an ALJ determination that the LCD 
is invalid. If the Board's decision upholds an ALJ determination that 
the LCD is invalid, then the contractor, the M+C organization, or other 
Medicare managed care organization implements the decision as described 
in Sec. 426.460(b).
    (c) The Board's decision reverses a dismissal or an ALJ decision 
that the LCD is valid. If the Board reverses an ALJ decision dismissing 
a complaint or holding that an LCD is valid without requiring discovery 
or the taking of evidence, the Board remands to the ALJ and the LCD 
review continues. If the Board reverses an ALJ decision holding that an 
LCD is valid that is reached after the ALJ has completed discovery and 
the taking of evidence, the Board may remand the case to the ALJ for 
further proceedings, or the Board may find that the provision(s) of the 
LCD named in the complaint is (are) invalid under the reasonableness 
standard, and the contractor, the M+C organization, or other Medicare 
managed care organization provides the relief in Sec. 426.460(b).

[[Page 512]]



Sec. 426.489  Board remands.

    (a) Notice when case is remanded to the ALJ. If the Board remands a 
case to the ALJ, the Board--
    (1) Notifies each aggrieved party who sought the LCD review, through 
his or her representative or at his or her last known address, the 
contractor, and CMS of the Board's remand decision; and
    (2) Explains why the case is being remanded and the specific actions 
ordered by the Board.
    (b) Action by an ALJ on remand. An ALJ takes any action that is 
ordered by the Board and may take any additional action that is not 
inconsistent with the Board's remand order.



Sec. 426.490  Board decision.

    A decision by the Board (other than a remand) constitutes a final 
agency action and is subject to judicial review. Neither the contractor 
nor CMS may appeal a Board decision.



                       Subpart E_Review of an NCD



Sec. 426.500  Procedure for filing an acceptable complaint concerning a provision (or provisions) of an NCD.

    (a) The complaint. An aggrieved party may initiate a review of an 
NCD by filing a written complaint with the Department of Health and 
Human Services Departmental Appeals Board.
    (b) Timeliness of a complaint. An NCD complaint is not considered 
timely unless it is filed with the Board within--
    (1) 6 months of the written statement from each aggrieved party's 
treating physician, in the case of aggrieved parties who choose to file 
an NCD challenge before receiving the service; or
    (2) 120 days of the initial denial notice, in the case of aggrieved 
parties who choose to file an NCD challenge after receiving the service.
    (c) Components of a valid complaint. A complaint must include the 
following:
    (1) Beneficiary-identifying information:
    (i) Name.
    (ii) Mailing address.
    (iii) State of residence, if different from mailing address.
    (iv) Telephone number, if any.
    (v) Health Insurance Claim number, if applicable.
    (vi) Email address, if applicable.
    (2) If the beneficiary has a representative, the representative's 
indetifying information must include the following:
    (i) Name.
    (ii) Address.
    (iii) Telephone number.
    (iv) E-mail address (if any)
    (v) Copy of the written authorization to represent the beneficiary.
    (3) Treating physician written statement. A copy of a written 
statement from the treating physician that the beneficiary needs the 
service that is the subject of the NCD. This statement may be in the 
form of a written order for the service or other documentation from the 
beneficiary's medical record (such as progress notes or discharge 
summary) indicating that the beneficiary needs the service.
    (4) NCD-identifying information:
    (i) Title of NCD being challenged.
    (ii) The specific provision or provisions of the NCD adversely 
affecting the aggrieved party.
    (5) Aggrieved party statement. A statement from the aggrieved party 
explaining what service is needed and why the aggrieved party thinks 
that the provision(s) of the NCD is (are) not valid under the 
reasonableness standard.
    (6) Clinical or scientific evidence. (i) Copies of clinical or 
scientific evidence that supports the complaint and an explanation for 
why the aggrieved party thinks that this evidence shows that the NCD is 
not reasonable.
    (ii) Any documents or portions of documents that include proprietary 
data must be marked ``proprietary data,'' and include a legal basis for 
that assertion.
    (iii) Proprietary data submitted by a manufacturer concerning a drug 
or device for which the manufacturer has submitted information to the 
Food and Drug Administration, must be considered and given substantive 
weight only when supported by an affidavit certifying that the 
submission contains true and correct copies of all data submitted by the 
manufacturer to the Food and Drug Administration in relation to that 
drug or device.
    (d) Joint complaints--(1) Conditions for a joint complaint. Two or 
more aggrieved parties may initiate the review of an NCD by filing a 
single written

[[Page 513]]

complaint with the Board if all of the following conditions are met:
    (i) Each aggrieved party named in the joint complaint has a similar 
medical condition or there are other bases for combining the complaints.
    (ii) Each aggrieved party named in the joint complaint is filing the 
complaint in regard to the same provision(s) of the same NCD.
    (2) Components of a valid joint complaint. A joint complaint must 
contain the following information:
    (i) The beneficiary-identifying information described in paragraph 
(c)(1) of this section for each aggrieved party named in the joint 
complaint.
    (ii) The NCD-identifying information described in paragraph (c)(2) 
of this section.
    (iii) The documentation described in paragraphs (c)(3) and (c)(4) of 
this section.
    (3) Timeliness of a joint complaint. Aggrieved parties, who choose 
to seek review of an NCD--
    (i) Before receiving the service, must file with the Board a joint 
complaint within 6 months of the written statement from each aggrieved 
party's treating physician; or
    (ii) After receiving the service, must file with the Board a 
complaint within 120 days of each aggrieved party's initial denial 
notice.



Sec. 426.503  Submitting new evidence once an acceptable complaint has been filed.

    Once an acceptable complaint has been filed, the aggrieved party may 
submit additional new evidence without withdrawing the complaint until 
the Board closes the record.



Sec. 426.505  Authority of the Board.

    (a) The Board conducts a fair and impartial hearing, avoids 
unnecessary delay, maintains order, and ensures that all proceedings are 
recorded.
    (b) The Board defers only to reasonable findings of fact, reasonable 
interpretations of law, and reasonable applications of fact to law by 
the Secretary.
    (c) The Board has the authority to do any of the following:
    (1) Review complaints by an aggrieved party (or aggrieved parties).
    (2) Dismiss complaints that fail to comply with Sec. 426.500.
    (3) Set and change the date, time, and place of a hearing upon 
reasonable notice to the parties.
    (4) Continue or recess a hearing for a reasonable period of time.
    (5) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding.
    (6) Consult with scientific and clinical experts on its own motion, 
concerning clinical or scientific evidence.
    (7) Set schedules for submission of exhibits and written reports of 
experts.
    (8) Administer oaths and affirmations.
    (9) Examine witnesses.
    (10) Issue subpoenas requiring the attendance of witnesses at 
hearings as permitted by this part.
    (11) Issue subpoenas requiring the production of existing documents 
before, and relating to, the hearing as permitted by this part.
    (12) Rule on motions and other procedural matters.
    (13) Stay the proceeding in accordance with Sec. 426.340.
    (14) Regulate the scope and timing of documentary discovery as 
permitted by this part.
    (15) Regulate the course of a hearing and the conduct of 
representatives, parties, and witnesses.
    (16) Receive, rule on, exclude, or limit evidence, as provided in 
this regulation.
    (17) Take official notice of facts, upon motion of a party.
    (18) Decide cases, upon the motion of a party, by summary judgment 
when there is no disputed issue of material fact.
    (19) Conduct any conference, argument, or hearing in person or, upon 
agreement of the parties, by telephone, picture-tel, or any other means.
    (20) Issue decisions.
    (21) Exclude a party from an NCD review for failure to comply with a 
Board order or procedural request without good cause.
    (22) Stay the proceedings for a reasonable time when all parties 
voluntarily agree to mediation or negotiation, and provide mediation 
services upon request.

[[Page 514]]

    (d) The Board does not have authority to do any of the following 
under this part:
    (1) Conduct an LCD review or conduct LCD hearings, except as 
provided by Sec. 426.465.
    (2) Conduct an NCD review or conduct NCD hearings on its own motion 
or on the motion of a nonaggrieved party.
    (3) Issue a decision based on any new evidence without following 
Sec. 426.340, regarding procedures for review of new evidence.
    (4) Review any decisions by CMS to develop a new or revised NCD.
    (5) Conduct a review of any draft NCDs, coverage decision memoranda, 
or withdrawn NCDs.
    (6) Conduct a review of the merits of an unacceptable NCD complaint 
as discussed in Sec. 426.510.
    (7) Conduct an NCD review of any policy that is not an NCD, as 
defined in Sec. 400.202 of this chapter.
    (8) Allow participation by individuals or entities other than--
    (i) The aggrieved party and/or his or her representative;
    (ii) CMS and/or the contractor;
    (iii) Experts called by the parties or Board; or
    (iv) Third parties with a clearly identifiable and substantial 
interest in the outcome of the dispute who have petitioned for and been 
granted permission by the Board to participate in the proceedings as 
amicus curiae.
    (9) Compel the parties to participate in a mediation process or to 
engage in settlement negotiations.
    (10) Deny a request for withdrawal of a complaint by an aggrieved 
party.
    (11) Compel CMS to conduct studies, surveys, or develop new 
information to support an NCD record.
    (12) Deny CMS the right to reconsider, revise, or withdraw an NCD.
    (13) Subject to the timely filing requirements, deny an aggrieved 
party, CMS, or its contractor the right to appeal an ALJ decision.
    (14) Find invalid applicable Federal statutes, regulations, or 
rulings.
    (15) Enter a decision specifying terms to be included in an NCD.



Sec. 426.506  Ex parte contacts.

    No party or person (except Board staff) communicates in any way with 
the Board on any substantive matter at issue in a case, unless on notice 
and opportunity for all parties to participate. This provision does not 
prohibit a person or party from inquiring about the status of a case or 
asking routine questions concerning administrative functions or 
procedures.



Sec. 426.510  Docketing and evaluating the acceptability of NCD complaints.

    (a) Docketing the complaint. The Board does the following upon 
receiving a complaint regarding an NCD:
    (1) Dockets the complaint.
    (2) Determines whether the complaint is--
    (i) The first challenge to a particular NCD; or
    (ii) Related to a pending NCD review.
    (3) Forwards the complaint to the Board member who conducts the 
review.
    (b) Evaluating the acceptability of the complaint. The Board 
determines if the complaint is acceptable by confirming all of the 
following:
    (1) The complaint is being submitted by an aggrieved party or, in 
the case of a joint complaint, that each individual named in the joint 
complaint is an aggrieved party. (In determining if a complaint is 
acceptable, the Board assumes that the facts alleged by the treating 
physician's documentation regarding the aggrieved party's (or parties') 
clinical condition are true.)
    (2) The complaint meets the requirements for a valid complaint in 
Sec. 426.500 and is not one of the documents in Sec. 426.325(b).
    (c) Unacceptable complaint. (1) If the Board determines that the 
complaint is unacceptable, the Board must provide the aggrieved party 
(or parties) one opportunity to amend the unacceptable complaint.
    (2) If the aggrieved party (or parties) fail(s) to submit an 
acceptable amended complaint within a reasonable timeframe as determined 
by the Board, the Board must issue a decision dismissing the 
unacceptable complaint.
    (3) If a complaint is determined to be unacceptable after one 
amendment, the beneficiary is precluded from filing

[[Page 515]]

again for 6 months after being informed that it is unacceptable.
    (d) Acceptable complaint. If the Board determines that the complaint 
(or amended complaint) is acceptable, the Board does the following:
    (1) Sends a letter to the aggrieved party (or parties) acknowledging 
the complaint and informing the aggrieved party (or parties) of the 
docket number and the deadline for CMS to produce the NCD record.
    (2) Forwards a copy of the complaint, any evidence submitted in the 
complaint, and the letter described in paragraph (d)(1) of this section 
to CMS.
    (3) Requires CMS to send a copy of the NCD record to the Board and 
all parties to the NCD review within 30 days of receiving the Board's 
letter, a copy of the complaint, and any associated evidence, subject to 
extension for good cause shown.
    (e) Consolidation of complaints regarding an NCD--(1) Criteria for 
condideration. If a review is pending regarding a particular NCD 
provision(s) and no decision has been issued ending the review, and a 
new acceptable complaint is filed, the Board consolidates the complaints 
and conducts a consolidated NCD review if all of the following criteria 
are met:
    (i) The complaints are in regard to the same provision(s) of the 
same NCD, or there are other bases for consolidating the complaints.
    (ii) The complaints contain common questions of law, common 
questions of fact, or both.
    (iii) Consolidating the complaints does not unduly delay the Board's 
decision.
    (2) Decision to consolidate complaint. If the Board decides to 
consolidate complaints, the Board does the following:
    (i) Provides notification that the NCD review is consolidated and 
informs all parties of the docket number of the consolidated review.
    (ii) Makes a single record of the proceeding.
    (iii) Considers the relevant evidence introduced in each NCD 
complaint as introduced in the consolidated review.
    (3) Decision not to consolidate complaints. If the Board decides not 
to consolidate complaints, the Board conducts separate NCD reviews for 
each complaint.
    (f) Public notice of complaint and opportunity for interested 
parties to participate. (1) If an acceptable complaint is the first 
complaint the Board has received challenging the particular NCD or 
provision, then the Board posts notice on its Web site that it has 
received the complaint, specifying a time period for requests to 
participate in the review process.
    (2) If an acceptable complaint challenges an NCD provision when 
review is pending and no decision has been issued ending the review, the 
Board may supplement the public notice on its Web site and extend the 
time for participation requests if indicated.
    (3) The Board may allow participation, in the manner and by the 
deadlines established by the Board, when an NCD is being challenged and 
the Board decides that--
    (i) The amicus participant has a clearly identifiable and 
substantial interest in the outcome of the dispute;
    (ii) Participation would clarify the issues or otherwise be helpful 
in resolution of the dispute;
    (iii) Participation does not result in substantial delay; and
    (iv) The petition for participation meets the criteria in Sec. 
426.513.



Sec. 426.513  Participation as amicus curiae.

    (a) Petition for participation. Any person or organization that 
wishes to participate as amicus curiae must timely file with the Board a 
petition that concisely states--
    (1) The petitioner's interest in the hearing;
    (2) Who will represent the petitioner; and
    (3) The issues on which the petitioner intends to present argument.
    (b) The nature of the proposed amicus participation. An amicus 
curiae is not a party to the hearing but may participate by--
    (1) Submitting a written statement of position to the Board before 
the beginning of the hearing;
    (2) Presenting a brief oral statement or other evidence at the 
hearing, at the point in the proceedings specified by the Board; and

[[Page 516]]

    (3) Submitting a brief or a written statement when the parties 
submit briefs.
    (c) Service by amicus curiae. Serving copies of any briefs or 
written statements on all parties.



Sec. 426.515  CMS' role in making the NCD record available.

    CMS will provide a copy of the NCD record (as described in Sec. 
426.518) to the Board and all parties to the NCD review within 30 days 
of the receipt of the Board's order.



Sec. 426.516  Role of Medicare Managed Care Organizations (MCOs) and State agencies in the NCD review process.

    Medicare MCOs and Medicaid State agencies may participate in the NCD 
review process only if they meet the amicus participant criteria listed 
in Sec. 426.510(f)(3) and Sec. 426.513.



Sec. 426.517  CMS' statement regarding new evidence.

    (a) CMS may review any new evidence that is submitted, regardless of 
whether the Board has stayed the proceedings, including but not limited 
to new evidence:
    (1) Submitted with the initial complaint;
    (2) Submitted with an amended complaint;
    (3) Produced during discovery;
    (4) Produced when the Board consults with scientific and clinical 
experts; and
    (5) Presented during any hearing.
    (b) CMS may submit a statement regarding whether the new evidence is 
significant under Sec. 426.340, by a deadline set by the Board.



Sec. 426.518  NCD record furnished to the aggrieved party.

    (a) Elements of the NCD record furnished to the aggrieved party. 
Except as provided in paragraph (b) of this section, the NCD record 
consists of any document or material that CMS considered during the 
development of the NCD, including, but not limited to, the following:
    (1) The NCD being challenged.
    (2) Any medical evidence considered on or before the date the NCD 
was issued, including, but not limited to, the following:
    (i) Scientific articles.
    (ii) Technology assessments.
    (iii) Clinical guidelines.
    (iv) Statements from clinical experts, medical textbooks, claims 
data, or other indication of medical standard of practice.
    (v) MCAC transcripts.
    (3) Public comments received during the notice and comment period.
    (4) Coverage decision memoranda.
    (5) An index of documents considered that are excluded under 
paragraph (b) of this section.
    (b) Elements of the NCD record not furnished to the aggrieved party. 
The NCD record furnished to the aggrieved party does not include the 
following:
    (1) Proprietary data or privileged information.
    (2) Any new evidence.



Sec. 426.519  NCD record furnished to the Board.

    The NCD record furnished to the Board includes--
    (a) Documents included in Sec. 426.518(a); and
    (b) Privileged information and proprietary data considered that must 
be filed with the Board under seal.



Sec. 426.520  Withdrawing an NCD under review or issuing a revised or reconsidered NCD.

    (a) CMS may withdraw an NCD or NCD provision under review before the 
date the Board issues a decision regarding that NCD. Withdrawing an NCD 
or NCD provision under review has the same effect as a decision under 
Sec. 426.560(b).
    (b) CMS may revise an NCD under review to remove or amend the NCD 
provision listed in the complaint through the reconsideration process 
before the date the Board issues a decision regarding that NCD. Revising 
an NCD under review to remove the NCD provision in question has the same 
effect as a decision under Sec. 426.560(b).
    (c) CMS must notify the Board within 48 hours of--
    (1) Withdrawing an NCD or NCD provision that is under review; or
    (2) Issuing a revised or reconsidered version of the NCD that is 
under review.

[[Page 517]]

    (d) If CMS issues a revised or reconsidered NCD, CMS forwards a copy 
of the revised/reconsidered NCD to the Board.
    (e) The Board must take the following actions upon receiving a 
notice that CMS has withdrawn or revised/reconsidered an NCD under 
review:
    (1) If, before the Board issues a decision, the Board receives 
notice that CMS has withdrawn the NCD or revised the NCD to completely 
remove the provision in question, the Board must dismiss the complaint 
and inform the aggrieved party (ies) who sought the review that he or 
she or they will receive individual claim review without the retired/
withdrawn provisions.
    (2) If, before the Board issues a decision, the Board receives 
notice that CMS has revised the NCD provision in question but has not 
removed it altogether, the Board must continue the review based on the 
revised NCD. In this case, CMS must send a copy of the supplemental 
record to the Board and all parties. In that circumstance, the Board 
permits the aggrieved party to respond to the revised NCD and the 
supplemental record.



Sec. 426.523  Withdrawing a complaint regarding an NCD under review.

    (a) Circumstance under which an aggrieved party withdraws a 
complaint regarding an NCD. An aggrieved party who filed a complaint 
regarding an NCD may withdraw the complaint before the Board issues a 
decision regarding that NCD. The aggrieved party may not file another 
complaint concerning the same coverage determination for 6 months.
    (b) Process for an aggrieved party withdrawing a complaint regarding 
an NCD. To withdraw a complaint regarding an NCD, the aggrieved party 
who filed the complaint must send a written withdrawal notice to the 
Board (see Sec. 426.500) and CMS. Supplementing an acceptable complaint 
with new evidence does not constitute a withdrawal of a complaint, as 
described in Sec. 426.503.
    (c) Actions the Board must take upon receiving a notice announcing 
the intent to withdraw a complaint regarding an NCD--(1) NCD reviews 
involving one aggrieved party. If the Board receives a withdrawal notice 
regarding an NCD before the date the Board issued a decision regarding 
that NCD, the Board issues a decision dismissing the complaint under 
Sec. 426.544 and informs the aggrieved party that he or she may not 
file another complaint to the same coverage determination for 6 months.
    (2) NCD reviews involving joint complaints. If the Board receives a 
notice from an aggrieved party who is named in a joint complaint 
withdrawing a complaint regarding an NCD before the date the Board 
issued a decision regarding that NCD, the Board issues a decision 
dismissing only that aggrieved party from the complaint under Sec. 
426.544. The Board continues the NCD review if there is one or more 
aggrieved party who does not withdraw from the joint complaint.
    (3) Consolidated NCD reviews. If the Board receives a notice from an 
aggrieved party who is part of a consolidated NCD review withdrawing a 
complaint regarding an NCD before the date the Board issued a decision 
regarding that NCD, the Board removes that aggrieved party from the 
consolidated NCD review and issues a decision dismissing that aggrieved 
party's complaint under Sec. 426.544. The Board continues the NCD 
review if there is one or more aggrieved party who does not withdraw 
from the joint complaint.



Sec. 426.525  NCD review.

    (a) Opportunity for the aggrieved party after his or her review of 
the NCD record to state why the NCD is not valid. Upon receipt of the 
NCD record, the aggrieved party files a statement explaining why the NCD 
record is not complete, or not adequate to support the validity of the 
NCD under the reasonableness standard. This statement must be submitted 
to the Board and CMS, within 30 days (or within additional time as 
allowed by the Board for good cause shown) of the date the aggrieved 
party receives the NCD record.
    (b) CMS response. CMS has 30 days, after receiving the aggrieved 
party's statement, to submit a response to the Board in order to defend 
the NCD.
    (c) Board evaluation. (1) After the aggrieved party files a 
statement and CMS responds as described in Sec. 426.525(a) and Sec. 
426.525(b), or the time for filing has expired, the Board applies

[[Page 518]]

the reasonableness standard to determine whether the NCD record is 
complete and adequate to support the validity of the NCD.
    (2) Issuance of a decision finding the record complete and adequate 
to support the validity of the NCD ends the review process.
    (3) If the Board determines that the NCD record is not complete and 
adequate to support the validity of the NCD, the Board permits discovery 
and the taking of evidence in accordance with Sec. 426.532 and Sec. 
426.540, and evaluate the NCD in accordance with Sec. 426.531.
    (d) The process described in paragraphs (a), (b), and (c) of this 
section applies when an NCD record has been supplemented, except that 
discovery and the taking of evidence is not repeated. The period for the 
aggrieved party to file a statement begins when the aggrieved party 
receives the supplement.



Sec. 426.531  Board's review of the NCD to apply the reasonableness standard.

    (a) Required steps. The Board must do the following to review the 
provision(s) listed in the aggrieved party's complaint based on the 
reasonableness standard:
    (1) Confine the NCD review to the provision(s) of the NCD raised in 
the aggrieved party's complaint.
    (2) Conduct a hearing unless the matter can be decided on the 
written record.
    (3) Close the NCD review record to the taking of evidence.
    (4) Treat as precedential any previous Board decision made under 
Sec. 426.547 that involves the same NCD provision(s), same specific 
issue and facts in question, and the same clinical conditions.
    (5) Issue a decision as described in Sec. 426.547.
    (b) Optional steps. The Board may consult with appropriate 
scientific or clinical experts concerning clinical and scientific 
evidence to apply the reasonableness standard to the provision(s) listed 
in the aggrieved party's complaint.
    (c) Authority for the Board in NCD reviews when applying the 
reasonableness standard. In applying the reasonableness standard to a 
provision (or provisions) of an NCD, the Board must follow all 
applicable laws and regulations, as well as NCDs other than the one 
under review.



Sec. 426.532  Discovery.

    (a) General rule. If the Board orders discovery, the Board must 
establish a reasonable timeframe for discovery.
    (b) Protective order--(1) Request for a protective order. Any party 
receiving a discovery request may file a motion for a protective order 
before the date of production of the discovery.
    (2) The Board granting of a protective order. The Board may grant a 
motion for a protective order if it finds that the discovery sought--
    (i) Is irrelevant or unduly repetitive;
    (ii) Is unduly costly or burdensome; or
    (iii) Will unduly delay the proceeding.
    (c) Types of discovery available. A party may obtain discovery via a 
request for the production of documents, and/or via the submission of up 
to 10 written interrogatory questions, relating to a specific NCD.
    (d) Types of documents. For the purpose of this section, the term 
documents includes relevant information, reports, answers, records, 
accounts, papers, and other data and documentary evidence. Nothing 
contained in this section will be interpreted to require the creation of 
a document.
    (e) Types of discovery not available. Requests for admissions, 
depositions, or any other forms of discovery, other than those permitted 
under paragraph (c) of this section, are not authorized.
    (f) Privileged information or proprietary data. The Board must not 
under any circumstances order the disclosure of privileged information 
or proprietary data filed under seal without the consent of the party 
who possesses the right to protection of the information.
    (g) Notification. The Board notifies all parties in writing when the 
discovery period will be closed.

[[Page 519]]



Sec. 426.535  Subpoenas.

    (a) Purpose of a subpoena. A subpoena requires the attendance of an 
individual at a hearing and may also require a party to produce evidence 
authorized under Sec. 426.540 at or before the hearing.
    (b) Filing a motion for a subpoena. A party seeking a subpoena must 
file a written motion with the Board not less than 30 days before the 
date fixed for the hearing. The motion must do all of the following:
    (1) Designate the witnesses.
    (2) Specify any evidence to be produced.
    (3) Describe the address and location with sufficient particularity 
to permit the witnesses to be found.
    (4) State the pertinent facts that the party expects to establish by 
witnesses or documents and state whether those facts could be 
established by evidence other than by the use of a subpoena.
    (c) Response to a motion for a subpoena. Within 15 days after the 
written motion requesting issuance of a subpoena is served on all 
parties, any party may file an opposition to the motion or other 
response.
    (d) Extension for good cause shown. The Board may modify the 
deadlines specified in paragraphs (b) and (c) of this section for good 
cause shown.
    (e) Motion for a subpoena granted. If the Board grants a motion 
requesting issuance of a subpoena, the subpoena must do the following:
    (1) Be issued in the name of the presiding Board member.
    (2) Include the docket number and title of the NCD under review.
    (3) Provide notice that the subpoena is issued according to sections 
1872 and 205(d) and (e) of the Act.
    (4) Specify the time and place at which the witness is to appear and 
any evidence the witness is to produce.
    (f) Delivery of the subpoena. The party seeking the subpoena serves 
it by personal delivery to the individual named, or by certified mail 
return receipt requested, addressed to the individual at his or her last 
dwelling place or principal place of business.
    (g) Motion to quash a subpoena. The individual to whom the subpoena 
is directed may file with the Board a motion to quash the subpoena 
within 10 days after service.
    (h) Refusal to obey a subpoena. The exclusive remedy for contumacy 
by, or refusal to obey, a subpoena duly served upon any person is 
specified in section 205(e) of the Act (42 U.S.C. 405(e)) except that 
any reference to the ``Commissioner of Social Security'' shall be 
considered a reference to the ``Secretary.''



Sec. 426.540  Evidence.

    (a) Except as provided in this part, the Board is not bound by the 
Federal Rules of Evidence. However, the Board may apply the Federal 
Rules of Evidence when appropriate, for example, to exclude unreliable 
evidence.
    (b) The Board must exclude evidence that it determines is clearly 
irrelevant or immaterial, or unduly repetitive.
    (c) The Board may accept privileged information or proprietary data, 
but must maintain it under seal.
    (d) The Board may permit the parties to introduce the testimony of 
expert witnesses on scientific and clinical issues, rebuttal witnesses, 
and other relevant evidence. The Board may require that the testimony of 
expert witnesses be submitted in the form of a written report, 
accompanied by the curriculum vitae of the expert preparing the report.
    (e) Experts submitting reports must be available for cross-
examination at an evidentiary hearing upon request of the Board or a 
party to the proceeding, or the report will be excluded from the record.
    (f) Except as set forth in paragraph (c) of this section or unless 
otherwise ordered by the Board for good cause shown, all documents and 
other evidence offered or taken for the record is open to examination by 
all parties.



Sec. 426.544  Dismissals for cause.

    (a) The Board may, at the request of any party, or on its own 
motion, dismiss a complaint if the aggrieved party fails to do either of 
the following:
    (1) Attend or participate in a prehearing conference (the prehearing 
may be conducted by telephone) or hearing without good cause shown.
    (2) Comply with a lawful order of the Board without cause shown.

[[Page 520]]

    (b) The Board must dismiss any complaint concerning NCD provision(s) 
if the following conditions exist:
    (1) The Board does not have the authority to rule on that provision 
under Sec. 426.505(d).
    (2) The complaint is not timely. (See Sec. 426.500(b)).
    (3) The complaint is not filed by an aggrieved party.
    (4) The complaint is filed by an individual who fails to provide an 
adequate statement of need for the service from the treating physician.
    (5) The complaint challenges a provision or provisions of an LCD 
except as provided in Sec. 426.476, regarding the Board's review of an 
ALJ decision. (See Sec. 426.505, regarding the authority of the Board.)
    (6) CMS notifies the Board that the NCD provision(s) is (are) no 
longer in effect.
    (7) The aggrieved party withdraws the complaint. (See Sec. 426.523, 
for requirements for withdrawing a complaint regarding an NCD under 
review.)



Sec. 426.545  Witness fees.

    (a) A witness testifying at a hearing before the Board receives the 
same fees and mileage as witnesses in Federal district courts of the 
United States. If the witness qualifies as an expert, he or she is 
entitled to an expert witness fee. Witness fees are paid by the party 
seeking to present the witness.
    (b) If the Board requests expert testimony, the Board is responsible 
for paying all applicable fees and mileage, unless the expert waives 
payment.



Sec. 426.546  Record of hearing.

    The Board must ensure that all hearings are open to the public and 
are electronically, mechanically, or stenographically reported. Except 
for privileged information and proprietary data that are filed under 
seal, all evidence upon which the Board relies for decision must be 
admitted into the public record. All medical reports, exhibits, and any 
other pertinent document, either in whole or in material part, must be 
offered, marked for identification, and retained in the case record.



Sec. 426.547  Issuance, notification, and posting of a Board's decision.

    The Board must do the following:
    (a) Issue to all parties to the NCD review, within 90 days of 
closing the NCD review record to the taking of evidence, one of the 
following:
    (1) A written decision, including a description of appeal rights.
    (2) A written notification stating that a decision is pending, and 
an approximate date of issuance for the decision.
    (b) Make the decision available at the HHS Medicare Internet site. 
The posted decision does not include any information that identifies any 
individual, provider of service, or supplier.



Sec. 426.550  Mandatory provisions of the Board's decision.

    (a) Findings. The Board's decision must include one of the 
following:
    (1) A determination that the provision of the NCD is valid under the 
reasonableness standard.
    (2) A determination that the provision of the NCD is not valid under 
the reasonableness standard.
    (3) A statement dismissing the complaint regarding the NCD, and a 
rationale for the dismissal.
    (4) A determination that the LCD or NCD record is complete and 
adequate to support the validity of the LCD or NCD provisions under the 
reasonableness standard.
    (b) Other information. The Board's decision must include all of the 
following:
    (1) The date of issuance.
    (2) The docket number of the NCD review.
    (3) A statement as to whether the aggrieved party has filed a claim 
for the service(s) named in the complaint, the date(s)-of-service, and 
the disposition, if known.
    (4) A basis for concluding that the NCD was or was not valid based 
on the application of the reasonableness standard to the record before 
the Board, including CMS':
    (i) Findings of fact.
    (ii) Interpretations of law.
    (iii) Applications of fact to law.
    (5) A summary of the evidence reviewed. Where proprietary or 
privileged data were submitted under seal,

[[Page 521]]

the decision must state whether the data were material and what role 
they played in the determination, but without disclosing the substance 
or contents of the evidence under seal. A separate statement of the 
rationale for the Board's treatment of the sealed evidence must be 
prepared and kept under seal itself. If the Board decision is appealed 
to the court, this statement must be provided to the court, under seal.
    (6) A statement regarding the right to judicial review.



Sec. 426.555  Prohibited provisions of the Board's decision.

    The Board's decision may not do any of the following:
    (a) Order CMS to add any language to a provision or provisions of an 
NCD.
    (b) Order CMS or its contractors to pay a specific claim.
    (c) Set a time limit for CMS to establish a new or revised NCD.
    (d) Review or evaluate an NCD other than the NCD under review.
    (e) Include a requirement for CMS or its contractors that specifies 
payment, coding, or systems changes for an NCD, or deadlines for 
implementing these types of changes.
    (f) Order or address how CMS implements an NCD.



Sec. 426.557  Optional provisions of the Board's decision.

    When appropriate, the Board may limit a decision holding invalid a 
specific provision(s) of an NCD to specific clinical indications and for 
similar conditions.



Sec. 426.560  Effect of the Board's decision.

    (a) Valid under the reasonableness standard. If the Board finds that 
the provision (or provisions) of an NCD named in the complaint is (are) 
valid under the reasonableness standard, the aggrieved party may 
challenge the final agency action in Federal court.
    (b) Not valid under the reasonableness standard. If the Board finds 
that the provision (or provisions) of an NCD named in the complaint is 
(are) invalid under the reasonableness standard, then CMS instructs its 
contractor, M+C organization, or other Medicare managed care 
organization to provide the following--
    (1) Individual claim review. (i) If the aggrieved party's claim/
appeal(s) was previously denied, the contractor, an M+C organization, or 
another Medicare managed care organization must reopen the claim of the 
party who challenged the LCD and adjudicate the claim without using the 
provision(s) of the NCD that the Board found invalid.
    (ii) If a revised NCD is issued, contractors, M+C organizations, and 
other Medicare managed care organizations must use the revised NCD in 
reviewing claim/appeal submissions or request for services delivered or 
services performed on or after the effective date of the revised NCD.
    (iii) If the aggrieved party who sought review has not yet submitted 
a claim, the contractor must adjudicate the claim without using the 
provision(s) of the NCD that the Board found invalid.
    (iv) In either case, the claim and any subsequent claims for the 
service provided under the same circumstances, must be adjudicated 
without using the NCD provision(s) found invalid.
    (2) Coverage determination relief. Within 30 days, CMS implements 
the Board decision. Any change in policy is applied prospectively to 
requests for service or claims filed with dates of service after the 
implementation of the Board decision.



Sec. 426.562  Notice of the Board's decision.

    After the Board has made a decision regarding an NCD complaint, the 
Board sends a written notice of the decision to each party. The notice 
must--
    (a) State the outcome of the review; and
    (b) Inform each party to the determination of his or her rights to 
seek further review if he or she is dissatisfied with the determination, 
and the time limit under which an appeal must be requested.



Sec. 426.563  Future new or revised or reconsidered NCDs.

    CMS may not reinstate an NCD provision(s) found to be unreasonable 
unless CMS has a different basis (such as

[[Page 522]]

additional evidence) than what the Board evaluated.



Sec. 426.565  Board's role in making an LCD or NCD review record available.

    Upon a request from a Federal Court, the Board must provide to the 
Federal Court a copy of the Board's LCD or NCD review record (as 
described in Sec. 426.587).



Sec. 426.566  Board decision.

    A decision by the Board constitutes a final agency action and is 
subject to judicial review. CMS may not appeal a Board decision.



Sec. 426.587  Record for appeal of a Board NCD decision.

    (a) Elements of the Board's NCD review record furnished to the 
public. Except as provided in paragraph (b) of this section, the Board's 
NCD review record consists of any document or material that the Board 
compiled or considered during an NCD review, including, but not limited 
to, the following:
    (1) The NCD complaint.
    (2) The NCD and NCD record.
    (3) The supplemental NCD record, if applicable.
    (4) Transcripts of record.
    (5) Any other evidence relevant gathered under Sec. 426.540.
    (6) The Board's decision.
    (b) Documents excluded from the NCD review record furnished to the 
court. The NCD review record furnished to the court maintains the seal 
on privileged information or proprietary data that is maintained under 
seal by the Board. In the event a court seeks to obtain or requires 
disclosure of any documents excluded from the NCD record as privileged 
information or proprietary data, CMS or the Department seeks to have a 
protective order issued for those documents, as appropriate.


[[Page 523]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 525]]

            Material Approved for Incorporation by Reference

                     (Revised as of October 1, 2006)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


42 CFR (PARTS 414-429)

CENTERS FOR MEDICARE AND MEDICAID SERVICES, DEPARTMENT OF HEALTH AND 
HUMAN SERVICES
                                                                  42 CFR


National Council for Prescription Drug Programs

  9240 East Raintree Drive, Scottsdale, Arizona 
  85260
Prescriber/Pharmacist Interface SCRIPT Standard                  423.160
  Implementation Guide, Version 8.1, October 2005.


National Fire Protection Association (NFPA)

  1 Batterymarch Park, P.O. Box 9101, Quincy, MA 
  02269-9101
NFPA 101, Life Safety Code (2000 Edition).........       416.44; 418.100

[[Page 527]]



                    Table of CFR Titles and Chapters




                     (Revised as of October 1, 2006)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100-199)
        II  Office of Management and Budget Circulars and Guidance 
                (200-299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements [Reserved]


                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)

[[Page 528]]

        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)
    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
        LV  National Endowment for the Arts (Part 6501)
       LVI  National Endowment for the Humanities (Part 6601)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)

[[Page 529]]

    LXXVII  Office of Management and Budget (Part 8701)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Part 
                9701)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Part 9901)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)

[[Page 530]]

     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

[[Page 531]]

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

[[Page 532]]

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

[[Page 533]]

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

[[Page 534]]

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board Regulations (Parts 
                900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)

[[Page 535]]

        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)

[[Page 536]]

        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

[[Page 537]]

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)

[[Page 538]]

    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)

[[Page 539]]

       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)

[[Page 540]]

       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

[[Page 541]]

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)

[[Page 542]]

        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees' 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  [Reserved]
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)

[[Page 543]]

        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation - [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)

[[Page 544]]

        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 545]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of October 1, 2006)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 546]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 547]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, II
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 548]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 549]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Defense Acquisition Regulations System          48, 2
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
   Archives and Records Administration
[[Page 550]]

Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50

[[Page 551]]

  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52

[[Page 552]]

Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII

[[Page 553]]

Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 555]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985 and 1986-2000'' published in 
11 separate volumes.

                                  2001

42 CFR
                                                                   66 FR
                                                                    Page
Chapter IV
Chapter IV Nomenclature change; heading revised....................39452
414 Technical correction...........................................16607
414.2 Amended......................................................55332
414.63 Regulation at 65 FR 83153 confirmed.........................14861
414.64 Added.......................................................55332
414.65 Revised.....................................................55332
414.100--414.104 (Subpart C) Added; eff. 1-1-02....................45176
415.130 (a), (b) and (c) redesignated as (b), (c) and (d); new (a) 
        added; new (b)(3) and (4) amended; new (d) revised.........55332
416.42 (b) revised..................................................4686
    Regulation at 66 FR 4686 eff. date delayed.....................15352
    Regulation at 66 FR 4686 delayed to 11-14-01...................27598
    416.42Regulation at 66 FR 4686 withdrawn; (b) revised; (d) 
added..............................................................56768
419.2 (c) revised..................................................59922
419.20 (a) revised; (b)(3) and (4) added...........................59922
419.22 (r) added...................................................59922
419.32 (b)(1) revised..............................................59922
    Regulation at 66 FR 59922 delayed in part......................67494
419.40 Revised.....................................................59922
419.41 Amended; heading revised; (c)(4)(ii) redesignated as 
        (c)(4)(iv); new (c)(4)(ii) and (iii) added.................59923
419.42 (a), (c) and (e) revised....................................59923
419.43 (e) removed; (f) redesignated as new (e); new (e) revised; 
        interim....................................................55856
    Heading and (a) amended........................................59923
419.60 (e) revised; interim........................................55856
419.62--419.66 (Subpart G) Added; interim..........................55856
419.62 (d) added...................................................55865
    Regulation at 66 FR 55865 delayed..............................67494
419.70 (Subpart G) Redesignated as Subpart H; interim..............55856
    (d)(2) revised.................................................59923
422 Authority citation revised...............................3376, 47413
422.156 (e)(1) correctly revised; CFR correction...................13854
422.204 (b)(2)(ii) revised; eff. 10-12-01..........................47413
422.270 Redesignated from 413.85 (h)................................3374
    Revised.........................................................3376
    Regulations at 66 FR 3374 and 3376 eff. date delayed...........14342
424 Comment period extension.......................................17813
424.20 (a)(2) heading revised......................................39600
424.22 (e), (f) and (g) removed; eff. 1-4-02; (d) revised............962
    Regulation at 66 FR 962 eff. date corrected to 4-6-01...........8771
424.32 (a)(2) and (5) revised......................................39601
424.44 Regulation at 65 FR 83153 confirmed.........................14861

[[Page 556]]

                                  2002

42 CFR
                                                                   67 FR
                                                                    Page
Chapter IV
Chapter IV Nomenclature change.....................................36540
414 Technical correction...........................................20681
    414 Policy statement...........................................67318
414.1 Revised.......................................................9132
414.22 (b)(6) revised; interim.....................................43558
414.46 (g) revised.................................................80041
414.65 Heading, (a)(1), and (b) introductory text revised..........80041
414.601--414.625 (Subpart H) Added..................................9132
415 Technical correction...........................................20681
417.402 (b) revised................................................13288
419 Technical correction...........................................69146
419.21 (d)(3) revised..............................................66813
419.32 (b)(1)(iii) corrected........................................9568
419.62 (d) corrected................................................9568
419.66 (c)(1) amended..............................................66813
422.68 (c) revised.................................................13288
422.80 (a)(1) revised..............................................13288
422.100 (d)(2) and (g)(2) revised..................................13288
422.250 (g)(2)(i) and (ii) revised; (g)(2)(iii) added..............13288
422.252 (b)(2) and (c)(2) revised; (b)(3), (4), (c)(3) and (4) 
        added......................................................13289
422.256 (d)(2) revised.............................................13289
422.506 (a)(4) amended.............................................13289
422.512 (e) amended................................................13289
424 Technical correction.............................11549, 13278, 15011

                                  2003

42 CFR
                                                                   68 FR
                                                                    Page
Chapter IV
414 Policy statement................................................9567
    Technical correction...........................................32400
414.22 (b)(6)(iii) revised.........................................63261
414.46 (e), (f) and (g) redesignated as (f), (g) and (h); new (e) 
        added......................................................63261
414.605 Amended....................................................67963
414.610 (c)(3) and (5) revised.....................................67963
416 Amublatory Surgical Centers list of covered procedures.........15268
    Technical correction...........................................32406
416.44 (b)(1) and (3) revised; (b)(4) added.........................1385
417.479 (g)(2)(ii) amended; (h) heading, (1), (2), and (3) 
        introductory text revised..................................50855
418.100 (d)(1), (3), and (4) revised................................1386
419 Technical correction............................................6636
    Policy statement...............................................63398
    Regulation at 68 FR 63398 corrected............................75442
422 Technical correction...........................................20349
422.2 Amended......................................................50855
422.50 (a)(2) revised..............................................50855
422.74 (d)(1)(ii) and (4) revised..................................50855
422.101 (b)(3) revised; (c) added..................................50856
422.106 Heading, (a) introductory text, (1), (2), and (b) 
        introductory text revised; (c) added.......................50856
422.109 Revised....................................................50856
422.111 (f)(8)(iii) added..........................................50857
422.133 Added......................................................50857
422.152 (f)(4) added...............................................50857
422.202 (a)(4) revised.............................................50857
422.210 (a) and (b) introductory text revised......................50858
422.250 (a)(1) revised; (a)(2)(i)(B) redesignated as (a)(2)(i)(C); 
        new (a)(2)(i)(B) added.....................................50858
422.256 (b) revised................................................50858
422.266 (a) introductory text and (c) revised......................50858
422.312 (d) redesignated as (e); new (d) added.....................50858
422.521 Added......................................................50858
422.561 Amended....................................................16667
422.564 Revised (OMB number pending)...............................16667
422.566 (c) revised................................................50859
422.618 (c) revised................................................50859
422.619 (c) revised................................................50859
422.620 Revised (OMB number pending)...............................16667
422.624 Added (OMB number pending).................................16667
422.626 Added (OMB number pending).................................16667
422.756 (f)(2) and (3) revised.....................................50859
422.758 Introductory text, (a) and (b) redesignated as (a) 
        introductory text, (1) and (2); new (b) added..............50859
424.32 (d) added; interim; eff. 10-16-03...........................48813
426 Added..........................................................63716
426.10 (a) corrected...............................................65346

                                  2004

42 CFR
                                                                   69 FR
                                                                    Page
Chapter IV
414 Technical corrections............................15703, 15729, 35527

[[Page 557]]

414.1 Amended; interim..............................................1116
414.38 Removed.....................................................66423
414.39 (a) revised; (c) added......................................66423
414.65 (a)(1) revised..............................................66424
414.66 Added.......................................................66424
414.67 Added.......................................................66424
414.610 (c)(1) and (5) revised; (c)(7) added; interim..............40292
414.617 Added; interim.............................................40292
414.701--414.707 (Subpart I) Added; interim.........................1116
414.800--414.806 (Subpart J) Added; interim........................17938
414.804 (a)(3) revised.............................................55765
414.900--414.904 (Subpart K) Added.................................66424
414.1000--414.1001 (Subpart L) Added...............................66425
418 Application deadline...........................................69536
418.100 (d)(1) and (4) revised; (d)(5) added.......................49266
418.205 Added......................................................66425
418.304 (d) added..................................................66426
419 Technical correction...........................................78315
419.21 (e) added...................................................65863
419.22 (s) added...................................................65863
419.32 (d) revised; interim..........................................832
419.43 (d)(1) introductory text and (e) revised; (f) added; 
        interim......................................................832
419.64 (d) revised; interim..........................................832
    (d) revised....................................................65863
419.70 (d)(1) amended; (d)(3) added; interim.........................832
    Heading, (f)(2)(i) and (ii) revised............................65863
419.89 Redesignated from 413.80....................................49254
422.752 (a) introductory text revised; interim.....................78338
422.758 Revised....................................................78338
424 Technical correction; interim; eff. 7-26-04....................17933
424.45 Removed.....................................................21966
424.55 (c) added...................................................66426
424.71 Amended.....................................................66426
424.80 (a), (b)(2) and (c) revised; (b)(3) removed; (b)(4), (5) 
        and (6) redesignated as (b)(3), (4) and 5; (d) added.......66426

                                  2005

42 CFR
                                                                   70 FR
                                                                    Page
Chapter IV
414 Interpretation and technical correction........................52930
414.39 (c)(1) revised..............................................16722
414.65 (a)(1) revised..............................................70332
414.802 Amended; interim...........................................70481
414.804 (a)(3)(iv) revised.........................................70332
414.900--414.904 (Subpart K) Heading revised; interim..............39093
414.900 Heading, (a) and (b)(3)(ii) revised; interim...............39093
414.902 Amended; interim...........................................39093
414.904 Heading revised; interim...................................39094
    (a) introductory text, (d)(3) and (e)(2) revised; (d)(2)(iii) 
added..............................................................70332
414.906 Added; interim.............................................39094
    (f) revised....................................................70333
414.908 Added; interim.............................................39094
    (a)(3)(v)(M) and (5) revised; (a)(3)(vi) through (xii) 
redesignated as (a)(3)(viii) through (xiv); new (a)(3)(vi) and 
(vii) added........................................................70333
414.910 Added; interim.............................................39095
414.912 Added; interim.............................................39096
414.914 Added; interim.............................................39096
    (f)(9), (10) and (11) and (f)(5) through (8) redesignated as 
(f)(14), (15) and (16) and (f)(9) through (12); new (f)(5) through 
(8) and (13) added; (g)(3), (h)(1), (2), (3), (5), (6) and (8) 
revised............................................................70333
414.916 Added; interim.............................................39097
414.917 Added; interim.............................................39098
414.918 Added; interim.............................................39099
414.920 Added; interim.............................................39099
414.1001 Revised...................................................70334
415.55 (a)(5) amended..............................................47490
415.70 (a)(2) amended..............................................47490
415.102 (c)(1) amended.............................................47490
415.150 (b) amended................................................47490
415.152 Amended....................................................47490
415.160 (c)(2) and (d)(2) amended..................................47490
415.174 (a)(1) amended.............................................47490
415.200 (a) amended................................................47490
415.204 (a)(2) amended.............................................47490
415.206 (a) amended................................................47490
415.208 (b)(1) and (4) amended.....................................47490
416 Ambulatory Surgical Center List of Covered Procedures..........23690
    Technical correction...........................................36533

[[Page 558]]

416.44 (b)(5) added; interim.......................................15237
417 Policy statement........................................13397, 13401
417.402 (b) revised; (c) added......................................4713
417.440 (b)(2) revised..............................................4525
417.534 (c) added...................................................4525
417.600 Revised; eff. in part 1-1-06................................4713
417.602 Removed; eff. 1-1-06........................................4713
417.604 Removed; eff. 1-1-06........................................4713
417.605 Removed; eff. 1-1-06........................................4713
417.606 Removed; eff. 1-1-06........................................4713
417.608 Removed; eff. 1-1-06........................................4713
417.609 Removed; eff. 1-1-06........................................4713
417.610 Removed; eff. 1-1-06........................................4713
417.612 Removed; eff. 1-1-06........................................4713
417.614 Removed; eff. 1-1-06........................................4713
417.616 Removed; eff. 1-1-06........................................4713
417.617 Removed; eff. 1-1-06........................................4713
417.618 Removed; eff. 1-1-06........................................4713
417.620 Removed; eff. 1-1-06........................................4713
417.622 Removed; eff. 1-1-06........................................4713
417.624 Removed; eff. 1-1-06........................................4713
417.626 Removed; eff. 1-1-06........................................4713
417.630 Removed; eff. 1-1-06........................................4713
417.632 Removed; eff. 1-1-06........................................4713
417.634 Removed; eff. 1-1-06........................................4713
417.636 Removed; eff. 1-1-06........................................4713
417.638 Removed; eff. 1-1-06........................................4713
417.832 (c) revised; (d) added; eff. in part 1-1-06.................4713
417.840 Revised; eff. 1-1-06........................................4713
418--Technical correction...................................57174, 76176
418.3 Amended......................................................45144
418.21 (a) revised.................................................70546
418.22 (c)(1)(ii) revised..........................................45144
    (a) and (b) revised............................................70547
418.24 (c) revised.................................................70547
418.25 Added.......................................................70547
418.26 Added.......................................................70547
418.100 (d)(6) added; interim......................................15237
418.202 (i) added..................................................70547
418.301 (c) added..................................................70547
418.302 (d) revised................................................45145
    (g) added......................................................70547
418.304 Heading and (a) introductory text revised; (e) added.......45145
    (b) and (c) amended............................................70547
418.306 (b)(3) revised; (b)(4) and (5) added.......................70548
419.2 (c)(1) and (6) amended.......................................47490
419.43 (g) added...................................................68727
    (g)(4) correctly amended.......................................76178
419.66 (c)(1) revised..............................................68728
421.210 (a), (c), (d) introductory text and (e) revised.............9239
422 Heading revised.................................................4714
    Nomenclature changes............................................4741
    Policy statement...............................................13401
422.1 (a) amended...................................................4714
422.2 Amended.........................................4714, 52026, 76197
422.4 (a)(2)(ii) removed; (a)(1)(iv) and (2)(iii) redesignated as 
        (a)(1)(v) and new (2)(ii); heading, (a)(1)(iii) and new 
        (v) revised; new (a)(1)(iv) and (c) added...................4714
    (a)(1)(iii) corrected..........................................52026
422.6 Removed; new 422.6 redesignated from 422.10...................4715
    Heading, (d)(2)(ii) and (f)(1)(ii) revised; (e) amended........52026
422.8 Removed.......................................................4715
422.10 Redesignated as 422.6; heading, (a), (b), (d)(2)(ii), (e), 
        (f)(1), (2) and (3) revised.................................4715
422.50 Heading and (a)(5) revised; introductory text and 
        (a)(2)(iii) added; (a)(2)(i) and (ii) amended...............4715
    (a)(4) corrected...............................................52026
422.52 Added........................................................4716
422.54 Heading, (a), (b), (c)(1)(ii), (2) and (d)(3) revised........4716
422.56 Heading, (a) and (b) revised.................................4716
422.60 (b)(1), (3), (c) heading, (1), (d), (e), (f)(1) and (3) 
        revised.....................................................4716
    (f) introductory text corrected................................52026
422.62 Heading, (a), (b) introductory text, (d) heading and (1) 
        revised; (d)(2)(i)(A) removed; (d)(2)(i)(B) and (C) 
        redesignated as (d)(2)(i)(A) and (B)........................4717
422.66 Heading, (b)(1)(i), (ii), (3)(ii), (iii) introductory text, 
        (d)(5), (e) and (f)(2) revised..............................4718
    (f)(1) corrected...............................................52026
422.68 (b) revised..................................................4718
422.74 Heading, (b)(1)(ii), (c)(1), (d)(1) and (2) revised; 
        (b)(2)(iv) added............................................4718
422.80 (a) and (e)(1)(ii) through (v) revised; (e)(1)(ix) added.....4719
422.100 (e) removed; (f) through (j) redesignated as (e) through 
        (i); (b)(2), (c)(1), new (f) introductory text and (2) 
        revised.....................................................4719
    (d)(2) amended.................................................52026
422.101 (b)(2) and (3) introductory text revised; (b)(4), (5), (d) 
        and (e) added...............................................4720

[[Page 559]]

    Introductory text, (b)(3)(i) and (d)(1) corrected..............52026
    (b)(4) amended.................................................76197
422.102 (a)(1) and (3) revised; (a)(4) added........................4720
422.103 Heading and (a) revised.....................................4720
    (d)(2) corrected...............................................52026
422.105 Heading, (a) and (b) revised................................4720
422.106 (c) heading and (2); (d) added..............................4721
422.108 (f) revised.................................................4721
422.109 (a)(2), (c)(2)(iv) and (3) revised..........................4721
    (a)(1)(ii) corrected...........................................52026
422.110 (b) revised; (c) removed....................................4721
422.111 (b)(3) introductory text, (f)(5) and (7) through (11) 
        redesignated as (b)(3)(i) and (f)(4) through (9); (b)(2) 
        introductory text, (9), (c)(1), (d)(2), (e), new 
        (f)(5)(iv) and (9) revised; (b)(3)(ii), (11), (f)(10), 
        (11) and (12) added; (f)(4), new (5)(v) and (6) removed; 
        new (f)(5)(vi), (vii) and (viii) redesignated as new 
        (f)(5)(v), (vi) and (vii)...................................4721
    (b)(2) corrected...............................................52026
422.112 (a) heading, introductory text, (1), (b) heading and 
        introductory text revised; (a)(4) removed; (a)(5) through 
        (10) redesignated as (a)(4) through (9); (c) added..........4722
    (c)(5) revised.................................................76197
422.113 (b)(2)(v) and (c)(2)(iv) revised............................4723
422.114 Heading revised; (c) added..................................4723
422.132 Amended....................................................52026
422.133 (b)(4) added................................................4723
422.152--422.158 (Subpart D) Nomenclature change....................4723
422.152 Revised.....................................................4723
    (a)(1) and (c) stayed to 1-1-06; (b)(3)(ii) corrected..........52026
422.154 Removed.....................................................4724
422.156 (b)(1) revised; (b)(7) added................................4724
    (b)(7) stayed to 1-1-06........................................52026
422.202 (b) introductory text amended...............................4724
422.204 (b)(2)(ii) amended..........................................4724
422.206 (b)(2)(i) amended..........................................52026
422.208 (c)(2) revised; (h) removed; (i) redesignated as (h)........4724
    (c)(2) corrected...............................................52026
422.210 Revised..............................................4724, 52026
422.214 (a)(1) and (b) revised......................................4724
    (b) amended....................................................47490
422.216 (a)(4) amended.............................................47490
    (b)(2) amended.................................................52026
    (b)(1)(i), (iii) and (i) revised...............................76197
422.250--422.270 (Subpart F) Revised................................4725
422.252 Corrected..................................................52026
422.254 (b)(1)(i) corrected........................................52026
422.256 (c) corrected..............................................52027
    (b)(3) introductory text revised...............................76198
422.300--422.324 (Subpart G) Revised................................4729
422.314 (c)(1)(i) corrected........................................52027
422.316 Stayed to 1-1-06...........................................52027
    (a) revised....................................................76198
422.320 (c)(1) and (2)(ii) corrected...............................52027
422.322 (b) and (c) corrected......................................52027
422.402 Revised.....................................................4733
422.404 (a) revised.................................................4733
422.451--422.458 (Subpart J) Added..................................4733
422.458 (d)(2) revised.............................................52027
422.500 Heading revised; existing text designated as (b) and 
        amended; (a) added..........................................4736
    (b)(1) corrected...............................................52027
422.501 Redesignated as 422.503; new 422.501 added..................4736
422.502 Redesignated as 422.504; new 422.502 added..................4736
422.503 Redesignated from 422.501; (b)(1) through (5) redesignated 
        as (b)(2) through (6); new (b)(1) added; new (b)(4)(ii), 
        (vi)(F), (6) introductory text and (i) revised; 
        (b)(4)(vi)(G)(1), (2) and (H) added.........................4737
    (b)(4)(vi)(H) and (d)(1) corrected.............................52027
    (b)(4)(ii) revised.............................................76198
422.504 Redesignated as 422.505; new 422.504 redesignated from 
        422.502.....................................................4736
    (e)(4) introductory text, (ii), (iii), (h) and (i)(3)(ii) 
revised; (f)(2)(vii) removed; (f)(2)(viii) redesignated as 
(f)(2)(vii).........................................................4737

[[Page 560]]

    (a)(8), (9), (10), (d) introductory text, (1)(i), (iv), (v), 
(2)(ii), (iii), (e)(1)(iii), (h)(1), (i)(2)(ii), (l) introductory 
text, (2), (3) and (4) corrected...................................52027
422.505 Redesignated from 422.504...................................4736
    (d) added.......................................................4737
422.506 (a)(2)(i), (ii) and (3) introductory text revised...........4737
422.510 (a)(4) revised..............................................4738
    (a)(4) and (7) corrected.......................................52027
422.520 Heading and (a)(3) revised; (b) introductory text 
        redesignated as (b)(1); (b)(2) and (d) added................4738
422.527 Added.......................................................4738
    Stayed 9-1-05 to 1-1-06........................................52027
422.550 (a)(2) revised..............................................4738
422.552 (a) and (3)(iii) amended...................................52027
422.553 (b)(2) amended.............................................52027
422.560 (a)(3) and (c) added........................................4738
422.561 Amended.....................................................4738
422.562 (b)(4)(iv), (vi), (c)(1)(ii) and (d) revised................4738
    (c)(1)(ii) corrected...........................................52027
422.564 (d) and (e) redesignated as (f) and (g); new (d) and (e) 
        added.......................................................4738
422.566 (b)(4) revised..............................................4739
422.568 (a) and (c) revised.........................................4739
    (d) revised....................................................52027
422.570 (d)(2)(ii) revised..........................................4739
422.572 (b) and (c) revised.........................................4739
422.582 (a), (b) and (c)(2) introductory text revised...............4739
422.584 (e) revised.................................................4739
422.590 (a)(1) and (d)(2) revised...................................4739
422.600 (a) and (b) revised.........................................4740
422.602 (a), (b) and (d) revised....................................4740
422.608 Revised.....................................................4740
422.612 (a)(2), (b) and (c) revised.................................4740
422.616 (a) revised.................................................4740
422.620 Heading, (b) and (c) revised................................4740
422.622 (b)(1)(i) revised...........................................4740
    (b)(1)(i) revised..............................................52027
422.648 (c) added...................................................4741
422.752 (a) introductory text, (8) introductory text and (b) 
        revised.....................................................4741
    (a)(2) corrected...............................................52027
422.756 (f)(2) and (3) revised......................................4741
422.758 Introductory text and (c) revised...........................4741
423 Added...........................................................4525
    Policy statement...............................................13397
    Technical correction...........................................76198
423.150--423.171 (Subpart D) Heading revised.......................67593
423.150 (c) revised................................................67593
423.159 Heading revised; (a) added.................................67593
423.160 Added......................................................67593
424 Technical corrections..........................................57165
424.3 Amended......................................................45055
424.20 (e)(2) revised..............................................45055
424.22 (a)(1)(iv) footnote and (d) amended.........................70334
424.32 (d)(1)(v), (vi), (3)(ii) and (4) introductory text revised; 
        (d)(4)(iii) redesignated as new (d)(4)(v); new (d)(4)(iii) 
        and (iv) added.............................................71020
424.80 (a) revised.................................................16722
426 Heading revised................................................70335
426.340 (e)(2) and (f)(2) revised..................................70335

                                  2006

  (Regulations published from January 1, 2006, through October 1, 2006)

42 CFR
                                                                   71 FR
                                                                    Page
Chapter IV
414 Technical correction...........................................13469
414.1 Amended......................................................48409
414.222 (a)(1) revised..............................................4525
414.400--414.426 (Subpart F) Added.................................48409
414.406--Regulation at 71 FR 48409 eff. 10-1-06....................57447
414.802 Amended....................................................48143
414.906 (c)(1) introductory text correctly revised..................9460
416.44 (b)(5)(iii), (iv)(F) and (G) revised; (b)(5)(v) added; eff. 
        10-23-06...................................................55339
418.100 (d)(6)(iii) revised; (d)(6)(iv) amended; (d)(6)(v) added; 
        eff. 10-23-06..............................................55339
419 Technical corrections...........................................2617
420.201 Amended....................................................20775
423.160 (b)(1) and (c) revised; interim............................36023
424 Technical correction..............................9458, 13469, 57447
424.1 (a)(1) amended...............................................20775
    Amended; eff. 10-2-06..........................................48409
424.14 Heading and (d)(2) revised; (c)(3) added....................27087

[[Page 561]]

    (c)(3) correctly amended.......................................37504
424.32 (b) amended.................................................48143
424.57 (a) amended; (c)(22) through (25) added; eff. 10-2-06.......48409
424.58 Added; eff. 10-2-06.........................................48409
424.121 (c) amended................................................48143
424.123 (c)(2) revised.............................................48143
424.500--424.555 (Subpart P) Added.................................20776
426 Technical correction...........................................13469
426.340 (e)(2)(ii) and (f)(2)(ii) correctly revised.................9461


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