[Title 42 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 2017 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          
          
          Title 42

Public Health


________________________

Parts 414 to 429

                         Revised as of October 1, 2017

          Containing a codification of documents of general 
          applicability and future effect

          As of October 1, 2017
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            Table of Contents



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

  Title 42:
          Chapter IV--Centers for Medicare & Medicaid 
          Services, Department of Health and Human Services 
          (Continued)                                                3
  Finding Aids:
      Table of CFR Titles and Chapters........................     923
      Alphabetical List of Agencies Appearing in the CFR......     943
      List of CFR Sections Affected...........................     953

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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.

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

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
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    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

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    October 1, 2017.

                                
                                      
                            

  

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                               THIS TITLE

    Title 42--Public Health is composed of five volumes. The parts in 
these volumes are arranged in the following order: Parts 1-399, parts 
400-413, parts 414-429, parts 430-481, and part 482 to end. The first 
volume (parts 1-399) contains current regulations issued under chapter 
I--Public Health Service (HHS). The second, third, and fourth volumes 
(parts 400-413, parts 414-429, and parts 430-481) include regulations 
issued under chapter IV--Centers for Medicare & Medicaid Services (HHS) 
and the fifth volume (part 482 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, 2017.

    For this volume, Bonnie Fritts was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of John Hyrum 
Martinez, assisted by Stephen J. Frattini.

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                         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 (Continued).......         414

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




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


  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 B--MEDICARE PROGRAM (CONTINUED)
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........................         184
416             Ambulatory surgical services................         202
417             Health maintenance organizations, 
                    competitive medical plans, and health 
                    care prepayment plans...................         229
418             Hospice care................................         311
419             Prospective payment system for hospital 
                    outpatient department services..........         357
420             Program integrity: Medicare.................         377
421             Medicare contracting........................         387
422             Medicare advantage program..................         402
423             Voluntary medicare prescription drug benefit         573
424             Conditions for Medicare payment.............         774
425             Medicare shared savings program.............         839
426             Review of national coverage determinations 
                    and local coverage determinations.......         892
427-429

[Reserved]

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                SUBCHAPTER B_MEDICARE PROGRAM (CONTINUED)





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.
414.5  Hospital services paid under Medicare Part B when a Part A 
          hospital inpatient claim is denied because the inpatient 
          admission was not reasonable and necessary, but hospital 
          outpatient services would have been reasonable and necessary 
          in treating the beneficiary.

              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  Publication of RVUs and direct PE inputs.
414.26  Determining the GAF.
414.28  Conversion factors.
414.30  Conversion factor update.
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 or other supplier billing for diagnostic tests 
          performed or interpreted by a physician who does not share a 
          practice with the billing physician or other supplier.
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.
414.61  Payment for anesthesia services furnished by a teaching CRNA.
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 services furnished in Health Professional 
          Shortage Areas.
414.68  Imaging accreditation.
414.80  Incentive payment for primary care services.
414.90  Physician Quality Reporting System (PQRS).
414.92  Electronic Prescribing Incentive Program.
414.94  Appropriate use criteria for advanced diagnostic imaging 
          services.

   Subpart C_Fee Schedules for Parenteral and Enteral Nutrition (PEN) 
     Nutrients, Equipment and Supplies, Splints, Casts, and Certain 
                        Intraocular Lenses (IOLs)

414.100  Purpose.
414.102  General payment rules.
414.104  PEN Items and Services.
414.105  Application of competitive bidding information.
414.106  Splints and casts.
414.108  IOLs inserted in a physician's office.

   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).
414.234  Prior authorization for items frequently subject to unnecessary 
          utilization.

  Subpart E_Determination of Reasonable Charges Under the ESRD Program

414.300  Scope of subpart.

[[Page 6]]

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  Purpose and basis.
414.402  Definitions.
414.404  Scope and applicability.
414.406  Implementation of programs.
414.408  Payment rules.
414.409  Special payment rules.
414.410  Phased-in implementation of competitive bidding programs.
414.411  Special rule in case of competitions for diabetic testing 
          strips conducted on or after January 1, 2011.
414.412  Submission of bids under a competitive bidding program.
414.414  Conditions for awarding contracts.
414.416  Determination of competitive bidding payment amounts.
414.418  Opportunity for networks.
414.420  Physician or treating practitioner authorization and 
          consideration of clinical efficiency and value of items.
414.422  Terms of contracts.
414.423  Appeals process for breach of a DMEPOS competitive bidding 
          program contract actions.
414.424  Administrative or judicial review.
414.425  Claims for damages.
414.426  Adjustments to competitively bid payment amounts to reflect 
          changes in the HCPCS.

       Subpart G_Payment for Clinical Diagnostic Laboratory Tests

414.500  Basis and scope.
414.502  Definitions.
414.504  Data reporting requirements.
414.506  Procedures for public consultation for payment for a new 
          clinical diagnostic laboratory test.
414.507  Payment for clinical diagnostic laboratory tests.
414.508  Payment for a new clinical diagnostic laboratory test.
414.509  Reconsideration of basis for and amount of payment for a new 
          clinical diagnostic laboratory test.
414.510  Laboratory date of service for clinical laboratory and 
          pathology specimens.
414.522  Payment for new advanced diagnostic laboratory tests.

              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 and termination of physician 
          participation under exigent circumstances.
414.918  Assignment.
414.920  Judicial review.
414.930  Compendia for determination of medically-accepted indications 
          for off-label uses of drugs and biologicals in an anti-cancer 
          chemotherapeutic regimen.

                 Subpart L_Supplying and Dispensing Fees

414.1000  Purpose.

[[Page 7]]

414.1001  Basis of Payment.

 Subpart M_Payment for Comprehensive Outpatient Rehabilitation Facility 
                             (CORF) Services

414.1100  Basis and scope.
414.1105  Payment for Comprehensive Outpatient Rehabilitation Facility 
          (CORF) services.

 Subpart N_Value-Based Payment Modifier Under the Physician Fee Schedule

414.1200  Basis and scope.
414.1205  Definitions.
414.1210  Application of the value-based payment modifier.
414.1215  Performance and payment adjustment periods for the value-based 
          payment modifier.
414.1220  Reporting mechanisms for the value-based payment modifier.
414.1225  Alignment of Physician Quality Reporting System quality 
          measures and quality measures for the value-based payment 
          modifier.
414.1230  Additional measures for groups and solo practitioners.
414.1235  Cost measures.
414.1240  Attribution for quality of care and cost measures.
414.1245  Scoring methods for the value-based payment modifier using the 
          quality-tiering approach.
414.1250  Benchmarks for quality of care measures.
414.1255  Benchmarks for cost measures.
414.1260  Composite scores.
414.1265  Reliability of measures.
414.1270  Determination and calculation of Value-Based Payment Modifier 
          adjustments.
414.1275  Value-based payment modifier quality-tiering scoring 
          methodology.
414.1280  Limitation on review.
414.1285  Informal inquiry process.

 Subpart O_Merit-Based Incentive Payment System and Alternative Payment 
                             Model Incentive

414.1300  Basis and scope.
414.1305  Definitions.
414.1310  Applicability.
414.1315  [Reserved]
414.1320  MIPS performance period.
414.1325  Data submission requirements.
414.1330  Quality performance category.
414.1335  Data submission criteria for the quality performance category.
414.1340  Data completeness criteria for the quality performance 
          category.
414.1350  Cost performance category.
414.1355  Improvement activities performance category.
414.1360  Data submission criteria for the improvement activities 
          performance category.
414.1365  Subcategories for the improvement activities performance 
          category.
414.1370  APM scoring standard under MIPS.
414.1375  Advancing care information performance category.
414.1380  Scoring.
414.1385  Targeted review and review limitations.
414.1390  Data validation and auditing.
414.1395  Public reporting.
414.1400  Third party data submission.
414.1405  Payment.
414.1410  Advanced APM determination.
414.1415  Advanced APM criteria.
414.1420  Other payer advanced APMs.
414.1425  Qualifying APM participant determination: In general.
414.1430  Qualifying APM participant determination: QP and partial QP 
          thresholds.
414.1435  Qualifying APM participant determination: Medicare option.
414.1440  Qualifying APM participant determination: All-payer 
          combination option.
414.1445  Identification of other payer advanced APMs.
414.1450  APM incentive payment.
414.1455  Limitation on review.
414.1460  Monitoring and program integrity.
414.1465  Physician-focused payment models.

    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.
    1834A--Improving policies for clinical diagnostic laboratory tests
    1842(o)--Rules for payment of certain drugs and biologicals.

[[Page 8]]

    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; 81 FR 41098, June 23, 2016]



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.
    Health Professional Shortage Area (HPSA) means an area designated 
under section 332(a)(1)(A) of the Public Health Service Act as 
identified by the Secretary prior to the beginning of such year.
    Major surgical procedure means a surgical procedure for which a 10-
day or 90-day global period is used for payment under the physician fee 
schedule and section 1848(b) of the Act.
    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 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; 75 FR 
73616, Nov. 29, 2010]



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]



Sec. 414.5  Hospital services paid under Medicare Part B when a Part A hospital 
inpatient claim is denied because the inpatient admission was not reasonable and 
          necessary, but hospital outpatient services would have been 
          reasonable and necessary in treating the beneficiary.

    (a) If a Medicare Part A claim for inpatient hospital services is 
denied because the inpatient admission was not reasonable and necessary, 
or if a hospital determines under Sec. 482.30(d) of this chapter or 
Sec. 485.641 of this chapter after a beneficiary is discharged that the 
beneficiary's inpatient admission was not reasonable and necessary, the 
hospital may be paid for any of the following Part B inpatient services 
that would have been reasonable and necessary if the beneficiary had 
been treated as a hospital outpatient rather than admitted as an 
inpatient, provided the beneficiary is enrolled in Medicare Part B:

[[Page 9]]

    (1) Services described in Sec. 419.21(a) of this chapter that do not 
require an outpatient status.
    (2) Physical therapy services, speech-language pathology services, 
and occupational therapy services.
    (3) Ambulance services, as described in section 1861(v)(1)(U) of the 
Act, or, if applicable, the fee schedule established under section 
1834(l) of Act.
    (4) Except as provided in Sec. 419.2(b)(11) of this chapter, 
prosthetic devices, prosthetics, prosthetic supplies, and orthotic 
devices.
    (5) Except as provided in Sec. 419.2(b)(10) of this chapter, durable 
medical equipment supplied by the hospital for the patient to take home.
    (6) Clinical diagnostic laboratory services.
    (7)(i) Effective December 8, 2003, screening mammography services; 
and
    (ii) Effective January 1, 2005, diagnostic mammography services.
    (8) Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in Sec. 410.15 of this 
chapter.
    (b) If a Medicare Part A claim for inpatient hospital services is 
denied because the inpatient admission was not reasonable and necessary, 
or if a hospital determines under Sec. 482.30(d) of this chapter or 
Sec. 485.641 of this chapter after a beneficiary is discharged that the 
beneficiary's inpatient admission was not reasonable and necessary, the 
hospital may be paid for hospital outpatient services described in 
Sec. 412.2(c)(5), Sec. 412.405, Sec. 412.540, or Sec. 412.604(f) of this 
chapter or Sec. 413.40(c)(2) of this chapter that are furnished to the 
beneficiary prior to the point of inpatient admission (that is, the 
inpatient admission order).
    (c) The claims for the Part B services filed under the circumstances 
described in this section must be filed in accordance with the time 
limits for filing claims specified in Sec. 424.44(a) of this chapter.

[78 FR 50968, Aug. 19, 2013]



              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.

[[Page 10]]

    (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.
    (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 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 facility practice expense 
RVUs apply to services furnished to patients in a hospital, a skilled 
nursing facility, a community mental health center, a hospice, or an 
ambulatory surgical center, or in a wholly owned or wholly operated 
entity providing preadmission services under Sec. 412.2(c)(5) of this 
chapter, or via telehealth under Sec. 410.78 of this chapter.
    (B) Nonfacility practice expense RVUs. The nonfacility practice 
expense RVUs apply to services furnished to patients in all locations 
other than those listed in paragraph (b)(5)(i)(A) of this section, but 
not limited to, a physician's office, the patient's home, a nursing 
facility, or a comprehensive outpatient rehabilitation facility (CORF).
    (C) Outpatient therapy and CORF services. Outpatient therapy 
services (including physical therapy, occupational therapy, and speech-
language pathology services) and CORF services billed under the 
physician fee schedule are paid using the nonfacility practice expense 
RVUs.
    (ii) [Reserved]
    (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.
    (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.

[[Page 11]]

    (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 FR 43558, June 28, 2002; 68 FR 63261, Nov. 7, 
2003; 72 FR 66932, Nov. 27, 2007; 73 FR 69935, Nov. 19, 2008; 76 FR 
73471, Nov. 28, 2011; 81 FR 79879, Nov. 14, 2016; 81 FR 80553, Nov. 15, 
2016]



Sec. 414.24  Publication of RVUs and direct PE inputs.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Existing code means a code that is not a new code under paragraph 
(c)(2) of this section, and includes codes for which the descriptor is 
revised and codes that are combinations or subdivisions of previously 
existing codes.
    New code means a code that describes a service that was not 
previously described or valued under the PFS using any other code or 
combination of codes.
    (b) Revisions of RVUs and Direct PE Inputs. For valuations for 
calendar year 2017 and beyond, CMS publishes, through notice and comment 
rulemaking in the Federal Register (including proposals in a proposed 
rule), changes in RVUs or direct PE inputs for existing codes.
    (c) Establishing RVUs and Direct PE inputs for new codes--(1) 
General rule. CMS establishes RVUs and direct PE inputs for new codes in 
the manner described in paragraph (b) of this section.
    (2) Exception for new codes for which CMS does not have sufficient 
information. When CMS determines for a new code that it does not have 
sufficient information to include proposed RVUs or direct PE inputs in 
the proposed rule, but that it is in the public interest for Medicare to 
use a new code during a payment year, CMS will publish in the Federal 
Register RVUs and direct PE inputs that are applicable on an interim 
basis subject to public comment. After considering public comments and 
other information on interim RVUs and PE inputs for the new code, CMS 
publishes in the Federal Register the final RVUs and PE inputs for the 
code.
    (d) 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; 
79 FR 68003, Nov. 13, 2014]



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) Adjusting the practice expense index to account for the Frontier 
State floor--(1) General criteria. Effective on or after January 1, 
2011, CMS will adjust the practice expense index for physicians' 
services furnished in qualifying States to recognize the practice 
expense index floor established for Frontier States. A qualifying State 
must meet the following criteria:
    (i) At least 50 percent of counties located within the State have a 
population density less than 6 persons per square mile.

[[Page 12]]

    (ii) The State does not receive a non-labor related share adjustment 
determined by the Secretary to take into account the unique 
circumstances of hospitals located in Alaska and Hawaii.
    (2) Amount of adjustment. The practice expense value applied for 
physicians' services furnished in a qualifying State will be not less 
than 1.00.
    (3) Process for determining adjustment. (i) CMS will use the most 
recent population estimate data published by the U.S. Census Bureau to 
determine county definitions and population density. This analysis will 
be periodically revised, such as for updates to the decennial census 
data.
    (ii) CMS will publish annually a listing of qualifying Frontier 
States receiving a practice expense index floor attributable to this 
provision.
    (d) Computation of GAF. The GAF for each fee schedule area is the 
sum of the physicians' work adjustment factor, 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; 
75 FR 73616, Nov. 29, 2010]



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]

[[Page 13]]



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 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

[[Page 14]]

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.
    (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,

[[Page 15]]

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 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:

[[Page 16]]

    (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 Secs. 415.170 through 415.184 of this chapter.
    (iv) The physician and the CRNA or AA are involved in a single case 
and 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:

[[Page 17]]

    (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.
    (i) 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.
    (ii) For services furnished on or after January 1, 2010, the medical 
direction rules do not apply to a single anesthesia resident case that 
is concurrent to another case which is paid under the medical direction 
payment rules as specified in paragraph (e) of this section.
    (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) Special payment rule for teaching anesthesiologist involved in a 
single resident case or two concurrent cases. For physicians' services 
furnished on or after January 1, 2010, if the teaching anesthesiologist 
is involved in the training of physician residents in a single 
anesthesia case or two concurrent anesthesia cases, the fee schedule 
amount must be 100 percent of the fee schedule amount otherwise 
applicable if the anesthesia services were personally performed by the 
teaching anesthesiologist and the teaching anesthesiologist fulfilled 
the criteria in Sec. 415.178 of this chapter. This special payment rule 
also applies if the teaching anesthesiologist is involved in one 
resident case that is concurrent to another case paid under the medical 
direction payment rules.
    (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 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

[[Page 18]]

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; 74 FR 
62006, Nov. 25, 2009]



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 or other supplier billing for diagnostic tests performed
or interpreted by a physician who does not share a practice with the billing 
          physician or other supplier.

    (a) General rules. (1) For services covered under section 1861(s)(3) 
of the Act and paid for under part 414 of this chapter (other than 
clinical diagnostic laboratory tests paid under section 1833(a)(2)(D) of 
the Act, which are subject to the special billing rules set forth in 
section 1833(h)(5)(A) of the Act), if a physician or other supplier 
bills for the technical component (TC) or professional component (PC) of 
a diagnostic test that was ordered by the physician or other supplier 
(or ordered by a party related to such physician or other supplier 
through common ownership or control as described in Sec. 413.17 of this 
chapter) and the diagnostic test is performed by a physician who does 
not share a practice with the billing physician or other supplier, the 
payment to the billing physician or other supplier (less the applicable 
deductibles and coinsurance paid by the beneficiary or on behalf of the 
beneficiary) for the TC or PC of the diagnostic test may not exceed the 
lowest of the following amounts:
    (i) The performing supplier's net charge to the billing physician or 
other supplier. For purposes of this paragraph (a)(1) only, with respect 
to the TC, the performing supplier is the physician who supervised the 
TC, and with respect to the PC, the performing supplier is the physician 
who performed the PC.
    (ii) The billing physician or other supplier's actual charge.
    (iii) The fee schedule amount for the test that would be allowed if 
the performing supplier billed directly.
    (2) The following requirements are applicable for purposes of 
paragraph (a)(1) of this section:
    (i) The net charge must be determined without regard to any charge 
that is intended to reflect the cost of equipment or space leased to the 
performing supplier by or through the billing physician or other 
supplier.
    (ii) A performing physician shares a practice with the billing 
physician or other supplier if he or she furnishes substantially all 
(which, for purposes of this section, means ``at least 75 percent'') of 
his or her professional services through such billing physician or other 
supplier. The ``substantially all'' requirement will be satisfied if, at 
the time the billing physician or other supplier submits a claim for a 
service furnished by the performing physician, the billing physician or 
other supplier has a reasonable belief that:
    (A) For the 12 months prior to and including the month in which the 
service was performed, the performing physician furnished substantially 
all of his or her professional services through the billing physician or 
other supplier; or
    (B) The performing physician will furnish substantially all of his 
or her professional services through the billing physician or other 
supplier for the next 12 months (including the month in which the 
service is performed).

[[Page 19]]

    (iii) A physician will be deemed to share a practice with the 
billing physician or other supplier with respect to the performance of 
the TC or PC of a diagnostic test if the physician is an owner, employee 
or independent contractor of the billing physician or other supplier and 
the TC or PC is performed in the office of the billing physician or 
other supplier. The ``office of the billing physician or other 
supplier'' is any medical office space, regardless of number of 
locations, in which the ordering physician or other ordering supplier 
regularly furnishes patient care, and includes space where the billing 
physician or other supplier furnishes diagnostic testing, if the space 
is located in the same building (as defined in Sec. 411.351) in which 
the ordering physician or other ordering supplier regularly furnishes 
patient care. With respect to a billing physician or other supplier that 
is a physician organization (as defined in Sec. 411.351 of this 
chapter), the ``office of the billing physician or other supplier'' is 
space in which the ordering physician provides substantially the full 
range of patient care services that the ordering physician provides 
generally. The performance of the TC includes both the conducting of the 
TC as well as the supervision of the TC.
    (b) Restriction on payment. (1) The billing physician or other 
supplier must identify the performing supplier and indicate the 
performing supplier's net charge for the test. If the billing physician 
or other supplier fails to provide this information, CMS makes no 
payment to the billing physician or other supplier and the billing 
physician or other supplier may not bill the beneficiary.
    (2) Physicians and other suppliers that accept Medicare assignment 
may bill beneficiaries for only the applicable deductibles and 
coinsurance.
    (3) Physicians and other suppliers that do not accept Medicare 
assignment may not bill the beneficiary more than the payment amount 
described in paragraph (a) of this section.

[72 FR 66400, Nov. 27, 2007, as amended at 73 FR 2432, Jan. 15, 2008; 73 
FR 69935, Nov. 19, 2008]



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 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.

    (a) 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.
    (b) For certified nurse-midwife services furnished on or after 
January 1, 2011, allowed amounts may not exceed 100 percent of the 
physician fee schedule amount that would be paid to a physician for the 
services.

[75 FR 73616, Nov. 29, 2010]

[[Page 20]]



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 Secs. 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 Secs. 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 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; 77 FR 69363, Nov. 16, 2012]



Sec. 414.61  Payment for anesthesia services furnished by a teaching CRNA.

    (a) Basis for payment. Beginning January 1, 2010, anesthesia 
services furnished by a teaching CRNA may be paid under one of the 
following conditions:
    (1) The teaching CRNA, who is not under medical direction of a 
physician,

[[Page 21]]

is present with the student nurse anesthetist for the pre and post 
anesthesia services included in the anesthesia base units payment and is 
continuously present during anesthesia time in a single case with a 
student nurse anesthetist.
    (2) The teaching CRNA, who is not under the medical direction of a 
physician, is involved with two concurrent anesthesia cases with student 
nurse anesthetists. The teaching CRNA must be present with the student 
nurse anesthetist for the pre and post anesthesia services included in 
the anesthesia base unit. For the anesthesia time of the two concurrent 
cases, the teaching CRNA can only be involved with those two concurrent 
cases and may not perform services for other patients.
    (b) Level of payment. The allowance for the service of the teaching 
CRNA, furnished under paragraph (a) of this section, is determined in 
the same way as for a physician who personally performs the anesthesia 
service alone as specified in Sec. 414.46(c) of this subpart.

[74 FR 62006, Nov. 25, 2009]



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 Secs. 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]

[[Page 22]]



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, subsequent hospital care services (with the limitation of one 
telehealth visit every 3 days by the patient's admitting physician or 
practitioner), subsequent nursing facility care services (with the 
limitation of one telehealth visit every 30 days by the patient's 
admitting physician or nonphysician practitioner), professional 
consultations, psychiatric diagnostic interview examination, 
neurobehavioral status exam, individual psychotherapy, pharmacologic 
management, end-stage renal disease-related services included in the 
monthly capitation payment (except for one ``hands on'' visit per month 
to examine the access site), individual and group medical nutrition 
therapy services, individual and group kidney disease education 
services, individual and group diabetes self-management training 
services (except for one hour of ``hands on'' services to be furnished 
in the initial year training period to ensure effective injection 
training), individual and group health and behavior assessment and 
intervention, smoking cessation services, alcohol and/or substance abuse 
and brief intervention services, screening and behavioral counseling 
interventions in primary care to reduce alcohol misuse, screening for 
depression in adults, screening for sexually transmitted infections 
(STIs) and high intensity behavioral counseling (HIBC) to prevent STIs, 
intensive behavioral therapy for cardiovascular disease, behavioral 
counseling for obesity, and transitional care management services 
furnished via an interactive telecommunications system is equal to the 
current fee schedule amount applicable for the service of the physician 
or practitioner.
    (i) Emergency department or initial inpatient telehealth 
consultations. The Medicare payment amount for emergency department or 
initial inpatient telehealth consultations furnished via an interactive 
telecommunications system is equal to the current fee schedule amount 
applicable to initial hospital care provided by a physician or 
practitioner.
    (ii) Follow-up inpatient telehealth consultations. The Medicare 
payment amount for follow-up inpatient telehealth consultations 
furnished via an interactive telecommunications system is equal to the 
current fee schedule amount applicable to subsequent hospital care 
provided by a physician or practitioner.
    (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.

[[Page 23]]

    (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; 72 FR 66401, Nov. 
27, 2007; 73 FR 69936, Nov. 19, 2008; 74 FR 62006, Nov. 25, 2009; 75 FR 
73617, Nov. 29, 2010; 76 FR 73471, Nov. 28, 2011; 77 FR 69363, Nov. 16, 
2012; 78 FR 74812, Dec. 10, 2013]



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 services furnished in Health 
Professional Shortage Areas.

    (a) Health Professional Shortage Area (HPSA) physician bonus 
program. A HPSA physician incentive payment will be made subject to the 
following:
    (1) HPSA bonuses are payable for services furnished by physicians as 
defined in section 1861(r) of the Act in areas designated as of December 
31 of the prior year as geographic primary medical care HPSAs as defined 
in section 332(a)(1)(A) of the Public Health Service Act.
    (2) HPSA bonuses are payable for services furnished by psychiatrists 
in areas designated as of December 31 of the prior year as geographic 
mental health HPSAs if the services are not already eligible for the 
bonus based on being in a geographic primary care HPSA.
    (3) Physicians eligible for the HPSA physician bonus are entitled to 
a 10 percent incentive payment above the amount paid for their 
professional services under the physician fee schedule.
    (4) Physicians furnishing services in areas that are designated as 
geographic HPSAs prior to the beginning of the year but not included on 
the published list of zip codes for which automated HPSA bonus payments 
are made must use the AQ modifier to receive the HPSA physician bonus 
payment.
    (b) HPSA surgical incentive payment program. A HPSA surgical 
incentive payment will be made subject to the following:
    (1) A major surgical procedure as defined in Sec. 414.2 of this part 
is furnished by a general surgeon on or after January 1, 2011 and before 
January 1, 2016 in an area recognized for the HPSA physician bonus 
program under paragraph (a)(1) of this section.
    (2) Payment will be made on a quarterly basis in an amount equal to 
10 percent of the Part B payment amount for major surgical procedures 
furnished

[[Page 24]]

as described in paragraph (b)(1) of this section, in addition to the 
amount the physician would otherwise be paid.
    (3) Physicians furnishing services in areas that are designated as 
geographic HPSAs eligible for the HPSA physician bonus program under 
paragraph (a)(1) of this section prior to the beginning of the year but 
not included on the published list of zip codes for which automated HPSA 
surgical incentive payments are made should report HCPCS modifier -AQ to 
receive the HPSA surgical incentive payment.
    (4) The payment described in paragraph (b)(2) of this section is 
made to the surgeon or, where the surgeon has reassigned his or her 
benefits to a critical access hospital (CAH) paid under the optional 
method, to the CAH based on an institutional claim.

[75 FR 73617, Nov. 29, 2010]



Sec. 414.68  Imaging accreditation.

    (a) Scope and purpose. Section 1834(e) of the Act requires the 
Secretary to designate and approve independent accreditation 
organizations for purposes of accrediting suppliers furnishing the 
technical component (TC) of advanced diagnostic imaging services and 
establish procedures to ensure that the criteria used by an 
accreditation organization is specific to each imaging modality. 
Suppliers of the TC of advanced diagnostic imaging services for which 
payment is made under the fee schedule established in section 1848(b) of 
the Act must become accredited by an accreditation organization 
designated by the Secretary beginning January 1, 2012.
    (b) Definitions. As used in this section, the following definitions 
are applicable:
    Accredited supplier means a supplier that has been accredited by a 
CMS-designated accreditation organization as specified in this part.
    Advanced diagnostic imaging service means any of the following 
diagnostic services:
    (i) Magnetic resonance imaging.
    (ii) Computed tomography.
    (iii) Nuclear medicine.
    (iv) Positron emission tomography.
    CMS-approved accreditation organization means an accreditation 
organization designated by CMS to perform the accreditation functions 
specified in section 1834(e) of the Act.
    (c) Application and reapplication procedures for accreditation 
organizations. An independent accreditation organization applying for 
approval or reapproval of authority to survey suppliers for purposes of 
accrediting suppliers furnishing the TC of advanced diagnostic imaging 
services is required to furnish CMS with all of the following:
    (1) A detailed description of how the organization's accreditation 
criteria satisfy the statutory standards authorized by section 
1834(e)(3) of the Act, specifically--
    (i) Qualifications of medical personnel who are not physicians and 
who furnish the TC of advanced diagnostic imaging services;
    (ii) Qualifications and responsibilities of medical directors and 
supervising physicians (who may be the same person), such as their 
training in advanced diagnostic imaging services in a residency program, 
expertise obtained through experience, or continuing medical education 
courses;
    (iii) Procedures to ensure the reliability, clarity, and accuracy of 
the technical quality of diagnostic images produced by the supplier, 
including a thorough evaluation of equipment performance and safety;
    (iv) Procedures to ensure the safety of persons who furnish the TC 
of advanced diagnostic imaging services and individuals to whom such 
services are furnished;
    (v) Procedures to assist the beneficiary in obtaining the 
beneficiary's imaging records on request; and
    (vi) Procedures to notify the accreditation organization of any 
changes to the modalities subsequent to the organization's accreditation 
decision.
    (2) An agreement to conform accreditation requirements to any 
changes in Medicare statutory requirements authorized by section 1834(e) 
of the Act. The accreditation organization must maintain or adopt 
standards that are equal to, or more stringent than, those of Medicare.
    (3) Information that demonstrates the accreditation organization's 
knowledge and experience in the advanced diagnostic imaging arena.

[[Page 25]]

    (4) The organization's proposed fees for accreditation for each 
modality in which the organization intends to offer accreditation, 
including any plans for reducing the burden and cost of accreditation to 
small and rural suppliers.
    (5) Any specific documentation requirements and attestations 
requested by CMS as a condition of designation under this part.
    (6) A detailed description of the organization's survey process, 
including the following:
    (i) Type and frequency of the surveys performed.
    (ii) The ability of the organization to conduct timely reviews of 
accreditation applications, to include the organizations national 
capacity.
    (iii) Description of the organization's audit procedures, including 
random site visits, site audits, or other strategies for ensuring 
suppliers maintain compliance for the duration of accreditation.
    (iv) Procedures for performing unannounced site surveys.
    (v) Copies of the organization's survey forms.
    (vi) A description of the accreditation survey review process and 
the accreditation status decision-making process, including the process 
for addressing deficiencies identified with the accreditation 
requirements, and the procedures used to monitor the correction of 
deficiencies found during an accreditation survey.
    (vii) Procedures for coordinating surveys with another accrediting 
organization if the organization does not accredit all products the 
supplier provides.
    (viii) Detailed information about the individuals who perform 
evaluations for the accreditation organization, including all of the 
following information:
    (A) The number of professional and technical staff that are 
available for surveys.
    (B) The education, employment, and experience requirements surveyors 
must meet.
    (C) The content and length of the orientation program.
    (ix) The frequency and types of in-service training provided to 
survey personnel.
    (x) The evaluation systems used to monitor the performance of 
individual surveyors and survey teams.
    (xi) The policies and procedures regarding an individual's 
participation in the survey or accreditation decision process of any 
organization with which the individual is professionally or financially 
affiliated.
    (xii) The policies and procedures used when an organization has a 
dispute regarding survey findings or an adverse decision.
    (7) Detailed information about the size and composition of survey 
teams for each category of advanced medical imaging service supplier 
accredited.
    (8) 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.
    (9) The organization's procedures for responding to and for the 
investigation of complaints against accredited facilities, including 
policies and procedures regarding coordination of these activities with 
appropriate licensing bodies and CMS.
    (10) The organization's policies and procedures for the withholding 
or removal of accreditation status for facilities that fail to meet the 
accreditation organization's standards or requirements, and other 
actions taken by the organization in response to noncompliance with its 
standards and requirements. These policies and procedures must include 
notifying CMS of Medicare facilities that fail to meet the requirements 
of the accrediting organization.
    (11) A list of all currently accredited suppliers, the type and 
category of accreditation currently held by each supplier, and the 
expiration date of each supplier's current accreditation.
    (12) A written presentation that demonstrates the organization's 
ability to furnish CMS with electronic data in ASCII comparable code.
    (13) A resource analysis that demonstrates that the organization's 
staffing, funding, and other resources are adequate to perform the 
required surveys and related activities.

[[Page 26]]

    (14) A statement acknowledging that, as a condition for approval of 
designation, the organization agrees to carry out the following 
activities:
    (i) Prioritize surveys for those suppliers needing to be accredited 
by January 1, 2012.
    (ii) Notify CMS, in writing, of any Medicare supplier that had its 
accreditation revoked, withdrawn, revised, or any other remedial or 
adverse action taken against it by the accreditation organization within 
30 calendar days of any such action taken.
    (iii) Notify all accredited suppliers within 10 calendar days of the 
organization's removal from the list of designated accreditation 
organizations.
    (iv) Notify CMS, in writing, at least 30 calendar days in advance of 
the effective date of any significant proposed changes in its 
accreditation requirements.
    (v) Permit its surveyors to serve as witnesses if CMS takes an 
adverse action based on accreditation findings.
    (vi) Notify CMS, in writing (electronically or hard copy), within 2 
business days of a deficiency identified in any accreditation supplier 
from any source where the deficiency poses an immediate jeopardy to the 
supplier's beneficiaries or a hazard to the general public.
    (vii) Provide, on an annual basis, summary data specified by CMS 
that relates to the past year's accreditations and trends.
    (viii) Attest that the organization will not perform any 
accreditation surveys of Medicare-participating suppliers with which it 
has a financial relationship in which it has an interest.
    (ix) Conform accreditation requirements to changes in Medicare 
requirements.
    (x) If CMS withdraws an accreditation organization's approved 
status, work collaboratively with CMS to direct suppliers to the 
remaining accreditation organizations within a reasonable period of 
time.
    (d) Determination of whether additional information is needed. If 
CMS determines that additional information is necessary to make a 
determination for approval or denial of the accreditation organization's 
application for designation, the organization must be notified and 
afforded an opportunity to provide the additional information.
    (e) Visits to the organization's office. CMS may visit the 
organization's offices to verify representations made by the 
organization in its application, including, but not limited to, 
reviewing documents and interviewing the organization's staff.
    (f) Formal notice from CMS. The accreditation organization will 
receive a formal notice from CMS stating whether the request for 
designation has been approved or denied. If approval was denied the 
notice includes the basis for denial and reconsideration and 
reapplication procedures.
    (g) Ongoing responsibilities of a CMS-approved accreditation 
organization. An accreditation organization approved by CMS must carry 
out the following activities on an ongoing basis:
    (1) Provide CMS with all of the following in written format (either 
electronic or hard copy):
    (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).
    (ii) Notice of all accreditation decisions.
    (iii) Notice of all complaints related to suppliers.
    (iv) Information about all accredited suppliers against which the 
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 after a change in CMS requirements, the 
accreditation organization must submit an acknowledgment of receipt of 
CMS' notification to CMS.
    (3) The accreditation organization must permit its surveyors to 
serve as witnesses if CMS takes an adverse action based on accreditation 
findings.

[[Page 27]]

    (4) Within 2 business days of identifying a deficiency of an 
accredited supplier that poses immediate jeopardy to a beneficiary or to 
the general public, the accreditation organization must provide CMS with 
written notice of the deficiency and any adverse action implemented by 
the accreditation organization.
    (5) Within 10 calendar days after CMS' notice to a CMS-approved 
accreditation organization that CMS intends to withdraw approval of the 
accreditation organization, the accreditation organization must provide 
written notice of the withdrawal to all of the organization's accredited 
suppliers.
    (6) The organization must provide, on an annual basis, summary data 
specified by CMS that relate to the past year's accreditation activities 
and trends.
    (h) 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) Validation audits. (i) CMS or its contractor may conduct an 
audit of an accredited supplier to validate the survey accreditation 
process of approved accreditation organizations for the TC of advanced 
diagnostic imaging services.
    (ii) The audits must be conducted on a representative sample of 
suppliers who have been accredited by a particular accrediting 
organization or in response to allegations of supplier noncompliance 
with the standards.
    (A) When conducted on a representative sample basis, the audit is 
comprehensive and addresses all of the standards, or may focus on a 
specific standard in issue.
    (B) When conducted in response to an allegation, CMS audits any 
standards that CMS determines are related to the allegations.
    (2) Notice of intent to withdraw approval. (i) If, during the audit 
specified in paragraph (h)(1) of this section, CMS identifies any 
accreditation programs for which validation audit results indicate--
    (A) A 10 percent or greater rate of disparity between findings by 
the accreditation organization and findings by CMS on standards that do 
not constitute immediate jeopardy to patient health and safety if unmet; 
or
    (B) 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,
    (C) Irrespective of the rate of disparity, 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; then CMS will give the organization written notice of its 
intent to withdraw approval as specified in paragraph (h)(3) of this 
section.
    (ii) CMS may also provide the organization written notice of its 
intent to withdraw approval if an equivalency review, onsite 
observation, or CMS' daily experience with the accreditation 
organization suggests that the accreditation organization is not meeting 
the requirements of this section.
    (3) 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 furnishing the technical component of advanced 
diagnostic imaging service are meeting the established industry 
standards for each modality 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.
    (i) Reconsideration. An accreditation organization dissatisfied with 
a determination that its accreditation requirements do not provide or do 
not continue to provide reasonable assurance that the suppliers 
accredited by the accreditation organization meet the applicable quality 
standards is entitled to a reconsideration. CMS reconsiders any 
determination to deny, remove, or not renew the approval of designation 
to accreditation organizations

[[Page 28]]

if the accreditation organization files a written request for 
reconsideration by its authorized officials or through its legal 
representative.
    (1) Filing requirements. (i) The request must be filed within 30 
calendar days of the receipt of CMS notice of an adverse determination 
or non-renewal.
    (ii) The request for reconsideration must specify the findings or 
issues with which the accreditation organization disagrees and the 
reasons for the disagreement.
    (iii) A requestor may withdraw its request for reconsideration at 
any time before the issuance of a reconsideration determination.
    (2) CMS response to a filing request. In response to a request for 
reconsideration, CMS provides the accreditation organization with--
    (i) 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 designation; and
    (ii) Written notice of the time and place of the informal hearing at 
least 10 business days before the scheduled date.
    (3) Hearing requirements and rules. (i) The informal reconsideration 
hearing is open to all of the following:
    (A) CMS.
    (B) The organization 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); and
    (3) Legal counsel.
    (ii) The hearing is conducted by the hearing officer who receives 
testimony and documents related to the proposed action.
    (iii) Testimony and other evidence may be accepted by the hearing 
officer even though such evidence may be inadmissible under the Federal 
Rules of Civil Procedure.
    (iv) The hearing officer does not have the authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (v) 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.
    (vi) The written report of the hearing officer includes separate 
numbered findings of fact and the legal conclusions of the hearing 
officer.
    (vii) The hearing officer's decision is final.

[74 FR 62006, Nov. 25, 2009]



Sec. 414.80  Incentive payment for primary care services.

    (a) Definitions. As defined in this section--
    Eligible primary care practitioner means one of the following:
    (i) A physician (as defined in section 1861(r)(1) of the Act) who 
meets all of the following criteria:
    (A) Enrolled in Medicare with a primary specialty designation of 08-
family practice, 11-internal medicine, 37-pediatrics, or 38-geriatrics.
    (B) At least 60 percent of the physician's allowed charges under the 
physician fee schedule (excluding hospital inpatient care and emergency 
department visits) during a reference period specified by the Secretary 
are for primary care services.
    (ii) A nurse practitioner, clinical nurse specialist, or physician 
assistant (as defined in section 1861(aa)(5) of the Act) who meets all 
of the following criteria:
    (A) Enrolled in Medicare with a primary specialty designation of 50-
nurse practitioner, 89-certified clinical nurse, or 97-physician 
assistant.
    (B) At least 60 percent of the practitioner's allowed charges under 
the physician fee schedule (excluding hospital inpatient care and 
emergency department visits) during a reference period specified by the 
Secretary are for primary care services.
    Primary care services means--
    (i) New and established patient office or other outpatient 
evaluation and management (E/M) visits;
    (ii) Initial, subsequent, discharge, and other nursing facility E/M 
services;
    (iii) New and established patient domiciliary, rest home (for 
example,

[[Page 29]]

boarding home), or custodial care E/M services;
    (iv) Domiciliary, rest home (for example, assisted living facility), 
or home care plan oversight services; and
    (v) New and established patient home E/M visits.
    (b) Payment. (1) For primary care services furnished by an eligible 
primary care practitioner on or after January 1, 2011 and before January 
1, 2016, payment is made on a quarterly basis in an amount equal to 10 
percent of the payment amount for the primary care services under Part 
B, in addition to the amount the primary care practitioner would 
otherwise be paid for the primary care services under Part B.
    (2) The payment described in paragraph (b)(1) of this section is 
made to the eligible primary care practitioner or, where the physician 
has reassigned his or her benefits to a critical access hospital (CAH) 
paid under the optional method, to the CAH based on an institutional 
claim.

[75 FR 73617, Nov. 29, 2010]



Sec. 414.90  Physician Quality Reporting System (PQRS).

    (a) Basis and scope. This section implements the following 
provisions of the Act:
    (1) 1848(a)--Payment Based on Fee Schedule.
    (2) 1848(k)--Quality Reporting System.
    (3) 1848(m)--Incentive Payments for Quality Reporting.
    (b) Definitions. As used in this section, unless otherwise 
indicated--
    Administrative claims means a reporting mechanism under which an 
eligible professional or group practice uses claims to report data on 
PQRS quality measures. Under this reporting mechanism, CMS analyzes 
claims data to determine which measures an eligible professional or 
group practice reports.
    Certified survey vendor means a vendor that is certified by CMS for 
a particular program year to transmit survey measures data to CMS.
    Covered professional services means services for which payment is 
made under, or is based on, the Medicare physician fee schedule as 
provided under section 1848(k)(3) of the Act and which are furnished by 
an eligible professional.
    Direct electronic health record (EHR) product means an electronic 
health record vendor's product and version that submits data on PQRS 
measures directly to CMS.
    Electronic health record (EHR) data submission vendor product means 
an entity that receives and transmits data on PQRS measures from an EHR 
product to CMS.
    Eligible professional means any of the following:
    (i) A physician.
    (ii) A practitioner described in section 1842(b)(18)(C) of the Act.
    (iii) A physical or occupational therapist or a qualified speech-
language pathologist.
    (iv) A qualified audiologist (as defined in section 1861(ll)(3)(B) 
of the Act).
    Group practice means a physician group practice that is defined by a 
TIN, with 2 or more individual eligible professionals (or, as identified 
by NPIs) that has reassigned their billing rights to the TIN.
    Group practice reporting option (GPRO) web interface means a web 
product developed by CMS that is used by group practices that are 
selected to participate in the group practice reporting option (GPRO) to 
submit data on PQRS quality measures.
    Maintenance of Certification Program means a continuous assessment 
program, such as qualified American Board of Medical Specialties 
Maintenance of Certification Program or an equivalent program (as 
determined by the Secretary), that advances quality and the lifelong 
learning and self-assessment of board certified specialty physicians by 
focusing on the competencies of patient care, medical knowledge, 
practice-based learning, interpersonal and communication skills, and 
professionalism. Such a program must include the following:
    (i) The program requires the physician to maintain a valid 
unrestricted license in the United States.
    (ii) The program requires a physician to participate in educational 
and self-assessment programs that require an assessment of what was 
learned.

[[Page 30]]

    (iii) The program requires a physician to demonstrate, through a 
formalized secure examination, that the physician has the fundamental 
diagnostic skills, medical knowledge, and clinical judgment to provide 
quality care in their respective specialty.
    (iv) The program requires successful completion of a qualified 
maintenance of certification program practice assessment.
    Maintenance of Certification Program Practice Assessment means an 
assessment of a physician's practice that--
    (i) Includes an initial assessment of an eligible professional's 
practice that is designed to demonstrate the physician's use of 
evidence-based medicine.
    (ii) Includes a survey of patient experience with care.
    (iii) Requires a physician to implement a quality improvement 
intervention to address a practice weakness identified in the initial 
assessment under paragraph (h) of this section and then to remeasure to 
assess performance improvement after such intervention.
    Measures group means a subset of six or more PQRS measures that have 
a particular clinical condition or focus in common. The denominator 
definition and coding of the measures group identifies the condition or 
focus that is shared across the measures within a particular measures 
group.
    Physician Quality Reporting System (PQRS) means the physician 
reporting system under section 1848(k) of the Act for the reporting by 
eligible professionals of data on quality measures and the incentive 
payment associated with this physician reporting system.
    Performance rate means the percentage of a defined population who 
receives a particular process of care or achieve a particular outcome 
for a particular quality measure.
    Qualified clinical data registry means a CMS-approved entity that 
has self-nominated and successfully completed a qualification process 
that collects medical and/or clinical data for the purpose of patient 
and disease tracking to foster improvement in the quality of care 
provided to patients. A qualified clinical data registry must perform 
the following functions:
    (i) Submit quality measures data or results to CMS for purposes of 
demonstrating that, for a reporting period, its eligible professionals 
have satisfactorily participated in PQRS. A qualified clinical data 
registry must have in place mechanisms for the transparency of data 
elements and specifications, risk models, and measures.
    (ii) Submit to CMS, for purposes of demonstrating satisfactory 
participation, quality measures data on multiple payers, not just 
Medicare patients.
    (iii) Provide timely feedback, at least four times a year, on the 
measures at the individual participant level for which the qualified 
clinical data registry reports on the eligible professional's behalf for 
purposes of the individual eligible professional's satisfactory 
participation in the clinical quality data registry.
    (iv) Possess benchmarking capacity that measures the quality of care 
an eligible professional provides with other eligible professionals 
performing the same or similar functions.
    Qualified registry means a medical registry or a maintenance of 
certification program operated by a specialty body of the American Board 
of Medical Specialties that, with respect to a particular program year, 
has self-nominated and successfully completed a vetting process (as 
specified by CMS) to demonstrate its compliance with the PQRS 
qualification requirements specified by CMS for that program year. The 
registry may act as a data submission vendor, which has the requisite 
legal authority to provide PQRS data (as specified by CMS) on behalf of 
an eligible professional to CMS. If CMS finds that a qualified registry 
submits grossly inaccurate data for reporting periods occurring in a 
particular year, CMS reserves the right to disqualify a registry for 
reporting periods occurring in the subsequent year.
    Reporting rate means the percentage of patients that the eligible 
professional indicated a quality action was or was not performed divided 
by the total number of patients in the denominator of the measure.

[[Page 31]]

    (c) Incentive payments. For 2007 to 2014, with respect to covered 
professional services furnished during a reporting period by an eligible 
professional, an eligible professional (or in the case of a group 
practice under paragraph (i) of this section, a group practice) may 
receive an incentive if--
    (1) There are any quality measures that have been established under 
the PQRS that are applicable to any such services furnished by such 
professional (or in the case of a group practice under paragraph (i) of 
this section, such group practice) for such reporting period; and
    (2) If the eligible professional (or in the case of a group practice 
under paragraph (j) of this section, the group practice) satisfactorily 
submits (as determined under paragraph (g) of this section for the 
eligible professional and paragraph (i) of this section for the group 
practice) to the Secretary data on such quality measures in accordance 
with the PQRS for such reporting period, in addition to the amount 
otherwise paid under section 1848 of the Act, there also must be paid to 
the eligible professional (or to an employer or facility in the cases 
described in section 1842(b)(6)(A) of the Act or, in the case of a group 
practice under paragraph (i) of this section, to the group practice) 
from the Federal Supplementary Medical Insurance Trust Fund established 
under section 1841 of the Act an amount equal to the applicable quality 
percent (as specified in paragraph (c)(3) of this section) of the 
eligible professional's (or, in the case of a group practice under 
paragraph (i) of this section, the group practice's) total estimated 
allowed charges for all covered professional services furnished by the 
eligible professional (or, in the case of a group practice under 
paragraph (i) of this section, by the group practice) during the 
reporting period.
    (3) The applicable quality percent is as follows:
    (i) For 2007 and 2008, 1.5 percent.
    (ii) For 2009 and 2010, 2.0 percent.
    (iii) For 2011, 1.0 percent.
    (iv) For 2012, 2013, and 2014, 0.5 percent.
    (4) For purposes of this paragraph (c)--
    (i) The eligible professional's (or, in the case of a group practice 
under paragraph (i) of this section, the group practice's) total 
estimated allowed charges for covered professional services furnished 
during a reporting period are determined based on claims processed in 
the National Claims History (NCH) no later than 2 months after the end 
of the applicable reporting period;
    (ii) In the case of the eligible professional who furnishes covered 
professional services in more than one practice, incentive payments are 
separately determined for each practice based on claims submitted for 
the eligible professional for each practice;
    (iii) Incentive payments to a group practice under this paragraph 
must be in lieu of the payments that would otherwise be made under the 
PQRS to eligible professionals in the group practice for meeting the 
criteria for satisfactory reporting for individual eligible 
professionals. For any program year in which the group practice (as 
identified by the TIN) is selected to participate in the PQRS group 
practice reporting option, the eligible professional cannot individually 
qualify for a PQRS incentive payment by meeting the requirements 
specified in paragraph (g) of this section.
    (iv) Incentive payments earned by the eligible professional (or in 
the case of a group practice under paragraph (i) of this section, by the 
group practice) for a particular program year will be paid as a single 
consolidated payment to the TIN holder of record.
    (5) The Secretary must treat an individual eligible professional, as 
identified by a unique TIN/NPI combination, as satisfactorily submitting 
data on quality measures (as determined under paragraph (g) of this 
section), if the eligible professional is satisfactorily participating 
(as determined under paragraph (h) of this section), in a qualified 
clinical data registry.
    (d) Additional incentive payment. Through 2014, if an eligible 
professional meets the requirements described in paragraph (d)(2) of 
this section, the applicable percent for such year, as described in 
paragraphs (c)(3)(iii) and (iv) of this section, must be increased by 
0.5 percentage points.

[[Page 32]]

    (1) In order to qualify for the additional incentive payment 
described in paragraph (d) of this section, an eligible professional 
must meet all of the following requirements:
    (i) Satisfactorily submits data on quality measures, or, for 2014, 
in lieu of satisfactory reporting, satisfactorily participates in a 
qualified clinical data registry for purposes of this section for the 
applicable incentive year.
    (ii) Have such data submitted on their behalf through a Maintenance 
of Certification program that meets:
    (A) The criteria for a registry (as specified by CMS); or
    (B) An alternative form and manner determined appropriate by the 
Secretary.
    (iii) The eligible professional, more frequently than is required to 
qualify for or maintain board certification status--
    (A) Participates in a maintenance of certification program for a 
year; and
    (B) Successfully completes a qualified maintenance of certification 
program practice assessment for such year.
    (2) In order for an eligible professional to receive the additional 
incentive payment, a Maintenance of Certification Program must submit to 
the Secretary, on behalf of the eligible professional, information--
    (i) In a form and manner specified by the Secretary, that the 
eligible professional has successfully met the requirements of paragraph 
(d)(1)(iii) of this section, which may be in the form of a structural 
measure.
    (ii) If requested by the Secretary, on the survey of patient 
experience with care.
    (iii) As the Secretary may require, on the methods, measures, and 
data used under the Maintenance of Certification Program and the 
qualified Maintenance of Certification Program practice assessment.
    (e) Payment adjustments. For 2015 through 2018, with respect to 
covered professional services furnished by an eligible professional, if 
the eligible professional does not satisfactorily submit data on quality 
measures for covered professional services for the quality reporting 
period for the year (as determined under section 1848(m)(3)(A) of the 
Act), the fee schedule amount for such services furnished by such 
professional during the year (including the fee schedule amount for 
purposes for determining a payment based on such amount) must be equal 
to the applicable percent of the fee schedule amount that would 
otherwise apply to such services under this paragraph (e).
    (1) The applicable percent is as follows:
    (i) For 2015, 98.5 percent.
    (ii) For 2016 through 2018, 98 percent.
    (2) The Secretary must treat an individual eligible professional, as 
identified by a unique TIN/NPI combination, as satisfactorily submitting 
data on quality measures (as determined under paragraph (h) of this 
section), if the eligible professional is satisfactorily participating, 
in a qualified clinical data registry.
    (f) Use of appropriate and consensus-based quality measures. For 
measures selected for inclusion in the PQRS quality measure set, CMS 
will use group practice measures determined appropriate by CMS and 
consensus-based quality measures that meet one of the following 
criteria:
    (1) Be such measures selected by the Secretary from measures that 
have been endorsed by the entity with a contract with the Secretary 
under section 1890(a) of the Act. In the case of a specified area or 
medical topic determined appropriate by the Secretary for which a 
feasible and practical measure has not been endorsed by the entity with 
a contract under section 1890(a) of the Act, the Secretary may specify a 
measure that is not so endorsed as long as due consideration is given to 
measures that have been endorsed or adopted by a consensus organization 
identified by the Secretary.
    (2) For each quality measure adopted by the Secretary under this 
paragraph, the Secretary ensures that eligible professionals have the 
opportunity to provide input during the development, endorsement, or 
selection of quality measures applicable to services they furnish.
    (g) Use of quality measures for satisfactory participation in a 
qualified clinical data registry. For measures selected for reporting to 
meet the criteria for satisfactory participation in a qualified

[[Page 33]]

clinical data registry, CMS will use measures selected by qualified 
clinical data registries based on parameters set by CMS.
    (h) Satisfactory reporting requirements for the incentive payments. 
In order to qualify to earn a PQRS incentive payment for a particular 
program year, an individual eligible professional, as identified by a 
unique TIN/NPI combination, must meet the criteria for satisfactory 
reporting specified by CMS under paragraph (h)(3) of (h)(5) of this 
section for such year by reporting on either individual PQRS quality 
measures or PQRS measures groups identified by CMS during a reporting 
period specified in paragraph (h)(1) of this section, using one of the 
reporting mechanisms specified in paragraph (h)(2) or (4) of this 
section, and using one of the reporting criteria specified in paragraph 
(h)(3) or (5) of this section.
    (1) Reporting periods. For purposes of this paragraph, the reporting 
period is--
    (i) The 12-month period from January 1 through December 31 of such 
program year.
    (ii) A 6-month period from July 1 through December 31 of such 
program year.
    (A) For 2011, such 6-month reporting period is not available for 
EHR-based reporting of individual PQRS quality measures.
    (B) For 2012 and subsequent program years, such 6-month reporting 
period from July 1 through December 31 of such program year is only 
available for registry-based reporting of PQRS measures groups by 
eligible professionals.
    (2) Reporting mechanisms for individual eligible professionals. An 
individual eligible professional who wishes to participate in the PQRS 
must report information on PQRS quality measures identified by CMS in 
one of the following manners:
    (i) Claims. Reporting PQRS quality measures or PQRS measures groups 
to CMS, by no later than 2 months after the end of the applicable 
reporting period, on the eligible professional's Medicare Part B claims 
for covered professional services furnished during the applicable 
reporting period.
    (A) If an eligible professional re-submits a Medicare Part B claim 
for reprocessing, the eligible professional may not attach a G-code at 
that time for reporting on individual PQRS measures or measures groups.
    (B) [Reserved]
    (ii) Registry. Reporting PQRS quality measures or PQRS measures 
groups to a qualified registry in the form and manner and by the 
deadline specified by the qualified registry selected by the eligible 
professional. The selected registry must submit information, as required 
by CMS, for covered professional services furnished by the eligible 
professional during the applicable reporting period to CMS on the 
eligible professional's behalf.
    (iii) Direct EHR product. Reporting PQRS quality measures to CMS by 
extracting clinical data using a secure data submission method, as 
required by CMS, from a direct EHR product by the deadline specified by 
CMS for covered professional services furnished by the eligible 
professional during the applicable reporting period.
    (iv) EHR data submission vendor. Reporting PQRS quality measures to 
CMS by extracting clinical data using a secure data submission method, 
as required by CMS, from an EHR data submission vendor product by the 
deadline specified by CMS for covered professional services furnished by 
the eligible professional during the applicable reporting period.
    (v) Although an eligible professional may attempt to qualify for the 
PQRS incentive payment by reporting on both individual PQRS quality 
measures and measures groups, using more than one reporting mechanism 
(as specified in paragraph (g)(2) of this section), or reporting for 
more than one reporting period, he or she will receive only one PQRS 
incentive payment per TIN/NPI combination for a program year.
    (3) Satisfactory reporting criteria for individual eligible 
professionals for the 2014 PQRS incentive. An individual eligible 
professional who wishes to qualify for the 2014 PQRS incentive must 
report information on PQRS quality measures data in one of the following 
manners:
    (i) Via Claims. For the 12-month 2014 PQRS incentive reporting 
period--

[[Page 34]]

    (A) Report at least 9 measures covering at least 3 National Quality 
Strategy domains, and report each measure for at least 50 percent of the 
Medicare Part B FFS patients seen during the reporting period to which 
the measure applies; or if less than 9 measures covering at least 3 
National Quality Strategy domains apply to the eligible professional, 
report 1 to 8 measures covering 1 to 3 National Quality Strategy domains 
and report each measure for at least 50 percent of the Medicare Part B 
FFS patients seen during the reporting period to which the measure 
applies. For an eligible professional who reports fewer than 9 measures 
covering at least 3 NQS domains via the claims-based reporting 
mechanism, the eligible professional would be subject to the Measures 
Applicability Validation process, which would allow us to determine 
whether an eligible professional should have reported quality data codes 
for additional measures and/or covering additional National Quality 
Strategy domains. Measures with a 0 percent performance rate would not 
be counted.
    (B) [Reserved]
    (ii) Via Qualified Registry. (A) For the 12-month 2014 PQRS 
incentive reporting period--
    (1) Report at least 9 measures covering at least 3 of the National 
Quality Strategy domains report each measure for at least 50 percent of 
the eligible professional's Medicare Part B FFS patients seen during the 
reporting period to which the measure applies; or, if less than 9 
measures covering at least 3 NQS domains apply to the eligible 
professional, report 1 to 8 measures covering 1 to 3 National Quality 
Strategy domains for which there is Medicare patient data and report 
each measure for at least 50 percent of the eligible professional's 
Medicare Part B FFS patients seen during the reporting period to which 
the measure applies. For an eligible professional who reports fewer than 
9 measures covering at least 3 NQS domains via the qualified registry-
based reporting mechanism, the eligible professional will be subject to 
the Measures Applicability Validation process, which would allow us to 
determine whether an eligible professional should have reported on 
additional measures and/or measures covering additional National Quality 
Strategy domains. Measures with a 0 percent performance rate would not 
be counted.
    (2) Report at least 1 measures group and report each measures group 
for at least 20 patients, a majority of which much be Medicare Part B 
FFS patients. Measures with a 0 percent performance rate or measures 
groups containing a measure with a 0 percent performance rate will not 
be counted.
    (B) For the 6-month 2014 PQRS incentive reporting period, report at 
least 1 measures group and report each measures group for at least 20 
patients, a majority of which much be Medicare Part B FFS patients. 
Measures groups containing a measure with a 0 percent performance rate 
will not be counted.
    (iii) Via EHR Direct Product. For the 12-month 2014 PQRS incentive 
reporting period, report 9 measures covering at least 3 of the National 
Quality Strategy domains. If an eligible professional's CEHRT does not 
contain patient data for at least 9 measures covering at least 3 
domains, then the eligible professional must report the measures for 
which there is Medicare patient data. An eligible professional must 
report on at least 1 measure for which there is Medicare patient data.
    (iv) Via EHR Data Submission Vendor. For the 12-month 2014 PQRS 
incentive reporting period, report 9 measures covering at least 3 of the 
National Quality Strategy domains. If an eligible professional's CEHRT 
does not contain patient data for at least 9 measures covering at least 
3 domains, then the eligible professional must report the measures for 
which there is Medicare patient data. An eligible professional must 
report on at least 1 measure for which there is Medicare patient data.
    (4) Reporting mechanisms for group practices. With the exception of 
a group practice who wishes to participate in the PQRS using the 
certified survey vendor mechanism (as specified in paragraph (h)(4)(v) 
of this section), a group practice must report information on PQRS 
quality measures identified by CMS in one of the following reporting 
mechanisms:
    (i) Web interface. For 2013 and subsequent years, reporting PQRS 
quality

[[Page 35]]

measures to CMS using a CMS web interface in the form and manner and by 
the deadline specified by CMS.
    (ii) Registry. For 2013 and subsequent years, reporting on PQRS 
quality measures to a qualified registry in the form and manner and by 
the deadline specified by the qualified registry selected by the 
eligible professional. The selected registry must submit information, as 
required by CMS, for covered professional services furnished by the 
eligible professional during the applicable reporting period to CMS on 
the eligible professional's behalf.
    (iii) Direct EHR product. For 2014 and subsequent years, reporting 
PQRS quality measures to CMS by extracting clinical data using a secure 
data submission method, as required by CMS, from a direct EHR product by 
the deadline specified by CMS for covered professional services 
furnished by the eligible professional during the applicable reporting 
period.
    (iv) EHR data submission vendor. For 2014 and subsequent years, 
reporting PQRS quality measures to CMS by extracting clinical data using 
a secure data submission method, as required by CMS, from an EHR data 
submission vendor product by the deadline specified by CMS for covered 
professional services furnished by the eligible professional during the 
applicable reporting period.
    (v) Certified survey vendors. For 2014 and subsequent years, 
reporting CAHPS for PQRS survey measures to CMS using a vendor that is 
certified by CMS for a particular program year to transmit survey 
measures data to CMS. Group practices that elect this reporting 
mechanism must select an additional group practice reporting mechanism 
in order to meet the criteria for satisfactory reporting for the 
incentive payments.
    (vi) Although a group practice may attempt to qualify for the PQRS 
incentive payment by using more than one reporting mechanism (as 
specified in paragraph (g)(3) of this section), or reporting for more 
than one reporting period, the group practice will receive only one PQRS 
incentive payment for a program year.
    (5) Satisfactory reporting criteria for group practices for the 2014 
PQRS incentive. A group practice who wishes to qualify for the 2014 PQRS 
incentive must report information on PQRS quality measures identified by 
CMS in one of the following manners:
    (i) Via the GPRO web interface. (A) For the 12-month 2014 PQRS 
incentive reporting period, for a group practice of 25 to 99 eligible 
professionals, report on all measures included in the web interface and 
populate data fields for the first 218 consecutively ranked and assigned 
beneficiaries in the order in which they appear in the group's sample 
for each module or preventive care measure. If the pool of eligible 
assigned beneficiaries is less than 218, then report on 100 percent of 
assigned beneficiaries.
    (B) For the 12-month 2014 PQRS incentive reporting period, for a 
group practice of 100 or more eligible professionals, report on all 
measures included in the web interface and populate data fields for the 
first 411 consecutively ranked and assigned beneficiaries in the order 
in which they appear in the group's sample for each module or preventive 
care measure. If the pool of eligible assigned beneficiaries is less 
than 411, then report on 100 percent of assigned beneficiaries. In 
addition, for the 12-month 2014 PQRS incentive reporting period, the 
group practice must report all CAHPS for PQRS survey measures via a CMS-
certified survey vendor, and report at least 6 measures covering at 
least 2 of the National Quality Strategy domains using a qualified 
registry, direct EHR product, or EHR data submission vendor.
    (ii) Via Qualified Registry. For the 12-month 2014 PQRS incentive 
reporting period, for a group practice of 2 or more eligible 
professionals, report at least 9 measures, covering at least 3 of the 
National Quality Strategy domains and report each measure for at least 
50 percent of the group practice's Medicare Part B FFS patients seen 
during the reporting period to which the measure applies; or, if less 
than 9 measures covering at least 3 NQS domains apply to the group 
practice, then the group practice must report 1-8 measures for which 
there is Medicare patient data and report each measure for

[[Page 36]]

at least 50 percent of the group practice's Medicare Part B FFS patients 
seen during the reporting period to which the measure applies. For a 
group practice who reports fewer than 9 measures covering at least 3 NQS 
domains via the qualified registry-based reporting mechanism, the group 
practice would be subject to the Measures Applicability Validation 
process, which would allow us to determine whether a group practice 
should have reported on additional measures and/or measures covering 
additional National Quality Strategy domains. Measures with a 0 percent 
performance rate would not be counted.
    (iii) Via EHR Direct Product. For the 12-month 2014 PQRS incentive 
reporting period, for a group practice of 2 or more eligible 
professionals, report 9 measures covering at least 3 of the National 
Quality Strategy domains. If a group practice's CEHRT does not contain 
patient data for at least 9 measures covering at least 3 domains, then 
the group practice must report the measures for which there is Medicare 
patient data. A group practice must report on at least 1 measure for 
which there is Medicare patient data.
    (iv) Via EHR Data Submission Vendor. For the 12-month 2014 PQRS 
incentive reporting period, for a group practice of 2 or more eligible 
professionals, report 9 measures covering at least 3 of the National 
Quality Strategy domains. If a group practice's CEHRT does not contain 
patient data for at least 9 measures covering at least 3 domains, then 
the group practice must report the measures for which there is Medicare 
patient data. A group practice must report on at least 1 measure for 
which there is Medicare patient data.
    (v) Via a Certified survey vendor, in addition to the GPRO web 
interface, qualified registry, direct EHR product, or EHR data 
submission vendor reporting mechanisms. For the 12-month 2014 PQRS 
incentive reporting period, for a group practice of 25 or more eligible 
professionals, report all CAHPS for PQRS survey measures via a CMS-
certified survey vendor, and report at least 6 measures covering at 
least 2 of the National Quality Strategy domains using a qualified 
registry, direct EHR product, EHR data submission vendor, or GPRO web 
interface.
    (i) Satisfactory participation requirements for the incentive 
payments for individual eligible professionals. To qualify for the 2014 
PQRS incentive using a qualified clinical data registry, an individual 
eligible professional, as identified by a unique TIN/NPI combination, 
must meet the criteria for satisfactory participation as specified under 
paragraph (i)(3) of this section by reporting on quality measures 
identified by a qualified clinical data registry during a reporting 
period specified in paragraph (i)(1) of this section, and using the 
reporting mechanism specified in paragraph (i)(2) of this section.
    (1) Reporting period. For purposes of this paragraph, the reporting 
period is the 12-month period from January 1 through December 31.
    (2) Reporting Mechanism. An individual eligible professional who 
wishes to meet the criteria for satisfactory participation in a 
qualified clinical data registry must use a qualified clinical data 
registry to report information on quality measures identified by the 
qualified clinical data registry.
    (3) Satisfactory participation criteria for individual eligible 
professionals for the 2014 PQRS incentive. An individual eligible 
professional who wishes to qualify for the 2014 PQRS incentive through 
satisfactory participation in a qualified clinical data registry must 
report information on quality measures identified by the qualified 
clinical data registry in the following manner:
    (i) For the 12-month 2014 PQRS incentive reporting period, report at 
least 9 measures designated for reporting under a qualified clinical 
data registry covering at least 3 of the National Quality Strategy 
domains and report each measure for at least 50 percent of the eligible 
professional's patients. Of the measures reported via a qualified 
clinical data registry, the eligible professional must report on at 
least 1 outcome measure.
    (ii) [Reserved]
    (j) Satisfactory reporting requirements for the payment adjustments. 
In order to satisfy the requirements for the PQRS payment adjustment for 
a particular program year, an individual eligible professional, as 
identified by a unique

[[Page 37]]

TIN/NPI combination, or a group practice must meet the criteria for 
satisfactory reporting specified by CMS for such year by reporting on 
either individual PQRS measures or PQRS measures groups identified by 
CMS during a reporting period specified in paragraph (j)(1) of this 
section, using one of the reporting mechanisms specified in paragraph 
(j)(2) or (4) of this section, and using one of the reporting criteria 
specified in section (j)(3) or (5) of this section.
    (1) For purposes of this paragraph (j), the reporting period for the 
payment adjustment, with respect to a payment adjustment year, is the 
12-month period from January 1 through December 31 that falls 2 years 
prior to the year in which the payment adjustment is applied.
    (i) For the 2015 and 2016 PQRS payment adjustments only, an 
alternative 6-month reporting period, from July 1-December 31 that fall 
2 years prior to the year in which the payment adjustment is applied, is 
also available.
    (ii) Secondary Reporting Period for the 2017 PQRS payment adjustment 
for certain eligible professionals or group practices- Individual 
eligible professionals or group practices, who bill under the TIN of an 
ACO participant if the ACO failed to report data on behalf of such EPs 
or group practices during the previously established reporting period 
for the 2017 PQRS payment adjustment, may separately report during a 
secondary reporting period for the 2017 PQRS payment adjustment. The 
secondary reporting period for the 2017 PQRS payment adjustment for the 
affected individual eligible professionals or group practices is January 
1, 2016 through December 31, 2016.
    (2) Reporting mechanisms for individual eligible professionals. An 
individual eligible professional participating in the PQRS must report 
information on PQRS quality measures identified by CMS in one of the 
following manners:
    (i) Claims. Reporting PQRS quality measures or PQRS measures groups 
to CMS, by no later than 2 months after the end of the applicable 
reporting period, on the eligible professional's Medicare Part B claims 
for covered professional services furnished during the applicable 
reporting period.
    (A) If an eligible professional re-submits a Medicare Part B claim 
for reprocessing, the eligible professional may not attach a G-code at 
that time for reporting on individual PQRS measures or measures groups.
    (B) [Reserved]
    (ii) Registry. Reporting PQRS quality measures or PQRS measures 
groups to a qualified registry in the form and manner and by the 
deadline specified by the qualified registry selected by the eligible 
professional. The selected registry must submit information, as required 
by CMS, for covered professional services furnished by the eligible 
professional during the applicable reporting period to CMS on the 
eligible professional's behalf.
    (iii) Direct EHR product. Reporting PQRS quality measures to CMS by 
extracting clinical data using a secure data submission method, as 
required by CMS, from a direct EHR product by the deadline specified by 
CMS for covered professional services furnished by the eligible 
professional during the applicable reporting period.
    (iv) EHR data submission vendor. Reporting PQRS quality measures to 
CMS by extracting clinical data using a secure data submission method, 
as required by CMS, from an EHR data submission vendor product by the 
deadline specified by CMS for covered professional services furnished by 
the eligible professional during the applicable reporting period.
    (v) Administrative claims. For 2015, reporting data on PQRS quality 
measures via administrative claims during the applicable reporting 
period. Eligible professionals that are administrative claims reporters 
must meet the following requirement for the payment adjustment:
    (A) Elect to participate in the PQRS using the administrative claims 
reporting option.
    (B) Reporting Medicare Part B claims data for CMS to determine 
whether the eligible professional has performed services applicable to 
certain individual PQRS quality measures.
    (3) Satisfactory reporting criteria for individual eligible 
professionals for the 2016 PQRS payment adjustment. An individual 
eligible professional who wishes

[[Page 38]]

to meet the criteria for satisfactory reporting for the 2016 PQRS 
payment adjustment must report information on PQRS quality measures 
identified by CMS in one of the following manners:
    (i) Via Claims. (A) For the 12-month 2016 PQRS payment adjustment 
reporting period--
    (1)(i) Report at least 9 measures covering at least 3 National 
Quality Strategy domains and report each measure for at least 50 percent 
of the Medicare Part B FFS patients seen during the reporting period to 
which the measure applies; or if less than 9 measures covering at least 
3 NQS domains apply to the eligible professional, report 1-8 measures 
covering 1-3 National Quality Strategy domains, and report each measure 
for at least 50 percent of the Medicare Part B FFS patients seen during 
the reporting period to which the measure applies. For an eligible 
professional who reports fewer than 9 measures covering at least 3 NQS 
domains via the claims-based reporting mechanism, the eligible 
professional would be subject to the Measures Applicability Validation 
process, which would allow us to determine whether an eligible 
professional should have reported quality data codes for additional 
measures and/or covering additional National Quality Strategy domains; 
or
    (ii) Report at least 3 measures covering at least 1 NQS domain, or, 
if less than 3 measures covering at least 1 NQS domain apply to the 
eligible professional, report 1-2 measures covering at least 1 NQS 
domain; and report each measure for at least 50 percent of the eligible 
professional's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies.
    (2) Measures with a 0 percent performance rate would not be counted.
    (ii) Via Qualified Registry. (A) For the 12-month 2016 PQRS payment 
adjustment reporting period--
    (1)(i) Report at least 9 measures covering at least 3 of the 
National Quality Strategy domains; or if less than 9 measures covering 
at least 3 NQS domains apply to the eligible professional, report 1 to 8 
measures covering 1 to 3 National Quality Strategy domains for which 
there is Medicare patient data, and report each measure for at least 50 
percent of the eligible professional's Medicare Part B FFS patients seen 
during the reporting period to which the measure applies. For an 
eligible professional who reports fewer than 9 measures covering at 
least 3 NQS domains via the qualified registry-based reporting 
mechanism, the eligible professional would be subject to the Measures 
Applicability Validation process, which would allow us to determine 
whether an eligible professional should have reported on additional 
measures and/or measures covering additional National Quality Strategy 
domains; or
    (ii) Report at least 3 measures covering at least 1 of the NQS 
domains; or if less than 3 measures covering at least 1 NQS domain apply 
to the eligible professional, report 1 to 2 measures covering 1 National 
Quality Strategy domain for which there is Medicare patient data, and 
report each measure for at least 50 percent of the eligible 
professional's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies. For an eligible professional who 
reports fewer than 3 measures covering 1 NQS domain via the registry-
based reporting mechanism, the eligible professional would be subject to 
the Measures Applicability Validation process, which would allow us to 
determine whether an eligible professional should have reported on 
additional measures; or
    (iii) Report at least 1 measures group and report each measures 
group for at least 20 patients, a majority of which much be Medicare 
Part B FFS patients.
    (2) Measures with a 0 percent performance rate or measures groups 
containing a measure with a 0 percent performance rate will not be 
counted.
    (B) For the 6-month 2016 PQRS payment adjustment reporting period--
    (1) Report at least 1 measures group and report each measures group 
for at least 20 patients, a majority of which much be Medicare Part B 
FFS patients. Measures groups containing a measure with a 0 percent 
performance rate will not be counted.
    (iii) Via EHR Direct Product. For the 12-month 2016 PQRS payment 
adjustment reporting period, report 9 measures covering at least 3 of 
the National

[[Page 39]]

Quality Strategy domains. If an eligible professional's CEHRT does not 
contain patient data for at least 9 measures covering at least 3 
domains, then the eligible professional must report the measures for 
which there is Medicare patient data. An eligible professional must 
report on at least 1 measure for which there is Medicare patient data.
    (iv) Via EHR Data Submission Vendor. For the 12-month 2016 PQRS 
payment adjustment reporting period, report 9 measures covering at least 
3 of the National Quality Strategy domains. If an eligible 
professional's CEHRT does not contain patient data for at least 9 
measures covering at least 3 domains, then the eligible professional 
must report the measures for which there is Medicare patient data. An 
eligible professional must report on at least 1 measure for which there 
is Medicare patient data.
    (4) Satisfactory Reporting Criteria for Individual Eligible 
Professionals for the 2017 PQRS Payment Adjustment. An individual 
eligible professional who wishes to meet the criteria for satisfactory 
reporting for the 2017 PQRS payment adjustment must report information 
on PQRS quality measures identified by CMS in one of the following 
manners:
    (i) Via Claims. (A) For the 12-month 2017 PQRS payment adjustment 
reporting period--
    (1)(i) Report at least 9 measures, covering at least 3 of the NQS 
domains and report each measure for at least 50 percent of the eligible 
professional's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies. Of the 9 measures reported, if the 
eligible professional sees at least 1 Medicare patient in a face-to-face 
encounter, the eligible professional must report on at least 1 measure 
contained in the cross-cutting measure set specified by CMS. If less 
than 9 measures apply to the eligible professional, report up to 8 
measures and report each measure for at least 50 percent of the Medicare 
Part B FFS patients seen during the reporting period to which the 
measure applies. Measures with a 0 percent performance rate would not be 
counted.
    (ii) [Reserved]
    (ii) Via Qualified Registry. (A) For the 12-month 2017 PQRS payment 
adjustment reporting period--
    (1)(i) Report at least 9 measures, covering at least 3 of the NQS 
domains and report each measure for at least 50 percent of the eligible 
professional's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies. Of the 9 measures reported, if the 
eligible professional sees at least 1 Medicare patient in a face-to-face 
encounter, the eligible professional must report on at least 1 measure 
contained in the cross-cutting measure set specified by CMS. If less 
than 9 measures apply to the eligible professional, report up to 8 
measures and report each measure for at least 50 percent of the Medicare 
Part B FFS patients seen during the reporting period to which the 
measure applies.
    (ii) Report at least 1 measures group and report each measures group 
for at least 20 patients, a majority of which much be Medicare Part B 
FFS patients.
    (2) Measures with a 0 percent performance rate or measures groups 
containing a measure with a 0 percent performance rate will not be 
counted.
    (iii) Via EHR Direct Product. For the 12-month 2017 PQRS payment 
adjustment reporting period, report 9 measures covering at least 3 of 
the NQS domains. If an eligible professional's direct EHR product does 
not contain patient data for at least 9 measures covering at least 3 
domains, then the eligible professional must report the measures for 
which there is Medicare patient data. An eligible professional must 
report on at least 1 measure for which there is Medicare patient data.
    (iv) Via EHR Data Submission Vendor. For the 12-month 2017 PQRS 
payment adjustment reporting period, report 9 measures covering at least 
3 of the NQS domains. If an eligible professional's EHR data submission 
vendor product does not contain patient data for at least 9 measures 
covering at least 3 domains, then the eligible professional must report 
the measures for which there is Medicare patient data. An eligible 
professional must report on at least 1 measure for which there is 
Medicare patient data.

[[Page 40]]

    (v) Paragraphs (j)(8)(ii), (iii), and (iv) of this section apply to 
individuals reporting using the secondary reporting period established 
under paragraph (j)(1)(ii) of this section for the 2017 PQRS payment 
adjustment.
    (5) Reporting mechanisms for group practices. With the exception of 
a group practice who wishes to participate in the PQRS using the 
certified survey vendor mechanism, a group practice participating in the 
PQRS must report information on PQRS quality measures identified by CMS 
in one of the following reporting mechanisms:
    (i) Web interface. For the 2015 payment adjustment and subsequent 
payment adjustments, reporting PQRS quality measures to CMS using a CMS 
web interface in the form and manner and by the deadline specified by 
CMS.
    (ii) Registry. For the 2015 subsequent adjustment and subsequent 
payment adjustments, reporting on PQRS quality measures to a qualified 
registry in the form and manner and by the deadline specified by the 
qualified registry selected by the eligible professional. The selected 
registry will submit information, as required by CMS, for covered 
professional services furnished by the eligible professional during the 
applicable reporting period to CMS on the eligible professional's 
behalf.
    (iii) Direct EHR product. For the 2016 subsequent adjustment and 
subsequent payment adjustments, reporting PQRS quality measures to CMS 
by extracting clinical data using a secure data submission method, as 
required by CMS, from a direct EHR product by the deadline specified by 
CMS for covered professional services furnished by the eligible 
professional during the applicable reporting period.
    (iv) EHR data submission vendor. For the 2016 subsequent adjustment 
and subsequent payment adjustments, reporting PQRS quality measures to 
CMS by extracting clinical data using a secure data submission method, 
as required by CMS, from an EHR data submission vendor product by the 
deadline specified by CMS for covered professional services furnished by 
the group practice during the applicable reporting period.
    (v) Administrative claims. For 2015, reporting data on PQRS quality 
measures via administrative claims during the applicable reporting 
period. Group practices that are administrative claims reporters must 
meet the following requirement for the payment adjustment:
    (A) Elect to participate in the PQRS using the administrative claims 
reporting option.
    (B) Reporting Medicare Part B claims data for CMS to determine 
whether the group practice has performed services applicable to certain 
individual PQRS quality measures.
    (vi) Certified Survey Vendors. For 2016 and subsequent years, 
reporting CAHPS for PQRS survey measures to CMS using a vendor that is 
certified by CMS for a particular program year to transmit survey 
measures data to CMS. Group practices that elect this reporting 
mechanism must select an additional group practice reporting mechanism 
in order to meet the criteria for satisfactory reporting for the payment 
adjustment.
    (6) Satisfactory reporting criteria for group practices for the 2016 
PQRS payment adjustment. A group practice who wishes to meet the 
criteria for satisfactory reporting for the 2016 PQRS payment adjustment 
must report information on PQRS quality measures identified by CMS in 
one of the following manners:
    (i) Via the GPRO web interface. (A) For the 12-month 2016 PQRS 
payment adjustment reporting period, for a group practice of 25 to 99 
eligible professionals, report on all measures included in the web 
interface and populate data fields for the first 218 consecutively 
ranked and assigned beneficiaries in the order in which they appear in 
the group's sample for each module or preventive care measure. If the 
pool of eligible assigned beneficiaries is less than 218, then report on 
100 percent of assigned beneficiaries.
    (B) For the 12-month 2016 PQRS payment adjustment reporting period, 
for a group practice of 100 or more eligible professionals, report on 
all measures included in the Web interface and populate data fields for 
the first 411 consecutively ranked and assigned beneficiaries in the 
order in which they appear in the group's sample for each module or 
preventive care measure. If

[[Page 41]]

the pool of eligible assigned beneficiaries is less than 411, then 
report on 100 percent of assigned beneficiaries. In addition, the group 
practice must also report all CAHPS for PQRS survey measures via 
certified survey vendor.
    (ii) Via Qualified Registry. (A) For the 12-month 2016 PQRS payment 
adjustment reporting period, for a group practice of 2 or more eligible 
professionals--
    (1) Report at least 9 measures, covering at least 3 of the National 
Quality Strategy domains and report each measure for at least 50 percent 
of the group practice's Medicare Part B FFS patients seen during the 
reporting period to which the measure applies; or If less than 9 
measures covering at least 3 NQS domains apply to the eligible 
professional, then the group practices must report 1-8 measures for 
which there is Medicare patient data and report each measure for at 
least 50 percent of the group practice's Medicare Part B FFS patients 
seen during the reporting period to which the measure applies. For a 
group practice who reports fewer than 9 measures covering at least 3 NQS 
domains via the registry-based reporting mechanism, the group practice 
would be subject to the Measures Applicability Validation process, which 
would allow us to determine whether a group practice should have 
reported on additional measures. Measures with a 0 percent performance 
rate would not be counted; or
    (2) Report at least 3 measures, covering at least 1 of the National 
Quality Strategy domains and report each measure for at least 50 percent 
of the group practice's Medicare Part B FFS patients seen during the 
reporting period to which the measure applies; or if less than 3 
measures covering at least 1 NQS domain apply to the group practice, 
then the group practice must report 1-2 measures for which there is 
Medicare patient data and report each measure for at least 50 percent of 
the group practice's Medicare Part B FFS patients seen during the 
reporting period to which the measure applies. For a group practice who 
reports fewer than 3 measures covering at least 1 NQS domain via the 
registry-based reporting mechanism, the group practice would be subject 
to the Measures Applicability Validation process, which would allow us 
to determine whether a group practice should have reported on additional 
measures. Measures with a 0 percent performance rate would not be 
counted.
    (iii) Via EHR Direct Product. For a group practice of 2 or more 
eligible professionals, for the 12-month 2016 PQRS payment adjustment 
reporting period, report 9 measures covering at least 3 of the National 
Quality Strategy domains. If a group practice's CEHRT does not contain 
patient data for at least 9 measures covering at least 3 domains, then 
the group practice must report the measures for which there is Medicare 
patient data. A group practice must report on at least 1 measure for 
which there is Medicare patient data.
    (iv) Via EHR Data Submission Vendor. For a group practice of 2 or 
more eligible professionals, for the 12-month 2016 PQRS payment 
adjustment reporting period, report 9 measures covering at least 3 of 
the National Quality Strategy domains. If a group practice's CEHRT does 
not contain patient data for at least 9 measures covering at least 3 
domains, then the group practice must report the measures for which 
there is Medicare patient data. A group practice must report on at least 
1 measure for which there is Medicare patient data.
    (v) Via a Certified survey vendor, in addition to the GPRO Web 
interface, qualified registry, direct EHR product, or EHR data 
submission vendor reporting mechanisms. For a group practice of 25 or 
more eligible professionals, for the 12-month 2016 PQRS payment 
adjustment reporting period, report all CAHPS for PQRS survey measures 
via a CMS-certified survey vendor and report at least 6 measures 
covering at least 2 of the National Quality Strategy domains using a 
qualified registry, direct EHR product, EHR data submission vendor, or 
GPRO Web interface.
    (7) Satisfactory reporting criteria for group practices for the 2017 
PQRS payment adjustment. A group practice who

[[Page 42]]

wishes to meet the criteria for satisfactory reporting for the 2017 PQRS 
payment adjustment must report information on PQRS quality measures 
identified by CMS in one of the following manners:
    (i) Via the GPRO web interface. For the 12-month 2017 PQRS payment 
adjustment reporting period, for a group practice of 25 to 99 eligible 
professionals, report on all measures included in the web interface and 
populate data fields for the first 248 consecutively ranked and assigned 
beneficiaries in the order in which they appear in the group's sample 
for each module or preventive care measure. If the pool of eligible 
assigned beneficiaries is less than 248, then report on 100 percent of 
assigned beneficiaries. A group practice must report on at least 1 
measure for which there is Medicare patient data.
    (ii) Via Qualified Registry. For a group practice of 2 to 99 
eligible professionals, for the 12-month 2017 PQRS payment adjustment 
reporting period, report at least 9 measures, covering at least 3 of the 
NQS domains and report each measure for at least 50 percent of the group 
practice's Medicare Part B FFS patients seen during the reporting period 
to which the measure applies; or if less than 9 measures covering at 
least 3 NQS domains apply to the eligible professional, then the group 
practice must report up to 8 measures for which there is Medicare 
patient data and report each measure for at least 50 percent of the 
group practice's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies. Of the measures reported, if any 
eligible professional in the group practice sees at least 1 Medicare 
patient in a face-to-face encounter, the group practice must report on 
at least 1 measure contained in the cross-cutting measure set specified 
by CMS. Measures with a 0 percent performance rate would not be counted; 
or
    (iii) Via EHR Direct Product. For a group practice of 2 to 99 
eligible professionals, for the 12-month 2017 PQRS payment adjustment 
reporting period, report 9 measures covering at least 3 of the NQS 
domains. If a group practice's direct EHR product does not contain 
patient data for at least 9 measures covering at least 3 domains, then 
the group practice must report the measures for which there is Medicare 
patient data. A group practice must report on at least 1 measure for 
which there is Medicare patient data.
    (iv) Via EHR Data Submission Vendor. For a group practice of 2 to 99 
eligible professionals, for the 12-month 2017 PQRS payment adjustment 
reporting period, report 9 measures covering at least 3 of the NQS 
domains. If a group practice's EHR data submission vendor product does 
not contain patient data for at least 9 measures covering at least 3 
domains, then the group practice must report the measures for which 
there is Medicare patient data. A group practice must report on at least 
1 measure for which there is Medicare patient data.
    (v) Via a Certified Survey Vendor in addition to a Qualified 
Registry. For a group practice of 2 or more eligible professionals, for 
the 12-month 2017 PQRS payment adjustment reporting period, report all 
CAHPS for PQRS survey measures via a CMS-certified survey vendor and 
report at least 6 additional measures covering at least 2 of the NQS 
domains using a qualified registry. If less than 6 measures apply to the 
group practice, the group practice must report up to 5 measures. Of the 
additional measures that must be reported in conjunction with reporting 
the CAHPS for PQRS survey measures, if any eligible professional in the 
group practice sees at least 1 Medicare patient in a face-to-face 
encounter, the group practice must report on at least 1 measure in the 
cross-cutting measure set specified by CMS.
    (vi) Via a Certified Survey Vendor in addition a Direct EHR Product 
or EHR Data Submission Vendor. For a group practice of 2 or more 
eligible professionals, for the 12-month 2017 PQRS payment adjustment 
reporting period, report all CAHPS for PQRS survey measures via a CMS-
certified survey vendor and report at least 6 additional measures, 
outside of CAHPS for PQRS, covering at least 2 of the NQS domains using 
the direct EHR product that is CEHRT or EHR data submission vendor 
product that is CEHRT. If less than 6 measures apply to the group 
practice, the group practice must report up to 5

[[Page 43]]

measures. Of the additional measures that must be reported in 
conjunction with reporting the CAHPS for PQRS survey measures, the group 
practice must report on at least 1 measure for which there is Medicare 
patient data.
    (vii) Via a Certified Survey Vendor in addition to the GPRO Web 
interface. (A) For a group practice of 25 or more eligible 
professionals, for the 12-month 2017 PQRS payment adjustment reporting 
period, report all CAHPS for PQRS survey measures via a CMS-certified 
survey vendor and report on all measures included in the GPRO web 
interface; AND populate data fields for the first 248 consecutively 
ranked and assigned beneficiaries in the order in which they appear in 
the group's sample for each module or preventive care measure. If the 
pool of eligible assigned beneficiaries is less than 248, then the group 
practice would report on 100 percent of assigned beneficiaries. A group 
practice must report on at least 1 measure for which there is Medicare 
patient data.
    (B) [Reserved]
    (viii) Paragraphs (j)(9)(ii), (iii), and (iv) of this section apply 
to group practices reporting using the secondary reporting period 
established under paragraph (j)(1)(ii) of this section for the 2017 PQRS 
payment adjustment.
    (8) Satisfactory reporting criteria for individual eligible 
professionals for the 2018 PQRS payment adjustment. An individual 
eligible professional who wishes to meet the criteria for satisfactory 
reporting for the 2018 PQRS payment adjustment must report information 
on PQRS quality measures identified by CMS in one of the following 
manners:
    (i) Via claims. (A) For the 12-month 2018 PQRS payment adjustment 
reporting period--
    (1)(i) Report at least 9 measures, covering at least 3 of the NQS 
domains AND report each measure for at least 50 percent of the eligible 
professional's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies. Of the measures reported, if the 
eligible professional sees at least 1 Medicare patient in a face-to-face 
encounter, the eligible professional will report on at least 1 measure 
contained in the proposed cross-cutting measure set. If less than 9 
measures apply to the eligible professional, the eligible professional 
must report on each measure that is applicable, AND report each measure 
for at least 50 percent of the Medicare Part B FFS patients seen during 
the reporting period to which the measure applies. Measures with a 0 
percent performance rate would not be counted.
    (ii) [Reserved]
    (2) [Reserved]
    (B) [Reserved]
    (ii) Via qualified registry. (A) For the 12-month 2018 PQRS payment 
adjustment reporting period--
    (1)(i) Report at least 9 measures, covering at least 3 of the NQS 
domains AND report each measure for at least 50 percent of the eligible 
professional's Medicare Part B FFS patients seen during the reporting 
period to which the measure applies. Of the measures reported, if the 
eligible professional sees at least 1 Medicare patient in a face-to-face 
encounter, the eligible professional will report on at least 1 measure 
contained in the proposed cross-cutting measure set. If less than 9 
measures apply to the eligible professional, the eligible professional 
must report on each measure that is applicable to the eligible 
professional, AND report each measure for at least 50 percent of the 
Medicare Part B FFS patients seen during the reporting period to which 
the measure applies.
    (ii) Report at least 1 measures group and report each measures group 
for at least 20 patients, a majority of which must be Medicare Part B 
FFS patients.
    (2) Measures with a 0 percent performance rate or measures groups 
containing a measure with a 0 percent performance rate will not be 
counted.
    (B) [Reserved]
    (iii) Via EHR direct product. For the 12-month 2018 PQRS payment 
adjustment reporting period, report 9 measures covering at least 3 of 
the NQS domains. If an eligible professional's direct EHR product or EHR 
data submission vendor product does not contain patient data for at 
least 9 measures covering at least 3 domains, then the eligible 
professional must report all of

[[Page 44]]

the measures for which there is Medicare patient data. An eligible 
professional must report on at least 1 measure for which there is 
Medicare patient data.
    (iv) Via EHR data submission vendor. For the 12-month 2018 PQRS 
payment adjustment reporting period, report 9 measures covering at least 
3 of the NQS domains. If an eligible professional's direct EHR product 
or EHR data submission vendor product does not contain patient data for 
at least 9 measures covering at least 3 domains, then the eligible 
professional would be required to report all of the measures for which 
there is Medicare patient data. An eligible professional would be 
required to report on at least 1 measure for which there is Medicare 
patient data.
    (9) Satisfactory reporting criteria for group practices for the 2018 
PQRS payment adjustment. A group practice who wishes to meet the 
criteria for satisfactory reporting for the 2018 PQRS payment adjustment 
must report information on PQRS quality measures identified by CMS in 
one of the following manners:
    (i) Via the GPRO web interface. For the 12-month 2018 PQRS payment 
adjustment reporting period, for a group practice of 25 or more eligible 
professionals, report on all measures included in the web interface; AND 
populate data fields for the first 248 consecutively ranked and assigned 
beneficiaries in the order in which they appear in the group's sample 
for each module or preventive care measure. If the pool of eligible 
assigned beneficiaries is less than 248, then the group practice must 
report on 100 percent of assigned beneficiaries. In some instances, the 
sampling methodology will not be able to assign at least 248 patients on 
which a group practice may report, particularly those group practices on 
the smaller end of the range of 25-99 eligible professionals. If the 
group practice is assigned less than 248 Medicare beneficiaries, then 
the group practice must report on 100 percent of its assigned 
beneficiaries. A group practice must report on at least 1 measure for 
which there is Medicare patient data.
    (ii) Via qualified registry. For a group practice of 2 or more 
eligible professionals, for the 12-month 2018 PQRS payment adjustment 
reporting period, report at least 9 measures, covering at least 3 of the 
NQS domains. Of these measures, if a group practice sees at least 1 
Medicare patient in a face-to-face encounter, the group practice would 
report on at least 1 measure in the cross-cutting measure set. If less 
than 9 measures covering at least 3 NQS domains apply to the group 
practice, the group practice would report on each measure that is 
applicable to the group practice, AND report each measure for at least 
50 percent of the group's Medicare Part B FFS patients seen during the 
reporting period to which the measure applies. Measures with a 0 percent 
performance rate would not be counted.
    (iii) Via EHR direct product. For a group practice of 2 or more 
eligible professionals, for the 12-month 2018 PQRS payment adjustment 
reporting period, report 9 measures covering at least 3 domains. If the 
group practice's direct EHR product or EHR data submission vendor 
product does not contain patient data for at least 9 measures covering 
at least 3 domains, then the group practice must report all of the 
measures for which there is Medicare patient data. A group practice must 
report on at least 1 measure for which there is Medicare patient data.
    (iv) Via EHR data submission vendor. For a group practice of 2 or 
more eligible professionals, for the 12-month 2018 PQRS payment 
adjustment reporting period, report 9 measures covering at least 3 
domains. If the group practice's direct EHR product or EHR data 
submission vendor product does not contain patient data for at least 9 
measures covering at least 3 domains, then the group practice must 
report all of the measures for which there is Medicare patient data. A 
group practice must report on at least 1 measure for which there is 
Medicare patient data.
    (v) Via a certified survey vendor in addition to a qualified 
registry. For a group practice of 2 or more eligible professionals that 
elects to report via a certified survey vendor in addition to a 
qualified registry for the 12-month 2018 PQRS payment adjustment 
reporting

[[Page 45]]

period, the group practice must have all CAHPS for PQRS survey measures 
reported on its behalf via a CMS-certified survey vendor, and report at 
least 6 additional measures, outside of CAHPS for PQRS, covering at 
least 2 of the NQS domains using the qualified registry. If less than 6 
measures apply to the group practice, the group practice must report on 
each measure that is applicable to the group practice. Of the additional 
measures that must be reported in conjunction with reporting the CAHPS 
for PQRS survey measures, if any eligible professional in the group 
practice sees at least 1 Medicare patient in a face-to-face encounter, 
the group practice must report on at least 1 measure in the cross-
cutting measure set.
    (vi) Via a certified survey vendor in addition to a direct EHR 
product or EHR data submission vendor. For a group practice of 2 or more 
eligible professionals that elects to report via a certified survey 
vendor in addition to a direct EHR product or EHR data submission vendor 
for the 12-month 2018 PQRS payment adjustment reporting period, the 
group practice must have all CAHPS for PQRS survey measures reported on 
its behalf via a CMS-certified survey vendor, and report at least 6 
additional measures, outside of CAHPS for PQRS, covering at least 2 of 
the NQS domains using the direct EHR product or EHR data submission 
vendor product. If less than 6 measures apply to the group practice, the 
group practice must report all of the measures for which there is 
patient data. Of the additional 6 measures that must be reported in 
conjunction with reporting the CAHPS for PQRS survey measures, a group 
practice would be required to report on at least 1 measure for which 
there is Medicare patient data.
    (vii) Via a certified survey vendor in addition to the GPRO web 
interface. (A) For a group practice of 25 or more eligible 
professionals, for the 12-month 2018 PQRS payment adjustment reporting 
period, the group practice must have all CAHPS for PQRS survey measures 
reported on its behalf via a CMS-certified survey vendor. In addition, 
the group practice must report on all measures included in the GPRO web 
interface; AND populate data fields for the first 248 consecutively 
ranked and assigned beneficiaries in the order in which they appear in 
the group's sample for each module or preventive care measure. If the 
pool of eligible assigned beneficiaries is less than 248, then the group 
practice must report on 100 percent of assigned beneficiaries. A group 
practice will be required to report on at least 1 measure for which 
there is Medicare patient data.
    (B) [Reserved]
    (viii) If the CAHPS for PQRS survey is applicable to the practice, 
group practices comprised of 100 or more eligible professionals that 
register to participate in the GPRO must administer the CAHPS for PQRS 
survey, regardless of the GPRO reporting mechanism selected.
    (k) Satisfactory participation requirements for the payment 
adjustments for individual eligible professionals and group practices. 
In order to satisfy the requirements for the PQRS payment adjustment for 
a particular program year through participation in a qualified clinical 
data registry, an individual eligible professional, as identified by a 
unique TIN/NPI combination, or group practice must meet the criteria for 
satisfactory participation as specified in paragraph (k)(3) of this 
section for such year, by reporting on quality measures identified by a 
qualified clinical data registry during a reporting period specified in 
paragraph (k)(1) of this section, using the reporting mechanism 
specified in paragraph (k)(2) of this section.
    (1) Reporting period. For purposes of this paragraph, the reporting 
period is--
    (i) The 12-month period from January 1 through December 31 that 
falls 2 years prior to the year in which the payment adjustment is 
applied.
    (ii) [Reserved]
    (2) Reporting mechanism. An individual eligible professional or 
group practice who wishes to meet the criteria for satisfactory 
participation in a qualified clinical data registry must use the 
qualified clinical data registry to report information on quality 
measures identified by the qualified clinical data registry.
    (3) Satisfactory participation criteria for individual eligible 
professionals for the 2016 PQRS payment adjustment. An

[[Page 46]]

individual eligible professional who wishes to meet the criteria for 
satisfactory participation in a qualified clinical data registry for the 
2016 PQRS payment adjustment must report information on quality measures 
identified by the qualified clinical data registry in one of the 
following manners:
    (i) For the 12-month 2016 PQRS payment adjustment reporting period--
    (A) Report at least 9 measures available for reporting under a 
qualified clinical data registry covering at least 3 of the National 
Quality Strategy domains and report each measure for at least 50 percent 
of the eligible professional's patients; or
    (B) Report at least 3 measures available for reporting under a 
qualified clinical data registry covering at least 1 of the National 
Quality Strategy domains and report each measure for at least 50 percent 
of the eligible professional's patients.
    (4) Satisfactory participation criteria for individual eligible 
professionals for the 2017 PQRS payment adjustment. An individual 
eligible professional who wishes to meet the criteria for satisfactory 
participation in a QCDR for the 2017 PQRS payment adjustment must report 
information on quality measures identified by the QCDR in one of the 
following manner:
    (i) For the 12-month 2017 PQRS payment adjustment reporting period, 
report at least 9 measures available for reporting under a QCDR covering 
at least 3 of the NQS domains, and report each measure for at least 50 
percent of the eligible professional's patients. Of these measures, 
report on at least 2 outcome measures, or, if 2 outcomes measures are 
not available, report on at least 2 outcome measures and at least 1 of 
the following types of measures--resource use, patient experience of 
care, efficiency/appropriate use or patient safety.
    (ii) Section 414.90(k)(5) applies to individuals and group practices 
reporting using the secondary reporting period established under 
paragraph (j)(1)(ii) of this section for the 2017 PQRS payment 
adjustment.
    (5) Satisfactory participation criteria for individual eligible 
professionals and group practices for the 2018 PQRS payment adjustment. 
An individual eligible professional or group practice who wishes to meet 
the criteria for satisfactory participation in a QCDR for the 2018 PQRS 
payment adjustment must report information on quality measures 
identified by the QCDR in the following manner:
    (i) If a group practice does not report the CAHPS for PQRS survey 
measures, report at least 9 measures available for reporting under a 
QCDR covering at least 3 of the NQS domains, and report each measure for 
at least 50 percent of the eligible professional's patients. Of these 
measures, report on at least 3 outcome measures, or, if 3 outcomes 
measures are not available, report on at least 2 outcome measures and at 
least 1 of the following types of measures--resource use, patient 
experience of care, efficiency/appropriate use, or patient safety. If a 
group practice reports the CAHPS for PQRS survey measures, apply reduced 
criteria as follows: 6 QCDR measures covering 2 NQS domains; and, of the 
non-CAHPS for PQRS measures, 2 outcome measures or 1 outcome and 1 other 
specified type of measure, as applicable.
    (ii) [Reserved]
    (l) Requirements for group practices. Under the PQRS, a group 
practice must meet all of the following requirements:
    (1) Meet the participation requirements specified by CMS for the 
PQRS group practice reporting option.
    (2) Report measures in the form and manner specified by CMS.
    (3) Meet other requirements for satisfactory reporting specified by 
CMS.
    (4) Meet participation requirements.
    (i) If an eligible professional, as identified by an individual NPI, 
has reassigned his or her Medicare billing rights to a group practice 
(as identified by the TIN) selected to participate in the PQRS group 
practice reporting option for a program year, then for that program year 
the eligible professional must participate in the PQRS via the group 
practice reporting option.
    (ii) If, for the program year, the eligible professional 
participates in the PQRS as part of a group practice (as identified by 
the TIN) that is not selected to participate in the PQRS group practice 
reporting option for that program year, then the eligible professional 
may individually participate and qualify for a PQRS incentive

[[Page 47]]

by meeting the requirements specified in paragraph (g) of this section 
under that TIN.
    (m) Informal review. Eligible professionals or group practices may 
seek an informal review of the determination that an eligible 
professional or group practices did not satisfactorily submit data on 
quality measures under the PQRS, or, for individual eligible 
professionals, in lieu of satisfactory reporting, did not satisfactorily 
participate in a qualified clinical data registry.
    (1) To request an informal review for reporting periods that occur 
prior to 2014, an eligible professional or group practice must submit a 
request to CMS within 90 days of the release of the feedback reports. To 
request an informal review for reporting periods that occur in 2014 and 
subsequent years, an eligible professional or group practice must submit 
a request to CMS within 60 days of the release of the feedback reports. 
The request must be submitted in writing and summarize the concern(s) 
and reasons for requesting an informal review and may also include 
information to assist in the review.
    (2) CMS will provide a written response within 90 days of the 
receipt of the original request.
    (i) All decisions based on the informal review will be final.
    (ii) There will be no further review or appeal.
    (3) If, during the informal review process, CMS finds errors in data 
that was submitted by a third-party vendor on behalf of an eligible 
professional or group practice using either the qualified registry, EHR 
data submission vendor, or QCDR reporting mechanisms, CMS may allow for 
the resubmission of data to correct these errors.
    (i) CMS will not allow resubmission of data submitted via claims, 
direct EHR, and the GPRO web interface reporting mechanisms.
    (ii) CMS will only allow resubmission of data that was already 
previously submitted to CMS.
    (iii) CMS will only accept data that was previously submitted for 
the reporting periods for which the corresponding informal review period 
applies.
    (n) Limitations on review. Except as specified in paragraph (i) of 
this section, there is no administrative or judicial review under 
section 1869 or 1879 of the Act, or otherwise of--
    (1) The determination of measures applicable to services furnished 
by eligible professionals under the PQRS;
    (2) The determination of satisfactory reporting; and
    (3) The determination of any Physician Quality Reporting System 
incentive payment and the PQRS payment adjustment.
    (o) Public reporting of an eligible professional's or group 
practice's PQRS data. For each program year, CMS will post on a public 
Web site, in an easily understandable format, a list of the names of 
eligible professionals (or in the case of reporting under paragraph (g) 
of this section, group practices) who satisfactorily submitted PQRS 
quality measures.

[78 FR 74812, Dec. 10, 2013, as amended at 79 FR 68003, Nov. 13, 2014; 
81 FR 34913, June 1, 2016; 81 FR 77537, Nov. 4, 2016; 81 FR 80554, Nov. 
15, 2016]



Sec. 414.92  Electronic Prescribing Incentive Program.

    (a) Basis and scope. This section implements the following 
provisions of the Act:
    (1) Section 1848(a)--Payment Based on Fee Schedule.
    (2) Section 1848(m)--Incentive Payments for Quality Reporting.
    (b) Definitions. As used in this section, unless otherwise 
indicated--
    Certified electronic health record technology means an electronic 
health record vendor's product and version as described in 45 CFR 
170.102.
    Covered professional services means services for which payment is 
made under, or is based on, the Medicare physician fee schedule which 
are furnished by an eligible professional.
    Electronic Prescribing Incentive Program means the incentive payment 
program established under section 1848(m) of the Act for the adoption 
and use of electronic prescribing technology by eligible professionals.
    Eligible professional means any of the following healthcare 
professionals who have prescribing authority:
    (i) A physician.
    (ii) A practitioner described in section 1842(b)(18)(C) of the Act.

[[Page 48]]

    (iii) A physical or occupational therapist or a qualified speech-
language pathologist.
    (iv) A qualified audiologist (as defined in section 1861(ll)(3)(B) 
of the Act).
    Group practice means a group practice that is--
    (i)(A) Defined at Sec. 414.90(b), that is participating in the 
Physician Quality Reporting System; or
    (B) In a Medicare-approved demonstration project or other Medicare 
program, under which Physician Quality Reporting System requirements and 
incentives have been incorporated; and
    (ii) Has indicated its desire to participate in the electronic 
prescribing group practice option.
    Qualified electronic health record product means an electronic 
health record product and version that, with respect to a particular 
program year, is designated by CMS as a qualified electronic health 
record product for the purpose of the Physician Quality Reporting System 
(as described in Sec. 414.90) and the product's vendor has indicated a 
desire to have the product qualified for purposes of the product's users 
to submit information related to the electronic prescribing measure.
    Qualified registry means a medical registry or a Maintenance of 
Certification Program operated by a specialty body of the American Board 
of Medical Specialties that, with respect to a particular program year, 
is designated by CMS as a qualified registry for the purpose of the 
Physician Quality Reporting System (as described in Sec. 414.90) and 
that has indicated its desire to be qualified to submit the electronic 
prescribing measure on behalf of eligible professionals for the purposes 
of the Electronic Prescribing Incentive Program.
    (c) Incentive payments and payment adjustments. (1) Incentive 
payments. Subject to paragraph (c)(3) of this section, with respect to 
covered professional services furnished during a reporting period by an 
eligible professional, if the eligible professional is a successful 
electronic prescriber for such reporting period, in addition to the 
amount otherwise paid under section 1848 of the Act, there also must be 
paid to the eligible professional (or to an employer or facility in the 
cases described in section 1842(b)(6)(A) of the Act) or, in the case of 
a group practice under paragraph (e) of this section, to the group 
practice, from the Federal Supplementary Medical Insurance Trust Fund 
established under section 1841 of the Act an amount equal to the 
applicable electronic prescribing percent (as specified in paragraph 
(c)(1)(ii) of this section) of the eligible professional's (or, in the 
case of a group practice under paragraph (e) of this section, the group 
practice's) total estimated allowed charges for all covered professional 
services furnished by the eligible professional (or, in the case of a 
group practice under paragraph (e) of this section, by the group 
practice) during the applicable reporting period.
    (i) For purposes of paragraph (c)(1) of this section,
    (A) The eligible professional's (or, in the case of a group practice 
under paragraph (e) of this section, the group practice's) total 
estimated allowed charges for covered professional services furnished 
during a reporting period are determined based on claims processed in 
the National Claims History (NCH) no later than 2 months after the end 
of the applicable reporting period;
    (B) In the case of an eligible professional who furnishes covered 
professional services in more than one practice, incentive payments are 
separately determined for each practice based on claims submitted for 
the eligible professional for each practice;
    (C) Incentive payments earned by an eligible professional (or in the 
case of a group practice under paragraph (e) of this section, by a group 
practice) for a particular program year will be paid as a single 
consolidated payment to the TIN holder of record.
    (ii) Applicable electronic prescribing percent. The applicable 
electronic prescribing percent is as follows:
    (A) For the 2011 and 2012 program years, 1.0 percent.
    (B) For the 2013 program year, 0.5 percent.
    (iii) Limitation with respect to electronic health record (EHR) 
incentive payments. The provisions of this paragraph do not apply to an 
eligible professional (or, in the case of a group practice

[[Page 49]]

under paragraph (e) of this section, a group practice) if, for the 
electronic health record reporting period the eligible professional (or 
group practice) receives an incentive payment under section 
1848(o)(1)(A) of the Act with respect to a certified electronic health 
record technology (as defined in section 1848(o)(4) of the Act) that has 
the capability of electronic prescribing.
    (2) Payment adjustment. Subject to paragraphs (c)(1)(ii) and (c)(3) 
of this section, with respect to covered professional services furnished 
by an eligible professional during 2012, 2013, or 2014, if the eligible 
professional (or in the case of a group practice under paragraph (e) of 
this section, the group practice) is not a successful electronic 
prescriber (as specified by CMS for purposes of the payment adjustment) 
for an applicable reporting period (as specified by CMS) the fee 
schedule amount for such services furnished by such professional (or 
group practice) during the program year (including the fee schedule 
amount for purposes of determining a payment based on such amount) is 
equal to the applicable percent (as specified in paragraph (c)(2)(i) of 
this section) of the fee schedule amount that would otherwise apply to 
such services under section 1848 of the Act.
    (i) Applicable percent. The applicable percent is as follows:
    (A) For 2012, 99 percent;
    (B) For 2013, 98.5 percent; and
    (C) For 2014, 98 percent.
    (ii) Significant hardship exception. CMS may, on a case-by-case 
basis, exempt an eligible professional (or in the case of a group 
practice under paragraph (e) of this section, a group practice) from the 
application of the payment adjustment under paragraph (c)(2) of this 
section if, CMS determines, subject to annual renewal, that compliance 
with the requirement for being a successful electronic prescriber would 
result in a significant hardship. Eligible professionals (or, in the 
case of a group practice under paragraph (e) of this section, a group 
practice) may request consideration for a significant hardship exemption 
from a eRx payment adjustment if one of the following circumstances 
apply:
    (A) From the 2012 payment adjustments by meeting one of the 
following:
    (1) The practice is located in a rural area without high speed 
internet access.
    (2) The practice is located in an area without sufficient available 
pharmacies for electronic prescribing.
    (3) Registration to participate in the Medicare or Medicaid EHR 
Incentive Program and adoption of Certified EHR Technology.
    (4) Inability to electronically prescribe due to local, State or 
Federal law or regulation.
    (5) Eligible professionals who achieve meaningful use during the 
respective 6 or 12-month payment adjustment reporting periods.
    (6) Eligible professionals who have registered to participate in the 
EHR Incentive Program and adopted Certified EHR Technology prior to 
application of the respective payment adjustment.
    (B) From the 2013 and 2014 payment adjustments by meeting one of the 
following:
    (1) The eligible professional or group practice is located in a 
rural area without high speed internet access.
    (2) The eligible professional or group practice is located in an 
area without sufficient available pharmacies for electronic prescribing.
    (3) The eligible professional or group practice is unable to 
electronically prescribe due to local, State, or Federal law or 
regulation.
    (4) The eligible professional or group practice has limited 
prescribing activity, as defined by an eligible professional generating 
fewer than 100 prescriptions during a 6-month reporting period.
    (iii) Other limitations to the payment adjustment. An eligible 
professional (or in the case of a group practice under paragraph (b) of 
this section, a group practice) is exempt from the application of the 
payment adjustment under paragraph (c)(2) of this section if one of the 
following applies:
    (A) The eligible professional is not an MD, DO, podiatrist, nurse 
practitioner, or physician assistant.
    (B) The eligible professional does not have at least 100 cases 
containing an encounter code that falls within the denominator of the 
electronic prescribing measure for dates of service during the

[[Page 50]]

6-month reporting period specified in paragraph (f)(1) of this section.
    (3) Limitation with respect to electronic prescribing quality 
measures. The provisions of paragraphs (c)(1) and (c)(2) of this section 
do not apply to an eligible professional (or, in the case of a group 
practice under paragraph (e) of this section, a group practice) if for 
the reporting period the allowed charges under section 1848 of the Act 
for all covered professional services furnished by the eligible 
professional (or group, as applicable) for the codes to which the 
electronic prescribing measure applies are less than 10 percent of the 
total of the allowed charges under section 1848 of the Act for all such 
covered professional services furnished by the eligible professional (or 
the group practice, as applicable).
    (d) Requirements for individual eligible professionals to qualify to 
receive an incentive payment. In order to be considered a successful 
electronic prescriber and qualify to earn an electronic prescribing 
incentive payment (subject to paragraph (c)(3) of this section), an 
individual eligible professional, as identified by a unique TIN/NPI 
combination, must meet the criteria for being a successful electronic 
prescriber under section 1848(m)(3)(B) of the Act and as specified by 
CMS during the reporting period specified in paragraph (d)(1) of this 
section and using one of the reporting mechanisms specified in paragraph 
(d)(2) of this section. Although an eligible professional may attempt to 
qualify for the electronic prescribing incentive payment using more than 
one reporting mechanism (as specified in paragraph (d)(2) of this 
section), the eligible professional will receive only one electronic 
prescribing incentive payment per TIN/NPI combination for a program 
year.
    (1) Reporting period. For purposes of this paragraph, the reporting 
period with respect to a program year is the entire calendar year.
    (2) Reporting mechanisms. An eligible professional who wishes to 
participate in the Electronic Prescribing Incentive Program must report 
information on the electronic prescribing measure identified by CMS to--
    (i) CMS, by no later than 2 months after the end of the applicable 
reporting period, on the eligible professional's Medicare Part B claims 
for covered professional services furnished by the eligible professional 
during the reporting period specified in paragraph (d)(1) of this 
section;
    (ii) A qualified registry (as defined in paragraph (b) of this 
section) in the form and manner and by the deadline specified by the 
qualified registry selected by the eligible professional. The selected 
qualified registry will submit information, as required by CMS, for 
covered professional services furnished by the eligible professional 
during the reporting period specified in paragraph (d)(1) of this 
section to CMS on the eligible professional's behalf; or
    (iii) CMS by extracting clinical data using a secure data submission 
method, as required by CMS, from a qualified electronic health record 
product (as defined in paragraph (b) of this section) by the deadline 
specified by CMS for covered professional services furnished by the 
eligible professional during the reporting period specified in paragraph 
(d)(1) of this section. Prior to actual data submission for a given 
program year and by a date specified by CMS, the eligible professional 
must submit a test file containing real or dummy clinical quality data 
extracted from the qualified electronic health record product selected 
by the eligible professional using a secure data submission method, as 
required by CMS.
    (e) Requirements for group practices to qualify to receive an 
incentive payment. (1) A group practice (as defined in paragraph (b) of 
this section) will be treated as a successful electronic prescriber for 
covered professional services for a reporting period if the group 
practice meets the criteria for successful electronic prescriber 
specified by CMS in the form and manner and at the time specified by 
CMS.
    (2) No double payments. Payments to a group practice under this 
paragraph must be in lieu of the payments that would otherwise be made 
under the Electronic Prescribing Incentive Program to eligible 
professionals in the group practice for being a successful electronic 
prescriber.
    (i) If an eligible professional, as identified by an individual NPI, 
has reassigned his or her Medicare billing

[[Page 51]]

rights to a TIN selected to participate in the electronic prescribing 
group practice reporting option for a program year, then for that 
program year the eligible professional must participate in the 
Electronic Prescribing Incentive Program via the group practice 
reporting option. For any program year in which the TIN is selected to 
participate in the Electronic Prescribing Incentive Program group 
practice reporting option, the eligible professional cannot individually 
qualify for an electronic prescribing incentive payment by meeting the 
requirements specified in paragraph (d) of this section.
    (ii) If, for the program year, the eligible professional 
participates in the Electronic Prescribing Incentive Program under a TIN 
that is not selected to participate in the Electronic Prescribing 
Incentive Program group practice reporting option for that program year, 
then the eligible professional may individually qualify for an 
electronic prescribing incentive by meeting the requirements specified 
in paragraph (d) of this section under that TIN.
    (f) Requirements for individual eligible professionals and group 
practices for the payment adjustment. In order to be considered a 
successful electronic prescriber for the electronic prescribing payment 
adjustment, an individual eligible professional (or, in the case of a 
group practice under paragraph (b) of this section, a group practice), 
as identified by a unique TIN/NPI combination, must meet the criteria 
for being a successful electronic prescriber specified by CMS, in the 
form and manner specified in paragraph (f)(2) of this section, and 
during the reporting period specified in paragraph (f)(1) of this 
section.
    (1) Reporting periods. (i) For purposes of this paragraph (f), the 
reporting period for the 2013 payment adjustment is either of the 
following:
    (A) The 12-month period from January 1, 2011 through December 31, 
2011.
    (B) The 6-month period from January 1, 2012 through June 30, 2012.
    (ii) For purposes of this paragraph (f), the reporting period for 
the 2014 payment adjustment is either of the following:
    (A) The 12-month period from January 1, 2012 through December 31, 
2012.
    (B) The 6-month period from January 1, 2013 through June 30, 2013.
    (2) Reporting mechanisms. An eligible professional (or, in the case 
of a group practice under paragraph (e) of this section, a group 
practice) who wishes to participate in the Electronic Prescribing 
Incentive Program must report information on the electronic prescribing 
measure identified by CMS to one of the following:
    (i) For the 6- and 12-month reporting periods under paragraph (f)(1) 
of this section, CMS, by no later than 2 months after the end of the 
applicable 12-month reporting period or by no later than 1 month after 
the end of the applicable 6-month reporting period, on the eligible 
professional's Medicare Part B claims for covered professional services 
furnished by the eligible professional during the reporting period 
specified in paragraph (f)(1) of this section.
    (A) If an eligible professional re-submits a Medicare Part B claim 
for reprocessing, the eligible professional may not attach a G-code at 
that time for reporting on the electronic prescribing measure.
    (B) [Reserved]
    (ii) For the 12-month reporting period under paragraph (f)(1) of 
this section, a qualified registry (as defined in paragraph (b) of this 
section) in the form and manner and by the deadline specified by the 
qualified registry selected by the eligible professional. The selected 
qualified registry submits information, as required by CMS, for covered 
professional services furnished by the eligible professional during the 
reporting period specified in paragraph (f)(1) of this section to CMS on 
the eligible professional's behalf.
    (iii) For the 12-month reporting period under paragraph (f)(1) of 
this section, CMS by extracting clinical data using a secure data 
submission method, as required by CMS, from a qualified electronic 
health record product (as defined in paragraph (b) of this section) by 
the deadline specified by CMS for covered professional services 
furnished by the eligible professional during the reporting period 
specified in paragraph (f)(1) of this section. Prior to actual

[[Page 52]]

data submission for a given program year and by a date specified by CMS, 
the eligible professional must submit a test file containing dummy 
clinical quality data extracted from the qualified electronic health 
record product selected by the eligible professional using a secure data 
submission method, as required by CMS.
    (g) Informal review. Eligible professionals (or in the case of 
reporting under paragraph (e) of this section, group practices) may seek 
an informal review of the determination that an eligible professional 
(or in the case of reporting under paragraph (e) of this section, group 
practices) did not meet the requirements for the 2012 and 2013 
incentives or the 2013 and 2014 payment adjustments.
    (1) To request an informal review for the 2012 and 2013 incentives, 
an eligible professional or group practice must submit a request to CMS 
via email within 90 days of the release of the feedback reports. The 
request must be submitted in writing and summarize the concern(s) and 
reasons for requesting an informal review and may also include 
information to assist in the review.
    (2) To request an informal review for the 2013 and 2014 payment 
adjustments, an eligible professional or group practices must submit a 
request to CMS via email by February 28 of the year in which the 
eligible professional is receiving the applicable payment adjustment. 
The request must be submitted in writing and summarize the concern(s) 
and reasons for requesting an informal review and may also include 
information to assist in the review.
    (3) CMS will provide a written response of CMS' determination.
    (i) All decisions based on the informal review will be final.
    (ii) There will be no further review or appeal.
    (h) Public reporting of an eligible professional's or group 
practice's Electronic Prescribing Incentive Program data. For each 
program year, CMS will post on a public Web site, in an easily 
understandable format, a list of the names of eligible professionals (or 
in the case of reporting under paragraph (e) of this section, group 
practices) who are successful electronic prescribers.

[75 FR 73620, Nov. 29, 2010, as amended at 76 FR 54968, Sept. 6, 2011; 
76 FR 73472, Nov. 28, 2011; 77 FR 69368, Nov. 16, 2012; 80 FR 71379, 
Nov. 16, 2015]



Sec. 414.94  Appropriate use criteria for advanced diagnostic 
imaging services.

    (a) Basis and scope. This section implements the following 
provisions of the Act:
    (1) Section 1834(q)--Recognizing Appropriate Use Criteria for 
Certain Imaging Services.
    (2) Section 1834(q)(1)--Program Established.
    (3) Section 1834(q)(2)--Establishment of Applicable Appropriate Use 
Criteria.
    (b) Definitions. As used in this section unless otherwise 
indicated--
    Advanced diagnostic imaging service means an imaging service as 
defined in section 1834(e)(1)(B) of the Act.
    Applicable imaging service means an advanced diagnostic imaging 
service (as defined in section 1834(e)(1)(B) of the Act) for which the 
Secretary determines--
    (i) One or more applicable appropriate use criteria apply;
    (ii) There are one or more qualified clinical decision support 
mechanisms listed; and
    (iii) One or more of such mechanisms is available free of charge.
    Applicable payment system means the following:
    (i) The physician fee schedule established under section 1848(b) of 
the Act;
    (ii) The prospective payment system for hospital outpatient 
department services under section 1833(t) of the Act; and
    (iii) The ambulatory surgical center payment systems under section 
1833(i) of the Act.
    Applicable setting means a physician's office, a hospital outpatient 
department (including an emergency department), an ambulatory surgical 
center, and any other provider-led outpatient setting determined 
appropriate by the Secretary.
    Appropriate use criteria (AUC) means criteria only developed or 
endorsed by national professional medical specialty societies or other 
provider-led entities,

[[Page 53]]

to assist ordering professionals and furnishing professionals in making 
the most appropriate treatment decision for a specific clinical 
condition for an individual. To the extent feasible, such criteria must 
be evidence-based. An AUC set is a collection of individual appropriate 
use criteria. An individual criterion is information presented in a 
manner that links: a specific clinical condition or presentation; one or 
more services; and, an assessment of the appropriateness of the 
service(s).
    Clinical decision support mechanism (CDSM) means the following: an 
interactive, electronic tool for use by clinicians that communicates AUC 
information to the user and assists them in making the most appropriate 
treatment decision for a patient's specific clinical condition. Tools 
may be modules within or available through certified EHR technology (as 
defined in section 1848(o)(4)) of the Act or private sector mechanisms 
independent from certified EHR technology or established by the 
Secretary.
    Furnishing professional means a physician (as defined in section 
1861(r) of the Act) or a practitioner described in section 
1842(b)(18)(C) of the Act who furnishes an applicable imaging service.
    Ordering professional means a physician (as defined in section 
1861(r) of the Act) or a practitioner described in section 
1842(b)(18)(C) of the Act who orders an applicable imaging service.
    Priority clinical areas means clinical conditions, diseases or 
symptom complexes and associated advanced diagnostic imaging services 
identified by CMS through annual rulemaking and in consultation with 
stakeholders which may be used in the determination of outlier ordering 
professionals.
    Provider-led entity (PLE) means a national professional medical 
specialty society or other organization that is comprised primarily of 
providers or practitioners who, either within the organization or 
outside of the organization, predominantly provide direct patient care.
    Specified applicable appropriate use criteria means any individual 
appropriate use criterion or AUC set developed, modified or endorsed by 
a qualified PLE.
    (c) Qualified provider-led entity. To be qualified by CMS, a PLE 
must adhere to the evidence-based processes described in paragraph 
(c)(1) of this section when developing or modifying AUC. A qualified PLE 
may develop AUC, modify AUC developed by another qualified PLE, or 
endorse AUC developed by other qualified PLEs.
    (1) Requirements for qualified PLEs developing or modifying AUC. A 
PLE must perform all of the following when developing or modifying AUC:
    (i) Utilize an evidentiary review process when developing or 
modifying AUC that includes:
    (A) A systematic literature review of the clinical topic and 
relevant imaging studies; and
    (B) An assessment of the evidence using a formal, published and 
widely recognized methodology for grading evidence. Consideration of 
relevant published consensus statements by professional medical 
specialty societies must be part of the evidence assessment.
    (ii) Utilize at least one multidisciplinary team with autonomous 
governance, decision-making and accountability for developing or 
modifying AUC. At a minimum the team must be comprised of seven members 
including at least one practicing physician with expertise in the 
clinical topic related to the appropriate use criterion being developed 
or modified, at least one practicing physician with expertise in the 
imaging studies related to the appropriate use criterion, at least one 
primary care physician or practitioner as described in sections 
1833(u)(6), 1833(x)(2)(A)(i)(I), and 1833(x)(2)(A)(i)(II) of the Act, at 
least one expert in statistical analysis and at least one expert in 
clinical trial design. A given team member may be the team's expert in 
more than one domain.
    (iii) Utilize a publicly transparent process for identifying 
potential conflicts of interest and for resolving conflicts of interest 
of members on the multidisciplinary team, the PLE and any other party 
participating in AUC development or modification, to include recusal or 
exclusion of individuals as appropriate. The PLE must document the 
following information and make it available in timely fashion to

[[Page 54]]

a public request, for a period of not less than 5 years after the most 
recent published update of the relevant AUC:
    (A) Direct or indirect financial relationships that exist between 
individuals or the spouse or minor child of individuals who have 
substantively participated in the development of AUC and companies or 
organizations including the PLE and any other party participating in AUC 
development or modification that may financially benefit from the AUC. 
These financial relationships may include, for example, compensation 
arrangements such as salary, grant, speaking or consulting fees, 
contract, or collaboration agreements.
    (B) Ownership or investment interests between individuals or the 
spouse or minor child of individuals who have substantively participated 
in the development of AUC and companies or organizations including the 
PLE or any other party participating in AUC development or modification 
that may financially benefit from the AUC.
    (iv) Publish each individual criterion on the PLE's Web site and 
include an identifying title, authors (at a minimum, all members of the 
multidisciplinary AUC development team must be listed as authors), and 
key references used to establish the evidence.
    (v) Identify each appropriate use criterion or AUC subset that are 
relevant to a priority clinical area with a statement on the PLE's Web 
site. To be identified as being relevant to a priority clinical area, 
the criterion or AUC subset must reasonably address the entire clinical 
scope of the corresponding priority clinical area.
    (vi) Identify key points in an individual criterion as evidence-
based or consensus-based, and grade such key points in terms of strength 
of evidence using a formal, published and widely recognized methodology.
    (vii) Utilize a transparent process for the timely and continual 
updating of each criterion. Each criterion must be reviewed and, when 
appropriate, updated at least annually.
    (viii) Publicly post the process for developing or modifying the AUC 
on the PLE's Web site.
    (ix) Disclose parties external to the PLE when such parties have 
involvement in the AUC development process.
    (2) Process to identify qualifying PLEs. PLEs must meet all of the 
following criteria:
    (i) PLEs must submit an application to CMS for review that documents 
adherence to each of the AUC development requirements outlined in 
paragraph (c)(1) of this section;
    (ii) Applications will be accepted by CMS only from PLEs that meet 
the definition of PLE in paragraph (b) of this section;
    (iii) Applications must be received by CMS annually by January 1;
    (iv) All approved qualified PLEs in each year will be included on 
the list of qualified PLEs posted to the CMS Web site by June 30 of that 
year; and
    (v) Approved PLEs are qualified for a period of 5 years.
    (vi) Qualified PLEs are required to re-apply. The application must 
be received by CMS by January 1 of the 5th year after the PLE's most 
recent approval date.
    (d) Endorsement. Qualified PLEs may endorse the AUC set or 
individual criteria of other qualified PLEs, under agreement by the 
respective parties, in order to enhance an AUC set.
    (e) Identifying priority clinical areas. (1) CMS identifies priority 
clinical areas through annual rulemaking and in consultation with 
stakeholders.
    (2) CMS will consider incidence and prevalence of disease, the 
volume and variability of use of particular imaging services, and 
strength of evidence supporting particular imaging services. We will 
also consider applicability of the clinical area to a variety of care 
settings and to the Medicare population.
    (3) The Medicare Evidence Development & Coverage Advisory Committee 
(MEDCAC) may make recommendations to CMS.
    (4) Priority clinical areas will be used by CMS to identify outlier 
ordering professionals (section 1834(q)(5) of the Act).
    (5) Priority clinical areas include the following:
    (i) Coronary artery disease (suspected or diagnosed).
    (ii) Suspected pulmonary embolism.

[[Page 55]]

    (iii) Headache (traumatic and non-traumatic).
    (iv) Hip pain.
    (v) Low back pain.
    (vi) Shoulder pain (to include suspected rotator cuff injury).
    (vii) Cancer of the lung (primary or metastatic, suspected or 
diagnosed).
    (viii) Cervical or neck pain.
    (f) Identification of non-evidence-based AUC or other non-adherence 
to requirements for qualified PLEs. (1) CMS will accept public comment 
to facilitate identification of AUC sets, subsets or individual 
criterion that are not evidence-based, giving priority to AUC associated 
with priority clinical areas and to AUC that conflict with one another. 
CMS may also independently identify AUC of concern.
    (2) The evidentiary basis of the identified AUC may be reviewed by 
the MEDCAC.
    (3) If a qualified PLE is found non-adherent to the requirements in 
paragraph (c) of this section, CMS may terminate its qualified status or 
may consider this information during re-qualification.
    (g) Qualified clinical decision support mechanisms (CDSMs). 
Qualified CDSMs are those specified as such by CMS. Qualified CDSMs must 
adhere to the requirements described in paragraph (g)(1) of this 
section.
    (1) Requirements for qualification of CDSMs. A CDSM must meet all of 
the following requirements:
    (i) Make available specified applicable AUC and its related 
supporting documentation.
    (ii) Identify the appropriate use criterion consulted if the CDSM 
makes available more than one criterion relevant to a consultation for a 
patient's specific clinical scenario.
    (iii) Make available, at a minimum, specified applicable AUC that 
reasonably address common and important clinical scenarios within all 
priority clinical areas identified in paragraph (e)(5) of this section.
    (iv) Be able to incorporate specified applicable AUC from more than 
one qualified PLE.
    (v) Determines, for each consultation, the extent to which the 
applicable imaging service is consistent with specified applicable AUC.
    (vi) Generate and provide a certification or documentation at the 
time of order that documents which qualified CDSM was consulted; the 
name and national provider identifier (NPI) of the ordering professional 
that consulted the CDSM; whether the service ordered would adhere to 
specified applicable AUC; whether the service ordered would not adhere 
to specified applicable AUC; or whether the specified applicable AUC 
consulted was not applicable to the service ordered. Certification or 
documentation must:
    (A) Be generated each time an ordering professional consults a 
qualified CDSM.
    (B) Include a unique consultation identifier generated by the CDSM.
    (vii) Modifications to AUC within the CDSM must comply with the 
following timeline requirements:
    (A) Make available updated AUC content within 12 months from the 
date the qualified PLE updates AUC.
    (B) A protocol must be in place to expeditiously remove AUC 
determined by the qualified PLE to be potentially dangerous to patients 
and/or harmful if followed.
    (C) Specified applicable AUC that reasonably address common and 
important clinical scenarios within any new priority clinical area must 
be made available for consultation through the qualified CDSM within 12 
months of the priority clinical area being finalized by CMS.
    (viii) Meet privacy and security standards under applicable 
provisions of law.
    (ix) Provide to the ordering professional aggregate feedback 
regarding their consultations with specified applicable AUC in the form 
of an electronic report on at least an annual basis.
    (x) Maintain electronic storage of clinical, administrative, and 
demographic information of each unique consultation for a minimum of 6 
years.
    (xi) Comply with modification(s) to any requirements under paragraph 
(g)(1) of this section made through rulemaking within 12 months of the 
effective date of the modification.
    (xii) Notify ordering professionals upon de-qualification.

[[Page 56]]

    (2) Process to specify qualified CDSMs. (i) The CDSM developer must 
submit an application to CMS for review that documents adherence to each 
of the CDSM requirements outlined in paragraph (g)(1) of this section;
    (ii) Receipt of applications. (A) Applications must be received by 
CMS annually by January 1 (except as stated in paragraph (g)(2)(ii)(B) 
of this section).
    (B) For CDSM applicants seeking qualification in CY 2017, 
applications must be submitted by March 1, 2017; and
    (1) Applications that document current adherence to qualified CDSM 
requirements will receive full qualification.
    (2) Applications that do not document current adherence to each 
qualified CDSM requirement, but that document how and when each 
requirement is reasonably expected to be met, will receive preliminary 
qualification.
    (3) A preliminary qualification period begins under paragraph (2) on 
June 30, 2017 and ends on the effective date of the requirements under 
sections 1834(q)(4)(A) and 1834(q)(4)(B) of the Act.
    (4) A CDSM with preliminary qualification will become fully 
qualified by the end of the preliminary qualification period, or earlier 
if CMS determines that the CDSM has demonstrated adherence to each 
qualified CDSM requirement, unless we determine that the CDSM fails to 
meet all requirements (including those requirements they expected to 
meet in paragraph (g)(2)(ii)(B)(2) of this section) by the end of the 
preliminary qualification period.
    (iii) All qualified CDSMs specified by CMS in each year will be 
included on the list of specified qualified CDSMs posted to the CMS Web 
site by June 30 of that year; and
    (iv) Qualified CDSMs are specified by CMS as such for a period of 5 
years.
    (v) Qualified CDSMs are required to re-apply during the fifth year 
after they are specified by CMS in order to maintain their status as 
qualified CDSMs. This application must be received by CMS by January 1 
of the 5th year after the most recent approval date.
    (h) Identification of non-adherence to requirements for qualified 
CDSMs. (1) If a qualified CDSM is found non-adherent to the requirements 
in paragraph (g)(1) of this section, CMS may terminate its qualified 
status or may consider this information during requalification.
    (i) Exceptions. Consulting and reporting requirements are not 
required for orders for applicable imaging services made by ordering 
professionals under the following circumstances:
    (1) Emergency services when provided to individuals with emergency 
medical conditions as defined in section 1867(e)(1) of the Act.
    (2) For an inpatient and for which payment is made under Medicare 
Part A.
    (3) Ordering professionals who are granted a significant hardship 
exception to the Medicare EHR Incentive Program payment adjustment for 
that year under Sec. 495.102(d)(4) of this chapter, except for those 
granted such an exception under Sec. 495.102(d)(4)(iv)(C) of this 
chapter.

[80 FR 71380, Nov. 16, 2015, as amended at 80 FR 80554, Nov. 15, 2016]



   Subpart C_Fee Schedules for Parenteral and Enteral Nutrition (PEN) 
     Nutrients, Equipment and Supplies, Splints, Casts, and Certain 
                        Intraocular Lenses (IOLs)

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



Sec. 414.100  Purpose.

    This subpart implements fee schedules for PEN items and services, 
splints and casts, and IOLs inserted in a physician's office as 
authorized by section 1842(s) of the Act.

[78 FR 72252, Dec. 2, 2013]



Sec. 414.102  General payment rules.

    (a) General rule. For PEN items and services furnished on or after 
January 1, 2002, and for splints and casts and IOLs inserted in a 
physician's office on or after April 1, 2014, 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---

[[Page 57]]

    (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 Secs. 414.104 thru 414.108.
    (b) Payment classification. (1) CMS or the carrier determines fee 
schedules for parenteral and enteral nutrition (PEN) nutrients, 
equipment, and supplies, splints and casts, and IOLs inserted in a 
physician's office, as specified in Secs. 414.104 thru 414.108.
    (2) CMS designates the specific items and services in each category 
through program instructions.
    (c) Updating the fee schedule amounts. For the years 2003 through 
2010 for PEN items and services, 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. For each 
year subsequent to 2010 for PEN items and services and for each year 
subsequent to 2014 for splints and casts, and IOLs inserted in a 
physician's office, 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, reduced by the productivity 
adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act.

[66 FR 45176, Aug. 28, 2001, as amended at 78 FR 72252, Dec. 2, 2013]



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.



Sec. 414.105  Application of competitive bidding information.

    For enteral nutrients, equipment and supplies furnished on or after 
January 1, 2011, the fee schedule amounts may be adjusted based on 
information on the payment determined as part of implementation of the 
programs under subpart F using the methodologies set forth at 
Sec. 414.210(g).

[79 FR 66262, Nov. 6, 2014]



Sec. 414.106  Splints and casts.

    (a) Payment rules. Payment is made in a lump sum for splints and 
casts.
    (b) Fee schedule amount. The fee schedule amount for payment for an 
item or service furnished in 2014 is the reasonable charge amount for 
2013, updated by the percentage increase in the CPI-U for the 12-month 
period ending with June of 2013.

[78 FR 72253, Dec. 2, 2013]



Sec. 414.108  IOLs inserted in a physician's office.

    (a) Payment rules. Payment is made in a lump sum for IOLs inserted 
in a physician's office.
    (b) Fee schedule amount. The fee schedule amount for payment for an 
IOL furnished in 2014 is the national average allowed charge for the IOL 
furnished from in calendar year 2012, updated by the percentage increase 
in the CPI-U for the 24-month period ending with June of 2013.

[78 FR 72253, Dec. 2, 2013]



   Subpart D_Payment for Durable Medical Equipment and Prosthetic and 
                            Orthotic Devices



Sec. 414.200  Purpose.

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

[78 FR 72253, Dec. 2, 2013]



Sec. 414.202  Definitions.

    For purposes of this subpart, the following definitions apply:
    Complex rehabilitative power-driven wheelchair means a power-driven 
wheelchair that is classified as--
    (1) Group 2 power wheelchair with power options that can accommodate 
rehabilitative features (for example, tilt in space); or
    (2) Group 3 power wheelchair.

[[Page 58]]

    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 meets the following conditions:
    (1) Can withstand repeated use.
    (2) Effective with respect to items classified as DME after January 
1, 2012, has an expected life of at least 3 years.
    (3) Is primarily and customarily used to serve a medical purpose.
    (4) Generally is not useful to an individual in the absence of an 
illness or injury.
    (5) Is appropriate for use in the 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;
    (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, for the purpose of implementing Sec. 414.210(g), 
geographic areas defined by the Bureau of Economic Analysis in the 
United States Department of Commerce for economic analysis purposes, 
and, for the purpose of implementing Sec. 414.228, those contractor 
service areas administered by CMS regional offices.
    Rural area means, for the purpose of implementing Sec. 414.210(g), a 
geographic area represented by a postal zip code if at least 50 percent 
of the total geographic area of the area included in the zip code is 
estimated to be outside any metropolitan area (MSA). A rural area also 
includes a geographic area represented by a postal zip code that is a 
low population density area excluded from a competitive bidding area in 
accordance with the authority provided by section 1847(a)(3)(A) of the 
Act at the time the rules at Sec. 414.210(g) are applied.

[57 FR 57689, Dec. 7, 1992, as amended at 75 FR 73622, Nov. 29, 2010; 76 
FR 70314, Nov. 10, 2011; 79 FR 66262, Nov. 6, 2014]



Sec. 414.210  General payment rules.

    (a) General rule. For items furnished on or after January 1, 1989, 
except as provided in paragraphs (c), (d), and (g) 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 Secs. 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

[[Page 59]]

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 
Secs. 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)(3) of this section, the carrier pays the reasonable and 
necessary charges for maintenance and servicing of beneficiary-owned 
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 for replacement parts in a lump sum based on 
the carrier's consideration of the item. The carrier establishes a 
reasonable fee for labor associated with repairing, maintaining, and 
servicing the item. Payment is not made for maintenance and servicing of 
a rented item other than the maintenance and servicing fee for oxygen 
equipment described in paragraph (e)(2) of this section or for other 
durable medical equipment as described in Sec. 414.229(e).
    (2) Maintenance and servicing payment for certain oxygen equipment 
furnished after the 36-month rental period from January 1, 2009 through 
June 30, 2010. The carrier makes a maintenance and servicing payment for 
oxygen equipment other than liquid and gaseous equipment (stationary and 
portable) as follows:
    (i) For the first 6-month period following the date on which the 36-
month rental period ends in accordance with Sec. 414.226(a)(1) of this 
subpart, no payments are made.
    (ii) For each succeeding 6-month period, payment may be made during 
the first month of that period for 30 minutes of labor for routine 
maintenance and servicing of the equipment in the beneficiary's home 
(including an institution used as the beneficiary's home).
    (iii) The supplier must visit the beneficiary's home (including an 
institution used as the beneficiary's home) to inspect the equipment 
during the first month of the 6-month period.
    (3) Exception to maintenance and servicing payments. 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 beneficiary-owned in accordance with Sec. 414.229(d), 
Sec. 414.229(f)(2), or Sec. 414.229(h); and
    (iii) Capped rental items, as defined in Sec. 414.229(a), that are 
not beneficiary-owned in Sec. 414.229(d), Sec. 414.229(f)(2), or 
Sec. 414.229(h); and
    (iv) Oxygen equipment, as described in Sec. 414.226.
    (4) Supplier replacement of beneficiary-owned equipment based on 
accumulated repair costs. A supplier that transfers title to a capped 
rental item to a beneficiary in accordance with Sec. 414.229(f)(2) is 
responsible for furnishing replacement equipment at no cost to the 
beneficiary or to the Medicare program if the carrier determines that 
the item furnished by the supplier will not last for the entire 
reasonable useful lifetime established for the equipment in accordance 
with Sec. 414.210(f)(1). In making this determination, the carrier may 
consider whether the accumulated costs of repair exceed 60 percent of 
the cost to replace the item.
    (5) Maintenance and servicing payment for certain oxygen equipment 
furnished after the 36-month rental period and on or after July 1, 2010. 
For oxygen equipment other than liquid and gaseous equipment (stationary 
and portable), the carrier makes payment as follows:
    (i) For the first 6-month period following the date on which the 36-
month rental period ends in accordance with Sec. 414.226(a)(1) of this 
subpart, no payments are made.
    (ii) For each succeeding 6-month period, payment may be made during 
the first month of that period for routine maintenance and servicing of 
the equipment in the beneficiary's home

[[Page 60]]

(including an institution used as the beneficiary's home).
    (iii) Payment for maintenance and servicing is made based on a 
reasonable fee not to exceed 10 percent of the purchase price for a 
stationary oxygen concentrator. This payment includes payment for 
maintenance and servicing of all oxygen equipment other than liquid or 
gaseous equipment (stationary or portable).
    (iv) The supplier must visit the beneficiary's home (including an 
institution used as the beneficiary's home) to inspect the equipment 
during the first month of the 6-month period.
    (f) Payment for replacement of equipment. If an item of DME or a 
prosthetic or 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, stolen, 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 oxygen 
equipment, payment is made in accordance with Sec. 414.226(a).
    (3) If the beneficiary elects to obtain a replacement capped rental 
item, payment is made in accordance with Sec. 414.229(a)(2) or (a)(3).
    (4) For all other beneficiary-owned items, if the beneficiary elects 
to obtain replacement equipment, payment is made on a purchase basis.
    (g) Application of Competitive Bidding Information and Limitation of 
Inherent Reasonableness Authority. For items furnished on or after 
January 1, 2011, the fee schedule amounts may be adjusted, and for DME 
items furnished on or after January 1, 2016, the fee schedule amounts 
shall be adjusted, based on information on the payment determined as 
part of implementation of the programs under subpart F, of this part, 
excluding information on the payment determined in accordance with the 
special payment rules at Sec. 414.409. In the case of such adjustments, 
the rules at Sec. 405.502(g) and (h) of this chapter shall not be 
applied. The methodologies for adjusting fee schedule amounts are 
provided below. In any case where application of these methodologies 
results in an increase in the fee schedule amount, the adjustment to the 
fee schedule amount is not made.
    (1) Payment adjustments for areas within the contiguous United 
States using information from competitive bidding programs. For an item 
or service subject to the programs under subpart F of this part, the fee 
schedule amounts for such item or service for areas within the 
contiguous United States shall be adjusted as follows:
    (i) CMS determines a regional price for each state in the contiguous 
United States and the District of Columbia equal to the un-weighted 
average of the single payment amounts for an item or service established 
in accordance with Sec. 414.416 for competitive bidding areas that are 
fully or partially located in the same region that contains the state or 
District of Columbia.
    (ii) CMS determines a national average price equal to the un-
weighted average of the regional prices determined under paragraph 
(g)(1)(i) of this section.
    (iii) A regional price determined under paragraph (g)(1)(i) of this 
section cannot be greater than 110 percent of the national average price 
determined under paragraph (g)(1)(ii) of this section nor less than 90 
percent of the national average price determined under paragraph 
(g)(1)(ii) of this section.
    (iv) The fee schedule amount for all areas within a state that are 
not defined as rural areas for purposes of this subpart is adjusted to 
the regional price determined under paragraphs (g)(1)(i) and (iii) of 
this section.
    (v) The fee schedule amount for all areas within a state that are 
defined as rural areas for the purposes of this subpart is adjusted to 
110 percent of the national average price determined under paragraph 
(g)(1)(ii) of this section.
    (2) Payment adjustments for areas outside the contiguous United 
States using

[[Page 61]]

information from competitive bidding programs. For an item or service 
subject to the programs under subpart F, the fee schedule amounts for 
areas outside the contiguous United States are reduced to the greater 
of--
    (i) The average of the single payment amounts for the item or 
service for CBAs outside the contiguous United States.
    (ii) 110 percent of the national average price for the item or 
service determined under paragraph (g)(1)(ii) of this section.
    (3) Payment adjustments for items and services included in no more 
than ten competitive bidding programs. Notwithstanding paragraph (g)(1) 
of this section, for an item or service that is included in ten or fewer 
competitive bidding programs as defined at Sec. 414.402, the fee 
schedule amounts applied for all areas within and outside the contiguous 
United States are reduced to 110 percent of the un-weighted average of 
the single payment amounts from the ten or fewer competitive bidding 
programs for the item or service in the areas where the ten or fewer 
competitive bidding programs are in place.
    (4) Payment adjustments using data on items and services included in 
competitive bidding programs no longer in effect. In the case where 
adjustments to fee schedule amounts are made using any of the 
methodologies described, if the adjustments are based solely on single 
payment amounts from competitive bidding programs that are no longer in 
effect, the single payment amounts are updated before being used to 
adjust the fee schedule amounts. The single payment amounts are updated 
based on the percentage change in the Consumer Price Index for all Urban 
Consumers (CPI-U) from the mid-point of the last year the single payment 
amounts were in effect to the month ending 6 months prior to the date 
the initial fee schedule reductions go into effect. Following the 
initial adjustments to the fee schedule amounts, if the adjustments 
continue to be based solely on single payment amounts from competitive 
bidding programs that are no longer in effect, the single payment 
amounts used to reduce the fee schedule amounts are updated every 12 
months using the percentage change in the CPI-U for the 12-month period 
ending 6 months prior to the date the updated payment adjustments would 
go into effect.
    (5) Adjusted payment amounts for accessories used with different 
types of base equipment. In situations where a HCPCS code that describes 
an item used with different types of base equipment is included in more 
than one product category in a CBA under competitive bidding, a weighted 
average of the single payment amounts for the code is computed for each 
CBA based on the total number of allowed services for the item on a 
national basis for the code from each product category prior to applying 
the payment adjustment methodologies in this section.
    (6) Adjustments of single payment amounts resulting from price 
inversions under the DMEPOS Competitive Bidding Program. (i) In 
situations where a price inversion defined in Sec. 414.402 occurs under 
the DMEPOS Competitive Bidding Program in a competitive bidding area 
(CBA) following a competition for a grouping of similar items identified 
in paragraph (g)(6)(ii) of this section, prior to adjusting the fee 
schedule amounts under paragraph (g) of this section the single payment 
amount for each item in the grouping of similar items in the CBA is 
adjusted to be equal to the weighted average of the single payment 
amounts for the items in the grouping of similar items in the CBA.
    (ii) The groupings of similar items subject to this rule include--
    (A) Hospital beds (HCPCS codes E0250, E0251, E0255, E0256, E0260, 
E0261, E0290, E0291, E0292, E0293, E0294, E0295, E0301, E0302, E0303, 
and E0304).
    (B) Mattresses and overlays (HCPCS codes E0277, E0371, E0372, and 
E0373)
    (C) Power wheelchairs (HCPCS codes K0813, K0814, K0815, K0816, 
K0820, K0821, K0822, and K0823).
    (D) Seat lift mechanisms (HCPCS codes E0627 and E0629).
    (E) TENS devices (HCPCS codes E0720 and E0730).
    (F) Walkers (HCPCS codes E0130, E0135, E0141, and E0143).
    (iii) The weight for each item (HCPCS code) used in calculating the 
weighted average described in paragraph (g)(6)(ii) of this section is 
equal

[[Page 62]]

to the proportion of total nationwide allowed services furnished in 
calendar year 2012 for the item (HCPCS code) in the grouping of similar 
items, relative to the total nationwide allowed services furnished in 
calendar year 2012 for each of the other items (HCPCS codes) in the 
grouping of similar items.
    (7) Payment adjustments for mail order items furnished in the 
Northern Mariana Islands. The fee schedule amounts for mail order items 
furnished to beneficiaries in the Northern Mariana Islands are adjusted 
so that they are equal to 100 percent of the single payment amounts 
established under a national mail order competitive bidding program.
    (8) Updating adjusted fee schedule amounts. The adjusted fee 
schedule amounts are revised each time a single payment amount for an 
item or service is updated following one or more new competitions and as 
other items are added to programs established under Subpart F of this 
part.
    (9) Transition rules. The payment adjustments described above are 
phased in as follows:
    (i) For applicable items and services furnished with dates of 
service from January 1, 2016, through June 30, 2016, based on the fee 
schedule amount for the area is equal to 50 percent of the adjusted 
payment amount established under this section and 50 percent of the 
unadjusted fee schedule amount.
    (ii) For items and services furnished with dates of service on or 
after July 1, 2016, the fee schedule amount for the area is equal to 100 
percent of the adjusted payment amount established under this section.

[57 FR 57689, Dec. 7, 1992, as amended at 71 FR 65932, Nov. 9, 2006; 73 
FR 69936, Nov. 19, 2008; 73 FR 80304, Dec. 31, 2008; 74 FR 62009, Nov. 
25, 2009; 79 FR 66262, Nov. 6, 2013; 81 FR 77965, Nov. 4, 2016]



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.

[[Page 63]]

    (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 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.

[[Page 64]]

    (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-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) Oxygen equipment. Payment for rental of 
oxygen equipment is made based on a monthly fee schedule amount during 
the period of medical need, but for no longer than a period of 
continuous use of 36 months. A period of continuous use is determined 
under the provisions in Sec. 414.230.
    (2) Oxygen contents. Payment for purchase of oxygen contents is made 
based on a monthly fee schedule amount until medical necessity ends.
    (b) Monthly fee schedule amount for items furnished prior to 2007. 
(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

[[Page 65]]

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 1991 through 2006, the fee schedule amounts for items 
described in paragraphs (b)(1)(iii) and (iv) of this section are 
determined using the methodology contained in Sec. 414.220(d), (e), and 
(f).
    (4) For 1991 through 2006, the fee schedule amounts for items 
described in paragraphs (b)(1)(i) and (ii) of this section are 
determined using the methodology contained in Sec. 414.220(d), (e), and 
(f).
    (5) For 2005 and 2006, the fee schedule amounts determined under 
paragraph (b)(4) of this section are reduced using the methodology 
described in section 1834(a)(21)(A) of the Act.
    (c) Monthly fee schedule amount for items furnished for years after 
2006. (1) For 2007, national limited monthly payment rates are 
calculated and paid as the monthly fee schedule amounts for the 
following classes of items:
    (i) Stationary oxygen equipment (including stationary concentrators) 
and oxygen contents (stationary and portable).
    (ii) Portable equipment only (gaseous or liquid tanks).
    (iii) Oxygen generating portable equipment only.
    (iv) Stationary oxygen contents only.
    (v) Portable oxygen contents only.
    (2) The national limited monthly payment rate for items described in 
paragraph (c)(1)(i) of this section is equal to the weighted average fee 
schedule amount established under paragraph (b)(5) of this section 
reduced by $1.44.
    (3) The national limited monthly payment rate for items described in 
paragraph (c)(1)(ii) of this section is equal to the weighted average of 
the fee schedule amounts established under paragraph (b)(5) of this 
section.
    (4) The national limited monthly payment rate for items described in 
paragraph (c)(1)(iii) of this section is equal to the national limited 
monthly payment rate established under paragraph (c)(5) of this section, 
multiplied by 24, and divided by 36.
    (5) The national limited monthly payment rate for items described in 
paragraphs (c)(1)(iv) and (c)(1)(v) of this section is equal to 50 
percent of the weighted average fee schedule amounts established under 
paragraph (b)(3) of this section for items described in paragraph 
(b)(1)(iii) of this section.
    (6) Beginning in 2008, CMS makes an annual adjustment to the 
national limited monthly payment rate for items described in paragraph 
(c)(1)(i) of this section to ensure that such payment rates do not 
result in expenditures for any year that are more or less than the 
expenditures that would have been made if such classes had not been 
established.
    (d) Application of monthly fee schedule amounts. (1) The fee 
schedule amount for items described in paragraph (c)(1)(i) of this 
section is paid when the beneficiary rents stationary oxygen equipment.
    (2) Subject to the limitation set forth in paragraph (e)(2) of this 
section, the fee schedule amount for items described in paragraphs 
(c)(1)(ii) and (c)(1)(iii) of this section is paid when the beneficiary 
rents portable oxygen equipment.
    (3) The fee schedule amount for items described in paragraph 
(c)(1)(iv) of this section is paid when the beneficiary--
    (i) Owns stationary oxygen equipment that requires delivery of 
gaseous or liquid oxygen contents; or
    (ii) Rents stationary oxygen equipment that requires delivery of 
gaseous or liquid oxygen contents after the period of continuous use of 
36 months described in paragraph (a)(1) of this section.
    (4) The fee schedule amount for items described in paragraph 
(c)(1)(v) of this section is paid when the beneficiary--
    (i) Owns portable oxygen equipment described in (c)(1)(ii) of this 
section;

[[Page 66]]

    (ii) Rents portable oxygen equipment described in paragraph 
(c)(1)(ii) of this section during the period of continuous use of 36 
months described in paragraph (a)(1) of this section and does not rent 
stationary oxygen equipment; or
    (iii) Rents portable oxygen equipment described in paragraph 
(c)(1)(ii) of this section after the period of continuous use of 36 
months described in paragraph (a)(1) of this section.
    (e) Volume adjustments. (1) The fee schedule amount for an item 
described in paragraph (c)(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 (e)(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 (c)(1)(i) and (c)(1)(ii) or (c)(1)(iii) of this 
section; or
    (ii) The adjusted fee schedule amount described in paragraph 
(e)(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.
    (f) Furnishing oxygen and oxygen equipment after the 36-month rental 
cap. (1) The supplier that furnishes oxygen equipment for the 36th 
continuous month during which payment is made under this section must--
    (i) Continue to furnish the equipment during any period of medical 
need for the remainder of the reasonable useful lifetime established for 
the equipment in accordance with Sec. 414.210(f)(1); or
    (ii) Arrange for furnishing the oxygen equipment with another 
supplier if the beneficiary relocates to an area that is outside the 
normal service area of the supplier that initially furnished the 
equipment.
    (2) The supplier that furnishes liquid or gaseous oxygen equipment 
(stationary or portable) for the 36th continuous month during which 
payment is made under this section must--
    (i) Continue to furnish the oxygen contents necessary for the 
effective use of the liquid or gaseous equipment during any period of 
medical need for the remainder of the reasonable useful lifetime 
established for the equipment in accordance with Sec. 414.210(f)(1); or
    (ii) Arrange for furnishing the oxygen contents with another 
supplier if the beneficiary relocates to an area that is outside the 
normal service area of the supplier that initially furnished the 
equipment.
    (g) Additional supplier requirements for rentals that begin on or 
after January 1, 2007. (1) The supplier that furnishes oxygen equipment 
for the first month during which payment is made under this section must 
continue to furnish the equipment for the entire 36-month period of 
continuous use, unless medical necessity ends or--
    (i) The item becomes subject to a competitive acquisition program 
implemented in accordance with section 1847(a) of the Act;
    (ii) The beneficiary relocates to an area that is outside the normal 
service area of the supplier that initially furnished the equipment;
    (iii) The beneficiary elects to obtain oxygen equipment from a 
different supplier prior to the expiration of the 36-month rental 
period; or
    (iv) CMS or the carrier determines that an exception should apply in 
an individual case based on the circumstances.
    (2) Oxygen equipment furnished under this section may not be 
replaced by the supplier prior to the expiration

[[Page 67]]

of the reasonable useful lifetime established for the equipment in 
accordance with Sec. 414.210(f)(1) unless:
    (i) The supplier replaces an item with the same, or equivalent, make 
and model of equipment because the item initially furnished was lost, 
stolen, irreparably damaged, is being repaired, or no longer functions;
    (ii) A physician orders different equipment for the beneficiary. If 
the order is based on medical necessity, then the order must indicate 
why the equipment initially furnished is no longer medically necessary 
and the supplier must retain this order in the beneficiary's medical 
record;
    (iii) The beneficiary chooses to obtain a newer technology item or 
upgraded item and signs an advanced beneficiary notice (ABN); or
    (iv) CMS or the carrier determines that a change in equipment is 
warranted.
    (3) Before furnishing oxygen equipment, the supplier must disclose 
to the beneficiary its intentions regarding whether it will accept 
assignment of all monthly rental claims for the duration of the rental 
period. A supplier's intentions could be expressed in the form of a 
written agreement between the supplier and the beneficiary.

[57 FR 57690, Dec. 7, 1992, as amended at 71 FR 65933, Nov. 9, 2006; 73 
FR 69936, Nov. 19, 2008; 78 FR 72253, Dec. 2, 2013]



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.
    (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.

[[Page 68]]

    (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.
    (c) Payment for therapeutic shoes. The payment rules specified in 
paragraphs (a) and (b) of this section are applicable to custom molded 
and extra depth shoes, modifications, and inserts (therapeutic shoes) 
furnished after December 31, 2004.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995; 73 
FR 69937, Nov. 19, 2008]



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

    (a) General payment rule. Payment is made for other durable medical 
equipment that is not subject to the payment provisions set forth in 
Sec. 414.220 through Sec. 414.228 as follows:
    (1) For items furnished prior to January 1, 2006, payment is made on 
a rental or purchase option basis in accordance with the rules set forth 
in paragraphs (b) through (e) of this section.
    (2) For items other than power-driven wheelchairs furnished on or 
after January 1, 2006, payment is made in accordance with the rules set 
forth in paragraph (f) of this section.
    (3) For power-driven wheelchairs furnished on or after January 1, 
2006 through December 31, 2010, payment is made in accordance with the 
rules set forth in paragraphs (f) or (h) of this section.
    (4) For power-driven wheelchairs that are not classified as complex 
rehabilitative power-driven wheelchairs, furnished on or after January 
1, 2011, payment is made in accordance with the rules set forth in 
paragraph (f) of this section.
    (5) For power-driven wheelchairs classified as complex 
rehabilitative power-driven wheelchairs, furnished on or after January 
1, 2011, payment is made in accordance with the rules set forth in 
paragraphs (f) or (h) of this section.
    (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.
    (3) For power-driven wheelchairs furnished on or after January 1, 
2011, the monthly fee schedule amount for rental equipment equals 15 
percent of the purchase price recognized as determined under paragraph 
(c) of this section for each of the first 3 months and 6 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).

[[Page 69]]

    (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. On or after January 1, 2011, this option is available only for 
complex rehabilitative power-driven wheelchairs. 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 paragraph 
(c) of this section.
    (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 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) Rules for capped rental items furnished beginning on or after 
January 1, 2006. (1) For items furnished on or after January 1, 2006, 
payment is made based on a monthly rental fee schedule amount during the 
period of medical need, but for no longer than a period of continuous 
use of 13 months. A period of continuous use is determined under the 
provisions in Sec. 414.230.
    (2) The supplier must transfer title to the item to the beneficiary 
on the first day that begins after the 13th continuous month in which 
payments are made under paragraph (f)(1) of this section.
    (3) Payment for maintenance and servicing of beneficiary-owned 
equipment is made in accordance with Sec. 414.210(e).
    (g) Additional supplier requirements for capped rental items that 
are furnished beginning on or after January 1, 2007. (1) The supplier 
that furnishes an item for the first month during which payment is made 
using the methodology described in paragraph (f)(1) of this section must 
continue to furnish the equipment until medical necessity ends, or the 
13-month period of continuous use ends, whichever is earlier, unless--
    (i) The item becomes subject to a competitive acquisition program 
implemented in accordance with section 1847(a) of the Act;
    (ii) The beneficiary relocates to an area that is outside the normal 
service

[[Page 70]]

area of the supplier that initially furnished the equipment;
    (iii) The beneficiary elects to obtain the equipment from a 
different supplier prior to the expiration of the 13-month rental 
period; or
    (iv) CMS or the carrier determines that an exception should apply in 
an individual case based on the circumstances.
    (2) A capped rental item furnished under this section may not be 
replaced by the supplier prior to the expiration of the 13-month rental 
period unless:
    (i) The supplier replaces an item with the same, or equivalent, make 
and model of equipment because the item initially furnished was lost, 
stolen, irreparably damaged, is being repaired, or no longer functions;
    (ii) A physician orders different equipment for the beneficiary. If 
the need for different equipment is based on medical necessity, then the 
order must indicate why the equipment initially furnished is no longer 
medically necessary and the supplier must retain this order in the 
beneficiary's medical record;
    (iii) The beneficiary chooses to obtain a newer technology item or 
upgraded item and signs an advanced beneficiary notice (ABN); or
    (iv) CMS or the carrier determines that a change in equipment is 
warranted.
    (3) Before furnishing a capped rental item, the supplier must 
disclose to the beneficiary its intentions regarding whether it will 
accept assignment of all monthly rental claims for the duration of the 
rental period. A supplier's intentions could be expressed in the form of 
a written agreement between the supplier and the beneficiary.
    (4) No later than two months before the date on which the supplier 
must transfer title to a capped rental item to the beneficiary, the 
supplier must disclose to the beneficiary whether it can maintain and 
service the item after the beneficiary acquires title to it. CMS or its 
carriers may make exceptions to this requirement on a case-by-case 
basis.
    (h) Purchase of power-driven wheelchairs furnished on or after 
January 1, 2006. (1) Suppliers must offer beneficiaries the option to 
purchase power-driven wheelchairs at the time the equipment is initially 
furnished.
    (2) Payment is made on a lump-sum purchase basis if the beneficiary 
chooses this option.
    (3) On or after January 1, 2011, this option is available only for 
complex rehabilitative power-driven wheelchairs.

[57 FR 57691, Dec. 7, 1992, as amended at 60 FR 35498, July 10, 1995; 71 
FR 65934, Nov. 9, 2006; 75 FR 73622, Nov. 29, 2010]



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. (1) 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.
    (2) In the case of a beneficiary receiving oxygen equipment on 
December 31, 2005, the period of continuous use for the equipment begins 
on January 1, 2006.
    (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.
    (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.

[[Page 71]]

    (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. (1) 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.
    (2) A new period of continuous use does not begin when a beneficiary 
changes from one stationary oxygen equipment modality to another or from 
one portable oxygen equipment modality to another.
    (g) New supplier. If a beneficiary changes suppliers, a new period 
of continuous use does not begin.
    (h) Oxygen equipment furnished after the 36-month rental period. A 
new period of continuous use does not begin under any circumstance in 
the case of oxygen equipment furnished after the 36-month rental period 
in accordance with Sec. 414.226(f) until the end of the reasonable 
useful lifetime established for such equipment in accordance with 
Sec. 414.210(f).

[56 FR 50823, Oct. 9, 1991, as amended at 57 FR 57111, Dec. 3, 1992; 71 
FR 65935, Nov. 9, 2006; 73 FR 69937, Nov. 19, 2008]



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]



Sec. 414.234  Prior authorization for items frequently subject to 
unnecessary utilization.

    (a) Definitions. For the purpose of this section, the following 
definitions apply:
    Prior authorization is a process through which a request for 
provisional affirmation of coverage is submitted to CMS or its 
contractors for review before the item is furnished to the beneficiary 
and before the claim is submitted for processing.
    Provisional affirmation is a preliminary finding that a future claim 
meets Medicare's coverage, coding, and payment rules.
    Unnecessary utilization means the furnishing of items that do not 
comply with one or more of Medicare's coverage, coding, and payment 
rules.
    (b) Master list of items frequently subject to unnecessary 
utilization. (1) The Master List of Items Frequently Subject to 
Unnecessary Utilization includes items listed on the Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies fee schedule with an 
average purchase fee of $1,000 (adjusted annually for inflation using 
consumer price index for all urban consumers (CPI-U)) or greater or an 
average rental fee schedule of $100 (adjusted annually for inflation 
using CPI-U) or greater that also meet one of the following two 
criteria:
    (i) The item has been identified as having a high rate of fraud or 
unnecessary utilization in a report that is national in scope from 2007 
or later published by any of the following:
    (A) The Office of Inspector General (OIG).

[[Page 72]]

    (B) The General Accountability Office (GAO).
    (ii) The item is listed in the 2011 or later Comprehensive Error 
Rate Testing (CERT) program's Annual Medicare Fee-For-Service (FFS) 
Improper Payment Rate Report DME and/or DMEPOS Service Specific 
Report(s).
    (2) The Master List of DMEPOS Items Frequently Subject to 
Unnecessary Utilization is self-updating annually and is published in 
the Federal Register.
    (3) DMEPOS items identified as having a high rate of fraud or 
unnecessary utilization in any of the following reports that are 
national in scope and meeting the payment threshold criteria set forth 
in paragraph (b)(1) of this section are added to the Master List:
    (i) OIG reports published after 2015.
    (ii) GAO reports published after 2015.
    (iii) CERT program's Annual Medicare FFS Improper Payment Rate 
Report DME and/or DMEPOS Service Specific Report(s) published after 
2015, also referred to as the Comprehensive Error Rate Testing (CERT) 
program's Annual Medicare FFS Improper Payment Rate Report DME Service 
Specific Report(s).
    (4) Items remain on the Master List for 10 years from the date the 
item was added to the Master List.
    (5) Items that are discontinued or are no longer covered by Medicare 
are removed from the Master List.
    (6) An item is removed from the list if the purchase amount drops 
below the payment threshold (an average purchase fee of $1,000 or 
greater or an average monthly rental fee schedule of $100 or greater).
    (7) An item is removed from the Master List and replaced by its 
equivalent when the Healthcare Common Procedure Coding System (HCPCS) 
code representing the item has been discontinued and cross-walked to an 
equivalent item.
    (c) Condition of payment--(1) Items requiring prior authorization. 
CMS publishes in the Federal Register and posts on the CMS Prior 
Authorization Web site a list of items, the Required Prior Authorization 
List, that require prior authorization as a condition of payment.
    (i) The Required Prior Authorization List specified in paragraph 
(c)(1) of this section is selected from the Master List of Items 
Frequently Subject to Unnecessary Utilization (as described in paragraph 
(b) of this section). CMS may consider factors such as geographic 
location, item utilization or cost, system capabilities, administrative 
burden, emerging trends, vulnerabilities identified in official agency 
reports, or other data analysis.
    (ii) CMS may elect to limit the prior authorization requirement to a 
particular region of the country if claims data analysis shows that 
unnecessary utilization of the selected item(s) is concentrated in a 
particular region.
    (iii) The Required Prior Authorization List is effective no less 
than 60 days after publication and posting.
    (2) Denial of claims. (i) CMS or its contractors denies a claim for 
an item that requires prior authorization if the claim has not received 
a provisional affirmation.
    (ii) Claims receiving a provisional affirmation may be denied based 
on either of the following:
    (A) Technical requirements that can only be evaluated after the 
claim has been submitted for formal processing.
    (B) Information not available at the time of a prior authorization 
request.
    (d) Submission of prior authorization requests. A prior 
authorization request must do the following:
    (1) Include all relevant documentation necessary to show that the 
item meets applicable Medicare coverage, coding, and payment rules, 
including all of the following:
    (i) Order.
    (ii) Relevant information from the beneficiary's medical record.
    (iii) Relevant supplier produced documentation.
    (2) Be submitted before the item is furnished to the beneficiary and 
before the claim is submitted for processing.
    (e) Review of prior authorization requests. (1) After receipt of a 
prior authorization request, CMS or its contractor reviews the prior 
authorization request for compliance with applicable Medicare coverage, 
coding, and payment rules.
    (2) If applicable Medicare coverage, coding, and payment rules are 
met,

[[Page 73]]

CMS or its contractor issues a provisional affirmation to the requester.
    (3)(i) If applicable Medicare coverage, coding, and payment rules 
are not met, CMS or its contractor issues a non-affirmation decision to 
the requester.
    (ii) If the requester receives a non-affirmation decision, the 
requester may resubmit a prior authorization request before the item is 
furnished to the beneficiary and before the claim is submitted for 
processing.
    (4) Expedited reviews. (i) A prior authorization request for an 
expedited review must include documentation that shows that processing a 
prior authorization request using a standard timeline for review could 
seriously jeopardize the life or health of the beneficiary or the 
beneficiary's ability to regain maximum function.
    (ii) If CMS or its contractor agrees that processing a prior 
authorization request using a standard timeline for review could 
seriously jeopardize the life or health of the beneficiary or the 
beneficiary's ability to regain maximum function, then CMS or its 
contractor expedites the review of the prior authorization request and 
communicates the decision following the receipt of all applicable 
Medicare required documentation.
    (f) Suspension of prior authorization requests. (1) CMS may suspend 
prior authorization requirements generally or for a particular item or 
items at any time and without undertaking rulemaking.
    (2) CMS provides notification of the suspension of the prior 
authorization requirements via--
    (i) Federal Register notice; and
    (ii) Posting on the CMS prior authorization Web site.

[80 FR 81706, Dec. 30, 2015]



  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--
    (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

[[Page 74]]

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 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.

[[Page 75]]

    (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 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.

[[Page 76]]

    (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 
Secs. 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 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

[[Page 77]]

    (B) Another medical or surgical service designated by CMS for this 
purpose.
    (b) Other payments. Payments for covered medical services furnished 
to the transplant beneficiary 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. 413.210.
    (2) Exception for equipment and supplies furnished prior to January 
1, 2011. 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 part 494 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 part 494 (Conditions for Coverage for End-Stage Renal 
Disease Facilities) 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 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 part 494 (Conditions for Coverage for End-Stage Renal 
Disease Facilities) 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

[[Page 78]]

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).
    (C) Agrees to report to the ESRD facility providing support 
services, at least every 45 days, all data (meaning information showing 
what supplies and services were provided to the patient and when each 
was provided) for each patient regarding services and items furnished to 
the patient in accordance with Sec. 494.100(c)(2) of this chapter.
    (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. 413.210 of 
this chapter.
    (2) Exception for home support services furnished prior to January 
1, 2011. 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 for support services, equipment and supplies, and 
notification of changes to the payment limits apply prior to January 1, 
2011 as follows:
    (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, as amended at 73 FR 20474, Apr. 15, 2008; 
75 FR 49202, Aug. 12, 2010]



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

    (a) Prior to January 1, 2011, 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. 
Effective January 1, 2011, payment for EPO used at home by a home 
dialysis patient is made only to a Medicare-approved ESRD facility in 
accordance with the per treatment payment as defined in Sec. 413.230.
    (b) After January 1, 2011, a home and self training amount is added 
to the per treatment base rate for adult and pediatric patients as 
defined in Sec. 413.230

[75 FR 49202, Aug. 12, 2010]

[[Page 79]]



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



Sec. 414.400  Purpose and basis.

    This subpart implements competitive bidding programs for certain 
DMEPOS items as required by sections 1847(a) and (b) of the Act.

[72 FR 18084, Apr. 10, 2007]



Sec. 414.402  Definitions.

    For purposes of this subpart, the following definitions apply:
    Affected party means a contract supplier that has been notified that 
their DMEPOS CBP contract will be terminated for a breach of contract.
    Bid means an offer to furnish an item for a particular price and 
time period that includes, where appropriate, any services that are 
directly related to the furnishing of the item.
    Bidding entity means the entity whose legal business name is 
identified in the ``Form A: Business Organization Information'' section 
of the bid.
    Breach of contract means any deviation from contract requirements, 
including a failure to comply with a governmental agency or licensing 
organization requirements, constitutes a breach of contract.
    Competitive bidding area (CBA) means an area established by the 
Secretary under this subpart.
    Competitive bidding program means a program established under this 
subpart within a designated CBA.
    Composite bid means the sum of a supplier's weighted bids for all 
items within a product category for purposes of allowing a comparison 
across bidding suppliers.
    Contract supplier means an entity that is awarded a contract by CMS 
to furnish items under a competitive bidding program.
    Corrective action plan (CAP) means a contract supplier's written 
document with supporting information that describes the actions the 
contract supplier will take within a specified timeframe to remedy a 
breach of contract.
    Covered document means a financial, tax, or other document required 
to be submitted by a bidder as part of an original bid submission under 
a competitive acquisition program in order to meet the required 
financial standards.
    Covered document review date means the later of--
    (1) The date that is 30 days before the final date for the closing 
of the bid window; or
    (2) The date that is 30 days after the opening of the bid window.
    DMEPOS stands for durable medical equipment, prosthetics, orthotics, 
and supplies.
    Grandfathered item means all rented items within a product category 
for which payment was made prior to the implementation of a competitive 
bidding program to a grandfathered supplier that chooses to continue to 
furnish the items in accordance with Sec. 414.408(j) of this subpart and 
that fall within the following payment categories for competitive 
bidding:
    (1) An inexpensive or routinely purchased item described in 
Sec. 414.220 of this part.
    (2) An item requiring frequent and substantial servicing, as 
described in Sec. 414.222 of this part.
    (3) Oxygen and oxygen equipment described in Sec. 414.226 of this 
part.
    (4) Other DME described in Sec. 414.229 of this part.
    Grandfathered supplier means a noncontract supplier that chooses to 
continue to furnish grandfathered items to a beneficiary in a CBA.
    Hearing officer means an individual, who was not involved with the 
CBIC recommendation to take action for a breach of a DMEPOS Competitive 
Bidding Program contract, who is designated by CMS to review and make an 
unbiased and independent recommendation when there is an appeal of CMS's 
initial determination to take action for a breach of a DMEPOS 
Competitive Bidding Program contract.
    Hospital has the same meaning as in section 1861(e) of the Act.
    Item means a product included in a competitive bidding program that 
is identified by a HCPCS code, which may be specified for competitive 
bidding (for example, a product when it is furnished through mail 
order), or a combination of codes and/or modifiers, and

[[Page 80]]

includes the services directly related to the furnishing of that product 
to the beneficiary. Items that may be included in a competitive bidding 
program are:
    (1) Durable medical equipment (DME) other than class III devices 
under the Federal Food, Drug and Cosmetic Act, as defined in 
Sec. 414.202 of this part and group 3 complex rehabilitative wheelchairs 
and further classified into the following categories:
    (i) Inexpensive or routinely purchased items, as specified in 
Sec. 414.220(a).
    (ii) Items requiring frequent and substantial servicing, as 
specified in Sec. 414.222(a).
    (iii) Oxygen and oxygen equipment, as specified in 
Sec. 414.226(c)(1).
    (iv) Other DME (capped rental items), as specified in Sec. 414.229.
    (2) Supplies necessary for the effective use of DME other than 
inhalation drugs.
    (3) Enteral nutrients, equipment, and supplies.
    (4) Off-the-shelf orthotics, which are orthotics described in 
section 1861(s)(9) of the Act that require minimal self-adjustment for 
appropriate use and do not require expertise in trimming, bending, 
molding, assembling or customizing to fit a beneficiary.
    Item weight is a number assigned to an item based on its beneficiary 
utilization rate using national data when compared to other items in the 
same product category.
    Mail order contract supplier is a contract supplier that furnishes 
items through the mail to beneficiaries who maintain a permanent 
residence in a competitive bidding area.
    Mail order item means any item (for example, diabetic testing 
supplies) shipped or delivered to the beneficiary's home, regardless of 
the method of delivery.
    Metropolitan Statistical Area (MSA) has the same meaning as that 
given by the Office of Management and Budget.
    Minimal self-adjustment means an adjustment that the beneficiary, 
caretaker for the beneficiary, or supplier of the device can perform and 
does not require the services of a certified orthotist (that is, an 
individual certified by either the American Board for Certification in 
Orthotics and Prosthetics, Inc., or the Board for Orthotist/Prosthetist 
Certification) or an individual who has specialized training.
    National mail order DMEPOS competitive bidding program means a 
program whereby contracts are awarded to suppliers for the furnishing of 
mail order items across the nation.
    Nationwide competitive bidding area means a CBA that includes the 
United States, its Territories, and the District of Columbia.
    Nationwide mail order contract supplier means a mail order contract 
supplier that furnishes items in a nationwide competitive bidding area.
    Network means a group of small suppliers that form a legal entity to 
provide competitively bid items throughout the entire CBA.
    Noncontract supplier means a supplier that is not awarded a contract 
by CMS to furnish items included in a competitive bidding program.
    Non-mail order item means any item (for example, diabetic testing 
supplies) that a beneficiary or caregiver picks up in person at a local 
pharmacy or supplier storefront.
    Parties to the hearing means the DMEPOS contract supplier and CMS.
    Physician has the same meaning as in section 1861(r) of the Act.
    Pivotal bid means the lowest composite bid based on bids submitted 
by suppliers for a product category that includes a sufficient number of 
suppliers to meet beneficiary demand for the items in that product 
category.
    Price inversion means any situation where the following occurs: One 
item (HCPCS code) in a grouping of similar items (e.g., walkers, enteral 
infusion pumps, or power wheelchairs) in a product category includes a 
feature that another, similar item in the same product category does not 
have (e.g., wheels, alarm, or Group 2 performance); the average of the 
2015 fee schedule amounts (or initial, unadjusted fee schedule amounts 
for subsequent years for new items) for the code with the feature is 
higher than the average of the 2015 fee schedule amounts for the code 
without the feature; and, following a competition, the SPA for the code 
with the feature is lower than the SPA for the code without that 
feature.

[[Page 81]]

    Product category means a grouping of related items that are used to 
treat a similar medical condition.
    Regional competitive bidding area means a CBA that consists of a 
region of the United States, its Territories, and the District of 
Columbia.
    Regional mail order contract supplier means a mail order contract 
supplier that furnishes items in a regional competitive bidding area.
    Single payment amount means the allowed payment for an item 
furnished under a competitive bidding program.
    Small supplier means, a supplier that generates gross revenue of 
$3.5 million or less in annual receipts including Medicare and non-
Medicare revenue.
    Supplier means an entity with a valid Medicare supplier number, 
including an entity that furnishes an item through the mail.
    Total nationwide allowed services means the total number of services 
allowed for an item furnished in all states, territories, and the 
District of Columbia where Medicare beneficiaries reside and can receive 
covered DMEPOS items and services.
    Treating practitioner means a physician assistant, nurse 
practitioner, or clinical nurse specialist, as those terms are defined 
in section 1861(aa)(5) of the Act.
    Weighted bid means the item weight multiplied by the bid price 
submitted for that item.

[72 FR 18084, Apr. 10, 2007, as amended at 74 FR 2880, Jan. 16, 2009; 74 
FR 62009, Nov. 25, 2009; 75 FR 73622, Nov. 29, 2010; 76 FR 70314, Nov. 
10, 2011; 81 FR 77966, Nov. 4, 2016]



Sec. 414.404  Scope and applicability.

    (a) Applicability. Except as specified in paragraph (b) of this 
section, this subpart applies to all suppliers that furnish the items 
defined in Sec. 414.402 to beneficiaries, including providers, 
physicians, treating practitioners, physical therapists, and 
occupational therapists that furnish such items under Medicare Part B.
    (b) Exceptions. (1) Physicians, treating practitioners, and 
hospitals may furnish certain types of competitively bid durable medical 
equipment without submitting a bid and being awarded a contract under 
this subpart, provided that all of the following conditions are 
satisfied:
    (i) The items furnished are limited to crutches, canes, walkers, 
folding manual wheelchairs, blood glucose monitors, and infusion pumps 
that are DME, and off-the-shelf (OTS) orthotics.
    (ii) The items are furnished by the physician or treating 
practitioner to his or her own patients as part of his or her 
professional service or by a hospital to its own patients during an 
admission or on the date of discharge.
    (iii) The items are billed under a billing number assigned to the 
hospital, physician, the treating practitioner (if possible), or a group 
practice to which the physician or treating practitioner has reassigned 
the right to receive Medicare payment.
    (2) A physical therapist in private practice (as defined in 
Sec. 410.60(c) of this chapter) or an occupational therapist in private 
practice (as defined in Sec. 410.59(c) of this chapter) may furnish 
competitively bid off-the-shelf orthotics without submitting a bid and 
being awarded a contract under this subpart, provided that the items are 
furnished only to the therapist's own patients as part of the physical 
or occupational therapy service.
    (3) Payment for items furnished in accordance with paragraphs (b)(1) 
and (b)(2) of this section will be paid in accordance with 
Sec. 414.408(a).

[72 FR 18084, Apr. 10, 2007, as amended at 74 FR 2880, Jan. 16, 2009; 75 
FR 73623, Nov. 29, 2010; 76 FR 70314, Nov. 10, 2011]



Sec. 414.406  Implementation of programs.

    (a) Implementation contractor. CMS designates one or more 
implementation contractors for the purpose of implementing this subpart.
    (b) Competitive bidding areas. CMS designates through program 
instructions or by other means, such as the request for bids, each CBA 
in which a competitive bidding program may be implemented under this 
subpart.
    (c) Revisions to competitive bidding areas. CMS may revise the CBAs 
designated under paragraph (b) of this section.
    (d) Competitively bid items. CMS designates the items that are 
included in a competitive bidding program through

[[Page 82]]

program instructions or by other means
    (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, as amended at 72 FR 18085, Apr. 10, 2007]



Sec. 414.408  Payment rules.

    (a) Payment basis. (1) The payment basis for an item furnished under 
a competitive bidding program is 80 percent of the single payment amount 
calculated for the item under Sec. 414.416 for the CBA in which the 
beneficiary maintains a permanent residence.
    (2) If an item that is included in a competitive bidding program is 
furnished to a beneficiary who does not maintain a permanent residence 
in a CBA, the payment basis for the item is 80 percent of the lesser of 
the actual charge for the item, or the applicable fee schedule amount 
for the item, as determined under subpart C or subpart D.
    (b) No changes to the single payment amount. The single payment 
amount calculated for each item under each competitive bidding program 
is paid for the duration of the competitive bidding program and will not 
be adjusted by any update factor.
    (c) Payment on an assignment-related basis. Payment for an item 
furnished under this subpart is made on an assignment-related basis.
    (d) Applicability of advanced beneficiary notice. Implementation of 
a program in accordance with this subpart does not preclude the use of 
an advanced beneficiary notice.
    (e) Requirement to obtain competitively bid items from a contract 
supplier. (1) General rule. Except as provided in paragraph (e)(2) of 
this section, all items that are included in a competitive bidding 
program must be furnished by a contract supplier for that program.
    (2) Exceptions. (i) A grandfathered supplier may furnish a 
grandfathered item to a beneficiary in accordance with paragraph (j) of 
this section.
    (ii) Medicare may make a secondary payment for an item furnished by 
a noncontract supplier that the beneficiary is required to use under his 
or her primary insurance policy. The provisions of this paragraph do not 
supersede Medicare secondary payer statutory and regulatory provisions, 
including the Medicare secondary payment rules located in Secs. 411.32 
and 411.33 of this subchapter, and payment will be calculated in 
accordance with those rules.
    (iii) If a beneficiary is outside of the CBA in which he or she 
maintains a permanent residence, he or she may obtain an item from a--
    (A) Contract supplier, if the beneficiary obtains the item in 
another CBA and the item is included in the competitive bidding program 
for that CBA; or
    (B) Supplier with a valid Medicare billing number, if the 
beneficiary obtains the item in an area that is not a CBA, or if the 
beneficiary obtains the item in another CBA but the item is not included 
in the competitive bidding program for that CBA.
    (iv) A physician, treating practitioner, physical therapist in 
private practice, occupational therapist in private practice, or 
hospital may furnish an item in accordance with Sec. 414.404(b) of this 
subpart.
    (3) Unless paragraph (e)(2) of this section applies:
    (i) Medicare will not make payment for an item furnished in 
violation of paragraph (e)(1) of this section, and
    (ii) A beneficiary has no financial liability to a noncontract 
supplier that furnishes an item included in the competitive bidding 
program for a CBA in violation of paragraph (e)(1) of this section, 
unless the beneficiary has signed an advanced beneficiary notice.
    (4) CMS separately designates the Medicare billing number of all 
noncontract suppliers to monitor compliance with paragraphs (e)(1) and 
(e)(2) of this section.
    (f) Purchased equipment. (1) The single payment amounts for new 
purchased durable medical equipment, including power wheelchairs that 
are purchased when the equipment is initially furnished and enteral 
nutrition equipment

[[Page 83]]

are calculated based on the bids submitted and accepted for these items. 
For contracts entered into beginning on or after January 1, 2011, 
payment on a lump sum purchase basis is only available for power 
wheelchairs classified as complex rehabilitative power wheelchairs.
    (2) Payment for used purchased durable medical equipment and enteral 
nutrition equipment is made in an amount equal to 75 percent of the 
single payment amounts calculated for new purchased equipment under 
paragraph (f)(1) of this section.
    (g) Purchased supplies and orthotics. The single payment amounts for 
the following purchased items are calculated based on the bids submitted 
and accepted for the following items:
    (1) Supplies used in conjunction with durable medical equipment.
    (2) Enteral nutrients.
    (3) Enteral nutrition supplies.
    (4) OTS orthotics.
    (h) Rented equipment--(1) Capped rental DME. Subject to the 
provisions of paragraph (h)(2) of this section, payment for capped 
rental durable medical equipment is made in an amount equal to 10 
percent of the single payment amounts calculated for new durable medical 
equipment under paragraph (f)(1) of this section for each of the first 3 
months, and 7.5 percent of the single payment amounts calculated for 
these items for each of the remaining months 4 through 13.
    (2) For contracts entered into beginning on or after January 1, 
2011, the monthly fee schedule amount for rental of power wheelchairs 
equals 15 percent of the single payment amounts calculated for new 
durable medical equipment under paragraph (f)(1) of this section for 
each of the first 3 months, and 6 percent of the single payment amounts 
calculated for these items for each of the remaining months 4 through 
13.
    (3) Additional payment to certain contract suppliers for capped 
rental DME. (i) Except as specified in paragraph (h)(3)(ii) of this 
section, Medicare makes 13 monthly payments to a contract supplier that 
furnishes capped rental durable medical equipment to a beneficiary who 
would otherwise be entitled to obtain the item from a grandfathered 
supplier under paragraph (j) of this section. Payment is made using the 
methodology described in paragraph (h)(1) of this section. The contract 
supplier must transfer title to the item to the beneficiary on the first 
day that begins after the 13th continuous month in which payments are 
made in accordance with this paragraph.
    (ii) Medicare does not make payment to a contract supplier under 
paragraph (h)(3)(i) of this section if the contract supplier furnishes 
capped rental durable medical equipment to a beneficiary who previously 
rented the equipment from another contract supplier.
    (4) Maintenance and servicing of rented DME. Separate maintenance 
and servicing payments are not made for any rented durable medical 
equipment.
    (5) Payment for rented enteral nutrition equipment. Payment for 
rented enteral nutrition equipment is made in an amount equal to 10 
percent of the single payment amounts calculated for new enteral 
nutrition equipment under paragraph (f)(1) of this section for each of 
the first 3 months, and 7.5 percent of the single payment amount 
calculated for these items under paragraph (f)(1) of this section for 
each of the remaining months 4 through 15. The contract supplier to 
which payment is made in month 15 for furnishing enteral nutrition 
equipment on a rental basis must continue to furnish, maintain and 
service the equipment until a determination is made by the beneficiary's 
physician or treating practitioner that the equipment is no longer 
medically necessary.
    (6) Maintenance and servicing of rented enteral nutrition equipment. 
Payment for the maintenance and servicing of rented enteral nutrition 
equipment beginning 6 months after 15 months of rental payments is made 
in an amount equal to 5 percent of the single payment amounts calculated 
for these items under paragraph (f)(1) of this section.
    (7) Payment for inexpensive or routinely purchased durable medical 
equipment. Payment for inexpensive or routinely purchased durable 
medical equipment furnished on a rental basis is made in an amount equal 
to 10 percent of the

[[Page 84]]

single payment amount calculated for new purchased equipment.
    (8) Payment amounts for rented DME requiring frequent and 
substantial servicing--(i) General rule. Except as provided in paragraph 
(h)(7)(ii) of this section, the single payment amounts for rented 
durable medical equipment requiring frequent and substantial servicing 
are calculated based on the rental bids submitted and accepted for the 
furnishing of these items on a monthly basis.
    (ii) Exception. The single payment amounts for continuous passive 
motion exercise devices are calculated based on the bids submitted and 
accepted for the furnishing of these items on a daily basis.
    (i) Monthly payment amounts for oxygen and oxygen equipment--(1) 
Basic payment amount. Subject to the provisions of paragraph (i)(2) of 
this section, the single payment amounts for oxygen and oxygen equipment 
are calculated based on the bids submitted and accepted for the 
furnishing on a monthly basis of each of the five classes of oxygen and 
oxygen equipment described in Sec. 414.226(c)(1).
    (2) Additional payment to certain contract suppliers. (i) Except as 
specified in paragraph (i)(2)(iii) of this section, Medicare makes 
monthly payments to a contract supplier that furnishes oxygen equipment 
to a beneficiary who would otherwise be entitled to obtain the item from 
a grandfathered supplier under paragraph (j) of this section as follows:
    (A) If Medicare made 26 or less monthly payments to the former 
supplier, Medicare makes a monthly payment to the contract supplier for 
up to the number of months equal to the difference between 36 and the 
number of months for which payment was made to the former supplier.
    (B) If Medicare made 27 or more monthly payments to the former 
supplier, Medicare makes 10 monthly payments to the contract supplier.
    (ii) Payment is made using the methodology described in paragraph 
(i)(1) of this section. On the first day after the month in which the 
final rental payment is made under paragraph (i)(2)(i) of this section, 
the contract supplier must transfer title of the oxygen equipment to the 
beneficiary.
    (iii) Medicare does not make payment to a contract supplier under 
paragraph (i)(2) of this section if the contract supplier furnishes 
oxygen equipment to a beneficiary who previously rented the equipment 
from another contract supplier.
    (j) Special rules for certain rented durable medical equipment and 
oxygen and oxygen equipment--(1) Supplier election. (i) A supplier that 
is furnishing durable medical equipment or is furnishing oxygen or 
oxygen equipment on a rental basis to a beneficiary prior to the 
implementation of a competitive bidding program in the CBA where the 
beneficiary maintains a permanent residence may elect to continue 
furnishing the item as a grandfathered supplier.
    (ii) A supplier that elects to be a grandfathered supplier must 
continue to furnish the grandfathered items to all beneficiaries who 
elect to continue receiving the grandfathered items from that supplier 
for the remainder of the rental period for that item.
    (2) Payment for grandfathered items furnished during the first 
competitive bidding program implemented in a CBA. Payment for 
grandfathered items furnished during the first competitive bidding 
program implemented in a CBA is made as follows:
    (i) For inexpensive and routinely purchased items described in 
Sec. 414.220(a), payment is made in the amount determined under 
Sec. 414.220(b).
    (ii) For other durable medical equipment or capped rental items 
described in Sec. 414.229, payment is made in the amount determined 
under Sec. 414.229(b).
    (iii) For items requiring frequent and substantial servicing 
described in Sec. 414.222, payment is made in accordance with paragraph 
(a)(1) of this section.
    (iv) For oxygen and oxygen equipment described in 
Sec. 414.226(c)(1), payment is made in accordance with paragraph (a)(1) 
of this section.
    (3) Payment for grandfathered items furnished during all subsequent 
competitive bidding programs in a CBA. Beginning with the second 
competitive bidding program implemented in a CBA, payment is made for 
grandfathered

[[Page 85]]

items in accordance with paragraph (a)(1) of this section.
    (4) Choice of suppliers. (i) Beneficiaries who are renting an item 
that meets the definition of a grandfathered item in Sec. 414.402 of 
this subpart may elect to obtain the item from a grandfathered supplier.
    (ii) A beneficiary who is otherwise entitled to obtain a 
grandfathered item from a grandfathered supplier under paragraph (j) of 
this section may elect to obtain the same item from a contract supplier 
at any time after a competitive bidding program is implemented.
    (iii) If a beneficiary elects to obtain the same item from a 
contract supplier, payment is made for the item accordance with 
paragraph (a)(1) of this section.
    (5) Notification of beneficiaries and CMS by suppliers that choose 
to become grandfathered suppliers. (i) Notification of beneficiaries by 
suppliers. (A) Requirements of notification. A noncontract supplier that 
elects to become a grandfathered supplier must provide a 30-day written 
notification to each Medicare beneficiary that resides in a competitive 
bidding area and is currently renting a competitively bid item from that 
supplier. The 30-day notification to the beneficiary must meet the 
following requirements:
    (1) Be sent by the supplier to the beneficiary at least 30 business 
days before the start date of the implementation of the competitive 
bidding program for the CBA in which the beneficiary resides.
    (2) Identify the grandfathered items that the supplier is willing to 
continue to rent to the beneficiary.
    (3) Be in writing (for example, by letter or postcard) and the 
supplier must maintain proof of delivery.
    (4) State that the supplier is willing to continue to furnish 
certain rented Durable Medical Equipment (DME), oxygen and oxygen 
equipment, and supplies that the supplier is currently furnishing to the 
beneficiary (that is, before the start of the competitive bidding 
program) and is willing to continue to provide these items to the 
beneficiary for the remaining rental months.
    (5) State that the beneficiary has the choice to continue to receive 
a grandfathered item(s) from the grandfathered supplier or may elect to 
receive the item(s) from a contract supplier after the end of the last 
month for which a rental payment is made to the noncontract supplier.
    (6) Provide the supplier's telephone number and instruct the 
beneficiary to call the supplier with any questions and to notify the 
supplier of his or her decision to use or not use the supplier as a 
grandfathered supplier.
    (7) State that the beneficiary can obtain information about the 
competitive bidding program by calling 1-800-MEDICARE or on the Internet 
at http://www.Medicare.gov.
    (B) Record of beneficiary's choice. The supplier should obtain an 
election from the beneficiary regarding whether to use or not use the 
supplier as a grandfathered supplier. The supplier must maintain a 
record of its attempts to communicate with the beneficiary to obtain the 
beneficiary's election regarding grandfathering. When the supplier 
obtains such an election, the supplier must maintain a record of the 
beneficiary decision including the date the choice was made, and how the 
beneficiary communicated his or her choice to the supplier.
    (C) Notification. If the beneficiary chooses not to continue to 
receive a grandfathered item(s) from their current supplier, the 
supplier must provide the beneficiary with 2 more notices in addition to 
the 30-day notice prior to the supplier picking up its equipment.
    (1) 10-day notification: Ten business days prior to picking up the 
item, the supplier should have direct contact (for example, a phone 
call) with the beneficiary or the beneficiary's caregiver and receive 
acknowledgement that the beneficiary understands their equipment will be 
picked up. This should occur on the first anniversary date after the 
start of the CBP or on another date agreed to by the beneficiary or the 
beneficiary's caregiver. The beneficiary's anniversary date occurs every 
month and is the date of the month on which the item was first delivered 
to the beneficiary by the current supplier. When a date other than

[[Page 86]]

the anniversary date is chosen by the beneficiary or the beneficiary's 
caregiver, the noncontract supplier will still receive payment up to the 
anniversary date after the start of the CBP, and the new contract 
supplier may not bill for any period of time before the anniversary 
date.
    (2) 2-day notification: Two business days prior to picking up the 
item the supplier should contact the beneficiary or the beneficiary's 
caregiver by phone to notify the beneficiary of the date the supplier 
will pick up the item. This date should not be before the beneficiary's 
first anniversary date that occurs after the start of the competitive 
bidding program unless an alternative arrangement has been made with the 
beneficiary and the new contract supplier.
    (D) Pickup procedures. (1) The pickup of the noncontract supplier's 
equipment and the delivery of the new contract supplier's equipment 
should occur on the same date, that is, the first rental anniversary 
date of the equipment that occurs after the start of the competitive 
bidding program unless an alternative arrangement has been made with the 
beneficiary and the new contract supplier.
    (2) Under no circumstance should a supplier pick up a rented item 
prior to the supplier's receiving acknowledgement from the beneficiary 
that the beneficiary is aware of the date on which the supplier is 
picking up the item and the beneficiary has made arrangements to have 
the item replaced on that date by a contract supplier.
    (3) When a beneficiary chooses to switch to a new contract supplier, 
the current noncontract supplier and the new contract supplier must make 
arrangements that are suitable to the beneficiary.
    (4) The contract supplier may not submit a claim with a date of 
delivery for the new equipment that is prior to the first anniversary 
date that occurs after the beginning of the CBP, and the contract 
supplier may not begin billing until the first anniversary date that 
occurs after the beginning of the CBP.
    (5) The noncontract supplier must submit a claim to be paid up to 
the first anniversary date that occurs after the beginning of the CBP. 
Therefore, they should not pick up the equipment before that date unless 
an alternative arrangement has been made with the beneficiary and the 
new contract supplier.
    (ii) Notification to CMS by suppliers. A noncontract supplier that 
elects to become a grandfathered supplier must provide a written 
notification to CMS of this decision. This notification must meet the 
following requirements:
    (A) State that the supplier agrees to continue to furnish certain 
rented DME, oxygen and oxygen equipment that it is currently furnishing 
to beneficiaries (that is, before the start of the competitive bidding 
program) in a CBA and will continue to provide these items to these 
beneficiaries for the remaining months of the rental period.
    (B) Include the following information:
    (1) Name and address of the supplier.
    (2) The 6-digit NSC number of the supplier.
    (3) Product category(s) by CBA for which the supplier is willing to 
be a grandfathered supplier.
    (C) State that the supplier agrees to meet all the terms and 
conditions pertaining to grandfathered suppliers.
    (D) Be provided by the supplier to CMS in writing at least 30 
business days before the start date of the implementation of the 
Medicare DMEPOS Competitive Bidding Program.
    (6) Suppliers that choose not to become grandfathered suppliers. (i) 
Requirement for non-grandfathered supplier. A noncontract supplier that 
elects not to become a grandfathered supplier is required to pick up the 
item it is currently renting to the beneficiary from the beneficiary's 
home after proper notification.
    (ii) Notification. Proper notification includes a 30-day, a 10-day, 
and a 2-day notice of the supplier's decision not to become a 
grandfathered supplier to its Medicare beneficiaries who are currently 
renting certain DME competitively bid item(s) and who reside in a CBA.
    (iii) Requirements of notification. These notifications must meet 
all of the requirements listed in paragraph (j)(5)(i) of this section 
for the 30-day, 10-day and 2-day notices that must be sent by suppliers 
who decide to be

[[Page 87]]

grandfathered suppliers, with the following exceptions for the 30-day 
notice.
    (A) State that, for those items for which the supplier has decided 
not to be a grandfathered supplier, the supplier will only continue to 
rent these competitively bid item(s) to its beneficiaries up to the 
first anniversary date that occurs after the start of the Medicare 
DMEPOS Competitive Bidding Program.
    (B) State that the beneficiary must select a contract supplier for 
Medicare to continue to pay for these items.
    (C) Refer the beneficiary to the contract supplier locator tool on 
and to 1-800-MEDICARE to obtain information about the availability of 
contract suppliers for the beneficiary's area.
    (iv) Pickup procedures. (A) The pick-up of the noncontract 
supplier's equipment and the delivery of the new contract supplier's 
equipment should occur on the same date, that is, the first rental 
anniversary date of the equipment that occurs after the start of the 
competitive bidding program unless an alternative arrangement has been 
made with the beneficiary and the new contract supplier.
    (B) Under no circumstance should a supplier pick up a rented item 
prior to the supplier's receiving acknowledgement from the beneficiary 
that the beneficiary is aware of the date on which the supplier is 
picking up the item and the beneficiary has made arrangements to have 
the item replaced on that date by a contract supplier.
    (C) When a beneficiary chooses to switch to a new contract supplier, 
the current noncontract supplier and the new contract supplier must make 
arrangements that are agreeable to the beneficiary.
    (D) The contract supplier cannot submit a claim with a date of 
delivery for the new equipment that is prior to the first anniversary 
date that occurs after the beginning of the CBP.
    (7) Payment for accessories and supplies for grandfathered items. 
Accessories and supplies that are used in conjunction with and are 
necessary for the effective use of a grandfathered item may be furnished 
by the same grandfathered supplier that furnishes the grandfathered 
item. Payment is made in accordance with paragraph (a)(1) of this 
section.
    (k) Payment for maintenance, servicing and replacement of 
beneficiary-owned items. (1) Payment is made for the maintenance and 
servicing of beneficiary-owned items, provided the maintenance and 
servicing is performed by a contract supplier or a noncontract supplier 
having a valid Medicare billing number, as follows:
    (i) Payment for labor is made in accordance with Sec. 414.210(e)(1) 
of subpart D.
    (ii) Payment for parts that are not items (as defined in 
Sec. 414.402) is made in accordance with Sec. 414.210(e)(1) of subpart 
D.
    (iii) Payment for parts that are items (as defined in Sec. 414.402) 
is made in accordance with paragraph (a)(1) of this section.
    (2) Additional payments are made in accordance with 
Sec. 414.210(e)(2), (e)(3) and (e)(5) of this part for the maintenance 
and servicing of oxygen equipment if performed by a contract supplier or 
a noncontract supplier having a valid Medicare billing number.
    (3) Beneficiaries must obtain a replacement of a beneficiary-owned 
item, other than parts needed for the repair of beneficiary-owned 
equipment from a contract supplier. Payment is made for the replacement 
item in accordance with paragraph (a)(1) of this section.
    (l) Exceptions for certain items and services paid in accordance 
with special payment rules. The payment rules in paragraphs (f) thru 
(h), (j)(2), (j)(3), and (j)(7), and (k) of this section do not apply to 
items and services paid in accordance with the special payment rules at 
Sec. 414.409.

[72 FR 18085, Apr. 10, 2007, as amended at 74 FR 2880, Jan. 16, 2009; 74 
FR 62009, Nov. 25, 2009; 75 FR 73623, Nov. 29, 2010; 76 FR 70315, Nov. 
10, 2011; 79 FR 66264, Nov. 6, 2014]



Sec. 414.409  Special payment rules.

    (a) Payment on a bundled, continuous rental basis. In no more than 
12 CBAs, in conjunction with competitions that begin after January 1, 
2015, payment is made on a bundled, continuous monthly rental basis for 
standard power wheelchairs and continuous positive airway pressure 
(CPAP) devices. The CBAs and competitions where these payment rules 
apply are announced in advance of each competition, with the

[[Page 88]]

payment rules in this section used in lieu of the payment rules at 
Sec. 414.408(f) thru (h), (j)(2), (j)(3), and (j)(7), and (k). The 
single payment amounts are established based on bids submitted and 
accepted for furnishing rented standard power wheelchairs and CPAP 
devices on a monthly basis for each month of medical need during the 
contract period. The single payment amount for the monthly rental of the 
DME includes payment for the rented equipment, maintenance and servicing 
of the rented equipment, and replacement of supplies and accessories 
necessary for the effective use of the rented equipment. Separate 
payment for replacement of equipment, repair or maintenance and 
servicing of equipment, or for replacement of accessories and supplies 
necessary for the effective use of equipment is not allowed under any 
circumstance.
    (b) Payment for grandfathered DME items paid on a bundled, 
continuous rental basis. Payment to a supplier that elects to be a 
grandfathered supplier of DME furnished in CBPs where these special 
payment rules apply is made in accordance with Sec. 414.408(a)(1).
    (c) Supplier transitions for DME paid on a bundled, continuous 
rental basis. Changes from a non-contract supplier to a contract 
supplier at the beginning of a CBP where payment is made on a bundled, 
continuous monthly rental basis results in the contract supplier taking 
on responsibility for meeting all of the monthly needs for furnishing 
the covered DME. In the event that a beneficiary relocates from a CBA 
where these special payment rules apply to an area where rental cap 
rules apply, a new period of continuous use begins for the capped rental 
item as long as the item is determined to be medically necessary.
    (d) Responsibility for repair and maintenance and servicing of power 
wheelchairs. In no more than 12 CBAs where payment for power wheelchairs 
is made on a capped rental basis, for power wheelchairs furnished in 
conjunction with competitions that begin after January 1, 2015, contract 
suppliers that furnish power wheelchairs under contracts awarded based 
on these competitions shall continue to repair power wheelchairs they 
furnish following transfer of title to the equipment to the beneficiary. 
The responsibility of the contract supplier to repair, maintain and 
service beneficiary-owned power wheelchairs does not apply to power 
wheelchairs that the contract supplier did not furnish to the 
beneficiary. For power wheelchairs that the contract supplier furnishes 
during the contract period, the responsibility of the contract supplier 
to repair, maintain and service the power wheelchair once it is owned by 
the beneficiary continues until the reasonable useful lifetime of the 
equipment expires, coverage for the power wheelchair ends, or the 
beneficiary relocates outside the CBA where the item was furnished. The 
contract supplier may not charge the beneficiary or the program for any 
necessary repairs or maintenance and servicing of a beneficiary-owned 
power wheelchair it furnished during the contract period.

[79 FR 66264, Nov. 6, 2014]



Sec. 414.410  Phased-in implementation of competitive bidding programs.

    (a) Phase-in of competitive bidding programs. CMS phases in 
competitive bidding programs so that competition under the programs 
occurs--
    (1) In CY 2009, in Cincinnati--Middletown (Ohio, Kentucky and 
Indiana), Cleveland--Elyria--Mentor (Ohio), Charlotte--Gastonia--Concord 
(North Carolina and South Carolina), Dallas--Fort Worth--Arlington 
(Texas), Kansas City (Missouri and Kansas), Miami--Fort Lauderdale--
Miami Beach (Florida), Orlando (Florida), Pittsburgh (Pennsylvania), and 
Riverside--San Bernardino--Ontario (California).
    (2) In CY 2011, in an additional 91 MSAs (the additional 70 MSAs 
selected by CMS as of June 1, 2008, and the next 21 largest MSAs by 
total population based on 2009 population estimates, and not already 
phased in as of June 1, 2008). CMS may subdivide any of the 91 MSAs with 
a population of greater than 8,000,000 into separate CBAs, thereby 
resulting in more than 91 CBAs.
    (3) After CY 2011, additional CBAs (or, in the case of national mail 
order for items and services, after CY 2010).
    (4) For competitions (other than for national mail order items and 
services)

[[Page 89]]

after CY 2011 and prior to CY 2015, the following areas are excluded:
    (i) Rural areas.
    (ii) MSAs not selected under paragraphs (a)(1) or (a)(2) of this 
section with a population of less than 250,000.
    (iii) An area with low population density within an MSA not selected 
under paragraphs (a)(1) or (a)(2) of this section.
    (b) Selection of MSAs for CY 2007 and CY 2009. CMS selects the MSAs 
for purposes of designating CBAs in CY 2007 and CY 2009 by considering 
the following variables:
    (1) The total population of an MSA.
    (2) The Medicare allowed charges for DMEPOS items per fee-for-
service beneficiary in an MSA.
    (3) The total number of DMEPOS suppliers per fee-for-service 
beneficiary who received DMEPOS items in an MSA.
    (4) An MSA's geographic location.
    (c) Exclusions from a CBA. CMS may exclude from a CBA a rural area 
(as defined in Sec. 412.64(b)(1)(ii)(C) of this subchapter), or an area 
with low population density based on one or more of the following 
factors--
    (1) Low utilization of DMEPOS items by Medicare beneficiaries 
receiving fee-for-service benefits relative to similar geographic areas;
    (2) Low number of DMEPOS suppliers relative to similar geographic 
areas; or
    (3) Low number of Medicare fee-for-service beneficiaries relative to 
similar geographic areas.
    (d) Selection of additional CBAs after CY 2009. (1) Beginning after 
CY 2009, CMS designates through program instructions or by other means 
additional CBAs based on CMS' determination that the implementation of a 
competitive bidding program in a particular area would be likely to 
result in significant savings to the Medicare program.
    (2) Beginning after CY 2009, CMS may designate through program 
instructions or by other means a nationwide CBA or one or more regional 
CBAs for purposes of implementing competitive bidding programs for items 
that are furnished through the mail by nationwide or regional mail order 
contract suppliers.

[72 FR 18085, Apr. 10, 2007, as amended at 74 FR 2880, Jan. 16, 2009; 75 
FR 73623, Nov. 29, 2010; 76 FR 70315, Nov. 10, 2011]



Sec. 414.411  Special rule in case of competitions for diabetic testing 
strips conducted on or after January 1, 2011.

    (a) National mail order competitions. A supplier must demonstrate 
that their bid submitted as part of a national mail order competition 
for diabetic testing strips covers the furnishing of a sufficient number 
of different types of diabetic testing strip products that, in the 
aggregate, and taking into account volume for the different products, 
includes at least 50 percent of all the different types of products on 
the market. A type of diabetic testing strip means a specific brand and 
model of testing strips.
    (b) Other competitions. CMS may apply this special rule to non-mail 
order or local competitions for diabetic testing strips.

[75 FR 73623, Nov. 29, 2010]



Sec. 414.412  Submission of bids under a competitive bidding program.

    (a) Requirement to submit a bid. Except as provided under 
Sec. 414.404(b), in order for a supplier to receive payment for items 
furnished to beneficiaries under a competitive bidding program, the 
supplier must submit a bid to furnish those items and be awarded a 
contract under this subpart.
    (b) Grouping of items into product categories. (1) Bids are 
submitted for items grouped into product categories.
    (2) The bids submitted for each item in a product category cannot 
exceed the payment amount that would otherwise apply to the item under 
subpart C of this part, without the application of Sec. 414.210(g), or 
subpart D of this part, without the application of Sec. 414.105, or 
subpart I of this part. The bids submitted for items in accordance with 
paragraph (d)(2) of this section cannot exceed the weighted average, 
weighted by total nationwide allowed services, as defined in 
Sec. 414.202, of the payment amounts that would otherwise apply to the 
grouping of similar items under

[[Page 90]]

subpart C of this part, without the application of Sec. 414.210(g), or 
subpart D of this part, without the application of Sec. 414.105.
    (3) The bids submitted for standard power wheelchairs paid in 
accordance with the special payment rules at Sec. 414.409(a) cannot 
exceed the average monthly payment for the bundle of items and services 
that would otherwise apply to the item under subpart D of this part.
    (4) The bids submitted for continuous positive airway pressure 
(CPAP) devices paid in accordance with the special payment rules at 
Sec. 414.409(a) cannot exceed the 1993 fee schedule amounts for these 
items, increased by the covered item update factors provided for these 
items in section 1834(a)(14) of the Act.
    (5) Suppliers shall take into consideration the special payment 
rules at Sec. 414.409(d) when submitting bids for furnishing power 
wheelchairs under competitions where these rules apply.
    (c) Furnishing of items. A bid must include all costs related to 
furnishing an item, including all services directly related to the 
furnishing of the item.
    (d) Separate bids. (1) Except as provided in paragraph (d)(2) of 
this section, for each product category that a supplier is seeking to 
furnish under a Competitive Bidding Program, the supplier must submit a 
separate bid for each item in that product category.
    (2) An exception to paragraph (d)(1) of this section can be made in 
situations where price inversions defined in Sec. 414.402 have occurred 
in past competitions for items within groupings of similar items within 
a product category. In these situations, an alternative method for 
submitting bids for these combinations of codes may be announced at the 
time the competition begins. Under this alternative method, the 
combination of codes for the similar items is the item for bidding 
purposes, as defined under Sec. 414.402. Suppliers submit bids for the 
code with the highest total nationwide allowed services for calendar 
year 2012 (the ``lead item'') within the grouping of codes for similar 
items, and the bids for this code are used to calculate the single 
payment amounts for this code in accordance with Sec. 414.416(b)(1). The 
bids for this code would also be used to calculate the single payment 
amounts for the other codes within the grouping of similar items in 
accordance with Sec. 414.416(b)(3). For subsequent competitions, the 
lead item is identified as the code with the highest total nationwide 
allowed services for the most recent and complete calendar year that 
precedes the competition. The groupings of similar items subject to this 
rule include--
    (i) Hospital beds (HCPCS codes E0250, E0251, E0255, E0256, E0260, 
E0261, E0266, E0265, E0290, E0291, E0292, E0293, E0294, E0295, E0296, 
E0297, E0301, E0302, E0303, and E0304).
    (ii) Mattresses and overlays (HCPCS codes E0277, E0371, E0372, and 
E0373).
    (iii) Power wheelchairs (HCPCS codes K0813, K0814, K0815, K0816, 
K0820, K0821, K0822, K0823, K0824, K0825, K0826, K0827, K0828, and 
K0829).
    (iv) Seat lift mechanisms (HCPCS codes E0627 and E0629).
    (v) TENS devices (HCPCS codes E0720 and E0730).
    (vi) Walkers (HCPCS codes E0130, E0135, E0140, E0141, E0143, E0144, 
E0147, E0148, and E0149).
    (e) Commonly-owned or controlled suppliers. (1) For purposes of this 
paragraph--
    (i) An ownership interest is the possession of equity in the 
capital, stock or profits of another supplier;
    (ii) A controlling interest exists if one or more of owners of a 
supplier is an officer, director or partner in another supplier; and
    (iii) Two or more suppliers are commonly-owned if one or more of 
them has an ownership interest totaling at least 5 percent in the 
other(s).
    (2) A supplier must disclose in its bid each supplier in which it 
has an ownership or controlling interest and each supplier which has an 
ownership or controlling interest in it.
    (3) Commonly-owned or controlled suppliers must submit a single bid 
to furnish a product category in a CBA. Each commonly-owned or 
controlled supplier that is located in the CBA for which the bid is 
being submitted must be included in the bid. The bid must also include 
any commonly-owned or controlled supplier that is located outside of the 
CBA but would furnish the

[[Page 91]]

product category to the beneficiaries who maintain a permanent residence 
in the CBA.
    (f) Mail order suppliers. (1) Suppliers that furnish items through 
the mail must submit a bid to furnish these items in a CBA in which a 
mail order competitive bidding program that includes the items is 
implemented.
    (2) Suppliers that submit one or more bids under paragraph (f)(1) of 
this section may submit the same bid amount for each item under each 
competitive bidding program for which it submits a bid.
    (g) Applicability of the mail order competitive bidding program. 
Suppliers that do not furnish items through the mail are not required to 
participate in a nationwide or regional mail order competitive bidding 
program that includes the same items. Suppliers may continue to furnish 
these items in--
    (1) A CBA, if the supplier is awarded a contract under this subpart; 
or
    (2) An area not designated as a CBA.
    (h) Requiring bid surety bonds for bidding entities--(1) Bidding 
requirements. For competitions beginning on or after January 1, 2017, 
and no later than January 1, 2019, a bidding entity may not submit a 
bid(s) for a CBA unless it obtains a bid surety bond for the CBA from an 
authorized surety on the Department of the Treasury's Listing of 
Certified Companies and provides proof of having obtained the bond by 
submitting a copy to CMS by the deadline for bid submission.
    (2) Bid surety bond requirements. (i) The bid surety bond issued 
must include at a minimum:
    (A) The name of the bidding entity as the principal/obligor;
    (B) The name and National Association of Insurance Commissioners 
number of the authorized surety;
    (C) CMS as the named obligee;
    (D) The conditions of the bond as specified in paragraph (h)(3) of 
this section;
    (E) The CBA covered by the bond;
    (F) The bond number;
    (G) The date of issuance; and
    (H) The bid bond value of $50,000.00.
    (ii) The bid surety bond must be maintained until it is either 
collected upon due to forfeiture or the liability is returned for not 
meeting bid forfeiture conditions.
    (3) Forfeiture of bid surety bond. (i) When a bidding entity is 
offered a contract for a CBA/product category (``competition'') and its 
composite bid for the competition is at or below the median composite 
bid rate for all bidding entities included in the calculation of the 
single payment amounts within the competition and the bidding entity 
does not accept the contract offer, its bid surety bond submitted for 
that CBA will be forfeited and CMS will collect on the bond via 
Electronic Funds Transfer (EFT) from the respective bonding company. As 
one bid surety bond is required for each CBA in which the bidding entity 
is submitting a bid, the failure to accept a contract offer for any 
product category within the CBA when the entity's bid is at or below the 
median composite bid rate will result in forfeiture of the bid surety 
bond for that CBA.
    (ii) Where the bid(s) does not meet the specified forfeiture 
conditions in paragraph (h)(3)(i) of this section, the bid surety bond 
liability will be returned within 90 days of the public announcement of 
contract suppliers for the CBA. CMS will notify the bidding entity that 
it did not meet the specified forfeiture requirements and the bid surety 
bond will not be collected by CMS.
    (4) Penalties. (i) A bidding entity that has been determined to have 
falsified its bid surety bond may be prohibited from participation in 
the DMEPOS Competitive Bidding Program for the current round of the 
Competitive Bidding Program in which it submitted a bid and also from 
participating in the next round of the Competitive Bidding Program. 
Offending suppliers will also be referred to the Office of Inspector 
General and Department of Justice for further investigation.
    (ii) A bidding entity, whose composite bid is at or below the median 
composite bid rate, that--
    (A) Accepts a contract award; and
    (B) Is found to be in breach of contract for nonperformance of the 
contract to avoid forfeiture of the bid surety bond will have its 
contract terminated and will be precluded from participation in the in 
the next round of

[[Page 92]]

the DMEPOS Competitive Bidding Program.

[72 FR 18085, Apr. 10, 2007, as amended at 79 FR 66264, Nov. 6, 2014; 81 
FR 77966, Nov. 4, 2016]



Sec. 414.414  Conditions for awarding contracts.

    (a) General rule. The rules set forth in this section govern the 
evaluation and selection of suppliers for contract award purposes under 
a competitive bidding program.
    (b) Basic supplier eligibility. (1) Each supplier must meet the 
enrollment standards specified in Sec. 424.57(c) of this chapter.
    (2) Each supplier must disclose information about any prior or 
current legal actions, sanctions, revocations from the Medicare program, 
program-related convictions as defined in section 1128(a)(1) through 
(a)(4) of the Act, exclusions or debarments imposed against it, or 
against any members of the board of directors, chief corporate officers, 
high-level employees, affiliated companies, or subcontractors, by any 
Federal, State, or local agency. The supplier must certify in its bid 
that this information is completed and accurate.
    (3) Each supplier must have all State and local licenses required to 
perform the services identified in the request for bids. CMS may not 
award a contract to any entity in a CBA unless the entity meets 
applicable State licensure requirements.
    (4) Each supplier must submit a bona fide bid that complies with all 
the terms and conditions contained in the request for bids.
    (5) Each network must meet the requirements specified in 
Sec. 414.418.
    (c) Quality standards and accreditation. Each supplier furnishing 
items and services directly or as a subcontractor must meet applicable 
quality standards developed by CMS in accordance with section 
1834(a)(20) of the Act and be accredited by a CMS-approved organization 
that meets the requirements of Sec. 424.58 of this subchapter, unless a 
grace period is specified by CMS.
    (d) Financial standards--(1) General rule. Each supplier must submit 
along with its bid the applicable covered documents (as defined in 
Sec. 414.402) specified in the request for bids.
    (2) Process for reviewing covered documents--(i) Submission of 
covered documents for CMS review. To receive notification of whether 
there are missing covered documents, the supplier must submit its 
applicable covered documents by the later of the following covered 
document review dates:
    (A) The date that is 30 days before the final date for the closing 
of the bid window; or
    (B) The date that is 30 days after the opening of the bid window.
    (ii) CMS feedback to a supplier with missing covered documents. (A) 
For Round 1 bids. CMS has up to 45 days after the covered document 
review date to review the covered documents and to notify suppliers of 
any missing documents.
    (B) For subsequent Round bids. CMS has 90 days after the covered 
document review date to notify suppliers of any missing covered 
documents.
    (iii) Submission of missing covered documents. Suppliers notified by 
CMS of missing covered documents have 10 business days after the date of 
such notice to submit the missing documents. CMS does not reject the 
supplier's bid on the basis that the covered documents are late or 
missing if all the applicable missing covered documents identified in 
the notice are submitted to CMS not later than 10 business days after 
the date of such notice.
    (e) Evaluation of bids. CMS evaluates bids submitted for items 
within a product category by--
    (1) Calculating the expected beneficiary demand in the CBA for the 
items in the product category;
    (2) Calculating the total supplier capacity that would be sufficient 
to meet the expected beneficiary demand in the CBA for the items in the 
product category;
    (3) Establishing a composite bid for each supplier and network that 
submitted a bid for the product category.
    (4) Arraying the composite bids from the lowest composite bid price 
to the highest composite bid price;
    (5) Calculating the pivotal bid for the product category;
    (6) Selecting all suppliers and networks whose composite bids are 
less

[[Page 93]]

than or equal to the pivotal bid for that product category, and that 
meet the requirements in paragraphs (b) through (d) of this section.
    (f) Expected savings. A contract is not awarded under this subpart 
unless CMS determines that the amounts to be paid to contract suppliers 
for an item or drug under a competitive bidding program are expected to 
be less than the amounts that would otherwise be paid for the same item 
under subpart C or subpart D or the same drug under subpart I.
    (g) Special rules for small suppliers--(1) Target for small supplier 
participation. CMS ensures that small suppliers have the opportunity to 
participate in a competitive bidding program by taking the following 
steps:
    (i) Setting a target number for small supplier participation by 
multiplying 30 percent by the number of suppliers that meet the 
requirements in paragraphs (b) through (d) of this section and whose 
composite bids are equal to or lower than the pivotal bid calculated for 
the product category;
    (ii) Identifying the number of qualified small suppliers whose 
composite bids are at or below the pivotal bid for the product category;
    (iii) Selecting additional small suppliers whose composite bids are 
above the pivotal bid for the product category in ascending order based 
on the proximity of each small supplier's composite bid to the pivotal 
bid, until the number calculated in paragraph (g)(1)(i) of this section 
is reached or there are no more composite bids submitted by small 
suppliers for the product category.
    (2) The bids by small suppliers that are selected under paragraph 
(g)(1)(iii) of this section are not used to calculate the single payment 
amounts for any items under Sec. 414.416 of this subpart.
    (h) Sufficient number of suppliers. (1) Except as provided in 
paragraph (h)(3) of this section. CMS will award at least five 
contracts, if there are five suppliers satisfying the requirements in 
paragraphs (b) through (f) of this section; or
    (2) CMS will award at least two contracts, if there are less than 
five suppliers meeting these requirements and the suppliers satisfying 
these requirements have sufficient capacity to satisfy beneficiary 
demand for the product category calculated under paragraph (e)(1) of 
this section.
    (3) The provisions of paragraph (h)(1) of this section do not apply 
to regional or nationwide mail order CBAs under Sec. 414.410(d)(2) of 
this subpart.
    (i) Selection of new suppliers after bidding. (1) Subsequent to the 
awarding of contracts under this subpart, CMS may award additional 
contracts if it determines that additional contract suppliers are needed 
to meet beneficiary demand for items under a competitive bidding 
program. CMS selects additional contract suppliers by--
    (i) Referring to the arrayed list of suppliers that submitted bids 
for the product category included in the competitive bidding program for 
which beneficiary demand is not being met; and
    (ii) Beginning with the supplier whose composite bid is the first 
composite bid above the pivotal bid for that product category, 
determining if that supplier is willing to become a contract supplier 
under the same terms and conditions that apply to other contract 
suppliers in the CBA.
    (2) Before CMS awards additional contracts under paragraph (i)(1) of 
this section, a supplier must submit updated information demonstrating 
that the supplier meets the requirements under paragraphs (b) through 
(d) of this section.

[72 FR 18085, Apr. 10, 2007, as amended at 74 FR 2880, Jan. 16, 2009; 76 
FR 70315, Nov. 10, 2011; 79 FR 66264, Nov. 6, 2014; 81 FR 77967, Nov. 4, 
2016]



Sec. 414.416  Determination of competitive bidding payment amounts.

    (a) General rule. CMS establishes a single payment amount for each 
item furnished under a competitive bidding program.
    (b) Methodology for setting payment amount. (1) The single payment 
amount for an item furnished under a competitive bidding program is 
equal to the median of the bids submitted for that item by suppliers 
whose composite bids for the product category that includes the item are 
equal to or below the pivotal bid for that product category. If there is 
an even number of bids, the

[[Page 94]]

single payment amount for the item is equal to the average of the two 
middle bids.
    (2) The single payment amount for an item must be less than or equal 
to the amount that would otherwise be paid for the same item under 
subpart C or subpart D.
    (3) In the case of competitions where bids are submitted for an item 
that is a combination of codes for similar items within a product 
category as identified under Sec. 414.412(d)(2), the single payment 
amount for each code within the combination of codes is equal to the 
single payment amount for the lead item or code with the highest total 
nationwide allowed services multiplied by the ratio of the average of 
the 2015 fee schedule amounts for all areas (i.e., all states, the 
District of Columbia, Puerto Rico, and the United States Virgin Islands) 
for the code to the average of the 2015 fee schedule amounts for all 
areas for the lead item.

[72 FR 18085, Apr. 10, 2007, as amended at 81 FR 77967, Nov. 4, 2016]



Sec. 414.418  Opportunity for networks.

    (a) A network may be comprised of at least 2 but not more than 20 
small suppliers.
    (b) The following rules apply to networks that seek contracts under 
this subpart:
    (1) Each network must form a single legal entity that acts as the 
bidder and submits the bid. Any agreement entered into for purposes of 
forming a network must be submitted to CMS. The network must identify 
itself as a network and identify all of its members.
    (2) Each member of the network must satisfy the requirements in 
Sec. 414.414(b) through (d).
    (3) A small supplier may join one or more networks but cannot submit 
an individual bid to furnish the same product category in the same CBA 
as any network in which it is a member. A small supplier may not be a 
member of more than one network if those networks submit bids to furnish 
the same product category in the same CBA.
    (4) The network cannot be anticompetitive, and this section does not 
supersede any Federal law or regulation that regulates anticompetitive 
behavior.
    (5) A bid submitted by a network must include a statement from each 
network member certifying that the network member joined the network 
because it is unable independently to furnish all of the items in the 
product category for which the network is submitting a bid to 
beneficiaries throughout the entire geographic area of the CBA.
    (6) At the time that a network submits a bid, the network's total 
market share for each product category that is the subject of the 
network's bid cannot exceed 20 percent of the Medicare demand for that 
product category in the CBA.
    (c) If the network is awarded a contract, each supplier must submit 
its own claims and will receive payment directly from Medicare for the 
items that it furnishes under the competitive bidding program.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.420  Physician or treating practitioner authorization and 
consideration of clinical efficiency and value of items.

    (a) Prescription for a particular brand item or mode of delivery. 
(1) A physician or treating practitioner may prescribe, in writing, a 
particular brand of an item for which payment is made under a 
competitive bidding program, or a particular mode of delivery for an 
item, if he or she determines that the particular brand or mode of 
delivery would avoid an adverse medical outcome for the beneficiary.
    (2) When a physician or treating practitioner prescribes a 
particular brand or mode of delivery of an item under paragraph (a)(1) 
of this section, the physician or treating practitioner must document 
the reason in the beneficiary's medical record why the particular brand 
or mode of delivery is medically necessary to avoid an adverse medical 
outcome.
    (b) Furnishing of a prescribed particular brand item or mode of 
delivery. If a physician or treating practitioner prescribes a 
particular brand of an item or mode of delivery, the contract supplier 
must--

[[Page 95]]

    (1) Furnish the particular brand or mode of delivery as prescribed 
by the physician or treating practitioner;
    (2) Consult with the physician or treating practitioner to find an 
appropriate alternative brand of item or mode of delivery for the 
beneficiary and obtain a revised written prescription from the physician 
or treating practitioner; or
    (3) Assist the beneficiary in locating a contract supplier that can 
furnish the particular brand of item or mode of delivery prescribed by 
the physician or treating practitioner.
    (c) Payment for a particular brand of item or mode of delivery. 
Medicare does not make an additional payment to a contract supplier that 
furnishes a particular brand or mode of delivery for an item, as 
directed by a prescription written by the beneficiary's physician or 
treating practitioner.
    (d) Prohibition on billing for an item different from the particular 
brand of item or mode of delivery prescribed. A contract supplier is 
prohibited from submitting a claim to Medicare if it furnishes an item 
different from that specified in the written prescription received from 
the beneficiary's physician or treating practitioner. Payment will not 
be made to a contract supplier that submits a claim prohibited by this 
paragraph.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.422  Terms of contracts.

    (a) Basic rule. CMS specifies the terms and conditions of the 
contracts entered into with contract suppliers under this subpart. A 
contract supplier must comply with all terms of its contract, including 
any option exercised by CMS, for the full duration of the contract 
period.
    (b) Recompeting competitive bidding contracts. CMS recompetes 
competitive bidding contracts at least once every 3 years.
    (c) Nondiscrimination. The items furnished by a contract supplier 
under this subpart must be the same items that the contract supplier 
makes available to other customers.
    (d) Change of ownership. (1) A contract supplier must notify CMS if 
it is negotiating a change in ownership no later than 60 days before the 
anticipated date of the change.
    (2) CMS may transfer a contract to an entity that merges with, or 
acquires, a contract supplier if the entity meets the following 
requirements:
    (i) A successor entity--
    (A) Meets all requirements applicable to contract suppliers for the 
applicable competitive bidding program;
    (B) Submits to CMS the documentation described under Sec. 414.414(b) 
through (d) if documentation has not previously been submitted by the 
successor entity or if the documentation is no longer sufficient for CMS 
to make a financial determination. A successor entity is not required to 
duplicate previously submitted information if the previously submitted 
information is not needed to make a financial determination. This 
documentation must be submitted no later than 30 days prior to the 
anticipated effective date of the change of ownership; and
    (C) Submits to CMS, at least 30 days before the anticipated 
effective date of the change of ownership, a signed novation agreement 
acceptable to CMS stating that it will assume all obligations under the 
contract; or
    (ii) A new entity--
    (A) Meets the requirements of (d)(2)(i)(A) and (B) of this section; 
and
    (B) Contract supplier submits to CMS, at least 30 days before the 
anticipated effective date of the change of ownership, its final draft 
of a novation agreement as described in paragraph (d)(2)(C) of this 
section for CMS review. The new entity submits to CMS, within 30 days 
after the effective date of the change of ownership, an executed 
novation agreement acceptable to CMS.
    (3) Except as specified in paragraph (d) (4) of this section, CMS 
transfers the entire contract, including all product categories and 
competitive bidding areas, to a new qualified entity.
    (4) For contracts issued in the Round 2 Recompete and subsequent 
rounds in the case of a CHOW where a contract supplier sells a distinct 
company, (e.g., an affiliate, subsidiary, sole proprietor, corporation, 
or partnership) that furnishes a specific product category or services a 
specific CBA, CMS may transfer the portion of the contract performed by 
that company to a new

[[Page 96]]

qualified entity, if the following conditions are met:
    (i) Every CBA, product category, and location of the company being 
sold must be transferred to the new qualified owner who meets all 
competitive bidding requirements; i.e. financial, accreditation and 
licensure;
    (iii) All CBAs and product categories in the original contract that 
are not explicitly transferred by CMS remain unchanged in that original 
contract for the duration of the contract period unless transferred by 
CMS pursuant to a subsequent CHOW;
    (iv) All requirements of paragraph (d)(2) of this section are met; 
and
    (v) The sale of the distinct company includes all of the contract 
supplier's assets associated with the CBA and/or product category(s); 
and
    (vi) CMS determines that transfer of part of the original contract 
will not result in disruption of service or harm to beneficiaries.
    (e) Furnishing of items. Except as otherwise prohibited under 
section 1877 of the Act, or any other applicable law or regulation:
    (1) A contract supplier must agree to furnish items under its 
contract to any beneficiary who maintains a permanent residence in, or 
who visits, the CBA and who requests those items from that contract 
supplier.
    (2) A skilled nursing facility defined under section 1819(a) of the 
Act or a nursing facility defined under section 1919(a) of the Act that 
has elected to furnish items only to its own residents and that is also 
a contract supplier may furnish items under a competitive bidding 
program to its own patients to whom it would otherwise furnish Part B 
services.
    (3) Contract suppliers for diabetic testing supplies must furnish 
the brand of diabetic testing supplies that work with the home blood 
glucose monitor selected by the beneficiary. The contract supplier is 
prohibited from influencing or incentivizing the beneficiary by 
persuading, pressuring, or advising them to switch from their current 
brand or for new beneficiaries from their preferred brand of glucose 
monitor and testing supplies. The contract supplier may not furnish 
information about alternative brands to the beneficiary unless the 
beneficiary requests such information.
    (f) Disclosure of subcontracting arrangements. (1) Initial 
disclosure. Not later than 10 days after the date a supplier enters into 
a contract under this section the supplier must disclose information on 
both of the following:
    (i) Each subcontracting arrangement that the supplier has in 
furnishing items and services under the contract.
    (ii) Whether each subcontractor meets the requirement of section 
1834(a)(20)(F)(i) of the Act if applicable to such subcontractor.
    (2) Subsequent disclosure. Not later than 10 days after the date a 
supplier enters into a subcontracting arrangement subsequent to contract 
award with CMS, the supplier must disclose information on both of the 
following:
    (i) The subcontracting arrangement that the supplier has in 
furnishing items and services under the contract.
    (ii) Whether the subcontractor meets the requirement of section 
1834(a)(20)(F)(i) of the Act, if applicable to such subcontractor.
    (g) Breach of contract. (1) Any deviation from contract 
requirements, including a failure to comply with governmental agency or 
licensing organization requirements, constitutes a breach of contract.
    (2) In the event a contract supplier breaches its contract, CMS may 
take one or more of the following actions, which will be specified in 
the notice of breach of contract:
    (i) Suspend the contract supplier's contract;
    (ii) Terminate the contract;
    (iii) Preclude the contract supplier from participating in the 
competitive bidding program; or
    (iv) Avail itself of other remedies allowed by law.

[72 FR 18085, Apr. 10, 2007, as amended at 74 FR 2881, Jan. 16, 2009; 75 
FR 73623, Nov. 29, 2010; 76 FR 70315, Nov. 10, 2011; 79 FR 66264, Nov. 
6, 2014; 81 FR 77967, Nov. 4, 2016]



Sec. 414.423  Appeals process for breach of a DMEPOS competitive 
bidding program contract actions.

    This section implements an appeals process for suppliers that CMS 
has determined are in breach of their Medicare DMEPOS Competitive 
Bidding

[[Page 97]]

Program contract and where CMS has issued a notice of breach of contract 
indicating its intent to take action(s) pursuant to Sec. 414.422(g)(2).
    (a) Breach of contract. CMS may take one or more of the actions 
specified in Sec. 414.422(g)(2) as a result of a supplier's breach of 
their DMEPOS Competitive Bidding Program contract.
    (b) Notice of breach of contract--(1) CMS notification. If CMS 
determines a supplier to be in breach of its contract, it will notify 
the supplier of the breach of contract in a notice of breach of 
contract.
    (2) Content of the notice of breach of contract. The CMS notice of 
breach of contract will include the following:
    (i) The details of the breach of contract.
    (ii) The action(s) that CMS is taking as a result of the breach of 
the contract pursuant to Sec. 414.422(g)(2), and the duration of or 
timeframe(s) associated with the action(s), if applicable.
    (iii) The right to request a hearing by a CBIC hearing officer and, 
depending on the nature of the breach, the supplier may also be allowed 
to submit a corrective action plan (CAP) in lieu of requesting a hearing 
by a CBIC hearing officer, as specified in paragraph (c)(1)(i) of this 
section.
    (iv) The address to which the written request for a hearing must be 
submitted.
    (v) The address to which the CAP must be submitted, if applicable.
    (vi) The effective date of the action(s) that CMS is taking is the 
date specified by CMS in the notice of breach of contract, or 45 days 
from the date of the notice of breach of contract unless:
    (A) A timely hearing request has been filed; or
    (B) A CAP has been submitted within 30 days of the date of the 
notice of breach of contract where CMS allows a supplier to submit a 
CAP.
    (c) Corrective action plan (CAP)--(1) Option for a CAP. (i) CMS has 
the option to allow a supplier to submit a written CAP to remedy the 
deficiencies identified in the notice at its sole discretion, including 
where CMS determines that the delay in the effective date of the breach 
of contract action(s) caused by allowing a CAP will not cause harm to 
beneficiaries. CMS will not allow a CAP if the supplier has been 
excluded from any Federal program, debarred by a Federal agency, or 
convicted of a healthcare-related crime, or for any other reason 
determined by CMS.
    (ii) If a supplier chooses not to submit a CAP, if CMS determines 
that a supplier's CAP is insufficient, or if CMS does not allow the 
supplier the option to submit a CAP, the supplier may request a hearing 
on the breach of contract action(s).
    (2) Submission of a CAP. (i) If allowed by CMS, a CAP must be 
submitted within 30 days from the date on the notice of breach of 
contract. If the supplier decides not to submit a CAP the supplier may, 
within 30 days of the date on the notice, request a hearing by a CBIC 
hearing officer.
    (ii) Suppliers will have the opportunity to submit a CAP when they 
are first notified that they have been determined to be in breach of 
contract. If the CAP is not acceptable to CMS or is not properly 
implemented, suppliers will receive a subsequent notice of breach of 
contract. The subsequent notice of breach of contract may, at CMS' 
discretion, allow the supplier to submit another written CAP pursuant to 
paragraph (c)(1)(i) of this section.
    (d) The purpose of the CAP. The purpose of the CAP is:
    (1) For the supplier to remedy all of the deficiencies that were 
identified in the notice of breach of contract.
    (2) To identify the timeframes by which the supplier will implement 
each of the components of the CAP.
    (e) Review of the CAP. (1) The CBIC will review the CAP. Suppliers 
may only revise their CAP one time during the review process based on 
the deficiencies identified by the CBIC. The CBIC will submit a 
recommendation to CMS for each applicable breach of contract action 
concerning whether the CAP includes the steps necessary to remedy the 
contract deficiencies as identified in the notice of breach of contract.
    (2) If CMS accepts the CAP, including the supplier's designated 
timeframe for its completion, the supplier must provide a follow-up 
report within 5 days

[[Page 98]]

after the supplier has fully implemented the CAP that verifies that all 
of the deficiencies identified in the CAP have been corrected in 
accordance with the timeframes accepted by CMS.
    (3) If the supplier does not implement a CAP that was accepted by 
CMS, or if CMS does not accept the CAP submitted by the supplier, then 
the supplier will receive a subsequent notice of breach of contract, as 
specified in paragraph (b) of this section.
    (f) Right to request a hearing by the CBIC Hearing Officer. (1) A 
supplier who receives a notice of breach of contract (whether an initial 
notice of breach of contract or a subsequent notice of breach of 
contract under Sec. 414.422(e)(3)) has the right to request a hearing 
before a CBIC hearing officer who was not involved with the original 
breach of contract determination.
    (2) A supplier that wishes to appeal the breach of contract 
action(s) specified in the notice of breach of contract must submit a 
written request to the CBIC. The request for a hearing must be received 
by the CBIC within 30 days from the date of the notice of breach of 
contract.
    (3) A request for hearing must be in writing and submitted by an 
authorized official of the supplier.
    (4) The appeals process for the Medicare DMEPOS Competitive Bidding 
Program is not to be used in place of other existing appeals processes 
that apply to other parts of Medicare.
    (5) If the supplier is given the opportunity to submit a CAP and a 
CAP is not submitted and the supplier fails to timely request a hearing, 
the breach of contract action(s) will take effect 45 days from the date 
of the notice of breach of contract.
    (g) The CBIC Hearing Officer schedules and conducts the hearing. (1) 
Within 30 days from the receipt of the supplier's timely request for a 
hearing the hearing officer will contact the parties to schedule the 
hearing.
    (2) The hearing may be held in person or by telephone at the 
parties' request.
    (3) The scheduling notice to the parties must indicate the time and 
place for the hearing and must be sent to the parties at least 30 days 
before the date of the hearing.
    (4) 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, but must 
give the parties to the hearing 30 days' notice of the change.
    (5) The hearing officer's scheduling notice must provide the parties 
to the hearing the following information:
    (i) A description of the hearing procedure.
    (ii) The specific issues to be resolved.
    (iii) The supplier has the burden to prove it is not in violation of 
the contract or that the breach of contract action(s) is not 
appropriate.
    (iv) The opportunity for parties to the hearing to submit additional 
evidence to support their positions, if requested by the hearing 
officer.
    (v) A notification that all evidence submitted, both from the 
supplier and CMS, will be provided in preparation for the hearing to all 
affected parties at least 15 days prior to the scheduled date of the 
hearing.
    (h) Burden of proof and evidence submission. (1) The burden of proof 
is on the Competitive Bidding Program contract supplier to demonstrate 
to the hearing officer with convincing evidence that it has not breached 
its contract or that the breach of contract action(s) is not 
appropriate.
    (2) The supplier's evidence must be submitted with its request for a 
hearing.
    (3) If the supplier fails to submit the evidence at the time of its 
submission, the Medicare DMEPOS supplier is precluded from introducing 
new evidence later during the hearing process, unless permitted by the 
hearing officer.
    (4) CMS also has the opportunity to submit evidence to the hearing 
officer within 10 days of receiving the scheduling notice.
    (5) The hearing officer will share all evidence submitted by the 
supplier and/or CMS, with all parties to the hearing at least 15 days 
prior to the scheduled date of the hearing.
    (i) Role of the hearing officer. The hearing officer will conduct a 
thorough and independent review of the evidence including the 
information and documentation submitted for the hearing and other 
information that the hearing

[[Page 99]]

officer considers pertinent for the hearing. The role of the hearing 
officer includes, at a minimum, the following:
    (1) Conduct the hearing and decide the order in which the evidence 
and the arguments of the parties are presented;
    (2) Determine the rules on admissibility of the evidence;
    (3) Examine the witnesses, in addition to the examinations conducted 
by CMS and the contract supplier;
    (4) The CBIC may assist CMS in the appeals process including being 
present at the hearing, testifying as a witness, or performing other, 
related ministerial duties;
    (5) Determine the rules for requesting documents and other evidence 
from other parties;
    (6) Ensure a complete record of the hearing is made available to all 
parties to the hearing;
    (7) Prepare a file of the record of the hearing which includes all 
evidence submitted as well as any relevant documents identified by the 
hearing officer and considered as part of the hearing; and
    (8) Comply with all applicable provisions of 42 U.S.C. Title 18 and 
related provisions of the Act, the applicable regulations issued by the 
Secretary, and manual instructions issued by CMS.
    (j) Hearing officer recommendation. (1) The hearing officer will 
issue a written recommendation(s) to CMS within 30 days of the close of 
the hearing unless an extension has been granted by CMS because the 
hearing officer has demonstrated that an extension is needed due to the 
complexity of the matter or heavy workload. In situations where there is 
more than one breach of contract action presented at the hearing, the 
hearing officer will issue separate recommendations for each breach of 
contract action.
    (2) The recommendation(s) will explain the basis and the rationale 
for the hearing officer's recommendation(s).
    (3) The hearing officer must include the record of the hearing, 
along with all evidence and documents produced during the hearing along 
with its recommendation(s).
    (k) CMS' final determination. (1) CMS' review of the hearing 
officer's recommendation(s) will not allow the supplier to submit new 
information.
    (2) After reviewing the hearing officer's recommendation(s), CMS' 
decision(s) will be made within 30 days from the date of receipt of the 
hearing officer's recommendation(s). In situations where there is more 
than one breach of contract action presented at the hearing, and the 
hearing officer issues multiple recommendations, CMS will render 
separate decisions for each breach of contract action.
    (3) A notice of CMS' decision will be sent to the supplier and the 
hearing officer. The notice will indicate:
    (i) If any breach of contract action(s) included in the notice of 
breach of contract, specified in paragraph (b)(1) of this section, still 
apply and will be effectuated, and
    (ii) The effective date for any breach of contract action specified 
in paragraph (k)(3)(i) of this section.
    (4) This decision(s) is final and binding.
    (l) Effect of breach of contract action(s)--(1) Effect of contract 
suspension. (i) All locations included in the contract cannot furnish 
competitive bid items to beneficiaries within a CBA and the supplier 
cannot be reimbursed by Medicare for these items for the duration of the 
contract suspension.
    (ii) The supplier must notify all beneficiaries who are receiving 
rented competitive bid items or competitive bid items on a recurring 
basis of the suspension of their contract.
    (A) The notice to the beneficiary from the supplier must be provided 
within 15 days of receipt of the final notice.
    (B) The notice to the beneficiary must inform the beneficiary that 
they must select a new contract supplier to furnish these items in order 
for Medicare to pay for these items.
    (2) Effect of contract termination. (i) All locations included in 
the contract can no longer furnish competitive bid items to 
beneficiaries within a CBA and the supplier cannot be reimbursed by 
Medicare for these items after the effective date of the termination.
    (ii) The supplier must notify all beneficiaries, who are receiving 
rented competitive bid items or competitive bid

[[Page 100]]

items received on a recurring basis, of the termination of their 
contract.
    (A) The notice to the beneficiary from the supplier must be provided 
within 15 days of receipt of the final notice of termination.
    (B) The notice to the beneficiary must inform the beneficiary that 
they are going to have to select a new contract supplier to furnish 
these items in order for Medicare to pay for these items.
    (3) Effect of preclusion. A supplier who is precluded will not be 
allowed to participate in a specific round of the Competitive Bidding 
Program, which will be identified in the original notice of breach of 
contract, as specified in paragraph (b)(1) of this section.
    (4) Effect of other remedies allowed by law. If CMS decides to 
impose other remedies under Sec. 414.422(g)(2)(iv), the details of the 
remedies will be included in the notice of breach of contract, as 
specified in paragraph (b)(2) of this section.

[81 FR 77967, Nov. 4, 2016]



Sec. 414.424  Administrative or judicial review.

    (a) There is no administrative or judicial review under this subpart 
of the following:
    (1) Establishment of payment amounts.
    (2) Awarding of contracts.
    (3) Designation of CBAs.
    (4) Phase-in of the competitive bidding programs.
    (5) Selection of items for competitive bidding.
    (6) Bidding structure and number of contract suppliers selected for 
a competitive bidding program.
    (b) A denied claim is not appealable if the denial is based on a 
determination by CMS that a competitively bid item was furnished in a 
CBA in a manner not authorized by this subpart.

[72 FR 18085, Apr. 10, 2007]



Sec. 414.425  Claims for damages.

    (a) Eligibility for filing a claim for damages as a result of the 
termination of supplier contracts by the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA). (1) Any aggrieved supplier, 
including a member of a network that was awarded a contract for the 
Round 1 Durable Medical Prosthetics, Orthotics, and Supplies Competitive 
Bidding Program (DMEPOS CBP) that believes it has been damaged by the 
termination of its competitive bid contract, may file a claim under this 
section.
    (2) A subcontractor of a contract supplier is not eligible to submit 
a claim under this section.
    (b) Timeframe for filing a claim. (1) A completed claim, including 
all documentation, must be filed within 90 days of January 1, 2010 (the 
effective date of these damages provisions), unless that day is a 
Federal holiday or Sunday in which case it will fall to the next 
business day.
    (2) The date of filing is the actual date of receipt by the CBIC of 
a completed claim that includes all the information required by this 
rule.
    (c) Information that must be included in a claim. (1) Supplier's 
name, name of authorized official, U.S. Post Office mailing address, 
phone number, email address and bidding number, and National Supplier 
Clearinghouse Number;
    (2) A copy of the signed contract entered into with CMS for the 
Round 1 DMEPOS Competitive Bidding Program;
    (3) A detailed explanation of the damages incurred by this supplier 
as a direct result of the termination of the Round 1 competitive bid 
contract by MIPPA. The explanation must include all of the following:
    (i) Documentation of the supplier's damages through receipts.
    (ii) Records that substantiate the supplier's damages and 
demonstrate that the damages are directly related to performance of the 
Round 1 contract and are consistent with information the supplier 
provided as part of their bid.
    (4) The supplier must explain how it would be damaged if not 
reimbursed.
    (5) The claim must document steps the supplier took to mitigate any 
damages they may have incurred due to the contract termination, 
including a detailed explanation of the steps of all attempts to use for 
other purposes, return or dispose of equipment or other assets purchased 
or rented for the use

[[Page 101]]

in the Round 1 DMEPOS CBP contract performance.
    (d) Items that will not be considered in a claim. The following 
items will not be considered in a claim:
    (1) The cost of submitting a bid.
    (2) Any fees or costs incurred for consulting or marketing.
    (3) Costs associated with accreditation or licensure.
    (4) Costs incurred before March 20, 2008.
    (5) Costs incurred for contract performance after July 14, 2008 
except for costs incurred to mitigate damages.
    (6) Any profits a supplier may have expected from the contract.
    (7) Costs that would have occurred without a contract having been 
awarded.
    (8) Costs for items such as inventory, delivery vehicles, office 
space and equipment, personnel, which the supplier did not purchase 
specifically to perform the contract.
    (9) Costs that the supplier has recouped by any means, and may 
include use of personnel, material, suppliers, or equipment in the 
supplier's business operations.
    (e) Filing a claim. (1) A claim, with all supporting documentation, 
must be filed with the CMS Competitive Bidding Implementation Contractor 
(CBIC).
    (2) Claims must include a statement from a supplier's authorized 
official certifying the accuracy of the information provided on the 
claim and all supporting documentation.
    (3) The CBIC does not accept electronic submissions of claims for 
damages.
    (f) Review of claim. (1) Role of the CBIC. (i) The CBIC will review 
the claim to ensure it is submitted timely, complete, and by an eligible 
claimant. When the CBIC identifies that a claim is incomplete or not 
filed timely, it will make a recommendation to the Determining Authority 
not to process the claim further. Incomplete or untimely claims may be 
dismissed by the Determining Authority without further processing.
    (ii) For complete, timely claims, the CBIC will review the claim on 
its merits to determine if damages are warranted and may seek further 
information from the claimant when making its recommendation to the 
Determining Authority. The CBIC may set a deadline for receipt of 
additional information. A claimant's failure to respond timely may 
result in a denial of the claim.
    (iii) The CBIC will make a recommendation to the Determining 
Authority for each claim filed and include an explanation that supports 
its recommendation.
    (iv) The recommendation must be either to award damages for a 
particular amount (which may not be the same amount requested by the 
claimant) or that no damages should be awarded.
    (A) If the CBIC recommends that damages are warranted, the CBIC will 
calculate a recommended reasonable amount of damages based on the claim 
submitted.
    (B) The reasonable amount will consider both costs incurred and the 
contractor's attempts and action to limit the damages;
    (v) The recommendation will be sent to the Determining Authority for 
a final determination.
    (2) CMS' role as the Determining Authority. (i) The Determining 
Authority shall review the recommendation of the CBIC.
    (ii) The Determining Authority may seek further information from the 
claimant or the CBIC in making a concurrence or non-concurrence 
determination.
    (iii) The Determining Authority may set a deadline for receipt of 
additional information. A claimant's failure to respond timely may 
result in a denial of the claim.
    (iv) If the Determining Authority concurs with the CBIC 
recommendation, the Determining Authority shall submit a final signed 
decision to the CBIC and direct the CBIC to notify the claimant of the 
decision and the reasons for the final decision.
    (v) If the Determining Authority non-concurs with the CBIC 
recommendation, the Determining Authority may return the claim for 
further processing or the Determining Authority may:
    (A) Write a determination granting (in whole or in part) a claim for 
damages or denying a claim in its entirety;

[[Page 102]]

    (B) Direct the CBIC to write said determination for the Determining 
Authority's signature; or
    (C) Return the claim to the CBIC with further instructions.
    (vi) The Determining Authority's determination is final and not 
subject to administrative or judicial review.
    (g) Timeframe for determinations. (1) Every effort will be made to 
make a determination within 120 days of initial receipt of the claim for 
damages by the CBIC or the receipt of additional information that was 
requested by the CBIC, whichever is later.
    (2) In the case of more complex cases, or in the event of a large 
workload, a decision will be issued as soon as practicable.
    (h) Notification to claimant of damage determination. The CBIC must 
mail the Determining Authority's determination to the claimant by 
certified mail return receipt requested, at the address provided in the 
claim.

[74 FR 62011, Nov. 25, 2009]



Sec. 414.426  Adjustments to competitively bid payment amounts to 
reflect changes in the HCPCS.

    If a HCPCS code for a competitively bid item is revised after the 
contract period for a competitive bidding program begins, CMS adjusts 
the single payment amount for that item as follows:
    (a) If a single HCPCS code for an item is divided into two or more 
HCPCS codes for the components of that item, the sum of single payment 
amounts for the new HCPCS codes equals the single payment amount for the 
original item. Contract suppliers must furnish the components of the 
item and submit claims using the new HCPCS codes.
    (b) If a single HCPCS code is divided into two or more separate 
HCPCS codes, the single payment amount for each of the new separate 
HCPCS codes is equal to the single payment amount applied to the single 
HCPCS code. Contract suppliers must furnish the items and submit claims 
using the new separate HCPCS codes.
    (c) If the HCPCS codes for components of an item are merged into a 
single HCPCS code for the item, the single payment amount for the new 
HCPCS code is equal to the total of the separate single payment amounts 
for the components. Contract suppliers must furnish the item and submit 
claims using the new HCPCS code.
    (d) If multiple HCPCS codes for similar items are merged into a 
single HCPCS code, the items to which the new HCPCS codes apply may be 
furnished by any supplier that has a valid Medicare billing number. 
Payment for these items will be made in accordance with Subpart C or 
Subpart D.

[72 FR 18085, Apr. 10, 2007]



       Subpart G_Payment for Clinical Diagnostic Laboratory Tests

    Source: 71 FR 69786, Dec. 1, 2006, unless otherwise noted.



Sec. 414.500  Basis and scope.

    This subpart implements provisions of 1833(h)(8) of the Act and 
1834A of the Act--procedures for determining the basis for, and amount 
of, payment for a clinical diagnostic laboratory test (CDLT).

[81 FR 41098, June 23, 2016]



Sec. 414.502  Definitions.

    For purposes of this subpart--
    Actual list charge means the publicly available rate on the first 
day the new advanced diagnostic laboratory test (ADLT) is obtainable by 
a patient who is covered by private insurance, or marketed to the public 
as a test a patient can receive, even if the test has not yet been 
performed on that date.
    Advanced diagnostic laboratory test (ADLT) means a clinical 
diagnostic laboratory test (CDLT) covered under Medicare Part B that is 
offered and furnished only by a single laboratory and not sold for use 
by a laboratory other than the single laboratory that designed the test 
or a successor owner of that laboratory, and meets one of the following 
criteria:
    (1) The test--
    (i) Is an analysis of multiple biomarkers of deoxyribonucleic acid 
(DNA), ribonucleic acid (RNA), or proteins;
    (ii) When combined with an empirically derived algorithm, yields a 
result that predicts the probability a specific

[[Page 103]]

individual patient will develop a certain condition(s) or respond to a 
particular therapy(ies);
    (iii) Provides new clinical diagnostic information that cannot be 
obtained from any other test or combination of tests; and
    (iv) May include other assays.
    (2) The test is cleared or approved by the Food and Drug 
Administration.
    Applicable information, with respect to each CDLT for a data 
collection period:
    (1) Means--
    (i) Each private payor rate for which final payment has been made 
during the data collection period;
    (ii) The associated volume of tests performed corresponding to each 
private payor rate; and
    (iii) The specific Healthcare Common Procedure Coding System (HCPCS) 
code associated with the test.
    (2) Does not include information about a test for which payment is 
made on a capitated basis.
    Applicable laboratory means an entity that:
    (1) Is a laboratory, as defined in Sec. 493.2 of this chapter;
    (2) Bills Medicare Part B under its own National Provider Identifier 
(NPI);
    (3) In a data collection period, receives more than 50 percent of 
its Medicare revenues, which includes fee-for-service payments under 
Medicare Parts A and B, Medicare Advantage payments under Medicare Part 
C, prescription drug payments under Medicare Part D, and any associated 
Medicare beneficiary deductible or coinsurance for services furnished 
during the data collection period from one or a combination of the 
following sources:
    (i) This subpart G.
    (ii) Subpart B of this part.
    (4) Receives at least $12,500 of its Medicare revenues from this 
subpart G. Except, for a single laboratory that offers and furnishes an 
ADLT, this $12,500 threshold--
    (i) Does not apply with respect to the ADLTs it offers and 
furnishes; and
    (ii) Applies with respect to all the other CDLTs it furnishes.
    Data collection period is the 6 months from January 1 through June 
30 during which applicable information is collected and that precedes 
the data reporting period.
    Data reporting period is the 3-month period, January 1 through March 
31, during which a reporting entity reports applicable information to 
CMS and that follows the preceding data collection period.
    National Provider Identifier (NPI) means the standard unique health 
identifier used by health care providers for billing payors, assigned by 
the National Plan and Provider Enumeration System (NPPES) in 45 CFR part 
162.
    New advanced diagnostic laboratory test (ADLT) means an ADLT for 
which payment has not been made under the clinical laboratory fee 
schedule prior to January 1, 2018.
    New ADLT initial period means a period of 3 calendar quarters that 
begins on the first day of the first full calendar quarter following the 
later of the date a Medicare Part B coverage determination is made or 
ADLT status is granted by CMS.
    New clinical diagnostic laboratory test (CDLT) means a CDLT that is 
assigned a new or substantially revised Healthcare Common Procedure 
Coding System (HCPCS) code, and that does not meet the definition of an 
ADLT.
    New test means any clinical diagnostic laboratory test for which a 
new or substantially revised Healthcare Common Procedure Coding System 
Code is assigned on or after January 1, 2005.
    Private payor means:
    (1) A health insurance issuer, as defined in section 2791(b)(2) of 
the Public Health Service Act.
    (2) A group health plan, as defined in section 2791(a)(1) of the 
Public Health Service Act.
    (3) A Medicare Advantage plan under Medicare Part C, as defined in 
section 1859(b)(1) of the Act.
    (4) A Medicaid managed care organization, as defined in section 
1903(m)(1)(A) of the Act.
    Private payor rate, with respect to applicable information:
    (1) Is the final amount that is paid by a private payor for a CDLT 
after all private payor price concessions are applied and does not 
include price concessions applied by a laboratory.
    (2) Includes any patient cost sharing amounts, if applicable.

[[Page 104]]

    (3) Does not include information about denied payments.
    Publicly available rate means the lowest amount charged for an ADLT 
that is readily accessible in such forums as a company Web site, test 
registry, or price listing, to anyone seeking to know how much a patient 
who does not have the benefit of a negotiated rate would pay for the 
test.
    Reporting entity is the entity that reports tax-related information 
to the Internal Revenue Service (IRS) using its Taxpayer Identification 
Number (TIN) for its components that are applicable laboratories.
    Single laboratory, for purposes of an ADLT, means:
    (1) The laboratory, as defined in 42 CFR 493.2, which furnishes the 
test, and that may also design, offer, or sell the test; and
    (2) The following entities, which may design, offer, or sell the 
test:
    (i) The entity that owns the laboratory.
    (ii) The entity that is owned by the laboratory.
    Specific HCPCS code means a HCPCS code that does not include an 
unlisted CPT code, as established by the American Medical Association, 
or a Not Otherwise Classified (NOC) code, as established by the CMS 
HCPCS Workgroup.
    Substantially Revised Healthcare Common Procedure Coding System Code 
means a code for which there has been a substantive change to the 
definition of the test or procedure to which the code applies (such as a 
new analyte or a new methodology for measuring an existing analyte 
specific test).
    Successor owner, for purposes of an ADLT, means a single laboratory, 
that has assumed ownership of the single laboratory that designed the 
test or of the single laboratory that is a successor owner to the single 
laboratory that designed the test, through any of the following 
circumstances:
    (1) Partnership. The removal, addition, or substitution of a 
partner, unless the partners expressly agree otherwise, as permitted by 
applicable State law.
    (2) Unincorporated sole proprietorship. Transfer of title and 
property to another party.
    (3) Corporation. The merger of the single laboratory corporation 
into another corporation, or the consolidation of two or more 
corporations, including the single laboratory, resulting in the creation 
of a new corporation. Transfer of corporate stock or the merger of 
another corporation into the single laboratory corporation does not 
constitute change of ownership.
    Taxpayer Identification Number (TIN) means a Federal taxpayer 
identification number or employer identification number as defined by 
the IRS in 26 CFR 301.6109-1.

[71 FR 69786, Dec. 1, 2006, as amended at 72 FR 66401, Nov. 27, 2007; 81 
FR 41098, June 23, 2016]



Sec. 414.504  Data reporting requirements.

    (a) In a data reporting period, a reporting entity must report 
applicable information for each CDLT furnished by its component 
applicable laboratories during the corresponding data collection period, 
as follows--
    (1) For CDLTs that are not ADLTs, every 3 years beginning January 1, 
2017.
    (2) For ADLTs that are not new ADLTs, every year beginning January 
1, 2017.
    (3) For new ADLTs--
    (i) Initially, no later than the last day of the second quarter of 
the new ADLT initial period; and
    (ii) Thereafter, every year.
    (b) Applicable information must be reported in the form and manner 
specified by CMS.
    (c) A laboratory seeking new ADLT status for its test must, in its 
new ADLT application, attest to the actual list charge.
    (d) To certify data integrity, the President, CEO, or CFO of a 
reporting entity, or an individual who has been delegated authority to 
sign for, and who reports directly to, such an officer, must sign the 
certification statement and be responsible for assuring that the data 
provided are accurate, complete, and truthful, and meets all the 
reporting parameters described in this section.
    (e) If the Secretary determines that a reporting entity has failed 
to report

[[Page 105]]

applicable information for its applicable laboratories, or made a 
misrepresentation or omission in reporting applicable information for 
its applicable laboratories, the Secretary may apply a civil monetary 
penalty to a reporting entity in an amount of up to $10,000 per day, as 
amended by the Federal Civil Penalties Inflation Adjustment Act 
Improvements Act of 2015 (Sec. 701 of the Bipartisan Budget Act of 2015, 
Pub. L. 114-74, November 2, 2015), for each failure to report or each 
such misrepresentation or omission. The provisions for civil monetary 
penalties that apply in general to the Medicare program under 42 U.S.C. 
1320a-7b apply in the same manner to the laboratory data reporting 
process under this section.
    (f) CMS or its contractors will not disclose applicable information 
reported to CMS under this section in a manner that would identify a 
specific payor or laboratory, or prices charged or payments made to a 
laboratory, except to permit the Comptroller General, the Director of 
the Congressional Budget Office, and the Medicare Payment Advisory 
Commission, to review the information, or as CMS determines is necessary 
to implement this subpart, such as disclosures to the HHS Office of 
Inspector General or the Department of Justice for oversight and 
enforcement activities.
    (g) Applicable information may not be reported for an entity that 
does not meet the definition of an applicable laboratory. For a single 
laboratory that offers and furnishes an ADLT that is not an applicable 
laboratory except with respect to its ADLTs, the applicable information 
of its CDLTs that are not ADLTs may not be reported.

[81 FR 41099, June 23, 2016]



Sec. 414.506  Procedures for public consultation for payment for a new 
clinical diagnostic laboratory test.

    For a new CDLT, CMS determines the basis for and amount of payment 
after performance of the following:
    (a) CMS makes available to the public (through CMS's Internet Web 
site) a list that includes codes for which establishment of a payment 
amount is being considered for the next calendar year.
    (b) CMS publishes a Federal Register notice of a meeting to receive 
public comments and recommendations (and data on which recommendations 
are based) on the appropriate basis, as specified in Sec. 414.508, for 
establishing payment amounts for the list of codes made available to the 
public.
    (c) Not fewer than 30 days after publication of the notice in the 
Federal Register, CMS convenes a meeting that includes representatives 
of CMS officials involved in determining payment amounts, to receive 
public comments and recommendations (and data on which the 
recommendations are based).
    (d) Considering the comments and recommendations (and accompanying 
data) received at the public meeting, CMS develops and makes available 
to the public (through an Internet Web site and other appropriate 
mechanisms) a list of--
    (1) Proposed determinations with respect to the appropriate basis 
for establishing a payment amount for each code, with an explanation of 
the reasons for each determination, the data on which the determinations 
are based, including recommendations from the Advisory Panel on CDLTs 
described in paragraph (e) of this section, and a request for written 
public comments within a specified time period on the proposed 
determination; and
    (2) Final determinations of the payment amounts for tests, with the 
rationale for each determination, the data on which the determinations 
are based, and responses to comments and suggestions from the public.
    (3) On or after January 1, 2018, in applying paragraphs (d)(1) and 
(2) of this section, CMS will provide an explanation of how it took into 
account the recommendations of the Advisory Panel on CDLTs described in 
paragraph (e) of this section.
    (4) On or after January 1, 2018, in applying paragraphs (d)(1) and 
(2) of this section and Sec. 414.509(b)(2)(i) and (iii) when CMS uses 
the gapfilling method described in Sec. 414.508(b)(2), CMS will make 
available to the public an explanation of the payment rate for the test.
    (e) CMS will consult with an expert outside advisory panel, called 
the Advisory Panel on CDLTs, composed of an

[[Page 106]]

appropriate selection of individuals with expertise, which may include 
molecular pathologists researchers, and individuals with expertise in 
laboratory science or health economics, in issues related to CDLTs. This 
advisory panel will provide input on the establishment of payment rates 
under Sec. 414.508 and provide recommendations to CMS under this 
subpart.

[71 FR 69786, Dec. 1, 2006, as amended at 72 FR 66401, Nov. 27, 2007; 81 
FR 41099, June 23, 2016]



Sec. 414.507  Payment for clinical diagnostic laboratory tests.

    (a) General rule. Except as provided in paragraph (d) of this 
section, and Secs. 414.508 and 414.522, the payment rate for a CDLT 
furnished on or after January 1, 2018, is equal to the weighted median 
for the test, as calculated under paragraph (b) of this section. Each 
payment rate will be in effect for a period of one calendar year for 
ADLTs and three calendar years for all other CDLTs, until the year 
following the next data collection period.
    (b) Methodology. For each test under paragraph (a) of this section 
for which applicable information is reported, the weighted median is 
calculated by arraying the distribution of all private payor rates, 
weighted by the volume for each payor and each laboratory.
    (c) The payment amounts established under this section are not 
subject to any adjustment, such as geographic, budget neutrality, annual 
update, or other adjustment.
    (d) Phase-in of payment reductions. For years 2018 through 2023, the 
payment rates established under this section for each CDLT that is not a 
new ADLT or new CDLT, may not be reduced by more than the following 
amounts for--
    (1) 2018--10 percent of the national limitation amount for the test 
in 2017.
    (2) 2019--10 percent of the payment rate established in 2018.
    (3) 2020--10 percent of the payment rate established in 2019.
    (4) 2021--15 percent of the payment rate established in 2020.
    (5) 2022--15 percent of the payment rate established in 2021.
    (6) 2023--15 percent of the payment rate established in 2022.
    (e) There is no administrative or judicial review under sections 
1869 and 1878 of the Social Security Act, or otherwise, of the payment 
rates established under this subpart.
    (f) Effective April 1, 2014, the nominal fee that would otherwise 
apply for a sample collected from an individual in a Skilled Nursing 
Facility (SNF) or by a laboratory on behalf of a Home Health Agency 
(HHA) is $5.
    (g) For a CDLT for which CMS receives no applicable information, 
payment is made based on the crosswalking or gapfilling methods 
described in Sec. 414.508(b)(1) and (2).
    (h) For ADLTs that are furnished between April 1, 2014 and December 
31, 2017, payment is based on the crosswalking or gapfilling methods 
described in Sec. 414.508(a).

[81 FR 41099, June 23, 2016]



Sec. 414.508  Payment for a new clinical diagnostic laboratory test.

    (a) For a new CDLT that is assigned a new or substantially revised 
code between January 1, 2005 and December 31, 2017, CMS determines the 
payment amount based on either of the following:
    (1) Crosswalking. Crosswalking is used if it is determined that a 
new CDLT is comparable to an existing test, multiple existing test 
codes, or a portion of an existing test code.
    (i) CMS assigns to the new CDLT code, the local fee schedule amounts 
and national limitation amount of the existing test.
    (ii) Payment for the new CDLT code is made at the lesser of the 
local fee schedule amount or the national limitation amount.
    (2) Gapfilling. Gapfilling is used when no comparable existing CDLT 
is available.
    (i) In the first year, Medicare Administrative Contractor-specific 
amounts are established for the new CDLT code using the following 
sources of information to determine gapfill amounts, if available:
    (A) Charges for the CDLT and routine discounts to charges;
    (B) Resources required to perform the CDLT;
    (C) Payment amounts determined by other payors; and

[[Page 107]]

    (D) Charges, payment amounts, and resources required for other tests 
that may be comparable or otherwise relevant.
    (ii) In the second year, the test code is paid at the national 
limitation amount, which is the median of the contractor-specific 
amounts.
    (iii) For a new CDLT for which a new or substantially revised HCPCS 
code was assigned on or before December 31, 2007, after the first year 
of gapfilling, CMS determines whether the contractor-specific amounts 
will pay for the test appropriately. If CMS determines that the 
contractor-specific amounts will not pay for the test appropriately, CMS 
may crosswalk the test.
    (b) For a new CDLT that is assigned a new or substantially revised 
HCPCS code on or after January 1, 2018, CMS determines the payment 
amount based on either of the following until applicable information is 
available to establish a payment amount under the methodology described 
in Sec. 414.507(b):
    (1) Crosswalking. Crosswalking is used if it is determined that a 
new CDLT is comparable to an existing test, multiple existing test 
codes, or a portion of an existing test code.
    (i) CMS assigns to the new CDLT code, the payment amount established 
under Sec. 414.507 of the comparable existing CDLT.
    (ii) Payment for the new CDLT code is made at the payment amount 
established under Sec. 414.507.
    (2) Gapfilling. Gapfilling is used when no comparable existing CDLT 
is available.
    (i) In the first year, Medicare Administrative Contractor-specific 
amounts are established for the new CDLT code using the following 
sources of information to determine gapfill amounts, if available:
    (A) Charges for the test and routine discounts to charges;
    (B) Resources required to perform the test;
    (C) Payment amounts determined by other payors;
    (D) Charges, payment amounts, and resources required for other tests 
that may be comparable or otherwise relevant; and
    (E) Other criteria CMS determines appropriate.
    (ii) In the second year, the CDLT code is paid at the median of the 
Medicare Administrative Contractor-specific amounts.

[81 FR 41100, June 23, 2016]



Sec. 414.509  Reconsideration of basis for and amount of payment 
for a new clinical diagnostic laboratory test.

    For a new CDLT, the following reconsideration procedures apply:
    (a) Reconsideration of basis for payment. (1) CMS will receive 
reconsideration requests in written format for 60 days after making a 
determination of the basis for payment under Sec. 414.506(d)(2) 
regarding whether CMS should reconsider the basis for payment and why a 
different basis for payment would be more appropriate. If a requestor 
recommends that the basis for payment should be changed from gapfilling 
to crosswalking, the requestor may also recommend the code or codes to 
which to crosswalk the new test.
    (2)(i) A requestor that submitted a request under paragraph (a)(1) 
of this section may also present its reconsideration request at the 
public meeting convened under Sec. 414.506(c), provided that the 
requestor requests an opportunity to present at the public meeting as 
part of its written submission under paragraph (a)(1) of this section.
    (ii) If the requestor presents its reconsideration request at the 
public meeting convened under Sec. 414.506(c), members of the public may 
comment on the reconsideration request verbally at the public meeting 
and may submit written comments after the public meeting (within the 
timeframe for public comments established by CMS).
    (3) Considering reconsideration requests and other comments 
received, CMS may reconsider its determination of the basis for payment. 
As the result of such a reconsideration, CMS may change the basis for 
payment from crosswalking to gapfilling or from gapfilling to 
crosswalking.
    (4) If the basis for payment is revised as the result of a 
reconsideration, the new basis for payment is final and is not subject 
to further reconsideration.

[[Page 108]]

    (b) Reconsideration of amount of payment--(1) Crosswalking. (i) For 
60 days after making a determination under Sec. 414.506(d)(2) of the 
code or codes to which a new test will be crosswalked, CMS receives 
reconsideration requests in written format regarding whether CMS should 
reconsider its determination and the recommended code or codes to which 
to crosswalk the new test.
    (ii)(A) A requestor that submitted a request under paragraph 
(b)(1)(i) of this section may also present its reconsideration request 
at the public meeting convened under Sec. 414.506(c), provided that the 
requestor requests an opportunity to present at the public meeting as 
part of its written submission under paragraph (b)(1)(i) of this 
section.
    (B) If a requestor presents its reconsideration request at the 
public meeting convened under Sec. 414.506(c), members of the public may 
comment on the reconsideration request verbally at the public meeting 
and may submit written comments after the public meeting (within the 
timeframe for public comments established by CMS).
    (iii) Considering comments received, CMS may reconsider its 
determination of the amount of payment. As the result of such a 
reconsideration, CMS may change the code or codes to which the new test 
is crosswalked.
    (iv) If CMS changes the basis for payment from gapfilling to 
crosswalking as a result of a reconsideration, the crosswalked amount of 
payment is not subject to reconsideration.
    (2) Gapfilling. (i) By April 30 of the year after CMS makes a 
determination under Sec. 414.506(d)(2) or paragraph (a)(3) of this 
section that the basis for payment for a CDLT will be gapfilling, CMS 
posts interim Medicare Administrative Contractor-specific amounts on the 
CMS Web site.
    (ii) For 60 days after CMS posts interim Medicare Administrative 
Contractor-specific amounts on the CMS Web site, CMS will receive public 
comments in written format regarding the interim Medicare Administrative 
Contractor-specific amounts.
    (iii) After considering the public comments, CMS will post final 
Medicare Administrative Contractor-specific amounts on the CMS Web site.
    (iv) For 30 days after CMS posts final Medicare Administrative 
Contractor-specific payment amounts on the CMS Web site, CMS will 
receive reconsideration requests in written format regarding whether CMS 
should reconsider the final Medicare Administrative Contractor-specific 
payment amount and median of the Medicare Administrative Contractor-
specific payment amount for the CDLT.
    (v) Considering reconsideration requests received, CMS may 
reconsider its determination of the amount of payment. As the result of 
a reconsideration, CMS may revise the median of the Medicare 
Administrative Contractor-specific payment amount for the CDLT.
    (3) For both gapfilled and crosswalked new tests, if CMS revises the 
amount of payment as the result of a reconsideration, the new amount of 
payment is final and is not subject to further reconsideration.
    (c) Effective date. If CMS changes a determination as the result of 
a reconsideration, the new determination regarding the basis for or 
amount of payment is effective January 1 of the year following 
reconsideration. Claims for services with dates of service prior to the 
effective date will not be reopened or otherwise reprocessed.
    (d) Jurisdiction for reconsideration decisions. Jurisdiction for 
reconsidering a determination rests exclusively with the Secretary. A 
decision whether to reconsider a determination is committed to the 
discretion of the Secretary. A decision not to reconsider an initial 
determination is not subject to administrative or judicial review.

[72 FR 66401, Nov. 27, 2007, as amended at 73 FR 2432, Jan. 15, 2008; 81 
FR 41100, June 23, 2016]



Sec. 414.510  Laboratory date of service for clinical 
laboratory and pathology specimens.

    The date of service for either a clinical laboratory test or the 
technical component of physician pathology service is as follows:
    (a) Except as provided under paragraph (b) of this section, the date 
of service of the test must be the date the specimen was collected.

[[Page 109]]

    (b)(1) If a specimen was collected over a period that spans 2 
calendar days, then the date of service must be the date the collection 
ended.
    (2) In the case of a test performed on a stored specimen, if a 
specimen was stored for--
    (i) Less than or equal to 30 calendar days from the date it was 
collected, the date of service of the test must be the date the test was 
performed only if--
    (A) The test is ordered by the patient's physician at least 14 days 
following the date of the patient's discharge from the hospital;
    (B) The specimen was collected while the patient was undergoing a 
hospital surgical procedure;
    (C) It would be medically inappropriate to have collected the sample 
other than during the hospital procedure for which the patient was 
admitted;
    (D) The results of the test do not guide treatment provided during 
the hospital stay; and
    (E) The test was reasonable and medically necessary for the 
treatment of an illness.
    (ii) More than 30 calendar days before testing, the specimen is 
considered to have been archived and the date of service of the test 
must be the date the specimen was obtained from storage.
    (3) In the case of a chemotherapy sensitivity test performed on live 
tissue, the date of service of the test must be the date the test was 
performed only if--
    (i) The decision regarding the specific chemotherapeutic agents to 
test is made at least 14 days after discharge;
    (ii) The specimen was collected while the patient was undergoing a 
hospital surgical procedure;
    (iii) It would be medically inappropriate to have collected the 
sample other than during the hospital procedure for which the patient 
was admitted;
    (iv) The results of the test do not guide treatment provided during 
the hospital stay; and,
    (v) The test was reasonable and medically necessary for the 
treatment of an illness.
    (4) For purposes of this section, ``chemotherapy sensitivity test'' 
means a test identified by the Secretary as a test that requires a fresh 
tissue sample to test the sensitivity of tumor cells to various 
chemotherapeutic agents. The Secretary identifies such tests through 
program instructions.

[71 FR 69786, Dec. 1, 2006, as amended at 72 FR 66402, Nov. 27, 2007]



Sec. 414.522  Payment for new advanced diagnostic laboratory tests.

    (a) The payment rate for a new ADLT--
    (1) During the new ADLT initial period, is equal to its actual list 
charge.
    (2) Prior to the new ADLT initial period, is determined by the 
Medicare Administrative Contractor based on information provided by the 
laboratory seeking new ADLT status for its laboratory test.
    (b) After the new ADLT initial period, the payment rate for a new 
ADLT is equal to the weighted median established under the payment 
methodology described in Sec. 414.507(b).
    (c) If, after the new ADLT initial period, the actual list charge of 
a new ADLT is greater than 130 percent of the weighted median 
established under the payment methodology described in Sec. 414.507, CMS 
will recoup the difference between the ADLT actual list charge and 130 
percent of the weighted median.
    (d) If CMS does not receive any applicable information for a new 
ADLT by the last day of the second quarter of the new ADLT initial 
period, the payment rate for the test is determined either by the 
gapfilling or crosswalking method as described in Sec. 414.508(b)(1) and 
(2).

[81 FR 41100, June 23, 2016]



              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),

[[Page 110]]

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 
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 at 
least two people who meet the requirements of state and local laws where 
the services are being furnished. Also, at least one of the staff 
members must be certified, at a minimum, as an emergency medical 
technician-basic (EMT-Basic) by the State or local authority where the 
services are furnished and be legally authorized to operate all 
lifesaving and life-sustaining equipment on board the vehicle. These 
laws may vary from State to State.
    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

[[Page 111]]

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.
    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 an urban area, or a rural 
census tract within a Metropolitan Statistical Area as determined under 
the most recent version of the Goldsmith modification as determined by 
the Office of Rural Health Policy of the Health Resources and Services 
Administration.
    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.
    Urban area means a Metropolitan Statistical Area, as defined by the 
Executive Office of Management and Budget.

[67 FR 9132, Feb. 27, 2002, as amended at 68 FR 67693, Dec. 5, 2003; 71 
FR 69787, Dec. 1, 2006; 80 FR 71382, Nov. 16, 2015]



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 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.
    (i) For services furnished during the period July 1, 2004 through 
December 31, 2006, ambulance services originating in--
    (A) Urban areas (both base rate and mileage) are paid based on a 
rate that is 1 percent higher than otherwise is applicable under this 
section; and
    (B) Rural areas (both base rate and mileage) are paid based on a 
rate that

[[Page 112]]

is 2 percent higher than otherwise is applicable under this section.
    (ii) For services furnished during the period July 1, 2008 through 
December 31, 2017, ambulance services originating in:
    (A) Urban areas (both base rate and mileage) are paid based on a 
rate that is 2 percent higher than otherwise is applicable under this 
section.
    (B) Rural areas (both base rate and mileage) are paid based on a 
rate that is 3 percent higher than otherwise is applicable under this 
section.
    (iii) 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, for services 
furnished before January 1, 2004, by 25 percent for miles 18 through 50. 
The standard mileage rate applies to every mile over 50 miles and, for 
services furnished after December 31, 2003, to every mile over 17 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 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, 2017, 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

[[Page 113]]

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.
    (8) For ambulance services furnished on or after October 1, 2013 
consisting of non-emergency basic life support (BLS) services involving 
transport of an individual with end-stage renal disease for renal 
dialysis services (as described in section 1881(b)(14)(B)) furnished 
other than on an emergency basis by a provider of services or a renal 
dialysis facility, the fee schedule amount otherwise applicable (both 
base rate and mileage) is reduced by 10 percent.
    (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 and, for 2011 and each subsequent year, 
is reduced by the productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act.
    (g) Adjustments. The Secretary monitors payment and billing data on 
an ongoing basis and adjusts the CF and air ambulance rates as 
appropriate to reflect actual practices under the fee schedule. These 
rates are not adjusted solely because of changes in the total number of 
ambulance transports.
    (h) Treatment of certain areas for payment for air ambulance 
services. Any area that was designated as a rural area for purposes of 
making payments under the ambulance fee schedule for air ambulance 
services furnished on December 31, 2006, must be treated as a rural area 
for purposes of making payments under the ambulance fee schedule for air 
ambulance services furnished during the period July 1, 2008 through June 
30, 2013.

[67 FR 9132, Feb. 27, 2002, as amended at 68 FR 67693, Dec. 5, 2003; 69 
FR 40292, July 1, 2004; 71 FR 69787, Dec. 1, 2006; 73 FR 69937, Nov. 19, 
2008; 74 FR 62012, Nov. 25, 2009; 75 FR 73625, Nov. 29, 2010; 76 FR 
70315, Nov. 10, 2011; 77 FR 69368, Nov. 16, 2012; 78 FR 74820, Dec. 10, 
2013; 79 FR 68005, Nov. 13, 2014; 80 FR 71382, Nov. 16, 2015]



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 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

[[Page 114]]

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 
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

[[Page 115]]

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.

    (a) Changes in payment rates resulting from incorporation of the 
annual inflation factor and the productivity adjustment as described in 
Sec. 414.610(f) will be announced by CMS by instruction and on the CMS 
Web site.
    (b) CMS will follow applicable rulemaking procedures in publishing 
revisions to the fee schedule for ambulance services that result from 
any factors other than those described in Sec. 414.610(f).

[75 FR 73626, Nov. 29, 2010]



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 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.

[[Page 116]]

    (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).
    (c) Mandatory reporting of anemia quality indicators. The following 
provisions are effective January 1, 2008:
    (1) Each request for payment for anti-anemia drugs furnished to 
treat anemia resulting from the treatment of cancer must report the 
beneficiary's most recent hemoglobin or hematocrit level;
    (2) Each request for payment for use of erythropoiesis stimulating 
agents must report the beneficiary's most recent hemoglobin or 
hematocrit level.

[69 FR 1116, Jan. 7, 2004, as amended at 72 FR 66402, Nov. 27, 2007]



     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--

[[Page 117]]

    Bona fide service fees means fees paid by a manufacturer to an 
entity, that represent fair market value for a bona fide, itemized 
service actually performed on behalf of the manufacturer that the 
manufacturer would otherwise perform (or contract for) in the absence of 
the service arrangement, and that are not passed on in whole or in part 
to a client or customer of an entity, whether or not the entity takes 
title to the drug.
    Drug means both drugs and biologicals.
    Manufacturer means any entity that is engaged in the following (This 
term 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, unless otherwise specified by CMS to account for situations where 
labeling indicates that the amount of drug product represented by a 
National Drug Code varies. The method of counting units excludes units 
of CAP drugs (as defined in Sec. 414.902 of this part) sold to an 
approved CAP vendor (as defined in Sec. 414.902 of this part) for use 
under the CAP (as defined in Sec. 414.902 of this part).

[69 FR 17938, Apr. 6, 2004, as amended at 71 FR 48143, Aug. 18, 2006; 71 
FR 69787, Dec. 1, 2006; 74 FR 62012, Nov. 25, 2009; 76 FR 73473, Nov. 
28, 2011]



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 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 excluding sales as 
specified in paragraph (a)(4) of this section and then deducting price 
concessions as specified in paragraphs (a)(2) and (a)(3) of this 
section) divided by the total number of units sold by the manufacturer 
in that quarter (after excluding units associated with sales as 
specified in paragraph (a)(4) of this section).
    (2) Price concessions. (i) In calculating the manufacturer's average 
sales price, a manufacturer must deduct price concessions. Price 
concessions include the following types of transactions and items:
    (A) Volume discounts.
    (B) Prompt pay discounts.
    (C) Cash discounts.
    (D) Free goods that are contingent on any purchase requirement.
    (E) Chargebacks and rebates (other than rebates under the Medicaid 
program).
    (ii) For the purposes of paragraph (a)(2)(i), bona fide services 
fees are not considered price concessions.
    (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 this paragraph.
    (i)(A) For each National Drug Code with at least 12 months of sales 
(including products for which the manufacturer has redesignated the 
National Drug Code for the specific product and package size and has 12 
months of sales across the prior and current National Drug Codes), after 
adjusting for exempted sales, 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.
    (B) For each National Drug Code with less than 12 months of sales, 
the calculation described in paragraph (i)(A) of this section is 
performed for the time period equaling the total number of months of 
sales.
    (ii) The manufacturer multiplies the applicable percentage described 
in paragraph (a)(3)(i)(A) or (a)(3)(i)(B) of this section by the total 
in dollars for

[[Page 118]]

the sales subject to the average sales price reporting requirement 
(after adjusting for exempted sales) 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 (after adjusting for exempted sales) for the 
quarter being submitted.
    (iii) The manufacturer 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 (after adjusting for exempted sales) as the 
denominator to calculate the manufacturer's average sales price for the 
National Drug Code for the quarter being submitted.
    (iv) Example. After adjusting for exempted sales, the total lagged 
price concessions (discounts, rebates, etc.) over the most recent 12-
month period available associated with sales for National Drug Code 
12345-6789-01 subject to the ASP reporting requirement equal $200,000, 
and 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 = 0.33333. The total in dollars for the sales subject to the 
average sales price reporting requirement for the quarter being 
reported, equals $50,000 for 10,000 units sold. 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) Exempted sales. (i) In calculating the manufacturer's average 
sales price, a manufacturer must exclude sales that are exempt from 
inclusion in the determination of the best price under section 
1927(c)(1)(C)(i) of the Act and sales that are merely nominal in amount 
as applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, as 
limited by section 1927(c)(1)(D) of the Act.
    (ii) In determining nominal sales exempted under section 
1927(c)(1)(C)(ii)(III) of the Act, the manufacturer calculates the 
average manufacturer price as defined in section 1927(k) of the Act and 
then identifies sales that are eligible to be considered a nominal sale 
under section 1927(c)(1)(D) of the Act and are at less than 10 percent 
of the average manufacturer price. To identify nominal sales, the 
manufacturer must use the average manufacturer price for the calendar 
quarter that is the same calendar quarter as the average sales price 
reporting period.
    (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) The manufacturer's average sales price must be calculated based 
on the amount of product in a vial or other container as conspicuously 
reflected on the FDA approved label as defined by section 201(k) of the 
Food, Drug, and Cosmetic Act.
    (7) 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.
    (b) [Reserved]

[69 FR 17938, Apr. 6, 2004, as amended at 69 FR 55764, Sept. 16, 2004; 
70 FR 70332, Nov. 21, 2005; 71 FR 69787, Dec. 1, 2006; 72 FR 18914, Apr. 
16, 2007; 75 FR 73626, Nov. 29, 2010]



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

[[Page 119]]

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.
    Biosimilar biological product means a biological product approved 
under an abbreviated application for a license of a biological product 
that relies in part on data or information in an application for another 
biological product licensed under section 351 of the Public Health 
Service Act (PHSA) as defined at section 1847A(c)(6)(H) of the Act.
    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.
    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.

[[Page 120]]

    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.
    Reference biological product means the biological product licensed 
under such section 351 of the PHSA that is referred to in the 
application of the biosimilar biological product as defined at section 
1847A(c)(6)(I) of the Act.
    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; 75 
FR 73626, Nov. 29, 2010]



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
    (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.
    (3) For purposes of this paragraph--
    (i) CMS calculates an average sales price payment limit based on the 
amount of product included in a vial or other container as reflected on 
the FDA-approved label.
    (ii) Additional product contained in the vial or other container 
does not represent a cost to providers and is not incorporated into the 
ASP payment limit.
    (iii) No payment is made for amounts of product in excess of that 
reflected on the FDA-approved label.
    (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. (i) For dates of service 
before April 1, 2008, the average sales price is determined by--
    (A) 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

[[Page 121]]

    (B) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug products.
    (ii) For dates of service on or after April 1, 2008, the average 
sales price is determined by--
    (A) Computing the sum of the products (for each National Drug Code 
assigned to such drug products) of the manufacturer's average sales 
price, determined by the Secretary without dividing such price by the 
total number of billing units for the National Drug Code for the billing 
and payment code and the total number of units sold; and
    (B) Dividing the sum determined under clause (A) by the sum of the 
products (for each National Drug Code assigned to such drug products) of 
the total number of units sold and the total number of billing units for 
the National Drug Code for the billing and payment code.
    (iii) For purposes of this subsection and subsection (c), the term 
billing unit means the identifiable quantity associated with a billing 
and payment code, as established by CMS.
    (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. (i) For dates of service 
before April 1, 2008, the average sales price is determined by--
    (A) Computing 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
    (B) Dividing that sum by the sum of the total number of units sold 
for all NDCs assigned to the drug product.
    (ii) For dates of service on or after April 1, 2008, the average 
sales price is determined by--
    (A) Computing the sum of the products (for each National Drug Code 
assigned to such drug products) of the manufacturer's average sales 
price, determined by the Secretary without dividing such price by the 
total number of billing units for the National Drug Code for the billing 
and payment code and the total number of units sold; and
    (B) Dividing the sum determined under clause (A) by the sum of the 
products (for each National Drug Code assigned to such drug products) of 
the total number of units sold and the total number of billing units for 
the National Drug Code for the billing and payment code.
    (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 CY 2006 and 
subsequent calendar years, 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 the amount determined under section 1847A of the 
Act.
    (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 the 
applicable threshold percentage specified in paragraph (d)(3)(iii) or 
(iv) of this section, the Inspector General is responsible for informing 
the Secretary (at such times

[[Page 122]]

as specified by the Secretary) and the payment amount for the drug or 
biological will be substituted subject to the following adjustments:
    (i) The payment amount substitution will be applied at the next 
average sales price payment amount calculation period after the 
Inspector General informs the Secretary (at such times specified by the 
Secretary) about billing codes for which the average sales price has 
exceeded the average manufacturer price by the applicable threshold 
percentage, and will remain in effect for 1 quarter after publication.
    (ii) Payment at 103 percent of the average manufacturer price for a 
billing code will be applied at such times when all of the following 
criteria are met:
    (A) The threshold for making price substitutions, as defined in 
paragraph (d)(3)(iii) of this section is met.
    (B) 103 percent of the average manufacturer price is less than the 
106 percent of the average sales price for the quarter in which the 
substitution would be applied.
    (C) Beginning in 2013, the drug and dosage form described by the 
HCPCS code is not identified by the FDA to be in short supply at the 
time that ASP calculations are finalized.
    (iii) The applicable percentage threshold for average manufacturer 
price comparisons is 5 percent and is reached when--
    (A) The average sales price for the billing code has exceeded the 
average manufacturer price for the billing code by 5 percent or more in 
2 consecutive quarters, or 3 of the previous 4 quarters immediately 
preceding the quarter to which the price substitution would be applied; 
and
    (B) The average manufacturer price for the billing code is 
calculated using the same set of National Drug Codes used for the 
average sales price for the billing code.
    (iv) The applicable percentage threshold for widely available market 
price comparisons is 5 percent.
    (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 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.
    (5) Treatment of certain drugs. Beginning with April 1, 2008, the 
payment amount for--
    (i) Each single source drug or biological described in section 
1842(o)(1)(G) that is treated as a multiple source drug because of the 
application of section 1847A(c)(6)(C)(ii) is the lower of--
    (A) The payment amount that would be determined for such drug or 
biological applying section 1847A(c)(6)(C)(ii); or
    (B) The payment amount that would have been determined for such drug 
or biological if section 1847A(c)(6)(C)(ii) were not applied.
    (ii) A multiple source drug described in section 1842(o)(1)(G) 
(excluding a drug or biological that is treated as a multiple source 
drug because of the application of section 1847A(c)(6)(C)(ii)) is the 
lower of--
    (A) The payment amount that would be determined for such drug or 
biological taking into account the application of section 
1847A(c)(6)(C)(ii); or
    (B) The payment amount that would have been determined for such drug 
or biological if section 1847A(c)(6)(C)(ii) were not applied.

[[Page 123]]

    (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.
    (i) If manufacturer ASP data is not available prior to the 
publication deadline for quarterly payment limits and the unavailability 
of manufacturer ASP data significantly changes the quarterly payment 
limit for the billing code when compared to the prior quarter's billing 
code payment limit, the payment limit is calculated by carrying over the 
most recent available manufacturer ASP price from a previous quarter for 
an NDC in the billing code, adjusted by the weighted average of the 
change in the manufacturer ASPs for the NDCs that were reported for both 
the most recently available previous quarter and the current quarter.
    (j) Biosimilar biological products. Effective January 1, 2016, the 
payment amount for a biosimilar biological drug product (as defined in 
Sec. 414.902) for all NDCs assigned to such product is the sum of the 
average sales price of all NDCs assigned to the biosimilar biological 
products included within the same billing and payment code as determined 
under section 1847A(b)(6) of the Act and 6 percent of the amount 
determined under section 1847A(b)(4) of the Act for the reference drug 
product (as defined in Sec. 414.902).

[69 FR 66424, Nov. 15, 2004, as amended at 70 FR 70332, Nov. 21, 2005; 
71 FR 69788, Dec. 1, 2006; 72 FR 66402, Nov. 27, 2007; 73 FR 69937, Nov. 
19, 2008; 73 FR 80304, Dec. 31, 2008; 74 FR 62012, Nov. 25, 2009; 75 FR 
73626, Nov. 29, 2010; 76 FR 73473, Nov. 28, 2011; 77 FR 69368, Nov. 16, 
2012; 80 FR 71382, Nov. 16, 2015]



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. 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 of this 
subpart.
    (1) Single payment amount. (i) 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 beginning of the payment year.

[[Page 124]]

    (ii) The single payment amount is then updated quarterly based on 
the approved CAP vendor's reasonable net acquisition costs for that 
category as determined by 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.
    (iii) The payment amount for each other drug for which the approved 
CAP vendor submits a bid in accordance with Sec. 414.910 of this subpart 
and each other drug that is approved by CMS for the approved CAP vendor 
to furnish under the CAP is also updated quarterly based on the approved 
CAP vendor's reasonable net acquisition costs for each HCPCS code and 
limited by the payment amount established under section 1847A of the 
Act.
    (2) Updates to payment amount. (i) The first update is effective on 
the first day of claims processing for the first quarter of an approved 
CAP vendor's contract. The first quarterly contract update is based on 
the reasonable net acquisition cost (RNAC) data reported to CMS or its 
designee for any purchases of drug before the beginning of CAP claims 
processing for the contract period and reported to CMS no later than 30 
days before the beginning of CAP claims processing.
    (ii) For subsequent quarters, each approved CAP vendor must report 
to CMS or its designee RNAC data for a quarter of CAP drug purchases 
within 30 days of the close of that quarter.
    (iii) For all quarters, only RNAC data from approved CAP vendors 
that are supplying CAP drugs under their CAP contract at the time 
updates are being calculated must be used to calculate updated CAP 
payment amounts.
    (iv) CMS excludes such RNAC data submitted by an approved CAP vendor 
if, during the time calculations are being done, CMS knows that the 
approved CAP vendor will not be under contract for the applicable 
quarterly update.
    (v) The payment amount weights must be calculated based on the more 
recent of the following:
    (A) Contract bidding weights.
    (B) CAP claims data.
    (vi) The payment limit must be determined using the most recent 
payment limits available to CMS under section 1847A of the Act.
    (vii) The following payment amount update calculation must be 
applied for the group of all drugs for which a composite bid is 
required.
    (A) The most recent previous composite payment amount for the group 
is updated by--
    (1) Calculating the percent change in reasonable net acquisition 
costs for each approved CAP vendor;
    (2) Calculating the median of all participating approved CAP 
vendors' adjusted CAP payment amounts; and
    (3) Limiting the payment as described in paragraph (c)(1) of this 
section.
    (B) The median percent change, subject to the limit described in 
paragraph (c)(1) of this section, must be the update percentage for that 
quarter.
    (C) The single update percentage must be applied to the payment 
amount for each drug in the group of drugs for which a composite bid is 
required in the category.
    (viii) The following payment amount update calculation must be 
applied for each of the following items: Each HCPCS code not included in 
the composite bid list; Each HCPCS code added to the drug list during 
the contract period; and each drug that has not yet been assigned a 
HCPCS code, but for which a HCPCS code will be established.
    (A) The most recent previous payment amount for each drug must be 
updated by calculating the percent change in reasonable net acquisition 
costs for each approved CAP vendor, then calculating the median of all 
participating approved CAP vendors' adjusted CAP payment amounts.
    (B) The median percent change calculated for each drug, subject to 
the limit described in paragraph (c)(1) of this section, must be applied 
to the payment amount for each drug.
    (3) Alternative payment amount. The alternative payment amount 
established under section 1847A of the Act may be used to establish 
payment for a CAP drug if--
    (i) The drug is properly assigned to a category established under 
the CAP; and

[[Page 125]]

    (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.
    (v) On or after January 1, 2010, the proposed addition of drugs with 
similar therapeutic uses to drugs already supplied under the CAP by the 
approved CAP vendor(s).
    (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.
    (iv) In the case of additions requested under paragraph (f)(2)(v) of 
this section, address and document the need for such an expansion based 
on demand for the product(s).
    (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

[[Page 126]]

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 
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.
    (g) Deletion of drugs on an approved CAP vendor's CAP drug list. 
Deletion of drugs on an approved CAP vendor's CAP drug list due to 
unavailability requires a written request and approval as described in 
paragraphs (f)(3)(i) through (iii) and (f)(4) of this section.

[70 FR 39094, July 6, 2005, as amended at 70 FR 70333, Nov. 21, 2005; 71 
FR 9460, Feb. 24, 2006; 74 FR 62012, Nov. 25, 2009]



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) The approved CAP vendor refuses to ship to the participating 
CAP physician because the conditions of Sec. 414.914(i) have been met 
(if this subparagraph (a)(2)(iv) applies, the physician can withdraw 
from the CAP category for the remainder of the year immediately upon 
notice to CMS and the approved CAP vendor); or
    (v) Other exigent circumstances defined by CMS are present, 
including--
    (A) If, up to and including 60 days after the effective date of the 
physician's CAP election agreement, the participating CAP physician 
submits a written request to the designated carrier to terminate the CAP 
election agreement because CAP participation imposes a burden on the 
physician's practice. The written request must document the burden. The 
designated carrier will process the participating CAP physician's 
request and CMS will approve or deny the request under the dispute 
resolution process as specified under Sec. 414.917 of this subpart.
    (B) If, more than 60 days after the effective date of the 
physician's CAP election agreement, the participating CAP physician 
submits a written request to the designated carrier to terminate the CAP 
election agreement because, based on a change in circumstances of which 
the participating CAP physician was not previously aware, CAP 
participation imposes a burden on the physician's practice. The written 
request must document the burden. The designated carrier will process 
the participating CAP physician's request and CMS will approve or deny 
the request under the dispute resolution process as specified under 
Sec. 414.917 of this subpart.
    (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

[[Page 127]]

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 
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 30 calendar days of the 
date of drug administration.
    (xi) Agrees to submit documentation such as medical records or 
certification, as necessary, to support payment for a CAP drug;
    (xii) Agrees not to transport CAP drugs from one practice location 
or place of service to another location except in accordance with a 
written agreement between the participating CAP physician and the 
approved CAP vendor that requires that drugs are not subjected to 
conditions that will jeopardize their integrity, stability, and/or 
sterility while being transported.
    (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).
    (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

[[Page 128]]

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).
    (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; 72 
FR 66402, Nov. 27, 2007; 74 FR 62013, Nov. 25, 2009]



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--

[[Page 129]]

    (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.
    (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

[[Page 130]]

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 paragraph (h) of this section or 
Sec. 414.916(b) of this subpart 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.
    (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 verify drug administration prior to 
collection of any applicable cost sharing amount.
    (1) The approved CAP vendor documents, in writing, the following 
information necessary to verify drug administration:
    (i) Beneficiary name.
    (ii) Health insurance number.

[[Page 131]]

    (iii) Expected date of administration.
    (iv) Actual date of administration.
    (v) Identity of the participating CAP physician.
    (vi) Prescription order number.
    (vii) Identity of the individuals who supply and receive the 
information.
    (viii) Dosage supplied.
    (ix) Dosage administered.
    (2) If the information is obtained verbally, the approved CAP vendor 
must also maintain the following information:
    (i) The identities of individuals who exchanged the information.
    (ii) The date and time that the information was obtained.
    (3) The approved CAP vendor must provide this information to CMS or 
the beneficiary upon request.
    (i) 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 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) An approved CAP vendor that has received payment from the 
designated carrier for CAP drugs that have not been administered must 
promptly refund payment for such drugs to the designated carrier and 
must refund any coinsurance and deductible collected from the 
beneficiary and his or her supplemental insurer.
    (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 (i) of this section 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 (i)(5)(ii) of this section, 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 (i)(6), (i)(7), or (i)(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.
    (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; 72 
FR 66403, Nov. 27, 2007; 74 FR 62013, Nov. 25, 2009]

[[Page 132]]



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) Upon notification from CMS of a participating CAP physician's 
suspension from the program, the approved CAP vendor must cease delivery 
of CAP drugs to the suspended participating CAP physician until the 
suspension has been lifted.
    (5) 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 a reconsideration. A participating 
CAP physician dissatisfied with a determination that his or her CAP 
election agreement has been suspended by CMS or a determination under 
Sec. 414.917(d) denying the participating CAP physician's request to 
terminate participation in the CAP under Sec. 414.908(a)(v) 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 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

[[Page 133]]

    (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 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

[[Page 134]]

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, as amended at 72 FR 66403, Nov. 27, 2007; 74 
FR 62013, Nov. 25, 2009]



Sec. 414.917  Dispute resolution and process for suspension or termination 
of approved CAP contract and termination of physician participation under exigent 
          circumstances.

    (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. The approved CAP vendor's contract will 
remain suspended during the reconsideration process.
    (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 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--

[[Page 135]]

    (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.
    (iv) The reconsideration determination of the CMS official is final.
    (d) CAP participating physicians' exigent circumstances provision. 
The following process must be completed for participating CAP 
physicians' requests

[[Page 136]]

to terminate their participation in the program under exigent 
circumstances provisions described in Sec. 414.908(a)(2)(v):
    (1) The designated carrier must--
    (i) Determine whether a request to terminate CAP participation was 
related to approved CAP vendor service, and if so, forward the issue to 
the approved CAP vendor's grievance process within 1 business day of the 
receipt of the request; or
    (ii) Continue to investigate, consistent with Sec. 414.916(b)(2) of 
this chapter, and within 2 business days of receipt, do any of the 
following:
    (A) Request a single, 2-business day extension. No later than the 
end of any 2-business day extension, the designated carrier must make 
findings and a recommendation as provided in subparagraph (B) or (C).
    (B) Submit a recommendation and relevant findings to CMS that the 
requesting participating CAP physician be permitted to terminate his or 
her participation in the CAP.
    (C) Submit a recommendation and relevant findings to CMS that the 
requesting participating CAP physician not be permitted to terminate his 
or her participation in the CAP.
    (ii) In the case of a request made under Sec. 414.908(a)(2)(v)(B), 
the designated carrier also shall include in its recommendation its 
finding with respect to whether the request is based on a change in 
circumstances of which the participating CAP physician was previously 
unaware.
    (2) CMS will consider the carrier's findings and recommendation and 
may also make its own findings. As a result, CMS will--
    (i) Approve or deny the request to terminate participation in the 
CAP within 2 business days of receipt of the recommendation.
    (ii) Communicate the decision to the appropriate Medicare 
contractors and the participating CAP physician.
    (3) A denial of the participating CAP physician's request to 
terminate participation in the CAP must include written notification of 
the right to request reconsideration under Sec. 414.916(c).
    (4) Upon termination of participation in the CAP a physician must--
    (i) Continue to submit claims for drugs supplied and administered 
under the CAP prior to the effective date of the physician's termination 
from the CAP consistent with Sec. 414.908(a) until all such claims are 
timely submitted.
    (ii) Return any unused CAP drugs that had not been administered to 
the beneficiary prior to the effective date of the physician's 
termination from the CAP to the approved CAP vendor consistent with 
applicable law and regulation and any agreement with the approved CAP 
vendor.
    (iii) Cooperate in any post-payment review activities on claims 
submitted under the CAP, as required under section 1847B(a)(3) of the 
Act.
    (5) An approved CAP vendor that has billed and been paid for CAP 
drugs that have not been administered must refund any payments made by 
CMS or the beneficiary and his or her supplemental insurer in accordance 
with Sec. 414.914(h)(3)(i)(2) of this chapter.

[70 FR 39098, July 6, 2005, as amended at 72 FR 66403, Nov. 27, 2007; 74 
FR 62013, Nov. 25, 2009]



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]



Sec. 414.930  Compendia for determination of medically-accepted 
indications for off-label uses of drugs and biologicals in an
anti-cancer chemotherapeutic regimen.

    (a) Definitions. For the purposes of this section:
    Compendium means a comprehensive listing of FDA-approved drugs and 
biologicals or a comprehensive listing of a specific subset of drugs and

[[Page 137]]

biologicals in a specialty compendium, for example a compendium of anti-
cancer treatment. A compendium--
    (i) Includes a summary of the pharmacologic characteristics of each 
drug or biological and may include information on dosage, as well as 
recommended or endorsed uses in specific diseases.
    (ii) Is indexed by drug or biological.
    (iii) Has a publicly transparent process for evaluating therapies 
and for identifying potential conflicts of interests.
    Publicly transparent process for evaluating therapies means that the 
process provides that the following information from an internal or 
external request for inclusion of a therapy in a compendium are 
available to the public for a period of not less than 5 years, which 
includes availability on the compendium's Web site for a period of not 
less than 3 years, coincident with the compendium's publication of the 
related recommendation:
    (i) The internal or external request for listing of a therapy 
recommendation including criteria used to evaluate the request.
    (ii) A listing of all the evidentiary materials reviewed or 
considered by the compendium pursuant to the request.
    (iii) A listing of all individuals who have substantively 
participated in the review or disposition of the request.
    (iv) Minutes and voting records of meetings for the review and 
disposition of the request.
    Publicly transparent process for identifying potential conflicts of 
interests means that process provides that the following information is 
identified and made timely available in response to a public request for 
a period of not less than 5 years, coincident with the compendium's 
publication of the related recommendation:
    (i) Direct or indirect financial relationships that exist between 
individuals or the spouse or minor child of individuals who have 
substantively participated in the development or disposition of 
compendia recommendations and the manufacturer or seller of the drug or 
biological being reviewed by the compendium. This may include, for 
example, compensation arrangements such as salary, grant, contract, or 
collaboration agreements between individuals or the spouse or minor 
child of individuals who have substantively participated in the review 
and disposition of the request and the manufacturer or seller of the 
drug or biological being reviewed by the compendium.
    (ii) Ownership or investment interests between individuals or the 
spouse or minor child of individuals who have substantively participated 
in the development or disposition of compendia recommendations and the 
manufacturer or seller of the drug or biological being reviewed by the 
compendium.
    (b) Process for listing compendia for determining medically-accepted 
uses of drugs and biologicals in anti-cancer treatment. (1) The CMS 
process--
    (i) Receives formal written requests for changes to the list of 
compendia during a 30 day window beginning January 15 each year.
    (ii) Publishes a listing of the timely, complete requests by March 
15th and solicits public comment on the requests for 30 days. The 
listing identifies the requestor and the requested action.
    (iii) Considers a compendium's attainment of the MedCAC (Medicare 
Evidence Development and Coverage Advisory Committee, previously known 
as the MCAC--Medicare Coverage Advisory Committee) recommended desirable 
characteristics of compendia (including explicit listing and 
recommendations) in reviewing requests. CMS may consider additional 
reasonable factors.
    (iv) Considers a compendium's grading of evidence used in making 
recommendations regarding off-label uses and the process by which the 
compendium grades the evidence.
    (v) Considers whether the publication that is the subject of the 
request meets the definition of a compendium in this section.
    (vi) Publishes its decision no later than 90 days after the close of 
the public comment period.
    (2) Exception. In addition to the annual process outlined in 
paragraph (b)(1) of this section, CMS may internally generate a request 
for changes to the list of compendia at any time.

[[Page 138]]

    (c) Written request for review. (1) CMS will review a complete, 
written request that is submitted in writing, electronically or via hard 
copy (no duplicate submissions) and includes the following:
    (i) The full name and contact information of the requestor.
    (ii) The full identification of the compendium that is the subject 
of the request, including name, publisher, edition if applicable, date 
of publication, and any other information needed for the accurate and 
precise identification of the specific compendium.
    (iii) A complete written copy of the compendium that is the subject 
of the request.
    (iv) The specific action that is requested of CMS.
    (v) Materials that the requestor must submit for CMS review in 
support of the requested action.
    (vi) A single compendium as its subject.
    (d) CMS may at its discretion combine and consider multiple requests 
that refer to the same compendium.
    (e) For the purposes of this section, publication by CMS may be 
accomplished by posting on the CMS Web site.

[72 FR 66404, Nov. 27, 2007, as amended at 74 FR 62013, Nov. 25, 2009]



                 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

[[Page 139]]

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]



 Subpart M_Payment for Comprehensive Outpatient Rehabilitation Facility 
                             (CORF) Services

    Source: 72 FR 66404, Nov. 27, 2007, unless otherwise noted.



Sec. 414.1100  Basis and scope.

    This subpart implements sections 1834(k)(1) and (k)(3) of the Act by 
specifying the payment methodology for comprehensive outpatient 
rehabilitation facility services covered under Part B of Title XVIII of 
the Act that are described at section 1861(cc)(1) of the Act.



Sec. 414.1105  Payment for Comprehensive Outpatient Rehabilitation 
Facility (CORF) services.

    (a) Payment under the physician fee schedule. Except as otherwise 
specified under paragraphs (b), (c), (d), and (e) of this section 
payment for CORF services, as defined under Sec. 410.100 of this 
chapter, is paid the lesser of 80 percent of the following:
    (1) The actual charge for the item or service; or
    (2) The nonfacility amount determined under the physician fee 
schedule established under section 1848(b) of the Act for the item or 
service.
    (b) Payment for physician services. No separate payment for 
physician services that are CORF services under Sec. 410.100(a) of this 
chapter will be made.
    (c) Payment for supplies and durable medical equipment, prosthetic 
and orthotic devices, and drugs and biologicals. Supplies and durable 
medical equipment that are CORF services under Sec. 410.100(l) of this 
chapter, prosthetic device services that are CORF services under 
Sec. 410.100(f), orthotic devices that are CORF services under 
Sec. 410.100(g) of this chapter and drugs and biologicals that are CORF 
services under Sec. 410.100(k) of this chapter are paid the lesser of 80 
percent of the following:
    (1) The actual charge for the service provided that payment for such 
item is not included in the payment amount for other CORF services paid 
under paragraphs (a) or (d); or
    (2) The amount determined under the DMEPOS fee schedule established 
under part 414 subparts D and F for the item or the single payment 
amount established under the DMEPOS competitive bidding program provided 
that payment for such item is not included in the payment amount for 
other CORF services paid under paragraphs (a) or (d).
    (d) Payment for drugs and biologicals. Drugs and biologicals that 
are CORF services under Sec. 410.100(j) of this chapter, are paid the 
lesser of 80 percent of the following:
    (1) The actual charge for the service provided that payment for such 
item is not included in the payment amount for other CORF services paid 
under paragraphs (a) or (c); or
    (2) The amount determined using the same methodology for drugs (as 
defined in Sec. 414.704 of this chapter) described in section 1842(o)(1) 
of the Act provided that payment for such drug is not included in the 
payment amount for other CORF services paid under paragraphs (a) or (c).
    (e) Payment for CORF services when no fee schedule amount for the 
service. If there is no fee schedule amount established for a CORF 
service, payment for the item or service will be the lesser of 80 
percent of:
    (i) The actual charge for the service provided that payment for such 
item or service is not included in the payment amount for other CORF 
services paid under paragraphs (a), (c), or (d) of this section.
    (ii) The amount determined under the fee schedule established for a 
comparable service as specified by the Secretary provided that payment 
for such item or service is not included in the payment amount for other 
CORF services paid under paragraphs (a), (c), or (d) of this section.

[[Page 140]]



 Subpart N_Value-Based Payment Modifier Under the Physician Fee Schedule

    Source: 77 FR 69368, Nov. 16, 2012, unless otherwise noted.



Sec. 414.1200  Basis and scope.

    (a) Basis. This subpart implements section 1848(p) of the Act by 
establishing a payment modifier that provides for differential payment 
starting in 2015 to a group of physicians and starting in 2017 to a 
group and a solo practitioner under the Medicare Physician Fee Schedule 
based on the quality of care furnished compared to cost during a 
performance period.
    (b) Scope. This subpart sets forth the following:
    (1) The application of the value-based payment modifier.
    (2) Performance and payment adjustment periods.
    (3) Reporting mechanisms for the value-based payment modifier.
    (4) Alignment of PQRS quality of care measures with the quality 
measures for the value-based payment modifier.
    (5) Additional measures for groups and solo practitioners.
    (6) Cost measures.
    (7) Attribution for quality of care and cost measures.
    (8) Scoring methods for the value-based payment modifier.
    (9) Benchmarks for quality of care measures.
    (10) Benchmarks for cost measures.
    (11) Composite scores.
    (12) Reliability of measures.
    (13) Payment adjustments.
    (14) Value-based payment modifier quality-tiering scoring 
methodology.
    (15) Limitation of review.
    (16) Inquiry process.

[77 FR 69368, Nov. 16, 2012, as amended at 79 FR 68005, Nov. 13, 2014]



Sec. 414.1205  Definitions.

    As used in this subpart, unless otherwise indicated--
    Accountable care organization (ACO) has the same meaning given this 
term under Sec. 425.20 of this chapter.
    Certified registered nurse anesthetist (CRNA) has the same meaning 
given this term under section 1861(bb)(2) of the Act.
    Critical access hospital has the same meaning given this term under 
Sec. 400.202 of this chapter.
    Electronic health record (EHR) has the same meaning given this term 
under Sec. 414.92 of this chapter.
    Eligible professional has the same meaning given this term under 
section 1848(k)(3)(B) of the Act.
    Federally Qualified Health Center has the same meaning given this 
term under Sec. 405.2401(b) of this chapter.
    Group of physicians (Group) means a single Taxpayer Identification 
Number (TIN) with 2 or more eligible professionals, as identified by 
their individual National Provider Identifier (NPI), who have reassigned 
their Medicare billing rights to the TIN.
    Performance period means the calendar year that will be used to 
assess the quality of care furnished compared to cost.
    Performance rate mean the calculated rate for each quality or cost 
measure such as the percent of times that a particular clinical quality 
action was reported as being performed, or a particular outcome was 
attained, for the applicable persons to whom a measure applies as 
described in the denominator for the measure.
    Physician has the same meaning given this term under section 1861(r) 
of the Act.
    Physician assistant (PA), nurse practitioner (NP), and clinical 
nurse specialist (CNS) have the same meanings given these terms under 
section 1861(aa)(5) of the Act.
    Physician Fee Schedule has the same meaning given this term under 
part 410 of this chapter.
    Physician Quality Reporting System means the system established 
under section 1848(k) of the Act.
    Risk score means the beneficiary risk score derived from the CMS 
Hierarchical Condition Categories (HCC) model.
    Solo practitioner means a single Taxpayer Identification Number 
(TIN) with one eligible professional who is identified by an individual 
National Provider Identifier (NPI) billing under the TIN.

[[Page 141]]

    Taxpayer Identification Number (TIN) has the same meaning given this 
term under Sec. 425.20 of this chapter.
    Value-based payment modifier means the percentage as determined 
under Sec. 414.1270 by which amounts paid to a group or solo 
practitioner under the Medicare Physician Fee Schedule established under 
section 1848 of the Act are adjusted based upon a comparison of the 
quality of care furnished to cost as determined by this subpart.

[77 FR 69368, Nov. 16, 2012, as amended at 79 FR 68005, Nov. 13, 2014; 
80 FR 71382, Nov. 16, 2015]



Sec. 414.1210  Application of the value-based payment modifier.

    (a) The value-based payment modifier is applicable:
    (1) For the CY 2015 payment adjustment period, to physicians in 
groups with 100 or more eligible professionals based on the performance 
period described at Sec. 414.1215(a).
    (2) For the CY 2016 payment adjustment period, to physicians in 
groups with 10 or more eligible professionals based on the performance 
period described at Sec. 414.1215(b).
    (3) For the CY 2017 payment adjustment period and each subsequent 
calendar year payment adjustment period, to physicians in groups with 2 
or more eligible professionals and to physicians who are solo 
practitioners based on the performance period for the payment adjustment 
period as described at Sec. 414.1215.
    (4) For the CY 2018 payment adjustment period, to nonphysician 
eligible professionals who are physician assistants, nurse 
practitioners, clinical nurse specialists, and certified registered 
nurse anesthetists in groups with 2 or more eligible professionals and 
to physician assistants, nurse practitioners, clinical nurse 
specialists, and certified registered nurse anesthetists who are solo 
practitioners based on the performance period for the payment adjustment 
period as described at Sec. 414.1215.
    (b) Exceptions. (1) Groups of physicians that are participating in 
the Medicare Shared Savings Program, the testing of the Pioneer ACO 
model, or other similar Innovation Center or CMS initiatives shall not 
be subject to any adjustments under the value-based payment modifier for 
CY 2015 and CY 2016.
    (2) Application of the value-based payment modifier to participants 
in the Shared Savings Program.
    (i) For the CY 2017 payment adjustment period and each subsequent 
calendar year payment adjustment period, the value-based payment 
modifier is applicable to physicians in groups with 2 or more eligible 
professionals and to physicians who are solo practitioners that 
participate in an ACO under the Shared Savings Program during the 
performance period for the payment adjustment period as described at 
Sec. 414.1215. The value-based payment modifier for a group or solo 
practitioner that participates in an ACO under the Shared Savings 
Program during the performance period is determined based on paragraphs 
(b)(2)(i)(A) through (D) of this section.
    (A) The cost composite is classified as ``average'' under 
Sec. 414.1275(b).
    (B) For groups and solo practitioners that participate in a Shared 
Savings Program ACO that successfully reports quality data as required 
by the Shared Savings Program under Sec. 425.504 of this chapter, the 
quality composite score is calculated under Sec. 414.1260(a) using 
quality data reported by the ACO for the performance period through the 
ACO GPRO Web interface as required under Sec. 425.504(a)(1) of this 
chapter or another mechanism specified by CMS and the ACO all-cause 
readmission measure. Groups and solo practitioners that participate in 
two or more ACOs during the applicable performance period receive the 
quality composite score of the ACO that has the highest numerical 
quality composite score. For the CY 2018 payment adjustment period, the 
CAHPS for ACOs survey also will be included in the quality composite 
score. For the CY 2017 and 2018 payment adjustment periods, for groups 
and solo practitioners who participate in a Shared Savings Program ACO 
that does not successfully report quality data as required by the Shared 
Savings Program under Sec. 425.504 and who meet the requirements to 
avoid the PQRS payment adjustment for CY 2018 by reporting to the PQRS 
outside

[[Page 142]]

the ACO, the quality composite is classified as ``average'' under 
Sec. 414.1275(b).
    (C) For the CY 2017 payment adjustment period, the value-based 
payment modifier adjustment will be equal to the amount determined under 
Sec. 414.1275 for the payment adjustment period, except that if the ACO 
(or groups and solo practitioners that participate in the ACO) does not 
successfully report quality data as described in paragraph (b)(2)(i)(B) 
of this section for the performance period, such adjustment will be 
equal to -4% for groups of physicians with 10 or more eligible 
professionals and equal to -2% for groups of physicians with two to nine 
eligible professionals and for physician solo practitioners. If the ACO 
has an assigned beneficiary population during the performance period 
with an average risk score in the top 25 percent of the risk scores of 
beneficiaries nationwide, and a group of physician or physician solo 
practitioner that participates in the ACO during the performance period 
is classified as high quality/average cost under quality-tiering for the 
CY 2017 payment adjustment period, the group or solo practitioner 
receives an upward adjustment of +3  x  (rather than +2  x ) if the 
group has 10 or more eligible professionals or +2  x  (rather than +1 
x ) for a solo practitioner or the group has two to nine eligible 
professionals.
    (D) For the CY 2018 payment adjustment period, the value-based 
payment modifier adjustment will be equal to the amount determined under 
Sec. 414.1275 for the payment adjustment period, except that if the ACO 
(or groups and solo practitioners that participate in the ACO) does not 
successfully report quality data as described in paragraph (b)(2)(i)(B) 
of this section for the performance period, such adjustment will be 
equal to the downward payment adjustment amounts described at 
Sec. 414.1270(d)(1). If the ACO has an assigned beneficiary population 
during the performance period with an average risk score in the top 25 
percent of the risk scores of beneficiaries nationwide, and a group or 
solo practitioner that participates in the ACO during the performance 
period is classified as high quality/average cost under quality-tiering 
for the CY 2018 payment adjustment period, the group or solo 
practitioner receives an upward adjustment of +3  x  (rather than +2 
x ) if the group of physicians has 10 or more eligible professionals, +2 
 x  (rather than +1  x ) for a physician solo practitioner or if the 
group of physicians has two to nine eligible professionals, or +2  x  
(rather than +1  x ) for a solo practitioner who is a nonphysician 
eligible professional or if the group consists of nonphysician eligible 
professionals.
    (E) For the CY 2017 payment adjustment period and each subsequent 
calendar year payment adjustment period, the value-based payment 
modifier for groups and solo practitioners that participate in an ACO 
under the Shared Savings Program during the applicable performance 
period is determined as described under paragraph (b)(2) of this 
section, regardless of whether any eligible professionals in the group 
or the solo practitioner also participate in an Innovation Center model 
during the performance period.
    (F) For groups and solo practitioners that participate in a Shared 
Savings Program ACO that successfully reports quality data as required 
by the Shared Savings Program under Sec. 425.504 of this chapter, the 
same value-based payment modifier adjustment will be applied in the 
payment adjustment period to all groups based on size as specified under 
Sec. 414.1275 and solo practitioners that participated in the ACO during 
the performance period.
    (ii) For the CY 2018 payment adjustment period and each subsequent 
calendar year payment adjustment period, the value-based payment 
modifier is applicable to nonphysician eligible professionals in groups 
with 2 or more eligible professionals and to nonphysician eligible 
professionals who are solo practitioners that participate in an ACO 
under the Shared Savings Program during the performance period for the 
payment adjustment period as described at Sec. 414.1215. The value-based 
payment modifier for nonphysician eligible professionals is determined 
in the same manner as for physicians as described under paragraphs 
(b)(2)(i)(A) through (D) of this section.
    (3) Application of the value-based payment modifier to participants 
in the Pioneer ACO Model and the Comprehensive

[[Page 143]]

Primary Care Initiative. (i) For the CY 2017 payment adjustment period, 
the value-based payment modifier is waived under section 1115A(d)(1) of 
the Act for physicians in groups with 2 or more eligible professionals 
and for physicians who are solo practitioners that participate in the 
Pioneer ACO Model or the Comprehensive Primary Care (CPC) Initiative 
during the performance period for the payment adjustment period as 
described at Sec. 414.1215.
    (ii) For the CY 2018 payment adjustment period, the value-based 
payment modifier is waived under section 1115A(d)(1) of the Act for 
physicians and nonphysician eligible professionals in groups with 2 or 
more eligible professionals and for physicians and nonphysician eligible 
professionals who are solo practitioners that participate in the Pioneer 
ACO Model or the Comprehensive Primary Care (CPC) Initiative during the 
performance period for the payment adjustment period as described at 
Sec. 414.1215.
    (iii) For purposes of the value-based payment modifier, a group or 
solo practitioner is considered to be participating in the Pioneer ACO 
Model or CPC Initiative if at least one eligible professional billing 
under the TIN in the performance period for the payment adjustment 
period as described at Sec. 414.1215 is participating in the Pioneer ACO 
Model or CPC Initiative in the performance period.
    (4) Application of the value-based payment modifier to participants 
in other similar Innovation Center models. (i) For the CY 2017 payment 
adjustment period, the value-based payment modifier is waived under 
section 1115A(d)(1) of the Act for physicians in groups with 2 or more 
eligible professionals and for physicians who are solo practitioners 
that participate in other similar Innovation Center models during the 
performance period for the payment adjustment period as described at 
Sec. 414.1215.
    (ii) For the CY 2018 payment adjustment period, the value-based 
payment modifier is waived under section 1115A(d)(1) of the Act for 
physicians and nonphysician eligible professionals in groups with 2 or 
more eligible professionals and for physicians and nonphysician eligible 
professionals who are solo practitioners that participate in other 
similar Innovation Center models during the performance period for the 
payment adjustment period as described at Sec. 414.1215.
    (iii) For purposes of the value-based payment modifier, a group or 
solo practitioner is considered to be participating in a similar 
Innovation Center model if at least one eligible professional billing 
under the TIN in the performance period for the payment adjustment 
period as described at Sec. 414.1215 is participating in the similar 
model in the performance period.
    (c) Group size and composition determination. (1) The list of groups 
of physicians subject to the value-based payment modifier for the CY 
2015 payment adjustment period is based on a query of PECOS on October 
15, 2013. For each subsequent calendar year payment adjustment period, 
the list of groups and solo practitioners subject to the value-based 
payment modifier is based on a query of PECOS that occurs within 10 days 
of the close of the Physician Quality Reporting System group 
registration process during the applicable performance period described 
at Sec. 414.1215. Groups are removed from the PECOS-generated list if, 
based on a claims analysis, the group did not have the required number 
of eligible professionals, as defined in paragraph (a) of this section, 
that submitted claims during the performance period for the applicable 
calendar year payment adjustment period. Solo practitioners are removed 
from the PECOS-generated list if, based on a claims analysis, the solo 
practitioner did not submit claims during the performance period for the 
applicable calendar year payment adjustment period.
    (2) Beginning with the CY 2016 payment adjustment period, the size 
of a group during the applicable performance period will be determined 
by the lower number of eligible professionals as indicated by the PECOS-
generated list or claims analysis.
    (3) For the CY 2018 payment adjustment period, the composition of a 
group during the applicable performance period will be determined based 
on whether the group includes physicians, physician assistants, nurse 
practitioners, clinical nurse specialists,

[[Page 144]]

certified registered nurse anesthetists, and/or other types of 
nonphysician eligible professionals as indicated by the PECOS-generated 
list or claims analysis.

[77 FR 69368, Nov. 16, 2012, as amended at 78 FR 74820, Dec. 10, 2013; 
79 FR 68005, Nov. 13, 2014; 80 FR 71382, Nov. 16, 2015; 81 FR 80555, 
Nov. 15, 2016]



Sec. 414.1215  Performance and payment adjustment periods for the 
value-based payment modifier.

    (a) The performance period is calendar year 2013 for value-based 
payment modifier adjustments made in the calendar year 2015 payment 
adjustment period.
    (b) The performance period is calendar year 2014 for value-based 
payment modifier adjustments made in the calendar year 2016 payment 
adjustment period.
    (c) The performance period is calendar year 2015 for value-based 
payment modifier adjustments made in the calendar year 2017 payment 
adjustment period.
    (d) The performance period is calendar year 2016 for value-based 
payment modifier adjustments made in the calendar year 2018 payment 
adjustment period.

[77 FR 69368, Nov. 16, 2012, as amended at 78 FR 74820, Dec. 10, 2013; 
80 FR 71383, Nov. 16, 2015]



Sec. 414.1220  Reporting mechanisms for the value-based payment modifier.

    Solo practitioners and groups subject to the value-based payment 
modifier (or individual eligible professionals within such groups) may 
submit data on quality measures as specified under the Physician Quality 
Reporting System using the reporting mechanisms for which they are 
eligible.

[78 FR 74820, Dec. 10, 2013, as amended at 79 FR 68006, Nov. 13, 2014]



Sec. 414.1225  Alignment of Physician Quality Reporting System quality 
measures and quality measures for the value-based payment modifier.

    All of the quality measures for which solo practitioners and groups 
(or individual eligible professionals within such groups) are eligible 
to report under the Physician Quality Reporting System in a given 
calendar year are used to calculate the value-based payment modifier for 
the applicable payment adjustment period, as defined in Sec. 414.1215, 
to the extent a solo practitioner or a group (or individual eligible 
professionals within such group) submit data on such measures.

[79 FR 68006, Dec. 13, 2014]



Sec. 414.1230  Additional measures for groups and solo practitioners.

    The value-based payment modifier includes the following additional 
quality measures (outcome measures) as applicable for all groups and 
solo practitioners subject to the value-based payment modifier:
    (a) A composite of rates of potentially preventable hospital 
admissions for heart failure, chronic obstructive pulmonary disease, and 
diabetes. The rate of potentially preventable hospital admissions for 
diabetes is a composite measure of uncontrolled diabetes, short term 
diabetes complications, long term diabetes complications and lower 
extremity amputation for diabetes.
    (b) A composite of rates of potentially preventable hospital 
admissions for dehydration, urinary tract infections, and bacterial 
pneumonia.
    (c) Rates of an all-cause hospital readmissions measure, except for 
groups with between two to nine eligible professionals and solo 
practitioners starting with the CY 2017 payment adjustment period.

[77 FR 69368, Nov. 16, 2012, as amended at 79 FR 68007, Nov. 13, 2014; 
80 FR 71383, Nov. 16, 2015]



Sec. 414.1235  Cost measures.

    (a) Included measures. Beginning with the CY 2016 payment adjustment 
period, costs for groups and solo practitioners subject to the value-
based payment modifier are assessed based on a cost composite comprised 
of the following 6 cost measures (only the measures identified in 
paragraphs (a)(1) through (5) of this section are included for the 
value-based payment modifier for the CY 2015 payment adjustment period):
    (1) Total per capita costs for all attributed beneficiaries.

[[Page 145]]

    (2) Total per capita costs for all attributed beneficiaries with 
diabetes.
    (3) Total per capita costs for all attributed beneficiaries with 
coronary artery disease.
    (4) Total per capita costs for all attributed beneficiaries with 
chronic obstructive pulmonary disease.
    (5) Total per capita costs for all attributed beneficiaries with 
heart failure.
    (6) Medicare Spending per Beneficiary associated with an acute 
inpatient hospitalization.
    (b) Included payments. Cost measures enumerated in paragraph (a) of 
this section include all fee-for-service payments made under Medicare 
Part A and Part B.
    (c) Cost measure adjustments. (1) Payments under Medicare Part A and 
Part B will be adjusted using CMS' payment standardization methodology 
to ensure fair comparisons across geographic areas.
    (2) The CMS-HCC model (and adjustments for ESRD status) is used to 
adjust standardized payments for the measures listed at paragraphs 
(a)(1) through (5) of this section.
    (3) The beneficiary's age and severity of illness are used to adjust 
the Medicare Spending per Beneficiary measure as specified in paragraph 
(a)(6) of this section.
    (4) Beginning with the CY 2016 payment adjustment period, the cost 
measures of a group and solo practitioner subject to the value-based 
payment modifier are adjusted to account for the group's and solo 
practitioner's specialty mix, by computing the weighted average of the 
national specialty specific expected costs and comparing this to the 
group's actual risk adjusted costs. Each national specialty-specific 
expected cost is weighted by the proportion of Part B payments incurred 
by each specialty within the group.
    (5) The national specialty-specific expected costs referenced in 
paragraph (c)(4) of this section are derived by calculating, for each 
specialty, the weighted average of the risk-adjusted costs computed 
across all groups, where the weight for each group is equal to the 
number of beneficiaries attributed to the group, times the number of 
eligible professionals in the group with the relevant specialty, times 
the proportion of eligible professionals in the group with the relevant 
specialty.

[78 FR 74821, Dec. 10, 2013, as amended at 79 FR 68007, Nov. 13, 2014; 
80 FR 71383, Nov. 16, 2015]



Sec. 414.1240  Attribution for quality of care and cost measures.

    (a) Beneficiaries are attributed to groups and solo practitioners 
subject to the value-based payment modifier using a method generally 
consistent with the method of assignment of beneficiaries under 
Sec. 425.402 of this chapter, for measures other than the Medicare 
Spending per Beneficiary measure.
    (b) For the Medicare Spending per Beneficiary (MSPB) measure, an 
MSPB episode is attributed to the group or the solo practitioner subject 
to the value-based payment modifier whose eligible professionals 
submitted the plurality of claims (as measured by allowable charges) 
under the group's or solo practitioner's TIN for Medicare Part B 
services, rendered during an inpatient hospitalization that is an index 
admission for the MSPB measure during the applicable performance period 
described at Sec. 414.1215.

[79 FR 68007, Nov. 13, 2014]



Sec. 414.1245  Scoring methods for the value-based payment modifier using 
the quality-tiering approach.

    For each quality of care and cost measure, a standardized score is 
calculated for each group and solo practitioner subject to the value-
based payment modifier by dividing--
    (a) The difference between their performance rate and the benchmark, 
by
    (b) The measure's standard deviation.

[77 FR 69368, Nov. 16, 2012, as amended at 79 FR 68007, Nov. 13, 2014]



Sec. 414.1250  Benchmarks for quality of care measures.

    (a) The benchmark for quality of care measures reported through the 
PQRS using the claims, registries, QCDR, or web interface is the 
national mean for that measure's performance rate (regardless of the 
reporting mechanism)

[[Page 146]]

during the year prior to the performance period. In calculating the 
national benchmark, solo practitioners' and groups' (or individual 
eligible professionals' within such groups) performance rates are 
weighted by the number of beneficiaries used to calculate the solo 
practitioners' or groups' (or individual eligible professionals' within 
such groups) performance rate. Beginning with the CY 2016 performance 
period, eCQMs reported via EHRs are excluded from the overall benchmark 
for quality of care measures and separate eCQM benchmarks will be 
developed. The eCQM benchmark is the national mean for the measure's 
performance rate during the year prior to the performance period. In 
calculating the national benchmark, solo practitioners' and groups' (or 
individual eligible professionals' within such groups) performance rates 
are weighted by the number of beneficiaries used to calculate the solo 
practitioners' or groups' (or individual eligible professionals' within 
such groups) performance rate.
    (b) The benchmark for each outcome measure under Sec. 414.1230, is 
the national mean for that measure's performance rate during the year 
prior to the performance period. In calculating the national benchmark, 
solo practitioners' and groups' (or individual eligible professionals' 
within such groups) performance rates are weighted by the number of 
beneficiaries used to calculate the solo practitioners' or groups' (or 
individual eligible professionals' within such groups) performance rate.

[79 FR 68007, Nov. 13, 2014, as amended at 80 FR 71384, Nov. 16, 2015]



Sec. 414.1255  Benchmarks for cost measures.

    (a) For the CY 2015 payment adjustment period, the benchmark for 
each cost measure is the national mean of the performance rates 
calculated among all groups of physicians for which beneficiaries are 
attributed to the group of physicians that are subject to the value-
based payment modifier. In calculating the national benchmark, groups of 
physicians' performance rates are weighted by the number of 
beneficiaries used to calculate the group of physician's performance 
rate.
    (b) Beginning with the CY 2016 payment adjustment period, the 
benchmark for each cost measure is the national mean of the performance 
rates calculated among all groups and solo practitioners that meet the 
minimum number of cases for that measure under Sec. 414.1265(a). In 
calculating the national benchmark, groups and solo practitioners' 
performance rates are weighted by the number of beneficiaries used to 
calculate the group or solo practitioner's performance rate.

[78 FR 74821, Dec. 10, 2013, as amended at 79 FR 68007, Nov. 13, 2014; 
80 FR 71384, Nov. 16, 2015]



Sec. 414.1260  Composite scores.

    (a)(1) The standardized score for each quality of care measure is 
classified into one of the following equally weighted domains to 
determine the quality composite:
    (i) Patient safety.
    (ii) Patient experience.
    (iii) Care coordination.
    (iv) Clinical care.
    (v) Population/community health.
    (vi) Efficiency.
    (2) If a domain includes no measure or does not reach the minimum 
case size in Sec. 414.1265, the remaining domains are equally weighted 
to form the quality of care composite.
    (b)(1) The standardized score for each cost measure is grouped into 
two separate and equally weighted domains to determine the cost 
composite:
    (i) Total per capita costs for all attributed beneficiaries: Total 
per capita costs measure and Medicare Spending per Beneficiary measure; 
and
    (ii) Total per capita costs for all attributed beneficiaries with 
specific conditions: Diabetes, coronary artery disease, chronic 
obstructive pulmonary disease, or heart failure (four measures).
    (2) Measures within each domain are equally weighted.

[77 FR 69368, Nov. 16, 2012, as amended at 78 FR 74821, Dec. 10, 2013]



Sec. 414.1265  Reliability of measures.

    To calculate a composite score for a quality measure or a cost 
measure, a group or solo practitioner subject to

[[Page 147]]

the value-based payment modifier must have 20 or more cases for that 
measure.
    (a) In a performance period, if a group or solo practitioner has 
fewer than 20 cases for a measure, that measure is excluded from its 
domain and the remaining measures in the domain are given equal weight.
    (1) Starting with the CY 2017 payment adjustment period, the 
exception to this paragraph (a) is the all-cause hospital readmissions 
measure described at Sec. 414.1230(c). In a performance period, if a 
group has fewer than 200 cases for this all-cause hospital readmissions 
measure, that measure is excluded from its domain and the remaining 
measures in the domain are given equal weight.
    (2) Starting with the CY 2017 payment adjustment period, the 
Medicare Spending Per Beneficiary measure described at 
Sec. 414.1235(a)(6) is an exception to this paragraph (a). In a 
performance period, if a group or a solo practitioner has fewer than 125 
episodes for this MSPB measure, that measure is excluded from its domain 
and the remaining measures in the domain are given equal weight.
    (b)(1) For the CY 2015 payment adjustment period, if a reliable 
quality of care composite or cost composite cannot be calculated, 
payments will not be adjusted under the value-based payment modifier.
    (2) Beginning with the CY 2016 payment adjustment period, a group 
and a solo practitioner subject to the value-based payment modifier will 
receive a quality composite score that is classified as ``average'' 
under Sec. 414.1275(b)(1) if such group and solo practitioner do not 
have at least one quality measure that meets the minimum number of cases 
under paragraph (a) of this section.
    (3) Beginning with the CY 2016 payment adjustment period, a group 
and a solo practitioner subject to the value-based payment modifier will 
receive a cost composite score that is classified as ``average'' under 
Sec. 414.1275(b)(2) if such group and solo practitioner do not have at 
least one cost measure that meets the minimum number of cases under 
paragraph (a) of this section.

[77 FR 69368, Nov. 16, 2012, as amended at 79 FR 68007, Nov. 13, 2014; 
80 FR 71384, Nov. 16, 2015]



Sec. 414.1270  Determination and calculation of Value-Based Payment 
Modifier adjustments.

    (a) For the CY 2015 payment adjustment period:
    (1) Downward payment adjustments. A downward payment adjustment will 
be applied to a group of physicians subject to the value-based payment 
modifier if--
    (i) Such group neither self-nominates for the PQRS GPRO and reports 
at least one measure, nor elects the PQRS administrative claims option 
for CY 2013 as defined in Sec. 414.90(h).
    (A) Such adjustment will be -1.0 percent.
    (B) [Reserved]
    (ii) Such group elects that its value-based payment modifier be 
calculated using a quality-tiering approach, and is determined to have 
poor performance (low quality and high costs; low quality and average 
costs; or average quality and high costs).
    (A) Such adjustment will not exceed -1.0 percent as specified in 
Sec. 414.1275(c)(1).
    (B) [Reserved]
    (2) No payment adjustments. There will be no value-based payment 
modifier adjustment applied to a group of physicians subject to the 
value-based payment modifier if such group either:
    (i) Self-nominates for the PQRS GPRO and reports at least one 
measure; or
    (ii) Elects the PQRS administrative claims option for CY 2013 as 
defined in Sec. 414.90(h).
    (3) Upward payment adjustments. If a group of physicians subject to 
the value-based payment modifier elects that the value-based payment 
modifier be calculated using a quality-tiering approach, upward payment 
adjustments are determined based on the projected aggregate amount of 
downward payment adjustments determined under paragraph (a)(1) of this 
section and applied as specified in Sec. 414.1275(c)(1).

[[Page 148]]

    (b) For the CY 2016 payment adjustment period:
    (1) A downward payment adjustment of -2.0 percent will be applied to 
a group of physicians subject to the value-based payment modifier if, 
during the applicable performance period as defined in Sec. 414.1215, 
the following apply:
    (i) Such group does not self-nominate for the PQRS GPRO and meet the 
criteria as a group to avoid the PQRS payment adjustment for CY 2016 as 
specified by CMS; and
    (ii) Fifty percent of the eligible professionals in such group do 
not meet the criteria as individuals to avoid the PQRS payment 
adjustment for CY 2016 as specified by CMS.
    (2) For a group of physicians comprised of 100 or more eligible 
professionals that is not included in paragraph (b)(1) of this section, 
the value-based payment modifier adjustment will be equal to the amount 
determined under Sec. 414.1275(c)(2).
    (3) For a group of physicians comprised of between 10 and 99 
eligible professionals that is not included in paragraph (b)(1) of this 
section, the value-based payment modifier adjustment will be equal to 
the amount determined under Sec. 414.1275(c)(2), except that such 
adjustment will be 0.0 percent if the group of physicians is determined 
to be low quality/high cost, low quality/average cost, or average 
quality/high cost.
    (4) If at least fifty percent of the eligible professionals in the 
group meet the criteria as individuals to avoid the PQRS payment 
adjustment for CY 2016 as specified by CMS, and all of those eligible 
professionals use a qualified clinical data registry and CMS is unable 
to receive quality performance data for them, the quality composite 
score for such group will be classified as ``average'' under 
Sec. 414.1275(b)(1).
    (c) For the CY 2017 payment adjustment period:
    (1) A downward payment adjustment of -2.0 percent will be applied to 
a group with two to nine eligible professionals and a solo practitioner 
and a downward payment adjustment of -4.0 percent will be applied to a 
group with 10 or more eligible professionals subject to the value-based 
payment modifier if, during the applicable performance period as defined 
in Sec. 414.1215, the following apply:
    (i) Such group does not meet the criteria as a group to avoid the 
PQRS payment adjustment for CY 2017 as specified by CMS; and
    (ii) Fifty percent of the eligible professionals in such group do 
not meet the criteria as individuals to avoid the PQRS payment 
adjustment for CY 2017 as specified by CMS; or
    (iii) Such solo practitioner does not meet the criteria as an 
individual to avoid the PQRS payment adjustment for CY 2017 as specified 
by CMS.
    (2) For a group comprised of 10 or more eligible professionals that 
is not included in paragraph (c)(1) of this section, the value-based 
payment modifier adjustment will be equal to the amount determined under 
Sec. 414.1275(c)(3)(i).
    (3) For a group comprised of between two to nine eligible 
professionals and a solo practitioner that are not included in paragraph 
(c)(1) of this section, the value-based payment modifier adjustment will 
be equal to the amount determined under Sec. 414.1275(c)(3)(ii).
    (4) If at least fifty percent of the eligible professionals in the 
group meet the criteria as individuals to avoid the PQRS payment 
adjustment for CY 2017 as specified by CMS, and all of those eligible 
professionals use a qualified clinical data registry and CMS is unable 
to receive quality performance data for them, the quality composite 
score for such group will be classified as ``average'' under 
Sec. 414.1275(b)(1).
    (d) For the CY 2018 payment adjustment period:
    (1) A downward payment adjustment of -2.0 percent will be applied to 
a group with two to nine eligible professionals and a solo practitioner, 
a downward payment adjustment of -4.0 percent will be applied to a group 
with 10 or more eligible professionals, and a downward payment 
adjustment of -2.0 percent will be applied to a group or solo 
practitioner consisting of nonphysician eligible professionals subject 
to the value-based payment modifier if, during the applicable 
performance period as defined in Sec. 414.1215, the following apply:
    (i) Such group does not meet the criteria as a group to avoid the 
PQRS

[[Page 149]]

payment adjustment for CY 2018 as specified by CMS; and
    (ii) Fifty percent of the eligible professionals in such group do 
not meet the criteria as individuals to avoid the PQRS payment 
adjustment for CY 2018 as specified by CMS; or
    (iii) Such solo practitioner does not meet the criteria as an 
individual to avoid the PQRS payment adjustment for CY 2018 as specified 
by CMS.
    (2) For a group composed of 10 or more eligible professionals that 
is not included in paragraph (d)(1) of this section, the value-based 
payment modifier adjustment will be equal to the amount determined under 
Sec. 414.1275(c)(4)(i).
    (3) For a group composed of between two to nine eligible 
professionals and a solo practitioner that are not included in paragraph 
(d)(1) of this section, the value-based payment modifier adjustment will 
be equal to the amount determined under Sec. 414.1275(c)(4)(ii).
    (4) For a group and a solo practitioner consisting of nonphysician 
eligible professionals that are not included in paragraph (d)(1) of this 
section, the value-based payment modifier adjustment will be equal to 
the amount determined under Sec. 414.1275(c)(4)(iii).
    (5) If at least 50 percent of the eligible professionals in the 
group meet the criteria as individuals to avoid the PQRS payment 
adjustment for CY 2018 as specified by CMS, and all of those eligible 
professionals use a qualified clinical data registry and CMS is unable 
to receive quality performance data for them, the quality composite 
score for such group will be classified as ``average'' under 
Sec. 414.1275(b)(1).

[78 FR 74821, Dec. 10, 2013, as amended at 79 FR 68007, Nov. 13, 2014; 
80 FR 71384, Nov. 16, 2015]



Sec. 414.1275  Value-based payment modifier quality-tiering
scoring methodology.

    (a) The value-based payment modifier amount for a group and a solo 
practitioner subject to the value-based payment modifier is based upon a 
comparison of the composite of quality of care measures and a composite 
of cost measures.
    (b) Quality composite and cost composite are classified into high, 
average, and low categories based on whether the composites are 
statistically above, not different from, or below the mean composite 
scores.
    (1) Quality composites that are one or more standard deviations 
above the mean are classified into the high category. Quality composites 
that are one or more standard deviations below the mean are classified 
into the low category.
    (2) Cost composites that are one or more standard deviations below 
the mean are classified into the low category. Cost composites that are 
one or more standard deviations above the mean are classified into the 
high category.
    (c)(1) The following value-based payment modifier percentages apply 
to the CY 2015 payment adjustment period:

  CY 2015 Value-Based Payment Modifier Amounts for the Quality-Tiering
                                Approach
------------------------------------------------------------------------
                                                  Average     High cost
           Quality/cost              Low cost       cost      (percent)
------------------------------------------------------------------------
High quality.....................      + 2.0x*      + 1.0x*        + 0.0
Average quality..................      + 1.0x*       + 0.0%         -0.5
Low quality......................       + 0.0%        -0.5%         -1.0
------------------------------------------------------------------------
* Groups of physicians eligible for an additional + 1.0x if (1)
  reporting Physician Quality Reporting System quality measures through
  the GPRO web-interface or CMS-qualified registry, and (2) average
  beneficiary risk score is in the top 25 percent of all beneficiary
  risk scores.

    (2) The following value-based payment modifier percentages apply to 
the CY 2016 payment adjustment period:

  CY 2016 Value-Based Payment Modifier Amounts for the Quality-Tiering
                                Approach
------------------------------------------------------------------------
                                                  Average     High cost
           Quality/cost              Low cost       cost      (percent)
------------------------------------------------------------------------
High quality.....................      + 2.0x*      + 1.0x*        + 0.0
Average quality..................      + 1.0x*       + 0.0%         -1.0

[[Page 150]]

 
Low quality......................       + 0.0%        -1.0%         -2.0
------------------------------------------------------------------------
* Groups of physicians eligible for an additional + 1.0x if reporting
  Physician Quality Reporting System quality measures and average
  beneficiary risk score is in the top 25 percent of all beneficiary
  risk scores.

    (3) The following value-based payment modifier percentages apply to 
the CY 2017 payment adjustment period:
    (i) For groups with 10 or more eligible professionals:

    CY 2017 Value-Based Payment Modifier Amounts for the Quality-Tiering Approach for Groups With 10 or More
                                             Eligible Professionals
----------------------------------------------------------------------------------------------------------------
                      Cost/quality                          Low quality      Average quality      High quality
----------------------------------------------------------------------------------------------------------------
Low Cost...............................................             + 0.0%           * + 2.0x           * + 4.0x
Average Cost...........................................              -2.0%             + 0.0%           * + 2.0x
High Cost..............................................              -4.0%              -2.0%             + 0.0%
----------------------------------------------------------------------------------------------------------------
* Groups eligible for an additional + 1.0x if reporting Physician Quality Reporting System quality measures and
  average beneficiary risk score is in the top 25 percent of all beneficiary risk scores, where `x' represents
  the upward payment adjustment factor.

    (ii) For groups with two to nine eligible professionals and solo 
practitioners:

    CY 2017 Value-Based Payment Modifier Amounts for the Quality-Tiering Approach for Groups With Two to Nine
                                  Eligible Professionals and Solo Practitioners
----------------------------------------------------------------------------------------------------------------
                      Cost/quality                          Low quality      Average quality      High quality
----------------------------------------------------------------------------------------------------------------
Low Cost...............................................             + 0.0%           * + 1.0x           * + 2.0x
Average Cost...........................................             + 0.0%             + 0.0%           * + 1.0x
High Cost..............................................             + 0.0%             + 0.0%             + 0.0%
----------------------------------------------------------------------------------------------------------------
* Groups and solo practitioners eligible for an additional + 1.0x if reporting Physician Quality Reporting
  System quality measures and average beneficiary risk score is in the top 25 percent of all beneficiary risk
  scores, where `x' represents the upward payment adjustment factor.

    (4) The following value-based payment modifier percentages apply to 
the CY 2018 payment adjustment period:
    (i) For physicians, physician assistants, nurse practitioners, 
clinical nurse specialists, and certified registered nurse anesthetists 
in groups with 10 or more eligible professionals:

     CY 2018 Value-Based Payment Modifier Amounts for the Quality-Tiering Approach for Physicians, Physician
   Assistants, Nurse Practitioners, Clinical Nurse Specialists, and Certified Registered Nurse Anesthetists in
                           Groups of Physicians With 10 or More Eligible Professionals
----------------------------------------------------------------------------------------------------------------
             Cost/quality                    Low quality            Average quality            High quality
----------------------------------------------------------------------------------------------------------------
Low Cost.............................  +0.0%..................  +2.0x*.................  +4.0x*
Average Cost.........................  -2.0%..................  +0.0%..................  +2.0x*
High Cost............................  -4.0%..................  -2.0%..................  +0.0%
----------------------------------------------------------------------------------------------------------------
*Groups eligible for an additional +1.0x if reporting Physician Quality Reporting System quality measures and
  average beneficiary risk score is in the top 25 percent of all beneficiary risk scores, where `x' represents
  the upward payment adjustment factor.

    (ii) For physicians, physician assistants, nurse practitioners, 
clinical nurse specialists, and certified registered nurse anesthetists 
in groups with two to nine eligible professionals and physician solo 
practitioners:

[[Page 151]]



     CY 2018 Value-Based Payment Modifier Amounts for the Quality-Tiering Approach for Physicians, Physician
   Assistants, Nurse Practitioners, Clinical Nurse Specialists, and Certified Registered Nurse Anesthetists in
          Groups of Physicians With Two to Nine Eligible Professionals and Physician Solo Practitioners
----------------------------------------------------------------------------------------------------------------
             Cost/quality                    Low quality            Average quality            High quality
----------------------------------------------------------------------------------------------------------------
Low Cost.............................  +0.0%..................  +1.0x*.................  +2.0x*
Average Cost.........................  -1.0%..................  +0.0%..................  +1.0x*
High Cost............................  -2.0%..................  -1.0%..................  +0.0%
----------------------------------------------------------------------------------------------------------------
*Groups and solo practitioners eligible for an additional +1.0x if reporting Physician Quality Reporting System
  quality measures and average beneficiary risk score is in the top 25 percent of all beneficiary risk scores,
  where `x' represents the upward payment adjustment factor.

    (iii) For physician assistants, nurse practitioners, clinical nurse 
specialists, and certified registered nurse anesthetists in groups that 
consist of nonphysician eligible professionals, and solo practitioners 
who are physician assistants, nurse practitioners, clinical nurse 
specialists, and certified registered nurse anesthetists:

  CY 2018 Value-Based Payment Modifier Amounts for the Quality-Tiering Approach for Physician Assistants, Nurse
 Practitioners, Clinical Nurse Specialists, and Certified Registered Nurse Anesthetists in Groups Consisting of
 Nonphysician Eligible Professionals, and Solo Practitioners who are Physician Assistants, Nurse Practitioners,
                     Clinical Nurse Specialists, and Certified Registered Nurse Anesthetists
----------------------------------------------------------------------------------------------------------------
             Cost/quality                    Low quality            Average quality            High quality
----------------------------------------------------------------------------------------------------------------
Low Cost.............................  +0.0%..................  +1.0x*.................  +2.0x*
Average Cost.........................  +0.0%..................  +0.0%..................  +1.0x*
High Cost............................  +0.0%..................  +0.0%..................  +0.0%
----------------------------------------------------------------------------------------------------------------
*Groups and solo practitioners eligible for an additional +1.0x if reporting Physician Quality Reporting System
  quality measures and average beneficiary risk score is in the top 25 percent of all beneficiary risk scores,
  where `x' represents the upward payment adjustment factor.

    (d)(1) Groups of physicians subject to the value-based payment 
modifier that have an attributed beneficiary population with an average 
risk score in the top 25 percent of the risk scores of beneficiaries 
nationwide and for the CY 2015 payment adjustment period elect the 
quality-tiering approach or for the CY 2016 payment adjustment period 
are subject to the quality-tiering approach, receive a greater upward 
payment adjustment as follows:
    (i) Classified as high quality/low cost receive an upward adjustment 
of + 3x (rather than + 2x); and
    (ii) Classified as either high quality/average cost or average 
quality/low cost receive an upward adjustment of + 2x (rather than + 
1x).
    (2) Groups and solo practitioners subject to the value-based payment 
modifier that have an attributed beneficiary population with an average 
risk score in the top 25 percent of the risk scores of beneficiaries 
nationwide and for the CY 2017 payment adjustment period are subject to 
the quality-tiering approach, receive a greater upward payment 
adjustment as follows:
    (i) Classified as high quality/low cost receive an upward adjustment 
of + 5x (rather than + 4x) if the group has 10 or more eligible 
professionals or + 3x (rather than + 2x) if a solo practitioner or the 
group has two to nine eligible professionals; and
    (ii) Classified as either high quality/average cost or average 
quality/low cost receive an upward adjustment of + 3x (rather than + 2x) 
if the group has 10 or more eligible professionals or + 2x (rather than 
+ 1x) if a solo practitioner or the group has two to nine eligible 
professionals.
    (3) Groups and solo practitioners subject to the value-based payment 
modifier that have an attributed beneficiary population with an average 
risk score in the top 25 percent of the risk scores of beneficiaries 
nationwide and for the CY 2018 payment adjustment period are subject to 
the quality-tiering approach, receive a greater upward payment 
adjustment as follows:
    (i) Classified as high quality/low cost receive an upward adjustment 
of +5x (rather than +4x) if the group has 10 or more eligible 
professionals, +3x (rather than +2x) if a solo practitioner or the group 
has two to nine eligible professionals, or +3x (rather than +2x) if a 
solo practitioner or group consisting of nonphysician eligible 
professionals; and
    (ii) Classified as either high quality/average cost or average 
quality/low cost receive an upward adjustment of +3x (rather than +2x) 
if the group has 10 or more eligible professionals, +2x

[[Page 152]]

(rather than +1x) if a solo practitioner or the group has two to nine 
eligible professionals, or +2x (rather than +1x) if a solo practitioner 
or group consisting of nonphysician eligible professionals.

[77 FR 69368, Nov. 16, 2012, as amended at 78 FR 74822, Dec. 10, 2013; 
79 FR 68008, Nov. 13, 2014; 80 FR 71385, Nov. 16, 2015]



Sec. 414.1280  Limitation on review.

    (a) There shall be no administrative or judicial review under 
section 1869 of the Act, section 1878 of the Act, or otherwise of all of 
the following:
    (1) The establishment of the value-based payment modifier.
    (2) The evaluation of the quality of care composite, including the 
establishment of appropriate measure of the quality of care.
    (3) The evaluation of costs composite, including establishment of 
appropriate measures of costs.
    (4) The dates of implementation of the value-based payment modifier.
    (5) The specification of the initial performance period and any 
other performance period.
    (6) The application of the value-based payment modifier.
    (7) The determination of costs.
    (b) [Reserved]



Sec. 414.1285  Informal inquiry process.

    After the dissemination of the annual Physician Feedback reports, a 
group and a solo practitioner may contact CMS to inquire about its 
report and the calculation of the value-based payment modifier.

[77 FR 69368, Nov. 16, 2012, as amended at 79 FR 68008, Nov. 13, 2014]



 Subpart O_Merit-Based Incentive Payment System and Alternative Payment 
                             Model Incentive

    Source: 81 FR 77537, Nov. 4, 2016, unless otherwise noted.



Sec. 414.1300  Basis and scope.

    (a) Basis. This subpart implements the following provisions of the 
Act:
    (1) Section 1833(z)--Incentive Payments for Participation in 
Eligible Alternative Payment Models.
    (2) Section 1848(a)--Payment for Physicians' Services Based on Fee 
Schedule.
    (3) Section 1848(k)--Quality Reporting System.
    (4) Section 1848(q)--Merit-based Incentive Payment System.
    (b) Scope. This subpart part sets forth the following:
    (1) The circumstances under which eligible clinicians are not 
considered MIPS eligible clinicians with respect to a year.
    (2) How individual MIPS eligible clinicians can have their 
performance assessed as a group.
    (3) The data submission methods and data submission criteria for 
each of the MIPS performance categories.
    (4) Methods for calculating a performance category score for each of 
the MIPS performance categories.
    (5) Methods for calculating a MIPS final score and applying the MIPS 
payment adjustment to MIPS eligible clinicians.
    (6) Requirements for an APM to be designated an ``Advanced APM.''
    (7) Methods for eligible clinicians and entities participating in 
Advanced APMs to meet the participation thresholds to become Qualifying 
APM Participants (QPs) and Partial QPs.
    (8) Methods and processes for counting participation in Other Payer 
Advanced APMs in making QP and Partial QP determinations.
    (9) Methods for calculating and paying the APM Incentive Payment to 
QPs.
    (10) Criteria for Physician-Focused Payment Models (PFPMs).



Sec. 414.1305  Definitions.

    As used in this section, unless otherwise indicated--
    Additional performance threshold means the numerical threshold for a 
MIPS payment year against which the final scores of MIPS eligible 
clinicians are compared to determine the additional MIPS payment 
adjustment factors for exceptional performance.
    Advanced Alternative Payment Model (Advanced APM) means an APM that 
CMS determines meets the criteria set forth in Sec. 414.1415.

[[Page 153]]

    Advanced APM Entity means an APM Entity that participates in an 
Advanced APM or Other Payer Advanced APM.
    Affiliated practitioner means an eligible clinician identified by a 
unique APM participant identifier on a CMS-maintained list who has a 
contractual relationship with the Advanced APM Entity for the purposes 
of supporting the Advanced APM Entity's quality or cost goals under the 
Advanced APM.
    Affiliated practitioner list means the list of Affiliated 
Practitioners of an APM Entity that is compiled from a CMS-maintained 
list.
    Alternative Payment Model (APM) means any of the following:
    (1) A model under section 1115A of the Act (other than a health care 
innovation award).
    (2) The shared savings program under section 1899 of the Act.
    (3) A demonstration under section 1866C of the Act.
    (4) A demonstration required by Federal law.
    APM Entity means an entity that participates in an APM or payment 
arrangement with a non-Medicare payer through a direct agreement or 
through Federal or State law or regulation.
    APM Entity group means the group of eligible clinicians 
participating in an APM Entity, as identified by a combination of the 
APM identifier, APM Entity identifier, Taxpayer Identification Number 
(TIN), and National Provider Identifier (NPI) for each participating 
eligible clinician.
    APM Incentive Payment means the lump sum incentive payment for a 
year paid to an eligible clinician who is a QP for the year from 2019 
through 2024.
    Attestation means a secure mechanism, specified by CMS, with respect 
to a particular performance period, whereby a MIPS eligible clinician or 
group may submit the required data for the advancing care information or 
the improvement activities performance categories of MIPS in a manner 
specified by CMS.
    Attributed beneficiary means a beneficiary attributed to the 
Advanced APM Entity under the terms of the Advanced APM or Other Payer 
Advanced APM and listed as an attributed beneficiary on the latest 
available list of attributed beneficiaries at the time of a QP 
determination.
    Attribution-eligible beneficiary means a beneficiary who during the 
QP Performance Period:
    (1) Is not enrolled in Medicare Advantage or a Medicare cost plan;
    (2) Does not have Medicare as a secondary payer;
    (3) Is enrolled in both Medicare Parts A and B;
    (4) Is at least 18 years of age;
    (5) Is a United States resident; and
    (6) Has a minimum of one claim for evaluation and management 
services furnished by an eligible clinician who is in the APM Entity for 
any period during the QP Performance Period or, for an Advanced APM that 
does not base attribution on evaluation and management services and for 
which attributed beneficiaries are not a subset of the attribution-
eligible beneficiary population based on the requirement to have at 
least one claim for evaluation and management services furnished by an 
eligible clinician who is in the APM Entity for any period during the QP 
Performance Period, the attribution basis determined by CMS based upon 
the methodology the Advanced APM uses for attribution, which may include 
a combination of evaluation and management and/or other services.
    Certified Electronic Health Record Technology (CEHRT) means the 
following:
    (1) For any calendar year before 2018, EHR technology (which could 
include multiple technologies) certified under the ONC Health IT 
Certification Program that meets one of the following:
    (i) The 2014 Edition Base EHR definition (as defined at 45 CFR 
170.102) and that has been certified to the certification criteria that 
are necessary to report on applicable objectives and measures specified 
for the MIPS advancing care information performance category, including 
the applicable measure calculation certification criterion at 45 CFR 
170.314(g)(1) or (2) for all certification criteria that support an 
objective with a percentage-based measure.
    (ii) Certification to--
    (A) The following certification criteria:
    (1) CPOE at--

[[Page 154]]

    (i) 45 CFR 170.314(a)(1), (18), (19) or (20); or
    (ii) 45 CFR 170.315(a)(1), (2) or (3).
    (2)(i) Record demographics at 45 CFR 170.314(a)(3); or
    (ii) 45 CFR 170.315(a)(5).
    (3)(i) Problem list at 45 CFR 170.314(a)(5); or
    (ii) 45 CFR 170.315(a)(6).
    (4)(i) Medication list at 45 CFR 170.314(a)(6); or
    (ii) 45 CFR 170.315(a)(7).
    (5)(i) Medication allergy list 45 CFR 170.314(a)(7); or
    (ii) 45 CFR 170.315(a)(8).
    (6)(i) Clinical decision support at 45 CFR 170.314(a)(8); or
    (ii) 45 CFR 170.315(a)(9).
    (7) Health information exchange at transitions of care at one of the 
following:
    (i) 45 CFR 170.314(b)(1) and (2).
    (ii) 45 CFR 170.314(b)(1), (b)(2), and (h)(1).
    (iii) 45 CFR 170.314(b)(1), (b)(2), and (b)(8).
    (iv) 45 CFR 170.314(b)(1), (b)(2), (b)(8), and (h)(1).
    (v) 45 CFR 170.314(b)(8) and (h)(1).
    (vi) 45 CFR 170.314(b)(1), (b)(2), and 170.315(h)(2).
    (vii) 45 CFR 170.314(b)(1), (b)(2), (h)(1), and 170.315(h)(2).
    (viii) 45 CFR 170.314(b)(1), (b)(2), (b)(8), and 170.315(h)(2).
    (ix) 45 CFR 170.314(b)(1), (b)(2), (b)(8), (h)(1), and 
170.315(h)(2).
    (x) 45 CFR 170.314(b)(8), (h)(1), and 170.315(h)(2).
    (xi) 45 CFR 170.314(b)(1), (b)(2), and 170.315(b)(1).
    (xii) 45 CFR 170.314(b)(1), (b)(2), (h)(1), and 170.315(b)(1).
    (xiii) 45 CFR 170.314(b)(1), (b)(2), (b)(8), and 170.315(b)(1).
    (xiv) 45 CFR 170.314(b)(1), (b)(2), (b)(8), (h)(1), and 
170.315(b)(1).
    (xv) 45 CFR 170.314(b)(8), (h)(1), and 170.315(b)(1).
    (xvi) 45 CFR 170.314(b)(1), (b)(2), (b)(8), (h)(1), 170.315(b)(1), 
and 170.315(h)(1).
    (xvii) 45 CFR 170.314(b)(1), (b)(2), (b)(8), (h)(1), 170.315(b)(1), 
and 170.315(h)(2).
    (xviii) 45 CFR 170.314(h)(1) and 170.315(b)(1).
    (xix) 45 CFR 170.315(b)(1) and (h)(1).
    (xx) 45 CFR 170.315(b)(1) and (h)(2).
    (xxi) 45 CFR 170.315(b)(1), (h)(1), and (h)(2); and
    (B) Clinical quality measures at--
    (1) 45 CFR 170.314(c)(1) or 170.315(c)(1);
    (2) 45 CFR 170.314(c)(2) or 170.315(c)(2);
    (3) Clinical quality measure certification criteria that support the 
calculation and reporting of clinical quality measures at 45 CFR 
170.314(c)(2) and (3) and optionally (4); or 45 CFR 170.315(c)(3)(i) and 
(ii) and optionally (c)(4); and can be electronically accepted by CMS if 
the data is submitted electronically.
    (C) Privacy and security at--
    (1) 45 CFR 170.314(d)(1) or 170.315(d)(1);
    (2) 45 CFR 170.314(d)(2) or 170.315(d)(2);
    (3) 45 CFR 170.314(d)(3) or 170.315(d)(3);
    (4) 45 CFR 170.314(d)(4) or 170.315(d)(4);
    (5) 45 CFR 170.314(d)(5) or 170.315(d)(5);
    (6) 45 CFR 170.314(d)(6) or 170.315(d)(6);
    (7) 45 CFR 170.314(d)(7) or 170.315(d)(7);
    (8) 45 CFR 170.314(d)(8) or 170.315(d)(8); and
    (D) The certification criteria that are necessary to report on 
applicable objectives and measures specified for the MIPS advancing care 
information performance category, including the applicable measure 
calculation certification criterion at 45 CFR 170.314(g)(1) or (2) or 45 
CFR 170.315(g)(1) or (2) for all certification criteria that support an 
objective with a percentage-based measure.
    (iii) The definition for 2018 and subsequent years specified in 
paragraph (2) of this definition.
    (2) For 2018 and subsequent years, EHR technology (which could 
include multiple technologies) certified under the ONC Health IT 
Certification Program that meets the 2015 Edition Base EHR definition 
(as defined at 45 CFR 170.102) and has been certified to the 2015 
Edition health IT certification criteria--
    (i) At 45 CFR 170.315(a)(12) (family health history) and 45 CFR 
170.315(e)(3) (patient health information capture); and
    (ii) Necessary to report on applicable objectives and measures 
specified for the MIPS advancing care information performance category 
including the following:
    (A) The applicable measure calculation certification criterion at 45 
CFR 170.315(g)(1) or (2) for all certification criteria that support an 
objective with a percentage-based measure.

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    (B) Clinical quality measure certification criteria that support the 
calculation and reporting of clinical quality measures at 45 CFR 
170.315(c)(2) and (c)(3)(i) and (ii) and optionally (c)(4), and can be 
electronically accepted by CMS.
    CMS-approved survey vendor means a survey vendor that is approved by 
CMS for a particular performance period to administer the CAHPS for MIPS 
survey and to transmit survey measures data to CMS.
    CMS Web Interface means a web product developed by CMS that is used 
by groups that have elected to utilize the CMS Web Interface to submit 
data on the MIPS measures and activities.
    Covered professional services has the meaning given by section 
1848(k)(3)(A) of the Act.
    Eligible clinician means ``eligible professional'' as defined in 
section 1848(k)(3) of the Act, as identified by a unique TIN and NPI 
combination and, includes any of the following:
    (1) A physician.
    (2) A practitioner described in section 1842(b)(18)(C) of the Act.
    (3) A physical or occupational therapist or a qualified speech-
language pathologist.
    (4) A qualified audiologist (as defined in section 1861(ll)(3)(B) of 
the Act).
    Episode payment model means an APM or other payer arrangement 
designed to improve the efficiency and quality of care for an episode of 
care by bundling payment for services furnished to an individual over a 
defined period of time for a specific clinical condition or conditions.
    Estimated aggregate payment amounts means the total payments to a QP 
for Medicare Part B covered professional services for the incentive 
payment base period, estimated by CMS as described in Sec. 414.1450(b).
    Final score means a composite assessment (using a scoring scale of 0 
to 100) for each MIPS eligible clinician for a performance period 
determined using the methodology for assessing the total performance of 
a MIPS eligible clinician according to performance standards for 
applicable measures and activities for each performance category. The 
final score is the sum of each of the products of each performance 
category score and each performance category's assigned weight, 
multiplied by 100.
    Group means a single TIN with two or more eligible clinicians 
(including at least one MIPS eligible clinician), as identified by their 
individual NPI, who have reassigned their billing rights to the TIN.
    Health Professional Shortage Areas (HPSA) means areas as designated 
under section 332(a)(1)(A) of the Public Health Service Act.
    High priority measure means an outcome, appropriate use, patient 
safety, efficiency, patient experience, or care coordination quality 
measure.
    Hospital-based MIPS eligible clinician is a MIPS eligible clinician 
who furnishes 75 percent or more of his or her covered professional 
services in sites of service identified by the Place of Service codes 
used in the HIPAA standard transaction as an inpatient hospital, on-
campus outpatient hospital or emergency room setting based on claims for 
a period prior to the performance period as specified by CMS.
    Improvement activities means an activity that relevant MIPS eligible 
clinician, organizations and other relevant stakeholders identify as 
improving clinical practice or care delivery and that the Secretary 
determines, when effectively executed, is likely to result in improved 
outcomes.
    Incentive payment base period means the calendar year prior to the 
year in which CMS disburses the APM Incentive Payment.
    Low-volume threshold means an individual MIPS eligible clinician or 
group who, during the low-volume threshold determination period, have 
Medicare Part B allowed charges less than or equal to $30,000 or 
provides care for 100 or fewer Part B-enrolled Medicare beneficiaries.
    Meaningful EHR user for MIPS means a MIPS eligible clinician who 
possesses CEHRT, uses the functionality of CEHRT, and reports on 
applicable objectives and measures specified for the advancing care 
information performance category for a performance period in the form 
and manner specified by CMS, supports information exchange and the 
prevention of health information blocking, and engages in activities

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related to supporting providers with the performance of CEHRT.
    Measure benchmark means the level of performance that the MIPS 
eligible clinician is assessed on for a specific performance period at 
the measures and activities level.
    Medicaid APM means a payment arrangement authorized by a State 
Medicaid program that meets the criteria for an Other Payer Advanced APM 
under Sec. 414.1420(a).
    Medical Home Model means an APM under section 1115A of the Act that 
is determined by CMS to have the following characteristics:
    (1) The APM has a primary care focus with participants that 
primarily include primary care practices or multispecialty practices 
that include primary care physicians and practitioners and offer primary 
care services. For the purposes of this provision, primary care focus 
means the inclusion of specific design elements related to eligible 
clinicians practicing under one or more of the following Physician 
Specialty Codes: 01 General Practice; 08 Family Medicine; 11 Internal 
Medicine; 16 Obstetrics and Gynecology; 37 Pediatric Medicine; 38 
Geriatric Medicine; 50 Nurse Practitioner; 89 Clinical Nurse Specialist; 
and 97 Physician Assistant;
    (2) Empanelment of each patient to a primary clinician; and
    (3) At least four of the following:
    (i) Planned coordination of chronic and preventive care.
    (ii) Patient access and continuity of care.
    (iii) Risk-stratified care management.
    (iv) Coordination of care across the medical neighborhood.
    (v) Patient and caregiver engagement.
    (vi) Shared decision-making.
    (vii) Payment arrangements in addition to, or substituting for, fee-
for-service payments (for example, shared savings or population-based 
payments).
    Medicaid Medical Home Model means a payment arrangement under title 
XIX that CMS determines to have the following characteristics:
    (1) The payment arrangement has a primary care focus with 
participants that primarily include primary care practices or 
multispecialty practices that include primary care physicians and 
practitioners and offer primary care services. For the purposes of this 
provision, primary care focus means the inclusion of specific design 
elements related to eligible clinicians practicing under one or more of 
the following Physician Specialty Codes: 01 General Practice; 08 Family 
Medicine; 11 Internal Medicine; 16 Obstetrics and Gynecology; 37 
Pediatric Medicine; 38 Geriatric Medicine; 50 Nurse Practitioner; 89 
Clinical Nurse Specialist; and 97 Physician Assistant;
    (2) Empanelment of each patient to a primary clinician; and
    (3) At least four of the following:
    (i) Planned coordination of chronic and preventive care.
    (ii) Patient access and continuity.
    (iii) Risk-stratified care management.
    (iv) Coordination of care across the medical neighborhood.
    (v) Patient and caregiver engagement.
    (vi) Shared decision-making.
    (vii) Payment arrangements in addition to, or substituting for, fee-
for-service payments (for example, shared savings or population-based 
payments).
    Merit-based Incentive Payment System (MIPS) means the program 
required by section 1848(q) of the Act.
    MIPS APM means an APM that meets the criteria specified under 
Sec. 414.1370(b).
    MIPS eligible clinician as identified by a unique billing TIN and 
NPI combination used to assess performance, means any of the following 
(excluding those identified at Sec. 414.1310(b)):
    (1) A physician as defined in section 1861(r) of the Act.
    (2) A physician assistant, a nurse practitioner, and clinical nurse 
specialist as such terms are defined in section 1861(aa)(5) of the Act.
    (3) A certified registered nurse anesthetist as defined in section 
1861(bb)(2) of the Act.
    (4) A group that includes such clinicians.
    MIPS payment year means a calendar year in which the MIPS payment 
adjustment factor, and if applicable the additional MIPS payment 
adjustment factor, are applied to Medicare Part B payments.

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    New Medicare-Enrolled MIPS eligible clinician means an eligible 
clinician who first becomes a Medicare-enrolled eligible clinician 
within the Provider Enrollment, Chain and Ownership System (PECOS) 
during the performance period for a year and had not previously 
submitted claims under Medicare as an individual, an entity, or a part 
of a physician group or under a different billing number or tax 
identifier.
    Non-patient facing MIPS eligible clinician means an individual MIPS 
eligible clinician that bills 100 or fewer patient facing encounters 
(including Medicare telehealth services defined in section 1834(m) of 
the Act) during the non-patient facing determination period, and a group 
provided that more than 75 percent of the NPIs billing under the group's 
TIN meet the definition of a non-patient facing individual MIPS eligible 
clinician during the non-patient facing determination period.
    Other Payer Advanced APM means a payment arrangement that meets the 
criteria set forth in Sec. 414.1420.
    Other payer arrangement means a payment arrangement with any payer 
that is not an APM.
    Partial Qualifying APM Participant (Partial QP) means an eligible 
clinician determined by CMS to have met the relevant Partial QP 
threshold under Sec. 414.1430(a)(2) and (4) and (b)(2) and (4) for a 
year.
    Partial QP patient count threshold means the minimum threshold score 
specified in Sec. 414.1430(a)(4) and (b)(4) that an eligible clinician 
must attain through a patient count methodology described in 
Secs. 414.1435(b) and 414.1440(c) to become a Partial QP for a year.
    Partial QP payment amount threshold means the minimum threshold 
score specified in Sec. 414.1430(a)(2) and (b)(2) that an eligible 
clinician must attain through a payment amount methodology described 
Secs. 414.1435(a) and 414.1440(b) to become a Partial QP for a year.
    Participation List means the list of participants in an APM Entity 
that is compiled from a CMS-maintained list.
    Performance category score means the assessment of each MIPS 
eligible clinician's performance on the applicable measures and 
activities for a performance category for a performance period based on 
the performance standards for those measures and activities.
    Performance standards means the level of performance and methodology 
that the MIPS eligible clinician is assessed on for a MIPS performance 
period at the measures and activities level for all MIPS performance 
categories.
    Performance threshold means the numerical threshold for a MIPS 
payment year against which the final scores of MIPS eligible clinicians 
are compared to determine the MIPS payment adjustment factors.
    QP patient count threshold means the minimum threshold score 
specified in Sec. 414.1430(a)(3) and (b)(3) that an eligible clinician 
must attain through a patient count methodology described in 
Secs. 414.1435(b) and 414.1440(c) to become a QP for a year.
    QP payment amount threshold means the minimum threshold score 
specified in Sec. 414.1430(a)(1) and (b)(1) that an eligible clinician 
must attain through the payment amount methodology described in 
Secs. 414.1435(a) and 414.1440(b) to become a QP for a year.
    QP Performance Period means the time period that CMS will use to 
assess the level of participation by an eligible clinician in Advanced 
APMs and Other Payer Advanced APMs for purposes of making a QP 
determination for the eligible clinician for the year as specified in 
Sec. 414.1425. The QP Performance Period begins on January 1 and ends on 
August 31 of the calendar year that is 2 years prior to the payment 
year.
    Qualified Clinical Data Registry (QCDR) means a CMS-approved entity 
that has self-nominated and successfully completed a qualification 
process to determine whether the entity may collect medical or clinical 
data for the purpose of patient and disease tracking to foster 
improvement in the quality of care provided to patients.
    Qualified registry means a medical registry, a maintenance of 
certification program operated by a specialty body of the American Board 
of Medical Specialties or other data intermediary that, with respect to 
a particular performance period, has self-nominated and successfully 
completed a vetting process (as specified by CMS) to demonstrate its 
compliance with the MIPS

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qualification requirements specified by CMS for that performance period. 
The registry must have the requisite legal authority to submit MIPS data 
(as specified by CMS) on behalf of a MIPS eligible clinician or group to 
CMS.
    Qualifying APM Participant (QP) means an eligible clinician 
determined by CMS to have met or exceeded the relevant QP payment amount 
or QP patient count threshold under Sec. 414.1430(a)(1), (a)(3), (b)(1), 
or (b)(3) for a year based on participation in an Advanced APM Entity.
    Rural areas means clinicians in zip codes designated as rural, using 
the most recent HRSA Area Health Resource File data set available.
    Small practices means practices consisting of 15 or fewer clinicians 
and solo practitioners.
    Threshold Score means the percentage value that CMS determines for 
an eligible clinician based on the calculations described in 
Sec. 414.1435 or Sec. 414.1440.
    Topped out non-process measure means a measure where the Truncated 
Coefficient of Variation is less than 0.10 and the 75th and 90th 
percentiles are within 2 standard errors.
    Topped out process measure means a measure with a median performance 
rate of 95 percent or higher.



Sec. 414.1310  Applicability.

    (a) Program Implementation. Except as specified in paragraph (b) of 
this section, MIPS applies to payments for items and services furnished 
by MIPS eligible clinicians on or after January 1, 2019.
    (b) Exclusions. (1) For a year, a MIPS eligible clinician does not 
include an eligible clinician who:
    (i) Is a Qualifying APM Participant (as defined at Sec. 414.1305);
    (ii) Is a Partial Qualifying APM Participant (as defined at 
Sec. 414.1305) and does not report on applicable measures and activities 
that are required to be reported under MIPS for any given performance 
period in a year; or
    (iii) For the performance period with respect to a year, does not 
exceed the low-volume threshold as defined at Sec. 414.1305.
    (2) Eligible clinicians, as defined at Sec. 414.1305, who are not 
MIPS eligible clinicians, as defined at Sec. 414.1305, have the option 
to voluntarily report measures and activities for MIPS.
    (c) Treatment of new Medicare-enrolled eligible clinicians. New 
Medicare-enrolled eligible clinician, as defined at Sec. 414.1305, will 
not be treated as a MIPS eligible clinician until the subsequent year 
and the performance period for such subsequent year.
    (d) Clarification. In no case will a MIPS payment adjustment apply 
to the items and services furnished during a year by individual eligible 
clinicians, as described in paragraphs (b) and (c) of this section, who 
are not MIPS eligible clinicians, including eligible clinicians who 
voluntarily report on applicable measures and activities specified under 
MIPS.
    (e) Requirements for groups. (1) The following way is for individual 
eligible clinicians and individual MIPS eligible clinicians to have 
their performance assessed as a group:
    (i) As part of a single TIN associated with two or more eligible 
clinicians (including at least one MIPS eligible clinician), as 
identified by a NPI, that have their Medicare billing rights reassigned 
to the TIN.
    (ii) [Reserved]
    (2) A group must meet the definition of a group at all times during 
the performance period for the MIPS payment year in order to have its 
performance assessed as a group.
    (3) Eligible clinicians and MIPS eligible clinicians within a group 
must aggregate their performance data across the TIN in order for their 
performance to be assessed as a group.
    (4) A group that elects to have its performance assessed as a group 
will be assessed as a group across all four MIPS performance categories.
    (5) A group must adhere to an election process established and 
required by CMS.



Sec. 414.1315  [Reserved]



Sec. 414.1320  MIPS performance period.

    (a) For purposes of the 2019 MIPS payment year, the performance 
period for all performance categories and submission mechanisms except 
for the cost performance category and data for the quality performance 
category reported through the CMS Web Interface,

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for the CAHPS for MIPS survey, and for the all-cause hospital 
readmission measure, is a minimum of a continuous 90-day period within 
CY 2017, up to and including the full CY 2017 (January 1, 2017 through 
December 31, 2017). For purposes of the 2019 MIPS payment year, for data 
reported through the CMS Web Interface or the CAHPS for MIPS survey and 
administrative claims-based cost and quality measures, the performance 
period under MIPS is CY 2017 (January 1, 2017 through December 31, 
2017).
    (b) For purposes of the 2020 MIPS payment year, the performance 
period for:
    (1) The quality and cost performance categories is CY 2018 (January 
1, 2018 through December 31, 2018).
    (2) The advancing care information and improvement activities 
performance categories is a minimum of a continuous 90-day period within 
CY 2018, up to and including the full CY 2018 (January 1, 2018 through 
December 31, 2018).



Sec. 414.1325  Data submission requirements.

    (a) Data submission performance categories. MIPS eligible clinicians 
and groups must submit measures, objectives, and activities for the 
quality, improvement activities, and advancing care information 
performance categories.
    (b) Data submission mechanisms for individual eligible clinicians. 
An individual MIPS eligible clinician may elect to submit their MIPS 
data using:
    (1) A qualified registry for the quality, improvement activities, or 
advancing care information performance categories;
    (2) The EHR submission mechanism (which includes submission of data 
by health IT vendors or other authorized providers on behalf of MIPS 
eligible clinicians) for the quality, improvement activities, or 
advancing care information performance categories;
    (3) A QCDR for the quality, improvement activities, or advancing 
care information performance categories;
    (4) Medicare Part B claims for the quality performance category; or
    (5) Attestation for the improvement activities and advancing care 
information performance categories.
    (c) Data submission mechanisms for groups that are not reporting 
through an APM. Groups may submit their MIPS data using:
    (1) A qualified registry for the quality, improvement activities, or 
advancing care information performance categories;
    (2) The EHR submission mechanism (which includes the submission of 
data by health IT vendors on behalf of groups) for the quality, 
improvement activities, or advancing care information performance 
categories;
    (3) A QCDR for the quality, improvement activities, or advancing 
care information performance categories;
    (4) A CMS Web Interface (for groups comprised of at least 25 MIPS 
eligible clinicians) for the quality, improvement activities, and 
advancing care information performance categories;
    (5) Attestation for the improvement activities and advancing care 
information performance categories; or
    (6) A CMS-approved survey vendor for groups that elect to include 
the CAHPS for MIPS survey as a quality measure. Groups that elect to 
include the CAHPS for MIPS survey as a quality measure must select one 
of the above data submission mechanisms to submit their other quality 
information.
    (d) Requirement to use only one submission mechanism per performance 
category. Except as described in paragraph (c)(6) of this section, MIPS 
eligible clinicians and groups may elect to submit information via 
multiple mechanisms; however, they must use the same identifier for all 
performance categories and they may only use one submission mechanism 
per performance category.
    (e) No data submission requirements for the cost performance 
category and certain quality measures. There are no data submission 
requirements for the cost performance category and for certain quality 
measures used to assess performance in the quality performance category. 
CMS will calculate performance on these measures using administrative 
claims data.

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    (f) Data submission deadlines for all submission mechanisms for 
individual eligible clinicians and groups for all performance 
categories. The submission deadlines are:
    (1) For the qualified registry, QCDR, EHR, and attestation 
submission mechanisms are March 31 following the close of the 
performance period.
    (2) For Medicare Part B claims, data must be submitted on claims 
with dates of service during the performance period that must be 
processed no later than 60 days following the close of the performance 
period.
    (3) For the CMS Web Interface, data must be submitted during an 8-
week period following the close of the performance period. The period 
must begin no earlier than January 2 and end no later than March 31.



Sec. 414.1330  Quality performance category.

    (a) For purposes of assessing performance of MIPS eligible 
clinicians on the quality performance category, CMS will use:
    (1) Quality measures included in the MIPS final list of quality 
measures.
    (2) Quality measures used by QCDRs.
    (b) Subject to CMS's authority to reweight performance category 
weights under section 1848(q)(5)(F) of the Act, performance in the 
quality performance category will comprise:
    (1) 60 percent of a MIPS eligible clinician's final score for MIPS 
payment year 2019.
    (2) 50 percent of a MIPS eligible clinician's final score for MIPS 
payment year 2020.
    (3) 30 percent of a MIPS eligible clinician's final score for each 
MIPS payment year thereafter.



Sec. 414.1335  Data submission criteria for the quality performance category.

    (a) Criteria. A MIPS eligible clinician or group must submit data on 
MIPS quality measures in one of the following manners, as applicable:
    (1) Via claims, qualified registry, EHR or QCDR submission 
mechanism. For the performance period--
    (i) Submit data on at least six measures including at least one 
outcome measure. If an applicable outcome measure is not available, 
report one other high priority measure (appropriate use, patient safety, 
efficiency, patient experience, and care coordination measures). If 
fewer than six measures apply to the MIPS eligible clinician or group, 
report on each measure that is applicable.
    (ii) Subject to paragraph (a)(1)(i) of this section, MIPS eligible 
clinicians and groups can either select their measures from the complete 
MIPS final measure list or a subset of that list, MIPS specialty-
specific measure sets, as designated by CMS.
    (2) Via the CMS Web Interface--for groups only. For the 12-month 
performance period-
    (i) For a group of 25 or more MIPS eligible clinicians, report on 
all measures included in the CMS Web Interface. The group must report on 
the first 248 consecutively ranked beneficiaries in the sample for each 
measure or module.
    (ii) If the sample of eligible assigned beneficiaries is less than 
248, then the group must report on 100 percent of assigned 
beneficiaries. In some instances, the sampling methodology will not be 
able to assign at least 248 patients on which a group may report, 
particularly those groups on the smaller end of the range of 25-99 MIPS 
eligible clinicians.
    (iii) The group is required to report on at least one measure for 
which there is Medicare patient data.
    (iv) Groups reporting via the CMS Web Interface are required to 
report on all of the measures in the set.
    (3) Via CMS-approved survey vendor for CAHPS for MIPS survey- for 
groups only. (i) For the 12-month performance period, a group that 
wishes to voluntarily elect to participate in the CAHPS for MIPS survey 
measures must use a survey vendor that is approved by CMS for a 
particular performance period to transmit survey measures data to CMS.
    (A) The CAHPS for MIPS survey counts for one measure towards the 
MIPS quality performance category and, as a patient experience measure, 
also fulfills the requirement to report at least one high priority 
measure in the absence of an applicable outcome measure.

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    (B) Groups that elect this data submission mechanism must select an 
additional group data submission mechanism in order to meet the data 
submission criteria for the MIPS quality performance category.
    (ii) [Reserved]
    (b) [Reserved]



Sec. 414.1340  Data completeness criteria for the quality performance category.

    (a) MIPS eligible clinicians and groups submitting quality measures 
data using the QCDR, qualified registry, or EHR submission mechanism 
must submit data on:
    (1) At least 50 percent of the MIPS eligible clinician or group's 
patients that meet the measure's denominator criteria, regardless of 
payer for MIPS payment year 2019.
    (2) At least 60 percent of the MIPS eligible clinician or group's 
patients that meet the measure's denominator criteria, regardless of 
payer for MIPS payment year 2020.
    (b) MIPS eligible clinicians submitting quality measures data using 
Medicare Part B claims, must submit data on:
    (1) At least 50 percent of the applicable Medicare Part B patients 
seen during the performance period to which the measure applies for MIPS 
payment year 2019.
    (2) At least 60 percent of the applicable Medicare Part B patients 
seen during the performance period to which the measure applies for MIPS 
payment year 2020.
    (c) Groups submitting quality measures data using the CMS Web 
Interface or a CMS-approved survey vendor to submit the CAHPS for MIPS 
survey must meet the data submission requirement on the sample of the 
Medicare Part B patients CMS provides.



Sec. 414.1350  Cost performance category.

    (a) For purposes of assessing performance of MIPS eligible 
clinicians on the cost performance category, CMS specifies cost measures 
for a performance period.
    (b) Subject to CMS's authority to reweight performance category 
weights under section 1848(q)(5)(F) of the Act, performance in the cost 
performance category comprises:
    (1) 0 percent of a MIPS eligible clinician's final score for MIPS 
payment year 2019.
    (2) 10 percent of a MIPS eligible clinician's final score for MIPS 
payment year 2020.
    (3) 30 percent of a MIPS eligible clinician's final score for each 
MIPS payment year thereafter.



Sec. 414.1355  Improvement activities performance category.

    (a) For purposes of assessing performance of MIPS eligible 
clinicians on the improvement activities performance category, CMS 
specifies an inventory of measures and activities for a performance 
period.
    (b) Subject to CMS's authority to reweight performance category 
weights under section 1848(q)(5)(F) of the Act, performance in the 
improvement activities performance category comprises:
    (1) 15 percent of a MIPS eligible clinician's final score for MIPS 
payment year 2019 and for each MIPS payment year thereafter.
    (2) [Reserved].
    (c) For purposes of assessing performance of MIPS eligible 
clinicians on the improvement activities performance category, CMS uses 
activities included in the improvement activities inventory established 
by CMS through rulemaking.



Sec. 414.1360  Data submission criteria for the improvement 
activities performance category.

    (a) MIPS eligible clinicians must submit data on MIPS improvement 
activities in one of the following manners:
    (1) Via qualified registry, EHR submission mechanisms, QCDR, CMS Web 
Interface or Attestation. For activities that are performed for at least 
a continuous 90-days during the performance period, MIPS eligible 
clinicians must--
    (i) Submit a yes response for activities within the improvement 
activities inventory.
    (ii) [Reserved]
    (2) [Reserved]
    (b) [Reserved]

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Sec. 414.1365  Subcategories for the improvement activities performance category.

    (a) The following are the list of subcategories, of which, with the 
exception of Participation in an APM, include activities for selection 
by a MIPS eligible clinician or group:
    (1) Expanded practice access, such as same day appointments for 
urgent needs and after-hours access to clinician advice.
    (2) Population management, such as monitoring health conditions of 
individuals to provide timely health care interventions or participation 
in a QCDR.
    (3) Care coordination, such as timely communication of test results, 
timely exchange of clinical information to patients or other clinicians, 
and use of remote monitoring or telehealth.
    (4) Beneficiary engagement, such as the establishment of care plans 
for individuals with complex care needs, beneficiary self-management 
assessment and training, and using shared decision-making mechanisms.
    (5) Patient safety and practice assessment, such as through the use 
of clinical or surgical checklists and practice assessments related to 
maintaining certification.
    (6) Participation in an APM.
    (7) Achieving health equity, such as for MIPS eligible clinicians 
that achieve high quality for underserved populations, including persons 
with behavioral health conditions, racial and ethnic minorities, sexual 
and gender minorities, people with disabilities, people living in rural 
areas, and people in geographic HPSAs.
    (8) Emergency preparedness and response, such as measuring MIPS 
eligible clinician participation in the Medical Reserve Corps, measuring 
registration in the Emergency System for Advance Registration of 
Volunteer Health Professionals, measuring relevant reserve and active 
duty uniformed services MIPS eligible clinician activities, and 
measuring MIPS eligible clinician volunteer participation in domestic or 
international humanitarian medical relief work.
    (9) Integrated behavioral and mental health, such as measuring or 
evaluating such practices as: Co-location of behavioral health and 
primary care services; shared/integrated behavioral health and primary 
care records; cross-training of MIPS eligible clinicians, and 
integrating behavioral health with primary care to address substance use 
disorders or other behavioral health conditions, as well as integrating 
mental health with primary care.
    (b) [Reserved]



Sec. 414.1370  APM scoring standard under MIPS.

    (a) General. The APM scoring standard is the MIPS scoring 
methodology applicable for MIPS eligible clinicians identified on the 
Participation List for the performance period of an APM Entity 
participating in a MIPS APM.
    (b) Criteria for MIPS APMs. MIPS APMs are those in which:
    (1) APM Entities participate in the APM under an agreement with CMS 
or through a law or regulation;
    (2) The APM is designed such that APM Entities participating in the 
APM include at least one MIPS eligible clinician on a Participation 
List;
    (3) The APM bases payment on cost/utilization and quality measures; 
and
    (4) The APM is not either of the following:
    (i) New APMs. An APM for which the first performance year begins 
after the first day of the MIPS performance period for the year.
    (ii) APM in final year of operation for which the APM scoring 
standard is impracticable. An APM in the final year of operation for 
which CMS determines, within 60 days after the beginning of the MIPS 
performance period for the year, that it is impracticable for APM Entity 
groups to report to MIPS using the APM scoring standard.
    (c) APM scoring standard performance period. The MIPS performance 
period under Sec. 414.1320 applies for the APM scoring standard.
    (d) APM participant identifier. The APM participant identifier for 
an eligible clinician is the combination of four identifiers:
    (1) APM identifier (established for the APM by CMS);
    (2) APM Entity identifier (established for the APM Entity by CMS);
    (3) Medicare-enrolled billing TIN; and
    (4) Eligible clinician NPI.

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    (e) APM Entity group determination. The APM Entity group is 
determined in the manner prescribed in Sec. 414.1425(b)(1).
    (f) APM Entity group scoring under the APM scoring standard. The 
MIPS final score calculated for the APM Entity group is applied to each 
MIPS eligible clinician in the APM Entity group. The MIPS payment 
adjustment is applied at the TIN/NPI level for each of the MIPS eligible 
clinicians in the APM Entity group. In the event that a Shared Savings 
Program ACO does not report quality measures as required by the Shared 
Savings Program, the ACO participant TINs will each be considered a 
unique APM Entity for purposes of the APM scoring standard.
    (g) MIPS performance category scoring under the APM scoring 
standard--(1) Quality--(i) MIPS APMs that require APM Entities to submit 
quality data using the CMS Web Interface. The MIPS performance category 
score for quality for a performance period will be calculated for the 
APM Entity group using the data submitted for the APM Entity through the 
CMS Web Interface according to the terms of the APM. In the event that a 
Shared Savings Program ACO does not report on quality measures as 
required by the Shared Savings Program, the ACO participant TINs must 
report data for the MIPS quality performance category according to the 
MIPS submission and reporting requirements.
    (ii) [Reserved]
    (2) Cost. The cost performance category weight is zero percent for 
APM Entity groups in MIPS APMs.
    (3) Improvement activities. (i) CMS assigns an improvement 
activities score for each MIPS APM for a performance period based on the 
requirements of the MIPS APM. The assigned improvement activities score 
applies to each APM Entity group in the MIPS APM for the performance 
year. In the event that the assigned score does not represent the 
maximum improvement activities score, APM Entities may report additional 
activities.
    (ii) [Reserved]
    (4) Advancing care information. (i) For APM Entity groups in the 
Shared Savings Program, each ACO participant TIN submits data on the 
advancing care information performance category as specified in 
Sec. 414.1375(b) and performance on the advancing care information 
performance category is assessed for the APM Entity group by calculating 
the weighted mean of the TIN level scores, weighted based on the number 
of MIPS eligible clinicians in the TINs as compared to the total number 
of MIPS eligible clinicians in the APM Entity group.
    (ii) For APM Entity groups in MIPS APMs other than the Shared 
Savings Program, CMS uses one score for each MIPS eligible clinician in 
the APM Entity group to derive a single average APM Entity group score 
for advancing care information. The score for each MIPS eligible 
clinician is the higher of either:
    (A) A group score based on the measure data for the advancing care 
information performance category reported by a TIN for the MIPS eligible 
clinician according to the MIPS submission and reporting requirements 
for groups; or
    (B) An individual score based on the measure data for the advancing 
care information performance category reported by the MIPS eligible 
clinician according to the MIPS submission and reporting requirements 
for individuals.
    (h) APM scoring standard performance category weights. The 
performance category weights used to calculate the final score for an 
APM Entity group are:
    (1) Quality. (i) For the Shared Savings Program and other MIPS APMs 
that require APM Entities to submit quality data through the CMS Web 
Interface: 50 percent.
    (ii) For 2017, for MIPS APMs that do not require APM Entities to 
submit quality data through the CMS Web Interface: 0 percent.
    (2) Cost. 0 percent.
    (3) Improvement activities. (i) For the Shared Savings Program and 
other MIPS APMs that require APM Entities to submit quality data through 
the CMS Web Interface: 20 percent.
    (ii) For 2017, for MIPS APMs that do not require APM Entities to 
submit quality data through the CMS Web Interface: 25 percent.
    (4) Advancing care information. (i) For the Shared Savings Program 
and other

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MIPS APMs that require APM Entities to submit quality data through the 
CMS Web Interface: 30 percent.
    (ii) For 2017, for MIPS APMs that do not require APM Entities to 
submit quality data through the CMS Web Interface: 75 percent.



Sec. 414.1375  Advancing care information performance category.

    (a) Final score. Subject to CMS's authority to reweight performance 
category weights under section 1848(q)(5)(E)(ii) and (q)(5)(F) of the 
Act, performance in the advancing care information performance category 
will comprise 25 percent of a MIPS eligible clinician's final score for 
MIPS payment year 2019 and each MIPS payment year thereafter.
    (b) Reporting for the advancing care information performance 
category: To earn a performance category score for the advancing care 
information performance category for inclusion in the final score, a 
MIPS eligible clinician must:
    (1) CEHRT. Use CEHRT as defined at Sec. 414.1305 for the performance 
period;
    (2) Report MIPS--advancing care information objectives and measures. 
Report on the objectives and associated measures as specified by CMS for 
the advancing care information performance category for the performance 
period as follows:
    (i) Report the numerator (of at least one) and denominator, or yes/
no statement as applicable, for each required measure; or
    (ii) Report a null value for each required measure that includes a 
null value as an acceptable result in the measure specification.
    (3) Support information exchange and the prevention of health 
information blocking, and engage in activities related to supporting 
providers with the performance of CEHRT. (i) Supporting providers with 
the performance of CEHRT (SPPC). To engage in activities related to 
supporting providers with the performance of CEHRT, the MIPS eligible 
clinician--
    (A) Must attest that he or she:
    (1) Acknowledges the requirement to cooperate in good faith with ONC 
direct review of his or her health information technology certified 
under the ONC Health IT Certification Program if a request to assist in 
ONC direct review is received; and
    (2) If requested, cooperated in good faith with ONC direct review of 
his or her health information technology certified under the ONC Health 
IT Certification Program as authorized by 45 CFR part 170, subpart E, to 
the extent that such technology meets (or can be used to meet) the 
definition of CEHRT, including by permitting timely access to such 
technology and demonstrating its capabilities as implemented and used by 
the MIPS eligible clinician in the field.
    (B) Optionally, may also attest that he or she:
    (1) Acknowledges the option to cooperate in good faith with ONC-ACB 
surveillance of his or her health information technology certified under 
the ONC Health IT Certification Program if a request to assist in ONC-
ACB surveillance is received; and
    (2) If requested, cooperated in good faith with ONC-ACB surveillance 
of his or her health information technology certified under the ONC 
Health IT Certification Program as authorized by 45 CFR part 170, 
subpart E, to the extent that such technology meets (or can be used to 
meet) the definition of CEHRT, including by permitting timely access to 
such technology and demonstrating its capabilities as implemented and 
used by the MIPS eligible clinician in the field.
    (ii) Support for health information exchange and the prevention of 
information blocking. The MIPS eligible clinician must attest to CMS 
that he or she--
    (A) Did not knowingly and willfully take action (such as to disable 
functionality) to limit or restrict the compatibility or 
interoperability of certified EHR technology.
    (B) Implemented technologies, standards, policies, practices, and 
agreements reasonably calculated to ensure, to the greatest extent 
practicable and permitted by law, that the certified EHR technology was, 
at all relevant times--
    (1) Connected in accordance with applicable law;

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    (2) Compliant with all standards applicable to the exchange of 
information, including the standards, implementation specifications, and 
certification criteria adopted at 45 CFR part 170;
    (3) Implemented in a manner that allowed for timely access by 
patients to their electronic health information; and
    (4) Implemented in a manner that allowed for the timely, secure, and 
trusted bi-directional exchange of structured electronic health 
information with other health care providers (as defined by 42 U.S.C. 
300jj(3)), including unaffiliated providers, and with disparate 
certified EHR technology and health IT vendors.
    (C) Responded in good faith and in a timely manner to requests to 
retrieve or exchange electronic health information, including from 
patients, health care providers (as defined by 42 U.S.C. 300jj(3)), and 
other persons, regardless of the requestor's affiliation or technology 
vendor.



Sec. 414.1380  Scoring.

    (a) General. MIPS eligible clinicians are scored under MIPS based on 
their performance on measures and activities in four performance 
categories. MIPS eligible clinicians are scored against performance 
standards for each performance category and receive a final score, 
composed of their scores on individual measures and activities, and 
calculated according to the final score methodology.
    (1) Measures and activities in the four performance categories are 
scored against performance standards.
    (i) For the quality performance category, measures are scored 
between zero and 10 points. Performance is measured against benchmarks. 
Bonus points are available for both submitting specific types of 
measures and submitting measures using end-to-end electronic reporting.
    (ii) For the cost performance category, measures are scored between 
one and 10 points. Performance is measured against a benchmark.
    (iii) For the improvement activities performance category, each 
improvement activity is worth a certain number of points. The points for 
each reported activity are summed and scored against a total potential 
performance category score of 40 points.
    (iv) For the advancing care information performance category, the 
performance category score is the sum of a base score, performance 
score, and bonus score.
    (2) [Reserved]
    (b) Performance categories. MIPS eligible clinicians are scored 
under MIPS in four performance categories.
    (1) Quality performance category. For the 2017 performance period. 
MIPS eligible clinicians receive three to ten achievement points for 
each scored quality measure in the quality performance category based on 
the MIPS eligible clinician's performance compared to measure 
benchmarks. A MIPS quality measure must have a measure benchmark to be 
scored based on performance. MIPS quality measures that do not have a 
benchmark will not be scored based on performance. Instead, these 
measures will receive 3 points for the 2017 performance period.
    (i) Measure benchmarks are based on historical performance for the 
measure based on a baseline period. Each benchmark must have a minimum 
of 20 individual clinicians or groups who reported the measure meeting 
the data completeness requirement and minimum case size criteria and 
performance greater than zero. We will restrict the benchmarks to data 
from MIPS eligible clinicians and comparable APM data, including data 
from QPs and Partial QPs.
    (ii) As an exception, if there is no comparable data from the 
baseline period, CMS would use information from the performance period 
to create measure benchmarks, which would not be published until after 
the performance period. For the 2017 performance period, CMS would use 
information from CY 2017 during which MIPS eligible clinicians may 
report for a minimum of any continuous 90-day period.
    (A) CMS Web Interface submission uses benchmarks from the 
corresponding reporting year of the Shared Savings Program.
    (B) [Reserved]
    (iii) Separate benchmarks are used for the following submission 
mechanisms:

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    (A) EHR submission options;
    (B) QCDR and qualified registry submission options;
    (C) Claims submission options;
    (D) CMS Web Interface submission options;
    (E) CMS-approved survey vendor for CAHPS for MIPS submission 
options; and
    (F) Administrative claims submission options.
    (iv) Minimum case requirements for quality measures are 20 cases, 
unless a measure is subject to an exception.
    (v) As an exception, the minimum case requirements for the all-cause 
hospital readmission measure is 200 cases.
    (vi) MIPS eligible clinicians failing to report a measure required 
under this category receive zero points for that measure.
    (vii) MIPS eligible clinicians do not receive zero points if the 
expected measure is submitted but is unable to be scored because it does 
not meet the required case minimum or if the measure does not have a 
measure benchmark for MIPS payment year 2019. Instead, these measures as 
well as measures that are below the data completeness requirement 
receive a score of 3 points in MIPS payment year 2019.
    (viii) As an exception, the administrative claims-based measures and 
CMS Web Interface measures will not be scored if these measures do not 
meet the required case minimum. For CMS Web Interface measures, we will 
recognize the measure was submitted but exclude the measure from being 
scored. For CMS Web Interface measures: measures that do not have a 
measure benchmark will also not be scored, although we will recognize 
that the measure was submitted, and measures that are below the data 
completeness requirement receive 0 points.
    (ix) Measures submitted by MIPS eligible clinicians are scored using 
a percentile distribution, separated by decile categories.
    (x) For each set of benchmarks, CMS calculates the decile breaks for 
measure performance and assigns points based on which benchmark decile 
range the MIPS eligible clinician's measure rate is between.
    (xi) CMS assigns partial points based on the percentile 
distribution.
    (xii) MIPS eligible clinicians are required to submit measures 
consistent with Sec. 414.1335.
    (xiii) Bonus points are available for measures determined to be high 
priority measures when two or more high priority measures are reported.
    (A) Bonus points are not available for the first reported high 
priority measure which is required to be reported. To qualify for bonus 
points, each measure must be reported with sufficient case volume to the 
meet the required case minimum and the required data completeness 
criteria and does not have a zero percent performance rate, regardless 
of whether it is included in the calculation of the quality performance 
category score.
    (B) Outcome and patient experience measures receive two bonus 
points.
    (C) Other high priority measures receive one bonus point.
    (D) Bonus points for high priority measures cannot exceed 10 percent 
of the total possible points for MIPS payment year 2019 and 2020.
    (xiv) One bonus point is also available for each measure submitted 
with end-to-end electronic reporting for a quality measure under certain 
criteria determined by the Secretary. Bonus points cannot exceed 10 
percent of the total possible points for MIPS payment year 2019 and 
2020.
    (xv) A MIPS eligible clinician's quality performance category score 
is the sum of all the points assigned for the measures required for the 
quality performance category criteria plus the bonus points in paragraph 
(b)(1)(xiii) of this section and bonus points in paragraph (b)(1)(xiv) 
of this section. The sum is divided by the sum of total possible points. 
The quality performance category score cannot exceed the total possible 
points for the quality performance category.
    (2) Cost performance category. A MIPS eligible clinician receives 
one to ten achievement points for each cost measure attributed to the 
MIPS eligible clinician based on the MIPS eligible clinician's 
performance compared to the measure benchmark.
    (i) Cost measure benchmarks are based on the performance period. 
Cost

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measures must have a benchmark to be scored.
    (ii) A MIPS eligible clinician must meet the minimum case volume 
specified by CMS to be scored on a cost measure.
    (iii) A MIPS eligible clinician's cost performance category score is 
the equally-weighted average of all scored cost measures.
    (3) Improvement activities performance category. MIPS eligible 
clinicians and groups receive points for improvement activities based on 
patient-centered medical home or comparable specialty practice 
participation, APM participation, and improvement activities reported by 
the MIPS eligible clinician in comparison to the highest potential score 
(40 points) for a given MIPS year.
    (i) CMS assigns credit for the total possible category score for 
each reported improvement activity based on two weights: Medium-
weighted; and high-weighted activities.
    (ii) Improvement activities with a high weighting receive credit for 
20 points, toward the total possible category score.
    (iii) Improvement activities with a medium weighting receive credit 
for
    10 points toward the total possible category score.
    (iv) A MIPS eligible clinician or group in a practice that is 
certified as a patient-centered medical home or comparable specialty 
practice, as determined by the Secretary, receives full credit for 
performance on the improvement activities performance category. For 
purposes of this paragraph (b)(3)(iv), ``full credit'' means that the 
MIPS eligible clinician or group has met the highest potential score of 
40 points. A practice is certified as a patient-centered medical home if 
it meets any of the following criteria:
    (A) The practice has received accreditation from one of four 
accreditation organizations that are nationally recognized;
    (1) The Accreditation Association for Ambulatory Health Care;
    (2) The National Committee for Quality Assurance (NCQA);
    (3) The Joint Commission; or
    (4) The Utilization Review Accreditation Commission (URAC).
    (B) The practice is participating in a Medicaid Medical Home Model 
or Medical Home Model.
    (C) The practice is a comparable specialty practice that has 
received the NCQA Patient-Centered Specialty Recognition.
    (D) The practice has received accreditation from other certifying 
bodies that have certified a large number of medical organizations and 
meet national guidelines, as determined by the Secretary. The Secretary 
must determine that these certifying bodies must have 500 or more 
certified member practices, and require practices to include the 
following:
    (1) Have a personal physician/clinician in a team-based practice.
    (2) Have a whole-person orientation.
    (3) Provide coordination or integrated care.
    (4) Focus on quality and safety.
    (5) Provide enhanced access.
    (v) CMS compares the points associated with the reported activities 
against the highest potential category score of 40 points.
    (vi) A MIPS eligible clinician or group's improvement activities 
category score is the sum of points for all of their reported 
activities, which is capped at 40 points, divided by the highest 
potential category score of 40 points.
    (vii) Non-patient facing MIPS eligible clinicians and groups, small 
practices, and practices located in rural areas and geographic HPSAs 
receive full credit for improvement activities by selecting one high-
weighted improvement activity or two medium-weighted improvement 
activities. Non-patient facing MIPS eligible clinicians and groups, 
small practices, and practices located in rural areas and geographic 
HPSAs receive half credit for improvement activities by selecting one 
medium-weighted improvement activity.
    (viii) To receive full credit as a certified patient-centered 
medical home or comparable specialty practice requires that a TIN that 
is reporting includes at least one practice which is a certified 
patient-centered medical home or comparable specialty practice.
    (ix) MIPS eligible clinicians participating in APMs that are not 
patient-

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centered medical homes for a performance period shall earn a minimum 
score of one-half of the highest potential score for the improvement 
activities performance category.
    (4) Advancing care information performance category. (i) A MIPS 
eligible clinician's advancing care information performance category 
score equals the sum of the base score, performance score, Public Health 
and Clinical Data Registry bonus score and completing improvement 
activities using CEHRT bonus score. The advancing care information 
performance category score will not exceed 100 percentage points.
    (A) A MIPS eligible clinician earns a base score by reporting the 
numerator (of at least one) and denominator or yes/no statement or null 
value as applicable, for each required measure
    (B) A MIPS eligible clinician earns a performance score by reporting 
on certain measures specified by CMS. MIPS eligible clinicians may earn 
up to 10 or 20 percentage points as specified by CMS for each measure 
reported for the performance score.
    (C) A MIPS eligible clinician earn a bonus of five percentage points 
for reporting any measures beyond than the Immunization Registry 
Reporting measure for the Public Health and Clinical Data Registry 
objective.
    (D) A MIPS eligible clinician earns a bonus of 10 percentage points 
for attesting to completing one or more improvement activities specified 
by CMS using CEHRT.
    (ii) [Reserved]
    (c) Final score calculation. Each MIPS eligible clinician receives a 
final score of 0 to 100 points equal to the sum of each of the products 
of each performance category score and each performance category's 
assigned weight, multiplied by 100.
    (1) Performance category weights. Subject to CMS's authority to 
reweight, performance category weights under section 1848(q)(5)(F) of 
the Act:
    (i) Quality performance category weight is defined under 
Sec. 414.1330(b).
    (ii) Cost performance category weight is defined under 
Sec. 414.1350(b).
    (iii) Improvement activities performance category weight is defined 
under Sec. 414.1355(b).
    (iv) Advancing care information performance category weight is 
defined under Sec. 414.1375(a).
    (2) Reweighting the performance categories. If CMS determines there 
are not sufficient measures and activities applicable and available to 
MIPS eligible clinicians, CMS will assign weights to the performance 
categories that are different from the weights specified in 
Sec. 414.1380(c)(1).
    (d) Scoring for APM entities. MIPS eligible clinicians in APM 
Entities that are subject to the APM scoring standard are scored using 
the methodology under Sec. 414.1370.



Sec. 414.1385  Targeted review and review limitations.

    (a) Targeted review. MIPS eligible clinicians or groups may request 
a targeted review of the calculation of the MIPS payment adjustment 
factor under section 1848(q)(6)(A) of the Act and, as applicable, the 
calculation of the additional MIPS payment adjustment factor under 
section 1848(q)(6)(C) of the Act applicable to such MIPS eligible 
clinician or group for a year. The process for targeted reviews is:
    (1) MIPS eligible clinicians and groups have a 60-day period to 
submit a request for targeted review, which begins on the day CMS makes 
available the MIPS payment adjustment factor, and if applicable the 
additional MIPS payment adjustment factor, for the MIPS payment year and 
ends on September 30 of the year prior to the MIPS payment year or a 
later date specified by CMS.
    (2) CMS will respond to each request for targeted review timely 
submitted and determine whether a targeted review is warranted.
    (3) The MIPS eligible clinician or group may include additional 
information in support of their request for targeted review at the time 
the request is submitted. If CMS requests additional information from 
the MIPS eligible clinician or group, it must be provided and received 
by CMS within 30 days of the request. Non-responsiveness to the request 
for additional information may

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result in the closure of the targeted review request, although the MIPS 
eligible clinician or group may submit another request for targeted 
review before the deadline.
    (4) Decisions based on the targeted review are final, and there is 
no further review or appeal.
    (b) Limitations on review. Except as specified in paragraph (a)(4) 
of this section, there is no administrative or judicial review under 
section 1869 or 1879 of the Act, or otherwise of--
    (1) The methodology used to determine the amount of the MIPS payment 
adjustment factor and the amount of the additional MIPS payment 
adjustment factor and the determination of such amounts;
    (2) The establishment of the performance standards and the 
performance period;
    (3) The identification of measures and activities specified for a 
MIPS performance category and information made public or posted on the 
Physician Compare Internet Web site of the CMS; and
    (4) The methodology developed that is used to calculate performance 
scores and the calculation of such scores, including the weighting of 
measures and activities under such methodology.



Sec. 414.1390  Data validation and auditing.

    (a) General. CMS will selectively audit MIPS eligible clinicians and 
groups on a yearly basis. If a MIPS eligible clinician or group is 
selected for audit, the MIPS eligible clinician or group will be 
required to do the following in accordance with applicable law and 
timelines CMS establishes:
    (1) Comply with data sharing requests, providing all data as 
requested by CMS or our designated entity. All data must be shared with 
CMS or our designated entity within 45 days of the data sharing request, 
or an alternate timeframe that is agreed to by CMS and the MIPS eligible 
clinician or group. Data will be submitted via email, facsimile, or an 
electronic method via a secure Web site maintained by CMS.
    (2) Provide substantive, primary source documents as requested. 
These documents may include: Copies of claims, medical records for 
applicable patients, or other resources used in the data calculations 
for MIPS measures, objectives, and activities. Primary source 
documentation also may include verification of records for Medicare and 
non-Medicare beneficiaries where applicable.
    (b) [Reserved]



Sec. 414.1395  Public reporting.

    (a) Public reporting of a MIPS eligible clinician's MIPS data. For 
each program year, CMS will post on a public Web site, in an easily 
understandable format, information regarding the performance of MIPS 
eligible clinicians or groups under the MIPS.
    (b) [Reserved]



Sec. 414.1400  Third party data submission.

    (a) General. (1) MIPS data may be submitted by third party 
intermediaries on behalf of a MIPS eligible clinician or group by:
    (i) A qualified registry;
    (ii) A QCDR;
    (iii) A health IT vendor or other authorized third party that 
obtains data from a MIPS eligible clinician's CEHRT; or
    (iv) A CMS-approved survey vendor.
    (2) Qualified registries, QCDRs, and health IT vendors or other 
authorized third parties may submit data on measures, activities, or 
objectives for any of the following MIPS performance categories:
    (i) Quality;
    (ii) Improvement activities; or
    (iii) Advancing care information, if the MIPS eligible clinician or 
group is using CEHRT.
    (3) CMS-approved survey vendors may submit data for the CAHPS for 
MIPS survey under the MIPS quality performance category.
    (4) Third party intermediaries must meet all the criteria specified 
by CMS to qualify and be approved as a third party intermediary for 
purposes of MIPS, including, but not limited to, the following criteria:
    (i) For measures, activities, and objectives under the quality, 
advancing care information, and improvement activities performance 
categories, if the data is derived from CEHRT, the

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QCDR, qualified registry, or health IT vendor must be able to indicate 
its data source.
    (ii) All submitted data must be submitted in the form and manner 
specified by CMS.
    (b) QCDR self-nomination criteria. QCDRs must self-nominate, for the 
2017 performance period, from November 15, 2016 until January 15, 2017. 
For future years of the program, starting with the 2018 performance 
period, QCDRs must self-nominate from September 1 of the prior year 
until November 1 of the prior year. Entities that desire to qualify as a 
QCDR for the purposes of MIPS for a given performance period will need 
to self-nominate for that performance period and provide all information 
requested by CMS at the time of self-nomination. Having qualified as a 
QCDR does not automatically qualify the entity to participate in 
subsequent MIPS performance periods.
    (c) Establishment of a QCDR entity. For an entity to become 
qualified for a given performance period as a QCDR, the entity must:
    (1) Be in existence as of January 1 of the performance period for 
which the entity seeks to become a QCDR.
    (2) Have at least 25 participants by January 1 of the performance 
period.
    (d) Collaboration of entities to become a QCDR. In situations where 
an entity may not meet the criteria of a QCDR solely on its own but can 
do so in conjunction with another entity, the entity must also comply 
with the following:
    (1) An entity that uses an external organization for purposes of 
data collection, calculation, or transmission may meet the definition of 
a QCDR as long as the entity has a signed, written agreement that 
specifically details the relationship and responsibilities of the entity 
with the external organization effective as of September 1 the year 
prior to the year for which the entity seeks to become a QCDR.
    (2) [Reserved]
    (e) Identifying non-MIPS quality measures. For purposes of QCDRs 
submitting data for the MIPS quality performance category, CMS considers 
the following types of quality measures to be non-MIPS quality measures:
    (1) A measure that is not contained in the annual list of MIPS 
quality measures for the applicable performance period.
    (2) A measure that may be in the annual list of MIPS quality 
measures but has substantive differences, as determined by the 
Secretary, in the manner it is reported by the QCDR.
    (3) CAHPS for MIPS survey. Although the CAHPS for MIPS survey 
included in the MIPS measure set, we consider the changes that need to 
be made for reporting by individual MIPS eligible clinicians (and not as 
a part of a group) significant enough as to treat the CAHPS for MIPS 
survey as a non-MIPS quality measure for purposes of individual MIPS 
eligible clinicians reporting the CAHPS for MIPS survey via a QCDR.
    (f) QCDR measure specifications criteria. A QCDR must provide 
specifications for each measure, activity, or objective the QCDR intends 
to submit to CMS. The QCDR must provide CMS descriptions and narrative 
specifications for each measure, activity, or objective no later than 
January 15 of the applicable performance period for which the QCDR 
wishes to submit quality measures or other performance category 
(improvement activities and advancing care information) data. In future 
years, starting with the 2018 performance period, those specifications 
must be provided to CMS by no later than November 1 prior to the 
applicable performance period for which the QCDR wishes to submit 
quality measures or other performance category (improvement activities 
and advancing care information) data.
    (1) For non-MIPS quality measures, the quality measure 
specifications must include the following for each measure: Name/title 
of measures, NQF number (if NQF-endorsed), descriptions of the 
denominator, numerator, and when applicable, denominator exceptions, 
denominator exclusions, risk adjustment variables, and risk adjustment 
algorithms. The narrative specifications provided must be similar to the 
narrative specifications we provide in our measures list. CMS will 
consider all non-MIPS quality measures submitted by the QCDR but the 
measures

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must address a gap in care and outcome or other high priority measures 
are preferred. Documentation or ``check box'' measures are discouraged. 
Measures that have very high performance rates already or address 
extremely rare gaps in care (thereby allowing for little or no quality 
distinction between eligible clinicians) are also unlikely to be 
approved for inclusion.
    (2) For MIPS quality measures, the QCDR only needs to submit the 
MIPS measure numbers or specialty-specific measure sets (if applicable).
    (3) The QCDR must publicly post the measure specifications (no later 
than 15 days following CMS approval of the measure specifications) for 
each non-MIPS quality measure it intends to submit for MIPS. The QCDR 
may use any public format it prefers. Immediately following posting of 
the measures specification, the QCDR must provide CMS with the link to 
where this information is posted.
    (g) Qualified registry self-nomination criteria. Qualified 
registries must self-nominate, for the 2017 performance period from 
November 15, 2016 until January 15, 2017. For future years of the 
program, starting with the 2018 performance period, the qualified 
registry must self-nominate from September 1 of the prior year until 
November 1 of the prior year. Entities that desire to qualify as a 
qualified registry for a given performance period must self-nominate and 
provide all information requested by CMS at the time of self-nomination. 
Having qualified as a qualified registry does not automatically qualify 
the entity to participate in subsequent MIPS performance periods.
    (h) Establishment of a qualified registry entity. For an entity to 
become qualified for a given performance period as a qualified registry, 
the entity must:
    (1) Be in existence as of January 1 of the performance period for 
which the entity seeks to become a qualified registry.
    (2) Have at least 25 participants by January 1 of the performance 
period.
    (i) CMS-approved survey vendor application criteria. Vendors are 
required to undergo the CMS approval process for each year in which the 
survey vendor seeks to transmit survey measures data to CMS. All CMS-
approved survey vendor applications and materials will be due by April 
30 of the performance period.
    (j) Auditing of entities submitting MIPS data. Any third party 
intermediary (that is, a QCDR, health IT vendor, qualified registry, or 
CMS-approved survey vendor) must comply with the following procedures as 
a condition of their qualification and approval to participate in MIPS 
as a third party intermediary.
    (1) The entity must make available to CMS the contact information of 
each MIPS eligible clinician or group on behalf of whom it submits data. 
The contact information will include, at a minimum, the MIPS eligible 
clinician or group's practice phone number, address, and, if available, 
email.
    (2) The entity must retain all data submitted to CMS for MIPS for a 
minimum of 10 years.
    (3) For the purposes of auditing, CMS may request any records or 
data retained for the purposes of MIPS for up to 6 years and 3 months.
    (k) Probation and disqualification of a third party intermediary. 
(1) If at any time we determine that a third party intermediary (that 
is, a QCDR, health IT vendor, qualified registry, or CMS-approved survey 
vendor) has not met all of the applicable criteria for qualification and 
approval, CMS may place the third party intermediary on probation for 
the current performance period or the following performance period, as 
applicable.
    (2) For purposes of this section, probation means that, for the 
applicable performance period, the third party intermediary must meet 
all applicable criteria for qualification and approval and must submit a 
corrective action plan for remediation or correction of any deficiencies 
identified by CMS that resulted in the probation.
    (3) CMS requires a corrective action plan from the third party 
intermediary to address any deficiencies or issues and prevent them from 
recurring. The corrective action plan must be received and accepted by 
CMS within 14 days of the CMS notification to the third party 
intermediary of the deficiency or probation. If the corrective action 
plan is not received and accepted by CMS

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within the specified time, CMS may disqualify the third party 
intermediary from the MIPS program for the subsequent performance 
period.
    (4) If the third party intermediary has data inaccuracies including 
(but not limited to) TIN/NPI mismatches, formatting issues, calculation 
errors, data audit discrepancies affecting in excess of 3 percent (but 
less than 5 percent) of the total number of MIPS eligible clinicians or 
groups submitted by the third party intermediary, such inaccuracies will 
trigger paragraph (k)(3) of this section and may result in this 
information being posted on the CMS Web site.
    (5) If the third party intermediary does not reduce their data error 
rate below 3 percent for the subsequent performance period, the third 
party intermediary will continue to be on probation and have their 
listing on the CMS Web site continue to note the poor quality of the 
data they are submitting for MIPS for one additional year. After 2 years 
on probation, the third party intermediary will be disqualified for the 
subsequent performance period.
    (6) Before placing the third party intermediary on probation; CMS 
would notify the third party intermediary of the identified issues, at 
the time of discovery of such issues.
    (7) If the third party intermediary does not submit an acceptable 
corrective action plan within 14 days of notification of deficiencies, 
and correct the deficiencies within 30 days or before the submission 
deadline--whichever is sooner, CMS may disqualify the third party 
intermediary from participating in MIPS for the current performance 
period or the following performance period, as applicable.



Sec. 414.1405  Payment.

    (a) General. Each MIPS eligible clinician receives a MIPS payment 
adjustment factor, and if applicable an additional MIPS payment 
adjustment factor for exceptional performance, for a MIPS payment year 
determined by comparing their final score to the performance threshold 
and additional performance threshold for the year.
    (b) Performance threshold. A performance threshold will be specified 
for each MIPS payment year.
    (1) MIPS eligible clinicians with a final score at or above the 
performance threshold receive a zero or positive MIPS payment adjustment 
factor on a linear sliding scale such that an adjustment factor of 0 
percent is assigned for a final score at the performance threshold and 
an adjustment factor of the applicable percent is assigned for a final 
score of 100.
    (2) MIPS eligible clinicians with a final score below the 
performance threshold receive a negative MIPS payment adjustment factor 
on a linear sliding scale such that an adjustment factor of 0 percent is 
assigned for a final score at the performance threshold and an 
adjustment factor of the negative of the applicable percent is assigned 
for a final score of 0; further, MIPS eligible clinicians with final 
scores that are equal to or greater than zero, but not greater than one-
fourth of the performance threshold, receive a negative MIPS payment 
adjustment factor that is equal to the negative of the applicable 
percent.
    (3) A scaling factor not to exceed 3.0 may be applied to positive 
MIPS payment adjustment factors to ensure budget neutrality such that 
the estimated increase in aggregate allowed charges resulting from the 
application of the positive MIPS payment adjustment factors for the MIPS 
payment year equals the estimated decrease in aggregate allowed charges 
resulting from the application of negative MIPS payment adjustment 
factors for the MIPS payment year.
    (c) Applicable percent. For MIPS payment year 2019, 4 percent. For 
MIPS payment year 2020, 5 percent. For MIPS payment year 2021, 7 
percent. For MIPS payment year 2022 and each subsequent MIPS payment 
year, 9 percent.
    (d) Additional performance threshold. An additional performance 
threshold will be specified for each of the MIPS payment years 2019 
through 2024.
    (1) In addition to the MIPS payment adjustment factor, MIPS eligible 
clinicians with a final score at or above the additional performance 
threshold receive an additional MIPS payment adjustment factor for 
exceptional performance on a linear sliding scale such that an 
additional adjustment factor of 0.5 percent is assigned for a final 
score

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at the additional performance threshold and an additional adjustment 
factor of 10 percent is assigned for a final score of 100, subject to 
the application of a scaling factor as determined by CMS, such that the 
estimated aggregate increase in payments resulting from the application 
of the additional MIPS payment adjustment factors for the MIPS payment 
year shall not exceed $500,000,000 for each of the MIPS payment years 
2019 through 2024.
    (2) [Reserved]
    (e) Application of adjustments to payments. For each MIPS payment 
year, the MIPS payment adjustment factor, and if applicable the 
additional MIPS payment adjustment factor, are applied to Medicare Part 
B payments for items and services furnished by the MIPS eligible 
clinician during the year.



Sec. 414.1410  Advanced APM determination.

    (a) General. An APM is an Advanced APM for a payment year if CMS 
determines that it meets the criteria in Sec. 414.1415 during the QP 
Performance Period.
    (b) Advanced APM and Other Payer Advanced APM determination process. 
CMS identifies Advanced APMs and Other Payer Advanced APMs in the 
following manner:
    (1) Advanced APM determination. (i) No later than January 1, 2017, 
CMS will post on its Web site a list of all Advanced APMs for the first 
QP Performance Period.
    (ii) CMS updates the Advanced APM list on its Web site at intervals 
no less than annually.
    (iii) CMS will include notice of whether a new APM is an Advanced 
APM in the first public notice of the new APM.
    (2) Other Payer Advanced APM determination. (i) CMS identifies Other 
Payer Advanced APMs following conclusion of the QP Performance Period 
using information submitted to CMS according to Sec. 414.1445. CMS will 
not make determinations for other payer arrangements for which 
insufficient information is submitted.
    (ii) CMS makes Other Payer Advanced APM determinations prior to QP 
determinations under Sec. 414.1440.
    (iii) CMS makes final Other Payer Advanced APM determinations and 
notifies Advanced APM Entities and eligible clinicians of such 
determinations as soon as practicable.



Sec. 414.1415  Advanced APM criteria.

    (a) Use of certified electronic health record technology (CEHRT)--
(1) Required use of CEHRT. To be an Advanced APM, an APM must:
    (i) Require at least 50 percent of eligible clinicians in each 
participating APM Entity group, or, for APMs in which hospitals are the 
APM Entities, each hospital, to use CEHRT to document and communicate 
clinical care to their patients or other health care providers; or
    (ii) For the Shared Savings Program, apply a penalty or reward to an 
APM Entity based on the degree of the use of CEHRT of the eligible 
clinicians in the APM Entity.
    (b) Payment based on quality measures. (1) To be an Advanced APM, an 
APM must include quality measure results as a factor when determining 
payment to participants under the terms of the APM.
    (2) At least one of the quality measures upon which an Advanced APM 
bases the payment in paragraph (b)(1) of this section must have an 
evidence-based focus, be reliable and valid, and meet at least one of 
the following criteria:
    (i) Used in the MIPS quality performance category as described in 
Sec. 414.1330;
    (ii) Endorsed by a consensus-based entity;
    (iii) Developed under section 1848(s) of the Act;
    (iv) Submitted in response to the MIPS Call for Quality Measures 
under section 1848(q)(2)(D)(ii) of the Act; or
    (v) Any other quality measures that CMS determines to have an 
evidence-based focus and to be reliable and valid.
    (3) In addition to the quality measure requirements under paragraph 
(b)(2) of this section, the quality measures upon which an Advanced APM 
bases the payment in paragraph (b)(1) of this section must include at 
least one outcome measure. This requirement does not apply if CMS 
determines that there are no available or applicable outcome

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measures included in the MIPS quality measures list for the Advanced 
APM's first QP Performance Period.
    (c) Financial risk. To be an Advanced APM, an APM must either meet 
the financial risk standard under paragraph (d)(1) or (2) of this 
section and the nominal amount standard under paragraph (d)(3) or (4) of 
this section or be an expanded Medical Home Model under section 1115A(c) 
of the Act.
    (1) Generally applicable financial risk standard. Except for 
paragraph (c)(2) of this section, to be an Advanced APM, an APM must, 
based on whether an APM Entity's actual expenditures for which the APM 
Entity is responsible under the APM exceed expected expenditures during 
a specified QP Performance Period, do one or more of the following:
    (i) Withhold payment for services to the APM Entity or the APM 
Entity's eligible clinicians;
    (ii) Reduce payment rates to the APM Entity or the APM Entity's 
eligible clinicians; or
    (iii) Require the APM Entity to owe payment(s) to CMS.
    (2) Medical Home Model financial risk standard. The following 
standard applies only for APM Entities that are participating in Medical 
Home Models, and, starting in the 2018 QP Performance Period, such APM 
Entities must be owned and operated by an organization with fewer than 
50 eligible clinicians whose Medicare billing rights have been 
reassigned to the TIN(s) of the organization(s) or any of the 
organization's subsidiary entities. The APM Entity participates in a 
Medical Home Model that, based on the APM Entity's failure to meet or 
exceed one or more specified performance standards, which may include 
expected expenditures, does one or more of the following:
    (i) Withholds payment for services to the APM Entity or the APM 
Entity's eligible clinicians;
    (ii) Reduces payment rates to the APM Entity or the APM Entity's 
eligible clinicians;
    (iii) Requires the APM Entity to owe payment(s) to CMS; or
    (iv) Causes the APM Entity to lose the right to all or part of an 
otherwise guaranteed payment or payments.
    (3) Generally applicable nominal amount standard. (i) Except as 
provided in paragraph (c)(4) of this section, the total amount an APM 
Entity potentially owes CMS or foregoes under an APM must be at least 
equal to either:
    (A) For QP Performance Periods 2017 and 2018, 8 percent of the 
estimated average total Medicare Parts A and B revenues of participating 
APM Entities; or
    (B) 3 percent of the expected expenditures for which an APM Entity 
is responsible under the APM.
    (ii) [Reserved]
    (4) Medical Home Model nominal amount standard. (i) For a Medical 
Home Model to be an Advanced APM, the total annual amount that an 
Advanced APM Entity potentially owes CMS or foregoes must be at least 
the following amounts:
    (A) For QP Performance Period 2017, 2.5 percent of the estimated 
average total Medicare Parts A and B revenues of participating APM 
Entities.
    (B) For QP Performance Period 2018, 3 percent of the estimated 
average total Medicare Parts A and B revenues of participating APM 
Entities;
    (C) For QP Performance Period 2019, 4 percent of the estimated 
average total Medicare Parts A and B revenues of participating APM 
Entities.
    (D) For QP Performance Period 2020 and later, 5 percent of the 
estimated average total Medicare Parts A and B revenues of participating 
APM Entities.
    (5) Expected expenditures. For the purposes of this section, 
expected expenditures is defined as the beneficiary expenditures for 
which an APM Entity is responsible under an APM. For episode payment 
models, expected expenditures mean the episode target price.
    (6) Capitation. A full capitation arrangement meets this Advanced 
APM criterion. For purposes of this part, a capitation arrangement means 
a payment arrangement in which a per capita or otherwise predetermined 
payment is made under the APM for all items and services for which 
payment is made through the APM furnished to a population of 
beneficiaries, and no settlement is performed to reconcile or share 
losses incurred or savings earned

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by the APM Entity. Arrangements between CMS and Medicare Advantage 
Organizations under the Medicare Advantage program (42 U.S.C. 422) are 
not considered capitation arrangements for purposes of this paragraph.



Sec. 414.1420  Other payer advanced APMs.

    (a) Other Payer Advanced APM criteria. A payment arrangement with a 
payer other than Medicare is an Other Payer Advanced APM for a QP 
Performance Period if CMS determines that the arrangement meets the 
following criteria during the QP Performance Period:
    (1) Use of CEHRT, as described in paragraph (b) of this section;
    (2) Quality measures comparable to measures under the MIPS quality 
performance category apply, as described in paragraph (c) of this 
section; and
    (3) Either:
    (i) Requires APM Entities to bears more than nominal financial risk 
if actual aggregate expenditures exceed expected aggregate expenditures, 
as described in paragraph (d) of this section; or
    (ii) Is a Medicaid Medical Home Model that meets criteria comparable 
to Medical Home Models expanded under section 1115A(c) of the Act, as 
described in paragraph (d)(3) of this section.
    (b) Use of CEHRT. To be an Other Payer Advanced APM, an other payer 
arrangement must require participants to use CEHRT as defined in 
Sec. 414.1305. The other payer arrangement must require at least 50 
percent of eligible clinicians in each participating APM Entity group, 
or each hospital if hospitals are the APM Entities, to use CEHRT to 
document and communicate clinical care.
    (c) Quality measure use. (1) To be an Other Payer Advanced APM, a 
payment arrangement must apply quality measures comparable to measures 
under the MIPS quality performance category, as described in paragraph 
(c)(2) of this section.
    (2) At least one of the quality measures used in the payment 
arrangement with an APM Entity must have an evidence-based focus, be 
reliable and valid, and meet at least one of the following criteria:
    (i) Used in the MIPS quality performance category, as described in 
Sec. 414.1330;
    (ii) Endorsed by a consensus-based entity;
    (iii) Developed under section 1848(s) of the Act;
    (iv) Submitted in response to the MIPS Call for Quality Measures 
under section 1848(q)(2)(D)(ii) of the Act; or
    (v) Any other quality measures that CMS determines to have an 
evidence-based focus and to be reliable and valid.
    (3) To meet the quality measure use criterion, an other payment 
arrangement must use an outcome measure if there is an applicable 
outcome measure on the MIPS quality measure list. If an Other Payer 
Advanced APM has no outcome measure, the Advanced APM Entity must attest 
that there is no applicable outcome measure on the MIPS list.
    (d) Other Payer Advanced APM financial risk. To be an Other Payer 
Advanced APM, an other payer arrangement must meet either the financial 
risk standard under paragraph (d)(1) or (2) of this section and the 
nominal risk standard under paragraph (d)(3) or (4) of this section, 
make payment using a full capitation arrangement under paragraph (d)(6) 
of this section, or be a Medicaid Medical Home Model that meets criteria 
comparable to an expanded Medical Home Model under section 1115A(c) of 
the Act.
    (1) Other Payer Advanced APM financial risk standard. Except for APM 
Entities to which paragraph (d)(2) of this section applies, to be an 
Other Payer Advanced APM, an APM Entity must, based on whether an APM 
Entity's actual expenditures for which the APM Entity is responsible 
under the APM exceed expected expenditures during a specified 
performance period do one or more of the following:
    (i) Withhold payment for services to the APM Entity or the APM 
Entity's eligible clinicians;
    (ii) Reduce payment rates to the APM Entity or the APM Entity's 
eligible clinicians; or
    (iii) Require direct payment by the APM Entity to the payer.

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    (2) Medicaid Medical Home Model financial risk standard. For an APM 
Entity owned and operated by an organization with fewer than 50 eligible 
clinicians whose Medicare billing rights have been reassigned to the 
TIN(s) of the organization(s) or any of the organization's subsidiary 
entities, the following standard applies. The APM Entity participates in 
a Medicaid Medical Home Model that, based on the APM Entity's failure to 
meet or exceed one or more specified performance standards, does one or 
more of the following:
    (i) Withhold payment for services to the APM Entity or the APM 
Entity's eligible clinicians;
    (ii) Require direct payment by the APM Entity to the Medicaid 
program;
    (iii) Reduce payment rates to the APM Entity or the APM Entity's 
eligible clinicians; or
    (iv) Require the APM Entity to lose the right to all or part of an 
otherwise guaranteed payment or payments.
    (3) Other Payer Advanced APM nominal amount standard. (i) Except for 
risk arrangements described under paragraph (d)(2) of this section, the 
total amount an APM Entity potentially owes us or foregoes under an 
Other Payer Advanced APM is at least be equal to 3 percent of the 
expected expenditures for which an APM Entity is responsible under the 
payment arrangement.
    (ii) Except for risk arrangements described under paragraph (d)(2) 
of this section, the risk arrangement must have:
    (A) A marginal risk rate of at least 30 percent; and
    (B) Total potential risk of at least 4 percent of expected 
expenditures.
    (4) Medicaid Medical Home Model nominal amount standard. For an APM 
Entity owned and operated by an organization with fewer than 50 eligible 
clinicians whose Medicare billing rights have been reassigned to the 
TIN(s) of the organization(s) or any of the organization's subsidiary 
entities, the following standard applies. For a Medicaid Medical Home 
Model to be an Other Payer Advanced APM, the total annual amount that an 
Advanced APM Entity potentially owes CMS or foregoes must be at least 
the following amounts:
    (i) For QP Performance Period 2019, 4 percent of the estimated 
average total revenue of participating APM Entities from the payer.
    (ii) For QP Performance Period 2020 and later, 5 percent of the 
estimated average total revenue of participating APM Entities for the 
payer.
    (5) Marginal risk rate. For purposes of this section, the marginal 
risk rate is defined as the percentage of actual expenditures that 
exceed expected expenditures for which an APM Entity is responsible 
under an APM.
    (i) In the event that the marginal risk rate varies depending on the 
amount by which actual expenditures exceed expected expenditures, the 
lowest marginal risk rate across all possible levels of actual 
expenditures would be used for comparison to the marginal risk rate 
specified in paragraph (d)(3)(ii)(A) of this section, with exceptions 
for large losses as described in paragraph (d)(5)(ii) of this section 
and small losses as described in paragraph (d)(5)(iii) of this section.
    (ii) Allowance for large losses. The determination in paragraph 
(d)(3)(ii)(A) of this section may disregard the marginal risk rates that 
apply in cases when actual expenditures exceed expected expenditures by 
an amount sufficient to require the APM Entity to make financial risk 
payments under the Other Payer Advanced APM greater than or equal to the 
total risk requirement under paragraph (d)(3)(i) of this section.
    (iii) Allowance for minimum loss rate. The determination in 
paragraph (d)(3)(ii)(A) of this section may disregard the marginal risk 
rates that apply in cases when actual expenditures exceed expected 
expenditures by less than 4 percent of expected expenditures.
    (6) Expected expenditures. For the purposes of this section, 
expected expenditures is defined as the Other Payer Advanced APM 
benchmark, except for episode payment models, for which it is defined as 
the episode target price.
    (7) Capitation. A capitation arrangement meets this Other Payer 
Advanced APM criterion. For purposes of paragraph (d)(3) of this 
section, a capitation arrangement means a payment arrangement in which a 
per capita or

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otherwise predetermined payment is made under the APM for all items and 
services for which payment is made through the APM furnished to a 
population of beneficiaries, and no settlement is performed for the 
purpose of reconciling or sharing losses incurred or savings earned by 
the APM Entity. Arrangements made directly between CMS and Medicare 
Advantage Organizations under the Medicare Advantage program (42 U.S.C. 
422) are not considered capitation arrangements for purposes of this 
paragraph.



Sec. 414.1425  Qualifying APM participant determination: In general.

    (a) List used for QP determination. (1) For Advanced APMs with 
Advanced APM Entities that include eligible clinicians on a 
Participation List, the Participation List defines the APM Entity group, 
regardless of whether the Advanced APM Entity also has eligible 
clinicians on an Affiliated Practitioner List.
    (2) For Advanced APMs with Advanced APM Entities that do not include 
eligible clinicians on a Participation List but do include eligible 
clinicians on an Affiliated Practitioner List, the Affiliated 
Practitioner List defines the eligible clinicians who will be assessed 
to become QPs.
    (3) For Advanced APMs with some Advanced APM Entities that include 
eligible clinicians on a Participation List and other Advanced APM 
Entities that only include eligible clinicians on an Affiliated 
Practitioner List, paragraph (a)(1) applies to APM Entities that include 
eligible clinicians on a Participation List, and paragraph (a)(2) 
applies to APM Entities that only include eligible clinicians on an 
Affiliated Practitioner List.
    (b) Group or individual determination--(1) APM Entity group 
determination. Except for Sec. 414.1445 and paragraph (b)(2) of this 
section, for purposes of the QP determinations for a year, eligible 
clinicians are grouped and assessed through their collective 
participation in an APM Entity group that is in an Advanced APM. To be 
included in the APM Entity group for purposes of the QP determination, 
an eligible clinician's APM participant identifier must be present on a 
Participation List of an APM Entity group on one of the dates: March 31, 
June 30, or August 31 of the QP Performance Period. An eligible 
clinician included on a Participation List on any one of these dates is 
included the APM Entity group even if that eligible clinician is not 
included on that Participation List at one of the prior or later listed 
dates. CMS performs QP determinations for the eligible clinicians in APM 
Entity group three times during the QP Performance Period using claims 
data for services furnished from January 1 through each of the 
respective QP determination dates: March 31, June 30, and August 31. An 
eligible clinician can only be determined to be a QP if the eligible 
clinician appears on the Participation List on a date (March 31, June 
30, or August 31) CMS uses to determine the APM Entity group and to make 
QP determinations collectively for the APM Entity group based on 
participation in the Advanced APM.
    (2) Affiliated practitioner individual determination. When the 
Affiliated Practitioner List defines the eligible clinicians to be 
assessed, for purposes of the QP determinations for a year, those 
eligible clinicians are assessed individually. To be assessed as an 
Affiliated Practitioner, an eligible clinician must be identified on an 
Affiliated Practitioner List on one of the dates: March 31, June 30, or 
August 31 of the QP Performance Period. An eligible clinician included 
on an Affiliated Practitioner List on any one of these dates is assessed 
as an Affiliated Practitioner even if that eligible clinician is not 
included on that Affiliated Practitioner List at one of the prior or 
later listed dates. For such eligible clinicians, CMS performs QP 
determinations during the QP Performance Period using claims data for 
services furnished from January 1 through each of the respective QP 
determination dates that the eligible clinician is on the Affiliated 
Practitioner List: March 31, June 30, and August 31.
    (c) QP determination. (1) CMS makes QP determinations as set forth 
in Secs. 414.1435 and 414.1440.
    (2) An eligible clinician cannot be both a QP and a Partial QP for a 
year.

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A determination that an eligible clinician is a QP means that the 
eligible clinician is not a Partial QP.
    (3) An eligible clinician is a QP for a year if the eligible 
clinician is in an APM Entity group that achieves a Threshold Score that 
meets or exceeds the corresponding QP payment amount threshold or QP 
patient count threshold for that QP Performance Period, as described in 
Sec. 414.1430(a)(1) and (3) and (b)(1) and (3).
    (4) Notwithstanding paragraph (c)(3) of this section, an eligible 
clinician is a QP for a year if:
    (i) The eligible clinician is included in more than one Advanced APM 
Entity group and none of the Advanced APM Entity groups in which the 
eligible clinician is included meets the QP payment amount threshold or 
the QP patient count threshold, or the eligible clinician is an 
Affiliated Practitioner; and
    (ii) CMS determines that the eligible clinician individually 
achieves a Threshold Score that meets or exceeds the QP payment amount 
threshold or the QP patient count threshold.
    (5) Notwithstanding paragraph (c)(3) of this section, an eligible 
clinician is not a QP for a year if the APM Entity group voluntarily or 
involuntarily terminates from an Advanced APM before the end of the QP 
Performance Period.
    (6) Notwithstanding paragraph (c)(4) of this section, an eligible 
clinician is not a QP for a year if any of the Advanced APM Entities in 
which the eligible clinician participates voluntarily or involuntarily 
terminates from the Advanced APM before the end of the QP Performance 
Period.
    (d) Partial QP determination. (1) An eligible clinician is a Partial 
QP for a year if the APM Entity group collectively achieves a Threshold 
Score that meets or exceeds the corresponding Partial QP threshold for 
that year, as described in Sec. 414.1430(a)(2) and (4) and (b)(2) and 
(4).
    (2) Notwithstanding paragraph (d)(1) of this section, an eligible 
clinician is a Partial QP for a year if:
    (i) The eligible clinician is included in more than one APM Entity 
group and none of the APM Entity groups in which the eligible clinician 
is included meets the corresponding QP or Partial QP threshold, or the 
eligible clinician is an Affiliated Practitioner; and
    (ii) CMS determines that the eligible clinician individually 
achieves a Threshold Score that meets or exceeds the corresponding 
Partial QP Threshold.
    (3) Notwithstanding paragraph (d)(1) of this section, an eligible 
clinician is not a Partial QP for a year if the APM Entity group 
voluntarily or involuntarily terminates from an Advanced APM before the 
end of the QP Performance Period.
    (4) Notwithstanding paragraph (d)(2) of this section, an eligible 
clinician is not a Partial QP for a year if any of the Advanced APM 
Entities in which the eligible clinician participates voluntarily or 
involuntarily terminates from the Advanced APM before the end of the QP 
Performance Period.
    (e) Notification of QP determination. CMS notifies eligible 
clinicians determined to be QPs or Partial QPs for a year as soon as 
practicable following each QP determination date in the QP Performance 
Period.
    (f) Order of threshold options. (1) For payment years 2019 and 2020, 
CMS performs QP determinations for an eligible clinicians only under the 
Medicare Option described in Sec. 414.1435.
    (2) For payment years 2021 and later, CMS performs QP determinations 
for eligible clinicians under the Medicare Option, as described in 
Sec. 414.1435 and, except as specified in paragraphs (d)(2)(i) and (ii) 
of this section, the All-Payer Combination Option, described in 
Sec. 414.1440.
    (i) If CMS determines the eligible clinician to be a QP under the 
Medicare Option, then CMS does not calculate a Threshold Score for such 
eligible clinician under the All-Payer Combination Option.
    (ii) If the Threshold Score for an eligible clinician under the 
Medicare Option is less than the amount specified in 
Sec. 414.1430(b)(2)(ii) and (b)(3)(iii), then CMS does not perform a QP 
determination for such eligible clinician(s) under the All-Payer 
Combination Option.

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Sec. 414.1430  Qualifying APM participant determination: 
QP and partial QP thresholds.

    (a) Medicare Option--(1) QP payment amount threshold. The QP payment 
amount thresholds are the following values for the indicated payment 
years:
    (i) 2019 and 2020: 25 percent.
    (ii) 2021 and 2022: 50 percent.
    (iii) 2023 and later: 75 percent.
    (2) Partial QP payment amount threshold. The Partial QP payment 
amount thresholds are the following values for the indicated payment 
years:
    (i) 2019 and 2020: 20 percent.
    (ii) 2021 and 2022: 40 percent.
    (ii) 2023 and later: 50 percent.
    (3) QP patient count threshold. The QP patient count thresholds are 
the following values for the indicated payment years:
    (i) 2019 and 2020: 20 percent
    (ii) 2021 and 2022: 35 percent
    (ii) 2023 and later: 50 percent
    (4) Partial QP patient count threshold. The Partial QP patient count 
thresholds are the following values for the indicated payment years:
    (i) 2019 and 2020: 10 percent
    (ii) 2021 and 2022: 25 percent
    (iii) 2023 and later: 35 percent
    (b) All-Payer Combination Option--(1) QP payment amount threshold.
    (i) The QP payment amount thresholds are the following values for 
the indicated payment years:
    (A) 2021 and 2022: 50 percent.
    (B) 2023 and later: 75 percent.
    (ii) To meet the QP payment amount threshold under this option, the 
eligible clinician must also meet a 25 percent QP payment amount 
threshold under the Medicare Option.
    (2) Partial QP payment amount threshold. (i) The Partial QP payment 
amount thresholds are the following values for the indicated payment 
years:
    (A) 2021 and 2022: 40 percent.
    (B) 2023 and later: 50 percent.
    (ii) To meet the QP payment amount threshold under this option, the 
eligible clinician must also meet a 20 percent Partial QP payment amount 
threshold under the Medicare Option.
    (3) QP patient count threshold. (i) The QP patient count thresholds 
are the following values for the indicated payment years:
    (A) 2021 and 2022: 35 percent.
    (B) 2023 and later: 50 percent.
    (ii) To meet the QP patient count threshold under this option, the 
eligible clinician must also meet a 20 percent QP patient count 
threshold under the Medicare Option.
    (4) Partial QP patient count threshold. (i) The Partial QP patient 
count thresholds are the following values for the indicated payment 
years:
    (A) 2021 and 2022: 25 percent.
    (B) 2023 and later: 35 percent.
    (ii) To meet the Partial QP patient count threshold under this 
option, the eligible clinician group or eligible clinician must also 
meet a 10 percent QP patient count threshold under the Medicare Option.



Sec. 414.1435  Qualifying APM participant determination: Medicare option.

    (a) Payment amount method. The Threshold Score for an Advanced APM 
Entity group or eligible clinician is calculated as a percent by 
dividing the value described under paragraph (a)(1) of this section by 
the value described under paragraph (a)(2) of this section.
    (1) Numerator. The aggregate of payments for Medicare Part B covered 
professional services furnished by the Advanced APM Entity group to 
attributed beneficiaries during the QP Performance Period.
    (2) Denominator. The aggregate of payments for Medicare Part B 
covered professional services furnished by the APM Entity group to all 
attribution-eligible beneficiaries during the QP Performance Period.
    (3) Claims and adjustments. In the calculations under paragraphs 
(a)(1) and (2) of this section, CMS compiles claims and treats claims 
adjustments, supplemental service payments, and alternative payment 
methods in the same manner as described in Sec. 414.1450.
    (b) Patient count method. The Threshold Score for each eligible 
clinician in an APM Entity group is calculated as a percent under the 
patient count method by dividing the value described under paragraph 
(b)(1) of this section by the value described under paragraph (b)(2) of 
this section.
    (1) Numerator. The number of attributed beneficiaries to whom the 
Advanced APM Entity group furnishes Medicare Part B covered professional

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services or services by a Rural Health Clinic (RHC) or Federally-
Qualified Health Center (FQHC) during the QP Performance Period.
    (2) Denominator. The number of attribution-eligible beneficiaries to 
whom the APM Entity group or eligible clinician furnish Medicare Part B 
covered professional services or services by a Rural Health Clinic (RHC) 
or Federally-Qualified Health Center (FQHC) during the QP Performance 
Period.
    (3) Unique beneficiaries. For each Advanced APM Entity group, a 
unique Medicare beneficiary is counted no more than one time for the 
numerator and no more than one time for the denominator.
    (4) Beneficiaries count multiple times. Based on attribution under 
the terms of an Advanced APM, a single Medicare beneficiary may be 
counted in the numerator or denominator for multiple different Advanced 
APM Entity groups.
    (c) Attribution. (1) Attributed beneficiaries are determined from 
Advanced APM attributed beneficiary lists generated by each Advanced 
APM's specific attribution methodology.
    (2) When operationally feasible, this attributed beneficiary list 
will be the final beneficiary list used for reconciliation purposes in 
the Advanced APM.
    (3) When it is not operationally feasible to use the final 
attributed beneficiary list, the attributed beneficiary list will be 
taken from the Advanced APM's most recently available attributed 
beneficiary list at the end of the QP Performance Period.
    (d) Use of methods. CMS calculates Threshold Scores for an Advanced 
APM Entity under both the payment amount and patient count methods for 
each QP Performance Period. CMS then assigns the score to the eligible 
clinicians included in the Advanced APM Entity that results in the 
greater QP status. QP status is greater than a Partial QP status, which 
is greater than no QP status.



Sec. 414.1440  Qualifying APM participant determination: 
All-payer combination option.

    (a) Payments excluded from calculations. (1) These calculations 
include a combination of both Medicare payments for Part B covered 
professional services and all other payments for all other payers, 
except for payments made by:
    (i) The Secretary of Defense for the costs of Department of Defense 
health care programs;
    (ii) The Secretary of Veterans Affairs for the cost of Department of 
Veterans Affairs health care programs; and
    (iii) Under Title XIX in a State in which no Medicaid Medical Home 
Model or APM is available.
    (2) Title XIX payments will only be included in the numerator and 
denominator as specified in paragraphs (b)(2) and (3) of this section 
for an Advanced APM Entity if:
    (i) A State has at least one Medicaid Medical Home Model or Medicaid 
APM in operation that is determined to be an Other Payer Advanced APM; 
and
    (ii) The Advanced APM Entity is eligible to participate in at least 
one of such Other Payer Advanced APMs during the QP Performance Period, 
regardless of whether the Advanced APM Entity actually participates in 
such Other Payer Advanced APMs. This will apply to both the payment 
amount and patient count methods.
    (b) Payment amount method--(1) In general. The Threshold Score for 
an Advanced APM Entity group or eligible clinician will be calculated by 
dividing the value described under the numerator by the value described 
under the denominator as specified in paragraphs (b)(2) and (3) of this 
section.
    (2) Numerator. The aggregate amount of all payments from all payers, 
except those excluded under paragraph (a) of this section, to the 
Advanced APM Entity group or eligible clinician under the terms of Other 
Payer Advanced APMs during the QP Performance Period. CMS calculates 
Medicare Part B covered professional services under the All-Payer 
Combination Option in the same manner as it is calculated under the 
Medicare Option.
    (3) Denominator. The aggregate amount of all payments from all 
payers, except those excluded under paragraph (a) of this section, to 
the Advanced APM Entity group during the QP Performance Period. The 
portion of this amount that relates to Medicare Part B covered 
professional services is

[[Page 181]]

calculated under the All-Payer Combination Option in the same manner as 
it is calculated under the Medicare Option.
    (c) Patient count method--(1) In general. The Threshold Score for an 
Advanced APM Entity group or eligible clinician is calculated by 
dividing the value described under the numerator by the value described 
under the denominator as specified in paragraphs (c)(2) and (3) of this 
section).
    (2) Numerator. The number of unique patients to whom the Advanced 
APM Entity group or eligible clinician furnishes services that are 
included in the measures of aggregate expenditures used under the terms 
of all of their Other Payer Advanced APMs during the QP Performance 
Period, plus the patient count numerator specified in paragraph (a)(1) 
of this section.
    (3) Denominator. The number of unique patients to whom eligible 
clinicians in the Advanced APM Entity group furnish services under all 
non-excluded payers during the QP Performance Period.
    (d) Participation in multiple Other Payer Advanced APMs. (1) For 
each APM Entity group or eligible clinician, a unique patient is counted 
no more than one time for the numerator and no more than one time for 
the denominator for each payer.
    (2) CMS may count a single patient in the numerator and/or 
denominator for multiple different Advanced APM Entities or eligible 
clinicians.
    (3) For purposes of this section, Advanced APM Entities are 
considered the same entity across Other Payer Advanced APMs if CMS 
determines that the Participation Lists are substantially similar or if 
one entity is a subset of the other.



Sec. 414.1445  Identification of other payer advanced APMs.

    (a) Identification of Medicaid APMs. CMS will make an annual 
determination prior to the QP Performance Period to identify Medicaid 
Medical Home Models and Medicaid APMs.
    (b) Data used to calculate the Threshold Score under the All-Payer 
Combination Option. To be assessed under the All-Payer Combination 
Option, APM Entities or eligible clinicians must submit the following 
information for each other payment arrangement in a manner and by a date 
specified by CMS:
    (1) Payment arrangement information necessary to assess the other 
payer arrangement on all Other Payer Advanced APM criteria under 
Sec. 414.1420;
    (2) For each other payment arrangement, the amount of revenues for 
services furnished through the arrangement, the total revenues from the 
payer, the numbers of patients furnished any service through the 
arrangement, and the total numbers of patients furnished any service 
through the payer.
    (3) An attestation from the payer that the submitted information is 
accurate.
    (c) Requirement to submit adequate information. (1) CMS makes a QP 
determination with respect to the individual eligible clinician under 
the All-Payer Combination Option if:
    (i) The eligible clinician's Advanced APM Entity submits the 
information required under this section for CMS to assess the APM Entity 
group under the All-Payer Combination Option; or
    (ii) The eligible clinician submits adequate information under this 
section.
    (2) If neither the Advanced APM Entity nor the eligible clinician 
submits all of the information required under this section, then CMS 
does not make a QP assessment for such eligible clinician under the All-
Payer Combination Option.
    (d) Outcome measure. An Other Payer Advanced APM must base payment 
on at least one outcome measure.
    (1) Exception. If an Other Payer Advanced APM has no outcome 
measure, the Advanced APM Entity must submit an attestation in a manner 
and by a date determined by CMS that there is no available or applicable 
outcome measure on the MIPS list of quality measures.
    (2) [Reserved]



Sec. 414.1450  APM incentive payment.

    (a) In general. (1) CMS makes a lump sum payment to QPs in the 
amount described in paragraph (b) of this section in the manner 
described in paragraphs (d) and (e) of this section.

[[Page 182]]

    (2) CMS provides notice of the amount of the APM Incentive Payment 
to QPs as soon as practicable following the calculation and validation 
of the APM Incentive Payment amount, but in any event no later than 1 
year after the incentive payment base period.
    (b) APM Incentive Payment amount. (1) The amount of the APM 
Incentive Payment is equal to 5 percent of the estimated aggregate 
payments for covered professional services as defined in section 
1848(k)(3)(A) of the Act furnished during the calendar year immediately 
preceding the payment year.
    (2) The estimated aggregate payment amount for covered professional 
services includes all such payments to any and all of the TIN/NPI 
combinations associated with the NPI of the QP.
    (3) In calculating the estimated aggregate payment amount for a QP, 
CMS uses claims submitted with dates of service from January 1 through 
December 31 of the incentive payment base period, and processing dates 
of January 1 of the base period through March 31 of the subsequent 
payment year.
    (4) The payment adjustment amounts, negative or positive, as 
described in sections 1848(m), (o), (p), and (q) of the Act are not 
included in calculating the APM Incentive Payment amount.
    (5) Incentive payments made to eligible clinicians under sections 
1833(m), (x), and (y) of the Act are not included in calculating the APM 
Incentive Payment amount.
    (6) Financial risk payments such as shared savings payments or net 
reconciliation payments are excluded from the amount of covered 
professional services in calculating the APM Incentive Payment amount.
    (7) Supplemental service payments in the amount of covered 
professional services are included in calculating the APM Incentive 
Payment amount according to this paragraph (b). Supplemental service 
payments are included in the amount of covered professional services 
when calculating the APM Incentive Payment amount when the supplemental 
service payment meets the following four criteria:
    (i) Is payment for services that constitute physicians services 
authorized under section 1832(a) and defined under section 1861(s) of 
the Act.
    (ii) Is made for only Part B services under the criterion in 
paragraph (b)(9)(i) of this section.
    (iii) Is directly attributable to services furnished to an 
individual beneficiary.
    (iv) Is directly attributable to an eligible clinician, including an 
eligible clinician that is a group of individual eligible clinicians.
    (8) For payment amounts that are affected by a cash flow mechanism, 
the payment amounts that would have occurred if the cash flow mechanism 
were not in place are used in calculating the APM Incentive Payment 
amount.
    (c) APM Incentive Payment recipient. (1) CMS pays the entire APM 
Incentive Payment amount to the TIN associated with the QP's 
participation in the Advanced APM entity that met the applicable QP 
threshold during the QP Performance Period.
    (2) In the event that an eligible clinician is no longer affiliated 
with the TIN associated with the QP's participation in the Advanced APM 
Entity that met the applicable QP threshold during the QP Performance 
Period at the time of the APM Incentive Payment distribution, CMS makes 
the APM Incentive Payment to the TIN listed on the eligible clinician's 
CMS-588 EFT Application form on the date that the APM Incentive Payment 
is distributed.
    (3) In the event that an eligible clinician becomes a QP through 
participation in multiple Advanced APMs, CMS divides the APM Incentive 
Payment amount between the TINs associated with the QP's participation 
in each Advanced APM during the QP Performance Period. Such payments 
will be divided in proportion to the amount of payments associated with 
each TIN that the eligible clinician received for covered professional 
services during the QP Performance Period.
    (d) Timing of the APM Incentive Payment. APM Incentive Payments made 
under this section are made as soon as practicable following the 
calculation and validation of the APM Incentive Payment amount, but in 
any event no later than 1 year after the incentive payment base period.

[[Page 183]]

    (e) Treatment of APM Incentive Payment amount in APMs. (1) APM 
Incentive Payments made under this section are not included in 
determining actual expenditures under an APM.
    (2) APM Incentive Payments made under this section are not included 
in calculations for the purposes of rebasing benchmarks in an APM.
    (f) Treatment of APM Incentive Payment for other Medicare incentive 
payments and payment adjustments. APM Incentive Payments made under this 
section will not be included in determining the amount of incentive 
payment made to eligible clinicians under section 1833(m), (x), and (y) 
of the Act.



Sec. 414.1455  Limitation on review.

    There is no administrative or judicial review under sections 1869, 
1878, or otherwise, of the Act of the following:
    (a) The determination that an eligible clinician is a QP or Partial 
QP under Sec. 414.1425 and the determination that an APM Entity is an 
Advanced APM Entity under Sec. 414.1410.
    (b) The determination of the amount of the APM Incentive Payment 
under Sec. 414.1450, including any estimation as part of such 
determination.



Sec. 414.1460  Monitoring and program integrity.

    (a) Vetting eligible clinicians prior to payment of the APM 
Incentive Payment. Prior to payment of the APM Incentive Payment, CMS 
determines if eligible clinicians were in compliance with all Medicare 
conditions of participation and the terms of the relevant Advanced APMs 
in which they participate during the QP Performance Period. For QPs not 
meeting these standards there may be a reduction or denial of the APM 
Incentive Payment. A determination under this provision is not binding 
for other purposes.
    (b) Termination by Advanced APMs. CMS may reduce or deny an APM 
Incentive Payment to eligible clinicians who are terminated by APMs or 
whose Advanced APM Entities are terminated by APMs for non-compliance 
with all Medicare conditions of participation or the terms of the 
relevant Advanced APMS in which they participate during the QP 
Performance Periods.
    (c) Information submitted for All-Payer Combination Option. 
Information submitted by eligible clinicians or Advanced APM Entities to 
meet the requirements of the All-Payer Combination Option may be subject 
to audit by CMS. Eligible clinicians and Advanced APM Entities must 
maintain copies of any supporting documentation related to All-Payer 
Combination Option for at least 10 years and must attest to the accuracy 
and completeness of the data submitted.
    (d) Recoupment of APM Incentive Payment. For any QPs who are 
terminated from an Advanced APM or found to be in violation of any 
Federal, State, or tribal statute, regulation, or other binding guidance 
during the QP Performance Period or Incentive Payment Base Period or 
terminated after these periods as a result of a violation occurring 
during either period, CMS may rescind such eligible clinicians' QP 
determinations and, if necessary, recoup part or all of any such 
eligible clinicians' APM Incentive Payment or deduct such amount from 
future payments to such individuals. CMS may reopen and recoup any 
payments that were made in error in accordance with procedures similar 
to those set forth at 42 CFR 405.980 and 42 CFR 405.370 through 405.379 
or established under the relevant APM. The APM Incentive Payment will be 
recouped if an audit reveals a lack of support for attested statements 
provided by eligible clinicians and Advanced APM Entities.
    (e) Maintenance of records. An Advanced APM Entity or eligible 
clinician that submits information to CMS under Sec. 414.1445 for 
assessment under the All-Payer Combination Option must maintain such 
books contracts, records, documents, and other evidence for a period of 
10 years from the final date of the QP Performance Period or from the 
date of completion of any audit, evaluation, or inspection, whichever is 
later, 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 Advanced 
APM Entity of eligible clinician at least 30 days before the formal 
disposition date; or
    (2) There has been a termination, dispute, or allegation of fraud or 
similar

[[Page 184]]

fault against the Advanced APM Entity or eligible clinician, in which 
case the Advanced APM Entity or eligible clinician must retain records 
for an additional 6 years from the date of any resulting final 
resolution of the termination, dispute, or allegation of fraud or 
similar fault.
    (f) OIG authority. None of the provisions of this part limit or 
restrict OIG's authority to audit, evaluate, investigate, or inspect the 
Advanced APM Entity, its eligible clinicians, and other individuals or 
entities performing functions or services related to its APM activities.



Sec. 414.1465  Physician-focused payment models.

    (a) Definition. A physician-focused payment model (PFPM) is an 
Alternative Payment Model:
    (1) In which Medicare is a payer;
    (2) In which eligible clinicians that are eligible professionals as 
defined in section 1848(k)(3)(B) of the Act are participants and play a 
core role in implementing the APM's payment methodology; and
    (3) Which targets the quality and costs of services that eligible 
professionals participating in the Alternative Payment Model provide, 
order, or can significantly influence.
    (b) Criteria. In carrying out its review of physician-focused 
payment model proposals, the PTAC must assess whether the physician-
focused payment model meets the following criteria for PFPMs sought by 
the Secretary. The Secretary seeks PFPMs that:
    (1) Incentives: Pay for higher-value care. (i) Value over volume: 
provide incentives to practitioners to deliver high-quality health care.
    (ii) Flexibility: provide the flexibility needed for practitioners 
to deliver high-quality health care.
    (iii) Quality and Cost: are anticipated to improve health care 
quality at no additional cost, maintain health care quality while 
decreasing cost, or both improve health care quality and decrease cost.
    (iv) Payment methodology: pay APM Entities with a payment 
methodology designed to achieve the goals of the PFPM Criteria. 
Addresses in detail through this methodology how Medicare, and other 
payers if applicable, pay APM Entities, how the payment methodology 
differs from current payment methodologies, and why the PFPM cannot be 
tested under current payment methodologies.
    (v) Scope: aim to broaden or expand the CMS APM portfolio by 
addressing an issue in payment policy in a new way or including APM 
Entities whose opportunities to participate in APMs have been limited.
    (vi) Ability to be evaluated: have evaluable goals for quality of 
care, cost, and any other goals of the PFPM.
    (2) Care delivery improvements: Promote better care coordination, 
protect patient safety, and encourage patient engagement. (i) 
Integration and Care Coordination: encourage greater integration and 
care coordination among practitioners and across settings where multiple 
practitioners or settings are relevant to delivering care to the 
population treated under the PFPM.
    (ii) Patient Choice: encourage greater attention to the health of 
the population served while also supporting the unique needs and 
preferences of individual patients.
    (iii) Patient Safety: aim to maintain or improve standards of 
patient safety.
    (3) Information Enhancements: Improving the availability of 
information to guide decision-making. (i) Health Information Technology: 
encourage use of health information technology to inform care.
    (ii) [Reserved]



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.

[[Page 185]]

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 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 Secs. 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

[[Page 186]]

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 Secs. 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.
    (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--

[[Page 187]]

    (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 Secs. 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. (1) For cost reporting 
periods beginning before January 1, 2015. 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.
    (2) For cost reporting periods beginning on or after January 1, 
2015. CMS establishes a methodology for determining annual reasonable 
compensation equivalency limits and, to the extent possible, considers 
average physician incomes by specialty 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
    (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

[[Page 188]]

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; 79 
FR 50358, Aug. 22, 2014]



      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 Secs. 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 Secs. 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 meet the applicable conditions in Secs. 415.120 (concerning 
conditions for payment for radiology services) and 415.130 (concerning 
conditions for payment for physician pathology services),

[[Page 189]]

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 
Secs. 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;
    (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

[[Page 190]]

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 paragraphs (c)(1), (c)(3), and (c)(4) of this section 
and that are specifically listed in program operating instructions.

[[Page 191]]

    (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. (1) The technical component of physician pathology services 
furnished by an independent laboratory to a hospital inpatient or 
outpatient on or before June 30, 2012, may be paid to the laboratory by 
the contractor under the physician fee schedule if the Medicare 
beneficiary is a patient of a covered hospital as defined in paragraph 
(a)(1) of this section.
    (2) For services furnished after June 30, 2012, an independent 
laboratory may not bill the Medicare contractor for the technical 
component of physician pathology services furnished to a hospital 
inpatient or outpatient.
    (3) For services furnished on or after January 1, 2008, the date of 
service policy in Sec. 414.510 of this chapter applies to the TC of 
specimens for physician pathology services.

[60 FR 63178, Dec. 8, 1995, as amended at 64 FR 59442, Nov. 2, 1999; 66 
FR 55332, Nov. 1, 2001; 71 FR 69788, Dec. 1, 2006; 72 FR 66405, Nov. 27, 
2007; 73 FR 69938, Nov. 19, 2008; 75 FR 73626, Nov. 29, 2010; 76 FR 
73473, Nov. 28, 2011; 77 FR 69371, Nov. 16, 2012]



            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 
Secs. 415.160 through 415.164.
    (b) Provider services through the direct GME payment mechanism in 
Secs. 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, by the American Osteopathic Association, by 
the Commission on Dental Accreditation of the American Dental 
Association, or by the Council on Podiatric Medical 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 Secs. 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:
    (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

[[Page 192]]

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 
Secs. 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; 74 FR 44001, Aug. 
27, 2009; 75 FR 50418, Aug. 16, 2010]



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 
Secs. 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.
    (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

[[Page 193]]

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 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

[[Page 194]]

    (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 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.

[[Page 195]]

                              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 ($30,000  x  6/12).

    (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 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

[[Page 196]]

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 Secs. 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....................................
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...................................

[[Page 197]]

 
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 weeks  x  40 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 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.

[[Page 198]]

    (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 
Secs. 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 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

[[Page 199]]

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 Secs. 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 
Secs. 415.170 and 415.172 (concerning physician fee schedule payment for 
services of teaching physicians).



Sec. 415.178  Anesthesia services.

    (a) General rule. (1) For services furnished prior to January 1, 
2010, 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 services involving other patients during the period 
the anesthesia resident is furnishing services in a single case. 
Additional rules for payment of anesthesia services involving residents 
are specified in Sec. 414.46(c)(1)(iii) of this chapter.

[[Page 200]]

    (2) For services furnished on or after January 1, 2010, payment made 
under Sec. 414.46(e) of this chapter if the teaching anesthesiologist 
(or different teaching anesthesiologists in the same anesthesia group 
practice) is present during all critical or key portions of the 
anesthesia service or procedure involved; and the teaching 
anesthesiologist (or another anesthesiologist with whom the teaching 
anesthesiologist has entered into an arrangement) is immediately 
available to furnish anesthesia services during the entire procedure.
    (b) Documentation. Documentation must indicate the teaching 
physician's presence during all critical or key portions of the 
anesthesia procedure and the immediate availability of another teaching 
anesthesiologist.

[74 FR 62014, Nov. 25, 2009]



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 Secs. 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

[[Page 201]]

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 or she 
performs the service. The payment methodology for services of residents 
in hospitals and hospital-based providers is set forth in Secs. 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 Secs. 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 Secs. 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:

[[Page 202]]

    (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 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 
Secs. 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 (Secs. 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.

[[Page 203]]

416.41  Condition for coverage--Governing body and management.
416.42  Condition for coverage--Surgical services.
416.43  Conditions for coverage--Quality assessment and performance 
          improvement.
416.44  Condition for coverage--Environment.
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.
416.50  Condition for coverage--Patient rights.
416.51  Conditions for coverage--Infection control.
416.52  Conditions for coverage--Patient admission, assessment and 
          discharge.
416.54  Condition for coverage--Emergency preparedness.

  Subpart D_Scope of Benefits for Services Furnished Before January 1, 
                                  2008

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.
416.76  Applicability.

  Subpart E_Prospective Payment System for Facility Services Furnished 
                         Before January 1, 2008

416.120  Basis for payment.
416.121  Applicability.
416.125  ASC facility services payment rate.
416.130  Publication of revised payment methodologies.
416.140  Surveys.

   Subpart F_Coverage, Scope of ASC Services, and Prospective Payment 
      System for ASC Services Furnished on or After January 1, 2008

416.160  Basis and scope
416.161  Applicability of this subpart
416.163  General rules
416.164  Scope of ASC services
416.166  Covered surgical procedures
416.167  Basis of payment
416.171  Determination of payment rates for ASC services
416.172  Adjustments to national payment rates
416.173  Publication of revised payment methodologies and payment rates
416.178  Limitations on administrative and judicial review
416.179  Payment and coinsurance reduction for devices replaced without 
          cost or when full or partial credit is received.

 Subpart G_Adjustment in Payment Amounts for New Technology Intraocular 
             Lenses Furnished by Ambulatory Service Centers

416.180  Basis and scope.
416.185  Process for establishing a new class of new technology IOLs.
416.190  Request for review of payment amount.
416.195  Determination of membership in new classes of new technology 
          IOLs.
416.200  Payment adjustment.

  Subpart H_Requirements Under the Ambulatory Surgical Center Quality 
                        Reporting (ASCQR) Program

416.300  Basis and scope of subpart.
416.305  Participation and withdrawal requirements under the ASCQR 
          Program.
416.310  Data collection and submission requirements under the ASCQR 
          Program.
416.315  Public reporting of data under the ASCQR Program.
416.320  Retention and removal of quality measures under the ASCQR 
          Program.
416.325  Measure maintenance under the ASCQR Program.
416.330  Reconsiderations under the ASCQR Program.

    Authority: Secs. 1102, 1138, and 1871 of the Social Security Act (42 
U.S.C. 1302, 1320b-8, and 1395hh) and section 371 of the Public Health 
Service Act (42 U.S.C. 273).

    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.
    (3) Sections 1833(i)(2)(A) and (D) and 1833(a)(1)(G) of the Act 
specify the amounts to be paid for facility services

[[Page 204]]

furnished in connection with the specified surgical procedures when they 
are performed in an ASC.
    (4) Section 1833(i)(2)(C) of the Act provides that if the Secretary 
has not updated amounts for ASC facility services furnished during a 
fiscal year through 2005 or a calendar year beginning with 2006, the 
amounts shall be increased by the percentage increase in the Consumer 
Price Index for all urban consumers as estimated by the Secretary for 
the 12-month period ending with the midpoint of the year involved, 
except that, in fiscal year 2005, the last quarter of calendar year 
2005, and each of the calendar years 2006 through 2009, the increase 
shall be zero percent.
    (5) Section 1833(i)(2)(E) of the Act provides that, with respect to 
surgical procedures furnished on or after January 1, 2007, and before 
the effective date of the implementation of a revised payment system, 
the payment amount shall be the lesser of the ASC payment rate 
established under section 1833(i)(2)(A) of the Act or the prospective 
payment rate for hospital outpatient department services established 
under section 1833(t)(3)(D) of the Act. The lesser payment amount shall 
be determined prior to application of any geographic adjustment.
    (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, as amended at 71 
FR 68226, Nov. 24, 2006]



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 and in which the expected 
duration of services would not exceed 24 hours following an admission. 
The entity must have an agreement with CMS to participate in Medicare as 
an ASC, and must meet the conditions set forth in subparts B and C of 
this part.
    ASC services means, for the period before January 1, 2008, facility 
services that are furnished in an ASC, and beginning January 1, 2008, 
means the combined facility services and covered ancillary services that 
are furnished in an ASC in connection with covered surgical procedures.
    Covered ancillary services means items and services that are 
integral to a covered surgical procedure performed in an ASC as provided 
in Sec. 416.164(b), for which payment may be made under Sec. 416.171 in 
addition to the payment for the facility services.
    Covered surgical procedures means those surgical procedures 
furnished before January 1, 2008, that meet the criteria specified in 
Sec. 416.65 and those surgical procedures furnished on or after January 
1, 2008, that meet the criteria specified in Sec. 416.166.
    Facility services means for the period before January 1, 2008, 
services that are furnished in connection with covered surgical 
procedures performed in an ASC, and beginning January 1, 2008, means 
services that are furnished in connection with covered surgical 
procedures performed in an ASC as provided in Sec. 416.164(a) for which 
payment is included in the ASC payment established under Sec. 416.171 
for the covered surgical procedure.

[56 FR 8843, Mar. 1, 1991; 56 FR 23022, May 20, 1991, as amended at 71 
FR 68226, Nov. 24, 2006; 72 FR 42544, Aug. 2, 2007; 73 FR 68811, Nov. 
18, 2008]



              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--
    (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;

[[Page 205]]

    (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 
Secs. 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--
    (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

[[Page 206]]

    (2) The ASC participates and is paid only as an ASC.
    (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; 74 FR 60680, Nov. 20, 2009]



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 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; 82 FR 38515, Aug. 14, 
2017]



               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. The governing body has oversight 
and accountability for the quality assessment and performance 
improvement program, ensures that facility policies and programs are 
administered so as to provide quality health care in a safe environment, 
and develops and maintains a disaster preparedness plan.
    (a) Standard: Contract services. When services are provided through 
a contract with an outside resource, the

[[Page 207]]

ASC must assure that these services are provided in a safe and effective 
manner.
    (b) Standard: Hospitalization. (1) 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.
    (2) 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.
    (3) The ASC must--
    (i) Have a written transfer agreement with a hospital that meets the 
requirements of paragraph (b)(2) of this section; or
    (ii) Ensure that all physicians performing surgery in the ASC have 
admitting privileges at a hospital that meets the requirements of 
paragraph (b)(2) of this section.

[73 FR 68811, Nov. 18, 2008, as amended at 81 FR 64022, Sept. 16, 2016]



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. (1) A physician must 
examine the patient immediately before surgery to evaluate the risk of 
anesthesia and of the procedure to be performed.
    (2) Before discharge from the ASC, each patient must be evaluated by 
a physician or by an anesthetist as defined at Sec. 410.69(b) of this 
chapter, in accordance with applicable State health and safety laws, 
standards of practice, and ASC policy, 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 
(c) 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: 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; 
73 FR 68812, Nov. 18, 2008; 79 FR 27153, May 12, 2014]



Sec. 416.43  Conditions for coverage--Quality assessment and performance improvement.

    The ASC must develop, implement and maintain an ongoing, data-driven 
quality assessment and performance improvement (QAPI) program.
    (a) Standard: Program scope. (1) The program must include, but not 
be limited to, an ongoing program that demonstrates measurable 
improvement in patient health outcomes, and improves patient safety by 
using quality indicators or performance measures associated with 
improved health outcomes and by the identification and reduction of 
medical errors.
    (2) The ASC must measure, analyze, and track quality indicators, 
adverse patient events, infection control and

[[Page 208]]

other aspects of performance that includes care and services furnished 
in the ASC.
    (b) Standard: Program data. (1) The program must incorporate quality 
indicator data, including patient care and other relevant data regarding 
services furnished in the ASC.
    (2) The ASC must use the data collected to--
    (i) Monitor the effectiveness and safety of its services, and 
quality of its care.
    (ii) Identify opportunities that could lead to improvements and 
changes in its patient care.
    (c) Standard: Program activities. (1) The ASC must set priorities 
for its performance improvement activities that--
    (i) Focus on high risk, high volume, and problem-prone areas.
    (ii) Consider incidence, prevalence, and severity of problems in 
those areas.
    (iii) Affect health outcomes, patient safety, and quality of care.
    (2) Performance improvement activities must track adverse patient 
events, examine their causes, implement improvements, and ensure that 
improvements are sustained over time.
    (3) The ASC must implement preventive strategies throughout the 
facility targeting adverse patient events and ensure that all staff are 
familiar with these strategies.
    (d) Standard: Performance improvement projects. (1) The number and 
scope of distinct improvement projects conducted annually must reflect 
the scope and complexity of the ASC's services and operations.
    (2) The ASC must document the projects that are being conducted. The 
documentation, at a minimum, must include the reason(s) for implementing 
the project, and a description of the project's results.
    (e) Standard: Governing body responsibilities. The governing body 
must ensure that the QAPI program--
    (1) Is defined, implemented, and maintained by the ASC.
    (2) Addresses the ASC's priorities and that all improvements are 
evaluated for effectiveness.
    (3) Specifies data collection methods, frequency, and details.
    (4) Clearly establishes its expectations for safety.
    (5) Adequately allocates sufficient staff, time, information systems 
and training to implement the QAPI program.

[73 FR 68812, Nov. 18, 2008]



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 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.
    (b) Standard: Safety from fire. (1) Except as otherwise provided in 
this section, the ASC must meet the provisions applicable to Ambulatory 
Health Care Occupancies, regardless of the number of patients served, 
and must proceed in accordance with the Life Safety Code (NFPA 101 and 
Tentative Interim Amendments TIA 12-1, TIA 12-2, TIA 12-3, and TIA 12-
4).
    (2) In consideration of a recommendation by the State survey agency 
or Accrediting Organization or at the discretion of the Secretary, may 
waive, for periods deemed appropriate, specific provisions of the Life 
Safety Code, which 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 may place alcohol-based hand rub dispensers in its 
facility if the dispensers are installed in a manner that adequately 
protects against inappropriate access.

[[Page 209]]

    (5) When a sprinkler system is shut down for more than 10 hours, the 
ASC must:
    (i) Evacuate the building or portion of the building affected by the 
system outage until the system is back in service, or
    (ii) Establish a fire watch until the system is back in service.
    (6) Beginning July 5, 2017, an ASC must be in compliance with 
Chapter 21.3.2.1, Doors to hazardous areas.
    (c) Standard: Building Safety. Except as otherwise provided in this 
section, the ASC must meet the applicable provisions and must proceed in 
accordance with the 2012 edition of the Health Care Facilities Code 
(NFPA 99, and Tentative Interim Amendments TIA 12-2, TIA 12-3, TIA 12-4, 
TIA 12-5 and TIA 12-6).
    (1) Chapters 7, 8, 12, and 13 of the adopted Health Care Facilities 
Code do not apply to an ASC.
    (2) If application of the Health Care Facilities Code required under 
paragraph (c) of this section would result in unreasonable hardship for 
the ASC, CMS may waive specific provisions of the Health Care Facilities 
Code, but only if the waiver does not adversely affect the health and 
safety of patients.
    (d) Standard: Emergency equipment. The ASC medical staff and 
governing body of the ASC coordinates, develops, and revises ASC 
policies and procedures to specify the types of emergency equipment 
required for use in the ASC's operating room. The equipment must meet 
the following requirements:
    (1) Be immediately available for use during emergency situations.
    (2) Be appropriate for the facility's patient population.
    (3) Be maintained by appropriate personnel.
    (e) 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.
    (f) The standards incorporated by reference in this section are 
approved for incorporation by reference by the Director of the Office of 
the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 
51. You may inspect a copy 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. If any changes in this edition of the Code are 
incorporated by reference, CMS will publish a document in the Federal 
Register to announce the changes.
    (1) National Fire Protection Association, 1 Batterymarch Park, 
Quincy, MA 02169, www.nfpa.org, 1.617.770.3000.
    (i) NFPA 99, Standards for Health Care Facilities Code of the 
National Fire Protection Association 99, 2012 edition, issued August 11, 
2011.
    (ii) TIA 12-2 to NFPA 99, issued August 11, 2011.
    (iii) TIA 12-3 to NFPA 99, issued August 9, 2012.
    (iv) TIA 12-4 to NFPA 99, issued March 7, 2013.
    (v) TIA 12-5 to NFPA 99, issued August 1, 2013.
    (vi) TIA 12-6 to NFPA 99, issued March 3, 2014.
    (vii) NFPA 101, Life Safety Code, 2012 edition, issued August 11, 
2011;
    (viii) TIA 12-1 to NFPA 101, issued August 11, 2011.
    (ix) TIA 12-2 to NFPA 101, issued October 30, 2012.
    (x) TIA 12-3 to NFPA 101, issued October 22, 2013.
    (xi) TIA 12-4 to NFPA 101, issued October 22, 2013.
    (2) [Reserved]

[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; 71 FR 55339, Sept. 22, 2006; 77 FR 
29030, May 16, 2012; 81 FR 26896, May 4, 2016; 81 FR 42548, June 30, 
2016]



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

[[Page 210]]

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.
    (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.

    (a) Standard: Laboratory 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.
    (b) Standard: Radiologic services. (1) Radiologic services may only 
be provided when integral to procedures offered by the ASC and must meet 
the requirements specified in Sec. 482.26(b), (c)(2), and (d)(2) of this 
chapter.
    (2) If radiologic services are utilized, the governing body must 
appoint an individual qualified in accordance with

[[Page 211]]

State law and ASC policies who is responsible for assuring all 
radiologic services are provided in accordance with the requirements of 
this section.

[73 FR 68812, Nov. 18, 2008, as amended at 79 FR 27153, May 12, 2014]



Sec. 416.50  Condition for coverage--Patient rights.

    The ASC must inform the patient or the patient's representative or 
surrogate of the patient's rights and must protect and promote the 
exercise of these rights, as set forth in this section. The ASC must 
also post the written notice of patient rights in a place or places 
within the ASC likely to be noticed by patients waiting for treatment or 
by the patient's representative or surrogate, if applicable.
    (a) Standard: Notice of Rights. An ASC must, prior to the start of 
the surgical procedure, provide the patient, the patient's 
representative, or the patient's surrogate with verbal and written 
notice of the patient's rights in a language and manner that ensures the 
patient, the representative, or the surrogate understand all of the 
patient's rights as set forth in this section. The ASC's notice of 
rights must include the address and telephone number of the State agency 
to which patients may report complaints, as well as the Web site for the 
Office of the Medicare Beneficiary Ombudsman.
    (b) Standard: Disclosure of physician financial interest or 
ownership. The ASC must disclose, in accordance with Part 420 of this 
subchapter, and where applicable, provide a list of physicians who have 
financial interest or ownership in the ASC facility. Disclosure of 
information must be in writing.
    (c) Standard: Advance directives. The ASC must comply with the 
following requirements:
    (1) Provide the patient or, as appropriate, the patient's 
representative with written information concerning its policies on 
advance directives, including a description of applicable State health 
and safety laws and, if requested, official State advance directive 
forms.
    (2) Inform the patient or, as appropriate, the patient's 
representative of the patient's right to make informed decisions 
regarding the patient's care.
    (3) Document in a prominent part of the patient's current medical 
record, whether or not the individual has executed an advance directive.
    (d) Standard: Submission and investigation of grievances. The ASC 
must establish a grievance procedure for documenting the existence, 
submission, investigation, and disposition of a patient's written or 
verbal grievance to the ASC. The following criteria must be met:
    (1) All alleged violations/grievances relating, but not limited to, 
mistreatment, neglect, verbal, mental, sexual, or physical abuse, must 
be fully documented.
    (2) All allegations must be immediately reported to a person in 
authority in the ASC.
    (3) Only substantiated allegations must be reported to the State 
authority or the local authority, or both.
    (4) The grievance process must specify timeframes for review of the 
grievance and the provisions of a response.
    (5) The ASC, in responding to the grievance, must investigate all 
grievances made by a patient, the patient's representative, or the 
patient's surrogate regarding treatment or care that is (or fails to be) 
furnished.
    (6) The ASC must document how the grievance was addressed, as well 
as provide the patient, the patient's representative, or the patient's 
surrogate with written notice of its decision. The decision must contain 
the name of an ASC contact person, the steps taken to investigate the 
grievance, the result of the grievance process and the date the 
grievance process was completed.
    (e) Standard: Exercise of rights and respect for property and 
person. (1) The patient has the right to the following:
    (i) Be free from any act of discrimination or reprisal.
    (ii) Voice grievances regarding treatment or care that is (or fails 
to be) provided.
    (iii) Be fully informed about a treatment or procedure and the 
expected outcome before it is performed.
    (2) If a patient is adjudged incompetent under applicable State laws 
by a court of proper jurisdiction, the rights of the patient are 
exercised by the person appointed under State law to act on the 
patient's behalf.

[[Page 212]]

    (3) If a State court has not adjudged a patient incompetent, any 
legal representative or surrogate designated by the patient in 
accordance with State law may exercise the patient's rights to the 
extent allowed by State law.
    (f) Standard: Privacy and safety. The patient has the right to--
    (1) Personal privacy.
    (2) Receive care in a safe setting.
    (3) Be free from all forms of abuse or harassment.
    (g) Standard: Confidentiality of clinical records. The ASC must 
comply with the Department's rules for the privacy and security of 
individually identifiable health information, as specified at 45 CFR 
parts 160 and 164.

[73 FR 68812, Nov. 18, 2008, as amended at 76 FR 65889, Oct. 24, 2011]



Sec. 416.51  Conditions for coverage--Infection control.

    The ASC must maintain an infection control program that seeks to 
minimize infections and communicable diseases.
    (a) Standard: Sanitary environment. The ASC must provide a 
functional and sanitary environment for the provision of surgical 
services by adhering to professionally acceptable standards of practice.
    (b) Standard: Infection control program. The ASC must maintain an 
ongoing program designed to prevent, control, and investigate infections 
and communicable diseases. In addition, the infection control and 
prevention program must include documentation that the ASC has 
considered, selected, and implemented nationally recognized infection 
control guidelines. The program is--
    (1) Under the direction of a designated and qualified professional 
who has training in infection control;
    (2) An integral part of the ASC's quality assessment and performance 
improvement program; and
    (3) Responsible for providing a plan of action for preventing, 
identifying, and managing infections and communicable diseases and for 
immediately implementing corrective and preventive measures that result 
in improvement.

[73 FR 68813, Nov. 18, 2008]



Sec. 416.52  Conditions for coverage--Patient admission, assessment and discharge.

    The ASC must ensure each patient has the appropriate pre-surgical 
and post-surgical assessments completed and that all elements of the 
discharge requirements are completed.
    (a) Standard: Admission and pre-surgical assessment. (1) Not more 
than 30 days before the date of the scheduled surgery, each patient must 
have a comprehensive medical history and physical assessment completed 
by a physician (as defined in section 1861(r) of the Act) or other 
qualified practitioner in accordance with applicable State health and 
safety laws, standards of practice, and ASC policy.
    (2) Upon admission, each patient must have a pre-surgical assessment 
completed by a physician or other qualified practitioner in accordance 
with applicable State health and safety laws, standards of practice, and 
ASC policy that includes, at a minimum, an updated medical record entry 
documenting an examination for any changes in the patient's condition 
since completion of the most recently documented medical history and 
physical assessment, including documentation of any allergies to drugs 
and biologicals.
    (3) The patient's medical history and physical assessment must be 
placed in the patient's medical record prior to the surgical procedure.
    (b) Standard: Post-surgical assessment. (1) The patient's post-
surgical condition must be assessed and documented in the medical record 
by a physician, other qualified practitioner, or a registered nurse 
with, at a minimum, post-operative care experience in accordance with 
applicable State health and safety laws, standards of practice, and ASC 
policy.
    (2) Post-surgical needs must be addressed and included in the 
discharge notes.
    (c) Standard: Discharge. The ASC must--
    (1) Provide each patient with written discharge instructions and 
overnight supplies. When appropriate, make a followup appointment with 
the physician,

[[Page 213]]

and ensure that all patients are informed, either in advance of their 
surgical procedure or prior to leaving the ASC, of their prescriptions, 
post-operative instructions and physician contact information for 
followup care.
    (2) Ensure each patient has a discharge order, signed by the 
physician who performed the surgery or procedure in accordance with 
applicable State health and safety laws, standards of practice, and ASC 
policy.
    (3) Ensure all patients are discharged in the company of a 
responsible adult, except those patients exempted by the attending 
physician.

[73 FR 68813, Nov. 18, 2008]



Sec. 416.54  Condition for coverage--Emergency preparedness.

    The Ambulatory Surgical Center (ASC) must comply with all applicable 
Federal, State, and local emergency preparedness requirements. The ASC 
must establish and maintain an emergency preparedness program that meets 
the requirements of this section. The emergency preparedness program 
must include, but not be limited to, the following elements:
    (a) Emergency plan. The ASC must develop and maintain an emergency 
preparedness plan that must be reviewed, and updated at least annually. 
The plan must do the following:
    (1) Be based on and include a documented, facility-based and 
community-based risk assessment, utilizing an all-hazards approach.
    (2) Include strategies for addressing emergency events identified by 
the risk assessment.
    (3) Address patient population, including, but not limited to, the 
type of services the ASC has the ability to provide in an emergency; and 
continuity of operations, including delegations of authority and 
succession plans.
    (4) Include a process for cooperation and collaboration with local, 
tribal, regional, State, and Federal emergency preparedness officials' 
efforts to maintain an integrated response during a disaster or 
emergency situation, including documentation of the ASC's efforts to 
contact such officials and, when applicable, of its participation in 
collaborative and cooperative planning efforts.
    (b) Policies and procedures. The ASC must develop and implement 
emergency preparedness policies and procedures, based on the emergency 
plan set forth in paragraph (a) of this section, risk assessment at 
paragraph (a)(1) of this section, and the communication plan at 
paragraph (c) of this section. The policies and procedures must be 
reviewed and updated at least annually. At a minimum, the policies and 
procedures must address the following:
    (1) A system to track the location of on-duty staff and sheltered 
patients in the ASC's care during an emergency. If on-duty staff or 
sheltered patients are relocated during the emergency, the ASC must 
document the specific name and location of the receiving facility or 
other location.
    (2) Safe evacuation from the ASC, which includes the following:
    (i) Consideration of care and treatment needs of evacuees.
    (ii) Staff responsibilities.
    (iii) Transportation.
    (iv) Identification of evacuation location(s).
    (v) Primary and alternate means of communication with external 
sources of assistance.
    (3) A means to shelter in place for patients, staff, and volunteers 
who remain in the ASC.
    (4) A system of medical documentation that does the following:
    (i) Preserves patient information.
    (ii) Protects confidentiality of patient information.
    (iii) Secures and maintains the availability of records.
    (5) The use of volunteers in an emergency and other staffing 
strategies, including the process and role for integration of State and 
Federally designated health care professionals to address surge needs 
during an emergency.
    (6) The role of the ASC under a waiver declared by the Secretary, in 
accordance with section 1135 of the Act, in the provision of care and 
treatment at an alternate care site identified by emergency management 
officials.
    (c) Communication plan. The ASC must develop and maintain an 
emergency preparedness communication plan that complies with Federal, 
State, and local laws and must be reviewed and updated at least 
annually. The

[[Page 214]]

communication plan must include all of the following:
    (1) Names and contact information for the following:
    (i) Staff.
    (ii) Entities providing services under arrangement.
    (iii) Patients' physicians.
    (iv) Volunteers.
    (2) Contact information for the following:
    (i) Federal, State, tribal, regional, and local emergency 
preparedness staff.
    (ii) Other sources of assistance.
    (3) Primary and alternate means for communicating with the 
following:
    (i) ASC's staff.
    (ii) Federal, State, tribal, regional, and local emergency 
management agencies.
    (4) A method for sharing information and medical documentation for 
patients under the ASC's care, as necessary, with other health care 
providers to maintain the continuity of care.
    (5) A means, in the event of an evacuation, to release patient 
information as permitted under 45 CFR 164.510(b)(1)(ii).
    (6) A means of providing information about the general condition and 
location of patients under the facility's care as permitted under 45 CFR 
164.510(b)(4).
    (7) A means of providing information about the ASC's needs, and its 
ability to provide assistance, to the authority having jurisdiction, the 
Incident Command Center, or designee.
    (d) Training and testing. The ASC must develop and maintain an 
emergency preparedness training and testing program that is based on the 
emergency plan set forth in paragraph (a) of this section, risk 
assessment at paragraph (a)(1) of this section, policies and procedures 
at paragraph (b) of this section, and the communication plan at 
paragraph (c) of this section. The training and testing program must be 
reviewed and updated at least annually.
    (1) Training program. The ASC must do all of the following:
    (i) Initial training in emergency preparedness policies and 
procedures to all new and existing staff, individuals providing on-site 
services under arrangement, and volunteers, consistent with their 
expected roles.
    (ii) Provide emergency preparedness training at least annually.
    (iii) Maintain documentation of all emergency preparedness training.
    (iv) Demonstrate staff knowledge of emergency procedures.
    (2) Testing. The ASC must conduct exercises to test the emergency 
plan at least annually. The ASC must do the following:
    (i) Participate in a full-scale exercise that is community-based or 
when a community-based exercise is not accessible, individual, facility-
based. If the ASC experiences an actual natural or man-made emergency 
that requires activation of the emergency plan, the ASC is exempt from 
engaging in an community-based or individual, facility-based full-scale 
exercise for 1 year following the onset of the actual event.
    (ii) Conduct an additional exercise that may include, but is not 
limited to the following:
    (A) A second full-scale exercise that is individual, facility-based.
    (B) A tabletop exercise that includes a group discussion led by a 
facilitator, using a narrated, clinically-relevant emergency scenario, 
and a set of problem statements, directed messages, or prepared 
questions designed to challenge an emergency plan.
    (iii) Analyze the ASC's response to and maintain documentation of 
all drills, tabletop exercises, and emergency events and revise the 
ASC's emergency plan, as needed.
    (e) Integrated healthcare systems. If an ASC is part of a healthcare 
system consisting of multiple separately certified healthcare facilities 
that elects to have a unified and integrated emergency preparedness 
program, the ASC may choose to participate in the healthcare system's 
coordinated emergency preparedness program. If elected, the unified and 
integrated emergency preparedness program must--
    (1) Demonstrate that each separately certified facility within the 
system actively participated in the development of the unified and 
integrated emergency preparedness program.
    (2) Be developed and maintained in a manner that takes into account 
each separately certified facility's unique

[[Page 215]]

circumstances, patient populations, and services offered.
    (3) Demonstrate that each separately certified facility is capable 
of actively using the unified and integrated emergency preparedness 
program and is in compliance.
    (4) Include a unified and integrated emergency plan that meets the 
requirements of paragraphs (a)(2), (3), and (4) of this section. The 
unified and integrated emergency plan must also be based on and include 
the following:
    (i) A documented community-based risk assessment, utilizing an all-
hazards approach.
    (ii) A documented individual facility-based risk assessment for each 
separately certified facility within the health system, utilizing an 
all-hazards approach.
    (5) Include integrated policies and procedures that meet the 
requirements set forth in paragraph (b) of this section, a coordinated 
communication plan and training and testing programs that meet the 
requirements of paragraphs (c) and (d) of this section, respectively.

[81 FR 64022, Sept. 16, 2016]



  Subpart D_Scope of Benefits for Services Furnished Before January 1, 
                                  2008



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]



Sec. 416.65  Covered surgical procedures.

    Effective for services furnished before January 1, 2008, 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. 411.15 of this chapter.
    (b) Specific standards. (1) Covered surgical procedures are limited 
to those that do not generally exceed--

[[Page 216]]

    (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.

[47 FR 34094, Aug. 5, 1982, as amended at 71 FR 68226, Nov. 24, 2006]



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.



Sec. 416.76  Applicability.

    The provisions of this subpart apply to facility services furnished 
before January 1, 2008.

[71 FR 68226, Nov. 24, 2006]



  Subpart E_Prospective Payment System for Facility Services Furnished 
                         Before January 1, 2008



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 419 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, as amended at 71 
FR 68226, Nov. 24, 2006]



Sec. 416.121  Applicability.

    The provisions of this subpart apply to facility services furnished 
before January 1, 2008.

[71 FR 68226, Nov. 24, 2006]



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 been performed on an inpatient 
basis in a hospital.
    (c) For services furnished on or after January 1, 2007, and before 
the effective date of implementation of a revised payment system, the 
ASC payment rate for a surgical procedure is the

[[Page 217]]

lesser of the ASC payment rate established under paragraph (a) of this 
section or the prospective payment rate for the procedure established 
under Sec. 419.32 of this chapter. The lesser payment amount is 
determined prior to application of any geographic adjustment.

[56 FR 8844, Mar. 1, 1991, as amended at 71 FR 68226, Nov. 24, 2006]



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]



   Subpart F_Coverage, Scope of ASC Services, and Prospective Payment 
      System for ASC Services Furnished on or After January 1, 2008

    Source: 72 FR 42545, Aug. 2, 2007, unless otherwise noted.



Sec. 416.160  Basis and scope.

    (a) Statutory basis. (1) Section 1833(i)(2)(D) of the Act requires 
the Secretary to implement a revised payment system for payment of 
surgical services furnished in ASCs. The statute requires that, in the 
year such system is implemented, the system shall be designed to result 
in the same amount of aggregate expenditures for such services as would 
be made if there was no requirement for a revised payment system. The 
revised payment system shall be implemented no earlier than January 1, 
2006, and no later than January 1, 2008. The statute provides that the 
Secretary may implement a reduction in any annual update for failure to 
report on quality measures as specified by the Secretary. The statute 
also requires that, for CY 2011 and each subsequent year, any annual 
update to the ASC payment system, after application of any reduction in 
the annual update for failure to report on quality measures as specified 
by the Secretary, be reduced by a productivity adjustment. There shall 
be no administrative or judicial review under section 1869 of the Act, 
section 1878 of the Act, or otherwise of the classification system, the 
relative weights, payment amounts,

[[Page 218]]

and the geographic adjustment factor, if any, of the revised payment 
system.
    (2) Section 1833(a)(1)(G) of the Act provides that, beginning with 
the implementation date of a revised payment system for ASC facility 
services furnished in connection with a surgical procedure pursuant to 
section 1833(i)(1)(A) of the Act, the amount paid shall be 80 percent of 
the lesser of the actual charge for such services or the amount 
determined by the Secretary under the revised payment system.
    (3) 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 ASC.
    (4) Section 1834(d) of the Act specifies that, when screening 
colonoscopies or screening flexible sigmoidoscopies are performed in an 
ASC or hospital outpatient department, payment shall be based on the 
lesser of the amount under the fee schedule that would apply to such 
services if they were performed in a hospital outpatient department in 
an area or the amount under the fee schedule that would apply to such 
services if they were performed in an ambulatory surgical center in the 
same area. Section 1834(d) of the Act also specifies that, in the case 
of screening flexible sigmoidoscopy and screening colonoscopy services, 
the payment amounts must not exceed the payment rates established for 
the related diagnostic services.
    (5) Section 1833(a)(1) of the Act requires 100 percent payment for 
preventive services described in section 1861(ww)(2) of the Act 
(excluding electrocardiograms) to which the United States Preventive 
Services Task Force (USPSTF) has given a grade of A or B for any 
indication or population. Section 1833(b)(1) of the Act also specifies 
that the Part B deductible shall not apply with respect to preventive 
services described in section 1861(ww)(2) of the Act (excluding 
electrocardiograms) to which the USPSTF has given a grade of A or B for 
any indication or population.
    (b) Scope. This subpart sets forth--
    (1) The scope of ASC services and the criteria for determining the 
covered surgical procedures for which Medicare provides payment for the 
associated facility services and covered ancillary services;
    (2) The basis of payment for facility services and for covered 
ancillary services furnished in an ASC in connection with a covered 
surgical procedure;
    (3) The methodologies by which Medicare determines payment amounts 
for ASC services.

[72 FR 42545, Aug. 2, 2007, as amended at 75 FR 72264, Nov. 24, 2010; 77 
FR 68558, Nov. 15, 2012]



Sec. 416.161  Applicability of this subpart.

    The provisions of this subpart apply to ASC services furnished on or 
after January 1, 2008.



Sec. 416.163  General rules.

    (a) Payment is made under this subpart for ASC services specified in 
Secs. 416.164(a) and (b) furnished to Medicare beneficiaries by a 
participating ASC in connection with covered surgical procedures as 
determined by the Secretary in accordance with Sec. 416.166.
    (b) Payment for physicians' services and payment for anesthetists' 
services are made in accordance with part 414 of this subchapter.
    (c) Payment for items and services other than physicians' and 
anesthetists' services, as specified in Sec. 416.164(c), is made in 
accordance with Sec. 410.152 of this subchapter.



Sec. 416.164  Scope of ASC services.

    (a) Included facility services. ASC services for which payment is 
packaged into the ASC payment for a covered surgical procedure under 
Sec. 416.166 include, but are not limited to--
    (1) Nursing, technician, and related services;
    (2) Use of the facility where the surgical procedures are performed;
    (3) Any laboratory testing performed under a Clinical Laboratory 
Improvement Amendments of 1988 (CLIA) certificate of waiver;
    (4) Drugs and biologicals for which separate payment is not allowed 
under the hospital outpatient prospective payment system (OPPS);
    (5) Medical and surgical supplies not on pass-through status under 
subpart G of part 419 of this subchapter;
    (6) Equipment;

[[Page 219]]

    (7) Surgical dressings;
    (8) Implanted prosthetic devices, including intraocular lenses 
(IOLs), and related accessories and supplies not on pass-through status 
under subpart G of part 419 of this subchapter;
    (9) Implanted DME and related accessories and supplies not on pass-
through status under subpart G of part 419 of this subchapter;
    (10) Splints and casts and related devices;
    (11) Radiology services for which separate payment is not allowed 
under the OPPS and other diagnostic tests or interpretive services that 
are integral to a surgical procedure, except certain diagnostic tests 
for which separate payment is allowed under the OPPS;
    (12) Administrative, recordkeeping and housekeeping items and 
services;
    (13) Materials, including supplies and equipment for the 
administration and monitoring of anesthesia; and
    (14) Supervision of the services of an anesthetist by the operating 
surgeon.
    (b) Covered ancillary services. Ancillary items and services that 
are integral to a covered surgical procedure, as defined in 
Sec. 416.166, and for which separate payment is allowed include:
    (1) Brachytherapy sources;
    (2) Certain implantable items that have pass-through status under 
the OPPS;
    (3) Certain items and services that CMS designates as contractor-
priced, including, but not limited to, the acquisition or procurement of 
corneal tissue for corneal transplant procedures;
    (4) Certain drugs and biologicals for which separate payment is 
allowed under the OPPS;
    (5) Certain radiology services and certain diagnostic tests for 
which separate payment is allowed under the OPPS.
    (c) Excluded services. ASC services do not include items and 
services outside the scope of ASC services for which payment may be made 
under part 414 of this subchapter in accordance with Sec. 410.152, 
including, but not limited to--
    (1) Physicians' services (including surgical procedures and all 
preoperative and postoperative services that are performed by a 
physician);
    (2) Anesthetists' services;
    (3) Radiology services (other than those integral to performance of 
a covered surgical procedure);
    (4) Diagnostic procedures (other than those directly related to 
performance of a covered surgical procedure);
    (5) Ambulance services;
    (6) Leg, arm, back, and neck braces other than those that serve the 
function of a cast or splint;
    (7) Artificial limbs;
    (8) Nonimplantable prosthetic devices and DME.

[72 FR 42545, Aug. 2, 2007, as amended at 79 FR 67030, Nov. 10, 2014; 80 
FR 70604, Nov. 13, 2015]



Sec. 416.166  Covered surgical procedures.

    (a) Covered surgical procedures. Effective for services furnished on 
or after January 1, 2008, covered surgical procedures are those 
procedures that meet the general standards described in paragraph (b) of 
this section (whether commonly furnished in an ASC or a physician's 
office) and are not excluded under paragraph (c) of this section.
    (b) General standards. Subject to the exclusions in paragraph (c) of 
this section, covered surgical procedures are surgical procedures 
specified by the Secretary and published in the Federal Register and/or 
via the Internet on the CMS Web site that are separately paid under the 
OPPS, that would not be expected to pose a significant safety risk to a 
Medicare beneficiary when performed in an ASC, and for which standard 
medical practice dictates that the beneficiary would not typically be 
expected to require active medical monitoring and care at midnight 
following the procedure.
    (c) General exclusions. Notwithstanding paragraph (b) of this 
section, covered surgical procedures do not include those surgical 
procedures that--
    (1) Generally result in extensive blood loss;
    (2) Require major or prolonged invasion of body cavities;
    (3) Directly involve major blood vessels;
    (4) Are generally emergent or life-threatening in nature;
    (5) Commonly require systemic thrombolytic therapy;

[[Page 220]]

    (6) Are designated as requiring inpatient care under Sec. 419.22(n) 
of this subchapter;
    (7) Can only be reported using a CPT unlisted surgical procedure 
code; or
    (8) Are otherwise excluded under Sec. 411.15 of this subchapter.

[72 FR 42545, Aug. 2, 2007, as amended at 76 FR 74582, Nov. 30, 2011]



Sec. 416.167  Basis of payment.

    (a) Unit of payment. Under the ASC payment system, prospectively 
determined amounts are paid for ASC services furnished to Medicare 
beneficiaries in connection with covered surgical procedures. Covered 
surgical procedures and covered ancillary services are identified by 
codes established under the Healthcare Common Procedure Coding System 
(HCPCS). The unadjusted national payment rate is determined according to 
the methodology described in Sec. 416.171. The manner in which the 
Medicare payment amount and the beneficiary coinsurance amount for each 
ASC service is determined is described in Sec. 416.172.
    (b) Ambulatory payment classification (APC) groups and payment 
weights. (1) ASC covered surgical procedures are classified using the 
APC groups described in Sec. 419.31 of this subchapter.
    (2) For purposes of calculating ASC national payment rates under the 
methodology described in Sec. 416.171, except as specified in paragraph 
(b)(3) of this section, an ASC relative payment weight is determined 
based on the APC relative payment weight for each covered surgical 
procedure and covered ancillary service that has an applicable APC 
relative payment weight described in Sec. 419.31 of this subchapter.
    (3) Notwithstanding paragraph (b)(2) of this section, the relative 
payment weights for services paid in accordance with Sec. 416.171(d) are 
determined so that the national ASC payment rate does not exceed the 
unadjusted nonfacility practice expense amount paid under the Medicare 
physician fee schedule for such procedures under subpart B of part 414 
of this subchapter.



Sec. 416.171  Determination of payment rates for ASC services.

    (a) Standard methodology. The standard methodology for determining 
the national unadjusted payment rate for ASC services is to calculate 
the product of the applicable conversion factor and the relative payment 
weight established under Sec. 416.167(b), unless otherwise indicated in 
this section.
    (1) Conversion factor for CY 2008. CMS calculates a conversion 
factor so that payment for ASC services furnished in CY 2008 would 
result in the same aggregate amount of expenditures as would be made if 
the provisions in this Subpart F did not apply, as estimated by CMS.
    (2) Conversion factor for CY 2009 and subsequent calendar years. The 
conversion factor for a calendar year is equal to the conversion factor 
calculated for the previous year, updated as follows:
    (i) For CY 2009, the update is equal to zero percent.
    (ii) For CY 2010 and subsequent calendar years, the update is the 
Consumer Price Index for All Urban Consumers (U.S. city average) as 
estimated by the Secretary for the 12-month period ending with the 
midpoint of the year involved.
    (iii) For CY 2014 and subsequent calendar years, the Consumer Price 
Index for All Urban Consumers update determined under paragraph 
(a)(2)(ii) of this section is reduced by 2.0 percentage points for an 
ASC that fails to meet the standards for reporting of ASC quality 
measures as established by the Secretary for the corresponding calendar 
year.
    (iv) Productivity adjustment. (A) For calendar year 2011 and 
subsequent years, the Consumer Price Index for All Urban Consumers 
determined under paragraph (a)(2)(ii) of this section, after application 
of any reduction under paragraph (a)(2)(iii) of this section, is reduced 
by the productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act.
    (B) The application of the provisions of paragraph (a)(2)(iv)(A) of 
this section may result in the update being less than zero percent for a 
year, and may result in payment rates for a year being less than the 
payment rates for the preceding year.
    (b) Exception. The national ASC payment rates for the following 
items and services are not determined in accordance with paragraph (a) 
of this section

[[Page 221]]

but are paid an amount derived from the payment rate for the equivalent 
item or service set under the payment system established in part 419 of 
this subchapter as updated annually in the Federal Register and/or via 
the Internet on the CMS Web site. If a payment rate is not available, 
the following items and services are designated as contractor-priced:
    (1) Covered ancillary services specified in Sec. 416.164(b), with 
the exception of radiology services and certain diagnostic tests as 
provided in Sec. 416.164(b)(5);
    (2) The device portion of device-intensive procedures, which are 
procedures with a HCPCS code-level device offset of greater than 40 
percent when calculated according to the standard OPPS APC ratesetting 
methodology.
    (3) Procedures using certain separately paid implantable devices 
that are approved for transitional pass-through payment in accordance 
with Sec. 419.66 of this subchapter.
    (c) Transitional payment rates. (1) ASC payment rates for CY 2008 
are a transitional blend of 75 percent of the CY 2007 ASC payment rate 
for a covered surgical procedure on the CY 2007 ASC list of surgical 
procedures and 25 percent of the payment rate for the procedure 
calculated under the methodology described in paragraph (a) of this 
section.
    (2) ASC payment rates for CY 2009 are a transitional blend of 50 
percent of the CY 2007 ASC payment rate for a covered surgical procedure 
on the CY 2007 ASC list of surgical procedures and 50 percent of the 
payment rate for the procedure calculated under the methodology 
described in paragraph (a) of this section.
    (3) ASC payment rates for CY 2010 are a transitional blend of 25 
percent of the CY 2007 ASC payment rate for a covered surgical procedure 
on the CY 2007 ASC list of surgical procedures and 75 percent of the 
payment rate for the procedure calculated under the methodology 
described in paragraph (a) of this section.
    (4) The national ASC payment rate for CY 2011 and subsequent 
calendar years for a covered surgical procedure designated in accordance 
with Sec. 416.166 is the payment rates for the procedure calculated 
under the methodology described in paragraph (a) of this section.
    (5) Covered ancillary services described in Sec. 416.164(b) and 
surgical procedures identified as covered when performed in an ASC under 
Sec. 416.166 for the first time beginning on or after January 1, 2008, 
are not subject to the transitional payment rates applicable in CYs 2008 
through 2010 for ASC facility services.
    (d) Limitation on payment rates for office-based surgical procedures 
and covered ancillary radiology services and certain diagnostic tests. 
Notwithstanding the provisions of paragraph (a) of this section, for any 
covered surgical procedure under Sec. 416.166 that CMS determines is 
commonly performed in physicians' offices or for any covered ancillary 
radiology service or diagnostic test under Sec. 416.164(b)(5), excluding 
those listed in paragraphs (d)(1) and (d)(2) of this section, the 
national unadjusted ASC payment rates for these procedures and services 
will be the lesser of the amount determined under paragraph (a) of this 
section or the amount calculated at the nonfacility practice expense 
relative value units under Sec. 414.22(b)(5)(i)(B) of this chapter 
multiplied by the conversion factor described in Sec. 414.20(a)(3) of 
this chapter.
    (1) The national unadjusted ASC payment rate for covered ancillary 
radiology services that involve certain nuclear medicine procedures will 
be the amount determined under paragraph (a) of this section.
    (2) The national unadjusted ASC payment rate for covered ancillary 
radiology services that use contrast agents will be the amount 
determined under paragraph (a) of this section.
    (e) Budget neutrality. (1) For CY 2008, CMS establishes the 
conversion factor to result in budget neutrality as estimated by CMS in 
accordance with paragraph (a)(1) of this section.
    (2) For CY 2009 and subsequent calendar years, CMS adjusts the ASC 
relative payment weights under Sec. 416.167(b)(2) as needed so that any 
updates and adjustments made under

[[Page 222]]

Sec. 419.50(a) of this subchapter are budget neutral as estimated by 
CMS.

[72 FR 42545, Aug. 2, 2007, as amended at 75 FR 72264, Nov. 24, 2010; 76 
FR 74582, Nov. 30, 2011; 77 FR 277, Jan. 4, 2012; 77 FR 68558, Nov. 15, 
2012; 79 FR 67030, Nov. 10, 2014; 81 FR 79879, Nov. 14, 2016]



Sec. 416.172  Adjustments to national payment rates.

    (a) General rule. Contractors adjust the payment rates established 
for ASC services to determine Medicare program payment and beneficiary 
coinsurance amounts in accordance with paragraphs (b) through (g) of 
this section.
    (b) Lesser of actual charge or geographically adjusted payment rate. 
Payments to ASCs equal 80 percent of the lesser of--
    (1) The actual charge for the service; or
    (2) The geographically adjusted payment rate determined under this 
subpart.
    (c) Geographic adjustment--(1) General rule. Except as provided in 
paragraph (c)(2) of this section, the national ASC payment rates 
established under Sec. 416.171 for covered surgical procedures are 
adjusted for variations in ASC labor costs across geographic areas using 
wage index values, labor and nonlabor percentages, and localities 
specified by the Secretary.
    (2) Exception. The geographic adjustment is not applied to the 
payment rates set for drugs, biologicals, devices with OPPS transitional 
pass-through payment status, and brachytherapy sources.
    (d) Deductibles and coinsurance. Part B deductible and coinsurance 
amounts apply as specified in Secs. 410.152(a) and (i)(2) of this 
subchapter.
    (e) Payment reductions for multiple surgical procedures--(1) General 
rule. Except as provided in paragraph (e)(2) of this section, when more 
than one covered surgical procedure for which payment is made under the 
ASC payment system is performed during an operative session, the 
Medicare program payment amount and the beneficiary coinsurance amount 
are based on--
    (i) 100 percent of the applicable ASC payment amount for the 
procedure with the highest national unadjusted ASC payment rate; and
    (ii) 50 percent of the applicable ASC payment amount for all other 
covered surgical procedures.
    (2) Exception: Procedures not subject to multiple procedure 
discounting. CMS may apply any policies or procedures used with respect 
to multiple procedures under the prospective payment system for hospital 
outpatient department services under Part 419 of this subchapter as may 
be consistent with the equitable and efficient administration of this 
part.
    (f) Interrupted procedures. (1) Subject to the provisions of 
paragraph (f)(2) of this section, when a covered surgical procedure or 
covered ancillary service 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 
coinsurance amount are based on one of the following:
    (i) The full program and beneficiary coinsurance amounts if the 
procedure for which anesthesia is planned is discontinued after the 
induction of anesthesia or after the procedure is started;
    (ii) One-half of the full program and beneficiary coinsurance 
amounts if the procedure for which anesthesia is planned is discontinued 
after the patient is prepared for surgery and taken to the room where 
the procedure is to be performed but before the anesthesia is induced; 
or
    (iii) One-half of the full program and beneficiary coinsurance 
amounts if a covered surgical procedure or covered ancillary service for 
which anesthesia is not planned is discontinued after the patient is 
prepared and taken to the room where the service is to be provided.
    (2) Beginning CY 2016, if the covered surgical procedure is a 
device-intensive procedure, the full device portion of the ASC device-
intensive procedure is removed prior to determining the Medicare program 
payment amount and the beneficiary coinsurance amount identified in 
paragraph (f)(1)(ii) of this section.
    (g) Payment adjustment for new technology intraocular lenses 
(NTIOLs). A payment adjustment will be made for

[[Page 223]]

insertion of an IOL approved as belonging to a class of NTIOLs as 
defined in subpart G.

[72 FR 42545, Aug. 2, 2007, as amended at 80 FR 70604, Nov. 13, 2015]



Sec. 416.173  Publication of revised payment methodologies and payment rates.

    CMS publishes annually, through notice and comment rulemaking in the 
Federal Register and/or via the Internet on the CMS Web site, the 
payment methodologies and payment rates for ASC services and designates 
the covered surgical procedures and covered ancillary services for which 
CMS will make an ASC payment and other revisions as appropriate.

[76 FR 74582, Nov. 30, 2011]



Sec. 416.178  Limitations on administrative and judicial review.

    There is no administrative or judicial review under section 1869 of 
the Act, section 1878 of the Act, or otherwise of the following:
    (a) The classification system;
    (b) Relative weights;
    (c) Payment amounts; and
    (d) Geographic adjustment factors.



Sec. 416.179  Payment and coinsurance reduction for devices replaced
without cost or when full or partial credit is received.

    (a) General rule. CMS reduces the amount of payment for a covered 
surgical procedure for which CMS determines that a significant portion 
of the payment is attributable to the cost of an implanted device not on 
pass-through status under subpart G of part 419 of this subchapter when 
one of the following situations occur:
    (1) The device is replaced without cost to the ASC or the 
beneficiary;
    (2) The ASC receives full credit for the cost of a replaced device; 
or
    (3) The ASC receives partial credit for the cost of a replaced 
device but only where the amount of the device credit is greater than or 
equal to 50 percent of the cost of the new replacement device being 
implanted.
    (b) Amount of reduction to the ASC payment for the covered surgical 
procedure. (1) The amount of the reduction to the ASC payment made under 
paragraphs (a)(1) and (a)(2) of this section is calculated in the same 
manner as the device payment reduction that would be applied to the ASC 
payment for the covered surgical procedure in order to remove 
predecessor device costs so that the ASC payment amount for a device 
with pass-through status under Sec. 419.66 of this subchapter represents 
the full cost of the device, and no packaged device payment is provided 
through the ASC payment for the covered surgical procedure.
    (2) The amount of the reduction to the ASC payment made under 
paragraph (a)(3) of this section is 50 percent of the payment reduction 
that would be calculated under paragraph (b)(1) of this section.
    (c) Amount of beneficiary coinsurance. The beneficiary coinsurance 
is calculated based on the ASC payment for the covered surgical 
procedure after application of the reduction under paragraph (b) of this 
section.

[72 FR 42545, Aug. 2, 2007, as amended at 72 FR 66932, No. 27, 2007]



 Subpart G_Adjustment in Payment Amounts for New Technology Intraocular 
             Lenses Furnished by Ambulatory Service Centers

    Source: 71 FR 68226, Nov. 24, 2006, unless otherwise noted.



Sec. 416.180  Basis and scope.

    (a) Basis. This subpart implements section 141 of Public Law 103-
432, which provides for adjustments to payment amounts for new 
technology intraocular lenses (IOLs) furnished at ambulatory surgical 
centers (ASCs).
    (b) Scope. This subpart sets forth--
    (1) The process for interested parties to request that CMS review 
the appropriateness of the ASC facility fee for insertion of an IOL. 
This process includes a review of whether that payment is reasonable and 
related to the cost of acquiring a lens determined by CMS as belonging 
to a class of new technology IOLs;
    (2) Factors that CMS considers for determination of a new class of 
new technology IOLs; and

[[Page 224]]

    (3) Application of the payment adjustment.



Sec. 416.185  Process for establishing a new class of new technology IOLs.

    (a) Announcement of deadline for requests for review. CMS announces 
the deadline for each year's requests for review of a new class of new 
technology IOLs in the final rule updating the ASC payment rates for 
that calendar year.
    (b) Announcement of new classes of new technology IOLs for which 
review requests have been made and solicitation of public comments. CMS 
announces the requests for review received in a calendar year and the 
deadline for public comments regarding the requests in the proposed rule 
updating the ASC payment rates for the following calendar year. The 
deadline for submission of public comments is 30 days following the date 
of the publication of the proposed rule.
    (c) Announcement of determinations regarding requests for review. 
CMS announces its determinations for a calendar year in the final rule 
updating the ASC payment rates for the following calendar year. CMS 
publishes the codes and effective dates allowed for those lenses 
recognized by CMS as belonging to a class of new technology IOLs. New 
classes of new technology IOLs are effective 30 days following the date 
of publication of the final rule.



Sec. 416.190  Request for review of payment amount.

    (a) When requests can be submitted. A request for review of the 
appropriateness of ASC payment for insertion of an IOL that might 
qualify for a payment adjustment as belonging to a new class of new 
technology IOLs must be submitted to CMS in accordance with the annual 
published deadline.
    (b) Who may submit a request. Any individual, partnership, 
corporation, association, society, scientific or academic establishment, 
or professional or trade organization able to furnish the information 
required in paragraph (c) of this section 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 
criteria of a new technology IOL under Sec. 416.195.
    (c) Content of a request. In order to be accepted by CMS for review, 
a request for review of the ASC payment amount for insertion of an IOL 
must include all the information as specified by CMS.
    (d) Confidential information. In order for CMS to invoke the 
protection 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), the requestor must clearly identify all 
information that is to be characterized as confidential.



Sec. 416.195  Determination of membership in new classes of new technology IOLs.

    (a) Factors to be considered. CMS uses the following criteria to 
determine whether an IOL qualifies for a payment adjustment as a member 
of a new class of new technology IOLs when inserted at an ASC:
    (1) The IOL is considered new. CMS will evaluate an application for 
a new technology IOL only if the IOL type has received initial FDA 
premarket approval within the 3 years prior to the new technology IOL 
application submission date.
    (2) The IOL shall have a new lens characteristic in comparison to 
currently available IOLs. The labeling, which must be approved by FDA, 
shall contain a claim of a specific clinical benefit imparted by the new 
lens characteristic.
    (3) The IOL is not described by an active or expired class of new 
technology IOLs; that is, it does not share a predominant, class-
defining characteristic associated with improved clinical outcomes with 
members of an active or expired class.
    (4) Any specific clinical benefit referred to in paragraph (a)(2) of 
this section must be supported by evidence that demonstrates that the 
IOL results in a measurable, clinically meaningful, improved outcome. 
Improved outcomes include:
    (i) Reduced risk of intraoperative or postoperative complication or 
trauma;
    (ii) Accelerated postoperative recovery;
    (iii) Reduced induced astigmatism;
    (iv) Improved postoperative visual acuity;

[[Page 225]]

    (v) More stable postoperative vision;
    (vi) Other comparable clinical advantages.
    (b) CMS determination of eligibility for payment adjustment. CMS 
reviews the information submitted with a completed request for review, 
public comments submitted timely, and other pertinent information and 
makes a determination as follows:
    (1) The IOL is eligible for a payment adjustment as a member of a 
new class of new technology IOLs.
    (2) The IOL is a member of an active class of new technology IOLs 
and is eligible for a payment adjustment for the remainder of the period 
established for that class.
    (3) The IOL does not meet the criteria for designation as a new 
technology IOL and a payment adjustment is not appropriate.

[71 FR 68226, Nov. 24, 2006, as amended at 77 FR 68558, Nov. 15, 2012; 
80 FR 70604, Nov. 13, 2015]



Sec. 416.200  Payment adjustment.

    (a) CMS establishes the amount of the payment adjustment for classes 
of new technology IOLs through proposed and final rulemaking in 
connection with ASC facility services.
    (b) CMS adjusts the payment for insertion of an IOL approved as 
belonging to a class of new technology IOLs for the 5-year period of 
time established for that class.
    (c) Upon expiration of the 5-year period of the payment adjustment, 
payment reverts to the standard rate for IOL insertion procedures 
performed in ASCs.
    (d) ASCs that furnish an IOL designated by CMS as belonging to a 
class of new technology IOLs must submit claims using billing codes 
specified by CMS to receive the new technology IOL payment adjustment.



  Subpart H_Requirements Under the Ambulatory Surgical Center Quality 
                        Reporting (ASCQR) Program

    Source: 80 FR 70604, Nov. 13, 2015, unless otherwise noted.



Sec. 416.300  Basis and scope of subpart.

    (a) Statutory basis. Section 1833(i)(2)(D)(iv) and (i)(7) of the Act 
authorizes the Secretary to implement a revised ASC payment system in a 
manner so as to provide for a 2.0 percentage point reduction in any 
annual update for an ASC's failure to report on quality measures in 
accordance with the Secretary's requirements.
    (b) Scope. This subpart contains specific requirements and standards 
for the ASCQR Program.



Sec. 416.305  Participation and withdrawal requirements under 
the ASCQR Program.

    (a) Participation in the ASCQR Program. Except as provided in 
paragraph (c) of this section, an ambulatory surgical center (ASC) is 
considered as participating in the ASCQR Program once the ASC submits 
any quality measure data to the ASCQR Program and has been designated as 
open in the Certification and Survey Provider Enhanced Reporting system 
for at least four months prior to the beginning of data collection for a 
payment determination.
    (b) Withdrawal from the ASCQR Program. (1) An ASC may withdraw from 
the ASCQR Program by submitting to CMS a withdrawal of participation 
form that can be found in the secure portion of the QualityNet Web site.
    (2) An ASC may withdraw from the ASCQR Program any time up to and 
including August 31 of the year preceding a payment determination.
    (3) Except as provided in paragraph (c) of this section, an ASC will 
incur a 2.0 percentage point reduction in its ASC annual payment update 
for that payment determination year and any subsequent payment 
determinations in which it is withdrawn.
    (4) An ASC will be considered as rejoining the ASCQR Program if it 
begins to submit any quality measure data again to the ASCQR Program.
    (c) Minimum case volume for program participation. ASCs with fewer 
than 240 Medicare claims (Medicare primary and secondary payer) per year 
during an annual reporting period for a payment determination year are 
not required to participate in the ASCQR

[[Page 226]]

Program for the subsequent annual reporting period for that subsequent 
payment determination year.
    (d) Indian Health Service hospital outpatient department 
participation. Beginning with the CY 2017 payment determination, Indian 
Health Service hospital outpatient departments that bill Medicare under 
the Ambulatory Surgical Center payment system are not considered ASCs 
for the purposes of the ASCQR Program. These facilities are not required 
to meet ASCQR Program requirements and will not receive payment 
reductions under the ASCQR Program.



Sec. 416.310  Data collection and submission requirements under 
the ASCQR Program.

    (a) Requirements for claims-based measures using quality data codes 
(QDCs). (1) ASCs must submit complete data on individual claims-based 
quality measures through a claims-based reporting mechanism by 
submitting the appropriate QDCs on the ASC's Medicare claims.
    (2) The data collection period for claims-based quality measures 
reported using QDCs is the calendar year 2 years prior to the payment 
determination year. Only claims for services furnished in each calendar 
year paid by the Medicare Administrative Contractor (MAC) by April 30 of 
the following year of the ending data collection time period will be 
included in the data used for the payment determination year.
    (3) For ASCQR Program purposes, data completeness for claims-based 
measures using QDCs is determined by comparing the number of Medicare 
claims (where Medicare is the primary or secondary payer) meeting 
measure specifications that contain the appropriate QDCs with the number 
of Medicare claims that meet measure specifications, but do not have the 
appropriate QDCs on the submitted Medicare claim. The minimum threshold 
for successful reporting is that at least 50 percent of Medicare claims 
meeting measure specifications contain the appropriate QDCs. ASCs that 
meet this minimum threshold are regarded as having provided complete 
data for the claims-based measures using QDCs for the ASCQR Program.
    (b) Requirements for claims-based measures not using QDCs. The data 
collection period for claims-based quality measures not using QDCs is 
paid Medicare fee-for-service claims from the calendar year 2 years 
prior to the payment determination year. Only claims for services 
furnished in each calendar year paid by the MAC by April 30 of the 
following year of the ending data collection time period will be 
included in the data used for the payment determination.
    (c) Requirements for data submitted via an online data submission 
tool--(1) Requirements for data submitted via a CMS online data 
submission tool--(i) QualityNet account for Web-based measures. ASCs 
must maintain a QualityNet account in order to submit quality measure 
data to the QualityNet Web site for all Web-based measures submitted via 
a CMS online data submission tool. A QualityNet security administrator 
is necessary to set-up such an account for the purpose of submitting 
this information.
    (ii) Data collection requirements. The data collection time period 
for quality measures for which data are submitted via a CMS online data 
submission tool is for services furnished during the calendar year 2 
years prior to the payment determination year. Beginning with the CY 
2017 payment determination year, data collected must be submitted during 
the time period of January 1 to May 15 in the year prior to the payment 
determination year.
    (2) Requirements for data submitted via a non-CMS online data 
submission tool. The data collection time period for ASC-8: Influenza 
Vaccination Coverage Among Healthcare Personnel is from October 1 of the 
year 2 years prior to the payment determination year to March 31 during 
the year prior to the payment determination year. Data collected must be 
submitted by May 15 in the year prior to the payment determination year.
    (d) Extension or exemption. CMS may grant an extension or exemption 
for the submission of information in the event of extraordinary 
circumstances beyond the control of an ASC, or a systematic problem with 
one of CMS' data

[[Page 227]]

collection systems directly or indirectly affects data submission. CMS 
may grant an extension or exemption as follows:
    (1) Upon request of the ASC. ASCs may request an extension or 
exemption within 90 days of the date that the extraordinary circumstance 
occurred. Specific requirements for submission of a request for an 
extension or exemption are available on the QualityNet Web site; or
    (2) At the discretion of CMS. CMS may grant extensions or exemptions 
to ASCs that have not requested them when CMS determines that an 
extraordinary circumstance has occurred.
    (e) Requirements for Outpatient and Ambulatory Surgery Consumer 
Assessment of Healthcare Providers and Systems (OAS CAHPS) Survey. OAS 
CAHPS is the Outpatient and Ambulatory Surgical Center Consumer 
Assessment of Healthcare Providers and Systems survey that measures 
patient experience of care after a recent surgery or procedure at either 
a hospital outpatient department or an ambulatory surgical center. 
Ambulatory surgical centers must use an approved OAS CAHPS survey vendor 
to administer and submit OAS CAHPS data to CMS.
    (1) [Reserved]
    (2) CMS approves an application for an entity to administer the OAS 
CAHPS survey as a vendor on behalf of one or more ambulatory surgical 
centers when the applicant has met the Minimum Survey Requirements and 
Rules of Participation that can be found on the official OAS CAHPS Web 
site, and agrees to comply with the current survey administration 
protocols that can be found on the official OAS CAHPS Web site. An 
entity must be an approved OAS CAHPS Survey vendor in order to 
administer the OAS CAPHS Survey and submit data to CMS on behalf of one 
or more ambulatory surgical centers.

[80 FR 70604, Nov. 13, 2015, as amended at 81 FR 79879, Nov. 14, 2016]



Sec. 416.315  Public reporting of data under the ASCQR Program.

    Data that an ASC submitted for the ASCQR Program will be made 
publicly available on a CMS Web site after providing the ASC an 
opportunity to review the data to be made public. CMS will publicly 
display ASC data by the National Provider Identifier (NPI) when data are 
submitted by the NPI. CMS will publicly display ASC data by the CMS 
Certification Number (CCN) when data are submitted by the CCNs.



Sec. 416.320  Retention and removal of quality measures under the ASCQR Program.

    (a) General rule for the retention of quality measures. Quality 
measures adopted for an ASCQR Program measure set for a previous payment 
determination year are retained in the ASCQR Program for measure sets 
for subsequent payment determination years, except when they are 
removed, suspended, or replaced as set forth in paragraphs (b) and (c) 
of this section.
    (b) Immediate measure removal. In cases where CMS believes that the 
continued use of a measure as specified raises patient safety concerns, 
CMS will immediately remove a quality measure from the ASCQR Program and 
will promptly notify ASCs and the public of the removal of the measure 
and the reasons for its removal through the ASCQR Program ListServ and 
the ASCQR Program QualityNet Web site. CMS will confirm the removal of 
the measure for patient safety concerns in the next ASCQR Program 
rulemaking.
    (c) Measure removal, suspension, or replacement through the 
rulemaking process. Unless a measure raises specific safety concerns as 
set forth in paragraph (b) of this section, CMS will use the regular 
rulemaking process to remove, suspend, or replace quality measures in 
the ASCQR Program to allow for public comment.
    (1) Criteria for removal of quality measures. (i) CMS will use the 
following criteria to determine whether to remove a measure from the 
ASCQR Program:
    (A) Measure performance among ASCs is so high and unvarying that 
meaningful distinctions and improvements in performance can no longer be 
made (topped-out measures);
    (B) Availability of alternative measures with a stronger 
relationship to patient outcomes;
    (C) A measure does not align with current clinical guidelines or 
practice;

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    (D) The availability of a more broadly applicable (across settings, 
populations, or conditions) measure for the topic;
    (E) The availability of a measure that is more proximal in time to 
desired patient outcomes for the particular topic;
    (F) The availability of a measure that is more strongly associated 
with desired patient outcomes for the particular topic; and
    (G) Collection or public reporting of a measure leads to negative 
unintended consequences other than patient harm.
    (ii) The benefits of removing a measure from the ASCQR Program will 
be assessed on a case-by-case basis. A measure will not be removed 
solely on the basis of meeting any specific criterion.
    (2) Criteria to determine topped-out measures. For the purposes of 
the ASCQR Program, a measure is considered to be topped-out under 
paragraph (c)(1)(i)(A) of this section when it meets both of the 
following criteria:
    (i) Statistically indistinguishable performance at the 75th and 90th 
percentiles (defined as when the difference between the 75th and 90th 
percentiles for an ASC's measure is within two times the standard error 
of the full data set); and
    (ii) A truncated coefficient of variation less than or equal to 
0.10.



Sec. 416.325  Measure maintenance under the ASCQR Program.

    (a) Measure maintenance under the ASCQR Program. CMS follows 
different procedures to update the measure specifications under the 
ASCQR Program based on whether the change is substantive or 
nonsubstantive. CMS will determine what constitutes a substantive versus 
a nonsubstantive change to a measure's specifications on a case-by-case 
basis.
    (b) Substantive changes. CMS will continue to use rulemaking to 
adopt substantive updates to measures in the ASCQR Program.
    (c) Nonsubstantive changes. If CMS determines that a change to a 
measure previously adopted in the ASCQR Program is nonsubstantive, CMS 
will use a subregulatory process to revise the ASCQR Program 
Specifications Manual so that it clearly identifies the changes to that 
measure and provide links to where additional information on the changes 
can be found. When a measure undergoes subregulatory maintenance, CMS 
will provide notification of the measure specification update on the 
QualityNet Web site and in the ASCQR Program Specifications Manual, and 
will provide sufficient lead time for ASCs to implement the revisions 
where changes to the data collection systems would be necessary.



Sec. 416.330  Reconsiderations under the ASCQR Program.

    (a) Reconsiderations of ASCQR Program decisions. An ASC may request 
reconsideration of a decision by CMS that it has not met the 
requirements of the ASCQR Program for a particular payment determination 
year. An ASC must submit a reconsideration request to CMS by no later 
than the first business day on or after March 17 of the affected payment 
year.
    (b) Requirements for reconsideration requests. A reconsideration 
request must contain the following information:
    (1) The ASC CCN and related NPI(s);
    (2) The name of the ASC;
    (3) The CMS-identified reason for not meeting the requirements of 
the ASCQR Program for the affected payment determination year as 
provided in any CMS notification to the ASC;
    (4) The ASC's basis for requesting reconsideration. The ASC must 
identify its specific reason(s) for believing it met the ASCQR Program 
requirements for the affected payment determination year and should not 
be subject to the reduced ASC annual payment update;
    (5) The ASC-designated personnel contact information, including 
name, email address, telephone number, and mailing address (must include 
physical mailing address, not just a post office box); and
    (6) A copy of all materials that the ASC submitted to comply with 
the requirements of the affected ASCQR Program payment determination 
year. With regard to information on claims, ASCs are not required to 
submit copies of all submitted claims, but instead may focus on the 
specific claims at issue. For these claims, ASCs should

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submit relevant information, which could include copies of the actual 
claims at issue.
    (c) Reconsideration process. Upon receipt of a request for 
reconsideration, CMS will do the following:
    (1) Provide an email acknowledgement, using the contact information 
provided in the reconsideration request, notifying the ASC that the 
request has been received; and
    (2) Provide a formal response to the ASC contact using the 
information provided in the reconsideration request notifying the ASC of 
the outcome of the reconsideration process.
    (d) Final ASCQR Program payment determination. For an ASC that 
submits a timely reconsideration request, the reconsideration 
determination is the final ASCQR Program payment determination. For an 
ASC that does not submit a timely reconsideration request, the CMS 
determination is the final payment determination. There is no appeal of 
any final ASCQR Program payment determination.



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.
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.

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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.
417.427  Extending MA and Part D program disclosure requirements to 
          section 1876 cost contract plans.
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  Intermediate sanctions for and civil monetary penalties 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.
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.

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                 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  Applicability.

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
    (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

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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 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;

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    (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). Facilities in which 
individuals are incarcerated are not included in the geographic service 
area of an HMO or CMP plan.
    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 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; 79 
FR 29955, May 23, 2014]



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.

[[Page 234]]

    (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 and 8 U.S.C. 1611.
    (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; 
80 FR 7958, Feb. 12, 2015]



     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, 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;

[[Page 235]]

    (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 Secs. 417.101 through 417.106 and 
Secs. 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 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]

[[Page 236]]



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 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

[[Page 237]]

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 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

[[Page 238]]

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 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.

[[Page 239]]

    (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]



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

[[Page 240]]

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 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.

[[Page 241]]

    (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, 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

[[Page 242]]

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.
    (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:

[[Page 243]]

    (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:
    (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.

[[Page 244]]

    (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, 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;

[[Page 245]]

    (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.
    (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.

[[Page 246]]


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 
Secs. 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.
    (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

[[Page 247]]

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 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.

[[Page 248]]

    (3) After evaluating all relevant information, CMS determines 
whether the entity meets the applicable requirements of Secs. 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 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

[[Page 249]]

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 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.
    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

[[Page 250]]

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 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,

[[Page 251]]

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 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

[[Page 252]]

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 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]

[[Page 253]]



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 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

[[Page 254]]

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]



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.

[[Page 255]]

    (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.
    (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 Secs. 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,

[[Page 256]]

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 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.

[[Page 257]]

    (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 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.

[[Page 258]]

    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, 2013, 
where--
    (1) There were two or more coordinated care plan-model MA regional 
plans not offered by the same MA organization in the same service area 
or portion of a service area for the entire previous calendar year 
meeting the conditions in paragraph(c)(3) of this section; or
    (2) There were two or more coordinated care plan-model MA local 
plans not offered by the same MA organization in the same service area 
or portion of a service area for the entire previous calendar year 
meeting the conditions in paragraph (c)(3) of this section.
    (3) Minimum enrollment requirements. With respect to any service 
area or portion of a service area that is within a Metropolitan 
Statistical Area (MSA) with a population of more than 250,000 and 
counties contiguous to the MSA that are not in another MSA with a 
population of more than 250,000, 5000 enrolled individuals. If the 
service area includes a portion in more than one MSA with a population 
of more than 250,000, the minimum enrollment determination is made with 
respect to each such MSA and counties contiguous to the MSA that are not 
in another MSA with a population of more than 250,000.

[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; 73 FR 54248, 
Sept. 18, 2008; 76 FR 21560, Apr. 15, 2011; 76 FR 54633, Sept. 1, 2011]



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 
Secs. 117.142 and 417.407, respectively); and
    (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.

[[Page 259]]

    (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 Secs. 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 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]

[[Page 260]]



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 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

[[Page 261]]

    (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 beneficiaries 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 beneficiaries 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 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.

[[Page 262]]

    (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 beneficiaries 
(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 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

[[Page 263]]

    (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 
Secs. 405.2414 and 405.2415 of this chapter for services furnished by 
rural health clinics and Federally qualified health centers, 
respectively, also apply 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

[[Page 264]]

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. Eligible 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; 80 FR 7958, Feb. 12, 2015]



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

    Except as specified in Secs. 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 meets all of the following:
    (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 the 
HMO's or CMP's application form or another CMS-approved election 
mechanism 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).
    (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).

[[Page 265]]

    (h) Is a United States citizen or an individual who is lawfully 
present in the United States as determined in 8 CFR 1.3.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38078, July 15, 1993; 60 
FR 45677, Sept. 1, 1995; 77 FR 22166, Apr. 12, 2012; 80 FR 7958, Feb. 
12, 2015]



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.
    (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

[[Page 266]]

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. 417.427  Extending MA and Part D program disclosure requirements 
to section 1876 cost contract plans.

    (a) The procedures and requirements relating to disclosure in 
Sec. 422.111 and Sec. 423.128 apply to Medicare contracts with HMOs and 
CMPs under section 1876 of the Act.
    (b) In applying the provisions of Secs. 422.111 and 423.128, 
references to part 422 and part 423 of this chapter must be read as 
references to this part, and references to MA organizations and Part D 
sponsors as references to HMOs and CMPs.

[77 FR 22166, Apr. 12, 2012]



Sec. 417.428  Marketing activities.

    (a) With the exception of Sec. 422.2276 of this chapter, the 
procedures and requirements relating to marketing requirements set forth 
in subpart V of part 422 of this chapter also apply to Medicare 
contracts with HMOs and CMPs under section 1876 of the Act.
    (b) In applying those provisions, references to part 422 of this 
chapter must be read as references to this part, and references to MA 
organizations as references to HMOs and CMPs.

[75 FR 19802, Apr. 15, 2010]



Sec. 417.430  Application procedures.

    (a) Application forms and other enrollment mechanisms. (1) The 
application form must comply with CMS instructions regarding content and 
format and be approved by CMS. The application must be completed by an 
HMO or CMP eligible (or soon to become eligible) individual and include 
authorization for disclosure between the HHS and its designees 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 notice of acceptance 
or denial in a format specified by CMS.
    (4) The notice of acceptance. 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; 76 FR 21560, Apr. 15, 2011]



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

[[Page 267]]

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 complete 
an application form or another CMS-approved election mechanism 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; 77 FR 22166, 
Apr. 12, 2012]



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.

[[Page 268]]

    (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:
    (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.

[[Page 269]]

    (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 
Secs. 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 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

[[Page 270]]

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 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

[[Page 271]]

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]



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.

[[Page 272]]

    (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 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

[[Page 273]]

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 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.
    (d) Limit on charges for specified preventive services. An HMO may 
not charge deductibles, copayments, or coinsurance for in-network 
Medicare-covered preventive services (as defined in Sec. 410.152(l)).
    (e) Services for which cost sharing may not exceed cost sharing 
under original Medicare. On an annual basis, CMS will evaluate whether 
there are service categories for which HMOs' cost sharing may not exceed 
that required under original Medicare and specify in regulation which 
services are subject to that cost sharing limit. The following services 
are subject to this limit on cost sharing:

[[Page 274]]

    (1) Chemotherapy administration services to include chemotherapy 
drugs and radiation therapy integral to the treatment regimen.
    (2) Renal dialysis services as defined at section 1881(b)(14)(B) of 
the Act.
    (3) Skilled nursing care defined as services provided during a 
covered stay in a skilled nursing facility during the period for which 
cost sharing would apply under Original Medicare.

[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; 76 FR 21561, Apr. 
15, 2011]



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 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]

[[Page 275]]



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 service area or is 
incarcerated;
    (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;
    (iv) Is not lawfully present in the United States; or
    (v) Dies.
    (3) Related provisions. Specific requirements, limitations, and 
exceptions are set forth in paragraphs (c) through (j) 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.
    (3) Good cause and reinstatement. When an individual is disenrolled 
for failure to pay premiums or other charges imposed by the HMO or CMP 
for deductible and coinsurance amounts for which the enrollee is liable, 
CMS (or a third party to which CMS has assigned this responsibility, 
such as an HMO or CMP) may reinstate enrollment in the plan, without 
interruption of coverage, if the individual shows good cause for failure 
to pay and pays all overdue premiums or other charges within 3 calendar 
months after the disenrollment date. The individual must establish by a 
credible statement that failure to pay premiums or other charges was due 
to circumstances for which the individual had no control, or which the 
individual could not reasonably have been expected to foresee.
    (4) Exception for reinstatement. A beneficiary's enrollment in the 
plan will not be reinstated if the only basis for such reinstatement is 
a change in the individual's circumstances subsequent to the involuntary 
disenrollment for non-payment of premiums or other charges.
    (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
    (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

[[Page 276]]

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.
    (A) Incarceration. The HMO or CMP must disenroll an individual if 
the HMO or CMP establishes, on the basis of evidence acceptable to CMS, 
that the individual is incarcerated and does not reside in the 
geographic service area of the HMO or CMP per Sec. 417.1.
    (B) Notification by CMS of incarceration. When CMS notifies an HMO 
or CMP of disenrollment due to the individual being incarcerated and not 
residing in the geographic service area of the HMO or CMP, as per 
Sec. 417.1, the disenrollment is effective the first of the month 
following the start of incarceration, unless otherwise specified by CMS.
    (C) Exception. The exception in paragraph (f)(2) of this section 
does not apply to individuals who are incarcerated.
    (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.

[[Page 277]]

    (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 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.
    (j) Enrollee is not lawfully present in the United States. 
Disenrollment is effective the first day of the month following notice 
by CMS that the individual is ineligible in accordance with 
Sec. 417.422(h).

[60 FR 45678, Sept. 1, 1995, as amended at 77 FR 22166, Apr. 12, 2012; 
79 FR 29955, May 23, 2014; 80 FR 7958, Feb. 12, 2015]



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--

[[Page 278]]

    (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]



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

[[Page 279]]

forth in this subpart and in general instructions issued by CMS.
    (c) Other contract provisions. In addition to the requirements set 
forth in Secs. 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 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''.
    (i) The HMO or CMP must comply with the requirements at 
Sec. 422.152(b)(5).
    (j) All coordinated care contracts (including local and regional 
PPOs, contracts with exclusively SNP benefit packages, private fee-for-
service contracts, and MSA contracts), and all cost contracts under 
section 1876 of the Act, with 600 or more enrollees in July of the prior 
year, must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Medicare plan enrollees in 
accordance with CMS specifications and submit the survey data to CMS.

[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; 75 FR 19802, Apr. 15, 2010]



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.

[[Page 280]]

    (e) Sections 422.222 and 422.224 of this chapter which requires all 
providers or suppliers that are types of individuals or entities that 
can enroll in Medicare in accordance with section 1861 of the Act, to be 
enrolled in Medicare in an approved status and prohibits payment to 
providers and suppliers that are excluded or revoked. This includes 
locum tenens suppliers and, if applicable, incident-to suppliers.

[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; 80 FR 80556, 
Nov. 15, 2016]



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 beneficiaries.
    (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.
    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 beneficiaries 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

[[Page 281]]

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 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

[[Page 282]]

(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;
    (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 beneficiaries. 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 beneficiaries. 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.

[[Page 283]]

    (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.
    (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.

[[Page 284]]

    (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 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).
    (3) All providers or suppliers that are types of individuals or 
entities that can enroll in Medicare in accordance with section 1861 of 
the Act, are enrolled in Medicare in an approved status.

[50 FR 1346, Jan. 10, 1985, as amended at 58 FR 38082, July 15, 1993; 81 
FR 80556, Nov. 15, 2016]



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 Secs. 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.

[[Page 285]]

    (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; and
    (ii) Notify each Medicare enrollee by mail at least 60 days before 
the end of the contract period.
    (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.
    (ii) To the HMO's or CMP's Medicare enrollees at least 60 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 part 
422 subpart N of this chapter, 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; 75 FR 19803, Apr. 15, 2010; 77 FR 22166, Apr. 
12, 2012]



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 part 422 subpart N of this chapter.
    (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

[[Page 286]]

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; 75 FR 19803, Apr. 15, 2010]



Sec. 417.500  Intermediate sanctions for and civil monetary penalties
against HMOs and CMPs.

    (a) Except as provided in paragraph (c) of this section, the rights, 
procedures, and requirements related to intermediate sanctions and civil 
money penalties set forth in part 422 subparts O and T of this chapter 
also apply to Medicare contracts with HMOs or CMPs under sections 1876 
of the Act.
    (b) In applying paragraph (a) of this section, references to part 
422 of this chapter must be read as references to this part and 
references to MA organizations must be read as references to HMOs or 
CMPs.
    (c) In applying paragraph (a) of this section, the amounts of civil 
money penalties that can be imposed are governed by section 
1876(i)(6)(B) and (C) of the Act, not by the provisions in part 422 of 
this chapter.

[75 FR 19803, Apr. 15, 2010]



   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

[[Page 287]]

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]



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

[[Page 288]]

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 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 Secs. 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

[[Page 289]]

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]



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 Secs. 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 
Secs. 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) Bad debts attributable to Medicare deductible and 
coinsurance amounts are allowable only if the requirements of 
Sec. 413.89 of this chapter are met, subject to the limitations 
described under Sec. 413.89(h) and the exceptions for services described 
under Sec. 413.89(i).
    (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 290]]

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 Secs. 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; 77 FR 67531, Nov. 9, 2012]



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 291]]

    (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 292]]

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, Secs. 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 Secs. 417.534 through 
417.548.
    (b) Except as specified in paragraph (c) of this section, 
apportionment must

[[Page 293]]

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 294]]

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 
Secs. 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.
    (iii) For the costs incurred under paragraphs (b)(1)(i) through (iv) 
of this section that include personnel costs, the organization must be 
able to identify the person hours expended for each administrative task 
and the rate of pay for those persons performing the tasks. 
Administrative tasks performed and rate of pay for the persons 
performing those tasks must match in terms of the skill level needed to 
accomplish those tasks. This information must be made available to CMS 
upon request.
    (c) Costs excluded from administrative costs. In accordance with 
section 1861(v) of the Act, the following costs must be excluded from 
administrative costs:
    (1) Donations.
    (2) Fines and penalties.
    (3) Political and lobbying activities.
    (4) Charity or courtesy allowances.
    (5) Spousal education.
    (6) Entertainment.
    (7) Return on equity.

[60 FR 46231, Sept. 6, 1995, as amended at 75 FR 19803, Apr. 15, 2010]



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

[[Page 295]]

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.
    (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

[[Page 296]]

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.
    (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--

[[Page 297]]

    (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
    (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 the requirements specified in Sec. 405.1801(b)(2) 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 in accordance with the 
requirements specified in Sec. 405.1801(b)(2) of this chapter.

[[Page 298]]

    (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; 73 FR 30267, May 23, 2008]



                 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 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

[[Page 299]]

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) 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

[[Page 300]]

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.
    (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--

[[Page 301]]

    (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.
    (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.

[[Page 302]]

    (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 Secs. 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 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

[[Page 303]]

    (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--
    (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  Applicability.

    (a) The rights, procedures, and requirements relating to contract 
determinations and appeals set forth in part

[[Page 304]]

422 subpart N of this chapter also apply to Medicare contracts with HMOs 
or CMPs under section 1876 of the Act.
    (b) In applying paragraph (a) of this section, references to part 
422 of this chapter must be read as references to this part and 
references to MA organizations must be read as references to HMOs or 
CMPs.

[75 FR 19803, Apr. 15, 2010]

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.
    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

[[Page 305]]

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--
    (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 
Secs. 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. This includes, but is not limited to, the 
following:
    (A) Failure to provide for and document adequate access to 
providers.
    (B) Failure to comply with CMS requirements concerning provision of 
data and maintenance of records.
    (C) Failure to comply with financial requirements specified at 
Sec. 417.806; 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

[[Page 306]]

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; 77 FR 22166, Apr. 12, 2012]



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 Secs. 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
    (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

[[Page 307]]

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 Secs. 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 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.

[[Page 308]]

    (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 in accordance with the requirements specified in 
Sec. 405.1801(b)(2) 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 
in accordance with the requirements specified in Sec. 405.1801(b)(2) of 
this chapter.
    (e) Tentative settlement. (1) If a final settlement cannot be made 
within 90 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; 73 
FR 30267, May 23, 2008]



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 
Secs. 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 Secs. 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]

[[Page 309]]



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 Secs. 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 
Secs. 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 Secs. 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. 422.626 of this 
chapter to--
    (a) Organization determinations and fast-track appeals that affect 
its Medicare enrollees; and
    (b) Reconsiderations, hearings, Medicare Appeals Council review, and 
judicial review of the organization determinations and fast-track 
appeals specified in paragraph (a) of this section.

[75 FR 19803, Apr. 15, 2010]



    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--
    (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

[[Page 310]]

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 75.2; 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; 
81 FR 3011, Jan. 20, 2016]



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.
    (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

[[Page 311]]

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.
418.28  Revoking the election of hospice care.
418.30  Change of the designated hospice.

           Subpart C_Conditions of Participation: Patient Care

418.52  Condition of participation: Patient's rights.
418.54  Condition of participation: Initial and comprehensive assessment 
          of the patient.
418.56  Condition of participation: Interdisciplinary group, care 
          planning, and coordination of services.
418.58  Condition of participation: Quality assessment and performance 
          improvement.
418.60  Condition of participation: Infection control.
418.62  Condition of participation: Licensed professional services.

                              CORE SERVICES

418.64  Condition of participation: Core services.
418.66  Condition of participation: Nursing services waiver of 
          requirement that substantially all nursing services be 
          routinely provided directly by a hospice.

                            NON-CORE SERVICES

418.70  Condition of participation: Furnishing of non-core services.
418.72  Condition of participation: Physical therapy, occupational 
          therapy, and speech-language pathology.
418.74  Waiver of requirement--Physical therapy, occupational therapy, 
          speech-language pathology and dietary counseling.
418.76  Condition of participation: Hospice aide and homemaker services.
418.78  Condition of participation: Volunteers.

    Subpart D_Conditions of Participation: Organizational Environment

418.100  Condition of participation: Organization and administration of 
          services.
418.102  Condition of participation: Medical director.
418.104  Condition of participation: Clinical records.

[[Page 312]]

418.106  Condition of participation: Drugs and biologicals, medical 
          supplies, and durable medical equipment.
418.108  Condition of participation: Short-term inpatient care.
418.110  Condition of participation: Hospices that provide inpatient 
          care directly.
418.112  Condition of participation: Hospices that provide hospice care 
          to residents of a SNF/NF or ICF/IID.
418.113  Condition of participation: Emergency preparedness.
418.114  Condition of participation: Personnel qualifications.
418.116  Condition of participation: Compliance with Federal, State, and 
          local laws and regulations related to the health and safety of 
          patients.

Subpart E [Reserved]

                       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  Annual update of the payment rates and adjustment for area wage 
          differences.
418.307  Periodic interim payments.
418.308  Limitation on the amount of hospice payments.
418.309  Hospice aggregate cap.
418.310  Reporting and recordkeeping requirements.
418.311  Administrative appeals.
418.312  Data submission requirements under the hospice quality 
          reporting program.

                          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 
(the Act). Section 1861(dd) of the Act specifies services covered as 
hospice care and the conditions that a hospice program must meet in 
order to participate in the Medicare program. Section 1861(dd) also 
specifies limitations on coverage of, and payment for, inpatient hospice 
care. 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.
    (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; 
74 FR 39413, Aug. 6, 2009]



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 and 
election requirements and the benefit periods. Subparts C and D specify 
the conditions of participation for hospices. Subpart E is reserved for 
future use. Subparts F and G specify coverage and payment policy. 
Subpart H specifies coinsurance amounts applicable to hospice care.

[74 FR 39413, Aug. 6, 2009]



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 described in Sec. 410.75 (b) of this chapter.

[[Page 313]]

    (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 emotional, psychosocial, and spiritual 
support and services provided before and after the death of the patient 
to assist with issues related to grief, loss, and adjustment.
    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.
    Clinical note means a notation of a contact with the patient and/or 
the family that is written and dated by any person providing services 
and that describes signs and symptoms, treatments and medications 
administered, including the patient's reaction and/or response, and any 
changes in physical, emotional, psychosocial or spiritual condition 
during a given period of time.
    Comprehensive assessment means a thorough evaluation of the 
patient's physical, psychosocial, emotional and spiritual status related 
to the terminal illness and related conditions. This includes a thorough 
evaluation of the caregiver's and family's willingness and capability to 
care for the patient.
    Dietary counseling means education and interventions provided to the 
patient and family regarding appropriate nutritional intake as the 
patient's condition progresses. Dietary counseling is provided by 
qualified individuals, which may include a registered nurse, dietitian 
or nutritionist, when identified in the patient's plan of care.
    Employee means a person who:
    (1) Works for the hospice and for whom the hospice is required to 
issue a W-2 form on his or her behalf;
    (2) If the hospice is a subdivision of an agency or organization, an 
employee of the agency or organization who is assigned to the hospice; 
or
    (3) Is 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 hospice care 
as defined in this section.
    Hospice care means a comprehensive set of services described in 
1861(dd)(1) of the Act, identified and coordinated by an 
interdisciplinary group to provide for the physical, psychosocial, 
spiritual, and emotional needs of a terminally ill patient and/or family 
members, as delineated in a specific patient plan of care.
    Initial assessment means an evaluation of the patient's physical, 
psychosocial and emotional status related to the terminal illness and 
related conditions to determine the patient's immediate care and support 
needs.
    Licensed professional means a person licensed to provide patient 
care services by the State in which services are delivered.
    Multiple location means a Medicare-approved location from which the 
hospice provides the same full range of hospice care and services that 
is required of the hospice issued the certification number. A multiple 
location must meet all of the conditions of participation applicable to 
hospices.
    Palliative care means patient and family-centered care that 
optimizes quality of life by anticipating, preventing, and treating 
suffering. Palliative care throughout the continuum of illness involves 
addressing physical, intellectual, emotional, social, and spiritual 
needs and to facilitate patient autonomy, access to information, and 
choice.
    Physician means an individual who meets the qualifications and 
conditions as defined in section 1861(r) of the Act and implemented at 
Sec. 410.20 of this chapter.
    Physician designee means a doctor of medicine or osteopathy 
designated by the hospice who assumes the same responsibilities and 
obligations as the medical director when the medical director is not 
available.
    Representative means an individual who has the authority under State 
law (whether by statute or pursuant to an appointment by the courts of 
the State) to authorize or terminate medical care or to elect or revoke 
the election of hospice care on behalf of a terminally ill patient who 
is mentally or physically incapacitated. This may include a legal 
guardian.

[[Page 314]]

    Restraint means--(1) Any manual method, physical or mechanical 
device, material, or equipment that immobilizes or reduces the ability 
of a patient to move his or her arms, legs, body, or head freely, not 
including devices, such as orthopedically prescribed devices, surgical 
dressings or bandages, protective helmets, or other methods that involve 
the physical holding of a patient for the purpose of conducting routine 
physical examinations or tests, or to protect the patient from falling 
out of bed, or to permit the patient to participate in activities 
without the risk of physical harm (this does not include a physical 
escort); or
    (2) A drug or medication when it is used as a restriction to manage 
the patient's behavior or restrict the patient's freedom of movement and 
is not a standard treatment or dosage for the patient's condition.
    Seclusion means the involuntary confinement of a patient alone in a 
room or an area from which the patient is physically prevented from 
leaving.
    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; 55 
FR 50834, Dec. 11, 1990; 70 FR 45144, Aug. 4, 2005; 72 FR 50227, Aug. 
31, 2007; 73 FR 32204, June 5, 2008; 79 FR 50509, Aug. 22, 2014]



        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]



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) Exceptions. (i) 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.
    (ii) Certifications may be completed no more than 15 calendar days 
prior to the effective date of election.
    (iii) Recertifications may be completed no more than 15 calendar 
days prior to the start of the subsequent benefit period.
    (4) Face-to-face encounter. As of January 1, 2011, a hospice 
physician or hospice nurse practitioner must have a face-to-face 
encounter with each hospice patient whose total stay across all hospices 
is anticipated to reach the 3rd benefit period. The face-to-face 
encounter must occur prior to, but no more than 30 calendar days prior 
to, the 3rd benefit period recertification, and every benefit period 
recertification thereafter, to gather clinical findings to determine 
continued eligibility for hospice care.
    (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:

[[Page 315]]

    (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.
    (3) The physician must include a brief narrative explanation of the 
clinical findings that supports a life expectancy of 6 months or less as 
part of the certification and recertification forms, or as an addendum 
to the certification and recertification forms.
    (i) If the narrative is part of the certification or recertification 
form, then the narrative must be located immediately prior to the 
physician's signature.
    (ii) If the narrative exists as an addendum to the certification or 
recertification form, in addition to the physician's signature on the 
certification or recertification form, the physician must also sign 
immediately following the narrative in the addendum.
    (iii) The narrative shall include a statement directly above the 
physician signature attesting that by signing, the physician confirms 
that he/she composed the narrative based on his/her review of the 
patient's medical record or, if applicable, his/her examination of the 
patient.
    (iv) The narrative must reflect the patient's individual clinical 
circumstances and cannot contain check boxes or standard language used 
for all patients.
    (v) The narrative associated with the 3rd benefit period 
recertification and every subsequent recertification must include an 
explanation of why the clinical findings of the face-to-face encounter 
support a life expectancy of 6 months or less.
    (4) The physician or nurse practitioner who performs the face-to-
face encounter with the patient described in paragraph (a)(4) of this 
section must attest in writing that he or she had a face-to-face 
encounter with the patient, including the date of that visit. The 
attestation of the nurse practitioner or a non-certifying hospice 
physician shall state that the clinical findings of that visit were 
provided to the certifying physician for use in determining continued 
eligibility for hospice care.
    (5) All certifications and recertifications must be signed and dated 
by the physician(s), and must include the benefit period dates to which 
the certification or recertification applies.
    (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; 74 FR 39413, Aug. 
6, 2009; 75 FR 70463, Nov. 17, 2010; 76 FR 47331, Aug. 4, 2011]



Sec. 418.24  Election of hospice care.

    (a) Filing an election statement. (1) General. 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.
    (2) Notice of election. The hospice chosen by the eligible 
individual (or his or

[[Page 316]]

her representative) must file the Notice of Election (NOE) with its 
Medicare contractor within 5 calendar days after the effective date of 
the election statement.
    (3) Consequences of failure to submit a timely notice of election. 
When a hospice does not file the required Notice of Election for its 
Medicare patients within 5 calendar days after the effective date of 
election, Medicare will not cover and pay for days of hospice care from 
the effective date of election to the date of filing of the notice of 
election. These days are a provider liability, and the provider may not 
bill the beneficiary for them.
    (4) Exception to the consequences for filing the NOE late. CMS may 
waive the consequences of failure to submit a timely-filed NOE specified 
in paragraph (a)(2) of this section. CMS will determine if a 
circumstance encountered by a hospice is exceptional and qualifies for 
waiver of the consequence specified in paragraph (a)(3) of this section. 
A hospice must fully document and furnish any requested documentation to 
CMS for a determination of exception. An exceptional circumstance may be 
due to, but is not limited to the following:
    (i) Fires, floods, earthquakes, or similar unusual events that 
inflict extensive damage to the hospice's ability to operate.
    (ii) A CMS or Medicare contractor systems issue that is beyond the 
control of the hospice.
    (iii) A newly Medicare-certified hospice that is notified of that 
certification after the Medicare certification date, or which is 
awaiting its user ID from its Medicare contractor.
    (iv) Other situations determined by CMS to be beyond the control of 
the hospice.
    (b) Content of election statement. The election statement must 
include the following:
    (1) Identification of the particular hospice and of the attending 
physician that will provide care to the individual. The individual or 
representative must acknowledge that the identified attending physician 
was his or her choice.
    (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, 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

[[Page 317]]

other election period that is still available to the individual.
    (f) Changing the attending physician. To change the designated 
attending physician, the individual (or representative) must file a 
signed statement with the hospice that states that he or she is changing 
his or her attending physician.
    (1) The statement must identify the new attending physician, and 
include the date the change is to be effective and the date signed by 
the individual (or representative).
    (2) The individual (or representative) must acknowledge that the 
change in the attending physician is due to his or her choice.
    (3) The effective date of the change in attending physician cannot 
be before the date the statement is signed.

[55 FR 50834, Dec. 11, 1990, as amended at 70 FR 70547, Nov. 22, 2005; 
79 FR 50509, Aug. 22, 2014]



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 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.
    (e) Filing a notice of termination of election. When the hospice 
election is

[[Page 318]]

ended due to discharge, the hospice must file a notice of termination/
revocation of election with its Medicare contractor within 5 calendar 
days after the effective date of the discharge, unless it has already 
filed a final claim for that beneficiary.

[70 FR 70547, Nov. 22, 2005, as amended at 79 FR 50509, Aug. 22, 2014]



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.
    (d) When the hospice election is ended due to revocation, the 
hospice must file a notice of termination/revocation of election with 
its Medicare contractor within 5 calendar days after the effective date 
of the revocation, unless it has already filed a final claim for that 
beneficiary.

[48 FR 56026, Dec. 16, 1983, as amended at 79 FR 50509, Aug. 22, 2014]



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: Patient Care

    Source: 73 FR 32204, June 5, 2008, unless otherwise noted.



Sec. 418.52  Condition of participation: Patient's rights.

    The patient has the right to be informed of his or her rights, and 
the hospice must protect and promote the exercise of these rights.
    (a) Standard: Notice of rights and responsibilities. (1) During the 
initial assessment visit in advance of furnishing care the hospice must 
provide the patient or representative with verbal (meaning spoken) and 
written notice of the patient's rights and responsibilities in a 
language and manner that the patient understands.
    (2) The hospice must comply with the requirements of subpart I of 
part 489 of this chapter regarding advance directives. The hospice must 
inform and distribute written information to the patient concerning its 
policies on advance directives, including a description of applicable 
State law.
    (3) The hospice must obtain the patient's or representative's 
signature confirming that he or she has received a copy of the notice of 
rights and responsibilities.
    (b) Standard: Exercise of rights and respect for property and 
person. (1) The patient has the right:
    (i) To exercise his or her rights as a patient of the hospice;

[[Page 319]]

    (ii) To have his or her property and person treated with respect;
    (iii) To voice grievances regarding treatment or care that is (or 
fails to be) furnished and the lack of respect for property by anyone 
who is furnishing services on behalf of the hospice; and
    (iv) To not be subjected to discrimination or reprisal for 
exercising his or her rights.
    (2) If a patient has been adjudged incompetent under state law by a 
court of proper jurisdiction, the rights of the patient are exercised by 
the person appointed pursuant to state law to act on the patient's 
behalf.
    (3) If a state court has not adjudged a patient incompetent, any 
legal representative designated by the patient in accordance with state 
law may exercise the patient's rights to the extent allowed by state 
law.
    (4) The hospice must:
    (i) Ensure that all alleged violations involving mistreatment, 
neglect, or verbal, mental, sexual, and physical abuse, including 
injuries of unknown source, and misappropriation of patient property by 
anyone furnishing services on behalf of the hospice, are reported 
immediately by hospice employees and contracted staff to the hospice 
administrator;
    (ii) Immediately investigate all alleged violations involving anyone 
furnishing services on behalf of the hospice and immediately take action 
to prevent further potential violations while the alleged violation is 
being verified. Investigations and/or documentation of all alleged 
violations must be conducted in accordance with established procedures;
    (iii) Take appropriate corrective action in accordance with state 
law if the alleged violation is verified by the hospice administration 
or an outside body having jurisdiction, such as the State survey agency 
or local law enforcement agency; and
    (iv) Ensure that verified violations are reported to State and local 
bodies having jurisdiction (including to the State survey and 
certification agency) within 5 working days of becoming aware of the 
violation.
    (c) Standard: Rights of the patient. The patient has a right to the 
following:
    (1) Receive effective pain management and symptom control from the 
hospice for conditions related to the terminal illness;
    (2) Be involved in developing his or her hospice plan of care;
    (3) Refuse care or treatment;
    (4) Choose his or her attending physician;
    (5) Have a confidential clinical record. Access to or release of 
patient information and clinical records is permitted in accordance with 
45 CFR parts 160 and 164.
    (6) Be free from mistreatment, neglect, or verbal, mental, sexual, 
and physical abuse, including injuries of unknown source, and 
misappropriation of patient property;
    (7) Receive information about the services covered under the hospice 
benefit;
    (8) Receive information about the scope of services that the hospice 
will provide and specific limitations on those services.



Sec. 418.54  Condition of participation: Initial and comprehensive 
assessment of the patient.

    The hospice must conduct and document in writing a patient-specific 
comprehensive assessment that identifies the patient's need for hospice 
care and services, and the patient's need for physical, psychosocial, 
emotional, and spiritual care. This assessment includes all areas of 
hospice care related to the palliation and management of the terminal 
illness and related conditions.
    (a) Standard: Initial assessment. The hospice registered nurse must 
complete an initial assessment within 48 hours after the election of 
hospice care in accordance with Sec. 418.24 is complete (unless the 
physician, patient, or representative requests that the initial 
assessment be completed in less than 48 hours.)
    (b) Standard: Timeframe for completion of the comprehensive 
assessment. The hospice interdisciplinary group, in consultation with 
the individual's attending physician (if any), must complete the 
comprehensive assessment no later than 5 calendar days after the 
election of hospice care in accordance with Sec. 418.24.

[[Page 320]]

    (c) Standard: Content of the comprehensive assessment. The 
comprehensive assessment must identify the physical, psychosocial, 
emotional, and spiritual needs related to the terminal illness that must 
be addressed in order to promote the hospice patient's well-being, 
comfort, and dignity throughout the dying process. The comprehensive 
assessment must take into consideration the following factors:
    (1) The nature and condition causing admission (including the 
presence or lack of objective data and subjective complaints).
    (2) Complications and risk factors that affect care planning.
    (3) Functional status, including the patient's ability to understand 
and participate in his or her own care.
    (4) Imminence of death.
    (5) Severity of symptoms.
    (6) Drug profile. A review of all of the patient's prescription and 
over-the-counter drugs, herbal remedies and other alternative treatments 
that could affect drug therapy. This includes, but is not limited to, 
identification of the following:
    (i) Effectiveness of drug therapy.
    (ii) Drug side effects.
    (iii) Actual or potential drug interactions.
    (iv) Duplicate drug therapy.
    (v) Drug therapy currently associated with laboratory monitoring.
    (7) Bereavement. An initial bereavement assessment of the needs of 
the patient's family and other individuals focusing on the social, 
spiritual, and cultural factors that may impact their ability to cope 
with the patient's death. Information gathered from the initial 
bereavement assessment must be incorporated into the plan of care and 
considered in the bereavement plan of care.
    (8) The need for referrals and further evaluation by appropriate 
health professionals.
    (d) Standard: Update of the comprehensive assessment. The update of 
the comprehensive assessment must be accomplished by the hospice 
interdisciplinary group (in collaboration with the individual's 
attending physician, if any) and must consider changes that have taken 
place since the initial assessment. It must include information on the 
patient's progress toward desired outcomes, as well as a reassessment of 
the patient's response to care. The assessment update must be 
accomplished as frequently as the condition of the patient requires, but 
no less frequently than every 15 days.
    (e) Standard: Patient outcome measures. (1) The comprehensive 
assessment must include data elements that allow for measurement of 
outcomes. The hospice must measure and document data in the same way for 
all patients. The data elements must take into consideration aspects of 
care related to hospice and palliation.
    (2) The data elements must be an integral part of the comprehensive 
assessment and must be documented in a systematic and retrievable way 
for each patient. The data elements for each patient must be used in 
individual patient care planning and in the coordination of services, 
and must be used in the aggregate for the hospice's quality assessment 
and performance improvement program.



Sec. 418.56  Condition of participation: Interdisciplinary group, 
care planning, and coordination of services.

    The hospice must designate an interdisciplinary group or groups as 
specified in paragraph (a) of this section which, in consultation with 
the patient's attending physician, must prepare a written plan of care 
for each patient. The plan of care must specify the hospice care and 
services necessary to meet the patient and family-specific needs 
identified in the comprehensive assessment as such needs relate to the 
terminal illness and related conditions.
    (a) Standard: Approach to service delivery. (1) The hospice must 
designate an interdisciplinary group or groups composed of individuals 
who work together to meet the physical, medical, psychosocial, 
emotional, and spiritual needs of the hospice patients and families 
facing terminal illness and bereavement. Interdisciplinary group members 
must provide the care and services offered by the hospice, and the 
group, in its entirety, must supervise the care and services. The 
hospice must designate a registered nurse that is a member of the 
interdisciplinary group to provide coordination of care and to

[[Page 321]]

ensure continuous assessment of each patient's and family's needs and 
implementation of the interdisciplinary plan of care. The 
interdisciplinary group must include, but is not limited to, individuals 
who are qualified and competent to practice in the following 
professional roles:
    (i) A doctor of medicine or osteopathy (who is an employee or under 
contract with the hospice).
    (ii) A registered nurse.
    (iii) A social worker.
    (iv) A pastoral or other counselor.
    (2) If the hospice has more than one interdisciplinary group, it 
must identify a specifically designated interdisciplinary group to 
establish policies governing the day-to-day provision of hospice care 
and services.
    (b) Standard: Plan of care. All hospice care and services furnished 
to patients and their families must follow an individualized written 
plan of care established by the hospice interdisciplinary group in 
collaboration with the attending physician (if any), the patient or 
representative, and the primary caregiver in accordance with the 
patient's needs if any of them so desire. The hospice must ensure that 
each patient and the primary care giver(s) receive education and 
training provided by the hospice as appropriate to their 
responsibilities for the care and services identified in the plan of 
care.
    (c) Standard: Content of the plan of care. The hospice must develop 
an individualized written plan of care for each patient. The plan of 
care must reflect patient and family goals and interventions based on 
the problems identified in the initial, comprehensive, and updated 
comprehensive assessments. The plan of care must include all services 
necessary for the palliation and management of the terminal illness and 
related conditions, including the following:
    (1) Interventions to manage pain and symptoms.
    (2) A detailed statement of the scope and frequency of services 
necessary to meet the specific patient and family needs.
    (3) Measurable outcomes anticipated from implementing and 
coordinating the plan of care.
    (4) Drugs and treatment necessary to meet the needs of the patient.
    (5) Medical supplies and appliances necessary to meet the needs of 
the patient.
    (6) The interdisciplinary group's documentation of the patient's or 
representative's level of understanding, involvement, and agreement with 
the plan of care, in accordance with the hospice's own policies, in the 
clinical record.
    (d) Standard: Review of the plan of care. The hospice 
interdisciplinary group (in collaboration with the individual's 
attending physician, if any) must review, revise and document the 
individualized plan as frequently as the patient's condition requires, 
but no less frequently than every 15 calendar days. A revised plan of 
care must include information from the patient's updated comprehensive 
assessment and must note the patient's progress toward outcomes and 
goals specified in the plan of care.
    (e) Standard: Coordination of services. The hospice must develop and 
maintain a system of communication and integration, in accordance with 
the hospice's own policies and procedures, to--
    (1) Ensure that the interdisciplinary group maintains responsibility 
for directing, coordinating, and supervising the care and services 
provided.
    (2) Ensure that the care and services are provided in accordance 
with the plan of care.
    (3) Ensure that the care and services provided are based on all 
assessments of the patient and family needs.
    (4) Provide for and ensure the ongoing sharing of information 
between all disciplines providing care and services in all settings, 
whether the care and services are provided directly or under 
arrangement.
    (5) Provide for an ongoing sharing of information with other non-
hospice healthcare providers furnishing services unrelated to the 
terminal illness and related conditions.



Sec. 418.58  Condition of participation: Quality assessment 
and performance improvement.

    The hospice must develop, implement, and maintain an effective, 
ongoing, hospice-wide data-driven quality

[[Page 322]]

assessment and performance improvement program. The hospice's governing 
body must ensure that the program: Reflects the complexity of its 
organization and services; involves all hospice services (including 
those services furnished under contract or arrangement); focuses on 
indicators related to improved palliative outcomes; and takes actions to 
demonstrate improvement in hospice performance. The hospice must 
maintain documentary evidence of its quality assessment and performance 
improvement program and be able to demonstrate its operation to CMS.
    (a) Standard: Program scope. (1) The program must at least be 
capable of showing measurable improvement in indicators related to 
improved palliative outcomes and hospice services.
    (2) The hospice must measure, analyze, and track quality indicators, 
including adverse patient events, and other aspects of performance that 
enable the hospice to assess processes of care, hospice services, and 
operations.
    (b) Standard: Program data. (1) The program must use quality 
indicator data, including patient care, and other relevant data, in the 
design of its program.
    (2) The hospice must use the data collected to do the following:
    (i) Monitor the effectiveness and safety of services and quality of 
care.
    (ii) Identify opportunities and priorities for improvement.
    (3) The frequency and detail of the data collection must be approved 
by the hospice's governing body.
    (c) Standard: Program activities. (1) The hospice's performance 
improvement activities must:
    (i) Focus on high risk, high volume, or problem-prone areas.
    (ii) Consider incidence, prevalence, and severity of problems in 
those areas.
    (iii) Affect palliative outcomes, patient safety, and quality of 
care.
    (2) Performance improvement activities must track adverse patient 
events, analyze their causes, and implement preventive actions and 
mechanisms that include feedback and learning throughout the hospice.
    (3) The hospice must take actions aimed at performance improvement 
and, after implementing those actions, the hospice must measure its 
success and track performance to ensure that improvements are sustained.
    (d) Standard: Performance improvement projects. Beginning February 
2, 2009 hospices must develop, implement, and evaluate performance 
improvement projects.
    (1) The number and scope of distinct performance improvement 
projects conducted annually, based on the needs of the hospice's 
population and internal organizational needs, must reflect the scope, 
complexity, and past performance of the hospice's services and 
operations.
    (2) The hospice must document what performance improvement projects 
are being conducted, the reasons for conducting these projects, and the 
measurable progress achieved on these projects.
    (e) Standard: Executive responsibilities. The hospice's governing 
body is responsible for ensuring the following:
    (1) That an ongoing program for quality improvement and patient 
safety is defined, implemented, and maintained, and is evaluated 
annually.
    (2) That the hospice-wide quality assessment and performance 
improvement efforts address priorities for improved quality of care and 
patient safety, and that all improvement actions are evaluated for 
effectiveness.
    (3) That one or more individual(s) who are responsible for operating 
the quality assessment and performance improvement program are 
designated.



Sec. 418.60  Condition of participation: Infection control.

    The hospice must maintain and document an effective infection 
control program that protects patients, families, visitors, and hospice 
personnel by preventing and controlling infections and communicable 
diseases.
    (a) Standard: Prevention. The hospice must follow accepted standards 
of practice to prevent the transmission of infections and communicable 
diseases, including the use of standard precautions.
    (b) Standard: Control. The hospice must maintain a coordinated 
agency-wide program for the surveillance, identification, prevention, 
control, and

[[Page 323]]

investigation of infectious and communicable diseases that--
    (1) Is an integral part of the hospice's quality assessment and 
performance improvement program; and
    (2) Includes the following:
    (i) A method of identifying infectious and communicable disease 
problems; and
    (ii) A plan for implementing the appropriate actions that are 
expected to result in improvement and disease prevention.
    (c) Standard: Education. The hospice must provide infection control 
education to employees, contracted providers, patients, and family 
members and other caregivers.



Sec. 418.62  Condition of participation: Licensed professional services.

    (a) Licensed professional services provided directly or under 
arrangement must be authorized, delivered, and supervised only by health 
care professionals who meet the appropriate qualifications specified 
under Sec. 418.114 and who practice under the hospice's policies and 
procedures.
    (b) Licensed professionals must actively participate in the 
coordination of all aspects of the patient's hospice care, in accordance 
with current professional standards and practice, including 
participating in ongoing interdisciplinary comprehensive assessments, 
developing and evaluating the plan of care, and contributing to patient 
and family counseling and education; and
    (c) Licensed professionals must participate in the hospice's quality 
assessment and performance improvement program and hospice sponsored in-
service training.

                              Core Services



Sec. 418.64  Condition of participation: Core services.

    A hospice must routinely provide substantially all core services 
directly by hospice employees. These services must be provided in a 
manner consistent with acceptable standards of practice. These services 
include nursing services, medical social services, and counseling. The 
hospice may contract for physician services as specified in paragraph 
(a) of this section. A hospice may use contracted staff, if necessary, 
to supplement hospice employees in order to meet the needs of patients 
under extraordinary or other non-routine circumstances. A hospice may 
also enter into a written arrangement with another Medicare certified 
hospice program for the provision of core services to supplement hospice 
employee/staff to meet the needs of patients. Circumstances under which 
a hospice may enter into a written arrangement for the provision of core 
services include: Unanticipated periods of high patient loads, staffing 
shortages due to illness or other short-term temporary situations that 
interrupt patient care; and temporary travel of a patient outside of the 
hospice's service area.
    (a) Standard: Physician services. The hospice medical director, 
physician employees, and contracted physician(s) of the hospice, in 
conjunction with the patient's attending physician, are responsible for 
the palliation and management of the terminal illness and conditions 
related to the terminal illness.
    (1) All physician employees and those under contract, must function 
under the supervision of the hospice medical director.
    (2) All physician employees and those under contract shall meet this 
requirement by either providing the services directly or through 
coordinating patient care with the attending physician.
    (3) If the attending physician is unavailable, the medical director, 
contracted physician, and/or hospice physician employee is responsible 
for meeting the medical needs of the patient.
    (b) Standard: Nursing services. (1) The hospice must provide nursing 
care and services by or under the supervision of a registered nurse. 
Nursing services must ensure that the nursing needs of the patient are 
met as identified in the patient's initial assessment, comprehensive 
assessment, and updated assessments.
    (2) If State law permits registered nurses to see, treat, and write 
orders for patients, then registered nurses

[[Page 324]]

may provide services to beneficiaries receiving hospice care.
    (3) Highly specialized nursing services that are provided so 
infrequently that the provision of such services by direct hospice 
employees would be impracticable and prohibitively expensive, may be 
provided under contract.
    (c) Standard: Medical social services. Medical social services must 
be provided by a qualified social worker, under the direction of a 
physician. Social work services must be based on the patient's 
psychosocial assessment and the patient's and family's needs and 
acceptance of these services.
    (d) Standard: Counseling services. Counseling services must be 
available to the patient and family to assist the patient and family in 
minimizing the stress and problems that arise from the terminal illness, 
related conditions, and the dying process. Counseling services must 
include, but are not limited to, the following:
    (1) Bereavement counseling. The hospice must:
    (i) Have an organized program for the provision of bereavement 
services furnished under the supervision of a qualified professional 
with experience or education in grief or loss counseling.
    (ii) Make bereavement services available to the family and other 
individuals in the bereavement plan of care up to 1 year following the 
death of the patient. Bereavement counseling also extends to residents 
of a SNF/NF or ICF/IID when appropriate and identified in the 
bereavement plan of care.
    (iii) Ensure that bereavement services reflect the needs of the 
bereaved.
    (iv) Develop a bereavement plan of care that notes the kind of 
bereavement services to be offered and the frequency of service 
delivery. A special coverage provision for bereavement counseling is 
specified in Sec. 418.204(c).
    (2) Dietary counseling. Dietary counseling, when identified in the 
plan of care, must be performed by a qualified individual, which include 
dietitians as well as nurses and other individuals who are able to 
address and assure that the dietary needs of the patient are met.
    (3) Spiritual counseling. The hospice must:
    (i) Provide an assessment of the patient's and family's spiritual 
needs.
    (ii) Provide spiritual counseling to meet these needs in accordance 
with the patient's and family's acceptance of this service, and in a 
manner consistent with patient and family beliefs and desires.
    (iii) Make all reasonable efforts to facilitate visits by local 
clergy, pastoral counselors, or other individuals who can support the 
patient's spiritual needs to the best of its ability.
    (iv) Advise the patient and family of this service.



Sec. 418.66  Condition of participation: Nursing services--Waiver of 
requirement that substantially all nursing services be routinely
provided directly by a hospice.

    (a) CMS may waive the requirement in Sec. 418.64(b) that a hospice 
provide nursing services directly, if the hospice 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 to CMS that it has made a good faith effort to hire a 
sufficient number of nurses to provide services. CMS may waive the 
requirement that nursing services be furnished by employees based on the 
following criteria:
    (1) The location of the hospice's central office is in a non-
urbanized area as determined by the Bureau of the Census.
    (2) There is evidence that a hospice was operational on or before 
January 1, 1983 including the following:
    (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.
    (iii) Evidence that 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) By virtue of the following evidence that a hospice made a good 
faith effort to hire nurses:
    (i) Copies of advertisements in local newspapers that demonstrate 
recruitment efforts.

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    (ii) Job descriptions for nurse employees.
    (iii) Evidence that salary and benefits are competitive for the 
area.
    (iv) Evidence of any other recruiting activities (for example, 
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 1 year at a time from the date 
of the request.
    (d) If a hospice wishes to receive a 1-year extension, it must 
submit a request to CMS before the expiration of the waiver period, and 
certify that the conditions under which it originally requested the 
initial waiver have not changed since the initial waiver was granted.

                            Non-Core Services



Sec. 418.70  Condition of participation: Furnishing of non-core services.

    A hospice must ensure that the services described in Sec. 418.72 
through Sec. 418.78 are provided directly by the hospice or under 
arrangements made by the hospice as specified in Sec. 418.100. These 
services must be provided in a manner consistent with current standards 
of practice.



Sec. 418.72  Condition of participation: Physical therapy, occupational 
therapy, and speech-language pathology.

    Physical therapy services, occupational therapy services, and 
speech-language pathology services must be available, and when provided, 
offered in a manner consistent with accepted standards of practice.



Sec. 418.74  Waiver of requirement--Physical therapy, occupational therapy, 
speech-language pathology, and dietary counseling.

    (a) A hospice located in a non-urbanized area may submit a written 
request for a waiver of the requirement for providing physical therapy, 
occupational therapy, speech-language pathology, and dietary counseling 
services. The hospice may seek a waiver of the requirement that it make 
physical therapy, occupational therapy, speech-language pathology, and 
dietary counseling services (as needed) available on a 24-hour basis. 
The hospice may also seek a waiver of the requirement that it provide 
dietary counseling directly. The hospice must provide evidence that it 
has made a good faith effort to meet the requirements for these services 
before it seeks a waiver. CMS may approve a waiver application on the 
basis of the following criteria:
    (1) The hospice is located in a non-urbanized area as determined by 
the Bureau of the Census.
    (2) The hospice provides evidence that it had made a good faith 
effort to make available physical therapy, occupational therapy, speech-
language pathology, and dietary counseling services on a 24-hour basis 
and/or to hire a dietary counselor to furnish services directly. This 
evidence must include the following:
    (i) Copies of advertisements in local newspapers that demonstrate 
recruitment efforts.
    (ii) Physical therapy, occupational therapy, speech-language 
pathology, and dietary counselor job descriptions.
    (iii) Evidence that salary and benefits are competitive for the 
area.
    (iv) Evidence of any other recruiting activities (for example, 
recruiting efforts at health fairs and contact discussions with physical 
therapy, occupational therapy, speech-language pathology, and dietary 
counseling service 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) An initial waiver will remain effective for 1 year at a time 
from the date of the request.
    (d) If a hospice wishes to receive a 1-year extension, it must 
submit a request to CMS before the expiration of the waiver period and 
certify that conditions under which it originally requested the waiver 
have not changed since the initial waiver was granted.



Sec. 418.76  Condition of participation: Hospice aide and homemaker services.

    All hospice aide services must be provided by individuals who meet 
the personnel requirements specified in paragraph (a) of this section. 
Homemaker

[[Page 326]]

services must be provided by individuals who meet the personnel 
requirements specified in paragraph (j) of this section.
    (a) Standard: Hospice aide qualifications. (1) A qualified hospice 
aide is a person who has successfully completed one of the following:
    (i) A training program and competency evaluation as specified in 
paragraphs (b) and (c) of this section respectively.
    (ii) A competency evaluation program that meets the requirements of 
paragraph (c) of this section.
    (iii) A nurse aide training and competency evaluation program 
approved by the State as meeting the requirements of Sec. 483.151 
through Sec. 483.154 of this chapter, and is currently listed in good 
standing on the State nurse aide registry.
    (iv) A State licensure program that meets the requirements of 
paragraphs (b) and (c) of this section.
    (2) A hospice aide is not considered to have completed a program, as 
specified in paragraph (a)(1) of this section, if, since the 
individual's most recent completion of the program(s), there has been a 
continuous period of 24 consecutive months during which none of the 
services furnished by the individual as described in Sec. 409.40 of this 
chapter were for compensation. If there has been a 24-month lapse in 
furnishing services, the individual must complete another program, as 
specified in paragraph (a)(1) of this section, before providing 
services.
    (b) Standard: Content and duration of hospice aide classroom and 
supervised practical training. (1) Hospice aide training must include 
classroom and supervised practical training in a practicum laboratory or 
other setting in which the trainee demonstrates knowledge while 
performing tasks on an individual under the direct supervision of a 
registered nurse, or a licensed practical nurse, who is under the 
supervision of a registered nurse. Classroom and supervised practical 
training combined must total at least 75 hours.
    (2) A minimum of 16 hours of classroom training must precede a 
minimum of l6 hours of supervised practical training as part of the 75 
hours.
    (3) A hospice aide training program must address each of the 
following subject areas:
    (i) Communication skills, including the ability to read, write, and 
verbally report clinical information to patients, care givers, and other 
hospice staff.
    (ii) Observation, reporting, and documentation of patient status and 
the care or service furnished.
    (iii) Reading and recording temperature, pulse, and respiration.
    (iv) Basic infection control procedures.
    (v) Basic elements of body functioning and changes in body function 
that must be reported to an aide's supervisor.
    (vi) Maintenance of a clean, safe, and healthy environment.
    (vii) Recognizing emergencies and the knowledge of emergency 
procedures and their application.
    (viii) The physical, emotional, and developmental needs of and ways 
to work with the populations served by the hospice, including the need 
for respect for the patient, his or her privacy, and his or her 
property.
    (ix) Appropriate and safe techniques in performing personal hygiene 
and grooming tasks, including items on the following basic checklist:
    (A) Bed bath.
    (B) Sponge, tub, and shower bath.
    (C) Hair shampoo (sink, tub, and bed).
    (D) Nail and skin care.
    (E) Oral hygiene.
    (F) Toileting and elimination.
    (x) Safe transfer techniques and ambulation.
    (xi) Normal range of motion and positioning.
    (xii) Adequate nutrition and fluid intake.
    (xiii) Any other task that the hospice may choose to have an aide 
perform. The hospice is responsible for training hospice aides, as 
needed, for skills not covered in the basic checklist, as described in 
paragraph (b)(3)(ix) of this section.
    (4) The hospice must maintain documentation that demonstrates that 
the requirements of this standard are met.
    (c) Standard: Competency evaluation. An individual may furnish 
hospice aide services on behalf of a hospice only

[[Page 327]]

after that individual has successfully completed a competency evaluation 
program as described in this section.
    (1) The competency evaluation must address each of the subjects 
listed in paragraph (b)(3) of this section. Subject areas specified 
under paragraphs (b)(3)(i), (b)(3)(iii), (b)(3)(ix), (b)(3)(x) and 
(b)(3)(xi) of this section must be evaluated by observing an aide's 
performance of the task with a patient. The remaining subject areas may 
be evaluated through written examination, oral examination, or after 
observation of a hospice aide with a patient.
    (2) A hospice aide competency evaluation program may be offered by 
any organization, except as described in paragraph (f) of this section.
    (3) The competency evaluation must be performed by a registered 
nurse in consultation with other skilled professionals, as appropriate.
    (4) A hospice aide is not considered competent in any task for which 
he or she is evaluated as unsatisfactory. An aide must not perform that 
task without direct supervision by a registered nurse until after he or 
she has received training in the task for which he or she was evaluated 
as ``unsatisfactory,'' and successfully completes a subsequent 
evaluation. A hospice aide is not considered to have successfully 
completed a competency evaluation if the aide has an ``unsatisfactory'' 
rating in more than one of the required areas.
    (5) The hospice must maintain documentation that demonstrates the 
requirements of this standard are being met.
    (d) Standard: In-service training. A hospice aide must receive at 
least 12 hours of in-service training during each 12-month period. In-
service training may occur while an aide is furnishing care to a 
patient.
    (1) In-service training may be offered by any organization, and must 
be supervised by a registered nurse.
    (2) The hospice must maintain documentation that demonstrates the 
requirements of this standard are met.
    (e) Standard: Qualifications for instructors conducting classroom 
and supervised practical training. Classroom and supervised practical 
training must be performed by a registered nurse who possesses a minimum 
of 2 years nursing experience, at least 1 year of which must be in home 
care, or by other individuals under the general supervision of a 
registered nurse.
    (f) Standard: Eligible competency evaluation organizations. A 
hospice aide competency evaluation program as specified in paragraph (c) 
of this section may be offered by any organization except by a home 
health agency that, within the previous 2 years:
    (1) Had been out of compliance with the requirements of 
Sec. 484.36(a) and Sec. 484.36 (b) of this chapter.
    (2) Permitted an individual that does not meet the definition of a 
``qualified home health aide'' as specified in Sec. 484.36(a) of this 
chapter to furnish home health aide services (with the exception of 
licensed health professionals and volunteers).
    (3) Had been subjected to an extended (or partial extended) survey 
as a result of having been found to have furnished substandard care (or 
for other reasons at the discretion of CMS or the State).
    (4) Had been assessed a civil monetary penalty of $5,000 or more as 
an intermediate sanction.
    (5) Had been found by CMS to have compliance deficiencies that 
endangered the health and safety of the home health agency's patients 
and had temporary management appointed to oversee the management of the 
home health agency.
    (6) Had all or part of its Medicare payments suspended.
    (7) Had been found by CMS or the State under any Federal or State 
law to have:
    (i) Had its participation in the Medicare program terminated.
    (ii) Been assessed a penalty of $5,000 or more for deficiencies in 
Federal or State standards for home health agencies.
    (iii) Been subjected to a suspension of Medicare payments to which 
it otherwise would have been entitled.
    (iv) Operated under temporary management that was appointed by a 
governmental authority to oversee the operation of the home health 
agency and to ensure the health and safety of the home health agency's 
patients.
    (v) Been closed by CMS or the State, or had its patients transferred 
by the State.

[[Page 328]]

    (g) Standard: Hospice aide assignments and duties. (1) Hospice aides 
are assigned to a specific patient by a registered nurse that is a 
member of the interdisciplinary group. Written patient care instructions 
for a hospice aide must be prepared by a registered nurse who is 
responsible for the supervision of a hospice aide as specified under 
paragraph (h) of this section.
    (2) A hospice aide provides services that are:
    (i) Ordered by the interdisciplinary group.
    (ii) Included in the plan of care.
    (iii) Permitted to be performed under State law by such hospice 
aide.
    (iv) Consistent with the hospice aide training.
    (3) The duties of a hospice aide include the following:
    (i) The provision of hands-on personal care.
    (ii) The performance of simple procedures as an extension of therapy 
or nursing services.
    (iii) Assistance in ambulation or exercises.
    (iv) Assistance in administering medications that are ordinarily 
self-administered.
    (4) Hospice aides must report changes in the patient's medical, 
nursing, rehabilitative, and social needs to a registered nurse, as the 
changes relate to the plan of care and quality assessment and 
improvement activities. Hospice aides must also complete appropriate 
records in compliance with the hospice's policies and procedures.
    (h) Standard: Supervision of hospice aides. (1) A registered nurse 
must make an on-site visit to the patient's home:
    (i) No less frequently than every 14 days to assess the quality of 
care and services provided by the hospice aide and to ensure that 
services ordered by the hospice interdisciplinary group meet the 
patient's needs. The hospice aide does not have to be present during 
this visit.
    (ii) If an area of concern is noted by the supervising nurse, then 
the hospice must make an on-site visit to the location where the patient 
is receiving care in order to observe and assess the aide while he or 
she is performing care.
    (iii) If an area of concern is verified by the hospice during the 
on-site visit, then the hospice must conduct, and the hospice aide must 
complete a competency evaluation in accordance with Sec. 418.76(c).
    (2) A registered nurse must make an annual on-site visit to the 
location where a patient is receiving care in order to observe and 
assess each aide while he or she is performing care.
    (3) The supervising nurse must assess an aide's ability to 
demonstrate initial and continued satisfactory performance in meeting 
outcome criteria that include, but is not limited to--
    (i) Following the patient's plan of care for completion of tasks 
assigned to the hospice aide by the registered nurse.
    (ii) Creating successful interpersonal relationships with the 
patient and family.
    (iii) Demonstrating competency with assigned tasks.
    (iv) Complying with infection control policies and procedures.
    (v) Reporting changes in the patient's condition.
    (i) Standard: Individuals furnishing Medicaid personal care aide-
only services under a Medicaid personal care benefit. An individual may 
furnish personal care services, as defined in Sec. 440.167 of this 
chapter, on behalf of a hospice agency.
    (1) Before the individual may furnish personal care services, the 
individual must be found competent by the State (if regulated by the 
State) to furnish those services. The individual only needs to 
demonstrate competency in the services the individual is required to 
furnish.
    (2) Services under the Medicaid personal care benefit may be used to 
the extent that the hospice would routinely use the services of a 
hospice patient's family in implementing a patient's plan of care.
    (3) The hospice must coordinate its hospice aide and homemaker 
services with the Medicaid personal care benefit to ensure the patient 
receives the hospice aide and homemaker services he or she needs.
    (j) Standard: Homemaker qualifications. A qualified homemaker is--

[[Page 329]]

    (1) An individual who meets the standards in Sec. 418.202(g) and has 
successfully completed hospice orientation addressing the needs and 
concerns of patients and families coping with a terminal illness; or
    (2) A hospice aide as described in Sec. 418.76.
    (k) Standard: Homemaker supervision and duties. (1) Homemaker 
services must be coordinated and supervised by a member of the 
interdisciplinary group.
    (2) Instructions for homemaker duties must be prepared by a member 
of the interdisciplinary group.
    (3) Homemakers must report all concerns about the patient or family 
to the member of the interdisciplinary group who is coordinating 
homemaker services.

[73 FR 32204, June 5, 2008, as amended at 74 FR 39413, Aug. 6, 2009]

    Effective Date Note: At 82 FR 4578, Jan. 13, 2017, Sec. 418.76 was 
amended in paragraph (f)(1) by removing ``Sec. 484.36(a) and 
Sec. 484.36(b)'' and replacing it with ``Sec. 484.80'', and in paragraph 
(f)(2) by removing ``Sec. 484.36(a)'' and replacing it with 
``Sec. 484.80(a)'', effective July 13, 2017. At 82 FR 31729, July 10, 
2017, the effectiveness was delayed until Jan. 13, 2018.



Sec. 418.78  Conditions of participation--Volunteers.

    The hospice must use volunteers to the extent specified in paragraph 
(e) of this section. These volunteers must be used in defined roles and 
under the supervision of a designated hospice employee.
    (a) Standard: Training. The hospice must maintain, document, and 
provide volunteer orientation and training that is consistent with 
hospice industry standards.
    (b) Standard: Role. Volunteers must be used in day-to-day 
administrative and/or direct patient care roles.
    (c) Standard: Recruiting and retaining. The hospice must document 
and demonstrate viable 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 the following:
    (1) The identification of each position that is occupied by a 
volunteer.
    (2) The work time spent by volunteers occupying those positions.
    (3) Estimates of the dollar costs that the hospice would have 
incurred if paid employees occupied the positions identified in 
paragraph (d)(1) of this section for the amount of time specified in 
paragraph (d)(2) of this section.
    (e) Standard: Level of activity. Volunteers must provide day-to-day 
administrative and/or direct patient care services 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 maintain records 
on the use of volunteers for patient care and administrative services, 
including the type of services and time worked.



    Subpart D_Conditions of participation: Organizational Environment

    Source: 73 FR 32204, June 5, 2008, unless otherwise noted.



Sec. 418.100  Condition of Participation: Organization and administration 
of services.

    The hospice must organize, manage, and administer its resources to 
provide the hospice care and services to patients, caregivers and 
families necessary for the palliation and management of the terminal 
illness and related conditions.
    (a) Standard: Serving the hospice patient and family. The hospice 
must provide hospice care that--
    (1) Optimizes comfort and dignity; and
    (2) Is consistent with patient and family needs and goals, with 
patient needs and goals as priority.
    (b) Standard: Governing body and administrator. A governing body (or 
designated persons so functioning) assumes full legal authority and 
responsibility for the management of the hospice, the provision of all 
hospice services, its fiscal operations, and continuous quality 
assessment and performance improvement. A qualified administrator 
appointed by and reporting to the governing body is responsible for the 
day-to-day operation of the hospice. The administrator must be a hospice 
employee and possess education

[[Page 330]]

and experience required by the hospice's governing body.
    (c) Standard: Services. (1) A hospice must be primarily engaged in 
providing the following care and services and must do so in a manner 
that is consistent with accepted standards of practice:
    (i) Nursing services.
    (ii) Medical social services.
    (iii) Physician services.
    (iv) Counseling services, including spiritual counseling, dietary 
counseling, and bereavement counseling.
    (v) Hospice aide, volunteer, and homemaker services.
    (vi) Physical therapy, occupational therapy, and speech-language 
pathology services.
    (vii) Short-term inpatient care.
    (viii) Medical supplies (including drugs and biologicals) and 
medical appliances.
    (2) Nursing services, physician services, and drugs and biologicals 
(as specified in Sec. 418.106) must be made routinely available on a 24-
hour basis 7 days a week. Other covered services must be available on a 
24-hour basis when reasonable and necessary to meet the needs of the 
patient and family.
    (d) Standard: Continuation of care. A hospice may not discontinue or 
reduce care provided to a Medicare or Medicaid beneficiary because of 
the beneficiary's inability to pay for that care.
    (e) Standard: Professional management responsibility. A hospice that 
has a written agreement with another agency, individual, or organization 
to furnish any services under arrangement must retain administrative and 
financial management, and oversight of staff and services for all 
arranged services, to ensure the provision of quality care. Arranged 
services must be supported by written agreements that require that all 
services be--
    (1) Authorized by the hospice;
    (2) Furnished in a safe and effective manner by qualified personnel; 
and
    (3) Delivered in accordance with the patient's plan of care.
    (f) Standard: Hospice multiple locations. If a hospice operates 
multiple locations, it must meet the following requirements:
    (1) Medicare approval.
    (i) All hospice multiple locations must be approved by Medicare 
before providing hospice care and services to Medicare patients.
    (ii) The multiple location must be part of the hospice and must 
share administration, supervision, and services with the hospice issued 
the certification number.
    (iii) The lines of authority and professional and administrative 
control must be clearly delineated in the hospice's organizational 
structure and in practice, and must be traced to the location which was 
issued the certification number.
    (iv) The determination that a multiple location does or does not 
meet the definition of a multiple location, as set forth in this part, 
is an initial determination, as set forth in Sec. 498.3.
    (2) The hospice must continually monitor and manage all services 
provided at all of its locations to ensure that services are delivered 
in a safe and effective manner and to ensure that each patient and 
family receives the necessary care and services outlined in the plan of 
care, in accordance with the requirements of this subpart and subparts A 
and C of this section.
    (g) Standard: Training. (1) A hospice must provide orientation about 
the hospice philosophy to all employees and contracted staff who have 
patient and family contact.
    (2) A hospice must provide an initial orientation for each employee 
that addresses the employee's specific job duties.
    (3) A hospice must assess the skills and competence of all 
individuals furnishing care, including volunteers furnishing services, 
and, as necessary, provide in-service training and education programs 
where required. The hospice must have written policies and procedures 
describing its method(s) of assessment of competency and maintain a 
written description of the in-service training provided during the 
previous 12 months.

[73 FR 32204, June 5, 2008, as amended at 74 FR 39413, Aug. 6, 2009]



Sec. 418.102  Condition of participation: Medical director.

    The hospice must designate a physician to serve as medical director. 
The

[[Page 331]]

medical director must be a doctor of medicine or osteopathy who is an 
employee, or is under contract with the hospice. When the medical 
director is not available, a physician designated by the hospice assumes 
the same responsibilities and obligations as the medical director.
    (a) Standard: Medical director contract. (1) A hospice may contract 
with either of the following--
    (i) A self-employed physician; or
    (ii) A physician employed by a professional entity or physicians 
group. When contracting for medical director services, the contract must 
specify the physician who assumes the medical director responsibilities 
and obligations.
    (b) Standard: Initial certification of terminal illness. The medical 
director or physician designee reviews the clinical information for each 
hospice patient and provides written certification that it is 
anticipated that the patient's life expectancy is 6 months or less if 
the illness runs its normal course. The physician must consider the 
following when making this determination:
    (1) The primary terminal condition;
    (2) Related diagnosis(es), if any;
    (3) Current subjective and objective medical findings;
    (4) Current medication and treatment orders; and
    (5) Information about the medical management of any of the patient's 
conditions unrelated to the terminal illness.
    (c) Standard: Recertification of the termina terminal illness. 
Before the recertification period for each patient, as described in 
Sec. 418.21(a), the medical director or physician designee must review 
the patient's clinical information.
    (d) Standard: Medical director responsibility. The medical director 
or physician designee has responsibility for the medical component of 
the hospice's patient care program.



Sec. 418.104  Condition of participation: Clinical records.

    A clinical record containing past and current findings is maintained 
for each hospice patient. The clinical record must contain correct 
clinical information that is available to the patient's attending 
physician and hospice staff. The clinical record may be maintained 
electronically.
    (a) Standard: Content. Each patient's record must include the 
following:
    (1) The initial plan of care, updated plans of care, initial 
assessment, comprehensive assessment, updated comprehensive assessments, 
and clinical notes.
    (2) Signed copies of the notice of patient rights in accordance with 
Sec. 418.52 and election statement in accordance with Sec. 418.24.
    (3) Responses to medications, symptom management, treatments, and 
services.
    (4) Outcome measure data elements, as described in Sec. 418.54(e) of 
this subpart.
    (5) Physician certification and recertification of terminal illness 
as required in Secs. 418.22 and 418.25 and described in Secs. 418.102(b) 
and 418.102(c) respectively, if appropriate.
    (6) Any advance directives as described in Sec. 418.52(a)(2).
    (7) Physician orders.
    (b) Standard: Authentication. All entries must be legible, clear, 
complete, and appropriately authenticated and dated in accordance with 
hospice policy and currently accepted standards of practice.
    (c) Standard: Protection of information. The clinical record, its 
contents and the information contained therein must be safeguarded 
against loss or unauthorized use. The hospice must be in compliance with 
the Department's rules regarding personal health information as set out 
at 45 CFR parts 160 and 164.
    (d) Standard: Retention of records. Patient clinical records must be 
retained for 6 years after the death or discharge of the patient, unless 
State law stipulates a longer period of time. If the hospice 
discontinues operation, hospice policies must provide for retention and 
storage of clinical records. The hospice must inform its State agency 
and its CMS Regional office where such clinical records will be stored 
and how they may be accessed.
    (e) Standard: Discharge or transfer of care. (1) If the care of a 
patient is transferred to another Medicare/Medicaid-certified facility, 
the hospice

[[Page 332]]

must forward to the receiving facility, a copy of--
    (i) The hospice discharge summary; and
    (ii) The patient's clinical record, if requested.
    (2) If a patient revokes the election of hospice care, or is 
discharged from hospice in accordance with Sec. 418.26, the hospice must 
forward to the patient's attending physician, a copy of--
    (i) The hospice discharge summary; and
    (ii) The patient's clinical record, if requested.
    (3) The hospice discharge summary as required in paragraph (e)(1) 
and (e)(2) of this section must include--
    (i) A summary of the patient's stay including treatments, symptoms 
and pain management.
    (ii) The patient's current plan of care.
    (iii) The patient's latest physician orders. and
    (iv) Any other documentation that will assist in post-discharge 
continuity of care or that is requested by the attending physician or 
receiving facility.
    (f) Standard: Retrieval of clinical records. The clinical record, 
whether hard copy or in electronic form, must be made readily available 
on request by an appropriate authority.



Sec. 418.106  Condition of participation: Drugs and biologicals, 
medical supplies, and durable medical equipment.

    Medical supplies and appliances, as described in Sec. 410.36 of this 
chapter; durable medical equipment, as described in Sec. 410.38 of this 
chapter; and drugs and biologicals related to the palliation and 
management of the terminal illness and related conditions, as identified 
in the hospice plan of care, must be provided by the hospice while the 
patient is under hospice care.
    (a) Standard: Managing drugs and biologicals. (1) The hospice must 
ensure that the interdisciplinary group confers with an individual with 
education and training in drug management as defined in hospice policies 
and procedures and State law, who is an employee of or under contract 
with the hospice to ensure that drugs and biologicals meet each 
patient's needs.
    (2) A hospice that provides inpatient care directly in its own 
facility must provide pharmacy services under the direction of a 
qualified licensed pharmacist who is an employee of or under contract 
with the hospice. The provided pharmacist services must include 
evaluation of a patient's response to medication therapy, identification 
of potential adverse drug reactions, and recommended appropriate 
corrective action.
    (b) Standard: Ordering of drugs. (1) Only a physician as defined by 
section 1861(r)(1) of the Act, or a nurse practitioner in accordance 
with the plan of care and State law, may order drugs for the patient.
    (2) If the drug order is verbal or given by or through electronic 
transmission--
    (i) It must be given only to a licensed nurse, nurse practitioner 
(where appropriate), pharmacist, or physician; and
    (ii) The individual receiving the order must record and sign it 
immediately and have the prescribing person sign it in accordance with 
State and Federal regulations.
    (c) Standard: Dispensing of drugs and biologicals. The hospice 
must--
    (1) Obtain drugs and biologicals from community or institutional 
pharmacists or stock drugs and biologicals itself.
    (2) The hospice that provides inpatient care directly in its own 
facility must:
    (i) Have a written policy in place that promotes dispensing 
accuracy; and
    (ii) Maintain current and accurate records of the receipt and 
disposition of all controlled drugs.
    (d) Standard: Administration of drugs and biologicals. (1) The 
interdisciplinary group, as part of the review of the plan of care, must 
determine the ability of the patient and/or family to safely self-
administer drugs and biologicals to the patient in his or her home.
    (2) Patients receiving care in a hospice that provides inpatient 
care directly in its own facility may only be administered medications 
by the following individuals:

[[Page 333]]

    (i) A licensed nurse, physician, or other health care professional 
in accordance with their scope of practice and State law;
    (ii) An employee who has completed a State-approved training program 
in medication administration; and
    (iii) The patient, upon approval by the interdisciplinary group.
    (e) Standard: Labeling, disposing, and storing of drugs and 
biologicals--(1) Labeling. Drugs and biologicals must be labeled in 
accordance with currently accepted professional practice and must 
include appropriate usage and cautionary instructions, as well as an 
expiration date (if applicable).
    (2) Disposing. (i) Safe use and disposal of controlled drugs in the 
patient's home. The hospice must have written policies and procedures 
for the management and disposal of controlled drugs in the patient's 
home. At the time when controlled drugs are first ordered the hospice 
must:
    (A) Provide a copy of the hospice written policies and procedures on 
the management and disposal of controlled drugs to the patient or 
patient representative and family;
    (B) Discuss the hospice policies and procedures for managing the 
safe use and disposal of controlled drugs with the patient or 
representative and the family in a language and manner that they 
understand to ensure that these parties are educated regarding the safe 
use and disposal of controlled drugs; and
    (C) Document in the patient's clinical record that the written 
policies and procedures for managing controlled drugs was provided and 
discussed.
    (ii) Disposal of controlled drugs in hospices that provide inpatient 
care directly. The hospice that provides inpatient care directly in its 
own facility must dispose of controlled drugs in compliance with the 
hospice policy and in accordance with State and Federal requirements. 
The hospice must maintain current and accurate records of the receipt 
and disposition of all controlled drugs.
    (3) Storing. The hospice that provides inpatient care directly in 
its own facility must comply with the following additional 
requirements--
    (i) All drugs and biologicals must be stored in secure areas. All 
controlled drugs listed in Schedules II, III, IV, and V of the 
Comprehensive Drug Abuse Prevention and Control Act of 1976 must be 
stored in locked compartments within such secure storage areas. Only 
personnel authorized to administer controlled drugs as noted in 
paragraph (d)(2) of this section may have access to the locked 
compartments; and
    (ii) Discrepancies in the acquisition, storage, dispensing, 
administration, disposal, or return of controlled drugs must be 
investigated immediately by the pharmacist and hospice administrator and 
where required reported to the appropriate State authority. A written 
account of the investigation must be made available to State and Federal 
officials if required by law or regulation.
    (f) Standard: Use and maintenance of equipment and supplies. (1) The 
hospice must ensure that manufacturer recommendations for performing 
routine and preventive maintenance on durable medical equipment are 
followed. The equipment must be safe and work as intended for use in the 
patient's environment. Where a manufacturer recommendation for a piece 
of equipment does not exist, the hospice must ensure that repair and 
routine maintenance policies are developed. The hospice may use persons 
under contract to ensure the maintenance and repair of durable medical 
equipment.
    (2) The hospice must ensure that the patient, where appropriate, as 
well as the family and/or other caregiver(s), receive instruction in the 
safe use of durable medical equipment and supplies. The hospice may use 
persons under contract to ensure patient and family instruction. The 
patient, family, and/or caregiver must be able to demonstrate the 
appropriate use of durable medical equipment to the satisfaction of the 
hospice staff.
    (3) Hospices may only contract for durable medical equipment 
services with a durable medical equipment supplier that meets the 
Medicare DMEPOS Supplier Quality and Accreditation Standards at 42 CFR 
424.57.

[[Page 334]]



Sec. 418.108  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 management and pain 
control. Inpatient care for pain control and symptom management must be 
provided in one of the following:
    (1) A Medicare-certified hospice that meets the conditions of 
participation for providing inpatient care directly as specified in 
Sec. 418.110.
    (2) A Medicare-certified hospital or a skilled nursing facility that 
also meets the standards specified in Sec. 418.110(b) and (f) regarding 
24-hour nursing services and patient areas.
    (b) Standard: Inpatient care for respite purposes. (1) Inpatient 
care for respite purposes must be provided by one of the following:
    (i) A provider specified in paragraph (a) of this section.
    (ii) A Medicare or Medicaid-certified nursing facility that also 
meets the standards specified in Sec. 418.110(f).
    (2) The facility providing respite care must provide 24-hour nursing 
services that meet the nursing needs of all patients and are furnished 
in accordance with each patient's plan of care. Each patient must 
receive all nursing services as prescribed and must be kept comfortable, 
clean, well-groomed, and protected from accident, injury, and infection.
    (c) Standard: Inpatient care provided under arrangements. If the 
hospice has an arrangement with a facility to provide for short-term 
inpatient care, the arrangement is described in a written agreement, 
coordinated by the hospice, and at a minimum specifies--
    (1) That the hospice supplies 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 patient care 
policies consistent with those of the hospice and agrees to abide by the 
palliative care protocols and plan of care established by the hospice 
for its patients;
    (3) That the hospice patient's inpatient clinical record includes a 
record of all inpatient services furnished and events regarding care 
that occurred at the facility; that a copy of the discharge summary be 
provided to the hospice at the time of discharge; and that a copy of the 
inpatient clinical record is available to the hospice at the time of 
discharge;
    (4) That the inpatient facility has identified an individual within 
the facility who is responsible for the implementation of the provisions 
of the agreement;
    (5) That the hospice retains responsibility for ensuring that the 
training of personnel who will be providing the patient's care in the 
inpatient facility has been provided and that a description of the 
training and the names of those giving the training are documented; and
    (6) A method for verifying that the requirements in paragraphs 
(c)(1) through (c)(5) of this section are met.
    (d) Standard: Inpatient care limitation. The total number of 
inpatient days used by Medicare beneficiaries who elected hospice 
coverage in a 12-month period in a particular hospice may not exceed 20 
percent of the total number of hospice days consumed in total by this 
group of beneficiaries.
    (e) Standard: Exemption from limitation. Before October 1, 1986, any 
hospice that began operation before January 1, 1975, is not subject to 
the limitation specified in paragraph (d) of this section.

[73 FR 32204, June 5, 2008, as amended at 74 FR 39413, Aug. 6, 2009; 81 
FR 26897, May 4, 2016]



Sec. 418.110  Condition of participation: Hospices that provide 
inpatient care directly.

    A hospice that provides inpatient care directly in its own facility 
must demonstrate compliance with all of the following standards:
    (a) Standard: Staffing. The hospice is responsible for ensuring that 
staffing for all services reflects its volume of patients, their acuity, 
and the level of intensity of services needed to ensure that plan of 
care outcomes are achieved and negative outcomes are avoided.
    (b) Standard: Twenty-four hour nursing services. (1) The hospice 
facility must

[[Page 335]]

provide 24-hour nursing services that meet the nursing needs of all 
patients and are furnished in accordance with each patient's plan of 
care. Each patient must receive all nursing services as prescribed and 
must be kept comfortable, clean, well-groomed, and protected from 
accident, injury, and infection.
    (2) If at least one patient in the hospice facility is receiving 
general inpatient care, then each shift must include a registered nurse 
who provides direct patient care.
    (c) Standard: Physical environment. The hospice must maintain a safe 
physical environment free of hazards for patients, staff, and visitors.
    (1) Safety management. The hospice must address real or potential 
threats to the health and safety of the patients, others, and property.
    (2) Physical plant and equipment. The hospice must develop 
procedures for controlling the reliability and quality of--
    (i) The routine storage and prompt disposal of trash and medical 
waste;
    (ii) Light, temperature, and ventilation/air exchanges throughout 
the hospice;
    (iii) Emergency gas and water supply; and
    (iv) The scheduled and emergency maintenance and repair of all 
equipment.
    (d) Standard: Fire protection. (1) Except as otherwise provided in 
this section--
    (i) The hospice must meet the applicable provisions and must proceed 
in accordance with the Life Safety Code (NFPA 101 and Tentative Interim 
Amendments TIA 12-1, TIA 12-2, TIA 12-3, and TIA 12-4.)
    (ii) Notwithstanding paragraph (d)(1)(i) of this section, corridor 
doors and doors to rooms containing flammable or combustible materials 
must be provided with positive latching hardware. Roller latches are 
prohibited on such doors.
    (2) In consideration of a recommendation by the State survey agency 
or Accrediting Organization or at the discretion of the Secretary, may 
waive, for periods deemed appropriate, specific provisions of the Life 
Safety Code, which would result in unreasonable hardship upon a hospice 
facility, but only if the waiver will 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 law adequately protects patients in hospices.
    (4) A hospice may place alcohol-based hand rub dispensers in its 
facility if the dispensers are installed in a manner that adequately 
protects against access by vulnerable populations.
    (5) When a sprinkler system is shut down for more than 10 hours, the 
hospice must:
    (i) Evacuate the building or portion of the building affected by the 
system outage until the system is back in service, or
    (ii) Establish a fire watch until the system is back in service.
    (6) Buildings must have an outside window or outside door in every 
sleeping room, and for any building constructed after July 5, 2016 the 
sill height must not exceed 36 inches above the floor. Windows in atrium 
walls are considered outside windows for the purposes of this 
requirement.
    (e) Standard: Building Safety. Except as otherwise provided in this 
section, the hospice must meet the applicable provisions and must 
proceed in accordance with the Health Care Facilities Code (NFPA 99 and 
Tentative Interim Amendments TIA 12-2, TIA 12-3, TIA 12-4, TIA 12-5 and 
TIA 12-6).
    (1) Chapters 7, 8, 12, and 13 of the adopted Health Care Facilities 
Code do not apply to a hospice.
    (2) If application of the Health Care Facilities Code required under 
paragraph (e) of this section would result in unreasonable hardship for 
the hospice, CMS may waive specific provisions of the Health Care 
Facilities Code, but only if the waiver does not adversely affect the 
health and safety of patients.
    (f) Standard: Patient areas. The hospice must provide a home-like 
atmosphere and ensure that patient areas are designed to preserve the 
dignity, comfort, and privacy of patients.
    (1) The hospice must provide--
    (i) Physical space for private patient and family visiting;

[[Page 336]]

    (ii) Accommodations for family members to remain with the patient 
throughout the night; and
    (iii) Physical space for family privacy after a patient's death.
    (2) The hospice must provide the opportunity for patients to receive 
visitors at any hour, including infants and small children.
    (g) Standard: Patient rooms. (1) The hospice must ensure that 
patient rooms are designed and equipped for nursing care, as well as the 
dignity, comfort, and privacy of patients.
    (2) The hospice must accommodate a patient and family request for a 
single room whenever possible.
    (3) Each patient's room must--
    (i) Be at or above grade level;
    (ii) Contain a suitable bed and other appropriate furniture for each 
patient;
    (iii) Have closet space that provides security and privacy for 
clothing and personal belongings;
    (iv) Accommodate no more than two patients and their family members;
    (v) Provide at least 80 square feet for each residing patient in a 
double room and at least 100 square feet for each patient residing in a 
single room; and
    (vi) Be equipped with an easily-activated, functioning device 
accessible to the patient, that is used for calling for assistance.
    (4) For a facility occupied by a Medicare-participating hospice on 
December 2, 2008, CMS may waive the space and occupancy requirements of 
paragraphs (g)(2)(iv) and (g)(2)(v) of this section if it determines 
that--
    (i) Imposition of the requirements would result in unreasonable 
hardship on the hospice if strictly enforced; or jeopardize its ability 
to continue to participate in the Medicare program; and
    (ii) The waiver serves the needs of the patient and does not 
adversely affect their health and safety.
    (h) Standard: Toilet and bathing facilities. Each patient room must 
be equipped with, or conveniently located near, toilet and bathing 
facilities.
    (i) Standard: Plumbing facilities. The hospice must--
    (1) Have an adequate supply of hot water at all times; and
    (2) Have plumbing fixtures with control valves that automatically 
regulate the temperature of the hot water used by patients.
    (j) Standard: Infection control. The hospice must maintain an 
infection control program that protects patients, staff and others by 
preventing and controlling infections and communicable disease as 
stipulated in Sec. 418.60.
    (k) Standard: Sanitary environment. The hospice must provide a 
sanitary environment by following current standards of practice, 
including nationally recognized infection control precautions, and avoid 
sources and transmission of infections and communicable diseases.
    (l) Standard: Linen. The hospice must have available at all times a 
quantity of clean linen in sufficient amounts for all patient uses. 
Linens must be handled, stored, processed, and transported in such a 
manner as to prevent the spread of contaminants.
    (m) Standard: Meal service and menu planning. The hospice must 
furnish meals to each patient that are--
    (1) Consistent with the patient's plan of care, nutritional needs, 
and therapeutic diet;
    (2) Palatable, attractive, and served at the proper temperature; and
    (3) Obtained, stored, prepared, distributed, and served under 
sanitary conditions.
    (n) Standard: Restraint or seclusion. All patients have the right to 
be free from physical or mental abuse, and corporal punishment. All 
patients have the right to be free from restraint or seclusion, of any 
form, imposed as a means of coercion, discipline, convenience, or 
retaliation by staff. Restraint or seclusion may only be imposed to 
ensure the immediate physical safety of the patient, a staff member, or 
others and must be discontinued at the earliest possible time.
    (1) Restraint or seclusion may only be used when less restrictive 
interventions have been determined to be ineffective to protect the 
patient, a staff member, or others from harm.
    (2) The type or technique of restraint or seclusion used must be the 
least restrictive intervention that will be effective to protect the 
patient, a staff member, or others from harm.
    (3) The use of restraint or seclusion must be--

[[Page 337]]

    (i) In accordance with a written modification to the patient's plan 
of care; and
    (ii) Implemented in accordance with safe and appropriate restraint 
and seclusion techniques as determined by hospice policy in accordance 
with State law.
    (4) The use of restraint or seclusion must be in accordance with the 
order of a physician authorized to order restraint or seclusion by 
hospice policy in accordance with State law.
    (5) Orders for the use of restraint or seclusion must never be 
written as a standing order or on an as needed basis (PRN).
    (6) The medical director or physician designee must be consulted as 
soon as possible if the attending physician did not order the restraint 
or seclusion.
    (7) Unless superseded by State law that is more restrictive--
    (i) Each order for restraint or seclusion used for the management of 
violent or self-destructive behavior that jeopardizes the immediate 
physical safety of the patient, a staff member, or others may only be 
renewed in accordance with the following limits for up to a total of 24 
hours:
    (A) 4 hours for adults 18 years of age or older;
    (B) 2 hours for children and adolescents 9 to 17 years of age; or
    (C) 1 hour for children under 9 years of age; and
    After 24 hours, before writing a new order for the use of restraint 
or seclusion for the management of violent or self-destructive behavior, 
a physician authorized to order restraint or seclusion by hospice policy 
in accordance with State law must see and assess the patient.
    (ii) Each order for restraint used to ensure the physical safety of 
the non-violent or non-self-destructive patient may be renewed as 
authorized by hospice policy.
    (8) Restraint or seclusion must be discontinued at the earliest 
possible time, regardless of the length of time identified in the order.
    (9) The condition of the patient who is restrained or secluded must 
be monitored by a physician or trained staff that have completed the 
training criteria specified in paragraph (o) of this section at an 
interval determined by hospice policy.
    (10) Physician, including attending physician, training requirements 
must be specified in hospice policy. At a minimum, physicians and 
attending physicians authorized to order restraint or seclusion by 
hospice policy in accordance with State law must have a working 
knowledge of hospice policy regarding the use of restraint or seclusion.
    (11) When restraint or seclusion is used for the management of 
violent or self-destructive behavior that jeopardizes the immediate 
physical safety of the patient, a staff member, or others, the patient 
must be seen face-to-face within 1 hour after the initiation of the 
intervention--
    (i) By a--
    (A) Physician; or
    (B) Registered nurse who has been trained in accordance with the 
requirements specified in paragraph (n) of this section.
    (ii) To evaluate--
    (A) The patient's immediate situation;
    (B) The patient's reaction to the intervention;
    (C) The patient's medical and behavioral condition; and
    (D) The need to continue or terminate the restraint or seclusion.
    (12) States are free to have requirements by statute or regulation 
that are more restrictive than those contained in paragraph (m)(11)(i) 
of this section.
    (13) If the face-to-face evaluation specified in Sec. 418.110(n)(11) 
is conducted by a trained registered nurse, the trained registered nurse 
must consult the medical director or physician designee as soon as 
possible after the completion of the 1-hour face-to-face evaluation.
    (14) All requirements specified under this paragraph are applicable 
to the simultaneous use of restraint and seclusion. Simultaneous 
restraint and seclusion use is only permitted if the patient is 
continually monitored--
    (i) Face-to-face by an assigned, trained staff member; or
    (ii) By trained staff using both video and audio equipment. This 
monitoring must be in close proximity to the patient.

[[Page 338]]

    (15) When restraint or seclusion is used, there must be 
documentation in the patient's clinical record of the following:
    (i) The 1-hour face-to-face medical and behavioral evaluation if 
restraint or seclusion is used to manage violent or self-destructive 
behavior;
    (ii) A description of the patient's behavior and the intervention 
used;
    (iii) Alternatives or other less restrictive interventions attempted 
(as applicable);
    (iv) The patient's condition or symptom(s) that warranted the use of 
the restraint or seclusion; and the patient's response to the 
intervention(s) used, including the rationale for continued use of the 
intervention.
    (o) Standard: Restraint or seclusion staff training requirements. 
The patient has the right to safe implementation of restraint or 
seclusion by trained staff.
    (1) Training intervals. All patient care staff working in the 
hospice inpatient facility must be trained and able to demonstrate 
competency in the application of restraints, implementation of 
seclusion, monitoring, assessment, and providing care for a patient in 
restraint or seclusion--
    (i) Before performing any of the actions specified in this 
paragraph;
    (ii) As part of orientation; and
    (iii) Subsequently on a periodic basis consistent with hospice 
policy.
    (2) Training content. The hospice must require appropriate staff to 
have education, training, and demonstrated knowledge based on the 
specific needs of the patient population in at least the following:
    (i) Techniques to identify staff and patient behaviors, events, and 
environmental factors that may trigger circumstances that require the 
use of a restraint or seclusion.
    (ii) The use of nonphysical intervention skills.
    (iii) Choosing the least restrictive intervention based on an 
individualized assessment of the patient's medical, or behavioral status 
or condition.
    (iv) The safe application and use of all types of restraint or 
seclusion used in the hospice, including training in how to recognize 
and respond to signs of physical and psychological distress (for 
example, positional asphyxia).
    (v) Clinical identification of specific behavioral changes that 
indicate that restraint or seclusion is no longer necessary.
    (vi) Monitoring the physical and psychological well-being of the 
patient who is restrained or secluded, including but not limited to, 
respiratory and circulatory status, skin integrity, vital signs, and any 
special requirements specified by hospice policy associated with the 1-
hour face-to-face evaluation.
    (vii) The use of first aid techniques and certification in the use 
of cardiopulmonary resuscitation, including required periodic 
recertification.
    (3) Trainer requirements. Individuals providing staff training must 
be qualified as evidenced by education, training, and experience in 
techniques used to address patients' behaviors.
    (4) Training documentation. The hospice must document in the staff 
personnel records that the training and demonstration of competency were 
successfully completed.
    (p) Standard: Death reporting requirements. Hospices must report 
deaths associated with the use of seclusion or restraint.
    (1) The hospice must report the following information to CMS:
    (i) Each unexpected death that occurs while a patient is in 
restraint or seclusion.
    (ii) Each unexpected death that occurs within 24 hours after the 
patient has been removed from restraint or seclusion.
    (iii) Each death known to the hospice that occurs within 1 week 
after restraint or seclusion where it is reasonable to assume that use 
of restraint or placement in seclusion contributed directly or 
indirectly to a patient's death. ``Reasonable to assume'' in this 
context includes, but is not limited to, deaths related to restrictions 
of movement for prolonged periods of time, or death related to chest 
compression, restriction of breathing or asphyxiation.
    (2) Each death referenced in this paragraph must be reported to CMS 
by telephone no later than the close of business the next business day 
following knowledge of the patient's death.

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    (3) Staff must document in the patient's clinical record the date 
and time the death was reported to CMS.
    (q) The standards incorporated by reference in this section are 
approved for incorporation by reference by the Director of the Office of 
the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 
51. You may inspect a copy 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. If any changes in this edition of the Code are 
incorporated by reference, CMS will publish a document in the Federal 
Register to announce the changes.
    (1) National Fire Protection Association, 1 Batterymarch Park, 
Quincy, MA 02169, www.nfpa.org, 1.617.770.3000.
    (i) NFPA 99, Standards for Health Care Facilities Code of the 
National Fire Protection Association 99, 2012 edition, issued August 11, 
2011.
    (ii) TIA 12-2 to NFPA 99, issued August 11, 2011.
    (iii) TIA 12-3 to NFPA 99, issued August 9, 2012.
    (iv) TIA 12-4 to NFPA 99, issued March 7, 2013.
    (v) TIA 12-5 to NFPA 99, issued August 1, 2013.
    (vi) TIA 12-6 to NFPA 99, issued March 3, 2014.
    (vii) NFPA 101, Life Safety Code, 2012 edition, issued August 11, 
2011;
    (viii) TIA 12-1 to NFPA 101, issued August 11, 2011.
    (ix) TIA 12-2 to NFPA 101, issued October 30, 2012.
    (x) TIA 12-3 to NFPA 101, issued October 22, 2013.
    (xi) TIA 12-4 to NFPA 101, issued October 22, 2013.
    (2) [Reserved]

[73 FR 32204, June 5, 2008, as amended at 81 FR 26879, May 4, 2016; 81 
FR 64024, Sept. 16, 2016]



Sec. 418.112  Condition of participation: Hospices that provide hospice 
care to residents of a SNF/NF or ICF/IID.

    In addition to meeting the conditions of participation at 
Sec. 418.10 through Sec. 418.116, a hospice that provides hospice care 
to residents of a SNF/NF or ICF/IID must abide by the following 
additional standards.
    (a) Standard: Resident eligibility, election, and duration of 
benefits. Medicare patients receiving hospice services and residing in a 
SNF, NF, or ICF/IID are subject to the Medicare hospice eligibility 
criteria set out at Sec. 418.20 through Sec. 418.30.
    (b) Standard: Professional management. The hospice must assume 
responsibility for professional management of the resident's hospice 
services provided, in accordance with the hospice plan of care and the 
hospice conditions of participation, and make any arrangements necessary 
for hospice-related inpatient care in a participating Medicare/Medicaid 
facility according to Secs. 418.100 and 418.108.
    (c) Standard: Written agreement. The hospice and SNF/NF or ICF/IID 
must have a written agreement that specifies the provision of hospice 
services in the facility. The agreement must be signed by authorized 
representatives of the hospice and the SNF/NF or ICF/IID before the 
provision of hospice services. The written agreement must include at 
least the following:
    (1) The manner in which the SNF/NF or ICF/IID and the hospice are to 
communicate with each other and document such communications to ensure 
that the needs of patients are addressed and met 24 hours a day.
    (2) A provision that the SNF/NF or ICF/IID immediately notifies the 
hospice if--
    (i) A significant change in a patient's physical, mental, social, or 
emotional status occurs;
    (ii) Clinical complications appear that suggest a need to alter the 
plan of care;
    (iii) A need to transfer a patient from the SNF/NF or ICF/IID, and 
the hospice makes arrangements for, and remains responsible for, any 
necessary continuous care or inpatient care necessary related to the 
terminal illness and related conditions; or

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    (iv) A patient dies.
    (3) A provision stating that the hospice assumes responsibility for 
determining the appropriate course of hospice care, including the 
determination to change the level of services provided.
    (4) An agreement that it is the SNF/NF or ICF/IID responsibility to 
continue to furnish 24 hour room and board care, meeting the personal 
care and nursing needs that would have been provided by the primary 
caregiver at home at the same level of care provided before hospice care 
was elected.
    (5) An agreement that it is the hospice's responsibility to provide 
services at the same level and to the same extent as those services 
would be provided if the SNF/NF or ICF/IID resident were in his or her 
own home.
    (6) A delineation of the hospice's responsibilities, which include, 
but are not limited to the following: Providing medical direction and 
management of the patient; nursing; counseling (including spiritual, 
dietary and bereavement); social work; provision of medical supplies, 
durable medical equipment and drugs necessary for the palliation of pain 
and symptoms associated with the terminal illness and related 
conditions; and all other hospice services that are necessary for the 
care of the resident's terminal illness and related conditions.
    (7) A provision that the hospice may use the SNF/NF or ICF/IID 
nursing personnel where permitted by State law and as specified by the 
SNF/NF or ICF/IID to assist in the administration of prescribed 
therapies included in the plan of care only to the extent that the 
hospice would routinely use the services of a hospice patient's family 
in implementing the plan of care.
    (8) A provision stating that the hospice must report all alleged 
violations involving mistreatment, neglect, or verbal, mental, sexual, 
and physical abuse, including injuries of unknown source, and 
misappropriation of patient property by anyone unrelated to the hospice 
to the SNF/NF or ICF/IID administrator within 24 hours of the hospice 
becoming aware of the alleged violation.
    (9) A delineation of the responsibilities of the hospice and the 
SNF/NF or ICF/IID to provide bereavement services to SNF/NF or ICF/IID 
staff.
    (d) Standard: Hospice plan of care. In accordance with Sec. 418.56, 
a written hospice plan of care must be established and maintained in 
consultation with SNF/NF or ICF/IID representatives. All hospice care 
provided must be in accordance with this hospice plan of care.
    (1) The hospice plan of care must identify the care and services 
that are needed and specifically identify which provider is responsible 
for performing the respective functions that have been agreed upon and 
included in the hospice plan of care.
    (2) The hospice plan of care reflects the participation of the 
hospice, the SNF/NF or ICF/IID, and the patient and family to the extent 
possible.
    (3) Any changes in the hospice plan of care must be discussed with 
the patient or representative, and SNF/NF or ICF/IID representatives, 
and must be approved by the hospice before implementation.
    (e) Standard: Coordination of services. The hospice must:
    (1) Designate a member of each interdisciplinary group that is 
responsible for a patient who is a resident of a SNF/NF or ICF/IID. The 
designated interdisciplinary group member is responsible for:
    (i) Providing overall coordination of the hospice care of the SNF/NF 
or ICF/IID resident with SNF/NF or ICF/IID representatives; and
    (ii) Communicating with SNF/NF or ICF/IID representatives and other 
health care providers participating in the provision of care for the 
terminal illness and related conditions and other conditions to ensure 
quality of care for the patient and family.
    (2) Ensure that the hospice IDG communicates with the SNF/NF or ICF/
IID medical director, the patient's attending physician, and other 
physicians participating in the provision of care to the patient as 
needed to coordinate the hospice care of the hospice patient with the 
medical care provided by other physicians.
    (3) Provide the SNF/NF or ICF/IID with the following information:
    (i) The most recent hospice plan of care specific to each patient;

[[Page 341]]

    (ii) Hospice election form and any advance directives specific to 
each patient;
    (iii) Physician certification and recertification of the terminal 
illness specific to each patient;
    (iv) Names and contact information for hospice personnel involved in 
hospice care of each patient;
    (v) Instructions on how to access the hospice's 24-hour on-call 
system;
    (vi) Hospice medication information specific to each patient; and
    (vii) Hospice physician and attending physician (if any) orders 
specific to each patient.
    (f) Standard: Orientation and training of staff. Hospice staff must 
assure orientation of SNF/NF or ICF/IID staff furnishing care to hospice 
patients in the hospice philosophy, including hospice policies and 
procedures regarding methods of comfort, pain control, symptom 
management, as well as principles about death and dying, individual 
responses to death, patient rights, appropriate forms, and record 
keeping requirements.



Sec. 418.113  Condition of participation: Emergency preparedness.

    The hospice must comply with all applicable Federal, State, and 
local emergency preparedness requirements. The hospice must establish 
and maintain an emergency preparedness program that meets the 
requirements of this section. The emergency preparedness program must 
include, but not be limited to, the following elements:
    (a) Emergency plan. The hospice must develop and maintain an 
emergency preparedness plan that must be reviewed, and updated at least 
annually. The plan must do the following:
    (1) Be based on and include a documented, facility-based and 
community-based risk assessment, utilizing an all-hazards approach.
    (2) Include strategies for addressing emergency events identified by 
the risk assessment, including the management of the consequences of 
power failures, natural disasters, and other emergencies that would 
affect the hospice's ability to provide care.
    (3) Address patient population, including, but not limited to, the 
type of services the hospice has the ability to provide in an emergency; 
and continuity of operations, including delegations of authority and 
succession plans.
    (4) Include a process for cooperation and collaboration with local, 
tribal, regional, State, or Federal emergency preparedness officials' 
efforts to maintain an integrated response during a disaster or 
emergency situation, including documentation of the hospice's efforts to 
contact such officials and, when applicable, of its participation in 
collaborative and cooperative planning efforts.
    (b) Policies and procedures. The hospice must develop and implement 
emergency preparedness policies and procedures, based on the emergency 
plan set forth in paragraph (a) of this section, risk assessment at 
paragraph (a)(1) of this section, and the communication plan at 
paragraph (c) of this section. The policies and procedures must be 
reviewed and updated at least annually. At a minimum, the policies and 
procedures must address the following:
    (1) Procedures to follow up with on-duty staff and patients to 
determine services that are needed, in the event that there is an 
interruption in services during or due to an emergency. The hospice must 
inform State and local officials of any on-duty staff or patients that 
they are unable to contact.
    (2) Procedures to inform State and local officials about hospice 
patients in need of evacuation from their residences at any time due to 
an emergency situation based on the patient's medical and psychiatric 
condition and home environment.
    (3) A system of medical documentation that preserves patient 
information, protects confidentiality of patient information, and 
secures and maintains the availability of records.
    (4) The use of hospice employees in an emergency and other emergency 
staffing strategies, including the process and role for integration of 
State and Federally designated health care professionals to address 
surge needs during an emergency.
    (5) The development of arrangements with other hospices and other 
providers

[[Page 342]]

to receive patients in the event of limitations or cessation of 
operations to maintain the continuity of services to hospice patients.
    (6) The following are additional requirements for hospice-operated 
inpatient care facilities only. The policies and procedures must address 
the following:
    (i) A means to shelter in place for patients, hospice employees who 
remain in the hospice.
    (ii) Safe evacuation from the hospice, which includes consideration 
of care and treatment needs of evacuees; staff responsibilities; 
transportation; identification of evacuation location(s) and primary and 
alternate means of communication with external sources of assistance.
    (iii) The provision of subsistence needs for hospice employees and 
patients, whether they evacuate or shelter in place, include, but are 
not limited to the following:
    (A) Food, water, medical, and pharmaceutical supplies.
    (B) Alternate sources of energy to maintain the following:
    (1) Temperatures to protect patient health and safety and for the 
safe and sanitary storage of provisions.
    (2) Emergency lighting.
    (3) Fire detection, extinguishing, and alarm systems.
    (C) Sewage and waste disposal.
    (iv) The role of the hospice under a waiver declared by the 
Secretary, in accordance with section 1135 of the Act, in the provision 
of care and treatment at an alternate care site identified by emergency 
management officials.
    (v) A system to track the location of hospice employees' on-duty and 
sheltered patients in the hospice's care during an emergency. If the on-
duty employees or sheltered patients are relocated during the emergency, 
the hospice must document the specific name and location of the 
receiving facility or other location.
    (c) Communication plan. The hospice must develop and maintain an 
emergency preparedness communication plan that complies with Federal, 
State, and local laws and must be reviewed and updated at least 
annually. The communication plan must include all of the following:
    (1) Names and contact information for the following:
    (i) Hospice employees.
    (ii) Entities providing services under arrangement.
    (iii) Patients' physicians.
    (iv) Other hospices.
    (2) Contact information for the following:
    (i) Federal, State, tribal, regional, and local emergency 
preparedness staff.
    (ii) Other sources of assistance.
    (3) Primary and alternate means for communicating with the 
following:
    (i) Hospice's employees.
    (ii) Federal, State, tribal, regional, and local emergency 
management agencies.
    (4) A method for sharing information and medical documentation for 
patients under the hospice's care, as necessary, with other health care 
providers to maintain the continuity of care.
    (5) A means, in the event of an evacuation, to release patient 
information as permitted under 45 CFR 164.510(b)(1)(ii).
    (6) A means of providing information about the general condition and 
location of patients under the facility's care as permitted under 45 CFR 
164.510(b)(4).
    (7) A means of providing information about the hospice's inpatient 
occupancy, needs, and its ability to provide assistance, to the 
authority having jurisdiction, the Incident Command Center, or designee.
    (d) Training and testing. The hospice must develop and maintain an 
emergency preparedness training and testing program that is based on the 
emergency plan set forth in paragraph (a) of this section, risk 
assessment at paragraph (a)(1) of this section, policies and procedures 
at paragraph (b) of this section, and the communication plan at 
paragraph (c) of this section. The training and testing program must be 
reviewed and updated at least annually.
    (1) Training program. The hospice must do all of the following:
    (i) Initial training in emergency preparedness policies and 
procedures to all new and existing hospice employees, and individuals 
providing services

[[Page 343]]

under arrangement, consistent with their expected roles.
    (ii) Demonstrate staff knowledge of emergency procedures.
    (iii) Provide emergency preparedness training at least annually.
    (iv) Periodically review and rehearse its emergency preparedness 
plan with hospice employees (including nonemployee staff), with special 
emphasis placed on carrying out the procedures necessary to protect 
patients and others.
    (v) Maintain documentation of all emergency preparedness training.
    (2) Testing. The hospice must conduct exercises to test the 
emergency plan at least annually. The hospice must do the following:
    (i) Participate in a full-scale exercise that is community-based or 
when a community-based exercise is not accessible, an individual, 
facility-based. If the hospice experiences an actual natural or man-made 
emergency that requires activation of the emergency plan, the hospital 
is exempt from engaging in a community-based or individual, facility-
based full-scale exercise for 1 year following the onset of the actual 
event.
    (ii) Conduct an additional exercise that may include, but is not 
limited to the following:
    (A) A second full-scale exercise that is community-based or 
individual, facility-based.
    (B) A tabletop exercise that includes a group discussion led by a 
facilitator, using a narrated, clinically-relevant emergency scenario, 
and a set of problem statements, directed messages, or prepared 
questions designed to challenge an emergency plan.
    (iii) Analyze the hospice's response to and maintain documentation 
of all drills, tabletop exercises, and emergency events, and revise the 
hospice's emergency plan, as needed.
    (e) Integrated healthcare systems. If a hospice is part of a 
healthcare system consisting of multiple separately certified healthcare 
facilities that elects to have a unified and integrated emergency 
preparedness program, the hospice may choose to participate in the 
healthcare system's coordinated emergency preparedness program. If 
elected, the unified and integrated emergency preparedness program must 
do the following:
    (1) Demonstrate that each separately certified facility within the 
system actively participated in the development of the unified and 
integrated emergency preparedness program.
    (2) Be developed and maintained in a manner that takes into account 
each separately certified facility's unique circumstances, patient 
populations, and services offered.
    (3) Demonstrate that each separately certified facility is capable 
of actively using the unified and integrated emergency preparedness 
program and is in compliance with the program.
    (4) Include a unified and integrated emergency plan that meets the 
requirements of paragraphs (a)(2), (3), and (4) of this section. The 
unified and integrated emergency plan must also be based on and include 
the following:
    (i) A documented community-based risk assessment, utilizing an all-
hazards approach.
    (ii) A documented individual facility-based risk assessment for each 
separately certified facility within the health system, utilizing an 
all-hazards approach.
    (5) Include integrated policies and procedures that meet the 
requirements set forth in paragraph (b) of this section, a coordinated 
communication plan and training and testing programs that meet the 
requirements of paragraphs (c) and (d) of this section, respectively.

[81 FR 64024, Sept. 16, 2016]



Sec. 418.114  Condition of participation: Personnel qualifications.

    (a) General qualification requirements. Except as specified in 
paragraph (c) of this section, all professionals who furnish services 
directly, under an individual contract, or under arrangements with a 
hospice, must be legally authorized (licensed, certified or registered) 
in accordance with applicable Federal, State and local laws, and must 
act only within the scope of his or her State license, or State 
certification, or registration. All personnel qualifications must be 
kept current at all times.
    (b) Personnel qualifications for certain disciplines. The following 
qualifications must be met:

[[Page 344]]

    (1) Physician. Physicians must meet the qualifications and 
conditions as defined in section 1861(r) of the Act and implemented at 
Sec. 410.20 of this chapter.
    (2) Hospice aide. Hospice aides must meet the qualifications 
required by section 1891(a)(3) of the Act and implemented at 
Sec. 418.76.
    (3) Social worker. A person who--
    (i)(A) Has a Master of Social Work (MSW) degree from a school of 
social work accredited by the Council on Social Work Education; or
    (B) Has a baccalaureate degree in social work from an institution 
accredited by the Council on Social Work Education; or a baccalaureate 
degree in psychology, sociology, or other field related to social work 
and is supervised by an MSW as described in paragraph (b)(3)(i)(A) of 
this section; and
    (ii) Has 1 year of social work experience in a healthcare setting; 
or
    (iii) Has a baccalaureate degree from a school of social work 
accredited by the Council on Social Work Education, is employed by the 
hospice before December 2, 2008, and is not required to be supervised by 
an MSW.
    (4) Speech language pathologist. A person who meets either of the 
following requirements:
    (i) The education and experience requirements for a Certificate of 
Clinical Competence in speech-language pathology granted by the American 
Speech-Language-Hearing Association.
    (ii) The educational requirements for certification and is in the 
process of accumulating the supervised experience required for 
certification.
    (5) Occupational therapist. A person who--
    (i)(A) Is licensed or otherwise regulated, if applicable, as an 
occupational therapist by the State in which practicing, unless 
licensure does not apply;
    (B) Graduated after successful completion of an occupational 
therapist education program accredited by the Accreditation Council for 
Occupational Therapy Education (ACOTE) of the American Occupational 
Therapy Association, Inc. (AOTA), or successor organizations of ACOTE; 
and
    (C) Is eligible to take, or has successfully completed the entry-
level certification examination for occupational therapists developed 
and administered by the National Board for Certification in Occupational 
Therapy, Inc. (NBCOT).
    (ii) On or before December 31, 2009--
    (A) Is licensed or otherwise regulated, if applicable, as an 
occupational therapist by the State in which practicing; or
    (B) When licensure or other regulation does not apply--
    (1) Graduated after successful completion of an occupational 
therapist education program accredited by the accreditation Council for 
Occupational therapy Education (ACOTE) of the American Occupational 
Therapy Association, Inc. (AOTA) or successor organizations of ACOTE; 
and
    (2) Is eligible to take, or has successfully completed the entry-
level certification examination for occupational therapists developed 
and administered by the National Board for Certification in Occupational 
Therapy, Inc., (NBCOT).
    (iii) On or before January 1, 2008--
    (A) Graduated after successful completion of an occupational therapy 
program accredited jointly by the committee on Allied Health Education 
and Accreditation of the American Medical Association and the American 
Occupational Therapy Association; or
    (B) Is eligible for the National Registration Examination of the 
American Occupational Therapy Association or the National Board for 
Certification in Occupational Therapy.
    (iv) On or before December 31, 1977--
    (A) Had 2 years of appropriate experience as an occupational 
therapist; and
    (B) Had achieved a satisfactory grade on an occupational therapist 
proficiency examination conducted, approved, or sponsored by the U.S. 
Public Health Service.
    (v) If educated outside the United States--
    (A) Must meet both of the following:
    (1) Graduated after successful completion of an occupational 
therapist education program accredited as substantially equivalent to 
occupational therapist assistant entry level education in the United 
States by one of the following:
    (i) The Accreditation Council for Occupational Therapy Education 
(ACOTE).

[[Page 345]]

    (ii) Successor organizations of ACOTE.
    (iii) The World Federation of Occupational Therapists.
    (iv) A credentialing body approved by the American Occupational 
Therapy Association.
    (v) Successfully completed the entry level certification examination 
for occupational therapists developed and administered by the National 
Board for Certification in Occupational Therapy, Inc. (NBCOT).
    (2) On or before December 31, 2009, is licensed or otherwise 
regulated, if applicable, as an occupational therapist by the State in 
which practicing.
    (6) Occupational therapy assistant. A person who
    (i) Meets all of the following:
    (A) Is licensed or otherwise regulated, if applicable, as an 
occupational therapy assistant by the State in which practicing, unless 
licensure does apply.
    (B) Graduated after successful completion of an occupational therapy 
assistant education program accredited by the Accreditation Council for 
Occupational Therapy Education (ACOTE) of the American Occupational 
Therapy Association, Inc. (AOTA) or its successor organizations.
    (C) Is eligible to take or successfully completed the entry-level 
certification examination for occupational therapy assistants developed 
and administered by the National Board for Certification in Occupational 
Therapy, Inc. (NBCOT).
    (ii) On or before December 31, 2009--
    (A) Is licensed or otherwise regulated as an occupational therapy 
assistant, if applicable, by the State in which practicing; or any 
qualifications defined by the State in which practicing, unless 
licensure does not apply; or
    (B) Must meet both of the following:
    (1) Completed certification requirements to practice as an 
occupational therapy assistant established by a credentialing 
organization approved by the American Occupational Therapy Association.
    (2) After January 1, 2010, meets the requirements in paragraph 
(b)(6)(i) of this section.
    (iii) After December 31, 1977 and on or before December 31, 2007--
    (A) Completed certification requirements to practice as an 
occupational therapy assistant established by a credentialing 
organization approved by the American Occupational Therapy Association; 
or
    (B) Completed the requirements to practice as an occupational 
therapy assistant applicable in the State in which practicing.
    (iv) On or before December 31, 1977--
    (A) Had 2 years of appropriate experience as an occupational therapy 
assistant; and
    (B) Had achieved a satisfactory grade on an occupational therapy 
assistant proficiency examination conducted, approved, or sponsored by 
the U.S. Public Health Service.
    (v) If educated outside the United States, on or after January 1, 
2008--
    (A) Graduated after successful completion of an occupational therapy 
assistant education program that is accredited as substantially 
equivalent to occupational therapist assistant entry level education in 
the United States by--
    (1) The Accreditation Council for Occupational Therapy Education 
(ACOTE).
    (2) Its successor organizations.
    (3) The World Federation of Occupational Therapists.
    (4) By a credentialing body approved by the American Occupational 
Therapy Association; and
    (5) Successfully completed the entry level certification examination 
for occupational therapy assistants developed and administered by the 
National Board for Certification in Occupational Therapy, Inc. (NBCOT).
    (7) Physical therapist. A person who is licensed, if applicable, by 
the State in which practicing, unless licensure does not apply and meets 
one of the following requirements:
    (i) Graduated after successful completion of a physical therapist 
education program approved by one of the following:
    (A) The Commission on Accreditation in Physical Therapy Education 
(CAPTE).
    (B) Successor organizations of CAPTE.

[[Page 346]]

    (C) An education program outside the United States determined to be 
substantially equivalent to physical therapist entry level education in 
the United States by a credentials evaluation organization approved by 
the American Physical Therapy Association or an organization identified 
in 8 CFR 212.15(e) as it relates to physical therapists.
    (D) Passed an examination for physical therapists approved by the 
State in which physical therapy services are provided.
    (ii) On or before December 31, 2009--
    (A) Graduated after successful completion of a physical therapy 
curriculum approved by the Commission on Accreditation in Physical 
Therapy Education (CAPTE); or
    (B) Meets both of the following:
    (1) Graduated after successful completion of an education program 
determined to be substantially equivalent to physical therapist entry 
level education in the United States by a credentials evaluation 
organization approved by the American Physical Therapy Association or 
identified in 8 CFR 212.15(e) as it relates to physical therapists.
    (2) Passed an examination for physical therapists approved by the 
State in which physical therapy services are provided.
    (iii) Before January 1, 2008--
    (A) Graduated from a physical therapy curriculum approved by one of 
the following:
    (1) The American Physical Therapy Association.
    (2) The Committee on Allied Health Education and Accreditation of 
the American Medical Association.
    (3) The Council on Medical Education of the American Medical 
Association and the American Physical Therapy Association.
    (iv) On or before December 31, 1977 was licensed or qualified as a 
physical therapist and meets both of the following:
    (A) Has 2 years of appropriate experience as a physical therapist.
    (B) Has achieved a satisfactory grade on a proficiency examination 
conducted, approved, or sponsored by the U.S. Public Health Service.
    (v) Before January 1, 1966--
    (A) Was admitted to membership by the American Physical Therapy 
Association;
    (B) Was admitted to registration by the American Registry of 
Physical Therapists; and
    (C) Graduated from a physical therapy curriculum in a 4-year college 
or university approved by a State department of education.
    (vi) Before January 1, 1966 was licensed or registered, and before 
January 1, 1970, had 15 years of fulltime experience in the treatment of 
illness or injury through the practice of physical therapy in which 
services were rendered under the order and direction of attending and 
referring doctors of medicine or osteopathy.
    (vii) If trained outside the United States before January 1, 2008, 
meets the following requirements:
    (A) Was graduated since 1928 from a physical therapy curriculum 
approved in the country in which the curriculum was located and in which 
there is a member organization of the World Confederation for Physical 
Therapy.
    (B) Meets the requirements for membership in a member organization 
of the World Confederation for Physical Therapy.
    (8) Physical therapist assistant. A person who is licensed, 
registered or certified as a physical therapist assistant, if 
applicable, by the State in which practicing, unless licensure does not 
apply and meets one of the following requirements:
    (i) Graduated from a physical therapist assistant curriculum 
approved by the Commission on Accreditation in Physical Therapy 
Education of the American Physical Therapy Association; or if educated 
outside the United States or trained in the United States military, 
graduated from an education program determined to be substantially 
equivalent to physical therapist assistant entry level education in the 
United States by a credentials evaluation organization approved by the 
American Physical Therapy Association or identified at 8 CFR 212.15(e); 
and
    (ii) Passed a national examination for physical therapist 
assistants.
    (A) On or before December 31, 2009, meets one of the following:

[[Page 347]]

    (1) Is licensed, or otherwise regulated in the State in which 
practicing.
    (2) In States where licensure or other regulations do not apply, 
graduated before December 31, 2009, from a 2-year college-level program 
approved by the American Physical Therapy Association and after January 
1, 2010, meets the requirements of paragraph (b)(8) of this section.
    (3) Before January 1, 2008, where licensure or other regulation does 
not apply, graduated from a 2-year college level program approved by the 
American Physical Therapy Association.
    (4) On or before December 31, 1977, was licensed or qualified as a 
physical therapist assistant and has achieved a satisfactory grade on a 
proficiency examination conducted, approved, or sponsored by the U.S. 
Public Health Service.
    (c) Personnel qualifications when no State licensing, certification 
or registration requirements exist. If no State licensing laws, 
certification or registration requirements exist for the profession, the 
following requirements must be met:
    (1) Registered nurse. A graduate of a school of professional 
nursing.
    (2) Licensed practical nurse. A person who has completed a practical 
nursing program.
    (d) Standard: Criminal background checks. (1) The hospice must 
obtain a criminal background check on all hospice employees who have 
direct patient contact or access to patient records. Hospice contracts 
must require that all contracted entities obtain criminal background 
checks on contracted employees who have direct patient contact or access 
to patient records.
    (2) Criminal background checks must be obtained in accordance with 
State requirements. In the absence of State requirements, criminal 
background checks must be obtained within three months of the date of 
employment for all states that the individual has lived or worked in the 
past 3 years.



Sec. 418.116  Condition of participation: Compliance with Federal, State,
and local laws and regulations related to the health and safety of patients.

    The hospice and its staff must operate and furnish services in 
compliance with all applicable Federal, State, and local laws and 
regulations related to the health and safety of patients. If State or 
local law provides for licensing of hospices, the hospice must be 
licensed.
    (a) Standard: Multiple locations. Every hospice must comply with the 
requirements of Sec. 420.206 of this chapter regarding disclosure of 
ownership and control information. All hospice multiple locations must 
be approved by Medicare and licensed in accordance with State licensure 
laws, if applicable, before providing Medicare reimbursed services.
    (b) Standard: Laboratory services. (1) If the hospice engages in 
laboratory testing other than assisting a patient in self-administering 
a test with an appliance that has been approved for that purpose by the 
FDA, the hospice 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 a reference laboratory, the reference laboratory must be certified in 
the appropriate specialties and subspecialties of services in accordance 
with the applicable requirements of part 493 of this chapter.

Subpart E [Reserved]



                       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 
and management of the terminal illness as well as related conditions. 
The individual must elect hospice care in accordance with Sec. 418.24. A 
plan of care must be established and periodically reviewed by the 
attending physician, the medical director, and the interdisciplinary 
group of the hospice program as set forth in Sec. 418.56. That plan of 
care must be established before hospice care is provided. The services 
provided must be consistent with the plan of care. A certification that 
the individual is terminally ill must be completed as set forth in 
section Sec. 418.22.

[74 FR 39413, Aug. 6, 2009]

[[Page 348]]



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. 418.108(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 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 and that are for 
palliation and management of the terminal or related conditions.
    (g) Home health or hospice aide services furnished by qualified 
aides as designated in Sec. 418.76 and homemaker services. Home health 
aides (also known as hospice 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; 73 FR 32220, June 5, 2008; 74 FR 39413, Aug. 6, 2009; 76 
FR 47331, Aug. 4, 2011]

[[Page 349]]



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 (also known as hospice 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 and 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; 
74 FR 39413, Aug. 6, 2009]



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 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]

[[Page 350]]



                   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.
    (i) Service intensity add-on. Routine home care days that occur 
during the last 7 days of a hospice election ending with a patient 
discharged due to death are eligible for a service intensity add-on 
payment.
    (ii) The service intensity add-on payment shall be equal to the 
continuous home care hourly payment rate, as described in paragraph 
(e)(4) of this section, multiplied by the amount of direct patient care 
actually provided by a RN and/or social worker, up to 4 hours total per 
day.
    (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 (also known 
as a hospice 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 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 Medicare Administrative Contractor 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 Medicare Administrative 
Contractor reimburses the hospice for which the beneficiary has made an 
election as described in paragraph (d)(1) of this section.
    (e) The Medicare Administrative Contractor 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 (except as set out in 
paragraph (b)(1)(i) of this section).
    (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

[[Page 351]]

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 Medicare Administrative 
Contractor 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. Only inpatient days that were provided 
and billed as general inpatient or respite days are counted as inpatient 
days when computing the inpatient cap.
    (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, 
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 Medicare Administrative Contractor.
    (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, continuous home care, general 
inpatient care and inpatient respite care is made on the basis of the 
geographic location where the services are 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; 72 FR 50228, Aug. 
31, 2007; 74 FR 39414, Aug. 6, 2009; 80 FR 47206, Aug. 6, 2015]

[[Page 352]]



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]



Sec. 418.306  Annual update of the payment rates and adjustment for
area wage differences.

    (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 and in accordance with section 1814(i)(6)(D) of the Act.
    (b) Annual update of the payment rates. The payment rates for 
routine home care and other services included in hospice care are the 
payment rates in effect under this paragraph during the previous fiscal 
year increased by the hospice payment update percentage increase (as 
defined in sections1814(i)(1)(C) of the Act), applicable to discharges 
occurring in the fiscal year.
    (1) For fiscal year 2014 and subsequent fiscal years, in accordance 
with section 1814(i)(5)(A)(i) of the Act, in the case of a Medicare-
certified hospice that submits hospice quality data, as specified by the 
Secretary, the payment rates are equal to the rates for the previous 
fiscal year increased by the applicable hospice payment update 
percentage increase.

[[Page 353]]

    (2) For fiscal year 2014 and subsequent fiscal years, in accordance 
with section 1814(i)(5)(A)(i) of the Act, in the case of a Medicare-
certified hospice that does not submit hospice quality data, as 
specified by the Secretary, the payment rates are equal to the rates for 
the previous fiscal year increased by the applicable hospice payment 
update percentage increase, minus 2 percentage points. Any reduction of 
the percentage change will apply only to the fiscal year involved and 
will not be taken into account in computing the payment amounts for a 
subsequent fiscal year.
    (c) Adjustment for wage differences. Each hospice's labor market is 
determined based on definitions of Metropolitan Statistical Areas (MSAs) 
issued by OMB. CMS will issue annually, in the Federal Register, a 
hospice wage index based on the most current available CMS hospital wage 
data, including changes to the definition of MSAs. The urban and rural 
area geographic classifications are defined in Sec. 412.64(b)(1)(ii)(A) 
through (C) of this chapter. The payment rates established by CMS are 
adjusted by the Medicare contractor to reflect local differences in 
wages according to the revised wage data.
    (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; 73 FR 46486, Aug. 8, 
2008; 79 FR 50509, Aug. 22, 2014; 80 FR 47207, Aug. 6, 2015]



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 Secs. 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 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 hospice must file its aggregate cap determination notice 
with its Medicare contractor no later than 5 months after the end of the 
cap year and remit any overpayment due at that time. Hospices shall file 
the aggregate cap using data no earlier than 3 months after the end of 
the cap period. The Medicare contractor will notify the hospice of the 
final determination of program reimbursement in accordance with 
procedures similar to those described in Sec. 405.1803 of this chapter. 
If a provider fails to file its self-determined cap determination with 
its Medicare contractor within 5 months after the cap year, payments to 
the hospice will be suspended in whole or in part, until a self-
determined cap determination is filed with the Medicare contractor, in 
accordance withSec. 405.371(e) 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, as amended at 
79 FR 50509, Aug. 22, 2014; 80 FR 47207, Aug. 6, 2015]



Sec. 418.309  Hospice aggregate cap.

    A hospice's aggregate cap is calculated by multiplying the adjusted 
cap amount (determined in paragraph (a) of this section) by the number 
of Medicare beneficiaries, as determined

[[Page 354]]

by one of two methodologies for determining the number of Medicare 
beneficiaries for a given cap year described in paragraphs (b) and (c) 
of this section.
    (a) Cap Amount. The cap amount was set at $6,500 in 1983 and is 
updated using one of two methodologies described in paragraphs (a)(1) 
and (a)(2) of this section.
    (1) For accounting years that end on or before September 30, 2016 
and end on or after October 1, 2025, the cap amount is adjusted for 
inflation 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.
    (2) For accounting years that end after September 30, 2016, and 
before October 1, 2025, the cap amount is the cap amount for the 
preceding accounting year updated by the percentage update to payment 
rates for hospice care for services furnished during the fiscal year 
beginning on the October 1 preceding the beginning of the accounting 
year as determined pursuant to section 1814(i)(1)(C) of the Act 
(including the application of any productivity or other adjustments to 
the hospice percentage update).
    (b) Streamlined methodology defined. A hospice's aggregate cap is 
calculated by multiplying the adjusted cap amount determined in 
paragraph (a) of this section by the number of Medicare beneficiaries as 
determined in paragraphs (b)(1) and (2) of this section. For purposes of 
the streamlined methodology calculation--
    (1) In the case in which a beneficiary received care from only one 
hospice, the hospice includes in its number of Medicare beneficiaries 
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 during the period 
beginning on September 28 (34 days before the beginning of the cap year) 
and ending on September 27 (35 days before the end of the cap year), 
using the best data available at the time of the calculation.
    (2) In the case in which a beneficiary received 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 days of care in all hospices and all years that was 
spent in that hospice in that cap year, using the best data available at 
the time of the calculation. The aggregate cap calculation for a given 
cap year may be adjusted after the calculation for that year based on 
updated data.
    (c) Patient-by-patient proportional methodology defined. A hospice's 
aggregate cap is calculated by multiplying the adjusted cap amount 
determined in paragraph (a) of this section by the number of Medicare 
beneficiaries as described in paragraphs (c)(1) and (2) of this section. 
For the purposes of the patient-by-patient proportional methodology--
    (1) A hospice includes in its number of Medicare beneficiaries only 
that fraction which represents the portion of a patient's total days of 
care in all hospices and all years that was spent in that hospice in 
that cap year, using the best data available at the time of the 
calculation. The total number of Medicare beneficiaries for a given 
hospice's cap year is determined by summing the whole or fractional 
share of each Medicare beneficiary that received hospice care during the 
cap year, from that hospice.
    (2) The aggregate cap calculation for a given cap year may be 
adjusted after the calculation for that year based on updated data.
    (d) Application of methodologies. (1) For cap years ending October 
31, 2011 and for prior cap years, a hospice's aggregate cap is 
calculated using the streamlined methodology described in paragraph (b) 
of this section, subject to the following:
    (i) A hospice that has not received a cap determination for a cap 
year ending on or before October 31, 2011 as of October 1, 2011, may 
elect to have its final cap determination for such cap years calculated 
using the patient-by-patient proportional methodology described in 
paragraph (c) of this section; or

[[Page 355]]

    (ii) A hospice that has filed a timely appeal regarding the 
methodology used for determining the number of Medicare beneficiaries in 
its cap calculation for any cap year is deemed to have elected that its 
cap determination for the challenged year, and all subsequent cap years, 
be calculated using the patient-by-patient proportional methodology 
described in paragraph (c) of this section.
    (2) For cap years ending October 31, 2012, and all subsequent cap 
years, a hospice's aggregate cap is calculated using the patient-by-
patient proportional methodology described in paragraph (c) of this 
section, subject to the following:
    (i) A hospice that has had its cap calculated using the patient-by-
patient proportional methodology for any cap year(s) prior to the 2012 
cap year is not eligible to elect the streamlined methodology, and must 
continue to have the patient-by-patient proportional methodology used to 
determine the number of Medicare beneficiaries in a given cap year.
    (ii) A hospice that is eligible to make a one-time election to have 
its cap calculated using the streamlined methodology must make that 
election no later than 60 days after receipt of its 2012 cap 
determination. A hospice's election to have its cap calculated using the 
streamlined methodology would remain in effect unless:
    (A) The hospice subsequently submits a written election to change 
the methodology used in its cap determination to the patient-by-patient 
proportional methodology; or
    (B) The hospice appeals the streamlined methodology used to 
determine the number of Medicare beneficiaries used in the aggregate cap 
calculation.
    (3) If a hospice that elected to have its aggregate cap calculated 
using the streamlined methodology under paragraph (d)(2)(ii) of this 
section subsequently elects the patient-by-patient proportional 
methodology or appeals the streamlined methodology, under paragraph 
(d)(2)(ii)(A) or (B) of this section, the hospice's aggregate cap 
determination for that cap year and all subsequent cap years is to be 
calculated using the patient-by-patient proportional methodology. As 
such, past cap year determinations may be adjusted to prevent the over-
counting of beneficiaries, subject to existing reopening regulations.

[48 FR 56026, Dec. 16, 1983, as amended at 76 FR 47332, Aug. 4, 2011; 80 
FR 47207, Aug. 6, 2015]



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. 405.1875 of this chapter, 
shall have the authority to determine the issues raised. The methods and 
standards for the calculation of the statutorily defined payment rates 
by CMS are not subject to appeal.

[74 FR 39414, Aug. 6, 2009, as amended at 78 FR 48281, Aug. 7, 2013]



Sec. 418.312  Data submission requirements under the hospice 
quality reporting program.

    (a) General rule. Except as provided in paragraph (g) of this 
section, Medicare-certified hospices must submit to CMS data on measures 
selected under section 1814(i)(5)(C) of the Act in a form and manner, 
and at a time, specified by the Secretary.
    (b) Submission of Hospice Quality Reporting Program data. Hospices 
are required to complete and submit an admission Hospice Item Set (HIS) 
and a discharge HIS for each patient admission to hospice, regardless of 
payer or patient age. The HIS is a standardized set of items intended to 
capture patient-level data.
    (c) A hospice that receives notice of its CMS certification number 
before November 1 of the calendar year before

[[Page 356]]

the fiscal year for which a payment determination will be made must 
submit data for the calendar year.
    (d) Medicare-certified hospices must contract with CMS-approved 
vendors to collect the CAHPS Hospice Survey data on their 
behalf and submit the data to the Hospice CAHPS Data Center.
    (e) If the hospice's total, annual, unique, survey-eligible, 
deceased patient count for the prior calendar year is less than 50 
patients, the hospice is eligible to be exempt from the 
CAHPS Hospice Survey reporting requirements in the current 
calendar year. In order to qualify for this exemption the hospice must 
submit to CMS its total, annual, unique, survey-eligible, deceased 
patient count for the prior calendar year.
    (f) Vendors that want to become CMS-approved CAHPS 
Hospice Survey vendors must meet the minimum business requirements. 
Survey vendors must have been in business for a minimum of 4 years, have 
conducted surveys in the approved survey mode for a minimum of 3 years, 
and have conducted surveys of individual patients for a minimum of 2 
years. For Hospice CAHPS, a ``survey of individual 
patients'' is defined as the collection of data from at least 600 
individual patients selected by statistical sampling methods, and the 
data collected are used for statistical purposes. Vendors may not use 
home-based or virtual interviewers to conduct the CAHPS 
Hospice Survey, nor may they conduct any survey administration processes 
(for example, mailings) from a residence.
    (g) No organization, firm, or business that owns, operates, or 
provides staffing for a hospice is permitted to administer its own 
Hospice CAHPS survey or administer the survey on behalf of 
any other hospice in the capacity as a Hospice CAHPS survey 
vendor. Such organizations will not be approved by CMS as 
CAHPS Hospice Survey vendors.
    (h) Reconsiderations and appeals of Hospice Quality Reporting 
Program decisions. (1) A hospice may request reconsideration of a 
decision by CMS that the hospice has not met the requirements of the 
Hospice Quality Reporting Program for a particular reporting period. A 
hospice must submit a reconsideration request to CMS no later than 30 
days from the date identified on the annual payment update notification 
provided to the hospice.
    (2) Reconsideration request submission requirements are available on 
the CMS Hospice Quality Reporting Web site on CMS.gov.
    (3) A hospice that is dissatisfied with a decision made by CMS on 
its reconsideration request may file an appeal with the Provider 
Reimbursement Review Board under part 405, subpart R of this chapter.

[79 FR 50510, Aug. 22, 2014]



                          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.
    (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.

[[Page 357]]

    (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 services subject to the outpatient prospective payment 
          system.
419.22  Hospital 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.
419.42  Hospital election to reduce copayment.
419.43  Adjustments to national program payment and beneficiary 
          copayment amounts.
419.44  Payment reductions for procedures.
419.45  Payment and copayment reduction for devices replaced without 
          cost or when full or partial credit is received.
419.46  Participation, data submission, and validation requirements 
          under the Hospital Outpatient Quality Reporting (OQR) Program.
419.48  Definition of excepted items and services.

                            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.

[[Page 358]]

                    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: 
Packaged costs. The prospective payment system establishes a national 
payment rate, standardized for geographic wage differences, that 
includes operating and capital-related costs that are integral, 
ancillary, supportive, dependent, or adjunctive to performing a 
procedure or furnishing a service on an outpatient basis. In general, 
these packaged costs may include, but are not limited to, the following 
items and services, the payment for which are packaged or conditionally 
packaged into the payment for the related procedures or services.
    (1) Use of an operating suite, procedure room, or treatment room;
    (2) Use of recovery room;
    (3) Observation services;
    (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);
    (7) Ancillary services;
    (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 and insertable medical items and devices, 
including, but not limited to, 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;

[[Page 359]]

    (12) Costs incurred to procure donor tissue other than corneal 
tissue.
    (13) Image guidance, processing, supervision, and interpretation 
services;
    (14) Intraoperative items and services;
    (15) Drugs, biologicals, and radiopharmaceuticals that function as 
supplies when used in a diagnostic test or procedure (including but not 
limited to, diagnostic radiopharmaceuticals, contrast agents, and 
pharmacologic stress agents;
    (16) Drugs and biologicals that function as supplies when used in a 
surgical procedure (including, but not limited to, skin substitutes and 
similar products that aid wound healing and implantable biologicals);
    (17) Certain clinical diagnostic laboratory tests; and
    (18) Certain services described by add-on codes.
    (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 Secs. 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 or procurement costs for corneal 
transplant procedures.

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 70 
FR 47490, Aug. 12, 2005; 77 FR 68558, Nov. 15, 2012; 78 FR 75196, Dec. 
10, 2013; 79 FR 67031, Nov. 10, 2014; 80 FR 70606, Nov. 13, 2015]



 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 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:

[[Page 360]]

    (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.
    (c) Partial hospitalization services furnished by community mental 
health centers (CMHCs).
    (d) The following medical and other health services furnished 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)(1) Effective January 1, 2005 through December 31, 2008, 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.
    (2) Effective January 1, 2009, an initial preventive physical 
examination, as defined in Sec. 410.16 of this chapter, if the 
examination is performed no later than 12 months after the date of the 
individual's initial enrollment in Part B.

[65 FR 18542, Apr. 7, 2000, as amended at 67 FR 66813, Nov. 1, 2002; 69 
FR 65863, Nov. 15, 2004; 71 FR 68227, Nov. 24, 2006: 75 FR 72265, Nov. 
24, 2010]



Sec. 419.22  Hospital 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 (except when packaged as a part of 
a bundled payment):
    (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) Physical therapy services, speech-language pathology services, 
and occupational therapy services described in section 1833(a)(8) of the 
Act for which payment is made under the fee schedule described in 
section 1834(k) 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. 419.2(b)(11), prosthetic devices 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) Except as provided in Sec. 419.2(b)(17), clinical diagnostic 
laboratory tests.
    (m)(1) Services provided on or before December 31, 2010, 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.
    (2) Renal dialysis services provided on or after January 1, 2011, 
for patients with ESRD that are paid under the ESRD benefit, as 
described in subpart H of part 413 of this chapter.
    (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.

[[Page 361]]

    (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.
    (t) Effective January 1, 2011, annual wellness visit providing 
personalized prevention plan services as defined in Sec. 410.15 of this 
chapter.
    (u) Outpatient diabetes self-management training.
    (v) Effective January 1, 2017, items and services that do not meet 
the definition of excepted items and services under Sec. 419.48(a).

[65 FR 18542, Apr. 7, 2000, as amended at 66 FR 59922, Nov. 30, 2001; 69 
FR 65863, Nov. 15, 2004; 75 FR 72265, Nov. 24, 2010; 78 FR 50969, Aug. 
19, 2013; 78 FR 75196, Dec. 10, 2013; 79 FR 67031, Nov. 10, 2014; 81 FR 
79879, Nov. 14, 2016; 82 FR 35, Jan. 3, 2017]



 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--
    (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 geometric mean cost for 
an item or service within the group is more than 2 times greater than 
the lowest geometric mean 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
    (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 geometric mean 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 geometric mean costs for the services within the 
APC group compared to the geometric mean 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 geometric mean costs determined in 
paragraph (b)(1) of this section by adjusting for variations in hospital 
labor costs across geographic areas.

[65 FR 18542, Apr. 7, 2000, as amended at 77 FR 68558, Nov. 15, 2012]

[[Page 362]]



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 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)(A) For calendar year 2003 and subsequent years, by the OPD fee 
schedule increase factor, which, subject to the adjustments specified in 
paragraph (b)(1)(iv)(B) of this section, is the hospital inpatient 
market basket percentage increase applicable under section 
1886(b)(3)(B)(iii) of the Act.
    (B) The percentage increase determined under paragraph (b)(1)(iv)(A) 
of this section is reduced by the following for the specific calendar 
year:
    (1) For calendar year 2010, 0.25 percentage point;
    (2) For calendar year 2011, 0.25 percentage point; and
    (3) For calendar year 2012, a multifactor productivity adjustment 
(as determined by CMS) and 0.1 percentage point.
    (4) For calendar year 2013, a multifactor productivity adjustment 
(as determined by CMS) and 0.1 percentage point.
    (5) For calendar year 2014, a multifactor productivity adjustment 
(as determined by CMS) and 0.3 percentage point.
    (6) For calendar year 2015, a multifactor productivity adjustment 
(as determined by CMS) and 0.2 percentage point.
    (7) For calendar year 2016, a multifactor productivity adjustment 
(as determined by CMS), and 0.2 percentage point.
    (8) For calendar year 2017, a multiproductivity adjustment (as 
determined by CMS) and 0.75 percentage point.
    (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.

[[Page 363]]

    (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; 75 FR 72265, Nov. 24, 
2010; 76 FR 74582, Nov. 30, 2011; 77 FR 68559, Nov. 15, 2012; 78 FR 
75196, Dec. 10, 2013; 79 FR 67031, Nov. 10, 2014; 80 FR 70606, Nov. 13, 
2015; 81 FR 79879, Nov. 14, 2016]

    Effective Date Note: At 66 FR 59922, Nov. 30, 2001, Sec. 419.32 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;
    (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

[[Page 364]]

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 adjustment under 
Secs. 419.43(d) and (e) (and any adjustments made under Sec. 419.43(f) 
in relation to these adjustments) and Sec. 419.43(h) 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; 73 FR 68814, Nov. 18, 2008]



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 wage-adjusted copayment 
amount for the group but not less than 20 percent of the APC payment 
rate as determined under Sec. 419.32 or, in the case of payments 
calculated under Sec. 419.43(h), not less than 20 percent of the APC 
payment rate as determined under Sec. 419.43(h).
    (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; 73 FR 68814, Nov. 18, 2008]



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

[[Page 365]]

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. (1) CMS uses the hospital inpatient 
prospective payment system wage index established in accordance with 
Part 412 of this chapter to make the adjustment specified under 
paragraph (a) of this section.
    (2) For services furnished beginning January 1, 2011, the wage index 
factor provided for in paragraph (c)(1) of this section applicable to 
any hospital outpatient department that is located in a frontier State, 
as defined in Sec. 412.64(m) of this chapter, may not be less than 1.00.
    (3) The additional payments made under the provisions of paragraph 
(c)(2) of this section are not implemented in a budget neutral manner.
    (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 Sec. 419.66.
    (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
    (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.
    (5) Cost-to-charge ratios for calculating charges adjusted to cost. 
For hospital outpatient services (or groups of services) as defined in 
paragraph (d)(1) of this section performed on or after January 1, 2009--
    (i) CMS may specify an alternative to the overall ancillary cost-to-
charge ratio otherwise applicable under paragraph (d)(5)(ii) of this 
section. A hospital may also request that its Medicare contractor use a 
different (higher or lower) cost-to-charge ratio based on substantial 
evidence presented by the hospital. Such a request must be approved by 
the CMS.

[[Page 366]]

    (ii) The overall ancillary cost-to-charge ratio applied at the time 
a claim is processed is based on either the most recent settled cost 
report or the most recent tentative settled cost report, whichever is 
from the latest cost reporting period.
    (iii) The Medicare contractor may use a statewide average cost-to-
charge ratio if it is unable to determine an accurate overall ancillary 
cost-to-charge ratio for a hospital in one of the following 
circumstances:
    (A) A new hospital that has not yet submitted its first Medicare 
cost report. (For purposes of this paragraph, a new hospital is defined 
as an entity that has not accepted assignment of an existing hospital's 
provider agreement in accordance with Sec. 489.18 of this chapter.)
    (B) A hospital whose overall ancillary cost-to-charge ratio is in 
excess of 3 standard deviations above the corresponding national 
geometric mean. This mean is recalculated annually by CMS and published 
in the annual notice of prospective payment rates issued in accordance 
with Sec. 419.50(a).
    (C) Any other hospital for whom accurate data to calculate an 
overall ancillary cost-to-charge ratio are not available to the Medicare 
contractor.
    (6) Reconciliation. For hospital outpatient services furnished 
during cost reporting periods beginning on or after January 1, 2009--
    (i) Any reconciliation of outlier payments will be based on an 
overall ancillary cost-to-charge ratio calculated based on a ratio of 
costs to charges computed from the relevant cost report and charge data 
determined at the time the cost report coinciding with the service is 
settled.
    (ii) At the time of any reconciliation under paragraph (d)(6)(i) of 
this section, outlier payments may be adjusted to account for the time 
value of any underpayments or overpayments. Any adjustment will be based 
on a widely available index to be established in advance by CMS, and 
will be applied from the midpoint of the cost reporting period to the 
date of reconciliation.
    (7) Community mental health center (CMHC) outlier payment cap. 
Outlier payments made to CMHCs for services provided on or after January 
1, 2017 are subject to a cap, applied at the individual CMHC level, so 
that each CMHC's total outlier payments for the calendar year do not 
exceed 8 percent of that CMHC's total per diem payments for the calendar 
year. Total per diem payments are total Medicare per diem payments plus 
the total beneficiary share of those per diem payments.
    (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. The following services or groups 
are excluded from qualification for the payment adjustment under 
paragraph (d)(1) of this section:
    (1) Drugs and biologicals that are paid under a separate APC; and
    (2) Items and services paid at charges adjusted to costs by 
application of a hospital-specific cost-to-charge ratio.
    (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 
or is an essential access community hospital under Sec. 412.109 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.

[[Page 367]]

    (4) Excluded services and groups. The following services or groups 
are excluded from qualification for the payment adjustment in paragraph 
(g)(2) of this section:
    (i) Drugs and biologicals that are paid under a separate APC;
    (ii) Devices paid under 419.66; and
    (iii) Items and services paid at charges adjusted to costs by 
application of a hospital-specific cost-to-charge ratio.
    (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.
    (h) Applicable adjustments to conversion factor for CY 2009 and for 
subsequent calendar years--(1) General rule. For CY 2009 and for 
subsequent calendar years, the applicable adjustment to the conversion 
factor specified in Sec. 419.32(b)(1)(iv) is reduced by 2.0 percentage 
points for any hospital that fails to meet the standards for reporting 
of hospital outpatient quality measures as established by the Secretary 
for the corresponding calendar year.
    (2) Limitation. Any reduction to a hospital's adjustment to its 
conversion factor specified in Sec. 419.32(b)(1)(iv) which occurs as a 
result of paragraph (h)(1) of this section will apply only to the 
calendar year involved and will not be taken into account in computing 
that hospital's applicable adjustment for a subsequent calendar year.
    (3) Budget neutrality. For CY 2009 and for each subsequent calendar 
year, CMS makes an adjustment to the conversion factor, so that 
estimated aggregate payments under the OPPS for such calendar year are 
not affected by any reductions to hospital adjustments which occur as a 
result of paragraph (h)(1) of this section.
    (4) Beneficiary copayment. The beneficiary copayment for services to 
which the adjustment to the conversion factor specified under paragraph 
(h)(1) of this section applies is the product of the national 
beneficiary copayment amount calculated under Sec. 419.41 and the ratio 
of the adjusted conversion factor calculated under paragraph (h)(1) of 
this section divided by the conversion factor specified under 
Sec. 419.32(b)(1).
    (i) Payment adjustment for certain cancer hospitals--(1) General 
rule. CMS provides for a payment adjustment for covered hospital 
outpatient department services furnished on or after January 1, 2012, by 
a hospital described in section 1886(d)(1)(B)(v) of the Act.
    (2) Amount of payment adjustment. The amount of the payment 
adjustment under paragraph (i)(1) of this section is determined by the 
Secretary as follows:
    (i) If a hospital described in section 1886(d)(1)(B)(v) of the Act 
has a payment-to-cost ratio (PCR) before the cancer hospital payment 
adjustment (as determined by the Secretary at cost report settlement) 
that is less than the weighted average PCR of other hospitals furnishing 
services under section 1833(t) of the Act (as determined by the 
Secretary at the time of the applicable CY Hospital Outpatient 
Prospective Payment System/Ambulatory Surgical Center final rule with 
comment period) (referred to as the Target PCR), for covered hospital 
outpatient department services, the aggregate payment amount provided at 
cost report settlement to such hospital is equal to the amount needed to 
make the hospital's PCR at cost report settlement (as determined by the 
Secretary) equal to the target PCR (as determined by the Secretary).
    (ii) If a hospital described in section 1886(d)(1)(B)(v) of the Act 
has a payment-to-cost ratio (PCR) before the cancer hospital payment 
adjustment (as determined by the Secretary at cost report settlement) 
that is greater than the weighted average PCR of other hospitals 
furnishing services under section 1833(t) of the Act (as determined by 
the Secretary at the time of the applicable CY Hospital Outpatient 
Prospective Payment System/Ambulatory Surgical Center final rule with 
comment period) (referred to as the Target PCR), for covered hospital 
outpatient department services, the aggregate payment amount provided at 
cost report settlement to such hospital is equal to zero.

[[Page 368]]

    (3) Budget neutrality. CMS establishes the payment adjustment under 
paragraph (i)(1) of this section in a budget neutral manner.

[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; 71 FR 68227, Nov. 24, 2006; 72 FR 
66932, Nov. 27, 2007; 73 FR 68814, Nov. 18, 2008; 75 FR 72265, Nov. 24, 
2010; 76 FR 74583, Nov. 30, 2011; 81 FR 79879, Nov. 14, 2016]



Sec. 419.44  Payment reductions for 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) Interrupted procedures. (1) Subject to the provisions of 
paragraph (b)(2) of this section, when a 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--
    (i) The full program and beneficiary copayment amounts if the 
procedure for which anesthesia is planned is discontinued after the 
induction of anesthesia or after the procedure is started;
    (ii) One-half the full program and the beneficiary copayment amounts 
if the procedure for which anesthesia is planned is discontinued after 
the patient is prepared and taken to the room where the procedure is to 
be performed but before anesthesia is induced; or
    (iii) One-half of the full program and beneficiary copayment amounts 
if a procedure for which anesthesia is not planned is discontinued after 
the patient is prepared and taken to the room where the procedure is to 
be performed.
    (2) For all device-intensive procedures (defined as having a device 
offset of greater than 40 percent), the device offset portion of the 
device-intensive procedure payment is subtracted prior to determining 
the program payment and beneficiary copayment amounts identified in 
paragraph (b)(1)(ii) of this section.

[65 FR 18542, Apr. 7, 2000, as amended at 72 FR 66933, Nov. 27, 2007; 80 
FR 70606, Nov. 13, 2015; 81 FR 79879, Nov. 14, 2016]



Sec. 419.45  Payment and copayment reduction for devices replaced without 
cost or when full or partial credit is received.

    (a) General rule. CMS reduces the amount of payment for an implanted 
device made under the hospital outpatient prospective payment system in 
accordance with Sec. 419.66 for which CMS determines that a significant 
portion of the payment is attributable to the cost of an implanted 
device, when one of the following situations occur:
    (1) The device is replaced without cost to the provider or the 
beneficiary;
    (2) The provider receives full credit for the cost of a replaced 
device; or
    (3) The provider receives partial credit for the cost of a replaced 
device but only where the amount of the device credit is greater than or 
equal to 50 percent of the cost of the new replacement device being 
implanted.
    (b) Amount of reduction to the APC payment. (1) The amount of the 
reduction to the APC payment made under paragraphs (a)(1) and (a)(2) of 
this section is calculated in the same manner as the offset amount that 
would be applied if the device implanted during a procedure assigned to 
the APC had transitional pass-through status under Sec. 419.66.
    (2) The amount of the reduction to the APC payment made under 
paragraph (a)(3) of this section is 50 percent of the offset amount that 
would be applied if the device implanted during a procedure assigned to 
the APC had transitional pass-through status under Sec. 419.66.
    (c) Amount of beneficiary copayment. The beneficiary copayment is 
calculated based on the APC payment after application of the reduction 
under paragraph (b) of this section.

[71 FR 68228, Nov. 24, 2006, as amended at 72 FR 66933, Nov. 27, 2007]

[[Page 369]]



Sec. 419.46  Participation, data submission, and validation requirements 
under the Hospital Outpatient Quality Reporting (OQR) Program.

    (a) Participation in the Hospital OQR Program. To participate in the 
Hospital OQR Program, a hospital as defined in section 1886(d)(1)(B) of 
the Act and is paid under the OPPS must--
    (1) Register on the QualityNet Web site before beginning to report 
data;
    (2) Identify and register a QualityNet security administrator as 
part of the registration process under paragraph (a)(1) of this section; 
and
    (3) Complete and submit an online participation form available at 
the QualityNet.org Web site if this form has not been previously 
completed, if a hospital has previously withdrawn, or if the hospital 
acquires a new CMS Certification Number (CCN). For Hospital OQR Program 
purposes, hospitals that share the same CCN are required to complete a 
single online participation form. Once a hospital has submitted a 
participation form, it is considered to be an active Hospital OQR 
Program participant until such time as it submits a withdrawal form to 
CMS or no longer has an effective Medicare provider agreement. Deadlines 
for the participation form are described in paragraphs (a)(3)(i) and 
(ii) of this section, and are based on the date identified as a 
hospital's Medicare acceptance date.
    (i) If a hospital has a Medicare acceptance date before January 1 of 
the year prior to the affected annual payment update, the hospital must 
complete and submit to CMS a completed Hospital OQR Notice of 
Participation Form by July 31 of the calendar year prior to the affected 
annual payment update.
    (ii) If a hospital has a Medicare acceptance date on or after 
January 1 of the year prior to the affected annual payment update, the 
hospital must submit a completed participation form no later than 180 
days from the date identified as its Medicare acceptance date.
    (b) Withdrawal from the Hospital OQR Program. A participating 
hospital may withdraw from the Hospital OQR Program by submitting to CMS 
a withdrawal form that can be found in the secure portion of the 
QualityNet Web site. The hospital may withdraw any time up to and 
including August 31 of the year prior to the affected annual payment 
updates. A withdrawn hospital will not be able to later sign up to 
participate in that payment update, is subject to a reduced annual 
payment update as specified under Sec. 419.43(h), and is required to 
submit a new participation form in order to participate in any future 
year of the Hospital OQR Program.
    (c) Submission of Hospital OQR Program data. (1) General rule. 
Except as provided in paragraph (d) of this section, hospitals that 
participate in the Hospital OQR Program must submit to CMS data on 
measures selected under section 1833(t)(17)(C) of the Act in a form and 
manner, and at a time, specified by CMS.
    (2) Submission deadlines. Submission deadlines by measure and by 
data type are posted on the QualityNet Web site.
    (3) Initial submission deadlines for a hospital that did not 
participate in the previous year's Hospital OQR Program. (i) If a 
hospital has a Medicare acceptance date before January 1 of the year 
prior to the affected annual payment update, the hospital must submit 
data beginning with encounters occurring during the first calendar 
quarter of the year prior to the affected annual payment update, in 
addition to submitting a completed Hospital OQR Notice of Participation 
Form under paragraph (a)(3)(i) of this section.
    (ii) If a hospital has a Medicare acceptance date on or after 
January 1 of the year prior to the affected annual payment update, the 
hospital must submit data for encounters beginning with the first full 
quarter following submission of the completed Hospital OQR Notice of 
Participation Form under paragraph (a)(3)(ii) of this section.
    (iii) Hospitals with a Medicare acceptance date before or after 
January 1 of the year prior to an affected annual payment update must 
follow data submission deadlines as specified in paragraph (c)(2) of 
this section.
    (d) Exemption. CMS may grant an extension or exemption of one or 
more data submission deadlines and requirements in the event of 
extraordinary circumstances beyond the control of

[[Page 370]]

the hospital, such as when an act of nature affects an entire region or 
locale or a systemic problem with one of CMS' data collection systems 
directly or indirectly affects data submission. CMS may grant an 
extension or exemption as follows:
    (1) Upon request by the hospital. Specific requirements for 
submission of a request for an extension or exemption are available on 
the QualityNet Web site.
    (2) At the discretion of CMS. CMS may grant extensions or exemptions 
to hospitals that have not requested them when CMS determines that an 
extraordinary circumstance has occurred.
    (e) Validation of Hospital OQR Program data. CMS may validate one or 
more measures selected under section 1833(t)(17)(C) of the Act by 
reviewing documentation of patient encounters submitted by selected 
participating hospitals.
    (1) Upon written request by CMS or its contractor, a hospital must 
submit to CMS supporting medical record documentation that the hospital 
used for purposes of data submission under the program. The specific 
sample that a hospital must submit will be identified in the written 
request. A hospital must submit the supporting medical record 
documentation to CMS or its contractor within 45 days of the date 
identified on the written request, in the form and manner specified in 
the written request.
    (2) A hospital meets the validation requirement with respect to a 
calendar year if it achieves at least a 75-percent reliability score, as 
determined by CMS.
    (f) Reconsiderations and appeals of Hospital OQR Program decisions. 
(1) A hospital may request reconsideration of a decision by CMS that the 
hospital has not met the requirements of the Hospital OQR Program for a 
particular calendar year. Except as provided in paragraph (d) of this 
section, a hospital must submit a reconsideration request to CMS via the 
QualityNet Web site, no later than the first business day on or after 
March 17 of the affected payment year as determined using the date the 
request was mailed or submitted to CMS.
    (2) A reconsideration request must contain the following 
information:
    (i) The hospital's CMS Certification Number (CCN);
    (ii) The name of the hospital;
    (iii) The CMS-identified reason for not meeting the requirements of 
the affected payment year's Hospital OQR Program as provided in any CMS 
notification to the hospital;
    (iv) The hospital's basis for requesting reconsideration. The 
hospital must identify its specific reason(s) for believing it should 
not be subject to the reduced annual payment update;
    (v) The hospital-designated personnel contact information, including 
name, email address, telephone number, and mailing address (must include 
physical mailing address, not just a post office box);
    (vi) The hospital-designated personnel's signature;
    (vii) A copy of all materials that the hospital submitted to comply 
with the requirements of the affected Hospital OQR Program payment 
determination year; and
    (viii) If the hospital is requesting reconsideration on the basis 
that CMS determined it did not meet the affected payment determination 
year's validation requirement set forth in paragraph (e)(1) of this 
section, the hospital must provide a written justification for each 
appealed data element classified during the validation process as a 
mismatch. Only data elements that affect a hospital's validation score 
are eligible to be reconsidered.
    (3) A hospital that is dissatisfied with a decision made by CMS on 
its reconsideration request may file an appeal with the Provider 
Reimbursement Review Board under part 405, subpart R, of this chapter.
    (g) Requirements for Outpatient and Ambulatory Surgery Consumer 
Assessment of Healthcare Providers and Systems (OAS CAHPS) Survey. OAS 
CAHPS is the Outpatient and Ambulatory Surgical Center Consumer 
Assessment of Healthcare Providers and Systems Survey that measures 
patient experience of care after a recent surgery or procedure at either 
a hospital outpatient department or an ambulatory surgical center. 
Hospital outpatient departments must use an approved OAS

[[Page 371]]

CAHPS survey vendor to administer and submit OAS CAHPS data to CMS.
    (1) [Reserved]
    (2) CMS approves an application for an entity to administer the OAS 
CAHPS Survey as a vendor on behalf of one or more hospital outpatient 
departments when the applicant has met the Minimum Survey Requirements 
and Rules of Participation that can be found on the official OAS CAHPS 
Web site, and agrees to comply with the current survey administration 
protocols that can be found on the official OAS CAHPS Survey Web site. 
An entity must be an approved OAS CAHPS Survey vendor in order to 
administer and submit OAS CAHPS Survey data to CMS on behalf of one or 
more hospital outpatient departments.

[78 FR 75196, Dec. 10, 2013, as amended at 79 FR 67031, Nov. 10, 2014; 
80 FR 70606, Nov. 13, 2015; 81 FR 79879, Nov. 14, 2016]



Sec. 419.48  Definition of excepted items and services.

    (a) Excepted items and services are items or services that are 
furnished on or after January 1, 2017--
    (1) By a dedicated emergency department (as defined at 
Sec. 489.24(b) of this chapter); or
    (2) By an excepted off-campus provider-based department defined in 
paragraph (b) of this section that has not impermissibly relocated or 
changed ownership.
    (b) For the purpose of this section, ``excepted off-campus provider-
based department'' means a ``department of a provider'' (as defined at 
Sec. 413.65(a)(2) of this chapter) that is located on the campus (as 
defined in Sec. 413.65(a)(2) of this chapter) or within the distance 
described in such definition from a ``remote location of a hospital'' 
(as defined in Sec. 413.65(a)(2) of this chapter) that meets the 
requirements for provider-based status under Sec. 413.65 of this 
chapter. This definition also includes an off-campus department of a 
provider that was furnishing services prior to November 2, 2015 that 
were billed under the OPPS in accordance with timely filing limits.
    (c) Payment for items and services that do not meet the definition 
in paragraph (a) of this section will generally be made under the 
Medicare Physician Fee Schedule on or after January 1, 2017.

[81 FR 79880, Nov. 14, 2016; 82 FR 36, Jan. 3, 2017]



                            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 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.

[[Page 372]]

    (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 Secs. 419.64 
and 419.66 for certain innovative medical devices, drugs, and 
biologicals.
    (b) Budget neutrality. CMS establishes the additional payments under 
Secs. 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 Secs. 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 Secs. 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 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

[[Page 373]]

under Sec. 419.32(c)) as defined in paragraph (b) of this section.
    (iii) A biological that is not surgically implanted or inserted into 
the body.
    (iv) A biological that is not a skin substitute or similar product 
that aids wound healing.
    (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; 74 FR 60680, Nov. 20, 2009; 79 FR 67031, Nov. 10, 
2014]



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 
premarket 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 in accordance with Secs. 405.203 through 
405.207 and 405.211 through 405.215 of this chapter), or meet another 
appropriate FDA exemption for premarket approval or clearance. Under 
this provision, the pass-through payment application for a medical 
device must be submitted within 3 years from the date of the initial FDA 
approval or clearance, if required, unless there is a documented, 
verifiable delay in U.S. market availability after FDA approval or 
clearance is granted, in which case CMS will consider the pass-through 
payment application if it is submitted within 3 years from the date of 
market availability.
    (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 part of the service furnished, is used 
for one patient only, comes in contact with human tissue, and is 
surgically implanted or inserted (either permanently or temporarily) or 
applied in or on a wound or other skin lesion.
    (4) The device is not any of the following:

[[Page 374]]

    (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).
    (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 of 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 first date on which pass-through payment is made.
    (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; 74 FR 60680, Nov. 20, 2009; 78 FR 75198, Dec. 
10, 2013; 79 FR 67031, Nov. 10, 2014; 80 FR 70606, Nov. 13, 2015; 81 FR 
79880, Nov. 14, 2016]



                    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

[[Page 375]]

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 before January 1, 2006. 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. 412.64(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) Temporary treatment for small rural hospitals on or after 
January 1, 2006. For covered hospital outpatient services furnished in a 
calendar year from January 1, 2006 through December 31, 2012, for which 
the prospective payment system amount is less than the pre-BBA amount, 
the amount of payment under this part is increased by 95 percent of that 
difference for services furnished during CY 2006, 90 percent of that 
difference for services furnished during CY 2007, and 85 percent of that 
difference for services furnished during CYs 2008, 2009, 2010, 2011, and 
2012 if the hospital--
    (i) 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 section 
1886(d)(8)(E) of the Act;
    (ii) Has 100 or fewer beds as defined in Sec. 412.105(b) of this 
chapter;
    (iii) Is not a sole community hospital as defined in Sec. 412.92 of 
this chapter; and
    (iv) Is not an essential access community hospital under 
Sec. 412.109 of this chapter.
    (3) 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.
    (4) 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

[[Page 376]]

before January 1, 2006. 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
    (ii) Is located in a rural area as defined in Sec. 412.63(b) or 
Sec. 412.64(b), as applicable, of this chapter or is treated as being 
located in a rural area under section 1886(d)(8)(E) of the Act.
    (5) Temporary treatment for small sole community hospitals on or 
after January 1, 2009 and through December 31, 2009. For covered 
hospital outpatient services furnished on or after January 1, 2009, and 
continuing through December 31, 2009, for which the prospective payment 
system amount is less than the pre-BBA amount, the amount of payment 
under this part is increased by 85 percent of that difference if the 
hospital--
    (i) Is a sole community hospital as defined in Sec. 412.92 of this 
chapter or is an essential access community hospital as described under 
Sec. 412.109 of this chapter; and
    (ii) Has 100 or fewer beds as defined in Sec. 412.105(b) of this 
chapter.
    (6) Temporary treatment for sole community hospitals on or after 
January 1, 2010, and through December 31, 2011. For covered hospital 
outpatient services furnished on or after January 1, 2010, through 
December 31, 2011, for which the prospective payment system amount is 
less than the pre-BBA amount, the amount of payment under this part is 
increased by 85 percent of that difference if the hospital is a sole 
community hospital as defined in Sec. 412.92 of this chapter or is an 
essential access community hospital as described under Sec. 412.109 of 
this chapter.
    (7) Temporary treatment of small sole community hospitals on or 
after January 1, 2012 through December 31, 2012. (i) For covered 
hospital outpatient services furnished on or after January 1, 2012 
through December 31, 2012, for which the prospective payment system 
amount is less than the pre-BBA amount, the amount of payment under this 
part is increased by 85 percent of that difference if the hospital--
    (A) Is a sole community hospital as defined in Sec. 412.92 of this 
chapter or is an essential access community hospital as described under 
Sec. 412.109 of this chapter; and
    (B) Has 100 or fewer beds as defined in Sec. 412.105(b) of this 
chapter, except as provided in paragraph (d)(7)(ii) of this section.
    (ii) For covered hospital outpatient services furnished on or after 
January 1, 2012 through February 29, 2012, the bed size limitation under 
paragraph (d)(7)(i)(B) of this section does not apply.
    (e) Prospective payment system amount defined. In this section, 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 section 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.

[[Page 377]]

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 section 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 section--
    (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; 71 FR 68228, Nov. 24, 2006; 72 FR 66933, Nov. 27, 2007; 73 FR 
68814, Nov. 18, 2008; 74 FR 60681, Nov. 20, 2009; 75 FR 72265, Nov. 24, 
2010; 76 FR 74583, Nov. 30, 2011; 77 FR 68559, Nov. 15, 2012]



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.
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]

[[Page 378]]



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.
    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.

[[Page 379]]

    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 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

[[Page 380]]

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;
    (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.

[[Page 381]]

    (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]



   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.

[[Page 382]]

    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 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

[[Page 383]]

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.
    (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

[[Page 384]]

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 beneficiary 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.
    (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.

[[Page 385]]

    (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 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

[[Page 386]]

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.
    (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;

[[Page 387]]

    (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.
    (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_MEDICARE CONTRACTING--Table of Contents



          Subpart A_Scope, Definitions, and General Provisions

Sec.
421.1  Basis, applicability, and scope.
421.3  Definitions.
421.5  General provisions.

                        Subpart B_Intermediaries

421.100  Intermediary functions.
421.103  Payment to providers.
421.104  Assignment of providers of services to intermediaries during 
          transition to Medicare Administrative Contractors (MACs).
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.
421.120  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.

[[Page 388]]

                           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.

            Subpart D_Medicare Integrity Program Contractors

421.300  Basis, applicability, and scope.
421.302  Eligibility requirements for Medicare integrity program 
          contractors.
421.304  Medicare integrity program contractor functions.
421.306  Awarding of a contract.
421.308  Renewal of a contract.
421.310  Conflict of interest requirements.
421.312  Conflict of interest resolution.
421.316  Limitation on Medicare integrity program contractor liability.

          Subpart E_Medicare Administrative Contractors (MACs)

421.400  Statutory basis and scope.
421.401  Definitions.
421.404  Assignment of providers and suppliers to MACs.

Subpart F [Reserved]

    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, applicability, and scope.

    (a) Basis. This part is based on the provisions of the following 
sections of the Act:
    Section 1124--Requirements for disclosure of certain information.
    Sections 1816 and 1842--Provisions relating to the administration of 
Parts A and B.
    Section 1893--Requirements for protecting the integrity of the 
Medicare program.
    (b) Applicability. The provisions of this part apply to agreements 
with Part A (Hospital Insurance) fiscal intermediaries that received 
awards under sections 1816 or 1842 of the Act prior to October 1, 2005, 
contracts with Part B (Supplementary Medical Insurance) carriers that 
received awards under sections 1816 or 1842 of the Act prior to October 
1, 2005, and contracts with Medicare integrity program contractors that 
perform program integrity functions.
    (c) Scope. The scope of this part--
    (1) Specifies that CMS may perform certain functions directly or by 
contract.
    (2) Specifies criteria and standards CMS uses in evaluating the 
performance of fiscal intermediaries' successor entities and in 
assigning or reassigning a provider or providers to particular fiscal 
intermediaries.
    (3) Provides the opportunity for a hearing for fiscal intermediaries 
and carriers affected by certain adverse actions.
    (4) Provides adversely affected fiscal intermediaries an opportunity 
for judicial review of certain hearing decisions.
    (5) Sets forth requirements related to contracts with Medicare 
integrity program contractors.

[72 FR 48886, Aug. 24, 2007]



Sec. 421.3  Definitions.

    As used in this part--
    Intermediary means an entity that has a contract with CMS (under 
statutory provisions in effect prior to October 1, 2005) 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 applying the 
performance criteria in Sec. 421.120 and the performance standards in 
Sec. 421.122 and any adverse action resulting from that application, the 
term ``intermediary'' also means a Blue Cross plan that has entered into 
a subcontract approved by CMS with the Blue Cross and Blue Shield 
Association to perform intermediary functions.

[71 FR 68228, Nov. 24, 2006]



Sec. 421.5  General provisions.

    (a) Competitive bidding not required for carriers. CMS may enter 
into contracts

[[Page 389]]

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.
    (a) Mandatory functions. The contract must include the following 
functions:
    (1) Determining the amount of payments to be made to providers for 
covered services furnished to Medicare beneficiaries.
    (2) Making the payments.
    (b) Additional functions. The contract may include any or all of the 
following functions:
    (1) Any or all of the program integrity functions described in 
Sec. 421.304, provided the intermediary is continuing those functions 
under an agreement entered into under section 1816 of the Act that was 
in effect on August 21, 1996, and they do not duplicate work being 
performed under a Medicare integrity program contract.
    (2) Undertaking to adjust incorrect payments and recover 
overpayments when it is determined that an overpayment was made.
    (3) Furnishing to CMS timely information and reports that CMS 
requests in order to carry out its responsibilities in the 
administration of the Medicare program.
    (4) Establishing and maintaining procedures as approved by CMS for 
the redetermination of payment determinations.
    (5) Maintaining records and making available to CMS the records 
necessary for verification of payments and for other related purposes.
    (6) Upon inquiry, assisting individuals for matters pertaining to an 
intermediary agreement.
    (7) Serving as a channel of communication to and from CMS of 
information, instructions, and other material as necessary for the 
effective and efficient performance of an intermediary agreement.
    (8) Undertaking other functions as mutually agreed to by CMS and the 
intermediary.
    (c) Dual intermediary responsibilities. Regarding the responsibility 
for service to provider-based HHAs and provider-based hospices, where 
the HHA or the hospice and its parent provider will be served by 
different intermediaries, the designated regional intermediary will 
process bills, make coverage determinations, and make payments to the 
HHAs and the hospices. The intermediary or Medicare integrity program 
contractor 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.

[72 FR 48886, Aug. 24, 2007]

[[Page 390]]



Sec. 421.103  Payment to providers.

    Providers are assigned to intermediaries in accordance with 
Sec. 421.104. As the Medicare Administrative Contractors (MACs) are 
implemented, providers are reassigned from intermediaries to MACs in 
accordance with Sec. 412.404 of this chapter.

[71 FR 68228, Nov. 24, 2006]



Sec. 421.104  Assignment of providers of services to intermediaries 
during transition to Medicare Administrative Contractors (MACs).

    (a) Beginning October 1, 2005, CMS assigns providers of services and 
other entities that may bill Part A benefits to intermediaries in a 
manner that will best support the transition to Medicare Administrative 
Contractors (MACs) under section 1874A of the Act in accordance with 
subpart E of this part.
    (b) These providers of services and other entities must continue to 
bill the intermediary that they were billing prior to October 1, 2005, 
until one of the following events occurs:
    (1) The intermediary's agreement with CMS ends, and the provider or 
entity is directed by CMS to bill another CMS contractor.
    (2) The provider or entity is assigned to a MAC that has begun to 
administer claims within the geographic locale of the provider or 
entity.
    (3) CMS directs the provider or entity to begin billing another CMS 
contractor in order to support the implementation of MACs under section 
1874A of the Act and subpart E of this part.
    (c) New providers of services and new entities will be assigned to 
the intermediary serving their geographic locale if no MAC has begun to 
administer Medicare claims in the locale. These providers or entities 
must continue to bill the intermediary until one of the events in 
paragraph (b) of this section occurs.
    (d) Providers or entities will only be granted exceptions to the 
provisions of paragraphs (b) or (c) of this section if CMS deems the 
exception to be in the compelling interest of the Medicare program.
    (e) CMS will notify the provider or entity, the outgoing 
intermediary, and the newly assigned intermediary of assignment or 
reassignment decisions.

[71 FR 68228, Nov. 24, 2006]



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 391]]

    (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, the Secretary may make 
determinations with respect to the termination of an intermediary 
agreement, and CMS may make determinations with respect to renewal of an 
intermediary agreement under Sec. 421.110.
    (b) When taking the actions specified in paragraph (a) of this 
section, the Secretary or CMS will consider the performance of the 
individual intermediary in its Medicare operations using the factors 
contained in the performance criteria specified in Sec. 421.120 and the 
performance standards specified in 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; 71 
FR 68229, Nov. 24, 2006]



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 be in the best 
interests of the Medicare program.

[71 FR 68229, Nov. 24, 2006]



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

[[Page 392]]

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 Secs. 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 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 Secs. 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.

[[Page 393]]



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 specifies the functions to be 
performed by the carrier. The contract may include any or all of the 
following functions:
    (a) Any or all of the program integrity functions described in 
Sec. 421.304 provided the following conditions are met:
    (1) The carrier is continuing those functions under a contract 
entered into under section 1842 of the Act that was in effect on August 
21, 1996.
    (2) The functions do not duplicate work being performed under a 
Medicare integrity program contract, except that the function related to 
developing and maintaining a list of DME may be performed under both a 
carrier contract and a Medicare integrity program contract.
    (b) Receiving, disbursing, and accounting for funds in making 
payments for services furnished to eligible individuals within the 
jurisdiction of the carrier.
    (c) Determining the amount of payment for services furnished to an 
eligible individual.
    (d) Undertaking to adjust incorrect payments and recover 
overpayments when it is determined that an overpayment was made.
    (e) Furnishing to CMS timely information and reports that CMS 
requests in order to carry out its responsibilities in the 
administration of the Medicare program.
    (f) Maintaining records and making available to CMS the records 
necessary for verification of payments and for other related purposes.
    (g) Establishing and maintaining procedures under which an 
individual enrolled under Part B is granted an opportunity for a 
redetermination.
    (h) Upon inquiry, assisting individuals with matters pertaining to a 
carrier contract.
    (i) Serving as a channel of communication to and from CMS of 
information, instructions, and other material as necessary for the 
effective and efficient performance of a carrier contract.
    (j) Undertaking other functions as mutually agreed to by CMS and the 
carrier.

[72 FR 48886, Aug. 24, 2007]



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

[[Page 394]]

their Medicare operations using performance criteria and standards.
    (1) The criteria measure and evaluate carrier performance of 
functional responsibilities such as--
    (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

[[Page 395]]

supplies (DMEPOS). This authority has been delegated to CMS.
    (b) Types of claims. Claims for the following, except for items 
incident to a 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).

[[Page 396]]

    (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 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

[[Page 397]]

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.
    (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]



            Subpart D_Medicare Integrity Program Contractors

    Source: 72 FR 48886, Aug. 24, 2007, unless otherwise noted.



Sec. 421.300  Basis, applicability, and scope.

    (a) Basis. This subpart implements section 1893 of the Act, which 
requires

[[Page 398]]

CMS to protect the integrity of the Medicare program by entering into 
contracts with eligible entities to carry out Medicare integrity program 
functions. The provisions of this subpart are based on section 1893 of 
the Act (and, where applicable, section 1874A of the Act) and the 
acquisition regulations set forth at 48 CFR chapters 1 and 3.
    (b) Applicability. This subpart applies to entities that seek to 
compete or receive award of a contract under section 1893 of the Act, 
including entities that perform functions under this subpart emanating 
from the processing of claims for individuals entitled to benefits as 
qualified railroad retirement beneficiaries.
    (c) Scope. The scope of this subpart follows:
    (1) Defines the types of entities eligible to become Medicare 
integrity program contractors.
    (2) Identifies the program integrity functions a Medicare integrity 
program contractor performs.
    (3) Describes procedures for awarding and renewing contracts.
    (4) Establishes procedures for identifying, evaluating, and 
resolving organizational conflicts of interest.
    (5) Prescribes responsibilities.
    (6) Sets forth limitations on contractor liability.



Sec. 421.302  Eligibility requirements for Medicare integrity program
contractors.

    (a) CMS may enter into a contract with an entity to perform the 
functions described in Sec. 421.304 if the entity meets the following 
conditions:
    (1) Demonstrates the ability to perform the Medicare integrity 
program contractor functions described in Sec. 421.304. For purposes of 
developing and periodically updating a list of DME under 
Sec. 421.304(e), an entity is deemed to be eligible to enter into a 
contract under the Medicare integrity program to perform the function if 
the entity is a carrier with a contract in effect under section 1842 of 
the Act.
    (2) Agrees to cooperate with the OIG, the DOJ, and other law 
enforcement agencies, as appropriate, including making referrals, in the 
investigation and deterrence of potential fraud and abuse of the 
Medicare program.
    (3) Complies with conflict of interest provisions in 48 CFR chapters 
1 and 3, and is not excluded under the conflict of interest provision at 
Sec. 421.310.
    (4) Maintains an appropriate written code of conduct and compliance 
policies that include, but are not limited to, an enforced policy on 
employee conflicts of interest.
    (5) Meets other requirements that CMS establishes.
    (b) A MAC as described in section 1874A of the Act may perform any 
or all of the functions described in Sec. 421.304, except that the 
functions may not duplicate work being performed under a Medicare 
integrity program contract.
    (c) If a MAC performs any or all functions described in 
Sec. 421.304, CMS may require the MAC to comply with any or all of the 
requirements of paragraph (a) of this section as a condition of its 
contract.



Sec. 421.304  Medicare integrity program contractor functions.

    The contract between CMS and a Medicare integrity program contractor 
specifies the functions the contractor performs. The contract may 
include any or all of the following functions:
    (a) Conducting medical reviews, utilization reviews, and reviews of 
potential fraud related to the activities of providers of services and 
other individuals and entities (including entities contracting with CMS 
under parts 417 and 422 of this chapter) furnishing services for which 
Medicare payment may be made either directly or indirectly.
    (b) Auditing, settling and determining cost report payments for 
providers of services, or other individuals or entities (including 
entities contracting with CMS under parts 417 and 422 of this chapter), 
as necessary to help ensure proper Medicare payment.
    (c) Determining whether a payment is authorized under title XVIII, 
as specified in section 1862(b) of the Act, and recovering mistaken and 
conditional payments under section 1862(b) of the Act.

[[Page 399]]

    (d) Educating providers, suppliers, beneficiaries, and other persons 
regarding payment integrity and benefit quality assurance issues.
    (e) Developing, and periodically updating, a list of items of DME 
that are frequently subject to unnecessary utilization throughout the 
contractor's entire service area or a portion of the area, in accordance 
with section 1834(a)(15)(A) of the Act.



Sec. 421.306  Awarding of a contract.

    (a) CMS awards and administers Medicare integrity program contracts 
in accordance with acquisition regulations set forth at 48 CFR chapters 
1 and 3, this subpart, all other applicable laws, and all applicable 
regulations. These requirements for awarding Medicare integrity program 
contracts are used as follows:
    (1) When entering into new contracts.
    (2) When entering into contracts that may result in the elimination 
of responsibilities of an individual fiscal intermediary or carrier 
under section 1816(l) or section 1842(c) of the Act, respectively.
    (3) At any other time CMS considers appropriate.
    (b) CMS may award an entity a Medicare integrity program contract by 
transfer if all of the following conditions apply:
    (1) Through approval of a novation agreement in accordance with the 
requirements of the Federal Acquisition Regulation (FAR), CMS recognizes 
the entity as the successor in interest to a fiscal intermediary 
agreement or carrier contract under which the fiscal intermediary or 
carrier was performing activities described in section 1893(b) of the 
Act on August 21, 1996.
    (2) The fiscal intermediary or carrier continued to perform Medicare 
integrity program activities until transferring the resources to the 
entity.
    (c) An entity is eligible to be awarded a Medicare integrity program 
contract only if it meets the eligibility requirements specified in 
Sec. 421.302; 48 CFR chapters 1 and 3; and other applicable laws and 
regulations.



Sec. 421.308  Renewal of a contract.

    (a) General. (1) CMS specifies an initial contract term in the 
Medicare integrity program contract.
    (2) Contracts under this subpart may contain renewal clauses.
    (3) CMS may, but is not required to, renew the Medicare integrity 
program contract, without regard to any provision of law requiring 
competition, as it determines to be appropriate, by giving the 
contractor notice, within timeframes specified in the contract, of its 
intent to do so.
    (b) Conditions for renewal of contract. CMS may renew a Medicare 
integrity program contract if all of the following conditions are met:
    (1) The Medicare integrity program contractor continues to meet the 
requirements established in this subpart.
    (2) The Medicare integrity program contractor meets or exceeds the 
performance requirements established in its current contract.
    (3) It is in the best interest of the government.
    (c) Nonrenewal of a contract. If CMS does not renew a contract, the 
contract ends in accordance with its terms.



Sec. 421.310  Conflict of interest requirements.

    Offerors for MIP contracts and MIP contractors are subject to the 
following:
    (a) The conflict of interest standards and requirements of the 
Federal Acquisition Regulation (FAR) organizational conflict of interest 
guidance specified under 48 CFR subpart 9.5.
    (b) The standards and requirements as are contained in each 
individual contract awarded to perform section 1893 of the Act 
functions.



Sec. 421.312  Conflict of interest resolution.

    (a) Review Board. CMS may establish and convene a Conflicts of 
Interest Review Board to assist the contracting officer in resolving 
organizational conflicts of interest.
    (b) Resolution--(1) Pre-award conflicts. Resolution of an 
organizational conflict of interest is a determination by the 
contracting officer that one of the following has occurred:
    (i) The conflict is mitigated.

[[Page 400]]

    (ii) The conflict precludes award of a contract to the offeror.
    (iii) It is in the best interest of the government to award a 
contract to the offeror (in accordance with 48 CFR subpart 9.503) even 
though a conflict of interest exists.
    (2) Post-award conflicts. Resolution of an organizational conflict 
of interest is a determination by the contracting officer that one of 
the following has occurred:
    (i) The conflict is mitigated.
    (ii) The conflict requires that CMS modify an existing contract.
    (iii) The conflict requires that CMS terminate or not renew an 
existing contract.
    (iv) It is in the best interest of the government to continue the 
contract even though a conflict of interest exists.



Sec. 421.316  Limitation on Medicare integrity program contractor liability.

    (a) A MIP contractor, a person or an entity employed by, or having a 
fiduciary relationship with, or who furnishes professional services to a 
MIP contractor is not in violation of any criminal law or civilly liable 
under any law of the United States or of any State (or political 
subdivision thereof) by reason of the performance of any duty, function, 
or activity required or authorized under this subpart or under a valid 
contract entered into under this subpart, provided due care was 
exercised in that performance and the contractor has a contract with CMS 
under this subpart.
    (b) CMS pays a contractor, a person or an entity described in 
paragraph (a) of this section, or anyone who furnishes legal counsel or 
services to a contractor or person, a sum equal to the reasonable amount 
of the expenses, as determined by CMS, incurred in connection with the 
defense of a suit, action, or proceeding, if the following conditions 
are met:
    (1) The suit, action, or proceeding was brought against the 
contractor, such person or entity by a third party and relates to the 
contractor's, person's or entity's performance of any duty, function, or 
activity under a contract entered into with CMS under this subpart.
    (2) The funds are available.
    (3) The expenses are otherwise allowable under the terms of the 
contract.



          Subpart E_Medicare Administrative Contractors (MACs)

    Source: 71 FR 68229, Nov. 24, 2006, unless otherwise noted.



Sec. 421.400  Statutory basis and scope.

    (a) Statutory basis. This subpart implements section 1874A of the 
Act, which provides for the transition of the claims processing 
functions and operations for both Medicare Part A and Part B 
intermediaries and carriers to Medicare Administrative Contractors 
(MACs). The transition will occur between October 1, 2005, and October 
1, 2011. MACs will be fully operational in distinct, nonoverlapping 
geographic jurisdictions by October 1, 2011.
    (b) Scope. This subpart specifies the requirements under which 
providers and suppliers will be assigned to MACs.



Sec. 421.401  Definitions.

    For purposes of this subpart--
    Appropriate MAC means a MAC that has a contract under section 1874A 
of the Act to perform a particular Medicare administrative function in 
relation to:
    (1) A particular individual entitled to benefits under Part A or 
enrolled under Part B, or both;
    (2) A specific provider of services or supplier; or
    (3) A class of providers of services or suppliers.
    Medicare Administrative Contractor (MAC) means an agency, 
organization, or other person with a contract under section 1874A of the 
Act.



Sec. 421.404  Assignment of providers and suppliers to MACs.

    (a) Definitions. As used in this section--
    Chain provider means a group of two or more providers under common 
ownership or control.
    Common control exists when an individual, a group of individuals, or 
an organization has the power, directly or indirectly, to significantly 
influence or direct the actions or policies of the group of suppliers or 
eligible providers.

[[Page 401]]

    Common ownership exists when an individual, a group of individuals, 
or an organization possesses significant equity in the group of 
suppliers or eligible providers.
    Durable medical equipment, prosthetics, orthotics, and supplies 
(DMEPOS) means the types of services specified in Sec. 421.210(b).
    Eligible provider means a hospital, skilled nursing facility, or 
critical access hospital that meets the definition of a provider under 
Sec. 400.202 of this chapter.
    Home office means the entity that provides centralized management 
and administrative services to the individual providers or suppliers 
under common ownership and common control, such as centralized 
accounting, purchasing, personnel services, management direction and 
control, and other similar services.
    Ineligible provider means a provider under Sec. 400.202 of this 
chapter that is not an eligible provider.
    Medicare benefit category means a category of covered benefits under 
Part A or Part B of the Medicare program (for example, inpatient 
hospital services, post-hospital extended care services, and 
physicians'services).
    Provider has the same meaning as specified under Sec. 400.202 of 
this chapter.
    Qualified chain provider means a chain provider comprised of--
    (1) 10 or more eligible providers collectively totaling 500 or more 
certified beds; or
    (2) 5 or more eligible providers collectively totaling 300 or more 
certified beds, with eligible providers in 3 or more contiguous States.
    Supplier has the same meaning as specified in Sec. 400.202 of this 
chapter.
    (b) Assignment of providers to MACs. (1) Providers enroll with and 
receive Medicare payment and other Medicare services from the MAC 
contracted by CMS to administer claims for the Medicare benefit category 
applicable to the provider's covered services for the geographic locale 
in which the provider is physically located.
    (2) Qualified chain providers may request and receive an exception 
from the requirement of paragraph (b)(1) of this section from CMS. Upon 
CMS'approval, a qualified chain provider may enroll with and bill on 
behalf of the eligible providers under its common ownership or common 
control to the MAC contracted by CMS to administer claims for the 
Medicare benefit category applicable to the eligible providers'covered 
services for the geographic locale in which the qualified chain 
provider's home office is physically located.
    (3) As MAC contractors become available, qualified chain providers, 
granted approval by CMS to enroll with and bill a single intermediary on 
behalf of their eligible member providers prior to October 1, 2005, will 
be assigned at an appropriate time to the MAC contracted by CMS to 
administer claims for the applicable Medicare benefit category for the 
geographic locale in which the chain provider's home office is 
physically located. The qualified chain provider will not need to 
request an exception to the requirement of paragraph (b)(1) of this 
section in order for this assignment to take effect.
    (4) CMS may grant an exception to the requirement of paragraph 
(b)(1) of this section to eligible providers that are not under the 
common ownership or common control of a qualified chain provider, as 
well as ineligible providers, only if CMS finds the exception will 
support the implementation of MACs or will serve some other compelling 
interest of the Medicare program.
    (c) Assignment of suppliers to MACs. (1) Suppliers, including 
physicians and other practitioners, but excluding suppliers of DMEPOS, 
enroll with and receive Medicare payment and other Medicare services 
from the MAC contracted by CMS to administer claims for the Medicare 
benefit category applicable to the supplier's covered services for the 
geographic locale in which the supplier furnished such services.
    (2) Suppliers of DMEPOS receive Medicare payment and other Medicare 
services from the MAC assigned to administer claims for DMEPOS for the 
regional area in which the beneficiary receiving the DMEPOS resides. The 
terms of Secs. 421.210 and 421.212 continue to apply to suppliers of 
DMEPOS.
    (3) CMS may allow a group of ESRD suppliers under common ownership 
and common control to enroll with the MAC contracted by CMS to 
administer

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ESRD claims for the geographic locale in which the group's home office 
is located only if--
    (i) The group of ESRD suppliers requests such privileges; and
    (ii) CMS finds the exception will support the implementation of MACs 
or will serve some other compelling interest of the Medicare program.

Subpart F [Reserved]



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.
422.52  Eligibility to elect an MA plan for special needs individuals.
422.53  Eligibility to elect an MA plan for senior housing facility 
          residents.
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.

             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.
422.107  Special needs plans and dual-eligibles: Contract with State 
          Medicaid Agency.
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.
422.134  Reward and incentive programs.

                      Subpart D_Quality Improvement

422.152  Quality improvement program.
422.153  Use of quality improvement organization review information.
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.
422.222  Enrollment of MA organization network providers and suppliers; 
          first-tier, downstream, and related entities (FDRs); cost HMO 
          or CMP, and demonstration and pilot programs.

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422.224  Payment to providers or suppliers excluded or revoked.

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.
422.260  Appeals of quality bonus payment determinations.
422.262  Beneficiary premiums.
422.264  Calculation of savings.
422.266  Beneficiary rebates.
422.270  Incorrect collections of premiums and cost sharing.
422.272  Release of MA bid pricing data.

         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  RADV audit dispute and appeal processes.
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.
422.326  Reporting and returning of overpayments.
422.330  CMS-identified overpayments associated with payment data 
          submitted by MA organizations.

               Subpart H_Provider-Sponsored Organizations

422.350  Basis, scope, and definitions.
422.352  Basic requirements.
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_Application Procedures and Contracts for 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  Validation of Part C 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.

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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 (Council) 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  Notifying enrollees of hospital discharge appeal rights.
422.622  Requesting immediate QIO review of the decision to discharge 
          from the inpatient hospital.
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.
422.660  Right to a hearing, burden of proof, standard of proof, and 
          standards of review.
422.662  Request for hearing.
422.664  Postponement of effective date of a contract determination when 
          a request for a hearing 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  Witness lists and documents.
422.684  Prehearing and summary judgment.
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 a contract determination or decision of a hearing 
          officer or the Administrator.

                    Subpart O_Intermediate Sanctions

422.750  Types of intermediate sanctions and civil money penalties.
422.752  Basis for imposing intermediate sanctions and civil money 
          penalties.
422.756  Procedures for imposing intermediate sanctions and civil money 
          penalties.
422.758  Collection of civil money penalties imposed by CMS.
422.760  Determinations regarding the amount of civil money penalties 
          and assessment imposed by CMS.
422.762  Settlement of penalties.
422.764  Other applicable provisions.

Subparts P-S [Reserved]

          Subpart T_Appeal Procedures for Civil Money Penalties

422.1000  Basis and scope.
422.1002  Definitions.
422.1004  Scope and applicability.
422.1006  Appeal rights.
422.1008  Appointment of representatives.
422.1010  Authority of representatives.
422.1012  Fees for services of representatives.
422.1014  Charge for transcripts.
422.1016  Filing of briefs with the Administrative Law Judge or 
          Departmental Appeals Board, and opportunity for rebuttal.
422.1018  Notice and effect of initial determinations.
422.1020  Request for hearing.
422.1022  Parties to the hearing.
422.1024  Designation of hearing official.
422.1026  Disqualification of Administrative Law Judge.
422.1028  Prehearing conference.
422.1030  Notice of prehearing conference.
422.1032  Conduct of prehearing conference.
422.1034  Record, order, and effect of prehearing conference.
422.1036  Time and place of hearing.
422.1038  Change in time and place of hearing.
422.1040  Joint hearings.
422.1042  Hearing on new issues.
422.1044  Subpoenas.

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422.1046  Conduct of hearing.
422.1048  Evidence.
422.1050  Witnesses.
422.1052  Oral and written summation.
422.1054  Record of hearing.
422.1056  Waiver of right to appear and present evidence.
422.1058  Dismissal of request for hearing.
422.1060  Dismissal for abandonment.
422.1062  Dismissal for cause.
422.1064  Notice and effect of dismissal and right to request review.
422.1066  Vacating a dismissal of request for hearing.
422.1068  Administrative Law Judge's decision.
422.1070  Removal of hearing to Departmental Appeals Board.
422.1072  Remand by the Administrative Law Judge.
422.1074  Right to request Departmental Appeals Board review of 
          Administrative Law Judge's decision or dismissal.
422.1076  Request for Departmental Appeals Board review.
422.1078  Departmental Appeals Board action on request for review.
422.1080  Procedures before the Departmental Appeals Board on review.
422.1082  Evidence admissible on review.
422.1084  Decision or remand by the Departmental Appeals Board.
422.1086  Effect of Departmental Appeals Board Decision.
422.1088  Extension of time for seeking judicial review.
422.1090  Basis, timing, and authority for reopening an Administrative 
          Law Judge or Board decision.
422.1092  Revision of reopened decision.
422.1094  Notice and effect of revised decision.

Subpart U [Reserved]

           Subpart V_Medicare Advantage Marketing Requirements

422.2260  Definitions concerning marketing materials.
422.2262  Review and distribution of marketing materials.
422.2264  Guidelines for CMS review.
422.2266  [Reserved]
422.2268  Standards for MA organization marketing.
422.2272  Licensing of marketing representatives and confirmation of 
          marketing resources.
422.2274  Broker and agent requirements.
422.2276  Employer group retiree marketing.

Subpart W [Reserved]

         Subpart X_Requirement for a Minimum Medical Loss Ratio

422.2400  Basis and scope.
422.2401  Definitions.
422.2410  General requirements.
422.2420  Calculation of the medical loss ratio.
422.2430  Activities that improve health care quality.
422.2440  Credibility adjustment.
422.2450  [Reserved]
422.2460  Reporting requirements.
422.2470  Remittance to CMS if the applicable MLR requirement is not 
          met.
422.2480  MLR review and non-compliance.
422.2490  Release of Part C MLR data.

Subpart Y [Reserved]

       Subpart Z_Part C Recovery Audit Contractor Appeals Process

422.2600  Payment appeals.
422.2605  Request for reconsideration.
422.2610  Hearing official review.
422.2615  Review by the Administrator.

    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:
    (1) The following provisions of the Act:
    (i) 1106--Disclosure of information in possession of agency.
    (ii) 1128J(d)--Reporting and Returning of Overpayments.
    (iii) 1851--Eligibility, election, and enrollment.
    (iv) 1852--Benefits and beneficiary protections.
    (v) 1853--Payments to Medicare Advantage (MA) organizations.
    (vi) 1854--Premiums.
    (vii) 1855--Organization, licensure, and solvency of MA 
organizations.
    (viii) 1856--Standards.
    (ix) 1857--Contract requirements.
    (x) 1858--Special rules for MA Regional Plans.

[[Page 406]]

    (xi) 1859--Definitions; enrollment restriction for certain MA plans.
    (2) 8 U.S.C. 1611--Aliens who are not qualified aliens ineligible 
for Federal public benefits.
    (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; 80 
FR 7958, Feb. 12, 2015; 81 FR 80556, Nov. 15, 2016]



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.
    Attestation process means a CMS-developed RADV audit-related process 
that is part of the medical record review process that enables MA 
organizations undergoing RADV audit to submit CMS-generated attestations 
for eligible medical records with missing or illegible signatures or 
credentials. The purpose of the CMS-generated attestations is to cure 
signature and credential issues. CMS-generated attestations do not 
provide an opportunity for a provider or supplier to replace a medical 
record or for a provider or supplier to attest that a beneficiary has 
the medical condition
    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.
    Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, with persons or entities involved with 
the MA benefit, below the level of the arrangement between an MA 
organization (or applicant) and a first tier entity. These written 
arrangements continue down to the level of the ultimate provider of both 
health and administrative services.
    First tier entity means any party that enters into a written 
arrangement, acceptable to CMS, with an MA organization or applicant to 
provide administrative services or health care services for a Medicare 
eligible individual under the MA program.
    Fiscally sound operation means an operation which at least maintains 
a positive net worth (total assets exceed total liabilities).
    Fully integrated dual eligible special needs plan means a CMS 
approved MA-PD dual eligible special needs plan that--
    (1) Enrolls special needs individuals entitled to medical assistance 
under a Medicaid State plan, as defined in section 1859(b)(6)(B)(ii) of 
the Act and Sec. 422.2;
    (2) Provides dual eligible beneficiaries access to Medicare and 
Medicaid benefits under a single managed care organization;
    (3) Has a capitated contract with a State Medicaid agency that 
includes coverage of specified primary, acute, and long-term care 
benefits and services, consistent with State policy;
    (4) Coordinates the delivery of covered Medicare and Medicaid health 
and long-term care services using aligned

[[Page 407]]

care management and specialty care network methods for high-risk 
beneficiaries; and
    (5) Employs policies and procedures approved by CMS and the State to 
coordinate or integrate member materials, enrollment, communications, 
grievance and appeals, and quality improvement.
    Hierarchical condition categories (HCC) means disease groupings 
consisting of disease codes (currently ICD-9-CM codes) that predict 
average healthcare spending. HCCs represent the disease component of the 
enrollee risk score that are applied to MA payments.
    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 individuals with 
intellectual disabilities (ICF/IID); or an inpatient psychiatric 
facility.
    Institutionalized-equivalent means for the purpose of defining a 
special needs individual, an MA eligible individual who is living in the 
community but requires an institutional level of care. The determination 
that the individual requires an institutional level of care (LOC) must 
be made by--
    (1) The use of a State assessment tool from the State in which the 
individual resides; and
    (2) An assessment conducted by an impartial entity and having the 
requisite knowledge and experience to accurately identify whether the 
beneficiary meets the institutional LOC criteria. In States and 
territories that do not have an existing institutional level of care 
assessment tool, the individual must be assessed using the same 
methodology that State uses to determine institutional level of care for 
Medicaid nursing home eligibility.
    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,

[[Page 408]]

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) means a benefit option that an MA HMO plan 
can offer to its Medicare enrollees as a mandatory supplemental, or 
optional supplemental benefit. Under the POS benefit option, the HMO 
plan allows members the option of receiving specified services outside 
of the HMO plan's provider network. In return for this flexibility, 
members typically have higher cost-sharing requirements for services 
received and, when 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.
    RADV appeal process means an administrative process that enables MA 
organizations that have undergone RADV audit to appeal the Secretary's 
medical record review determinations and the Secretary's calculation of 
an MA organization's RADV payment error.
    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.
    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.
    Risk adjustment data validation (RADV) audit means a payment audit 
of a MA organization administered by the Secretary that ensures the 
integrity and accuracy of risk adjustment payment data.
    Senior housing facility plan means an MA coordinated care plan 
that--
    (1) Restricts enrollment to individuals who reside in a continuing 
care retirement community as defined in Sec. 422.133(b)(2);

[[Page 409]]

    (2) Provides primary care services onsite and has a ratio of 
accessible physicians to beneficiaries that CMS determines is adequate 
consistent with prevailing patterns of community health care referenced 
at Sec. 422.112(a)(10);
    (3) Provides transportation services for beneficiaries to specialty 
providers outside of the facility; and
    (4) Was participating as of December 31, 2009 in a demonstration 
established by CMS for not less than 1 year.
    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. Facilities in which 
individuals are incarcerated are not included in the service area of an 
MA plan. 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.
    Severe or disabling chronic condition means for the purpose of 
defining a special needs individual, an MA eligible individual who has 
one or more co-morbid and medically complex chronic conditions that are 
substantially disabling or life-threatening, has a high risk of 
hospitalization or other significant adverse health outcomes, and 
requires specialized delivery systems across domains of care.
    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 an MA 
coordinated care plan that exclusively enrolls special needs individuals 
as set forth in Sec. 422.4(a)(1)(iv) and that 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 an 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 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; 72 FR 68722, Dec. 5, 2007; 74 
FR 1540, Jan. 12, 2009; 75 FR 19803, Apr. 15, 2010; 76 FR 21561, Apr. 
15, 2011; 79 FR 29955, May 23, 2014]



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.

[[Page 410]]

    (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 any of the 
following:
    (A) Health maintenance organizations (HMOs);
    (B) Provider-sponsored organizations (PSOs), subject to paragraph 
(a)(1)(vi) of this section.
    (C) Regional or local preferred provider organizations (PPOs) as 
specified in paragraph (a)(1)(v) of this section.
    (D) 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's SNP 
requirements and exclusively enrolls special needs individuals as 
defined by Sec. 422.2 of this subpart. All MA plans wishing to offer a 
SNP will be required to be approved by the National Commission on 
Quality Assurance (NCQA) effective January 1, 2012. This approval 
process applies to existing SNPs as well as new SNPs joining the 
program. All SNPs must submit their model of care (MOC) to CMS for NCQA 
evaluation and approval as per CMS guidance.
    (v) A PPO plan is a plan that--
    (A) Has a network of providers that have agreed to a contractually 
specified reimbursement for covered benefits with the organization 
offering the plan;
    (B) Provides for reimbursement for all covered benefits regardless 
of whether the benefits are provided within the network of providers;
    (C) 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; and
    (D) Does not permit prior notification for out-of-network services--
that is, a reduction in the plan's standard cost-sharing levels when the 
out-of-network provider from whom an enrollee is receiving plan-covered 
services voluntarily notifies the plan prior to furnishing those 
services, or the enrollee voluntarily notifies the PPO plan prior to 
receiving plan-covered services from an out-of-network provider.
    (vi) In accordance with Sec. 422.370, CMS does not waive the State 
licensure requirement for organizations seeking to offer a PSO.
    (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);
    (B) Does not permit prior notification--that is, a reduction in the 
plan's standard cost-sharing levels when the provider from whom an 
enrollee is receiving plan-covered services voluntarily notifies the 
plan prior to furnishing those services, or the enrollee voluntarily 
notifies the MSA plan prior to receiving plan-covered services from a 
provider; and
    (C) 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) Subject to paragraphs (a)(3)(ii)(A) and (B) of this section, 
does not vary the rates for a provider based on the utilization of that 
provider's services; and
    (A) May vary the rates for a provider based on the specialty of the 
provider, the location of the provider, or other

[[Page 411]]

factors related to the provider that are not related to utilization and 
do not violate Sec. 422.205 of this part.
    (B) May increase the rates for a provider based on increased 
utilization of specified preventive or screening services.
    (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.
    (iv) Does not permit prior notification--that is, a reduction in the 
plan's standard cost-sharing levels when the provider from whom an 
enrollee is receiving plan-covered services voluntarily notifies the 
plan prior to furnishing those services, or the enrollee voluntarily 
notifies the PFFS plan prior to receiving plan-covered services from a 
provider.
    (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 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; 73 FR 54248, 
Sept. 18, 2008; 74 FR 1541, Jan. 12, 2009; 75 FR 19804, Apr. 15, 2010; 
76 FR 21561, Apr. 15, 2011]



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

[[Page 412]]

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 
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 meets 
all of the following:;
    (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

[[Page 413]]

    (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 MA organization and provides 
information required for enrollment.
    (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.
    (7) Is a United States citizen or is lawfully present in the United 
States as determined in 8 CFR 1.3.
    (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; 80 FR 7958, Feb. 12, 2015]



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) Establishing eligibility for enrollment. A SNP must employ a 
process approved by CMS to verify the eligibility of each individual 
enrolling in the SNP.

[70 FR 4716, Jan. 28, 2005, as amended at 74 FR 1541, Jan. 12, 2009]



Sec. 422.53  Eligibility to elect an MA plan for senior housing 
facility residents.

    (a) Basic eligibility requirements. To be eligible to elect an MA 
senior housing facility plan, the individual must meet both of the 
following:
    (1) Be a resident of an MA senior housing facility defined in 
Sec. 422.2.
    (2) Be eligible to elect an MA plan under Sec. 422.50.
    (b) Restricting enrollment. An MA senior housing facility plan must 
restrict enrollment to only those individuals who reside in a continuing 
care retirement community as defined at Sec. 422.133(b)(2).

[[Page 414]]

    (c) Establishing eligibility for enrollment. An MA senior housing 
facility plan must verify the eligibility of each individual enrolling 
in its plan using a CMS approved process.

[76 FR 21561, Apr. 15, 2011]



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).
    (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

[[Page 415]]

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.
    (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. 422.2262. 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.

[[Page 416]]

    (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.
    (g) Passive enrollment by CMS. In situations involving either 
immediate terminations as provided in Sec. 422.510(a)(5) or other 
situations in which CMS determines that remaining enrolled in a plan 
poses potential harm to the members, CMS may implement passive 
enrollment procedures.
    (1) Passive enrollment procedures. Individuals will be considered to 
have elected the plan selected by CMS unless they--
    (i) Decline the plan selected by CMS, in a form and manner 
determined by CMS, or
    (ii) Request enrollment in another plan.
    (2) Beneficiary notification. The organization that receives the 
enrollment must provide notification that describes the costs and 
benefits of the plan and the process for accessing care under the plan 
and clearly explains the beneficiary's ability to decline the enrollment 
or choose another plan. Such notification must be provided to all 
potential enrollees prior to the enrollment effective date (or as soon 
as possible after the effective date if prior notice is not practical), 
in a form and manner determined by CMS.
    (3) Special election period. All individuals will be provided with a 
special election period, as described in Sec. 422.62(b)(4).

[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; 74 FR 1541, Jan. 12, 
2009; 77 FR 22166, Apr. 12, 2012]



Sec. 422.62  Election of coverage under an MA plan.

    (a) General: Coverage election periods--(1) Initial coverage 
election period for 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) For 2002 through 2010, 
except for 2006, the annual coordinated election period for the 
following calendar year is November 15 through December 31.

[[Page 417]]

    (ii) For 2006, the annual coordinated election period begins on 
November 15, 2005 and ends on May 15, 2006.
    (iii) Beginning in 2011, the annual coordinated election period for 
the following calendar year is October 15 through December 7.
    (iv) 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 from 2007 through 2010. (i) 
Open enrollment period. For 2007 through 2010, except as provided in 
paragraphs (a)(5)(ii), (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.
    (ii) Newly eligible MA individual. An individual who becomes MA 
eligible in 2007 through 2010 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 third 
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) Single election limitation. The limitation to one election or 
change in paragraphs (a)(5)(i) and (a)(5)(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.
    (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

[[Page 418]]

her election from an MA plan to original Medicare, to a different MA 
plan, or from original Medicare to an MA plan.
    (7) Annual 45-day period for disenrollment from MA plans to Original 
Medicare. For 2011 and subsequent years, at any time from January 1 
through February 14, an individual who is enrolled in an MA plan may 
elect Original Medicare once during this 45-day period. An individual 
who chooses to exercise this election may also make a coordinating 
election to enroll in a PDP as specified in Sec. 423.38(d).
    (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
    (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; 76 FR 21561, Apr. 
15, 2011]

[[Page 419]]



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 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

[[Page 420]]

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 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

[[Page 421]]

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.
    (f) Annual 45-day period for disenrollment from MA plans to Original 
Medicare. Beginning in 2011, an election made from January 1 through 
February 14 to disenroll from an MA plan to Original Medicare, as 
described in Sec. 422.62(a)(7), is effective the first day of the first 
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; 76 FR 21562, Apr. 
15, 2011]



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).
    (v) The individual is not lawfully present in the United States.
    (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.
    (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

[[Page 422]]

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) Except as specified in paragraph 
(d)(1)(iv) of this section, 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 must--
    (1) Be at least 2 months; and
    (2) Begin on the first day of the month for which the premium is 
unpaid or the first day of the month following the date on which premium 
payment is requested, whichever is later.
    (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.
    (iv) An MA organization may not disenroll an individual who had 
monthly premiums withheld per Sec. 422.262(f)(1) and (g) of this part, 
or who is in premium withhold status, as defined by CMS.
    (v) Extension of grace period for good cause and reinstatement. When 
an individual is disenrolled for failure to pay the plan premium, CMS 
(or a third party to which CMS has assigned this responsibility, such as 
an MA organization) may reinstate enrollment in the MA plan, without 
interruption of coverage, if the individual--
    (A) Shows good cause for failure to pay within the initial grace 
period; and
    (B) Pays all overdue premiums within 3 calendar months after the 
disenrollment date; and
    (C) Establishes by a credible statement that failure to pay premiums 
within the initial grace period was due to circumstances for which the 
individual had no control, or which the individual could not reasonably 
have been expected to foresee.
    (vi) No extension of grace period. A beneficiary's enrollment in the 
MA plan may not be reinstated if the only basis for such reinstatement 
is a change in the individual's circumstances subsequent to the 
involuntary disenrollment for non-payment of premiums.
    (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.

[[Page 423]]

    (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 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 is incarcerated as 
specified in paragraph (d)(4)(v) of this section.
    (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 offers a visitor/traveler benefit 
when the individual is out of the service area but within the United 
States (as defined in Sec. 400.200 of this chapter) for a period of 
consecutive days longer than 6 months but less than 12 months, 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

[[Page 424]]

the MA plan on obtaining these services while absent from the MA plan's 
service area for the extended period, consistent with paragraph 
(d)(4)(i)(C) of the section;
    (C) The MA organization makes this visitor/traveler option available 
to all Medicare enrollees who are absent for an extended period from the 
MA plan's service area. MA organizations may limit this visitor/traveler 
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; and
    (D) The MA organization furnishes all Medicare Parts A and B 
services and all mandatory and optional supplemental benefits at the 
same cost sharing levels as apply within the plan's service area; and
    (E) The MA organization furnishes the services in paragraph 
(d)(4)(iii)(D) of this section consistent with Medicare access and 
availability requirements at Sec. 422.112 of this part.
    (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.
    (v) Incarceration. (A) The MA organization must disenroll an 
individual if the MA organization establishes, on the basis of evidence 
acceptable to CMS, that the individual is incarcerated and does not 
reside in the service area of the MA plan as specified at Sec. 422.2 or 
when notified of the incarceration by CMS as specified in paragraph 
(d)(4)(v)(B) of this section.
    (B) Notification by CMS of incarceration. When CMS notifies the MA 
organization of the disenrollment due to the individual being 
incarcerated and not residing in the service area of the MA plan as per 
Sec. 422.2, disenrollment is effective the first of the month following 
the start of incarceration, unless otherwise specified by CMS.
    (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 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).
    (8) Enrollee is not lawfully present in the United States. 
Disenrollment is effective the first day of the month following notice 
by CMS that the individual is ineligible in accordance with 
Sec. 417.422(h) of this chapter.
    (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; 74 FR 1541, Jan. 12, 2009; 75 FR 19804, Apr. 15, 2010; 76 FR 
21562, Apr. 15, 2011; 79 FR 29955, May 23, 2014; 80 FR 7959, Feb. 12, 
2015]

[[Page 425]]



             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.
    (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 and associated cost 
sharing. CMS reviews and approves MA benefits and associated cost 
sharing using written policy guidelines and requirements in this part 
and other CMS instructions to ensure all of the following:
    (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.

[[Page 426]]

    (4) Except as provided in paragraph (f)(5), MA local plans (as 
defined in Sec. 422.2) must have an out-of pocket maximum for Medicare 
Parts A and B services that is no greater than the annual limit set by 
CMS.
    (5) With respect to a local PPO plan, the limit specified under 
paragraph (f)(4) applies only to use of network providers. Such local 
PPO plans must include a total catastrophic limit on beneficiary out-of-
pocket expenditures for both in-network and out-of-network Parts A and B 
services that is--
    (i) Consistent with the requirements applicable to MA regional plans 
at Sec. 422.101(d)(3) of this part; and
    (ii) Not greater than the annual limit set by CMS.
    (6) Cost sharing for Medicare Part A and B services specified by CMS 
does not exceed levels annually determined by CMS to be discriminatory 
for such services.
    (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.
    (j) Services for which cost sharing may not exceed cost sharing 
under Original Medicare. On an annual basis, CMS will evaluate whether 
there are service categories for which MA plans' in-network cost sharing 
may not exceed that required under Original Medicare and specify in 
regulation which services are subject to that cost sharing limit. The 
following services are subject to this limit on cost sharing:
    (1) Chemotherapy administration services to include chemotherapy 
drugs and radiation therapy integral to the treatment regimen.
    (2) Renal dialysis services as defined at section 1881(b)(14)(B) of 
the Act.
    (3) Skilled nursing care defined as services provided during a 
covered stay in a skilled nursing facility during the period for which 
cost sharing would apply under Original Medicare.
    (k) Cost sharing for in-network preventive services. MA 
organizations may not charge deductibles, copayments, or coinsurance for 
in-network Medicare-covered preventive services (as defined in 
Sec. 410.152(l)).
    (l) Coverage of DME. MA organizations--
    (1) Must cover and ensure enrollees have access to all categories of 
DME covered under Part B; and
    (2) May, within specific categories of DME, limit coverage to 
certain DME brands, items, and supplies of preferred manufacturers 
provided the MA organization ensures all of the following:
    (i) Its contracts with DME suppliers ensure that enrollees have 
access to all DME brands, items, and supplies of preferred 
manufacturers.
    (ii) Its enrollees have access to all medically-necessary DME 
brands, items, and supplies of non-preferred manufacturers.
    (iii) At the enrollees' request, it provides for an appropriate 
transition process for new enrollees during the first 90 days of their 
coverage under its MA plan, during which time the MA organization will 
do the following:
    (A) Ensure the provision of a transition supply of DME brands, 
items, and supplies of non-preferred manufacturers.
    (B) Provide for the repair of DME brands, items, and supplies of 
non-preferred manufacturers.
    (iv) It makes no negative changes to its DME brands, items, and 
supplies of preferred manufacturers during the plan year.
    (v) It treats denials of DME brands, items, and supplies of non-
preferred manufacturers as organization determinations subject to 
Sec. 422.566.
    (vi) It discloses DME coverage limitations and beneficiary appeal 
rights in the case of a denial of a DME brand, item, or supply of a non-
preferred manufacturer as part of the description of

[[Page 427]]

benefits required under Sec. 422.111(b)(2) and Sec. 422.111(h).
    (vii) It provides full coverage, without limitation on brand and 
manufacturer, to all DME categories or subcategories annually determined 
by CMS to require full coverage.
    (m) Special requirements during a disaster or emergency. (1) When a 
state of disaster is declared as described in paragraph (m)(2) of this 
section, an MA organization offering an MA plan must, until one of the 
conditions described in paragraph (m)(3) of this section occurs, ensure 
access to benefits in the following manner:
    (i) Cover Medicare Parts A and B services and supplemental Part C 
plan benefits furnished at non-contracted facilities subject to 
Sec. 422.204(b)(3).
    (ii) Waive, in full, requirements for gatekeeper referrals where 
applicable.
    (iii) Provide the same cost-sharing for the enrollee as if the 
service or benefit had been furnished at a plan-contracted facility.
    (iv) Make changes that benefit the enrollee effective immediately 
without the 30-day notification requirement at Sec. 422.111(d)(3).
    (2) Declarations of disasters. A declaration of disaster will 
identify the geographic area affected by the event and may be made as 
one of the following:
    (i) Presidential declaration of a disaster or emergency under the 
either of the following:
    (A) Stafford Act.
    (B) National Emergencies Act.
    (ii)(A) Secretarial declaration of a public health emergency under 
section 319 of the Public Health Service Act.
    (B) If the President has declared a disaster as described in 
paragraph (m)(2)(i) or (ii) of this section, then the Secretary may also 
authorize waivers or modifications under section 1135 of the Act.
    (iii) Declaration by the Governor of a State or Protectorate.
    (3) End of the disaster. The public health emergency or state of 
disaster ends when any of the following occur:
    (i) The source that declared the public health emergency or state of 
disaster declares an end.
    (ii) The CMS declares an end of the public health emergency or state 
of disaster.
    (iii) Thirty days have elapsed since the declaration of the public 
health emergency or state of disaster and no end date was identified in 
paragraph (m)(3)(i) or (ii) of this section.
    (4) MA plans unable to operate. An MA plan that cannot resume normal 
operations by the end of the public health emergency or state of 
disaster must notify CMS.
    (5) Disclosure. In addition to other requirements of annual 
disclosure under Sec. 422.111, an organization must do all of the 
following:
    (i) Indicate the terms and conditions of payment during the public 
health emergency or disaster for non-contracted providers furnishing 
benefits to plan enrollees residing in the state-of-disaster area.
    (ii) Annually notify enrollees of the information listed in 
paragraphs (m)(1) through (3) and (m)(5) of this section.
    (iii) Provide the information described in paragraphs (m)(1), (2), 
(3), and (4)(i) of this section on its Web site.

[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; 75 FR 19804, Apr. 
15, 2010; 76 FR 21562, Apr. 15, 2011; 77 FR 22166, Apr. 12, 2012; 80 FR 
7959, Feb. 12, 2015]



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

[[Page 428]]

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 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 and local PPO plans, to the 
extent they apply a deductible as follows:
    (i) Must have a single deductible related to all in-network and out-
of-network Medicare Part A and Part B services.
    (ii) May specify separate deductible amounts for specific in-network 
Medicare Part A and Part B services, to the extent these deductible 
amounts apply to the single deductible amount specified in paragraph 
(d)(1)(i) of this section.
    (iii) May waive other plan-covered items and services from the 
single deductible described in paragraph (d)(1)(i) of this section.
    (iv) Must waive all Medicare-covered preventive services (as defined 
in Sec. 410.152(l)) from the single deductible described paragraph 
(d)(1)(i) of this section.
    (2) Catastrophic limit. MA regional plans are required to establish 
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) that is no greater than the annual limit 
set by CMS.

[[Page 429]]

    (3) Total catastrophic limit. MA regional plans are required to 
establish 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 and 
may be no greater than the annual limit set by CMS.
    (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 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.
    (f) Special needs plan model of care. (1) MA organizations offering 
special needs plans (SNP) must implement an evidence-based model of care 
with appropriate networks of providers and specialists designed to meet 
the specialized needs of the plan's targeted enrollees. The MA 
organization must, with respect to each individual enrolled--
    (i) Conduct a comprehensive initial health risk assessment of the 
individual's physical, psychosocial, and functional needs as well as 
annual health risk reassessment, using a comprehensive risk assessment 
tool that CMS will review during oversight activities.
    (ii) Develop and implement a comprehensive individualized plan of 
care through an interdisciplinary care team in consultation with the 
beneficiary, as feasible, identifying goals and objectives including 
measurable outcomes as well as specific services and benefits to be 
provided.
    (iii) Use an interdisciplinary team in the management of care.
    (2) MA organizations offering SNPs must also develop and implement 
the following model of care components to assure an effective management 
structure:
    (i) Target one of the three SNP populations defined in Sec. 422.2 of 
this part.
    (ii) Have appropriate staff (employed, contracted, or non-
contracted) trained on the SNP plan model of care to coordinate and/or 
deliver all services and benefits.
    (iii) Coordinate the delivery of care across healthcare settings, 
providers, and services to assure continuity of care.
    (iv) Coordinate the delivery of specialized benefits and services 
that meet the needs of the most vulnerable beneficiaries among the three 
target special needs populations as defined in Sec. 422.2 of this part, 
including frail/disabled beneficiaries and beneficiaries near the end of 
life.
    (v) Coordinate communication among plan personnel, providers, and 
beneficiaries.
    (vi) All MAOs wishing to offer or continue to offer a SNP will be 
required to be approved by the National Committee for Quality Assurance 
(NCQA) effective January 1, 2012 and subsequent years. All SNPs must 
submit their model of care (MOC) to CMS for NCQA evaluation and approval 
in accordance with CMS guidance.

[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; 73 FR 54248, Sept. 18, 2008; 74 FR 1541, Jan. 12, 2009; 76 FR 
21562, Apr. 15, 2011; 76 FR 54634, Sept. 1, 2011; 77 FR 22167, Apr. 12, 
2012]

[[Page 430]]



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.
    (e) Supplemental benefits for certain dual eligible special needs 
plans. Subject to CMS approval, dual eligible special needs plans that 
meet a high standard of integration and minimum performance and quality-
based standards may offer additional supplemental benefits, consistent 
with the requirements of this part, where CMS finds that the offering of 
such benefits could better integrate care for the dual eligible 
population provided that the special needs plan--
    (1) Operated in the MA contract year prior to the MA contract year 
for which it is submitting its bid; and
    (2) Offers its enrollees such benefits without cost-sharing or 
additional premium charges.

[65 FR 40320, June 29, 2000, as amended at 70 FR 4720, Jan. 28, 2005; 77 
FR 22167, Apr. 12, 2012]



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).
    (3) Is pro-rated for enrollments occurring during a beneficiary's 
initial coverage election period as described at Sec. 422.62(a)(1) of 
this part or during any other enrollments occurring after January 1.
    (e) All MA organizations offering MSA plans must provide enrollees 
with available information on the cost and

[[Page 431]]

quality of services in their service area, and submit to CMS for 
approval a proposed approach to providing such information.

[63 FR 35077, June 26, 1998, as amended at 70 FR 4720, Jan. 28, 2005; 70 
FR 52026, Sept. 1, 2005; 74 FR 1541, Jan. 12, 2009; 75 FR 19805, Apr. 
15, 2010]



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 HMO 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 an HMO plan as a mandatory supplemental benefit as 
described in Sec. 422.102(a); or
    (3) Under an HMO plan as an optional supplemental benefit as 
described in Sec. 422.102(b).
    (c) Ensuring availability and continuity of care. An MA HMO 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.
    (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 HMO plan must report enrollee utilization data at the plan 
level by both

[[Page 432]]

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; 75 FR 19805, Apr. 15, 2010]



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 employer-sponsored group 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 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

[[Page 433]]

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.
    (4) An employer-sponsored group MA plan means MA coverage offered to 
retirees who are Medicare eligible individuals under employment-based 
retiree health coverage, as defined in paragraph (d)(5) of this section, 
approved by CMS as an MA plan.
    (5) Employment-based retiree coverage means coverage of health care 
costs under a group health plan, as defined in paragraph (d)(6) of this 
section, 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.
    (6) Group health plans include plans as defined in section 607(1) of 
ERISA, (29 U.S.C. 1167(1)). They also include the following plans:
    (i) 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 5 U.S.C. 89 
(the Federal Employee Health Benefit Plan (FEHBP)).
    (ii) 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.
    (iii) 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).
    (iv) Any of the following plans:
    (A) 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.
    (B) A health Flexible Spending Arrangement (FSA) as defined in 
Internal Revenue Code (Code) section 106(c)(2).
    (C) A health savings account (HSA) as defined in Code section 223.
    (D) 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.1003(b), for governmental plans or church plans).

[65 FR 40320, June 29, 2000, as amended at 68 FR 50856, Aug. 22, 2003; 
70 FR 4721, Jan. 28, 2005; 76 FR 21562, Apr. 15, 2011]



Sec. 422.107  Special needs plans and dual-eligibles: Contract 
with State Medicaid Agency.

    (a) Definition. For the purpose of this section, a contract with a 
State Medicaid agency means a formal written agreement between an MA 
organization and the State Medicaid agency documenting each entity's 
roles and responsibilities with regard to dual-eligible individuals.
    (b) General rule. MA organizations seeking to offer a special needs 
plan serving beneficiaries eligible for both Medicare and Medicaid 
(dual-eligible) must have a contract with the State Medicaid agency. The 
MA organization retains responsibility under the contract for providing 
benefits, or arranging for benefits to be provided, for individuals 
entitled to receive medical assistance under title XIX. Such benefits 
may include long-term care services consistent with State policy.
    (c) Minimum contract requirements. At a minimum, the contract must 
document--
    (1) The MA organization's responsibility, including financial 
obligations, to provide or arrange for Medicaid benefits.
    (2) The category(ies) of eligibility for dual-eligible beneficiaries 
to be enrolled under the SNP, as described under the Statute at sections 
1902(a), 1902(f), 1902(p), and 1905.
    (3) The Medicaid benefits covered under the SNP.
    (4) The cost-sharing protections covered under the SNP.

[[Page 434]]

    (5) The identification and sharing of information on Medicaid 
provider participation.
    (6) The verification of enrollee's eligibility for both Medicare and 
Medicaid.
    (7) The service area covered by the SNP.
    (8) The contract period for the SNP.
    (d) Date of Compliance. (1) Effective January 1, 2010--
    (i) MA organizations offering a new dual-eligible SNP must have a 
State Medicaid agency contract.
    (ii) Existing dual-eligible SNPs that do not have a State Medicaid 
agency contract--
    (A) May continue to operate through the 2012 contract year provided 
they meet all other statutory and regulatory requirements.
    (B) May not expand their service areas during contract years 2010 
through 2012.
    (2) [Reserved]

[73 FR 54248, Sept. 18, 2008, as amended at 76 FR 21563, Apr. 15, 2011]



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, including reporting, on an ongoing basis, 
information obtained related to requirements in paragraphs (b)(1) and 
(b)(2) of this section in accordance with CMS instructions.
    (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; 75 FR 19805, Apr. 15, 2010]



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--

[[Page 435]]

    (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 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,

[[Page 436]]

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.
    (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, 15 
days before the annual coordinated election period.
    (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) For a Special Needs Plan for dual-eligible individuals, prior 
to enrollment, for each prospective enrollee, a comprehensive written 
statement describing cost sharing protections and benefits that the 
individual is entitled to under title XVIII and the State Medicaid 
program under title XIX.
    (iv) 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 Secs. 422.112 and 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;

[[Page 437]]

    (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.
    (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.
    (12) Claims information. CMS may require an MA organization to 
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 benefits are provided under this part.
    (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 procedures of subpart V 
of this part.
    (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.

[[Page 438]]

    (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.
    (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.
    (g) CMS may require an MA organization to disclose to its enrollees 
or potential enrollees, the MA organization's performance and contract 
compliance deficiencies in a manner specified by CMS.
    (h) Provision of specific information. Each MA organization must 
have mechanisms for providing specific information on a timely basis to 
current and prospective enrollees upon request. These mechanisms must 
include all of the following:
    (1) A toll-free customer service call center that meets all of the 
following:
    (i) Is open during usual business hours.
    (ii) Provides customer telephone service in accordance with standard 
business practices.
    (iii) Provides interpreters for non-English speaking and limited 
English proficient (LEP) individuals.
    (2) An Internet Web site that includes, at a minimum the following:
    (i) The information required in paragraph (b) of this section.
    (ii) Copies of its evidence of coverage, summary of benefits, and 
information (names, addresses, phone numbers, and specialty) on the 
network of contracted

[[Page 439]]

providers. Such posting does not relieve the MA organization of its 
responsibility under Sec. 422.111(a) to provide hard copies to 
enrollees.
    (3) The provision of information in writing, upon request.
    (i) Provision of information required for access to covered 
services. MA plans must issue and reissue (as appropriate) member 
identification cards that enrollees may use to access covered services 
under the plan. The cards must comply with standards established by CMS.

[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; 73 FR 54220, 54249, Sept. 18, 
2008; 75 FR 19805, Apr. 15, 2010; 76 FR 21563, Apr. 15, 2011; 77 FR 
22167, Apr. 12, 2012; 80 FR 7959, Feb. 12, 2015]



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 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

[[Page 440]]

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.
    (10) Prevailing patterns of community health care delivery. MA plans 
that meet Medicare access and availability requirements through direct 
contracting network providers must do so consistent with the prevailing 
community pattern of health care delivery in the areas where the network 
is being offered. Factors making up community patterns of health care 
delivery that CMS will use as a benchmark in evaluating a proposed MA 
plan health care delivery network include, but are not limited to the 
following:
    (i) The number and geographical distribution of eligible health care 
providers available to potentially contract with an MAO to furnish plan 
covered services within the proposed service area of the MA plans.
    (ii) The prevailing market conditions in the service area of the MA 
plan. Specifically, the number and distribution of health care providers 
contracting with other health care plans (both commercial and Medicare) 
operating in the service area of the plan.
    (iii) Whether the service area is comprised of rural or urban areas 
or some combination of the two.
    (iv) Whether the MA plan's proposed provider network meet Medicare 
time and distance standards for member access to health care providers 
including specialties.
    (v) Other factors that CMS determines are relevant in setting a 
standard for an acceptable health care delivery network in a particular 
service area.
    (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.
    (7) With respect to drugs for which payment as so prescribed and 
dispensed or administered to an individual may be available under Part A 
or Part B, or under Part D, MA-PD plans must coordinate all benefits 
administered by the plan and--
    (i) Establish and maintain a process to ensure timely and accurate 
point-of-sale transactions; and
    (ii) Issue the determination and authorize or provide the benefit 
under Part A or Part B or as a benefit under

[[Page 441]]

Part D as expeditiously as the enrollee's health condition requires, in 
accordance with the requirements of subpart M of this part and subpart M 
of part 423 of this chapter, as appropriate, when a party requests a 
coverage determination.
    (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 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; 75 FR 19805, Apr. 
15, 2010; 76 FR 21563, Apr. 15, 2011; 80 FR 7959, Feb. 12, 2015]



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.

[[Page 442]]

    (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 in this section, provided when an enrollee 
is temporarily absent from the MA plan's service (or, if applicable, 
continuation) area (or provided when the enrollee is in the service or 
continuation area but the organization's provider network is temporarily 
unavailable or inaccessible) when the 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 that CMS will determine annually, 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

[[Page 443]]

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.
    (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; 76 
FR 21563, Apr. 15, 2011; 80 FR 7959, Feb. 12, 2015]



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) Subject to paragraphs (a)(3) and (a)(4) of this section, CMS 
finds that an MA organization meets the requirement in paragraph (a)(1) 
of this section if, with respect to a particular category of health care 
providers, the MA organization has--
    (i) Payment rates that are not less than the rates that apply under 
original Medicare for the provider in question;
    (ii) Subject to paragraph (A) of section (a)(2)(ii), contracts or 
agreements with a sufficient number and range of providers to furnish 
the services covered under the MA private fee-for-service plan; or
    (A) For plan year 2010 and subsequent plan years, contracts or 
agreements with a sufficient number and range of providers to meet the 
access standards described in section 1852(d)(1) of the Act.
    (B) [Reserved]
    (iii) A combination of paragraphs (a)(2)(i) and (a)(2)(ii) of this 
section.
    (3) For plan year 2011 and subsequent plan years, an MA organization 
that offers an MA private fee-for-service plan (other than a plan 
described in section 1857(i)(1) or (2) of the Act) that is operating in 
a network area (as defined in paragraph (a)(3)(i) of this section) meets 
the requirement in paragraph (a)(1) of this section only if the MA 
organization has contracts or agreements with providers in accordance 
with paragraph (a)(2)(ii)(A) of this section.
    (i) Network area is defined, for a given plan year, as the area that 
the Secretary identifies in the announcement of the risk and other 
factors to be used in adjusting MA capitation rates for each MA payment 
area for the previous plan year as having at least 2 network-based plans 
(as defined in paragraph (a)(3)(ii) of this section) with enrollment as 
of the first day of the year in which the announcement is made.
    (ii) Network-based plan is defined as a coordinated care plan as 
described in Sec. 422.4(a)(1)(ii), a network-based MSA plan, or a 
section 1876 reasonable cost plan. A network-based plan excludes a MA 
regional plan that meets access requirements substantially through the 
authority of Sec. 422.112(a)(1)(ii) instead of written contracts.
    (4) For plan year 2011 and subsequent plan years, an MA organization 
that offers an MA private fee-for-service plan that is described in 
section 1857(i)(1) or (2) of the Act meets the requirement in paragraph 
(a)(1) of this section only if the MA organization has contracts or 
agreements with providers in accordance with paragraph (a)(2)(ii)(A) of 
this section.
    (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.

[[Page 444]]

    (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; 73 
FR 54249, Sept. 18, 2008]



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:
    (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

[[Page 445]]

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.



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

[[Page 446]]

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]



Sec. 422.134  Reward and incentive programs.

    (a) General rule. The MA organization may create one or more 
programs consistent with the standards of this section that provide 
rewards and incentives to enrollees in connection with participation in 
activities that focus on promoting improved health, preventing injuries 
and illness, and promoting efficient use of health care resources.
    (b) Non-discrimination. Reward and incentive programs--
    (1) Must not discriminate against enrollees based on race, national 
origin, including limited English proficiency, gender, disability, 
chronic disease, whether a person resides or receives services in an 
institutional setting, frailty, health status or other prohibited basis;
    (2) Must be designed so that all enrollees are able to earn rewards; 
and
    (3) Are subject to sanctions at Sec. 422.752(a)(4).
    (c) Requirements. (1) A rewards and incentives program must --
    (i) Be offered in connection with the entire service or activity;
    (ii) Be offered to all eligible members without discrimination;
    (iii) Have a monetary cap as determined by CMS of a value that may 
be expected to impact enrollee behavior but not exceed the value of the 
health related service or activity itself; and
    (iv) Otherwise comply with all relevant fraud and abuse laws, 
including, when applicable, the anti-kickback statute and civil money 
penalty prohibiting inducements to beneficiaries.
    (2) Reward and incentive items may not--
    (i) Be offered in the form of cash or other monetary rebates; or
    (ii) Be used to target potential enrollees.
    (3) The MA organization must make information available to CMS upon 
request about the form and manner of any rewards and incentives programs 
it offers and any evaluations of the effectiveness of such programs.

[79 FR 29956, May 23, 2014]



                      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 that offers one or more MA 
plan must have, for each plan, an ongoing quality improvement program 
that meets applicable requirements of this section for the service it 
furnishes to its MA enrollees. As part of its ongoing quality 
improvement program, a plan must do all of the following:
    (1) Create a quality improvement program plan that sufficiently 
outlines the elements of the plan's quality improvement program.
    (2) Have a chronic care improvement program that meets the 
requirements

[[Page 447]]

of paragraph (c) of this section concerning elements of a chronic care 
program and addresses populations identified by CMS based on a review of 
current quality performance.
    (3) Conduct quality improvement projects that can be expected to 
have a favorable effect on health outcomes and enrollee satisfaction, 
meet the requirements of paragraph (d) of this section, and address 
areas identified by CMS.
    (4) 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) Collect, analyze, and report quality performance data 
identified by CMS that are of the same type as those under paragraph 
(b)(3)(i) of this section.
    (iii) 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.
    (5) All coordinated care contracts (including local and regional 
PPOs, contracts with exclusively SNP benefit packages, private fee-for-
service contracts, and MSA contracts), and all cost contracts under 
section 1876 of the Act, with 600 or more enrollees in July of the prior 
year, must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Medicare plan enrollees in 
accordance with CMS specifications and submit the survey data to CMS.
    (c) Chronic care improvement program requirements. (1) Develop 
criteria for a chronic care improvement program. These criteria must 
include the following:
    (i) Methods for identifying MA enrollees with multiple or 
sufficiently severe chronic conditions that would benefit from 
participating in a chronic care improvement program.
    (ii) Mechanisms for monitoring MA enrollees that are participating 
in the chronic improvement program and evaluating participant outcomes 
such as changes in health status.
    (iii) Performance assessments that use quality indicators that are 
objective, clearly and unambiguously defined, and based on current 
clinical knowledge or research.
    (iv) Systematic and ongoing follow-up on the effect of the program.
    (2) The organization must report the status and results of each 
program to CMS as requested.
    (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

[[Page 448]]

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 and reporting instruments 
required by CMS.
    (ii) Collect, analyze, and report quality performance data 
identified by CMS that are of the same type as those described under 
paragraph (e)(2)(i) of this section.
    (iii) Evaluate the continuity and coordination of care furnished to 
enrollees.
    (iv) 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.
    (g) Special requirements for specialized MA plans for special needs 
individuals. All special needs plans (SNPs) must be approved by the 
National Committee for Quality Assurance (NCQA) effective January 1, 
2012 and subsequent years. SNPs must submit their model of care (MOC), 
as defined under Sec. 422.101(f), to CMS for NCQA evaluation and 
approval, in accordance with CMS guidance. In addition to the 
requirements under paragraphs (a) and (f) of this section, a SNP must 
conduct a quality improvement program that does the following:
    (1) Provides for the collection, analysis, and reporting of data 
that measures health outcomes and indices of quality pertaining to its 
targeted special needs population (that is, dual-eligible, 
institutionalized, or chronic condition) at the plan level.
    (2) Measures the effectiveness of its model of care through the 
collection, aggregation, analysis, and reporting of data that 
demonstrate the following:
    (i) Access to care as evidenced by measures from the care 
coordination domain (for example, service and benefit utilization rates, 
or timeliness of referrals or treatment).

[[Page 449]]

    (ii) Improvement in beneficiary health status as evidenced by 
measures from functional, psychosocial, or clinical domains (for 
example, quality of life indicators, depression scales, or chronic 
disease outcomes).
    (iii) Staff implementation of the SNP model of care as evidenced by 
measures of care structure and process from the continuity of care 
domain (for example, National Committee for Quality Assurance 
accreditation measures or medication reconciliation associated with care 
setting transitions indicators).
    (iv) Comprehensive health risk assessment as evidenced by measures 
from the care coordination domain (for example, accuracy of acuity 
stratification, safety indicators, or timeliness of initial assessments 
or annual reassessments).
    (v) Implementation of an individualized plan of care as evidenced by 
measures from functional, psychosocial, or clinical domains (for 
example, rate of participation by IDT members and beneficiaries in care 
planning).
    (vi) A provider network having targeted clinical expertise as 
evidenced by measures from medication management, disease management, or 
behavioral health domains.
    (vii) Delivery of services across the continuum of care.
    (viii) Delivery of extra services and benefits that meet the 
specialized needs of the most vulnerable beneficiaries as evidenced by 
measures from the psychosocial, functional, and end-of-life domains.
    (ix) Use of evidence-based practices and nationally recognized 
clinical protocols.
    (x) Use of integrated systems of communication as evidenced by 
measures from the care coordination domain (for example, call center 
utilization rates, rates of beneficiary involvement in care plan 
development, etc.).
    (3) Makes available to CMS information on quality and outcomes 
measures that will--
    (i) Enable beneficiaries to compare health coverage options; and
    (ii) Enable CMS to monitor the plan's model of care performance.
    (h) Requirements for MA private-fee-for-service plans and Medicare 
medical savings account plans. MA PFFS and MSA plans are subject to the 
requirement that may not exceed the requirement specified in 
Sec. 422.152(e).

[70 FR 4723, Jan. 28, 2005, as amended at 70 FR 52026, Sept. 1, 2005; 73 
FR 54249, Sept. 18, 2008; 75 FR 19805, Apr. 15, 2010; 76 FR 21564, Apr. 
15, 2011; 80 FR 7959, Feb. 12, 2015]



Sec. 422.153  Use of quality improvement organization review information.

    CMS will acquire from quality improvement organizations (QIOs) as 
defined in part 475 of this chapter data collected under section 
1886(b)(3)(B)(viii) of the Act and subject to the requirements in 
Sec. 480.140(g). CMS will acquire this information, as needed, and may 
use it for the following functions:
    (a) Enable beneficiaries to compare health coverage options and 
select among them.
    (b) Evaluate plan performance.
    (c) Ensure compliance with plan requirements under this part.
    (d) Develop payment models.
    (e) Other purposes related to MA plans as specified by CMS.

[76 FR 26546, May 6, 2011]



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. The deeming process should focus on 
evaluating and assessing the overall quality improvement (QI) program. 
However, the quality improvement projects (QIPs) and

[[Page 450]]

the chronic care improvement programs (CCIPs) will be excluded from the 
deeming process.
    (2) Antidiscrimination.
    (3) Access to services.
    (4) Confidentiality and accuracy of enrollee records.
    (5) Information on advance directives.
    (6) Provider participation rules.
    (7) The requirements listed in Sec. 423.165 (b)(1) through (3) of 
this chapter for MA organizations that offer prescription drug benefit 
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) Authority. Nothing in this subpart limits CMS' authority under 
subparts K and O of this part, including but not limited to, the ability 
to impose intermediate sanctions, civil money penalties, and terminate a 
contract with an MA organization.

[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; 75 FR 19806, Apr. 
15, 2010; 76 FR 21564, Apr. 15, 2011]



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.

[[Page 451]]

    (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 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

[[Page 452]]

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.
    (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

[[Page 453]]

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 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.

[[Page 454]]



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;
    (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

[[Page 455]]

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 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.
    (5) Ensures compliance with the provider and supplier enrollment 
requirements at Sec. 422.222.

[65 FR 40324, June 29, 2000, as amended at 66 FR 47413, Sept. 12, 2001; 
70 FR 4724, Jan. 28, 2005; 81 FR 80556, Nov. 15, 2016]



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

[[Page 456]]

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.
    (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

[[Page 457]]

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.
    (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

[[Page 458]]

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 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.

[[Page 459]]

    (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 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 Secs. 412.105(g) and 
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.)
    (c) Deemed request for Medicare payment rate. A noncontract section 
1861(u) of the Act provider of services that furnishes services to MA 
enrollees and submits the same information that it would submit for 
payment under Original Medicare is deemed to be seeking to be paid the 
amount it would be paid under Original Medicare unless the provider 
expressly notifies the MA organization in writing that it is billing an 
amount less than such amount.
    (d) Regional PPO payments in non-network areas. An MA Regional PPO 
must pay non-contract providers the Original Medicare payment rate in 
those portions of its service area where it is providing access to 
services by non-network means under Sec. 422.111(b)(3)(ii) 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 47490, Aug. 12, 2005; 76 FR 21564, Apr. 
15, 2011]

[[Page 460]]



Sec. 422.216  Special rules for MA private fee-for-service plans.

    (a) Payment to providers--(1) Payment rate. (i) The MA organization 
must establish payment rates for plan covered items and services that 
apply to deemed providers. The MA organization may vary payment rates 
for providers in accordance with Sec. 422.4(a)(3).
    (ii) Providers must be reimbursed on a fee-for-service basis.
    (iii) The MA organization must make information on its payment rates 
available to providers that furnish services that may be covered under 
the MA private fee-for-service plan.
    (2) Noncontract providers. The organization pays for services of 
noncontract providers in accordance with Sec. 422.100(b)(2).
    (3) Services furnished by providers of service. Any provider of 
services as defined in section 1861(u) of the Act that does not have in 
effect a contract establishing payment amounts for services furnished to 
a beneficiary enrolled in an MA private fee-for-service plan must 
receive, and accept as payment in full, at least the amount (less any 
payments under Secs. 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 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 private fee-for-service plan must 
provide to plan enrollees, an appropriate explanation of benefits 
consistent with the requirements of Sec. 422.111(b)(12).
    (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;

[[Page 461]]

    (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.
    (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 Secs. 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; 73 FR 54250, Sept. 18, 2008; 77 FR 22167, Apr. 12, 2012]

[[Page 462]]



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.



Sec. 422.222  Enrollment of MA organization network providers and suppliers;
first-tier, downstream, and related entities (FDRs); cost HMO or CMP, and 
          demonstration and pilot programs.

    (a) Providers or suppliers that are types of individuals or entities 
that can enroll in Medicare in accordance with section 1861 of the Act, 
must be enrolled in Medicare and be in an approved status in Medicare in 
order to provide health care items or services to a Medicare enrollee 
who receives his or her Medicare benefit through an MA organization. 
This requirement applies to all of the following providers and 
suppliers:
    (1) Network providers and suppliers.
    (2) First-tier, downstream, and related entities (FDR).
    (3) Providers and suppliers in Cost HMOs or CMPs, as defined in 42 
CFR part 417.
    (4) Providers and suppliers participating in demonstration programs.
    (5) Providers and suppliers in pilot programs.
    (6) Locum tenens suppliers.
    (7) Incident-to suppliers.
    (b) MA organizations that do not ensure that providers and suppliers 
comply with paragraph (a) of this section, may be subject to sanctions 
under Sec. 422.750 and termination under Sec. 422.510.

[81 FR 80556, Nov. 15, 2016]



Sec. 422.224  Payment to providers or suppliers excluded or revoked.

    (a) An MA organization may not pay, directly or indirectly, on any 
basis, for items or services (other than emergency and urgently needed 
services as defined in Sec. 422.113) furnished to a Medicare enrollee by 
any individual or entity that is excluded by the Office of the Inspector 
General (OIG) or is revoked from the Medicare program except as 
provided.
    (b) If an MA organization receives a request for payment by, or on 
behalf of, an individual or entity that is excluded by the OIG or is 
revoked in the Medicare program, the MA organization must notify the 
enrollee and the excluded or revoked individual or entity in writing, as 
directed by contract or other direction provided by CMS, that payments 
will not be made. Payment may not be made to, or on behalf of, an 
individual or entity that is excluded by the OIG or is revoked in the 
Medicare program.

[81 FR 80556, Nov. 15, 2016]



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 sections 1853 and 1858 of the Act, and is also 
based on section 1106 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, negotiation and approval 
of bids by CMS, and the release of MA bid submission data.

[81 FR 80556, Nov. 15, 2016]



Sec. 422.252  Terminology.

    Annual MA capitation rate means a county payment rate for an MA 
local area (county) for a calendar year. The

[[Page 463]]

terms ``per capita rate'' and ``capitation rate'' are used 
interchangeably to refer to the annual MA capitation rate.
    Low enrollment contract means a contract that could not undertake 
Healthcare Effectiveness Data and Information Set (HEDIS) and Health 
Outcome Survey (HOS) data collections because of a lack of a sufficient 
number of enrollees to reliably measure the performance of the health 
plan.
    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 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).
    New MA plan means a MA contract offered by a parent organization 
that has not had another MA contract in the previous 3 years.
    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 that reflects the nationally average risk profile for 
the risk factors CMS applies to payment calculations as set forth at 
Sec. 422.308(c) of this part, (that is, a standardized benchmark). 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. The rules for determining county capitation rates 
are specific to a time period, as set forth at Sec. 422.258(a). 
Effective 2012, the MA area-specific non-drug monthly benchmark amount 
is called the blended benchmark amount, and is determined according to 
the rules set forth under Sec. 422.258(d) of this part.
    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; 
76 FR 21564, Apr. 15, 2011]



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

[[Page 464]]

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.
    (4) Substantial differences between bids. An MA organization's bid 
submissions must reflect differences in benefit packages or plan costs 
that CMS determines to represent substantial differences relative to a 
sponsor's other bid submissions.
    (5) CMS may decline to accept any or every otherwise qualified bid 
submitted by an MA organization or potential MA organization.
    (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.
    (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).
    (5) Actuarial valuation. The bid must be prepared in accordance with 
CMS actuarial guidelines based on generally accepted actuarial 
principles.
    (i) A qualified actuary must certify the plan's actuarial valuation 
(which may be prepared by others under his or her direction or review).
    (ii) To be deemed a qualified actuary, the actuary must be a member 
of the American Academy of Actuaries.
    (iii) Applicants may use qualified outside actuaries to prepare 
their bids.
    (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

[[Page 465]]

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
    (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; 
75 FR 19806, Apr. 15, 2010; 76 FR 21564, Apr. 15, 2011]



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 and may decline to 
approve a bid if the plan sponsor proposes significant increases in cost 
sharing or decreases in benefits offered under the plan.
    (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.

[[Page 466]]

    (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.
    (4) Substantial differences between bids--(i) General. CMS approves 
a bid only if it finds that the benefit package and plan costs 
represented by that bid are substantially different from the MA 
organization's other bid submissions. In order to be considered 
``substantially different,'' as provided under Sec. 422.254(a)(4) of 
this subpart, each bid must be significantly different from other plans 
of its plan type with respect to premiums, benefits, or cost-sharing 
structure.
    (ii) Transition period for MA organizations with new acquisitions. 
After a 2-year transition period, CMS approves a bid offered by an MA 
organization (or by a parent organization to that MA organization) that 
recently purchased (or otherwise acquired or merged with) another MA 
organization only if it finds that the benefit package or plan costs 
represented by that bid are substantially different, as provided under 
paragraph (b)(4)(i) of this section, from any benefit package and plan 
costs represented by another bid submitted by the same MA organization 
(or parent organization to that MA organization).
    (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; 75 FR 19806, Apr. 15, 2010; 76 FR 21564, 
Apr. 15, 2011]



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:
    (i) For years before 2007, one-twelfth of the annual MA capitation 
rate (described at Sec. 422.306) for the area, adjusted as appropriate 
for the purpose of risk adjustment.
    (ii) For years 2007 through 2010, one-twelfth of the applicable 
amount determined under section 1853(k)(1) of the Act for the area for 
the year, adjusted as appropriate for the purpose of risk adjustment.
    (iii) For 2011, one-twelfth of the applicable amount determined 
under 1853(k)(1) for the area for 2010.

[[Page 467]]

    (iv) Beginning with 2012, one-twelfth of the blended benchmark 
amount described in paragraph (d) of this section, subject to paragraph 
(d)(8) of this section and adjusted as appropriate for the purpose of 
risk adjustment.
    (2) For MA local plans with service areas including more than one MA 
local area, an amount equal to the weighted average of amounts described 
in paragraph (a)(1) of this section for the year 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 amount determined under paragraph (a) of this section for the year 
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.
    (d) Determination of the blended benchmark amount--(1) General 
rules. For the purpose of paragraphs (a) and (b) of

[[Page 468]]

this section, the term blended benchmark amount for an area for a year 
means the sum of two components: the applicable amount determined under 
section 1853(k)(1) of the Act and the specified amount determined under 
section 1853(n)(2) of Act. The weights for each component are based on 
the phase-in period assigned each area, as described in paragraphs 
(d)(8) and (d)(9) of this section. At the conclusion of an area's phase-
in period, the blended benchmark for an area for a year equals the 
section 1853(n)(2) of the Act specified amount described in paragraph 
(d)(2) of this section. The blended benchmark amount for an area for a 
year (which takes into account paragraph (d)(8) of this section), cannot 
exceed the applicable amount described in paragraph (d)(2) of this 
section that would be in effect but for the application of this 
paragraph.
    (2) Applicable amount. For the purpose of paragraphs (a) and (b) of 
this section, the applicable amount determined under section 1853(k)(1) 
of the Act for a year is--
    (i) In a rebasing year (described at Sec. 422.306(b)(2), an amount 
equal to the greater of the average FFS expenditure amount at 
Sec. 422.306(b)(2) for an area for a year and the minimum percentage 
increase rate at Sec. 422.306(a) for an area for a year.
    (ii) In a year when the amounts at Sec. 422.306(b)(2) are not 
rebased, the minimum percentage increase rate at Sec. 422.306(a) for the 
area for the year.
    (iii) In no case the blended benchmark amount for an area for a 
year, determined taking into account paragraph (d)(8) of this section, 
be greater than the applicable amount at paragraph (d)(2) of this 
section for an area for a year.
    (iv) Paragraph (d) of this section does not apply to the PACE 
program under section 1894 of Act.
    (3) Specified amount. For the purpose of paragraphs (a) and (b) of 
this section, the specified amount under section 1853(n)(2) of the Act 
is the product of the base payment amount for an area for a year 
(adjusted as required under Sec. 422.306(c)) multiplied by the 
applicable percentage described in paragraph (d)(5) of this section for 
an area for a year.
    (4) Base payment amount. The base payment amount is as follows:
    (i) For 2012, the average FFS expenditure amount specified in 
Sec. 422.306(b)(2), determined for 2012.
    (ii) For subsequent years, the average FFS expenditure amount 
specified in Sec. 422.306(b)(2).
    (5) Applicable percentage. Subject to paragraph (d)(7) of this 
section, the applicable percentage is one of four values assigned to an 
area based on Secretary's determination of the quartile ranking of the 
area's average FFS expenditure amount (described at Sec. 422.306(b)(2) 
and adjusted as required at Sec. 422.306(c)), relative to this amount 
for all areas.
    (i) For the 50 States or the District of Columbia, a county with an 
average FFS expenditure amount adjusted under Sec. 422.306(c) that falls 
in the--
    (A) Highest quartile of such rates for all areas for the previous 
year receives an applicable percentage of 95 percent;
    (B) Second highest quartile of such rates for all areas for the 
previous year receives an applicable percentage of 100 percent;
    (C) Third highest quartile of such rates for all areas for the 
previous year receives an applicable percentage of 107.5 percent; or
    (D) Lowest quartile of such rates for all areas for the previous 
year receives an applicable percentage of 115 percent.
    (ii) To determine the applicable percentages for a territory, the 
Secretary ranks such areas for a year based on the level of the area's 
Sec. 422.306(b)(2) amount adjusted under Sec. 422.306(c), relative to 
the quartile rankings computed under paragraph (d)(5)(i) of this 
section.
    (6) Additional rules for determining the applicable percentage. (i) 
In a contract year when the average FFS expenditure amounts from the 
previous year were rebased (according to the periodic rebasing 
requirement at Sec. 422.306(b)(2)), the Secretary must determine an 
area's applicable percentage based on a quartile ranking of the previous 
year's rebased FFS amounts adjusted under Sec. 422.306(c).
    (ii) If, for a year after 2012, there is a change in the quartile in 
which an area is ranked compared to the previous

[[Page 469]]

year's ranking, the applicable percentage for the area in the year must 
be the average of the applicable percentage for the previous year and 
the applicable percentage that would otherwise apply for the area for 
the year in the absence of this transitional provision.
    (7) Increases to the applicable percentage for quality. Beginning 
with 2012, the blended benchmark under paragraphs (a) and (b) of this 
section will reflect the level of quality rating at the plan or contract 
level, as determined by the Secretary. The quality rating for a plan is 
determined by the Secretary according to a 5-star rating system (based 
on the data collected under section 1852(e) of the Act). Specifically, 
the applicable percentage under paragraph (d)(5) of this section must be 
increased according to criteria in paragraphs (d)(7)(i) through (v) of 
this section if the plan or contract is determined to be a qualifying 
plan or a qualifying plan in a qualifying county for the year.
    (i) Qualifying plan. Beginning with 2012, a qualifying plan means a 
plan that had a quality rating of 4 stars or higher based on the most 
recent data available for such year. For a qualifying plan, the 
applicable percentage at paragraph (d)(5) of this section must be 
increased as follows:
    (A) For 2012, by 1.5 percentage points.
    (B) For 2013, by 3.0 percentage points.
    (C) For 2014 and subsequent years, by 5.0 percentage points.
    (ii) Qualifying county. (A) A qualifying county means a county that 
meets the following three criteria:
    (1) Has an MA capitation rate that, in 2004, was based on the amount 
specified in section 1853(c)(1)(B) of the Act for a Metropolitan 
Statistical Area with a population of more than 250,000.
    (2) Of the MA-eligible individuals residing in the county, at least 
25 percent of such individuals were enrolled in MA plans as of December 
2009.
    (3) Has per capita fee-for-service spending that is lower than the 
national monthly per capita cost for expenditures for individuals 
enrolled under the Original Medicare fee-for-service program for the 
year.
    (B) Beginning with 2012, for a qualifying plan serving a qualifying 
county, the increase to the applicable percentage described at paragraph 
(d)(7)(i) of this section must be doubled for the qualifying county.
    (iii) MA organizations that fail to report data as required by the 
Secretary must be counted as having a rating of fewer than 3.5 stars at 
the plan or contract level, as determined by the Secretary.
    (iv) Application of applicable percentage increases to low 
enrollment contracts. (A) For 2012, for an MA plan that the Secretary 
determines is unable to have a quality rating because of low enrollment, 
the Secretary treats this plan as a qualifying plan under paragraph 
(d)(7)(i) of this section.
    (B) For 2013 and subsequent years, the Secretary develops a 
methodology to apply to MA plans with low enrollment (as defined by the 
Secretary) to determine whether a low enrollment contract is a 
qualifying plan.
    (v) Application of increases in applicable percentage to new MA 
plans. A new MA plan (as defined at Sec. 422.252) that meets criteria 
specified by the Secretary must be treated as a qualifying plan under 
paragraph (d)(7)(i) of this section, except that the applicable 
percentage must be increased as follows:
    (A) For 2012, by 1.5 percentage points.
    (B) For 2013, by 2.5 percentage points.
    (C) For 2014 and subsequent years, by 3.5 percentage points.
    (8) Determination of phase-in period for the blended benchmark 
amount. For 2012 through 2016, the blended benchmark amount for an area 
for a year depends on the phase-in period assigned to that area. The 
Secretary assigns one of three phase-in periods to each area: 2-year, 4 
year, or 6 year. The phase-in period assigned to an area is based on the 
size of the difference between the 2010 applicable amount at paragraph 
(d)(2) of this section and the projected 2010 benchmark amount defined 
at paragraph (d)(8)(i) of this section.
    (i) The projected 2010 benchmark amount is calculated once for the 
purpose of determining the phase-in period for an area. It is equal to 
one-half of the 2010 applicable amount at paragraph (d)(2) of this 
section and one-half of the specified amount at paragraph (d)(3) 
modified to apply to 2010 (as described in (d)(8)(ii) of this section).

[[Page 470]]

    (ii) To assign a phase-in period to an area, the specified amount is 
modified as if it applies to 2010, and is the product of--
    (A) The 2010 base payment amount adjusted as required under 
Sec. 422.306(c) of this part; and
    (B) The applicable percentage determined as if the reference to the 
``previous year'' at paragraph (d)(5) of this section were deemed a 
reference to 2010 and increased as follows:
    (1) The increase at paragraph (d)(7)(i) of this section for a 
qualifying plan in the area is applied as if the reference to a 
qualifying plan for 2012 were deemed a reference for 2010; and
    (2) The increase at paragraph (d)(7)(ii) of this section is applied 
as if the determination of a qualifying county were made for 2010.
    (iii) Two-year phase-in. An area is assigned the 2-year phase-in 
period if the difference between the applicable amount at paragraph 
(d)(2) of this section and the projected 2010 benchmark amount at 
paragraph (d)(8)(i) of this section is less than $30.
    (iv) Four-year phase-in. An area is assigned the 4-year phase-in 
period if the difference between the applicable amount at paragraph 
(d)(2) of this section and the projected 2010 benchmark amount at 
paragraph (d)(8)(i) of this section is at least $30 but less than $50.
    (v) Six-year phase-in. An area is assigned the 6-year phase-in 
period if the difference between the applicable amount at paragraph 
(d)(2) of this section and the projected 2010 benchmark amount at 
paragraph (d)(8)(i) of this section is at least $50.
    (9) Impact of phase-in period on calculation of the blended 
benchmark amount--(i) Weighting for the 2-year phase-in. (A) For 2012, 
the blended benchmark is the sum of one-half of the applicable amount at 
paragraph (d)(2) of this section and one-half of the specified amount at 
paragraph (d)(3) of this section.
    (B) For 2013 and subsequent years, the blended benchmark equals the 
specified amount.
    (ii) Weighting for the 4-year phase-in. The blended benchmark is the 
sum of the applicable amount at paragraph (d)(2) of this section and the 
specified amount at paragraph (d)(2) of this section in the following 
proportions:
    (A) For 2012, three-fourths of the applicable amount for the area 
for the year and one-fourth of the specified amount for the area and 
year.
    (B) For 2013, one-half of the applicable amount for the area for the 
year and one-half of the specified amount for the area and year.
    (C) For 2014, one-fourth of the applicable amount for the area for 
the year and three-fourths of the specified amount for the area and 
year.
    (D) For 2015 and subsequent years, the blended benchmark equals the 
specified amount for the area and year.
    (iii) Weighting for the 6-year phase-in. The blended benchmark is 
the sum of the applicable amount at paragraph (d)(2) and the specified 
amount at paragraph (d)(3) of this section in the following proportions:
    (A) For 2012, five-sixths of the applicable amount for the area and 
year and one-sixth of the specified amount for the area and year.
    (B) For 2013, two-thirds of the applicable amount for the area and 
year and one-third of the specified amount for the area and year.
    (C) For 2014, one-half of the applicable amount for the area and 
year and one-half of the specified amount for the area and for year.
    (D) For 2015, one-third of the applicable amount for the area and 
year and two-thirds of the specified amount for the area and for year.
    (E) For 2016, one-sixth of the applicable amount for the area and 
year and five-sixths of the specified amount for the area and for year.
    (F) For 2017 and subsequent years, the blended benchmark equals the 
specified amount for the area and year.[70 FR 4725, Jan. 28, 2005, as 
amended at 76 FR 21564, Apr. 15, 2011]



Sec. 422.260  Appeals of quality bonus payment determinations.

    (a) Scope. The provisions of this section pertain to the 
administrative review process to appeal quality bonus payment status 
determinations based on section 1853(o) of the Act.
    (b) Definitions. The following definitions apply to this section:
    Quality bonus payment (QBP) means--

[[Page 471]]

    (i) Enhanced CMS payments to MA organizations based on the 
organization's demonstrated quality of its Medicare contract operations; 
or
    (ii) Increased beneficiary rebate retention allowances based on the 
organization's demonstrated quality of its Medicare contract operations.
    Quality bonus payment (QBP) determination methodology means the 
formula CMS adopts for evaluating whether MA organizations qualify for a 
QBP.
    Quality bonus payment (QBP) status means a MA organization's 
standing with respect to its qualification to--
    (i) Receive a quality bonus payment, as determined by CMS; or
    (ii) Retain a portion of its beneficiary rebates based on its 
quality rating, as determined by CMS.
    (c) Administrative review process for QBP status appeals. (1) 
Reconsideration request. An MA organization may request reconsideration 
of its QBP status.
    (i) The MA organization requesting reconsideration of its QBP status 
must do so by providing written notice to CMS within 10 business days of 
the release of its QBP status. The request must specify the given 
measure(s) in question and the basis for reconsideration such as a 
calculation error or incorrect data was used to determine the QBP 
status. The error could impact an individual measure's value or the 
overall star rating.
    (ii) The reconsideration official's decision is final and binding 
unless a request for an informal hearing is filed in accordance with 
paragraph (2) of this section.
    (2) Informal hearing request. An MA organization may request an 
informal hearing on the record following the reconsideration official's 
decision regarding its QBP status.
    (i) The MA organization seeking an appeal of the reconsideration 
official's decision regarding its QBP status must do so by providing 
written notice to CMS within 10 business days of the issuance of the 
reconsideration decision. The notice must specify the errors the MA 
organization asserts that CMS made in making the QBP determination and 
how correction of those errors could result in the organization's 
qualification for a QBP or a higher QBP.
    (ii) The MA organization may not request an informal hearing of its 
QBP status unless it has already requested and received a 
reconsideration decision in accordance with paragraph (c)(1) of this 
section.
    (iii) The informal hearing request must pertain only to the 
measure(s) and value(s) in question that precipitated the request for 
reconsideration.
    (iv) The informal hearing is conducted by a CMS hearing officer on 
the record. The hearing officer receives no testimony, but may accept 
written statements with exhibits from each party in support of their 
position in the matter.
    (v) The MA organization must provide clear and convincing evidence 
that CMS' calculations of the measure(s) and value(s) in question were 
incorrect.
    (vi) The hearing officer issues the decision by electronic mail to 
the MA organization.
    (vii) The hearing officer's decision is final and binding.
    (3) Limits to requesting an administrative review. (i) CMS may limit 
the measures or bases for which a contract may request an administrative 
review of its QBP status.
    (ii) An administrative review cannot be requested for the following: 
the methodology for calculating the star ratings (including the 
calculation of the overall star ratings); cut-off points for determining 
measure thresholds; the set of measures included in the star rating 
system; and the methodology for determining QBP determinations for low 
enrollment contracts and new MA plans.
    (4) Designation of a hearing officer. CMS designates a hearing 
officer to conduct the appeal of the QBP status. The officer must be an 
individual who did not directly participate in the initial QBP 
determination.
    (d) Reopening of QBP determinations. CMS may, on its own initiative, 
revise an MA organization's QBP status at any time after the initial 
release of the QBP determinations through April 1 of each year. CMS may 
take this action on the basis of any credible information, including the 
information provided during the administrative review

[[Page 472]]

process that demonstrates that the initial QBP determination was 
incorrect.

[76 FR 21566, Apr. 15, 2011]



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 
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.
    (g) Prohibition on improper billing of premiums. MA organizations 
shall not

[[Page 473]]

bill an enrollee for a premium payment period if the enrollee has had 
the premium for that period withheld from his or her Social Security, 
Railroad Retirement Board or Office of Personnel Management check.
    (h) Retroactive collection of premiums. In circumstances where 
retroactive collection of premium amounts is necessary and the enrollee 
is without fault in creating the premium arrearage, the Medicare 
Advantage organization shall offer the enrollee the option of payment 
either by lump sum, by equal monthly installment spread out over at 
least the same period for which the premiums were due, or through other 
arrangements mutually acceptable to the enrollee and the Medicare 
Advantage organization. For monthly installments, for example, if 7 
months of premiums are due, the member would have at least 7 months to 
repay.

[63 FR 18134, Apr. 14, 1998, as amended at 74 FR 1541, Jan. 12, 2009]



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), 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

[[Page 474]]

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) Calculation of rebate. (1) For 2006 through 2011, 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.
    (2) For 2012 and subsequent years, an MA organization must provide 
to the enrollee a monthly rebate equal to a specified percentage of the 
average per capita savings (if any) at Sec. 422.264(b) for MA local 
plans and Sec. 422.264(d) for MA regional plans. For 2012 and 2013, this 
percentage is based on a combination of the (a)(1) rule of 75 percent 
and the (a)(2)(ii) rules that set the percentage based on the plan's 
quality rating under a 5 star rating system, as determined by the 
Secretary under Sec. 422.258(d)(7). For 2014 and subsequent years, this 
percentage is determined based only on the paragraph (a)(2)(ii) of this 
section.
    (i) Applicable rebate percentage for 2012 and 2013. Subject to 
paragraphs (a)(2)(iii) and (iv) of this section, the transitional 
applicable rebate percentage is, for a year, the sum of two amounts as 
follows:
    (A) For 2012. Two-thirds of the old proportion of 75 percent of the 
average per capita savings; and one-third of the new proportion assigned 
the plan under paragraph (a)(2)(ii) of this section, based on the 
quality rating specified in Sec. 422.258(d)(7).
    (B) For 2013. One-third of the old proportion of 75 percent of the 
average per capita savings; and two-thirds of the new proportion 
assigned the plan under paragraph (d)(2)(ii) of this section, based on 
the quality rating at Sec. 422.258(d)(7).
    (ii) Final applicable rebate percentage. For 2014 and subsequent 
years, and subject to paragraphs (a)(2)(iii) and (iv) of this section, 
the final applicable rebate percentage is as follows:
    (A) In the case of a plan with a quality rating under such system of 
at least 4.5 stars, 70 percent of the average per capita savings;
    (B) In the case of a plan with a quality rating under such system of 
at least 3.5 stars and less than 4.5 stars, 65 percent of the average 
per capita savings.
    (C) In the case of a plan with a quality rating under such system of 
less than 3.5 stars, 50 percent of the average per capita savings.
    (iii) Treatment of low enrollment contracts. For 2012, in the case 
of a plan described at Sec. 422.258(d)(7)(iv), the plan must be treated 
as having a rating of 4.5 stars for the purpose of determining the 
beneficiary rebate amount.
    (iv) Treatment of new MA plans. For 2012 or a subsequent year, a new 
MA plan defined at Sec. 422.252 that meets the criteria specified by the 
Secretary for purposes of Sec. 422.258(d)(7)(v) must be treated as a 
qualifying plan under Sec. 422.258(d)(7)(i), except that plan must be 
treated as having a rating of 3.5 stars for purposes of determining the 
beneficiary rebate amount.
    (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 include the reduction of cost sharing for 
benefits under original Medicare and additional health care benefits

[[Page 475]]

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.[70 FR 4725, 
Jan. 28, 2005, as amended at 76 FR 21567, Apr. 15, 2011]



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 subpart O of this part for failure to refund 
amounts incorrectly collected from MA plan enrollees.

[[Page 476]]



Sec. 422.272  Release of MA bid pricing data.

    (a) Terminology. For purposes of this section, the term ``MA bid 
pricing data'' means the following information that MA organizations 
must submit for each MA plan bid for the annual bid submission:
    (1) The pricing-related information described at Sec. 422.254(a)(1); 
and
    (2) The information required for MSA plans, described at 
Sec. 422.254(e).
    (b) Release of MA bid pricing data. Subject to paragraph (c) of this 
section and to the annual timing identified in paragraph (d) of this 
section, CMS will release to the public MA bid pricing data for MA plan 
bids accepted or approved by CMS for a contract year under Sec. 422.256. 
The annual release will contain MA bid pricing data from the final list 
of MA plan bids accepted or approved by CMS for a contract year that is 
at least 5 years prior to the upcoming calendar year.
    (c) Exclusions from release of MA bid pricing data. For the purpose 
of this section, the following information is excluded from the data 
released under paragraph (b) of this section:
    (1) For an MA plan bid that includes Part D benefits, the 
information described at Sec. 422.254(b)(1)(ii), (c)(3)(ii), and (c)(7).
    (2) Additional information that CMS requires to verify the actuarial 
bases of the bids for MA plans for the annual bid submission, as 
follows:
    (i) Narrative information on base period factors, manual rates, 
cost-sharing methodology, optional supplement benefits, and other 
required narratives.
    (ii) Supporting documentation.
    (3) Any information that could be used to identify Medicare 
beneficiaries or other individuals.
    (4) Bid review correspondence and reports.
    (d) Timing of data release. CMS will release MA bid pricing data as 
provided in paragraph (b) of this section on an annual basis after the 
first Monday in October.

[81 FR 80556, Nov. 15, 2016]



         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 1106, 1128J(d), 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), collection of risk adjustment data, 
conditions for use and disclosure of risk adjustment data, and other 
payment rules. See Sec. 422.458 in subpart J for rules on risk sharing 
payments to MA regional organizations.

[79 FR 50358, Aug. 22, 2014]



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

[[Page 477]]

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 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:

[[Page 478]]

    (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.
    (f) Separate payment for meaningful use of certified EHRs. In the 
case of qualifying MA organizations, as defined in Sec. 495.200 of this 
chapter, entitled to MA EHR incentive payments per Sec. 495.220 of this 
chapter, such payments are made in accordance with sections 1853(l) and 
(m) of the Act and subpart C of part 495 of this chapter.

[70 FR 4729, Jan. 28, 2005, as amended at 75 FR 44564, July 28, 2010]



Sec. 422.306  Annual MA capitation rates.

    Subject to adjustments at Secs. 422.308(b) and 422.308(g), the 
annual capitation rate for each MA local area is determined under 
paragraph (a) of this section for 2005 and each succeeding year, except 
for years when CMS announces under Sec. 422.312(b) that the annual 
capitation rates will be determined under paragraph (b) of this section, 
and is then adjusted to exclude the applicable phase-in percentage of 
the standardized costs for payments under section 1886(d)(5)(B) of the 
Act in the area for the year under paragraph (c) of this section.
    (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 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
    (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;
    (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; and
    (iv) Adjusted to exclude costs attributable to payments under 
sections 1848(o) and 1886(n) of the Act of Medicare FFS incentive 
payments for meaningful use of electronic health records.
    (c) Phase-out of the indirect costs of medical education from MA 
capitation rates. Beginning with 2010, after the annual capitation rate 
for each MA local area is determined under paragraph (a) or (b), the 
amount is adjusted in accordance with section 1853(k)(4) of the Act to 
exclude from such amount the phase-in percentage for the year of the 
estimated costs for payments under section 1886(d)(5)(B) of the Act in 
the area for the year.

[70 FR 4729, Jan. 28, 2005, as amended at 73 FR 54250, Sept. 18, 2008; 
75 FR 19806, Apr. 15, 2010; 75 FR 44564, July 28, 2010]

[[Page 479]]



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. (1) 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.
    (2) The amount calculated in paragraph (a)(1) of this section must 
exclude expenditures attributable to sections 1848(a)(7) and (o) and 
sections 1886(b)(3)(B)(ix) and (n) of the Act.
    (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.
    (4) Authority to apply frailty adjustment under PACE payment rules 
for certain specialized MA plans for special needs individuals. (i) 
Application of payment rules. For plan year 2011 and subsequent plan 
years, in the case of a plan described in paragraph (c)(4)(ii) of this 
section, the Secretary may apply the payment rules under section 1894(d) 
of the Act (other than paragraph (3) of that section) rather than the 
payment rules that would otherwise apply under this part, but only to 
the extent necessary to reflect the costs of treating high 
concentrations of frail individuals.
    (ii) Plan described. A plan described in this paragraph is a fully 
integrated dual-eligible special needs plan, as defined at Sec. 422.2, 
and has a similar average level of frailty (as determined by the 
Secretary) as the PACE program.
    (5) Application of coding adjustment. (i) In applying the adjustment 
under paragraph (c)(1) of this section for health status to payment 
amounts, the Secretary ensures that such adjustment reflects changes in 
treatment and coding practices in the fee-for-service sector and 
reflects differences in coding patterns between MA plans and providers 
under Part A and B to the extent that the Secretary has identified such 
differences.
    (ii) In order to ensure payment accuracy, the Secretary annually 
conducts an analysis of the differences described in paragraph (c)(5)(i) 
of this section.
    (A) The Secretary completes such analysis by a date necessary to 
ensure that the results of such analysis are incorporated on a timely 
basis into the risk scores for 2008 and subsequent years.

[[Page 480]]

    (B) In conducting such analysis, the Secretary uses data submitted 
with respect to 2004 and subsequent years, as available and updated as 
appropriate.
    (iii) In calculating each year's adjustment, the adjustment factor 
is as follows:
    (A) For 2014, not less than the adjustment factor applied for 2010, 
plus 1.3 percentage points.
    (B) For each of the years 2015 through 2018, not less than the 
adjustment factor applied for the previous year, plus 0.25 percentage 
points.
    (C) For 2019 and each subsequent year, not less than 5.7 percent.
    (iv) Such adjustment is applied to risk scores until the Secretary 
implements risk adjustment using MA diagnostic, cost, and use data.
    (6) Improvements to risk adjustment for special needs individuals 
with chronic health conditions--(i) General rule. For 2011 and 
subsequent years, for purposes of the adjustment under paragraph (c)(1) 
of this section with respect to individuals described in paragraph 
(c)(6)(ii) of the section, the Secretary uses a risk score that reflects 
the known underlying risk profile and chronic health status of similar 
individuals. Such risk score is used instead of the default risk score 
for new enrollees in MA plans that are not specialized MA plans for 
special needs individuals (as defined in section 1859(b)(6) of the Act).
    (ii) Individuals described. An individual described in this clause 
is a special needs individual described in section 1859(b)(6)(B)(iii) of 
the Act who enrolls in a specialized MA plan for special needs 
individuals on or after January 1, 2011.
    (iii) Evaluation. For 2011 and periodically thereafter, the 
Secretary evaluates and revises the risk adjustment system under this 
paragraph in order to, as accurately as possible, account for--
    (A) Higher medical and care coordination costs associated with 
frailty, individuals with multiple, comorbid chronic conditions, and 
individuals with a diagnosis of mental illness; and
    (B) Costs that may be associated with higher concentrations of 
beneficiaries with the conditions specified in paragraph (c)(6)(iii)(A) 
of this section.
    (iv) Publication of evaluation and revisions. The Secretary 
publishes, as part of an announcement under section 1853(b) of the Act, 
a description of any evaluation conducted under paragraph (c)(6)(iii) of 
this section during the preceding year and any revisions made under 
paragraph (c)(6)(iii) of this section as a result of such evaluation.
    (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 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

[[Page 481]]

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.

[70 FR 4729, Jan. 28, 2005, as amended at 75 FR 44564, July 28, 2010; 76 
FR 21567, Apr. 15, 2011]



Sec. 422.310  Risk adjustment data.

    (a) Definition of risk adjustment data. Risk adjustment data are all 
data that are used in the development and 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 item and 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) Items and services covered under the original Medicare program.
    (ii) Medicare covered items and 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 CMS' requirements for data equivalent to Medicare fee-
for-service data, when appropriate, and to all relevant national 
standards. CMS may specify abbreviated formats for data submission 
required of MA organizations.
    (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, or other practitioner 
that furnished the item or service.
    (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,

[[Page 482]]

as required by CMS. There may be penalties for submission of false data.
    (f) Use and release of data--(1) CMS use of data. CMS may use the 
data described in paragraphs (a) through (d) of this section for the 
following purposes:
    (i) To determine the risk adjustment factors used to adjust 
payments, as required under Secs. 422.304(a) and (c);
    (ii) To update risk adjustment models;
    (iii) To calculate Medicare DSH percentages;
    (iv) To conduct quality review and improvement activities;
    (v) For Medicare coverage purposes;
    (vi) To conduct evaluations and other analysis to support the 
Medicare program (including demonstrations) and to support public health 
initiatives and other health care-related research;
    (vii) For activities to support the administration of the Medicare 
program;
    (viii) For activities conducted to support program integrity; and
    (ix) For purposes authorized by other applicable laws.
    (2) CMS release of data. Regarding data described in paragraphs (a) 
through (d) of this section, CMS may release the minimum data it 
determines is necessary for one or more of the purposes listed in 
paragraph (f)(1) of this section to other HHS agencies, other Federal 
executive branch agencies, States, and external entities in accordance 
with the following:
    (i) Applicable Federal laws;
    (ii) CMS data sharing procedures;
    (iii) Subject to the protection of beneficiary identifier elements 
and beneficiary confidentiality, including--
    (A) A prohibition against public disclosure of beneficiary 
identifying information;
    (B) Release of beneficiary identifying information to other HHS 
agencies, other Federal executive branch agencies, and States only when 
such information is needed; and
    (C) Release of beneficiary identifying information to external 
entities only to the extent needed to link datasets.
    (iv) Subject to the aggregation of dollar amounts reported for the 
associated encounter to protect commercially sensitive data.
    (v) Risk adjustment data other than data described in paragraphs 
(f)(2)(iii) and (f)(2)(iv) of this section will be released without the 
redaction or aggregation described in paragraphs (f)(2)(iii) and 
(f)(2)(iv) of this section, respectively.
    (3) Risk adjustment data will not become available for release under 
this paragraph (f) unless--
    (i) The risk adjustment reconciliation for the applicable payment 
year has been completed;
    (ii) CMS determines that data release is necessary under paragraph 
(f)(1)(vi) of this section for emergency preparedness purposes before 
reconciliation; or
    (iii) CMS determines that extraordinary circumstances exist to 
release the data before reconciliation.
    (g) Deadlines for submission of risk adjustment data. Risk 
adjustment factors for each payment year are based on risk adjustment 
data submitted for items and 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. CMS may adjust these deadlines, as 
appropriate.
    (1) The annual deadline for risk adjustment data submission is the 
first Friday in September for risk adjustment data reflecting items and 
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) After the payment year is completed, CMS recalculates the risk 
factors for affected individuals to determine if adjustments to payments 
are necessary.
    (i) Prior to calculation of final risk factors for a payment year, 
CMS allows a reconciliation process to account for risk adjustment data 
submitted after the March deadline until the final risk adjustment data 
submission deadline in the year following the payment year.
    (ii) After the final risk adjustment data submission deadline, which 
is a date announced by CMS that is no earlier than January 31 of the 
year following the payment year, an MA organization can submit data to 
correct

[[Page 483]]

overpayments but cannot submit diagnoses for additional payment.
    (3) Submission of corrected risk adjustment data in accordance with 
overpayments after the final risk adjustment data submission deadline, 
as described in paragraph (g)(2) of this section, must be made as 
provided in Sec. 422.326.

[73 FR 48757, Aug. 19, 2008, as amended at 79 FR 29956, May 23, 2014; 79 
FR 50358, Aug. 22, 2014; 80 FR 7960, Feb. 12, 2015]



Sec. 422.311  RADV audit dispute and appeal processes.

    (a) Risk adjustment data validation (RADV) audits. In accordance 
with Sec. 422.2 and Sec. 422.310(e), the Secretary annually conducts 
RADV audits to ensure risk adjusted payment integrity and accuracy.
    (b) RADV audit results. (1) MA organizations that undergo RADV 
audits will be issued an audit report post medical record review that 
describes the results of the RADV audit as follows:
    (i) Detailed enrollee-level information relating to confirmed 
enrollee HCC discrepancies.
    (ii) The contract-level RADV payment error estimate in dollars.
    (iii) The contract-level payment adjustment amount to be made in 
dollars.
    (iv) An approximate timeframe for the payment adjustment.
    (v) A description of the MA organization's RADV audit appeal rights.
    (2) Compliance date. The compliance date for meeting RADV medical 
record submission requirements for the validation of risk adjustment 
data is the due date when MA organizations selected for RADV audit must 
submit medical records to the Secretary.
    (c) RADV audit appeals--(1) Appeal rights. MA organizations that do 
not agree with their RADV audit results may appeal.
    (2) Issues eligible for RADV appeals--(i) General rules. MA 
organizations may appeal RADV medical record review determinations and 
the Secretary's RADV payment error calculation. In order to be eligible 
for RADV appeal, MA organizations must adhere to the following:
    (A) Established RADV audit procedures and requirements.
    (B) RADV appeals procedures and requirements.
    (ii) Failure to follow RADV rules. Failure to follow the Secretary's 
RADV audit procedures and requirements and the Secretary's RADV appeals 
procedures and requirements will render the MA organization's request 
for appeal invalid.
    (iii) RADV appeal rules. The MA organization's written request for 
medical record review determination appeal must specify the following:
    (A) The audited HCC(s) that the Secretary identified as being in 
error.
    (B) A justification in support of the audited HCC selected for 
appeal.
    (iv) Number of medical records eligible for appeal. For each audited 
HCC, MA organizations may appeal one medical record that has undergone 
RADV review. If an attestation was submitted to cure a signature or 
credential-related error, the attestation may be included in the HCC 
appeal.
    (v) Selection of medical record for appeal. The MA organization must 
select the medical record that undergoes appeal.
    (vi) Written request for RADV payment error calculation appeal. The 
written request for RADV payment error calculation appeal must clearly 
specify the following:
    (A) The MA organization's own RADV payment error calculation.
    (B) Where the Secretary's RADV payment error calculation was 
erroneous.
    (3) Issues ineligible for RADV appeals. (i) MA organizations' 
request for appeal may not include HCCs, medical records or other 
documents beyond the audited HCC, RADV-reviewed medical record, and any 
accompanying attestation that the MA organization chooses for appeal.
    (ii) MA organizations may not appeal the Secretary's medical record 
review determination methodology or RADV payment error calculation 
methodology.
    (iii) As part of the RADV payment error calculation appeal-- MA 
organizations may not appeal RADV medical record review-related errors.
    (iv) MA organizations may not appeal RADV errors that result from an 
MA organization's failure to submit a medical record.

[[Page 484]]

    (4) Burden of proof. The MA organization bears the burden of proof 
by a preponderance of the evidence in demonstrating that the Secretary's 
medical record review determination(s) or payment error calculation was 
incorrect.
    (5) Manner and timing of a request for RADV appeal. (i) At the time 
the Secretary issues its RADV audit report, the Secretary notifies 
audited MA organizations of the following:
    (A) That they may appeal RADV HCC errors that are eligible for 
medical record review determination appeal.
    (B) That they may appeal the Secretary's RADV payment error 
calculation.
    (ii) MA organizations have 60 days from date of issuance of the RADV 
audit report to file a written request with CMS for RADV appeal. This 
request for RADV appeal must specify one of the following:
    (A) Whether the MA organization requests medical record review 
determination appeal, the issues with which the MA organization 
disagrees, and the reasons for the disagreements.
    (B) Whether the MA organization requests RADV payment error 
calculation appeal, the issues with which the MA organization disagrees, 
and the reasons for the disagreements.
    (C) Whether the MA organization requests both medical record review 
determination appeal and RADV payment error calculation appeal, the 
issues with which the MA organization disagrees, and the reasons for the 
disagreements.
    (iii) For MA organizations that appeal both medical record review 
determination appeal and RADV payment error calculation appeal:
    (A) The Secretary adjudicates the request for RADV payment error 
calculation following conclusion of reconsideration of the MA 
organization's request for medical record review determination appeal.
    (B) An MA organization's request for appeal of its RADV payment 
error calculation will not be adjudicated until appeals of RADV medical 
record review determinations filed by the MA organization have been 
completed and the decisions are final for that stage of appeal.
    (6) Reconsideration stage--(i) Written request for medical record 
review reconsideration. A MA organization's written request for medical 
record review determination reconsideration must specify the following:
    (A) The audited HCC that the Secretary identified as being in error 
that the MA organization wishes to appeal.
    (B) A justification in support of the audited HCC chosen for appeal.
    (ii) Written request for payment error calculation. The MA 
organization's written request for payment error calculation 
reconsideration--
    (A) Must include the MA organization's own RADV payment error 
calculation that clearly specifies where the Secretary's RADV payment 
error calculation was erroneous; and
    (B) May include additional documentary evidence pertaining to the 
calculation of the payment error that the MA organization wishes the 
reconsideration official to consider.
    (iii) Conduct of the reconsideration. (A) For medical record review 
determination reconsideration, a medical record review professional who 
was not involved in the initial medical record review determination of 
the disputed audited HCCs does the following:
    (1) Reviews the medical record and accompanying dispute 
justification.
    (2) Reconsiders the initial audited medical record review 
determination.
    (B) For payment error calculation reconsideration, CMS ensures that 
a third party not involved in the initial RADV payment error calculation 
does the following:
    (1) Reviews the Secretary's RADV payment error calculation.
    (2) Reviews the MA organization's RADV payment error calculation;
    (3) Recalculates the payment error in accordance with CMS's RADV 
payment error calculation procedures.
    (iv) Effect of the reconsideration official's decision. (A) The 
reconsideration official issues a written reconsideration decision to 
the MA organization.
    (B) The reconsideration official's decision is final unless the MA 
organization disagrees with the reconsideration official's decision.

[[Page 485]]

    (C) If the MA organization disagrees with the reconsideration 
official's decision, they may request a hearing in accordance with 
paragraph (c)(7) of this section.
    (7) Hearing stage--(i) Errors eligible for hearing. At the time the 
reconsideration official issues his or her reconsideration determination 
to the MA organization, the reconsideration official notifies the MA 
organization of any RADV HCC errors or payment error-calculations that 
are eligible for RADV hearing.
    (ii) General hearing rules. A MA organization that requests a RADV 
hearing must do so in writing in accordance with procedures established 
by CMS.
    (iii) Written request for hearing. The written request for a hearing 
must be filed with the Hearing Officer within 60 days of the date the MA 
organization receives the reconsideration officer's written 
reconsideration decision.
    (A) If the MA organization appeals medical record review 
reconsideration determination, the written request for RADV hearing 
must--
    (1) Include a copy of the written decision of the reconsideration 
official;
    (2) Specify the audited HCCs that the reconsideration official 
confirmed as being in error; and
    (3) Specify a justification why the MA organization disputes the 
reconsideration official's determination.
    (B) If the MA organization appeals the RADV payment error 
calculation reconsideration determination, the written request for RADV 
hearing must include the following:
    (1) A copy of the written decision of the reconsideration official.
    (2) The MA organization's own RADV payment error calculation that 
clearly specifies where the Secretary's payment error calculation was 
erroneous.
    (iv) Designation of hearing officer. A hearing officer will conduct 
the RADV hearing.
    (v) Disqualification of the 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.
    (D) If the hearing officer withdraws, another hearing officer 
conducts the hearing.
    (E) 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 the 
Secretary.
    (vi) Hearing Officer review. The hearing officer reviews the 
following:
    (A) For a medical record review determination appeal, the hearing 
officer reviews all of the following:
    (1) The RADV-reviewed medical record and any accompanying 
attestation that the MA organization selected for review.
    (2) The reconsideration official's written determination.
    (3) The written brief submitted by the MA organization or the 
Secretary in response to the reconsideration official's determination.
    (B) For a payment error calculation appeal, the hearing officer 
reviews all of the following:
    (1) The reconsideration official's written determination.
    (2) Briefs addressing the reconsideration decision.
    (vii) Hearing procedures--(A) Authority of the Hearing Officer. The 
hearing officer has full power to make rules and establish procedures, 
consistent with the law, regulations, and the Secretary rulings. These 
powers include the authority to dismiss the appeal with prejudice and 
take any other action which the hearing officer considers appropriate, 
including for failure to comply with such rules and procedures.
    (B) The hearing is on the record. (1) Except as specified in 
paragraph (c)(viii)(B)(2) of this section, the hearing officer is 
limited to the review of the record.
    (2)(i) Subject to the hearing officer's full discretion, the parties 
may request a live or telephonic hearing regarding

[[Page 486]]

some or all of the disputed medical records.
    (ii) The hearing officer may, on his or her own-motion, schedule a 
live or telephonic hearing.
    (3) The record is comprised of the following:
    (i) Written decisions described at paragraphs (c)(6)(iv) and (7)(vi) 
of this section.
    (ii) Written briefs from the MA organization explaining why they 
believe the reconsideration official's determination was incorrect.
    (iii) The Secretary's optional brief that responds to the MA 
organization's brief--
    (4) The hearing officer neither receives testimony nor accepts any 
new evidence that is not part of the record.
    (5) Either the MA organization or the Secretary may ask the hearing 
officer to rule on a motion for summary judgment.
    (viii) Hearing Officer decision. The hearing officer decides whether 
to uphold or overturn the reconsideration official's decision, and sends 
a written determination to CMS and the MA organization, explaining the 
basis for the decision.
    (ix) Computations based on hearing decision. (A) Once the hearing 
officer's decision is considered final in accordance with paragraph 
(c)(7)(x) of this section, a third party not involved in the initial 
RADV payment error calculation recalculates the MA organization's RADV 
payment error and issues a new RADV audit report to the appellant MA 
organization and CMS.
    (B) For MA organizations appealing the RADV error calculation only, 
a third party not involved in the initial RADV payment error calculation 
recalculates the MA organization's RADV payment error and issues a new 
RADV audit report to the appellant MA organization and CMS.
    (x) Effect of the Hearing Officer's decision. The hearing officer's 
decision is final unless the decision is reversed or modified by the CMS 
Administrator.
    (8) CMS Administrator review stage. (i) A request for CMS 
Administrator review must be made in writing and filed with the CMS 
Administrator.
    (ii) CMS or a MA organization that has received a hearing officer's 
decision and requests review by the CMS Administrator must do so within 
60 days of receipt of the hearing officer's decision.
    (iii) After receiving a request for review, the CMS Administrator 
has the discretion to elect to review the hearing officer's decision or 
to decline to review the hearing officer's decision.
    (iv) If the CMS Administrator elects to review the hearing 
decision--
    (A) The CMS Administrator acknowledges the decision to review the 
hearing decision in writing and notifies CMS and the MA organization of 
their right to submit comments within 15 days of the date of the 
notification; and
    (B) The CMS Administrator is limited to the review of the record. 
The record is comprised of the following:
    (1) The record is comprised of documents described at paragraph 
(c)(7)(vii)(B)(3) of this section.
    (2) The hearing record.
    (3) Written arguments from the MA organization or CMS explaining why 
either or both parties believe the hearing officer's determination was 
correct or incorrect.
    (C) The CMS Administrator reviews the record and determines whether 
the hearing officer's determination should be upheld, reversed, or 
modified.
    (v) The CMS Administrator renders his or her final decision in 
writing to the parties within 60 days of acknowledging his or her 
decision to review the hearing officer's decision.
    (vi) The decision of the hearing officer is final if the CMS 
Administrator--
    (A) Declines to review the hearing officer's decision; or
    (B) Does not make a decision within 60 days.

[75 FR 19806, Apr. 15, 2010; 75 FR 32859, June 10, 2010; 79 FR 29956, 
May 23, 2014]



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.

[[Page 487]]

    (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;
    (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]

[[Page 488]]



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
    (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

[[Page 489]]

    (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.
    (3) Payments under subpart C of part 495 of this chapter for 
meaningful use of certified EHR technology are made from the Federal 
Hospital Insurance Trust Fund or the Supplementary Medical Insurance 
Trust Fund. In applying section 1848(o) of the Act under sections 
1853(l) and 1886(n)(2)of the Act under section 1853(m) of the Act, CMS 
determines the amount to the extent feasible and practical to be similar 
to the estimated amount in the aggregate that would be payable for 
services furnished by professionals and hospitals under Parts B and A, 
respectively, under title XVIII of the Act.
    (b) Payments to the MA organization. Subject to Secs. 412.105(g), 
413.86(d), and 495.204 of this chapter and Secs. 422.109, 422.316, and 
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 
Secs. 422.314, 422.316, 422.318, 422.320, and 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; 75 
FR 44654, July 28, 2010]



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

[[Page 490]]

    (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.



Sec. 422.326  Reporting and returning of overpayments.

    (a) Terminology. For purposes of this section--
    Applicable reconciliation occurs on the date of the annual final 
deadline for risk adjustment data submission described at 
Sec. 422.310(g), which is announced by CMS each year.
    Funds means any payment that an MA organization has received that is 
based on data submitted by the MA organization to CMS for payment 
purposes, including Sec. 422.308(f) and Sec. 422.310.
    Overpayment means any funds that an MA organization has received or 
retained under title XVIII of the Act to which the MA organization, 
after applicable reconciliation, is not entitled under such title.
    (b) General rule. If an MA organization has identified that it has 
received an overpayment, the MA organization must report and return that 
overpayment in the form and manner set forth in this section.
    (c) Identified overpayment. The MA organization has identified an 
overpayment when the MA organization has determined, or should have 
determined through the exercise of reasonable diligence, that the MA 
organization has received an overpayment.
    (d) Reporting and returning of an overpayment. An MA organization 
must report and return any overpayment it received no later than 60 days 
after the date on which it identified it received an overpayment, unless 
otherwise directed by CMS for purposes of Sec. 422.311.
    (1) Reporting. An MA organization must notify CMS, of the amount and 
reason for the overpayment, using a notification process determined by 
CMS.
    (2) Returning. An MA organization must return identified 
overpayments in a manner specified by CMS.
    (e) Enforcement. Any overpayment retained by an MA organization is 
an obligation under 31 U.S.C. 3729(b)(3) if not reported and returned in 
accordance with paragraph (d) of this section.
    (f) Look-back period. An MA organization must report and return any 
overpayment identified for the 6 most recent completed payment years.

[79 FR 29958, May 23, 2014]



Sec. 422.330  CMS-identified overpayments associated with payment data 
submitted by MA organizations.

    (a) Definitions. For purposes of this section--
    Applicable reconciliation date occurs on the date of the annual 
final deadline for risk adjustment data submission described at 
Sec. 422.310(g)(2)(ii).
    Erroneous payment data means payment data that should not have been 
submitted either because the data submitted are inaccurate or because 
the data are inconsistent with Medicare Part C requirements.
    Payment data means data submitted by an MA organization to CMS and 
used for payment purposes, including enrollment data and data submitted 
under Sec. 422.310.
    (b) Request to correct payment data. (1) When CMS identifies 
erroneous payment data submitted by an MA organization (other than an 
error identified through the process described in Sec. 422.311), CMS may 
send a data correction notice to the MA organization requesting that the 
MA organization correct the payment data.
    (2) The notice will include or make reference to the specific 
payment data that need to be corrected, the reason why CMS believes that 
the payment data are erroneous, and the timeframe for correcting the 
payment data.
    (c) Payment offset. (1) If the MA organization fails to submit the 
corrected payment data within the timeframe as requested in accordance 
with paragraph (b) of this section, CMS will conduct a payment offset 
against payments made to the MA organization if--

[[Page 491]]

    (i) The payment error affects payments for any of the 6 most 
recently completed payment years; and
    (ii) The payment error for a particular payment year is identified 
after the applicable reconciliation date for that payment year.
    (2) CMS will calculate the payment offset amount using the correct 
payment data and a payment algorithm that applies the payment rules for 
the applicable year.
    (d) Payment offset notification. CMS will issue a payment offset 
notice to the MA organization that includes at least the following:
    (1) The dollar amount of the offset from plan payments.
    (2) An explanation of how the erroneous data were identified and 
used to calculate the payment offset amount.
    (3) An explanation that, if the MA organization disagrees with the 
payment offset, it may request an appeal within 30 days of issuance of 
the payment offset notification.
    (e) Appeals process. If an MA organization does not agree with the 
payment offset described in paragraph (c) of this section, it may appeal 
under the following three-level appeal process:
    (1) Reconsideration. An MA organization may request reconsideration 
of the payment offset described in paragraph (c) of this section, 
according to the following process:
    (i) Manner and timing of request. A written request for 
reconsideration must be filed within 30 days from the date that CMS 
issued the payment offset notice to the MA organization.
    (ii) Content of request. The written request for reconsideration 
must specify the findings or issues with which the MA organization 
disagrees and the reasons for its disagreement. As part of its request 
for reconsideration, the MA organization may include any additional 
documentary evidence in support of its position. Any additional evidence 
must be submitted with the request for reconsideration. Additional 
information submitted after this time will be rejected as untimely.
    (iii) Conduct of reconsideration. In conducting the reconsideration, 
the CMS reconsideration official reviews the underlying data that were 
used to determine the amount of the payment offset and any additional 
documentary evidence timely submitted by the MA organization.
    (iv) Reconsideration decision. The CMS reconsideration official 
informs the MA organization of its decision on the reconsideration 
request.
    (v) Effect of reconsideration decision. The decision of the CMS 
reconsideration official is final and binding unless a timely request 
for an informal hearing is filed in accordance with paragraph (e)(2) of 
this section.
    (2) Informal hearing. An MA organization dissatisfied with CMS' 
reconsideration decision made under paragraph (e)(1) of this section is 
entitled to an informal hearing as provided for under paragraphs 
(e)(2)(i) through (e)(2)(v) of this section.
    (i) Manner and timing for request. A request for an informal hearing 
must be made in writing and filed with CMS within 30 days of the date of 
CMS' reconsideration decision.
    (ii) Content of request. The request for an informal hearing must 
include a copy of the reconsideration decision and must specify the 
findings or issues in the decision with which the MA organization 
disagrees and the reasons for its disagreement.
    (iii) Informal hearing procedures. The informal hearing will be 
conducted in accordance with the following:
    (A) CMS provides written notice of the time and place of the 
informal hearing at least 30 days before the scheduled date.
    (B) The informal hearing is conducted by a CMS hearing officer who 
neither receives testimony nor accepts any new evidence that was not 
timely presented with the reconsideration request. The CMS hearing 
officer is limited to the review of the record that was before the CMS 
reconsideration official when CMS made its reconsideration 
determination.
    (C) The CMS hearing officer will review the proceeding before the 
CMS reconsideration official on the record made before the CMS 
reconsideration official using the clearly erroneous standard of review.
    (iv) Decision of the CMS hearing officer. The CMS hearing officer 
decides the case and sends a written decision

[[Page 492]]

to the MA organization explaining the basis for the decision.
    (v) Effect of hearing officer's decision. The hearing officer's 
decision is final and binding, unless the decision is reversed or 
modified by the Administrator in accordance with paragraph (e)(3) of 
this section.
    (3) Review by the Administrator. The Administrator review will be 
conducted in the following manner:
    (i) An MA organization that has received a hearing officer's 
decision may request review by the Administrator within 30 days of the 
date of issuance of the hearing officer's decision under paragraph 
(e)(2)(iv) of this section. The MA organization may submit written 
arguments to the Administrator for review.
    (ii) After receiving a request for review, the Administrator has the 
discretion to elect to review the hearing officer's determination in 
accordance with paragraph (e)(3)(iv) of this section or to decline to 
review the hearing officer's decision.
    (iii) If the Administrator declines to review the hearing officer's 
decision, the hearing officer's decision is final and binding.
    (iv) If the Administrator elects to review the hearing officer's 
decision, the Administrator will review the hearing officer's decision, 
as well as any information included in the record of the hearing 
officer's decision and any written argument submitted by the MA 
organization, and determine whether to uphold, reverse, or modify the 
hearing officer's decision.
    (v) The Administrator's determination is final and binding.
    (f) Matters subject to appeal and burden of proof. (1) The MA 
organization's appeal is limited to CMS' finding that the payment data 
submitted by the MA organization are erroneous.
    (2) The MA organization bears the burden of proof by a preponderance 
of the evidence in demonstrating that CMS' finding that the payment data 
were erroneous was incorrect or otherwise inconsistent with applicable 
program requirements.
    (g) Applicability of appeals process. The appeals process under 
paragraph (e) of this section applies only to payment offsets under 
paragraph (c) of this section.

[79 FR 67031, Nov. 10, 2014]



               Subpart H_Provider-Sponsored Organizations

    Editorial Note: Nomenclature changes to subpart H of part 422 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

[[Page 493]]

    (2) For an entity, that the entity is organized and operated 
primarily for 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.

[[Page 494]]

    (b) Provision of services. A PSO must demonstrate to CMS's 
satisfaction that it is capable of delivering to Medicare 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.

[[Page 495]]

    (C) To be returned to the affiliated provider if the PSO meets its 
utilization management or cost containment goals for the specified time 
period.
    (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 Secs. 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 Secs. 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

[[Page 496]]

effective date of the organization's MA contract.
    (e) Consistency in application. CMS reserves the right to revoke 
waiver eligibility if it subsequently determines 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 Secs. 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;

[[Page 497]]

    (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;
    (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.

[[Page 498]]

    (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.
    (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

[[Page 499]]

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--
    (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

[[Page 500]]

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:
    (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

[[Page 501]]

    (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
    (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).

[[Page 502]]



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 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 collectible 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

[[Page 503]]

    (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 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.

[70 FR 4732, Jan. 28, 2005, as amended at 70 FR 52027, Sept. 1, 2005; 76 
FR 21568, Apr. 15, 2011]



 Subpart K_Application Procedures and Contracts for 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

[[Page 504]]

seeking a contract as a Medicare organization offering an MA plan, 
including MA organizations offering a specialized MA plan for special 
needs individuals. 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
    (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.

[63 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; 77 FR 22167, Apr. 
12, 2012]

[[Page 505]]



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 
and additional application requirements for MA organizations seeking to 
offer a Specialized MA Plan for Special Needs Individuals.
    (b) Completion of a notice of intent to apply. (1) An organization 
submitting an application under this section for a particular contract 
year must first submit a completed Notice of Intent to Apply by the date 
established by CMS. CMS will not accept applications from organizations 
that do not first submit a timely Notice of Intent to Apply.
    (2) Submitting a Notice of Intent to Apply does not bind that 
organization to submit an application for the applicable contract year.
    (3) An organization's decision not to submit an application after 
submitting a Notice of Intent To Apply will not form the basis of any 
action taken against the organization by CMS.
    (c) 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 fully complete all parts of 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 care 
services to be offered under the MA contract.
    (ii) For regional plans, documentation of application for State 
licensure in any State in the region that the organization is not 
already licensed.
    (iii) For Specialized MA Plans for Special Needs Individuals, 
documentation that the entity meets the requirements of Secs. 422.2; 
422.4(a)(1)(iv); 422.101(f); 422.107, if applicable; and 422.152(g) of 
this part.
    (iv) Documentation that all providers or suppliers in the MA or MA-
PD plan that are types of individuals or entities that can enroll in 
Medicare in accordance with section 1861 of the Act, are enrolled in an 
approved status.
    (2) The authorized individual must thoroughly describe how the 
entity and MA plan meet, or will meet, all the requirements described in 
this part, including providing documentation that all providers and 
suppliers referenced in Sec. 422.222 are enrolled in Medicare in an 
approved status.
    (d) 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.
    (e) Resubmittal of an application. An application that has been 
denied by CMS for a particular contract year may not be resubmitted 
until the beginning of the application cycle for the following contract 
year.
    (f) 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, as amended at 75 FR 19809, Apr. 15, 2010; 77 
FR 22167, Apr. 12, 2012; 81 FR 80557, Nov. 15, 2016]



Sec. 422.502  Evaluation and determination procedures.

    (a) Basis for evaluation and determination. (1) With the exception 
of evaluations conducted under paragraph (b) of

[[Page 506]]

this section, CMS evaluates an application for an MA contract or for a 
Specialized MA Plan for Special Needs Individuals solely 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.
    (2) After evaluating all relevant information, CMS determines 
whether the applicant's application meets all the requirements described 
in this part.
    (b) Use of information from a current or prior contract. (1) Except 
as provided in paragraphs (b)(2) through (b)(4) of this section, if an 
MA organization fails during the 14 months preceding the deadline 
established by CMS for the submission of contract qualification 
applications to comply with the requirements of the Part C program under 
any current or prior contract with CMS under title XVIII of the Act or 
fails to complete a corrective action plan during the 14 months 
preceding the deadline established by CMS for the submission of contract 
qualification applications, CMS may deny an application based on the 
applicant's failure to comply with the requirements of the Part C 
program under any current or prior contract with CMS even if the 
applicant currently meets all of the requirements of this part.
    (2) In the absence of 14 months of performance history, CMS may deny 
an application based on a lack of information available to determine an 
applicant's capacity to comply with the requirements of the MA program.
    (3) If CMS has terminated, under Sec. 422.510, or non-renewed, under 
Sec. 422.506(b), an MA organization's contract, effective within the 38 
months preceding the deadline established by CMS for the submission of 
contract qualification applications, CMS may deny an application for a 
new contract or service area expansion based on the applicant's 
substantial failure to comply with the requirements of the Part C 
program even if the applicant currently meets all of the requirements of 
this part.
    (4) During the same 38-month period as specified in (b)(3) of this 
section, CMS may deny an application where the applicant's covered 
persons also served as covered persons for the terminated or non-renewed 
contract. A ``covered person'' as used in this paragraph means one of 
the following:
    (i) All owners of terminated organizations who are natural persons, 
other than shareholders who have an ownership interest of less than 5 
percent.
    (ii) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (iii) A member of the board of directors or board of trustees of the 
entity, if the organization is organized as a corporation.
    (c) Notice of determination. Within timeframes determined by CMS, it 
notifies each applicant that applies for an MA contract or to be 
designated a Specialized MA Plan for Special Needs Individuals 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 or 
Specialized MA Plan for Special Needs Individuals, CMS gives the 
applicant notice of intent to deny the application for an MA contract or 
for a Specialized MA Plan for Special Needs Individuals a summary of the 
basis for this preliminary finding.
    (ii) Within 10 days from the intent to deny, the 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.
    (iii) If CMS does not receive a revised application within 10 days 
from the date of the notice, or if after timely submission of a revised 
application, CMS still finds that the applicant does not appear 
qualified or has not provided CMS enough information to

[[Page 507]]

allow CMS to evaluate the application, CMS will deny the application.
    (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 and/or is not 
qualified to offer a Specialized MA Plan for Special Needs Individuals;
    (ii) The reasons why the applicant is not qualified; and
    (iii) The applicant's right to request a hearing in accordance with 
the procedures specified in subpart N of this part.

[70 FR 4736, Jan. 28, 2005, as amended at 75 FR 19809, Apr. 15, 2010; 76 
FR 21568, Apr. 15, 2011; 77 FR 22167, Apr. 12, 2012; 80 FR 7960, Feb. 
12, 2015]



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) Adopt and implement an effective compliance program, which must 
include measures that prevent, detect, and correct non-compliance with 
CMS' program requirements as well as measures that prevent, detect, and 
correct fraud, waste, and abuse. The compliance program must, at a 
minimum, include the following core requirements:
    (A) Written policies, procedures, and standards of conduct that--
    (1) Articulate the organization's commitment to comply with all 
applicable Federal and State standards;
    (2) Describe compliance expectations as embodied in the standards of 
conduct;
    (3) Implement the operation of the compliance program;
    (4) Provide guidance to employees and others on dealing with 
potential compliance issues;
    (5) Identify how to communicate compliance issues to appropriate 
compliance personnel;
    (6) Describe how potential compliance issues are investigated and 
resolved by the organization; and
    (7) Include a policy of non-intimidation and non-retaliation for 
good faith participation in the compliance program, including but not 
limited to reporting potential issues, investigating

[[Page 508]]

issues, conducting self-evaluations, audits and remedial actions, and 
reporting to appropriate officials.
    (B) The designation of a compliance officer and a compliance 
committee who report directly and are accountable to the organization's 
chief executive or other senior management.
    (1) The compliance officer, vested with the day-to-day operations of 
the compliance program, must be an employee of the MA organization, 
parent organization or corporate affiliate. The compliance officer may 
not be an employee of the MA organization's first tier, downstream or 
related entity.
    (2) The compliance officer and the compliance committee must 
periodically report directly to the governing body of the MA 
organization on the activities and status of the compliance program, 
including issues identified, investigated, and resolved by the 
compliance program.
    (3) The governing body of the MA organization must be knowledgeable 
about the content and operation of the compliance program and must 
exercise reasonable oversight with respect to the implementation and 
effectiveness of the compliance programs.
    (C)(1) Each MA organization must establish and implement effective 
training and education between the compliance officer and organization 
employees, the MA organization's chief executive or other senior 
administrator, managers and governing body members, and the MA 
organization's first tier, downstream, and related entities. Such 
training and education must occur at a minimum annually and must be made 
a part of the orientation for a new employee, new first tier, downstream 
and related entities, and new appointment to a chief executive, manager, 
or governing body member.
    (2) First tier, downstream, and related entities who have met the 
fraud, waste, and abuse certification requirements through enrollment 
into the Medicare program are deemed to have met the training and 
educational requirements for fraud, waste, and abuse.
    (3) An MA organization must require all of its first tier, 
downstream, and related entities to take the CMS training and accept the 
certificate of completion of the CMS training as satisfaction of this 
requirement. MA organizations are prohibited from developing and 
implementing their own training or providing supplemental training 
materials to fulfill this requirement.
    (D) Establishment and implementation of effective lines of 
communication, ensuring confidentiality, between the compliance officer, 
members of the compliance committee, the MA organization's employees, 
managers and governing body, and the MA organization's first tier, 
downstream, and related entities. Such lines of communication must be 
accessible to all and allow compliance issues to be reported including a 
method for anonymous and confidential good faith reporting of potential 
compliance issues as they are identified.
    (E) Well-publicized disciplinary standards through the 
implementation of procedures which encourage good faith participation in 
the compliance program by all affected individuals. These standards must 
include policies that--
    (1) Articulate expectations for reporting compliance issues and 
assist in their resolution,
    (2) Identify noncompliance or unethical behavior; and
    (3) Provide for timely, consistent, and effective enforcement of the 
standards when noncompliance or unethical behavior is determined.
    (F) Establishment and implementation of an effective system for 
routine monitoring and identification of compliance risks. The system 
should include internal monitoring and audits and, as appropriate, 
external audits, to evaluate the MA organization, including first tier 
entities', compliance with CMS requirements and the overall 
effectiveness of the compliance program.
    (G) Establishment and implementation of procedures and a system for 
promptly responding to compliance issues as they are raised, 
investigating potential compliance problems as identified in the course 
of self-evaluations and audits, correcting such problems promptly and 
thoroughly to reduce the potential for recurrence, and ensure ongoing 
compliance with CMS requirements.

[[Page 509]]

    (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.
    (3) The MA organization should have procedures to voluntarily self-
report potential fraud or misconduct related to the MA program to CMS or 
its designee.
    (4)[Reserved]
    (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--
    (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.
    (7) Not have terminated a contract by mutual consent under which, as 
a condition of the consent, the MA organization agreed that it was not 
eligible to apply for new contracts or service area expansions for a 
period of 2 years per Sec. 422.508(c) of this subpart.
    (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.
    (iv) CMS may require that the MA organization hire an independent 
auditor to provide CMS with additional information to determine if 
deficiencies found during an audit or inspection have been corrected and 
are not likely to recur. The independent auditor must work in accordance 
with CMS specifications and must be willing to attest that a complete 
and full independent review has been performed.
    (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; 
72 FR 68722, Dec. 5, 2007; 75 FR 19809, Apr. 15, 2010; 79 FR 29958, May 
23, 2014; 80 FR 7960, Feb. 12, 2015]

[[Page 510]]


    Editorial Note: At 79 FR 29958, May 23, 2014, in Sec. 422.503, 
paragraph (b)(4)(vi)(G)(5 was revised; however no paragraph 
(b)(4)(vi)(G)(5 exists, so it cannot be revised.



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 and supplier requirements 
in subpart E of this part, including provider certification 
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, limits on physician incentive plans, and Medicare 
provider and supplier enrollment requirements.
    (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 Secs. 422.114 and 422.216 and the MSA requirements 
in Secs. 422.56, 422.103, and 422.262; and
    (13) To comply with the confidentiality and enrollee record accuracy 
requirements in Sec. 422.118.
    (14) Maintain a fiscally sound operation by at least maintaining a 
positive net worth (total assets exceed total liabilities).
    (15) Address complaints received by CMS against the MAO by--
    (i) Addressing and resolving complaints in the CMS complaint 
tracking system.
    (ii) Displaying a link to the electronic complaint form on the 
Medicare.gov Internet Web site on the MA plan's main Web page.
    (16) An MA organization's compliance with paragraphs (a)(1) through 
(15) and (c) of this section is material to performance of the contract.
    (17) To maintain administrative and management capabilities 
sufficient for the organization to organize, implement, and control the 
financial, marketing, benefit administration, and quality improvement 
activities related to the delivery of Part C services.
    (18) To maintain a Part C summary plan rating score of at least 3 
stars. A

[[Page 511]]

Part C summary plan rating is calculated by taking an average of a 
contract's Part C performance measure scores.
    (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, audit, or other means--
    (i) The quality, appropriateness, and timeliness of services 
furnished to Medicare enrollees under the contract;
    (ii) Compliance with CMS requirements for maintaining the privacy 
and security of protected health information and other personally 
identifiable information of Medicare enrollees;
    (iii) The facilities of the MA organization to include computer and 
other electronic systems; and
    (iv) 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

[[Page 512]]

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 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) Effective January 1, 2010, 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 
enrollee liable for payment of any such fees;
    (ii) Indemnify the 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 enrollees; and
    (iii) For all MA organizations with enrollees eligible for both 
Medicare and Medicaid, specify in contracts with providers that such 
enrollees will not

[[Page 513]]

be held liable for Medicare Part A and B cost sharing when the State is 
responsible for paying such amounts, and inform providers of Medicare 
and Medicaid benefits, and rules for enrollees eligible for Medicare and 
Medicaid. The MA plans may not impose cost-sharing that exceeds the 
amount of cost-sharing that would be permitted with respect to the 
individual under title XIX if the individual were not enrolled in such a 
plan. The contracts must state that providers will--
    (A) Accept the MA plan payment as payment in full, or
    (B) Bill the appropriate State source.
    (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 first tier, downstream, and 
related entities. (1) Notwithstanding any relationship(s) that the MA 
organization may have with first tier, downstream, and related entities, 
the MA organization maintains ultimate responsibility for adhering to 
and otherwise fully complying with all terms and conditions of its 
contract with CMS.
    (2) The MA organization agrees to require all first tier, 
downstream, and related entities to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to audit, evaluate, collect, and inspect any books, contracts, computer 
or other electronic systems, including medical records and documentation 
of the first tier, downstream, and entities related to CMS' contract 
with the MA organization.
    (ii) HHS, the Comptroller General, or their designees have the right 
to audit, evaluate, collect, and inspect any records under paragraph 
(i)(2)(i) of this section directly from any first tier, downstream, or 
related entity.
    (iii) For records subject to review under paragraph (i)(2)(ii) of 
this section, except in exceptional circumstances, CMS will provide 
notification to the MA organization that a direct request for 
information has been initiated.
    (iv) 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.
    (v) They will require all of their providers and suppliers to be 
enrolled in Medicare in an approved status consistent with Sec. 422.222.
    (3) All contracts or written arrangements between MA organizations 
and first tier, downstream, and related 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 first tier, 
downstream, or related entity, in a manner consistent with the 
requirements set forth at paragraph (i)(4) of this section.
    (iii) A provision requiring that any services or other activity 
performed by

[[Page 514]]

a first tier, downstream, and related entity in accordance with a 
contract are consistent and comply with the MA organization's 
contractual obligations.
    (4) If any of the MA organizations' activities or responsibilities 
under its contract with CMS are delegated to other parties, the 
following requirements apply to any first tier, downstream and related 
entity:
    (i) Each and every contract must specify delegated activities and 
reporting responsibilities.
    (ii) Each and every contract 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) Each and every contract must specify that the performance of 
the parties is monitored by the MA organization on an ongoing basis.
    (iv) Each and every contract 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 contract 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 reports directly to such 
officer, must

[[Page 515]]

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.
    (5) Certification of accuracy of data for overpayments. The CEO, 
CFO, or COO must certify (based on best knowledge, information, and 
belief) that the information provided for purposes of reporting and 
returning of overpayments under Sec. 422.326 is accurate, complete, and 
truthful.
    (m)(1) CMS may determine that an MA organization is out of 
compliance with a Part C requirement when the organization fails to meet 
performance standards articulated in the Part C statutes, regulations, 
or guidance.
    (2) If CMS has not already articulated a measure for determining 
noncompliance, CMS may determine that a MA organization is out of 
compliance when its performance in fulfilling Part C requirements 
represents an outlier relative to the performance of other MA 
organizations.
    (n) Acknowledgements of CMS release of data--(1) Summary CMS payment 
data. The contract must provide that the MA organization acknowledges 
that CMS releases to the public summary reconciled CMS payment data 
after the reconciliation of Part C and Part D payments for the contract 
year as follows:
    (i) For Part C, the following data--
    (A) Average per member per month CMS payment amount for A/B 
(original Medicare) benefits for each MA plan offered, standardized to 
the 1.0 (average risk score) beneficiary.
    (B) Average per member per month CMS rebate payment amount for each 
MA plan offered (or, in the case of MSA plans, the monthly MSA deposit 
amount).
    (C) Average Part C risk score for each MA plan offered.
    (D) County level average per member per month CMS payment amount for 
each plan type in that county, weighted by enrollment and standardized 
to the 1.0 (average risk score) beneficiary in that county.
    (ii) For Part D plan sponsors, plan payment data in accordance with 
Sec. 423.505(o) of this subchapter.
    (2) MA bid pricing data and Part C MLR data. The contract must 
provide that the MA organization acknowledges that CMS releases to the 
public data as described at Secs. 422.272 and 422.2490.
    (o) Business continuity. (1) The MA organization agrees to develop, 
maintain, and implement a business continuity plan containing policies 
and procedures to ensure the restoration of business operations 
following disruptions to business operations which would include natural 
or man-made disasters, system failures, emergencies, and other similar 
circumstances and the threat of such occurrences. To meet the 
requirement, the business continuity plan must, at a minimum, include 
the following:
    (i) Risk assessment. Identify threats and vulnerabilities that might 
affect business operations.
    (ii) Mitigation strategy. Design strategies to mitigate hazards. 
Identify essential functions in addition to those specified in paragraph 
(o)(2) of this section and prioritize the order in which to restore all 
other functions to normal operations. At a minimum, each MA organization 
must do the following:
    (A) Identify specific events that will activate the business 
continuity plan.
    (B) Develop a contingency plan to maintain, during any business 
disruption, the availability and, as applicable, confidentiality of 
communication systems and essential records in all forms (including 
electronic and paper copies). The contingency plan must do the 
following:
    (1) Ensure that during any business disruption the following systems 
will operate continuously or, should they fail, be restored to 
operational capacity on a timely basis:
    (i) Information technology (IT) systems including those supporting 
claims processing at point of service.
    (ii) Provider and enrollee communication systems including 
telephone, Web site, and email.
    (2) With respect to electronic protected health information, comply 
with the contingency plan requirements of the Health Insurance 
Portability and Accountability Act of 1996 Security Regulations at 45 
CFR parts 160 and 164, subparts A and C.

[[Page 516]]

    (C) Establish a chain of command.
    (D) Establish a business communication plan that includes emergency 
capabilities and procedures to contact and communicate with the 
following:
    (1) Employees.
    (2) First tier, downstream, and related entities.
    (3) Other third parties (including pharmacies, providers, suppliers, 
and government and emergency management officials).
    (E) Establish employee and facility management plans to ensure that 
essential operations and job responsibilities can be assumed by other 
employees or moved to alternate sites as necessary.
    (F) Establish a restoration plan including procedures to transition 
to normal operations.
    (G) Comply with all applicable Federal, State, and local laws.
    (iii) Testing and revision. On at least an annual basis, test and 
update the business operations continuity plan to ensure the following:
    (A) That it can be implemented in emergency situations.
    (B) That employees understand how it is to be executed.
    (iv) Training. On at least an annual basis, educate appropriate 
employees about the business continuity plan and their own respective 
roles.
    (v) Records. (A) Develop and maintain records documenting the 
elements of the business continuity plan described in paragraphs 
(o)(1)(i) through (iv) of this section.
    (B) Make the information specified in paragraph (o)(1)(v)(A) of this 
section available to CMS upon request.
    (2) Restoration of essential functions. Every MA organization must 
plan to restore essential functions within 72 hours after any of the 
essential functions fail or otherwise stop functioning as usual. In 
addition to any essential functions that the MA organization identifies 
under paragraph (o)(1)(ii) of this section, for purposes of this 
paragraph (o)(2) of the section essential functions include, at a 
minimum, the following:
    (i) Benefit authorization (if not waived) for services to be 
immediately furnished at a hospital, clinic, provider office, or other 
place of service.
    (ii) Operation of call center customer services.

[63 FR 35099, June 26, 1998]

    Editorial Note: For Federal Register citations affecting 
Sec. 422.504, see the List of CFR Sections Affected, which appears in 
the Finding Aids section of the printed volume and at www.fdsys.gov.



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 422.506, contracts are 
renewed annually only if the MA organization has not provided CMS with a 
notice of intention not to renew and CMS has not provided the MA 
organization with a notice of intention not to renew.
    (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, as amended at 70 FR 4737, 
Jan. 28, 2005; 72 FR 68723, Dec. 5, 2007]



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 by mail at least 90 calendar days before 
the

[[Page 517]]

date on which the nonrenewal is effective. The MA organization must also 
provide information about alternative enrollment options by doing one or 
more of the following:
    (A) Provide a CMS approved written description of alternative MA 
plan, MA-PD plan, and PDP options available for obtaining qualified 
Medicare services within the beneficiaries' region.
    (B) Place outbound calls to all affected enrollees to ensure 
beneficiaries know who to contact to learn about their enrollment 
options.
    (3) CMS may accept a nonrenewal notice submitted after the first 
Monday in June if--
    (i) The MA organization notifies its Medicare enrollees in 
accordance with paragraph (a)(2)(ii) 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 paragraph 
(a) of this section, CMS may deny an application for a new contract or a 
service area expansion from the MA organization for 2 years unless there 
are circumstances that warrant special consideration, as determined by 
CMS. This prohibition may apply regardless of the product type, contract 
type or service area of the previous contract.
    (5) During the same 2-year period as specified in paragraph (a)(4) 
of this section, CMS will not contract with an organization whose 
covered persons also served as covered persons for the non-renewing 
sponsor. A ``covered person'' as used in this paragraph means one of the 
following:
    (i) All owners of nonrenewed or terminated organizations who are 
natural persons, other than shareholders who have an ownership interest 
of less than 5 percent.
    (ii) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (iii) A member of the board of directors or board of trustees of the 
entity, if the organization is organized as a corporation.
    (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.
    (iv) The contract must be nonrenewed as to an individual MA plan if 
that plan does not have a sufficient number of enrollees to establish 
that it is a viable independent plan option.
    (2) Notice of non-renewal. CMS provides notice of its decision not 
to authorize renewal of a contract as follows:
    (i) To the MA organization by August 1 of the contract year.
    (ii) To each of the MA organization's Medicare enrollees by mail at 
least 90 calendar days before the date on which the nonrenewal is 
effective, or at the conclusion of the appeals process if applicable.
    (3) Opportunity to develop and implement a corrective action plan. 
(i) Before providing a notice of intent of nonrenewal of the contract, 
CMS will provide the MA organization with notice specifying the MA 
organization's deficiencies and a reasonable opportunity of at least 30 
calendar days to develop and implement a corrective action plan to 
correct the deficiencies.
    (ii) The MA organization is solely responsible for the 
identification, development, and implementation of its corrective action 
plan and for demonstrating to CMS that the underlying deficiencies have 
been corrected within the time period specified by CMS in the notice 
requesting corrective action.
    (4) Notice of appeal rights. CMS gives the MA organization written 
notice of

[[Page 518]]

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; 72 FR 68723, Dec. 
5, 2007; 74 FR 1542, Jan. 12, 2009; 75 FR 19811, Apr. 15, 2010; 76 FR 
21568, Apr. 15, 2011; 80 FR 7961, Feb. 12, 2015]



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.
    (c) Agreement to limit new MA applications. As a condition of the 
consent to a mutual termination CMS will require, as a provision of the 
termination agreement language prohibiting the MA organization from 
applying for new contracts or service area expansions for a period of 2 
years, absent circumstances warranting special consideration. This 
prohibition may apply regardless of the product type, contract type or 
service area of the previous contract.
    (d) Prohibition against Part C program participation by 
organizations whose owners, directors, or management employees served in 
a similar capacity with another organization that mutually terminated 
its Medicare contract within the previous 2 years. During the same 2-
year period, CMS will not contract with an organization whose covered 
persons also served as covered persons for the mutually terminating 
sponsor. A ``covered person'' as used in this paragraph means one of the 
following:
    (1) All owners of nonrenewal or terminated organizations who are 
natural persons, other than shareholders who have an ownership interest 
of less than 5 percent.
    (2) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (3) A member of the board of directors of the entity, if the 
organization is organized as a corporation.

[63 FR 35099, June 26, 1998, as amended at 75 FR 19811, Apr. 15, 2010; 
76 FR 21569, Apr. 15, 2011; 80 FR 7961, Feb. 12, 2015]



Sec. 422.510  Termination of contract by CMS.

    (a) Termination by CMS. CMS may at any time terminate a contract if 
CMS determines that the MA organization meets any of the following:
    (1) Has failed substantially to carry out the contract.
    (2) Is carrying out the contract in a manner that is inconsistent 
with the efficient and effective administration of this part.
    (3) No longer substantially meets the applicable conditions of this 
part.
    (4) CMS may make a determination under paragraph (a)(1), (2), or (3) 
of this section if the MA organization has had one or more of the 
following occur:
    (i) Based on creditable evidence, has committed or participated in 
false, fraudulent or abusive activities affecting the Medicare, Medicaid 
or other State or Federal health care programs, including submission of 
false or fraudulent data.
    (ii) Substantially failed to comply with the requirements in subpart 
M of this part relating to grievances and appeals.
    (iii) Failed to provide CMS with valid data as required under 
Sec. 422.310.
    (iv) Failed to implement an acceptable quality assessment and 
performance improvement program as required under subpart D of this 
part.
    (v) Substantially failed to comply with the prompt payment 
requirements in Sec. 422.520.

[[Page 519]]

    (vi) Substantially failed to comply with the service access 
requirements in Sec. 422.112 or Sec. 422.114.
    (vii) Failed to comply with the requirements of Sec. 422.208 
regarding physician incentive plans.
    (viii) Substantially failed to comply with the marketing 
requirements in subpart V of this part.
    (ix) Failed to comply with the regulatory requirements contained in 
this part or part 423 of this chapter or both.
    (x) Failed to meet CMS performance requirements in carrying out the 
regulatory requirements contained in this part or part 423 of this 
chapter or both.
    (xi) Achieves a Part C summary plan rating of less than 3 stars for 
3 consecutive contract years. Plan ratings issued by CMS before 
September 1, 2012 are not included in the calculation of the 3-year 
period.
    (xii) Has failed to report MLR data in a timely and accurate manner 
in accordance with Sec. 422.2460 or that any MLR data required by this 
subpart is found to be materially incorrect or fraudulent.
    (xiii) Fails to meet provider and supplier enrollment requirements 
in accordance with Secs. 422.222 and 422.224.
    (b) Notice. If CMS decides to terminate a contract it gives notice 
of the termination as follows:
    (1) Termination of contract by CMS.
    (i) CMS notifies the MA organization in writing at least 45 calendar 
days before the intended date of the termination.
    (ii) The MA organization notifies its Medicare enrollees of the 
termination by mail at least 30 calendar days before the effective date 
of the termination.
    (iii) The MA organization notifies the general public of the 
termination at least 30 calendar days before the effective date of the 
termination by releasing a press statement to news media serving the 
affected community or county and posting the press statement prominently 
on the organization's Web site.
    (2) Immediate termination of contract by CMS. (i) The procedures 
specified in paragraph (b)(1) of this section do not apply if--
    (A) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the MA organization; or
    (B) 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; or
    (C) The contract is being terminated based on the grounds specified 
in paragraph (a)(4)(i) of this section.
    (ii) CMS notifies the MA organization in writing that its contract 
will be terminated on a date specified by CMS. If a 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.
    (iii) 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.
    (iv) 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) Opportunity to develop and implement a corrective action plan--
(1) General. (i) Before providing a notice of intent to terminate the 
contract, CMS will provide the MA organization with notice specifying 
the MA organization's deficiencies and a reasonable opportunity of at 
least 30 calendar days to develop and implement a corrective action plan 
to correct the deficiencies.

[[Page 520]]

    (ii) The MA organization is solely responsible for the 
identification, development, and implementation of its corrective action 
plan and for demonstrating to CMS that the underlying deficiencies have 
been corrected within the time period specified by CMS in the notice 
requesting corrective action.
    (2) Exceptions. The MA organization will not be provided with an 
opportunity to develop and implement a corrective action plan prior to 
termination if--
    (i) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the MA organization;
    (ii) 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; or
    (iii) The contract is being terminated based on the violation 
specified in (a)(4)(i) of this section.
    (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; 72 FR 68723, Dec. 5, 2007; 75 FR 19811, Apr. 
15, 2010; 77 FR 22168, Apr. 12, 2012; 78 FR 31307, May 23, 2013; 79 FR 
29959, May 23, 2014; 81 FR 80557, Nov. 15, 2016]



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. (1) CMS may deny an 
application for a new contract or a service area expansion from an MA 
organization that has terminated its contract within the preceding 2 
years unless there are circumstances that warrant special consideration, 
as determined by CMS. This prohibition may apply regardless of the 
contract type, product type, or service area of the previous contract.
    (2) During the same 2-year period specified in paragraph (e)(1) of 
this section, CMS will not contract with an organization whose covered 
persons also served as covered persons for the terminating sponsor. A 
``covered person'' as used in this paragraph means one of the following:
    (i) All owners of nonrenewal or terminated organizations who are 
natural persons, other than shareholders who have an ownership interest 
of less than 5 percent.
    (ii) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which

[[Page 521]]

whole or part interest is equal to or exceeds 5 percent of the total 
property and assets of the organization.
    (iii) A member of the board of directors of the entity, if the 
organization is organized as a corporation.

[63 FR 35099, June 26, 1998, as amended at 67 FR 13288, Mar. 22, 2002; 
76 FR 21569, Apr. 15, 2011; 80 FR 7961, Feb. 12, 2015]



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]

[[Page 522]]



Sec. 422.516  Validation of Part C 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 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.
    (g) Data validation. Each Part C sponsor must subject information 
collected under paragraph (a) of this section to a yearly independent 
audit to determine their reliability, validity, completeness, and 
comparability in accordance with specifications developed by CMS.

[63 FR 35099, June 26, 1998, as amended at 75 FR 19812, Apr. 15, 2010]



Sec. 422.520  Prompt payment by MA organization.

    (a) Contract between CMS and the MA organization. (1) The contract 
between

[[Page 523]]

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.
    (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 of part 422 appear 
at 63 FR 35106, June 26, 1998.

[[Page 524]]



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.
    (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.

[[Page 525]]

    (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 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

[[Page 526]]

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 (Council), and judicial review.
    Enrollee means an MA eligible individual who has elected an MA plan 
offered by an MA organization.
    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 grievance or 
appeal. Unless otherwise stated in this subpart, the representative will 
have all the rights and responsibilities of an enrollee or party in 
filing a grievance, and 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; 75 FR 19812, Apr. 
15, 2010; 82 FR 5124, Jan. 17, 2017]



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.
    (4) An MA organization must employ a medical director who is 
responsible for ensuring the clinical accuracy of all organization 
determinations and reconsiderations involving medical necessity. The 
medical director must be a physician with a current and unrestricted 
license to practice medicine in a State, Territory, Commonwealth of the 
United States (that is, Puerto Rico), or the District of Columbia.
    (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.

[[Page 527]]

    (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 Council 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 the enrollee is not entitled to 
review of that issue by the MA organization.
    (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. (1) Unless this subpart provides 
otherwise and subject to paragraph (d)(2) of this section, 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.
    (2) The following regulations in part 405 of this chapter, and any 
references thereto, specifically do not apply under this subpart:
    (i) Section 405.950 (time frames for making a redetermination).
    (ii) Section 405.970 (time frames for making a reconsideration 
following a contractor redetermination, including the option to escalate 
an appeal to the OMHA level).
    (iii) Section 405.1016 (time frames for deciding an appeal of a QIC 
reconsideration, or escalated request for a QIC reconsideration, 
including the option to escalate an appeal to the Council).
    (iv) The option to request that an appeal be escalated from the OMHA 
level to the Council as provided in Sec. 405.1100(b), and time frames 
for the Council to decide an appeal of an ALJ's or attorney 
adjudicator's decision or an appeal that is escalated from the OMHA 
level to the Council as provided in Sec. 405.1100(c) and (d).
    (v) Section 405.1132 (request for escalation to Federal court).
    (vi) Sections 405.956(b)(8), 405.966(a)(2), 405.976(b)(5)(ii), 
405.1018(c), 405.1028(a), and 405.1122(c), and any other reference to 
requiring a determination of good cause for the introduction of new 
evidence by a provider, supplier, or a beneficiary represented by a 
provider or supplier.

[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; 76 FR 21569, Apr. 
15, 2011; 82 FR 5110, Jan. 17, 2017]



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

[[Page 528]]

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 
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 Secs. 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) Reduction, or premature discontinuation, of a previously 
authorized ongoing course of treatment.

[[Page 529]]

    (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 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) The enrollee (including his or her representative); or
    (ii) A physician (regardless of whether the physician is affiliated 
with the MA organization).
    (d) Who must review organization determinations. If the MA 
organization expects to issue a partially or fully adverse medical 
necessity (or any substantively equivalent term used to describe the 
concept of medical necessity) decision based on the initial review of 
the request, the organization determination must be reviewed by a 
physician or other appropriate health care professional with sufficient 
medical and other expertise, including knowledge of Medicare coverage 
criteria, before the MA organization issues the organization 
determination decision. The physician or other health care professional 
must have a current and unrestricted license to practice within the 
scope of his or her profession in a State, Territory, Commonwealth of 
the United States (that is, Puerto Rico), or the District of Columbia.

[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; 75 FR 19812, Apr. 
15, 2010; 75 FR 32859, June 10, 2010; 76 FR 21569, Apr. 15, 2011]



Sec. 422.568  Standard timeframes and notice requirements for 
organization determinations.

    (a) Method and place for filing a request. An enrollee must ask for 
a standard organization determination by making a request with the MA 
organization or, if applicable, to the entity responsible for making the 
determination (as directed by the MA organization), in accordance with 
the following:
    (1) The request may be made orally or in writing, except as provided 
in paragraph (a)(2) of this section.
    (2) Requests for payment must be made in writing (unless the MA 
organization or entity responsible for making the determination has 
implemented a voluntary policy of accepting verbal payment requests).
    (b) Timeframe for requests for service. Except as provided in 
paragraph (b)(1) of this section, 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.
    (1) Extensions. The MA organization may extend the timeframe by up 
to 14 calendar days if--
    (i) The enrollee requests the extension;
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent, or 
other non-routine circumstances and is in the enrollee's interest.
    (2) Notice of extension. 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.

[[Page 530]]

    (c) Timeframe for requests for payment. The MA organization must 
process requests for payment according to the ``prompt payment'' 
provisions set forth in Sec. 422.520.
    (d) Written notice for MA organization denials. The MA organization 
must give the enrollee a written notice if--
    (1) An MA organization decides to deny service or payment in whole 
or in part, or reduce or prematurely discontinue the level of care for a 
previously authorized ongoing course of treatment.
    (2) 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.
    (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; 75 FR 19812, Apr. 15, 2010; 75 FR 32859, June 
10, 2010; 80 FR 7961, Feb. 12, 2015]



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 531]]

    (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. (1) The MA organization may extend the 72-hour 
deadline by up to 14 calendar days if--
    (i) The enrollee requests the extension;
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent, or 
other nonroutine circumstances and is in the enrollee's interest.
    (2) Notice of extension. 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

[[Page 532]]

    (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 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; 80 FR 7961, Feb. 12, 2015]



Sec. 422.574  Parties to the organization determination.

    The parties to the organization determination are--
    (a) The enrollee (including his or her 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.

[63 FR 35107, June 26, 1998, as amended at 75 FR 19812, Apr. 15, 2010]



Sec. 422.576  Effect of an organization determination.

    The organization determination is binding on all parties unless it 
is reconsidered under Secs. 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. A 
physician who is providing treatment to an enrollee may, upon providing 
notice to the enrollee, request a standard reconsideration of a pre-
service request for reconsideration on the enrollee's behalf as 
described in Sec. 422.582. An enrollee or physician (acting on behalf of 
an enrollee) may request an expedited reconsideration as described in 
Sec. 422.584.

[74 FR 1542, Jan. 12, 2009]



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 or, upon providing notice to the enrollee, a 
physician who is treating an enrollee and acting on the enrollee's 
behalf, 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 request for reconsideration must be filed 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 or physician acting on behalf of an enrollee 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 or a physician acting on behalf of an 
enrollee 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

[[Page 533]]

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 or physician acting on behalf 
of an enrollee 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.

[74 FR 1542, Jan. 12, 2009]



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 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]

[[Page 534]]



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) Except as 
provided in paragraph (e) of this section, if the MA organization makes 
a reconsidered determination that is completely favorable to the 
enrollee, the MA organization must issue 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.
    (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 (e) 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) Confirmation of oral notice. If the MA organization first 
notifies an enrollee of a completely favorable expedited 
reconsideration, it must mail written confirmation to the enrollee 
within 3 calendar days.
    (3) 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,

[[Page 535]]

the MA organization is responsible for meeting the timeframe and notice 
requirements.
    (4) 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) Extensions. (1) As described in paragraphs (e)(1)(i) through 
(iii) of this section, the MA organization may extend the standard or 
expedited reconsideration deadline by up to 14 calendar days if--
    (i) The enrollee requests the extension; or
    (ii) The extension is justified and in the enrollee's interest due 
to the need for additional medical evidence from a noncontract provider 
that may change an MA organization's decision to deny an item or 
service; or
    (iii) The extension is justified due to extraordinary, exigent or 
other non-routine circumstances and is in the enrollee's interest.
    (2) Notice of extension. 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.
    (f) 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.
    (g) 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.
    (h) 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; 80 FR 7961, Feb. 12, 2015]



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.

[[Page 536]]



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 hearing if 
the amount in controversy meets the requirements of Sec. 422.600;
    (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; 
82 FR 5125, Jan. 17, 2017]



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. (1) Except when an ALJ or attorney 
adjudicator extends the time frame as provided in part 405 of this 
chapter, a party must file a request for a hearing within 60 calendar 
days of receipt 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 of this chapter.
    (2) For purposes of this section, the date of receipt of the 
reconsideration is presumed to be 5 calendar days after the date of the 
notice of the reconsidered determination, unless there is evidence to 
the contrary.
    (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; 82 
FR 5125, Jan. 17, 2017]



Sec. 422.608  Medicare Appeals Council (Council) review.

    Any party to the ALJ's or attorney adjudicator's decision or 
dismissal, including the MA organization, who is dissatisfied with the 
decision or dismissal, may request that the Council review the decision 
or dismissal. The regulations under part 405 of this chapter regarding 
Council review apply to

[[Page 537]]

matters addressed by this subpart to the extent that they are 
appropriate, except as provided in Sec. 422.562(d)(2).

[82 FR 5125, Jan. 17, 2017]



Sec. 422.612  Judicial review.

    (a) Review of ALJ's or attorney adjudicator's decision. Any party, 
including the MA organization, may request judicial review (upon 
notifying the other parties) of an ALJ's or attorney adjudicator's 
decision if--
    (1) The Council 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 Council decision. Any party, including the MA 
organization, may request judicial review (upon notifying the other 
parties) of the Council 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 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; 82 FR 5125, Jan. 17, 
2017]



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 attorney 
adjudicator or the Council 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; 82 FR 5125, Jan. 17, 2017]



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(e)).
    (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

[[Page 538]]

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 attorney 
adjudicator, 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 Council. If the MA organization requests Council 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 Council 
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.

[63 FR 35107, June 26, 1998, as amended at 65 FR 40331, June 29, 2000; 
68 FR 50858, Aug. 22, 2003; 80 FR 7962, Feb. 12, 2015; 82 FR 5125, Jan. 
17, 2017]



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(e)).
    (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 
attorney adjudicator, 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 Council. If the MA organization requests Council 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 Council 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; 
80 FR 7962, Feb. 12, 2015; 82 FR 5125, Jan. 17, 2017]



Sec. 422.620  Notifying enrollees of hospital discharge appeal rights.

    (a) Applicability and scope. (1) For purposes of Secs. 422.620 and 
422.622, the term hospital is defined as any facility providing care at 
the inpatient hospital level, whether that care is short term or long 
term, acute or non acute, paid through a prospective payment system or 
other reimbursement basis, limited to specialty care or providing a 
broader spectrum of services. This definition also includes critical 
access hospitals.

[[Page 539]]

    (2) For purposes of Secs. 422.620 and 422.622, a discharge is a 
formal release of an enrollee from an inpatient hospital.
    (b) Advance written notice of hospital discharge rights. For all 
Medicare Advantage enrollees, hospitals must deliver valid, written 
notice of an enrollee's rights as a hospital inpatient including 
discharge appeal rights. The hospital must use a standardized notice, as 
specified by CMS, in accordance with the following procedures:
    (1) Timing of notice. The hospital must provide the notice at or 
near admission, but no later than 2 calendar days following the 
enrollee's admission to the hospital.
    (2) Content of the notice. The notice of rights must include the 
following information:
    (i) The enrollee's rights as a hospital inpatient, including the 
right to benefits for inpatient services and for post hospital services 
in accordance with 1866(a)(1)(M) of the Act.
    (ii) The enrollee's right to request an immediate review, including 
a description of the process under Sec. 422.622 and the availability of 
other appeals processes if the enrollee fails to meet the deadline for 
an immediate review.
    (iii) The circumstances under which an enrollee will or will not be 
liable for charges for continued stay in the hospital in accordance with 
1866(a)(1)(M) of the Act.
    (iv) The enrollee's right to receive additional information in 
accordance with section Sec. 422.622(e).
    (v) Any other information required by CMS.
    (3) When delivery of notice is valid. Delivery of the written notice 
of rights described in this section is valid if--
    (i) The enrollee (or the enrollee's representative) has signed and 
dated the notice to indicate that he or she has received the notice and 
can comprehend its contents, except as provided in paragraph (b)(4) of 
this section; and
    (ii) 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.
    (4) If an enrollee refuses to sign the notice. The hospital may 
annotate its notice to indicate the refusal, and the date of refusal is 
considered the date of receipt of the notice.
    (c) Follow up notification. (1) The hospital must present a copy of 
the signed notice described in paragraph (b)(2) of this section to the 
enrollee (or enrollee's representative) prior to discharge. The notice 
should be given as far in advance of discharge as possible, but not more 
than 2 calendar days before discharge.
    (2) Follow up notification is not required if the notice required 
under 422.620(b) is delivered within 2 calendar days of discharge.
    (d) Physician concurrence required. Before discharging an enrollee 
from the inpatient hospital level of care, the MA organization must 
obtain concurrence from the physician who is responsible for the 
enrollee's inpatient care.

[71 FR 68723, Nov. 27, 2006]



Sec. 422.622  Requesting immediate QIO review of the decision to 
discharge from the inpatient hospital.

    (a) Enrollee's right to an immediate QIO review. An enrollee has a 
right to request an immediate review by the QIO when an MA organization 
or hospital (acting directly or through its utilization committee), with 
physician concurrence determines that inpatient care is no longer 
necessary.
    (b) Requesting an immediate QIO review. (1) An enrollee who wishes 
to exercise the right to an immediate review must submit a request to 
the QIO that has an agreement with the hospital as specified in 
Sec. 476.78 of this chapter. The request must be made no later than the 
day of discharge and may be in writing or by telephone.
    (2) The enrollee, or his or her representative, upon request by the 
QIO, must be available to discuss the case.
    (3) The enrollee may, but is not required to, submit written 
evidence to be considered by a QIO in making its decision.
    (4) An enrollee who makes a timely request for an immediate QIO 
review in accordance with paragraph (b)(1) of this section is subject to 
the financial liability protections under paragraph (f) of this section, 
as applicable.
    (5) When an enrollee does not request an immediate QIO review in 
accordance with paragraph (b) of this section,

[[Page 540]]

he or she may request expedited reconsideration by the MA organization 
as described in Sec. 422.584, but the financial liability rules of 
paragraph (f) of this section do not apply.
    (c) Burden of proof. When an enrollee (or his or her representative, 
if applicable) requests an immediate review by a QIO, the burden of 
proof rests with the MA organization to demonstrate that discharge is 
the correct decision, either on the basis of medical necessity, or based 
on other Medicare coverage policies. Consistent with paragraph (e)(2) of 
this section, the MA organization should supply any and all information 
that a QIO requires to sustain the organization's discharge 
determination.
    (d) Procedures the QIO must follow. (1) When the QIO receives the 
enrollee's request for an immediate review under paragraph (b), the QIO 
must notify the MA organization and the hospital that the enrollee has 
filed a request for an immediate review.
    (2) The QIO determines whether the hospital delivered valid notice 
consistent with Sec. 422.620(b)(3).
    (3) The QIO examines the medical and other records that pertain to 
the services in dispute.
    (4) The QIO must solicit the views of the enrollee (or his or her 
representative) who requested the immediate QIO review.
    (5) The QIO must provide an opportunity for the MA organization to 
explain why the discharge is appropriate.
    (6) When the enrollee requests an immediate QIO review in accordance 
with paragraph (b)(1) of this section, the QIO must make a determination 
and notify the enrollee, the hospital, the MA organization, and the 
physician of its determination within one calendar day after it receives 
all requested pertinent information.
    (7) If the QIO does not receive the information needed to sustain an 
MA organization's decision to discharge, it may make its determination 
based on the evidence at hand, or it may defer a decision until it 
receives the necessary information. If this delay results in extended 
Medicare coverage of an individual's hospital services, the MA 
organization may be held financially liable for these services, as 
determined by the QIO.
    (8) When the QIO issues its determination, the QIO must notify the 
enrollee, the MA organization, the physician, and hospital of its 
decision by telephone, followed by a written notice that must include 
the following information:
    (i) The basis for the determination.
    (ii) A detailed rationale for the determination.
    (iii) An explanation of the Medicare payment consequences of the 
determination and the date an enrollee becomes fully liable for the 
services.
    (iv) Information about the enrollee's right to a reconsideration of 
the QIO's determination as set forth in Sec. 422.626(f), including how 
to request a reconsideration and the time period for doing so.
    (e) Responsibilities of the MA organization and hospital. (1) When 
the QIO notifies an MA organization that an enrollee has requested an 
immediate QIO review, the MA organization must, directly or by 
delegation, deliver a detailed notice to the enrollee as soon as 
possible, but no later than noon of the day after the QIO's 
notification. The detailed notice must include the following 
information:
    (i) A detailed explanation of 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 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 discharge determination was based.
    (iv) Facts specific to the enrollee and relevant to the coverage 
determination 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 notification by the QIO of a request for an immediate 
review, the MA organization must supply any and all information, 
including a copy of the notices sent to the enrollee, as specified in 
Sec. 422.620(b) and (c) and paragraph (e)(1) of this section, that the 
QIO needs to decide on the determination.

[[Page 541]]

The MA organization must supply this information as soon as possible, 
but no later than noon of the day after the QIO notifies the MA 
organization that a request for an expedited determination has been 
received from the enrollee. The MA organization must make the 
information available by phone (with a written record made of any 
information not transmitted initially in writing) and/or in writing, as 
determined by the QIO.
    (3) In response to a request from the MA organization, the hospital 
must supply all information that the QIO needs to make its 
determination, including a copy of the notices required as specified in 
Sec. 422.620(b) and (c) and paragraph (e)(1) of this section. The 
hospital must furnish this information as soon as possible, but no later 
than by close of business of the day the MA organization notifies the 
hospital of the request for information. At the discretion of the QIO, 
the hospital must make the information available by phone or in writing 
(with a written record of any information not transmitted initially in 
writing).
    (4) Upon an enrollee's request, the MA organization must provide the 
enrollee a copy of, or access to, any documentation sent to the QIO by 
the MA organization, including written records of any information 
provided by telephone. The MA organization may charge the enrollee a 
reasonable amount to cover the costs of duplicating the documentation 
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.
    (f) Coverage during QIO expedited review. (1) An MA organization is 
financially responsible for coverage of services as provided in this 
paragraph, regardless of whether it has delegated responsibility for 
authorizing coverage or discharge determinations to its providers.
    (2) When the MA organization determines that hospital services are 
not, or are no longer, covered,
    (i) 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 Secs. 422.2 and 
422.112(c)), the MA organization continues to be financially responsible 
for the costs of the hospital stay when an appeal is filed under 
paragraph (a)(1) of this section until noon of the day after the QIO 
notifies the enrollee of its review determination, except as provided in 
paragraph (b)(5) of this section. 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 Secs. 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 non-coverage determination made by the MA 
organization.
    (3) If the QIO determines that the enrollee still requires inpatient 
hospital care, the hospital must provide the enrollee with a notice 
consistent with Sec. 422.620(c) of this subpart when the hospital or MA 
organization once again determines that the enrollee no longer requires 
inpatient hospital care.
    (4) If the hospital determines that inpatient hospital services are 
no longer necessary, the hospital may not charge the enrollee for 
inpatient services received before noon of the day after the QIO 
notifies the enrollee of its review determination.
    (g) Effect of an expedited QIO determination. The QIO determination 
is binding upon the enrollee, physician, hospital, and MA organization 
except in the following circumstances:
    (1) Right to request a reconsideration. If the enrollee is still an 
inpatient in the hospital and is dissatisfied with the determination, he 
or she may request a reconsideration according to the procedures 
described in Sec. 422.626(g).
    (2) Right to pursue the standard appeal process. If the enrollee is 
no longer an inpatient in the hospital and is dissatisfied with this 
determination, the enrollee may appeal to OMHA for an ALJ hearing, the 
Council, or a Federal

[[Page 542]]

court, as provided for under this subpart.

[71 FR 68723, Nov. 27, 2006, as amended at 75 FR 19812, Apr. 15, 2010; 
76 FR 21569, Apr. 15, 2011; 82 FR 5125, Jan. 17, 2017]



Sec. 422.624  Notifying enrollees of termination of provider services.

    (a) Applicability. (1) For purposes of Secs. 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 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.

[68 FR 16667, Apr. 4, 2003, as amended at 75 FR 19812, Apr. 15, 2010]



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

[[Page 543]]

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 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

[[Page 544]]

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.
    (f) Responsibilities of the provider. If an IRE reverses an MA 
organization's termination decision, the provider must provide the 
enrollee with a new notice consistent with Sec. 422.624(b) of this 
subpart.
    (g) 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 appeal the IRE's reconsidered determination to OMHA for an 
ALJ hearing, the Council, 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 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

[[Page 545]]

any covered services for which the enrollee has already paid the MA 
organization or provider.

[68 FR 16667, Apr. 4, 2003, as amended at 75 FR 19812, Apr. 15, 2010; 76 
FR 21569, Apr. 15, 2011; 82 FR 5125, Jan. 17, 2017]



         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 not to authorize a renewal of a contract with an 
MA organization in accordance with Sec. 422.506(b).
    (c) A determination to terminate a contract with an MA organization 
in accordance with Sec. 422.510(a).
    (d) A determination that an entity is not qualified to offer a 
Specialized MA Plan for Special Needs Individuals as defined in 
Secs. 422.2 and 422.4(a)(1)(iv).

[63 FR 35113, June 26, 1998, as amended at 77 FR 22168, Apr. 12, 2012; 
80 FR 7962, Feb. 12, 2015]



Sec. 422.644  Notice of contract determination.

    (a) When CMS makes a contract determination under Sec. 422.641, it 
gives the MA organization written notice.
    (b) The notice specifies--
    (1) Reasons for the determination; and
    (2) The MA organization's right to request a hearing.
    (c) CMS-initiated terminations--(1) General rule. Except as provided 
in paragraph (c)(2) of this section, CMS mails notice to the MA 
organization 45 calendar days before the anticipated effective date of 
the termination.
    (2) Exception. If a contract is terminated in accordance with 
Sec. 422.510(b)(2)(i) of this part, CMS notifies the MA organization of 
the date that it will terminate the MA organization's contract.
    (d) When CMS determines that it will not authorize a contract 
renewal, CMS mails the notice to the MA organization by August 1 of the 
current contract year.

[63 FR 35113, June 26, 1998, as amended at 72 FR 68724, Dec. 5, 2007; 75 
FR 19813, Apr. 15, 2010; 80 FR 7962, Feb. 12, 2015]



Sec. 422.646  Effect of contract determination.

    The contract determination is final and binding unless a timely 
request for a hearing is filed under 422.662.

[72 FR 68724, Dec. 5, 2007]



Sec. 422.660  Right to a hearing, burden of proof, standard of 
proof, and standards of review.

    (a) Right to a hearing. The following parties are entitled to a 
hearing:
    (1) A contract applicant that has been determined to be unqualified 
to enter into a contract with CMS under Part C of Title XVIII of the Act 
in accordance with Secs. 422.501 and 422.502.
    (2) An MA organization whose contract has been terminated in 
accordance with Sec. 422.510.
    (3) An MA organization whose contract has not been renewed in 
accordance with Sec. 422.506.
    (4) An MA organization who has had an intermediate sanction imposed 
in accordance with Sec. 422.752(a) through (b) of this part.
    (5) An applicant that has been determined to be unqualified to offer 
a Specialized MA Plan for Special Needs Individuals.
    (b) Burden of proof, standard of proof, and standards of review at a 
hearing. (1) During a hearing to review a contract determination as 
described at Sec. 422.641(a) of this subpart, the applicant has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Secs. 422.501 
and 422.502 of this part.
    (2) During a hearing to review a contract determination as described 
at Sec. 422.641(b) of this subpart, the MA organization has the burden 
of proving by a preponderance of the evidence that CMS' determination 
was inconsistent with the requirements of Sec. 422.506 of this part.

[[Page 546]]

    (3) During a hearing to review a contract determination as described 
at Sec. 422.641(c) of this subpart, the MA organization has the burden 
of proving by a preponderance of the evidence that CMS' determination 
was inconsistent with the requirements of Sec. 422.510 of this part.
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec. 422.750, the MA organization has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec. 422.752(a) 
and (b).
    (5) During a hearing to review a determination as described at 
Sec. 422.641(d) of this subpart, the applicant has the burden of proving 
by a preponderance of the evidence that CMS' determination was 
inconsistent with the requirements of Secs. 422.2; 422.4(a)(1)(iv); 
422.101(f); 422.107, if applicable; and 422.152(g) of this part.
    (c) Timing of favorable decisions. Notice of any decision favorable 
to the MA organization appealing a determination that it is not 
qualified to enter into a contract with CMS must be issued by September 
1 for the contract in question to be effective on January 1 of the 
following year.

[75 FR 19813, Apr. 15, 2010, as amended at 77 FR 22168, Apr. 12, 2012; 
80 FR 7962, Feb. 12, 2015]



Sec. 422.662  Request for hearing.

    (a) Method and place for filing a request. (1) 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 the appeal.
    (2) The request for the hearing must be filed in accordance with the 
requirements specified in the notice.
    (b) Time for filing a request. A request for a hearing must be filed 
within 15 calendar days after the receipt of the notice of the contract 
determination or intermediate sanction.
    (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; 
72 FR 68724, Dec. 5, 2007; 75 FR 19813, Apr. 15, 2010]



Sec. 422.664  Postponement of effective date of a contract determination 
when a request for a hearing is filed timely.

    (a) Hearing. When a request for a hearing is timely filed, CMS will 
postpone the proposed effective date of the contract determination 
listed at 422.641 until a hearing decision is reached and affirmed by 
the Administrator following review according to 422.692 in instances 
where an MA organization or CMS requests Administrator review and the 
Administrator accepts the matter for review.
    (b) Exceptions: (1) If a final decision is not reached on CMS' 
determination for an initial contract by July 15, CMS will not enter 
into a contract with the applicant for the following year.
    (2) A contract terminated in accordance with Sec. 422.510(b)(2)(i) 
of this part will be terminated on the date specified by CMS and will 
not be postponed if a hearing is requested.

[72 FR 68724, Dec. 5, 2007, as amended at 75 FR 19813, Apr. 15, 2010]



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.

[[Page 547]]

    (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--
    (1) Fixes a time and place for the hearing, which is not to exceed 
30 calendar days after the receipt of the request for the hearing; and
    (2) Sends written notice to the parties that informs the parties of 
the general and specific issues to be resolved, the burden of proof, and 
information about the hearing procedure.
    (b)(1) The hearing officer may, on his or her own motion, change the 
time and place of the hearing.
    (2) The hearing officer may adjourn or postpone the hearing.
    (c)(1) The MA organization or CMS may request an extension by filing 
a written request no later than 10 calendar days prior to the scheduled 
hearing.
    (2) When either the MA organization or CMS requests an extension, 
the hearing officer will provide a one-time 15 calendar day extension.
    (3) Additional extensions may be granted at the discretion of the 
hearing officer.

[75 FR 19813, Apr. 15, 2010]



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 MA organization bears the burden of going forward and must 
first present evidence and argument before CMS presents its evidence and 
argument.

[63 FR 35113, June 26, 1998, as amended at 75 FR 19813, Apr. 15, 2010]



Sec. 422.678  Evidence.

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



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  Witness lists and documents.

    Witness lists and documents must be identified and exchanged at 
least 5 calendar days before the scheduled hearing.

[75 FR 19813, Apr. 15, 2010]



Sec. 422.684  Prehearing and summary judgment.

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

[[Page 548]]

    (b) Summary judgment. Either party to the hearing may ask the 
hearing officer to rule on a motion for summary judgment.

[72 FR 68725, Dec. 5, 2007]



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. CMS or an MA organization 
that has received a hearing decision may request a review by the 
Administrator within 15 calendar days after receipt of the hearing 
decision as provided under Sec. 422.690(b). Both the MA organization and 
CMS may provide written arguments to the Administrator for review.
    (b) Decision to review the hearing decision. After receiving a 
request for review, the Administrator has the discretion to elect to 
review the hearing decision in accordance with paragraph (d) of this 
section or to decline to review the hearing decision.
    (c) Notification of Administrator determination. The Administrator 
notifies both parties of his or her determination regarding review of 
the hearing decision within 30 calendar days after receipt of request 
for review. If the Administrator declines to review the hearing decision 
or the Administrator does not make a determination regarding review 
within 30 calendar days, the decision of the hearing officer is final.
    (d) Review by the Administrator. If the Administrator elects to 
review the hearing decision regarding a contract determination, the 
Administrator shall review the hearing officer's decision and determine, 
based upon this decision, the hearing record, and any written arguments 
submitted by the MA organization or CMS, whether the determination 
should be upheld, reversed, or modified.
    (e) Decision by the Administrator. The Administrator issues a 
written decision, and furnishes the decision to the MA organization 
requesting review.

[63 FR 35113, June 26, 1998, as amended at 72 FR 68725, Dec. 5, 2007; 75 
FR 19813, Apr. 15, 2010]



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 a contract determination or decision of 
a hearing officer or the Administrator.

    (a) Contract determination. CMS may reopen and revise an initial 
determination upon its own motion.
    (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.

[[Page 549]]

    (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 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.

[63 FR 35113, June 26, 1998, as amended at 72 FR 68725, Dec. 5, 2007; 75 
FR 19814, Apr. 15, 2010]



                    Subpart O_Intermediate Sanctions

    Source: 63 FR 35115, June 26, 1998, unless otherwise noted.



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

    (a) The following intermediate sanctions may be imposed and will 
continue in effect until CMS is satisfied that the deficiencies that are 
the basis for the sanction determination have been corrected and are not 
likely to recur:
    (1) Suspension of the MA organization's enrollment of Medicare 
beneficiaries.
    (2) Suspension of payment to the MA organization for Medicare 
beneficiaries enrolled after the date CMS notifies the organization of 
the intermediate sanction.
    (3) Suspension of all marketing activities to Medicare beneficiaries 
by an MA organization.
    (b) CMS may impose civil money penalties as specified in 422.760.

[72 FR 68725, Dec. 5, 2007, as amended at 75 FR 19814, Apr. 15, 2010]



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

    (a) All intermediate sanctions. For the violations listed in this 
paragraph, CMS may impose one or more of the sanctions specified in 
Sec. 422.750(a) of this subpart on any MA organization with a contract. 
The MA organization may also be subject to other remedies authorized 
under law.
    (1) Fails substantially to provide medically necessary items and 
services that are required (under law or under the contract) to be 
provided to an individual covered under the contract, if the failure has 
adversely affected (or has the substantial likelihood of adversely 
affecting) the individual.
    (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) Acts to expel or refuses to re-enroll a beneficiary in violation 
of the provisions of this part.
    (4) Engages in any practice that would reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by this part) by eligible individuals with the organization 
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.
    (9) Except as provided under Sec. 423.34 of this chapter, enrolls an 
individual in any plan under this part without the prior consent of the 
individual or the designee of the individual.
    (10) Transfers an individual enrolled under this part from one plan 
to another without the prior consent of the

[[Page 550]]

individual or the designee of the individual or solely for the purpose 
of earning a commission.
    (11) Fails to comply with marketing restrictions described in 
subpart V or applicable implementing guidance.
    (12) Employs or contracts with any individual, agent, provider, 
supplier or entity who engages in the conduct described in paragraphs 
(a)(1) through (11) of this section.
    (13) Fails to comply with Secs. 422.222 and 422.224, that requires 
the MA organization to ensure providers and suppliers are enrolled in 
Medicare and not make payment to excluded or revoked individuals or 
entities.
    (b) Suspension of enrollment and marketing. If CMS makes a 
determination that could lead to a contract termination under 
422.510(a), CMS may impose the intermediate sanctions at 422.750(a)(1) 
and (a)(3).
    (c) Civil Money Penalties. (1) CMS. In addition to, or in place of, 
any intermediate sanctions, CMS may impose civil money penalties in the 
amounts specified in the following:
    (i) Section 422.760(b) for any of the determinations at 
Sec. 422.510(a), except Sec. 422.510(a)(4)(i).
    (ii) Section 422.760(c) for any of the determinations at 
Sec. 422.752(a) except Sec. 422.752(a)(5).
    (2) OIG. In addition to, or in place of any intermediate sanctions 
imposed by CMS, the OIG, in accordance with part 1003 of Chapter V of 
this title, may impose civil money penalties for the following:
    (i) Violations listed at 422.752(a).
    (ii) Determinations made under Sec. 422.510(a)(4)(i).

[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; 72 FR 68725, Dec. 5, 2007; 75 FR 19814, Apr. 15, 2010; 79 FR 
29959, May 23, 2014; 81 FR 80557, Nov. 15, 2016]



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

    (a) Notice of intermediate sanction and opportunity to respond--(1) 
Notice of intent. Before imposing the intermediate sanction, CMS--
    (i) Sends a written notice to the MA organization stating the nature 
and basis of the proposed intermediate sanction and the MA 
organization's right to a hearing as specified in paragraph (b) of this 
section; and
    (ii) Sends the OIG a copy of the notice.
    (2) Opportunity to respond. CMS allows the MA organization 10 
calendar days after receipt of the notice to provide a written rebuttal. 
CMS considers receipt of the notice as the day after notice is sent by 
fax, e-mail, or submitted for overnight mail.
    (b) Hearing. (1) The MA organization may request a hearing before a 
CMS hearing officer.
    (2) A written request must be received by the designated CMS office 
within 15 calendar days after the receipt of the notice.
    (3) A request for a hearing under Sec. 422.660 does not delay the 
date specified by CMS when the sanction becomes effective.
    (4) The MA organization must follow the right to a hearing procedure 
as specified at subpart N of this part..
    (c) Effective date and duration of sanctions--(1) Effective date. 
The effective date of the sanction is the date specified by CMS in the 
notice.
    (2) Exception. If CMS determines that the MA organization's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on an earlier date that CMS specifies.
    (3) Duration of sanction. The sanction remains in effect until CMS 
is satisfied that the deficiencies that are the basis for the sanction 
determination have been corrected and are not likely to recur.
    (i) CMS may require that the MA organization hire an independent 
auditor to provide CMS with additional information to determine if the 
deficiencies that are the basis for the sanction determination have been 
corrected and are not likely to recur. The independent auditor must work 
in accordance with CMS specifications and must be willing to attest that 
a complete and full independent review has been performed.
    (ii) In instances where intermediate sanctions have been imposed, 
CMS may require an MA organization to market or to accept enrollments or 
both for a limited period of time in order to assist

[[Page 551]]

CMS in making a determination as to whether the deficiencies that are 
the bases for the intermediate sanctions have been corrected and are not 
likely to recur.
    (A) If, following this time period, CMS determines the deficiencies 
have not been corrected or are likely to recur, the intermediate 
sanctions will remain in effect until such time that CMS is assured the 
deficiencies have been corrected and are not likely to recur.
    (B) The MA organization does not have a right to a hearing under 
Sec. 422.660(a)(4) of this part to challenge CMS' determination to keep 
the intermediate sanctions in effect.
    (C) During the limited time period, sanctioned sponsoring 
organizations offering Part D plans under the benchmark that would 
normally participate in the annual and monthly auto enrollment process 
for enrollees receiving the low income subsidy will not be allowed to 
receive or process these types of enrollments.
    (d) Non-renewal or termination by CMS. In addition to or as an 
alternative to the sanctions described in Sec. 422.750, CMS may--
    (1) Decline to authorize the renewal of an organization's contract 
in accordance with Sec. 422.506(b); or
    (2) Terminate the contract in accordance with Sec. 422.510.
    (e) Notice to impose civil money penalties--(1) CMS notice to OIG. 
If CMS determines that an MA organization has failed to comply with a 
requirement as described in 422.752, CMS notifies the OIG of this 
determination. OIG may impose a civil money penalty upon an MA 
organization as specified at 422.752(c)(2).
    (2) CMS notice of civil money penalties to MA organizations. If CMS 
makes a determination to impose a CMP as described in 422.752(c)(1), CMS 
will send a written notice of the Agency's decision to impose a civil 
money penalty to include--
    (i) A description of the basis for the determination.
    (ii) The basis for the penalty.
    (iii) The amount of the penalty.
    (iv) The date the penalty is due.
    (v) The MA organization's right to a hearing under subpart T of this 
part.
    (vi) Information about where to file the request for hearing.

[63 FR 35113, June 26, 1998, as amended at 68 FR 50859, Aug. 22, 2003; 
70 FR 4741, Jan. 28, 2005; 72 FR 68725, Dec. 5, 2007; 73 FR 55764, Sept. 
26, 2008; 75 FR 19814, Apr. 15, 2010; 79 FR 29959, May 23, 2014]



Sec. 422.758  Collection of civil money penalties imposed by CMS.

    (a) When an MA organization does not request a hearing, CMS 
initiates collection of the civil money penalty following the expiration 
of the timeframe for requesting an ALJ hearing as specified in subpart T 
of this part.
    (b) If an MA organization requests a hearing and CMS' decision to 
impose a civil money penalty is upheld, CMS may initiate collection of 
the civil money penalty once the administrative decision is final.

[72 FR 68726, Dec. 5, 2007]



Sec. 422.760  Determinations regarding the amount of civil money 
penalties and assessment imposed by CMS.

    (a) Determining the appropriate amount of any penalty. In 
determining the amount of penalty imposed under 422.752(c)(1), CMS will 
consider as appropriate:
    (1) The nature of the conduct;
    (2) The degree of culpability of the MA organization;
    (3) The adverse effect to enrollees which resulted or could have 
resulted from the conduct of MA organization;
    (4) The financial condition of the MA organization;
    (5) The history of prior offenses by the MA organization or 
principals of the MA organization; and,
    (6) Such other matters as justice may require.
    (b) Amount of penalty imposed by CMS. CMS may impose civil money 
penalties in the following amounts:
    (1) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more MA enrollees--up to $25,000 as adjusted 
annually under 45 CFR part 102 for each determination.
    (2) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one

[[Page 552]]

or more MA enrollees, CMS may calculate a CMP of up to $25,000 as 
adjusted annually under 45 CFR part 102 for each MA enrollee directly 
adversely affected (or with the substantial likelihood of being 
adversely affected) by a deficiency.
    (3) For each week that a deficiency remains uncorrected after the 
week in which the MA organization receives CMS' notice of the 
determination--up to $10,000 as adjusted annually under 45 CFR part 102.
    (4) If CMS makes a determination that a MA organization has 
terminated its contract other than in a manner described under 422.512 
and that the MA organization has therefore failed to substantially carry 
out the terms of the contract--$250 as adjusted annually under 45 CFR 
part 102 per Medicare enrollee from the terminated MA plan or plans at 
the time the MA organization terminated its contract, or $100,000 as 
adjusted annually under 45 CFR part 102, whichever is greater.
    (c) Amount of penalty imposed by CMS or OIG. CMS or the OIG may 
impose civil money penalties in the following amounts for a 
determination made under Sec. 422.752(a):
    (1) Civil money penalties of not more than $25,000 as adjusted 
annually under 45 CFR part 102 for each determination made.
    (2) With respect to a determination made under Sec. 422.752(a)(4) or 
(a)(5)(i), not more than $100,000 as adjusted annually under 45 CFR part 
102 foreach such determination, except with respect to a determination 
made under Sec. 422.752(a)(5), an assessment of not more than the amount 
claimed by such plan or MA organization based upon the misrepresentation 
or falsified information involved.
    (3) Plus with respect to a determination made under 
Sec. 422.752(a)(2), double the excess amount charged in violation of 
such paragraph (and the excess amount charged must be deducted from the 
penalty and returned to the individual concerned).
    (4) Plus with respect to a determination made under 
Sec. 422.752(a)(4), $15,000 as adjusted annually under 45 CFR part 102 
for each individual not enrolled as a result of the practice involved.

[72 FR 68726, Dec. 5, 2007, as amended at 74 FR 1542, Jan. 12, 2009; 79 
FR 29960, May 23, 2014; 81 FR 61562, Sept. 8, 2016]



Sec. 422.762  Settlement of penalties.

    For civil money penalties imposed by CMS, CMS may settle civil money 
penalty cases at any time before a final decision is rendered.

[72 FR 68726, Dec. 5, 2007]



Sec. 422.764  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.

[63 FR 35115, June 26, 1998. Redesignated at 72 FR 68726, Dec. 5, 2007]

Subparts P-S [Reserved]



          Subpart T_Appeal procedures for Civil Money Penalties

    Source: 72 FR 68726, Dec. 5, 2007, unless otherwise noted.



Sec. 422.1000  Basis and scope.

    (a) Statutory basis. (1) Section 1128A(c)(2) of the Act provides 
that the Secretary may not collect a civil money penalty until the 
affected party has had notice and opportunity for a hearing.
    (2) Section 1857(g) of the Act provides that, for MA organizations 
out of compliance with the requirements in part 422 specified remedies 
may be imposed instead of, or in addition to, termination of the MA 
organization's contract. Section 1857(g)(4) of the Act makes certain 
provisions of section 1128A of the Act applicable to civil money 
penalties imposed on MA organizations.
    (b) [Reserved]



Sec. 422.1002  Definitions.

    As used in this subpart--
    Affected party means an MA organization impacted by an initial 
determination or if applicable, by any subsequent

[[Page 553]]

determination or decision issued under this part. For this definition, 
``party'' means the affected party or CMS, as appropriate.
    ALJ stands for Administrative Law Judge.
    Departmental Appeals Board or Board means a Board established in the 
Office of the Secretary to provide impartial review of disputed 
decisions made by the operating components of the Department.
    MA organization has the meaning given the term in 422.2.



Sec. 422.1004  Scope and applicability.

    (a) Scope. This subpart sets forth procedures for reviewing initial 
determinations that CMS makes with respect to the matters specified in 
paragraph (b) of this section.
    (b) Initial determinations by CMS. CMS makes initial determinations 
with respect to the imposition of civil money penalties in accordance 
with part 422, subpart O.



Sec. 422.1006  Appeal rights.

    (a) Appeal rights of MA organizations. (1) Any MA organization 
dissatisfied with an initial determination as specified in 422.1004, has 
a right to a hearing before an ALJ in accordance with this subpart and 
may request Departmental Appeals Board review of the ALJ decision.
    (2) MA organizations may request judicial review of the Departmental 
Appeals Board's decision that imposes a CMP.
    (b) [Reserved]



Sec. 422.1008  Appointment of representatives.

    (a) An affected party may appoint as its representative anyone not 
disqualified or suspended from acting as a representative in proceedings 
before the Secretary or otherwise prohibited by law.
    (b) If the representative appointed is not an attorney, the party 
must file written notice of the appointment with the ALJ or the 
Departmental Appeals Board.
    (c) If the representative appointed is an attorney, the attorney's 
statement that he or she has the authority to represent the party is 
sufficient.



Sec. 422.1010  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
422.1008 may, on behalf of the represented party--
    (1) Give and accept any notice or request pertinent to the 
proceedings set forth in this part;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party to the same extent as the party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request may be sent to the affected party, to the 
party's representative, or to both. A notice or request sent to the 
representative has the same force and effect as if it had been sent to 
the party.



Sec. 422.1012  Fees for services of representatives.

    Fees for any services performed on behalf of an affected party by an 
attorney appointed and qualified in accordance with 422.1008 are not 
subject to the provisions of section 206 of Title II of the Act, which 
authorizes the Secretary to specify or limit those fees.



Sec. 422.1014  Charge for transcripts.

    A party that requests a transcript of prehearing or hearing 
proceedings or Board review must pay the actual or estimated cost of 
preparing the transcript unless, for good cause shown by that party, the 
payment is waived by the ALJ or the Departmental Appeals Board, as 
appropriate.



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

    (a) Filing of briefs and related documents. If a party files a brief 
or related document such as a written argument, contention, suggested 
finding of fact, conclusion of law, or any other written statement, it 
must submit an original and 1 copy to the ALJ or the Departmental 
Appeals Board, as appropriate. The material may be filed by mail or in 
person and must include a statement certifying that a copy has been 
furnished to the other party.

[[Page 554]]

    (b) Opportunity for rebuttal. (1) The other party will have 20 
calendar days from the date of mailing or in person filing to submit any 
rebuttal statement or additional evidence. If a party submits a rebuttal 
statement or additional evidence, it must file an original and 1 copy 
with the ALJ or the Board and furnish a copy to the other party.
    (2) The ALJ or the Board will grant an opportunity to reply to the 
rebuttal statement only if the party shows good cause.

[72 FR 68726, Dec. 5, 2007, as amended at 79 FR 29960, May 23, 2014]



Sec. 422.1018  Notice and effect of initial determinations.

    (a) Notice of initial determination. CMS, as required under 
422.756(f)(2), mails notice of an initial determination to the affected 
party, setting forth the basis or reasons for the determination, the 
effect of the determination, and the party's right to a hearing, and 
information about where to file the request for hearing.
    (b) Effect of initial determination. An initial determination is 
binding unless--
    (1) The affected party requests a hearing; or
    (2) CMS revises its decision.



Sec. 422.1020  Request for hearing.

    (a) Manner and timing of request. (1) An MA organization is entitled 
to a hearing as specified in 422.1006 and may file a request for a 
hearing with the Departmental Appeals Board office specified in the 
initial determination.
    (2) The MA organization or its legal representative or other 
authorized official must file the request, in writing, to the 
appropriate Departmental Appeals Board office, with a copy to CMS, 
within 60 calendar days after receipt of the notice of initial 
determination, to request a hearing before an ALJ to appeal any 
determination by CMS to impose a civil money penalty.
    (b) Content of request for hearing. The request for hearing must--
    (1) Identify the specific issues, and the findings of fact and 
conclusions of law with which the affected party disagrees; and
    (2) Specify the basis for each contention that the finding or 
conclusion of law is incorrect.

[72 FR 68726, Dec. 5, 2007, as amended at 79 FR 29960, May 23, 2014]



Sec. 422.1022  Parties to the hearing.

    The parties to the hearing are the affected party and CMS, as 
appropriate.



Sec. 422.1024  Designation of hearing official.

    (a) The Chair of the Departmental Appeals Board, or his or her 
delegate designates an ALJ or a member or members of the Departmental 
Appeals Board to conduct the hearing.
    (b) If appropriate, the Chair or the delegate may substitute another 
ALJ or another member or other members of the Departmental Appeals Board 
to conduct the hearing.
    (c) As used in this part, ``ALJ'' includes a member or members of 
the Departmental Appeals Board who are designated to conduct a hearing.



Sec. 422.1026  Disqualification of Administrative Law Judge.

    (a) An ALJ may not conduct a hearing in a case in which he or she is 
prejudiced or partial to the affected party or has any interest in the 
matter pending for decision.
    (b) A party that objects to the ALJ designated to conduct the 
hearing must give notice of its objections at the earliest opportunity.
    (c) The ALJ will consider the objections and decide whether to 
withdraw or proceed with the hearing.
    (1) If the ALJ withdraws, another ALJ will be designated to conduct 
the hearing.
    (2) If the ALJ does not withdraw, the objecting party may, after the 
hearing, present its objections to the Departmental Appeals Board as 
reasons for changing, modifying, or reversing the ALJ's decision or 
providing a new hearing before another ALJ.



Sec. 422.1028  Prehearing conference.

    (a) At any time before the hearing, the ALJ may call a prehearing 
conference for the purpose of delineating the issues in controversy, 
identifying

[[Page 555]]

the evidence and witnesses to be presented at the hearing, and obtaining 
stipulations accordingly.
    (b) On the request of either party or on his or her own motion, the 
ALJ may adjourn the prehearing conference and reconvene at a later date.



Sec. 422.1030  Notice of prehearing conference.

    (a) Timing of notice. The ALJ will fix a time and place for the 
prehearing conference and mail written notice to the parties at least 10 
calendar days before the scheduled date.
    (b) Content of notice. The notice will inform the parties of the 
purpose of the conference and specify what issues are sought to be 
resolved, agreed to, or excluded.
    (c) Additional issues. Issues other than those set forth in the 
notice of determination or the request for hearing may be considered at 
the prehearing conference if--
    (1) Either party gives timely notice to that effect to the ALJ and 
the other party; or
    (2) The ALJ raises the issues in the notice of prehearing conference 
or at the conference.



Sec. 422.1032  Conduct of prehearing conference.

    (a) The prehearing conference is open to the affected party or its 
representative, to the CMS representatives and their technical advisors, 
and to any other persons whose presence the ALJ considers necessary or 
proper.
    (b) The ALJ may accept the agreement of the parties as to the 
following:
    (1) Facts that are not in controversy.
    (2) Questions that have been resolved favorably to the affected 
party after the determination in dispute.
    (3) Remaining issues to be resolved.
    (c) The ALJ may request the parties to indicate the following:
    (1) The witnesses that will be present to testify at the hearing.
    (2) The qualifications of those witnesses.
    (3) The nature of other evidence to be submitted.



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

    (a) Record of prehearing conference. (1) A record is made of all 
agreements and stipulations entered into at the prehearing conference.
    (2) The record may be transcribed at the request of either party or 
the ALJ.
    (b) Order and opportunity to object. (1) The ALJ issues an order 
setting forth the results of the prehearing conference, including the 
agreements made by the parties as to facts not in controversy, the 
matters to be considered at the hearing, and the issues to be resolved.
    (2) Copies of the order are sent to all parties and the parties have 
10 calendar days to file objections to the order.
    (3) After the 10 calendar days have elapsed, the ALJ settles the 
order.
    (c) Effect of prehearing conference. The agreements and stipulations 
entered into at the prehearing conference are binding on all parties, 
unless a party presents facts that, in the opinion of the ALJ, would 
make an agreement unreasonable or inequitable.



Sec. 422.1036  Time and place of hearing.

    (a) The ALJ fixes a time and place for the hearing and gives the 
parties written notice at least 10 calendar days before the scheduled 
date.
    (b) The notice informs the parties of the general and specific 
issues to be resolved at the hearing.



Sec. 422.1038  Change in time and place of hearing.

    (a) The ALJ may change the time and place for the hearing either on 
his or her own initiative or at the request of a party for good cause 
shown, or may adjourn or postpone the hearing.
    (b) The ALJ may reopen the hearing for receipt of new evidence at 
any time before mailing the notice of hearing decision.
    (c) The ALJ gives the parties reasonable notice of any change in 
time or place or any adjournment or reopening of the hearing.



Sec. 422.1040  Joint hearings.

    When two or more affected parties have requested hearings and the 
same or substantially similar matters are at issue, the ALJ may, if all 
parties agree,

[[Page 556]]

fix a single time and place for the prehearing conference or hearing and 
conduct all proceedings jointly. If joint hearings are held, a single 
record of the proceedings is made and a separate decision issued with 
respect to each affected party.



Sec. 422.1042  Hearing on new issues.

    (a) Basic rules. (1) Within the time limits specified in paragraph 
(b) of this section, the ALJ may, at the request of either party, or on 
his or her own motion, provide a hearing on new issues that impinge on 
the rights of the affected party.
    (2) The ALJ may consider new issues even if CMS has not made initial 
determinations on them, and even if they arose after the request for 
hearing was filed or after a prehearing conference.
    (3) The ALJ may give notice of hearing on new issues at any time 
after the hearing request is filed and before the hearing record is 
closed.
    (b) Notice and conduct of hearing on new issues. (1) Unless the 
affected party waives its right to appear and present evidence, notice 
of the time and place of hearing on any new issue will be given to the 
parties in accordance with 422.1036.
    (2) After giving notice, the ALJ will, except as provided in 
paragraph (c) of this section, proceed to hearing on new issues in the 
same manner as on an issue raised in the request for hearing.
    (c) Remand to CMS. At the request of either party, or on his or her 
own motion, in lieu of a hearing under paragraph (b) of this section, 
the ALJ may remand the case to CMS for consideration of the new issue 
and, if appropriate, a determination. If necessary, the ALJ may direct 
CMS to return the case to the ALJ for further proceedings.



Sec. 422.1044  Subpoenas.

    (a) Basis for issuance. The ALJ, upon his or her own motion or at 
the request of a party, may issue subpoenas if they are reasonably 
necessary for the full presentation of a case.
    (b) Timing of request by a party. The party must file a written 
request for a subpoena with the ALJ at least 5 calendar days before the 
date set for the hearing.
    (c) Content of request. The request must:
    (1) Identify the witnesses or documents to be produced;
    (2) Describe their addresses or location with sufficient 
particularity to permit them to be found; and
    (3) Specify the pertinent facts the party expects to establish by 
the witnesses or documents, and indicate why those facts could not be 
established without use of a subpoena.
    (d) Method of issuance. Subpoenas are issued in the name of the 
Secretary.



Sec. 422.1046  Conduct of hearing.

    (a) Participants in the hearing. The hearing is open to the parties 
and their representatives and technical advisors, and to any other 
persons whose presence the ALJ considers necessary or proper.
    (b) Hearing procedures. (1) The ALJ inquires fully into all of the 
matters at issue, and receives in evidence the testimony of witnesses 
and any documents that are relevant and material.
    (2) If the ALJ believes that there is relevant and material evidence 
available which has not been presented at the hearing, he may, at any 
time before mailing of notice of the decision, reopen the hearing to 
receive that evidence.
    (3) The ALJ decides the order in which the evidence and the 
arguments of the parties are presented and the conduct of the hearing.
    (4) CMS has the burden of coming forward with evidence related to 
disputed findings that is sufficient (together with any undisputed 
findings and legal authority) to establish a prima facie case that CMS 
has a legally sufficient basis for its determination.
    (5) The affected party has the burden of coming forward with 
evidence sufficient to establish the elements of any affirmative 
argument or defense which it offers.
    (6) The affected party bears the ultimate burden of persuasion. To 
prevail, the affected party must prove by a preponderance of the 
evidence on the record as a whole that there is no basis for the 
determination.
    (c) Review of the penalty. When an administrative law judge finds 
that the

[[Page 557]]

basis for imposing a civil money penalty exists, as specified in 
422.752, the administrative law judge may not--
    (1) Set a penalty of zero or reduce a penalty to zero, or
    (2) Review the exercise of discretion by CMS to impose a civil money 
penalty.



Sec. 422.1048  Evidence.

    Evidence may be received at the hearing even though inadmissible 
under the rules of evidence applicable to court procedure. The ALJ rules 
on the admissibility of evidence.



Sec. 422.1050  Witnesses.

    Witnesses at the hearing testify under oath or affirmation. The 
representative of each party is permitted to examine his or her own 
witnesses subject to interrogation by the representative of the other 
party. The ALJ may ask any questions that he or she deems necessary. The 
ALJ rules upon any objection made by either party as to the propriety of 
any question.



Sec. 422.1052  Oral and written summation.

    The parties to a hearing are allowed a reasonable time to present 
oral summation and to file briefs or other written statements of 
proposed findings of fact and conclusions of law. Copies of any briefs 
or other written statements must be sent in accordance with 422.1016.



Sec. 422.1054  Record of hearing.

    A complete record of the proceedings at the hearing is made and 
transcribed in all cases.



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

    (a) Waiver procedures. (1) If an affected party wishes to waive its 
right to appear and present evidence at the hearing, it must file a 
written waiver with the ALJ.
    (2) If the affected party wishes to withdraw a waiver, it may do so, 
for good cause, at any time before the ALJ mails notice of the hearing 
decision.
    (b) Effect of waiver. If the affected party waives the right to 
appear and present evidence, the ALJ need not conduct an oral hearing 
except in one of the following circumstances:
    (1) The ALJ believes that the testimony of the affected party or its 
representatives or other witnesses is necessary to clarify the facts at 
issue.
    (2) CMS shows good cause for requiring the presentation of oral 
evidence.
    (c) Dismissal for failure to appear. If, despite the waiver, the ALJ 
sends notice of hearing and the affected party fails to appear, or to 
show good cause for the failure, the ALJ will dismiss the appeal in 
accordance with 422.1060.
    (d) Hearing without oral testimony. When there is no oral testimony, 
the ALJ will--
    (1) Make a record of the relevant written evidence that was 
considered in making the determination being appealed, and of any 
additional evidence submitted by the parties;
    (2) Furnish to each party copies of the additional evidence 
submitted by the other party; and
    (3) Give both parties a reasonable opportunity for rebuttal.
    (e) Handling of briefs and related statements. If the parties submit 
briefs or other written statements of evidence or proposed findings of 
facts or conclusions of law, those documents will be handled in 
accordance with 422.1016.



Sec. 422.1058  Dismissal of request for hearing.

    (a) The ALJ may, at any time before mailing the notice of the 
decision, dismiss a hearing request if a party withdraws its request for 
a hearing or the affected party asks that its request be dismissed.
    (b) An affected party may request a dismissal by filing a written 
notice with the ALJ.



Sec. 422.1060  Dismissal for abandonment.

    (a) The ALJ may dismiss a request for hearing if it is abandoned by 
the party that requested it.
    (b) The ALJ may consider a request for hearing to be abandoned if 
the party or its representative--
    (1) Fails to appear at the prehearing conference or hearing without 
having previously shown good cause for not appearing; and

[[Page 558]]

    (2) Fails to respond, within 10 calendar days after the ALJ sends a 
``show cause'' notice, with a showing of good cause.



Sec. 422.1062  Dismissal for cause.

    On his or her own motion, or on the motion of a party to the 
hearing, the ALJ may dismiss a hearing request either entirely or as to 
any stated issue, under any of the following circumstances:
    (a) Res judicata. There has been a previous determination or 
decision with respect to the rights of the same affected party on the 
same facts and law pertinent to the same issue or issues which has 
become final either by judicial affirmance or, without judicial 
consideration, because the affected party did not timely request 
reconsideration, hearing, or review, or commence a civil action with 
respect to that determination or decision.
    (b) No right to hearing. The party requesting a hearing is not a 
proper party or does not otherwise have a right to a hearing.
    (c) Hearing request not timely filed. The affected party did not 
file a hearing request timely and the time for filing has not been 
extended.



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

    (a) Notice of the ALJ's dismissal action is mailed to the parties. 
The notice advises the affected party of its right to request that the 
dismissal be vacated as provided in 422.1066.
    (b) The dismissal of a request for hearing is binding unless it is 
vacated by the ALJ or the Departmental Appeals Board.



Sec. 422.1066  Vacating a dismissal of request for hearing.

    An ALJ may vacate any dismissal of a request for hearing if a party 
files a request to that effect within 60 calendar days from receipt of 
the notice of dismissal and shows good cause for vacating the dismissal.



Sec. 422.1068  Administrative Law Judge's decision.

    (a) Timing, basis and content. As soon as practical after the close 
of the hearing, the ALJ issues a written decision in the case. The 
decision is based on the evidence of record and contains separate 
numbered findings of fact and conclusions of law.
    (b) Notice and effect. A copy of the decision is mailed to the 
parties and is binding on them unless--
    (1) A party requests review by the Departmental Appeals Board within 
the time period specified in 422.846, and the Board reviews the case;
    (2) The Departmental Appeals Board denies the request for review and 
the party seeks judicial review by filing an action in a United States 
District Court or, in the case of a civil money penalty, in a United 
States Court of Appeals;
    (3) The decision is revised by an ALJ or the Departmental Appeals 
Board; or
    (4) The decision is a recommended decision directed to the Board.



Sec. 422.1070  Removal of hearing to Departmental Appeals Board.

    (a) At any time before the ALJ receives oral testimony, the Board 
may remove to itself any pending request for a hearing.
    (b) Notice of removal is mailed to each party.
    (c) The Board conducts the hearing in accordance with the rules that 
apply to ALJ hearings under this subpart.



Sec. 422.1072  Remand by the Administrative Law Judge.

    (a) If CMS requests remand, and the affected party concurs in 
writing or on the record, the ALJ may remand any case properly before 
him or her to CMS for a determination satisfactory to the affected 
party.
    (b) The ALJ may remand at any time before notice of hearing decision 
is mailed.



Sec. 422.1074  Right to request Departmental Appeals Board review of
Administrative Law Judge's decision or dismissal.

    Either of the parties has a right to request Departmental Appeals 
Board review of the ALJ's decision or dismissal order, and the parties 
are so informed in the notice of the ALJ's action.

[[Page 559]]



Sec. 422.1076  Request for Departmental Appeals Board review.

    (a) Manner and time of filing. (1) Any party that is dissatisfied 
with an ALJ's decision or dismissal of a hearing request, may file a 
written request for review by the Departmental Appeals Board.
    (2) The requesting party or its representative or other authorized 
official must file the request with the DAB within 60 calendar days from 
receipt of the notice of decision or dismissal, unless the Board, for 
good cause shown by the requesting party, extends the time for filing.
    (b) Content of request for review. A request for review of an ALJ 
decision or dismissal must specify the issues, the findings of fact or 
conclusions of law with which the party disagrees, and the basis for 
contending that the findings and conclusions are incorrect.



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

    (a) Request by CMS. The Departmental Appeals Board may dismiss, 
deny, or grant a request made by CMS for review of an ALJ decision or 
dismissal.
    (b) Request by the affected party. The Board may deny or grant the 
affected party's request for review or may dismiss the request for one 
of the following reasons:
    (1) The affected party requests dismissal of its request for review.
    (2) The affected party did not file timely or show good cause for 
late filing.
    (3) The affected party does not have a right to review.
    (4) A previous determination or decision, based on the same facts 
and law, and regarding the same issue, has become final through judicial 
affirmance or because the affected party failed to timely request 
reconsideration, hearing, Board review, or judicial review, as 
appropriate.
    (c) Effect of dismissal. The dismissal of a request for Departmental 
Appeals Board review is binding and not subject to further review.
    (d) Review panel. If the Board grants a request for review of the 
ALJ's decision, the review will be conducted by a panel of three members 
of the Board, designated by the Chair or Deputy Chair.



Sec. 422.1080  Procedures before the Departmental Appeals Board on review.

    The parties are given, upon request, a reasonable opportunity to 
file briefs or other written statements as to fact and law, and to 
appear before the Departmental Appeals Board to present evidence or oral 
arguments. Copies of any brief or other written statement must be sent 
in accordance with 422.1016.



Sec. 422.1082  Evidence admissible on review.

    (a) The Departmental Appeals Board may admit evidence into the 
record in addition to the evidence introduced at the ALJ hearing, (or 
the documents considered by the ALJ if the hearing was waived), if the 
Board considers that the additional evidence is relevant and material to 
an issue before it.
    (b) If it appears to the Board that additional relevant evidence is 
available, the Board will require that it be produced.
    (c) Before additional evidence is admitted into the record--
    (1) Notice is mailed to the parties (unless they have waived notice) 
stating that evidence will be received regarding specified issues; and
    (2) The parties are given a reasonable time to comment and to 
present other evidence pertinent to the specified issues.
    (d) If additional evidence is presented orally to the Board, a 
transcript is prepared and made available to any party upon request.



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

    (a) When the Departmental Appeals Board reviews an ALJ's decision or 
order of dismissal, or receives a case remanded by a court, the Board 
may either issue a decision or remand the case to an ALJ for a hearing 
and decision or a recommended decision for final decision by the Board.
    (b) In a remanded case, the ALJ initiates additional proceedings and 
takes other actions as directed by the Board in its order of remand, and 
may take

[[Page 560]]

other action not inconsistent with that order.
    (c) Upon completion of all action called for by the remand order and 
any other consistent action, the ALJ promptly makes a decision or, as 
specified by the Board, certifies the case to the Board with a 
recommended decision.
    (d) The parties have 20 calendar days from the date of a notice of a 
recommended decision to submit to the Board any exception, objection, or 
comment on the findings of fact, conclusions of law, and recommended 
decision.
    (e) After the 20-calendar day period, the Board issues its decision 
adopting, modifying or rejecting the ALJ's recommended decision.
    (f) If the Board does not remand the case to an ALJ, the following 
rules apply:
    (1) The Board's decision--
    (i) Is based upon the evidence in the hearing record and any further 
evidence that the Board receives during its review;
    (ii) Is in writing and contains separate numbered findings of fact 
and conclusions of law; and
    (iii) May modify, affirm, or reverse the ALJ's decision.
    (2) A copy of the Board's decision is mailed to each party.



Sec. 422.1086  Effect of Departmental Appeals Board Decision.

    (a) General rule. The Board's decision is binding unless--
    (1) The affected party has a right to judicial review and timely 
files a civil action in a United States District Court or, in the case 
of a civil money penalty, in a United States Court of Appeals; or
    (2) The Board reopens and revises its decision in accordance with 
422.862.
    (b) Right to judicial review. Section 422.1006 specifies the 
circumstances under which an affected party has a right to seek judicial 
review.
    (c) Special Rules: Civil Money Penalty--Finality of Board's 
decision. When CMS imposes a civil money penalty, notice of the Board's 
decision (or denial of review) is the final administrative action that 
initiates the 60-day period for seeking judicial review.



Sec. 422.1088  Extension of time for seeking judicial review.

    (a) Any affected party that is dissatisfied with a Departmental 
Appeals Board decision and is entitled to judicial review must commence 
civil action within 60 calendar days from receipt of the notice of the 
Board's decision, unless the Board extends the time in accordance with 
paragraph (c) of this section.
    (b) The request for extension must be filed in writing with the 
Board before the 60-calendar day period ends.
    (c) For good cause shown, the Board may extend the time for 
commencing civil action.



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

    (a) Basis and timing for reopening. An ALJ of Departmental Appeals 
Board decision may be reopened, within 60 calendar days from the date of 
the notice of decision, upon the motion of the ALJ or the Board or upon 
the petition of either party to the hearing.
    (b) Authority to reopen. (1) A decision of the Departmental Appeals 
Board may be reopened only by the Departmental Appeals Board.
    (2) A decision of an ALJ may be reopened by that ALJ, by another ALJ 
if that one is not available, or by the Departmental Appeals Board. For 
purposes of this paragraph, an ALJ is considered to be unavailable if 
the ALJ has died, terminated employment, or been transferred to another 
duty station, is on leave of absence, or is unable to conduct a hearing 
because of illness.



Sec. 422.1092  Revision of reopened decision.

    (a) Revision based on new evidence. If a reopened decision is to be 
revised on the basis of new evidence that was not included in the record 
of that decision, the ALJ or the Departmental Appeals Board--
    (1) Notifies the parties of the proposed revision; and
    (2) Unless the parties waive their right to hearing or appearance--
    (i) Grants a hearing in the case of an ALJ revision; and

[[Page 561]]

    (ii) Grants opportunity to appear in the case of a Board revision.
    (b) Basis for revised decision and right to review. (1) If a revised 
decision is necessary, the ALJ or the Departmental Appeals Board, as 
appropriate, renders it on the basis of the entire record.
    (2) If the decision is revised by an ALJ, the Departmental Appeals 
Board may review that revised decision at the request of either party or 
on its own motion.



Sec. 422.1094  Notice and effect of revised decision.

    (a) Notice. The notice mailed to the parties states the basis or 
reason for the revised decision and informs them of their right to 
Departmental Appeals Board review of an ALJ revised decision, or to 
judicial review of a Board reviewed decision.
    (b) Effect--(1) ALJ revised decision. An ALJ revised decision is 
binding unless it is reviewed by the Departmental Appeals Board.
    (2) Departmental Appeals Board revised decision. A Board revised 
decision is binding unless a party files a civil action in a district 
court of the United States within the time frames specified in 422.858.

Subpart U [Reserved]



           Subpart V_Medicare Advantage Marketing Requirements

    Source: 73 FR 54220, Sept. 18, 2008, unless otherwise noted.



Sec. 422.2260  Definitions concerning marketing materials.

    As used in this subpart--
    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) May include, but are not limited to, the following:
    (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 (for example, physicians or 
other providers).
    (v) Membership communication materials such as membership rules, 
subscriber agreements, 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 activities (for example, materials on rules 
involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or nonclaim specific notification information).--
    (6) Marketing materials exclude ad hoc enrollee communications 
materials, meaning informational materials that--
    (i) Are targeted to current enrollees;
    (ii) Are customized or limited to a subset of enrollees or apply to 
a specific situation;
    (iii) Do not include information about the plan's benefit structure; 
and
    (iv) Apply to a specific situation or cover claims processing or 
other operational issues.

[73 FR 54220, Sept. 18, 2008, as amended at 75 FR 19814, Apr. 15, 2010]



Sec. 422.2262  Review and distribution of marketing materials.

    (a) CMS review of marketing materials. (1) Except as provided in 
paragraph (b) of this section, an MA organization may not distribute any 
marketing materials (as defined in Sec. 422.2260 of this subpart), or 
election forms, or make such materials or forms available to

[[Page 562]]

individuals eligible to elect an MA organization unless--
    (i) At least 45 days (or 10 days if using certain types of marketing 
materials that use, without modification, proposed model language and 
format, including standardized language and formatting, 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 
Sec. 422.2264 of this subpart; and
    (ii) CMS does not disapprove the distribution of new material or 
form.
    (2) If CMS does not approve or disapprove marketing materials within 
the specified review timeframe, the materials will be deemed approved. 
Deemed approved means that the MA organization may use the material.
    (b) File and use. The MA organization may distribute certain types 
of marketing material, designated by CMS, 5 days following their 
submission to CMS if the MA organization certifies that in the case of 
these marketing materials, it followed all applicable marketing 
guidelines and, when applicable, used model language specified by CMS 
without modification.
    (c) Standardized model marketing materials. When specified by CMS, 
organizations must use standardized formats and language in model 
materials.
    (d) Ad hoc enrollee communication materials. Ad hoc enrollee 
communication materials may be reviewed by CMS, which may upon review 
determine that such materials must be modified, or may no longer be 
used.

[73 FR 54220, Sept. 18, 2008, as amended at 75 FR 19814, Apr. 15, 2010; 
80 FR 7962, Feb. 12, 2015]



Sec. 422.2264  Guidelines for CMS review.

    In reviewing marketing material or election forms under 
Sec. 422.2262 of this part, CMS determines that the marketing 
materials--
    (a) 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:
    (1) 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;
    (2) Adequate written description of any supplemental benefits and 
services;
    (3) Adequate written explanation of the grievance and appeals 
process, including differences between the two, and when it is 
appropriate to use each; and
    (4) Any other information necessary to enable beneficiaries to make 
an informed decision about enrollment.
    (b) Notify the general public of its enrollment period in an 
appropriate manner, through appropriate media, throughout its service 
area and if applicable, continuation areas.
    (c) Include in 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.
    (d) Ensure that materials are not materially inaccurate or 
misleading or otherwise make material misrepresentations.
    (e) For markets with a significant non-English speaking population, 
provide materials in the language of these individuals. Specifically, MA 
organizations must translate marketing materials into any non-English 
language that is the primary language of at least 5 percent of the 
individuals in a plan benefit package (PBP) service area.

[73 FR 54220, Sept. 18, 2008, as amended at 76 FR 21569, Apr. 15, 2011]



Sec. 422.2266  [Reserved]



Sec. 422.2268  Standards for MA organization marketing.

    In conducting marketing activities, MA organizations may not--
    (a) Provide cash or other monetary rebates as an inducement for 
enrollment or otherwise.
    (b) Offer gifts to potential enrollees, unless the gifts are of 
nominal (as defined in the CMS Marketing Guidelines) value, are offered 
to all potential enrollees without regard to whether or not the 
beneficiary enrolls, and are not in the form of cash or other monetary 
rebates.

[[Page 563]]

    (c) Engage in any discriminatory activity such as, for example, 
attempts to recruit Medicare beneficiaries from higher income areas 
without making comparable efforts to enroll Medicare beneficiaries from 
lower income areas.
    (d) Solicit door-to-door for Medicare beneficiaries or through other 
unsolicited means of direct contact, including calling a beneficiary 
without the beneficiary initiating the contact.
    (e) 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 that 
CMS or Medicare recommends that the beneficiary enroll in the MA plan. 
It may, however, explain that the organization is approved for 
participation in Medicare.
    (f) Market non-health care related products to prospective enrollees 
during any MA or Part D sales activity or presentation. This is 
considered cross-selling and is prohibited.
    (g) Market any health care related product during a marketing 
appointment beyond the scope agreed upon by the beneficiary, and 
documented by the plan, prior to the appointment (48 hours in advance, 
when practicable).
    (h) Market additional health related lines of plan business not 
identified prior to an individual appointment without a separate scope 
of appointment identifying the additional lines of business to be 
discussed.
    (i) Distribute marketing materials for which, before expiration of 
the 45-day period, 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.
    (j) Use providers or provider groups to distribute printed 
information comparing the benefits of different health plans unless the 
providers, provider groups, or pharmacies accept and display materials 
from all health plans with which the providers, provider groups, or 
pharmacies contract. The use of publicly available comparison 
information is permitted if approved by CMS in accordance with the 
Medicare marketing guidance.
    (k) Conduct sales presentations or distribute and accept MA plan 
enrollment forms in provider offices or other areas where health care is 
delivered to individuals, except in the case where such activities are 
conducted in common areas in health care settings.
    (l) Conduct sales presentations or distribute and accept plan 
applications at educational events.
    (m) 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.
    (n) Display the names and/or logos of co-branded network providers 
on the organization's member identification card, unless the provider 
names, and/or logos are related to the member selection of specific 
provider organizations (for example, physicians, hospitals). Other 
marketing materials (as defined in Sec. 422.2260) that include names 
and/or logos of provider co-branding partners must clearly indicate that 
other providers are available in the network.
    (o) Engage in any other marketing activity prohibited by CMS in its 
marketing guidance.
    (p) Provide meals for potential enrollees, which is prohibited, 
regardless of value.
    (q) Use a plan name that does not include the plan type. The plan 
type should be included at the end of the plan name.

[73 FR 54220, Sept. 18, 2008, as amended at 73 FR 54250, Sept. 18, 2008; 
76 FR 54634, Sept. 1, 2011]



Sec. 422.2272  Licensing of marketing representatives and confirmation 
of marketing resources.

    In its marketing, the MA organization must:
    (a) Demonstrate to CMS' satisfaction that marketing resources are 
allocated to marketing to the disabled Medicare population as well as 
beneficiaries age 65 and over.
    (b) 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.
    (c) Employ as marketing representatives only individuals who are 
licensed

[[Page 564]]

by the State to conduct marketing activities (as defined in the Medicare 
Marketing Guidelines) in that State, and whom the organization has 
informed that State it has appointed, consistent with the appointment 
process provided for under State law.
    (d) Report to the State in which the MAO appoints an agent or 
broker, the termination of any such agent or broker, including the 
reasons for such termination if State law requires that the reasons for 
the termination be reported.
    (e) Terminate upon discovery any unlicensed agent or broker employed 
as a marketing representative and notify any beneficiaries enrolled by 
an unqualified agent or broker of the agent's or broker's status and, if 
requested, of their options to confirm enrollment or make a plan change 
(including a special election period, as described in 
Sec. 422.62(b)(3)(ii)).

[73 FR 54220, Sept. 18, 2008, as amended at 73 FR 54250, Sept. 18, 2008; 
76 FR 21569, Apr. 15, 2011]



Sec. 422.2274  Broker and agent requirements.

    If an MA organization uses agents and brokers to sell its Medicare 
plans, the following requirements in this section are applicable.
    (a) Definitions. For purposes of this section, the following 
definitions are applicable:
    Compensation (1) Includes monetary or non-monetary remuneration of 
any kind relating to the sale or renewal of a policy including, but not 
limited to--
    (i) Commissions;
    (ii) Bonuses;
    (iii) Gifts;
    (iv) Prizes or Awards; or
    (v) Referral or Finder fees.
    (2) Does not include--
    (i) Payment of fees to comply with State appointment laws, training, 
certification, and testing costs;
    (ii) Reimbursement for mileage to, and from, appointments with 
beneficiaries; or
    (iii) Reimbursement for actual costs associated with beneficiary 
sales appointments such as venue rent, snacks, and materials.
    Like plan type means one of the following:
    (1) PDP replaced with another PDP.
    (2) MA or MA-PD replaced with another MA or MA-PD.
    (3) Cost plan replaced with another cost plan.
    Unlike plan type means one of the following:
    (1) PDP replaced with an MA-PD or an MA-PD replaced with a PDP.
    (2) PDP replaced with a cost plan or a cost plan replaced with a 
PDP.
    (3) MA-PD replaced with a cost plan or a cost plan replaced with an 
MA-PD.
    Plan year means the year beginning January 1 and ending December 31.
    Renewal year means all years following the initial enrollment year 
in a like plan type.
    (b) Compensation rules. An MA organization must compensate 
independent brokers and agents, if compensation is paid, only according 
to the following rules in this section.
    (1) Compensation amounts. (i) For an initial year enrollment of a 
Medicare beneficiary into an MA plan, the compensation must be at or 
below the fair market value of such services, published annually as a 
cut-off amount by CMS.
    (ii) For renewal years, compensation may be up to 50 percent of the 
current fair market value cut-off amounts published annually by CMS.
    (iii) If the MA organization contracts with a third party entity 
such as a Field Marketing Organization or similar type entity to sell 
its insurance products, or perform services (for example, training, 
customer service, or agent recruitment)--
    (A) The total amount paid by the MA organization to the third party 
and its agents for enrollment of a beneficiary into a plan, if any, must 
be made in accordance with paragraph (b)(1) of this section; and
    (B) The amount paid to the third party for services other than 
selling insurance products, if any, must be fair-market value and must 
not exceed an amount that is commensurate with the amounts paid by the 
MA organization to a third party for similar services during each of the 
previous 2 years.
    (2) Aggregate compensation. (i) An entity must not provide aggregate 
compensation to its agents or brokers greater than the renewal 
compensation

[[Page 565]]

payable by the replacing plan on renewal policies if an existing policy 
is replaced with a like plan at any time.
    (ii) An agent or broker must not receive aggregate compensation 
greater than the renewal compensation payable by the replacing plan on 
renewal policies if an existing policy is replaced with a like plan type 
at any time.
    (iii) The initial compensation is paid for replacements between 
unlike plan types.
    (3) Compensation payment and payment recovery. (i) Compensation may 
only be paid for the enrollee's months of enrollment during a plan year.
    (ii)(A) Subject to paragraph (b)(3)(iii) of this section, 
compensation payments may be made at one time for the entire current 
plan year or in installments throughout the year.
    (B) Compensation may not be paid until January 1 of the enrollment 
year and, if paid at all, must be paid in full by December 31 of the 
enrollment year.
    (iii) When a beneficiary disenrolls from an MA plan, compensation 
paid to agents and brokers must be recovered for those months of the 
plan year for which the beneficiary is not enrolled. For disenrollments 
occurring within the first 3 months, the entire compensation must be 
recovered unless CMS determines that recoupment is not in the best 
interests of the Medicare program.
    (4) Compensation structure. (i) The MA organization must establish a 
compensation structure for new and replacement enrollments and renewals 
effective in a given plan year. Compensation structures must be in place 
by the beginning of the plan marketing period, October 1.
    (ii) Compensation structures must be available upon CMS request 
including for audits, investigations, and to resolve complaints.
    (c) Annual training. The MA organization must ensure that all agents 
and brokers selling Medicare products are trained annually on the 
following:
    (1) Medicare rules and regulations.
    (2) Details specific to the plan products they intend to sell.
    (d) Annual testing. It must ensure that all agents and brokers 
selling Medicare products are tested annually, to ensure the following:
    (1) Appropriate knowledge and understanding of Medicare rules and 
regulations.
    (2) Details specific to the plan products they intend to sell.
    (e) Upon CMS' request, the organization must provide to CMS, in a 
form consistent with current CMS guidance, the information necessary for 
it to conduct oversight of marketing activities.
    (f) It must comply with State requests for information about the 
performance of a licensed agent or broker as part of a state 
investigation into the individual's conduct. CMS will establish and 
maintain a memorandum of understanding (MOU) to share compliance and 
oversight information with States that agree to the MOU.
    (g) A plan sponsor must report annually, as directed by CMS--
    (1) Whether it intends to use independent agents or brokers or both 
in the upcoming plan year; and
    (2) If applicable, the specific amount or range of amounts 
independent agents or brokers or both will be paid.
    (h) Finder's (referral) fees. Finder's (referral) fees paid to all 
agents and brokers--
    (1) May not exceed an amount that CMS determines could reasonably be 
expected to provide financial incentive for an agent or broker to 
recommend or enroll a beneficiary into a plan that is not the most 
appropriate to meet his or her needs; and
    (2) Must be included in the total compensation not to exceed the 
fair market value for that calendar year.

[73 FR 54250, Sept. 18, 2008, as amended at 73 FR 67412, Nov. 14, 2008; 
76 FR 21569, Apr. 15, 2011; 76 FR 54634, Sept. 1, 2011; 77 FR 22168, 
Apr. 12, 2012; 79 FR 29960, May 23, 2014; 80 FR 7962, Feb. 12, 2015]



Sec. 422.2276  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. These materials are not subject to CMS prior 
review and approval.

Subpart W [Reserved]

[[Page 566]]



         Subpart X_Requirements for a Minimum Medical Loss Ratio

    Source: 78 FR 31307, May 23, 2013, unless otherwise noted.



Sec. 422.2400  Basis and scope.

    This subpart is based on sections 1857(e)(4), 1860D-12(b)(3)(D), and 
1106 of the Act, and sets forth medical loss ratio requirements for 
Medicare Advantage organizations, financial penalties and sanctions 
against MA organizations when minimum medical loss ratios are not 
achieved by MA organizations, and release of medical loss ratio data to 
entities outside of CMS.

[81 FR 80557, Nov. 15, 2016]



Sec. 422.2401  Definitions.

    Non-claims costs means those expenses for administrative services 
that are not--
    (1) Incurred claims (as provided in Sec. 422.2420(b)(2) through 
(4));
    (2) Expenditures on quality improving activities (as provided in 
Sec. 422.2430);
    (3) Licensing and regulatory fees (as provided in 
Sec. 422.2420(c)(2)(i));
    (4) State and Federal taxes and assessments (as provided in 
Sec. 422.2420(c)(2)(ii) and (iii)).

[78 FR 31307, May 23, 2013; 78 FR 43821, July 22, 2013]



Sec. 422.2410  General requirements.

    (a) For contracts beginning in 2014 or later, an MA organization 
(defined at Sec. 422.2) is required to report an MLR for each contract 
under this part for each contract year.
    (b) MLR requirement. If CMS determines for a contract year that an 
MA organization has an MLR for a contract that is less than 0.85, the MA 
organization has not met the MLR requirement and must remit to CMS an 
amount equal to the product of the following:
    (1) The total revenue of the MA contract for the contract year.
    (2) The difference between 0.85 and the MLR for the contract year.
    (c) If CMS determines that an MA organization has an MLR for a 
contract that is less than 0.85 for 3 or more consecutive contract 
years, CMS does not permit the enrollment of new enrollees under the 
contract for coverage during the second succeeding contract year.
    (d) If CMS determines that an MA organization has an MLR for a 
contract that is less than 0.85 for 5 consecutive contract years, CMS 
terminates the contract per Sec. 422.510(b)(1) and (d) effective as of 
the second succeeding contract year.



Sec. 422.2420  Calculation of the medical loss ratio.

    (a) Determination of MLR. (1) The MLR for each contract under this 
part is the ratio of the numerator (as defined in paragraph (b) of this 
section) to the denominator (as defined in paragraph (c) of this 
section). An MLR may be increased by a credibility adjustment according 
to the rules at Sec. 422.2440, or subject to an adjustment determined by 
CMS to be warranted based on exceptional circumstances for areas outside 
the 50 states and the District of Columbia.
    (2) The MLR for an MA contract--
    (i) Not offering Medicare prescription drug benefits must only 
reflect costs and revenues related to the benefits defined at 
Sec. 422.100(c); and
    (ii) That includes MA-PD plans (defined at Sec. 422.2) must also 
reflect costs and revenues for benefits described at Sec. 423.104(d) 
through (f) of this chapter.
    (b) Determining the MLR numerator. (1) For a contract year, the 
numerator of the MLR for an MA contract (other than an MSA contract) 
must equal the sum of paragraphs (b)(1)(i) through (iii) of this 
section, and the numerator of the MLR for an MSA contract must equal the 
sum of paragraphs (b)(1)(i), (iii), and (iv) of this section. The 
numerator must be determined in accordance with paragraphs (b)(5) and 
(6) of this section.
    (i) Incurred claims for all enrollees, as defined in paragraphs 
(b)(2) through (4) of this section.
    (ii) The amount of the reduction, if any, in the Part B premium for 
all MA plan enrollees under the contract for the contract year.
    (iii) The expenditures under the contract for activities that 
improve health care quality, as defined in Sec. 422.2430.
    (iv) The amount of the annual deposit into the medical savings 
account described at Sec. 422.4(a)(2).

[[Page 567]]

    (2) Incurred claims for clinical services and prescription drug 
costs. Incurred claims must include the following:
    (i) Direct claims that the MA organization pays to providers 
(including under capitation contracts with physicians) for covered 
services, described at paragraph (a)(2) of this section provided to all 
enrollees under the contract.
    (ii) For an MA contract that includes MA-PD plans (described in 
paragraph (a)(2) of this section), drug costs provided to all enrollees 
under the contract, as defined at Sec. 423.2420(b)(2)(i) of this 
chapter.
    (iii) Unpaid claims reserves for the current contract year, 
including claims reported in the process of adjustment.
    (iv) Percentage withholds from payments made to contracted 
providers.
    (v) Incurred but not reported claims based on past experience, and 
modified to reflect current conditions such as changes in exposure, 
claim frequency or severity.
    (vi) Changes in other claims-related reserves.
    (vii) Claims that are recoverable for anticipated coordination of 
benefits.
    (viii) Claims payments recoveries received as a result of 
subrogation.
    (ix) Claims payments recoveries as a result of fraud reduction 
efforts, not to exceed the amount of fraud reduction expenses.
    (x) Reserves for contingent benefits and the medical claim portion 
of lawsuits.
    (xi) The amount of incentive and bonus payments made to providers.
    (3) Adjustments that must be deducted from incurred claims include 
the following:
    (i) Overpayment recoveries received from providers.
    (4) Exclusions from incurred claims. The following amounts must not 
be included in incurred claims:
    (i) Non-claims costs, as defined in Sec. 422.2401, which include the 
following:
    (A) Amounts paid to third party vendors for secondary network 
savings.
    (B) Amounts paid to third party vendors for any of the following:
    (1) Network development.
    (2) Administrative fees.
    (3) Claims processing.
    (4) Utilization management.
    (C) Amounts paid, including amounts paid to a provider, for 
professional or administrative services that do not represent 
compensation or reimbursement for covered services provided to an 
enrollee, such as the following:
    (1) Medical record copying costs.
    (2) Attorneys' fees.
    (3) Subrogation vendor fees.
    (4) Bona fide service fees.
    (5) Compensation to any of the following:
    (i) Paraprofessionals.
    (ii) Janitors.
    (iii) Quality assurance analysts.
    (iv) Administrative supervisors.
    (v) Secretaries to medical personnel.
    (vi) Medical record clerks.
    (ii) Amounts paid to CMS as a remittance under Sec. 422.2410(b).
    (5) Incurred claims under this part for policies issued by one MA 
organization and later assumed by another entity must be reported by the 
assuming organizations for the entire MLR reporting year during which 
the policies were assumed and no incurred claims under this part for 
that contract year must be reported by the ceding MA organization.
    (6) Reinsured incurred claims for a block of business that was 
subject to indemnity reinsurance and administrative agreements effective 
before March 23, 2010, for which the assuming entity is responsible for 
100 percent of the ceding entity's financial risk and takes on all of 
the administration of the block, must be reported by the assuming issuer 
and must not be reported by the ceding issuer.
    (c) Determining the MLR denominator. For a contract year, the 
denominator of the MLR for an MA contract must equal the total revenue 
under the contract. Total revenue under the contract is as described in 
paragraph (c)(1) of this section, net of deductions described in 
paragraph (c)(2) of this section, taking into account the exclusions 
described in paragraph (c)(3) of this section, and n accordance with 
paragraphs (c)(4) and (c)(5) of this section.
    (1) CMS' payments to the MA organization for all enrollees under a 
contract, reported on a direct basis, including the following:

[[Page 568]]

    (i) Payments under Sec. 422.304(a)(1) through (3) and (c).
    (ii) The amount applied to reduce the Part B premium, as provided 
under Sec. 422.266(b)(3).
    (iii) Payments under Sec. 422.304(b)(1), as reconciled per 
Sec. 423.329(c)(2)(ii) of this chapter.
    (iv) All premiums paid by or on behalf of enrollees to the MA 
organization as a condition of receiving coverage under an MA plan, 
including CMS' payments for low income premium subsidies under 
Sec. 422.304(b)(2).
    (v) All unpaid premium amounts that an MA organization could have 
collected from enrollees in the MA plan(s) under the contract.
    (vi) All changes in unearned premium reserves.
    (vii) Payments under Sec. 423.315(e) of this chapter.
    (2) The following amounts must be deducted from total revenue in 
calculating the MLR:
    (i) Licensing and regulatory fees. (A) Statutory assessments to 
defray the operating expenses of any State or Federal department, such 
as the ``user fee'' described in section 1857(e)(2) of the Act.
    (B) Examination fees in lieu of premium taxes as specified by State 
law.
    (ii) Federal taxes and assessments. All Federal taxes and 
assessments allocated to health insurance coverage.
    (iii) State taxes and assessments. State taxes and assessments such 
as the following:
    (A) Any industry-wide (or subset) assessments (other than surcharges 
on specific claims) paid to the State directly.
    (B) Guaranty fund assessments.
    (C) Assessments of State industrial boards or other boards for 
operating expenses or for benefits to sick employed persons in 
connection with disability benefit laws or similar taxes levied by 
States.
    (D) State income, excise, and business taxes other than premium 
taxes.
    (iv) Community benefit expenditures. Community benefit expenditures 
are payments made by a Federal income tax-exempt MA organization for 
community benefit expenditures as defined in paragraph (c)(2)(iv)(A) of 
this section, limited to the amount defined in paragraph (c)(2)(iv)(B) 
of this section, and allocated to a contract as required under paragraph 
(d)(1) of this section.
    (A) Community benefit expenditures means expenditures for activities 
or programs that seek to achieve the objectives of improving access to 
health services, enhancing public health and relief of government 
burden.
    (B) Such payment may be deducted up to the limit of either 3 percent 
of total revenue under this part or the highest premium tax rate in the 
State for which the Part D sponsor is licensed, multiplied by the Part D 
sponsor's earned premium for the contract.
    (3) The following amounts must not be included in total revenue:
    (i) The amount of unpaid premiums for which the MA organization can 
demonstrate to CMS that it made a reasonable effort to collect.
    (ii) The following EHR payments and adjustments:
    (A) EHR incentive payments for meaningful use of certified 
electronic health records by qualifying MAOs, MA EPs and MA-affiliated 
eligible hospitals that are administered under 42 CFR part 495 subpart 
C.
    (B) EHR payment adjustments for a failure to meet meaningful use 
requirements that are administered under 42 CFR part 495 subpart C.
    (iii) Coverage Gap Discount Program payments under Sec. 423.2320 of 
this chapter.
    (4) Total revenue (as defined at Sec. 422.2420(c)) for policies 
issued by one MA organization and later assumed by another entity must 
be reported by the assuming entity for the entire MLR reporting year 
during which the policies were assumed and no revenue under this part 
for that contract year must be reported by the ceding MA organization.
    (5) Total revenue (as defined at Sec. 422.2420(c)) that is reinsured 
for a block of business that was subject to indemnity reinsurance and 
administrative agreements effective prior to March 23, 2010, for which 
the assuming entity is responsible for 100 percent of the ceding 
entity's financial risk and takes on all of the administration of the 
block, must be reported by the assuming issuer and must not be reported 
by the ceding issuer.

[[Page 569]]

    (d) Allocation of expense--(1) General requirements. (i) Each 
expense must be included under only one type of expense, unless a 
portion of the expense fits under the definition of or criteria for one 
type of expense and the remainder fits into a different type of expense, 
in which case the expense must be pro-rated between types of expenses.
    (ii) Expenditures that benefit multiple contracts, or contracts 
other than those being reported, including but not limited to those that 
are for or benefit self-funded plans, must be reported on a pro rata 
share.
    (2) Description of the methods used to allocate expenses. (i) 
Allocation to each category must be based on a generally accepted 
accounting method that is expected to yield the most accurate results. 
Specific identification of an expense with an activity that is 
represented by one of the categories in Sec. 422.2420(b) or (c) will 
generally be the most accurate method.
    (ii) Shared expenses, including expenses under the terms of a 
management contract, must be apportioned pro rata to the contracts 
incurring the expense.
    (iii)(A) Any basis adopted to apportion expenses must be that which 
is expected to yield the most accurate results and may result from 
special studies of employee activities, salary ratios, premium ratios or 
similar analyses.
    (B) Expenses that relate solely to the operations of a reporting 
entity, such as personnel costs associated with the adjusting and paying 
of claims, must be borne solely by the reporting entity and are not to 
be apportioned to other entities within a group.

[78 FR 31307, May 23, 2013; 78 FR 43821, July 22, 2013]



Sec. 422.2430  Activities that improve health care quality.

    (a) Activity requirements. Activities conducted by an MA 
organization to improve quality must fall into one of the categories in 
paragraph (a)(1) of this section and meet all of the requirements in 
paragraph (a)(2) of this section.
    (1) Categories of quality improving activities. The activity must be 
designed to achieve one or more of the following:
    (i) To improve health outcomes through the implementation of 
activities such as quality reporting, effective case management, care 
coordination, chronic disease management, and medication and care 
compliance initiatives, including through the use of the medical homes 
model as defined for purposes of section 3602 of the Patient Protection 
and Affordable Care Act, for treatment or services under the plan or 
coverage.
    (ii) To prevent hospital readmissions through a comprehensive 
program for hospital discharge that includes patient-centered education 
and counseling, comprehensive discharge planning, and post-discharge 
reinforcement by an appropriate health care professional.
    (iii) To improve patient safety and reduce medical errors through 
the appropriate use of best clinical practices, evidence-based medicine, 
and health information technology under the plan or coverage.
    (iv) To promote health and wellness.
    (v) To enhance the use of health care data to improve quality, 
transparency, and outcomes and support meaningful use of health 
information technology. Such activities, such as Health Information 
Technology (HIT) expenses, are required to accomplish the activities 
that improve health care quality and that are designed for use by health 
plans, health care providers, or enrollees for the electronic creation, 
maintenance, access, or exchange of health information, and are 
consistent with meaningful use requirements, and which may in whole or 
in part improve quality of care, or provide the technological 
infrastructure to enhance current quality improving activities or make 
new quality improvement initiatives possible.
    (2) The activity must be designed for all of the following:
    (i) To improve health quality.
    (ii) To increase the likelihood of desired health outcomes in ways 
that are capable of being objectively measured and of producing 
verifiable results and achievements.
    (iii) To be directed toward individual enrollees or incurred for the 
benefit of

[[Page 570]]

specified segments of enrollees or provide health improvements to the 
population beyond those enrolled in coverage as long as no additional 
costs are incurred due to the non-enrollees.
    (iv) To be grounded in evidence-based medicine, widely accepted best 
clinical practice, or criteria issued by recognized professional medical 
associations, accreditation bodies, government agencies or other 
nationally recognized health care quality organizations.
    (b) Exclusions. Expenditures and activities that must not be 
included in quality improving activities include, but are not limited 
to, the following:
    (1) Those that are designed primarily to control or contain costs.
    (2) The pro rata share of expenses that are for lines of business or 
products other than those being reported, including but not limited to, 
those that are for or benefit self-funded plans.
    (3) Those which otherwise meet the definitions for quality improving 
activities but which were paid for with grant money or other funding 
separate from premium revenue.
    (4) Those activities that can be billed or allocated by a provider 
for care delivery and that are reimbursed as clinical services.
    (5) Establishing or maintaining a claims adjudication system, 
including costs directly related to upgrades in health information 
technology that are designed primarily or solely to improve claims 
payment capabilities or to meet regulatory requirements for processing 
claims, including ICD-10 implementation costs in excess of 0.3 percent 
of total revenue under this part, and maintenance of ICD-10 code sets 
adopted in accordance with to the Health Insurance Portability and 
Accountability Act (HIPAA), 42 U.S.C. 1320d-2, as amended.
    (6) That portion of the activities of health care professional 
hotlines that does not meet the definition of activities that improve 
health quality.
    (7) All retrospective and concurrent utilization review.
    (8) Fraud prevention activities.
    (9) The cost of developing and executing provider contracts and fees 
associated with establishing or managing a provider network, including 
fees paid to a vendor for the same reason.
    (10) Provider credentialing.
    (11) Marketing expenses.
    (12) Costs associated with calculating and administering individual 
enrollee or employee incentives.
    (13) That portion of prospective utilization review that does not 
meet the definition of activities that improve health quality.
    (14) Any function or activity not expressly permitted by CMS under 
this part.



Sec. 422.2440  Credibility adjustment.

    (a) An MA organization may add a credibility adjustment to a 
contract's MLR if the contract's experience is partially credible, as 
determined by CMS.
    (b) An MA organization may not add a credibility adjustment to a 
contract's MLR if the contract's experience is fully credible, as 
determined by CMS.
    (c) For those contract years for which a contract has non-credible 
experience for their MLR, sanctions under Sec. 422.2410(b) through (d) 
will not apply.
    (d) CMS defines and publishes definitions of partial credibility, 
full credibility, and non-credibility and the credibility factors 
through the notice and comment process of publishing the Advance Notice 
and Final Rate Announcement.



Sec. 422.2450  [Reserved]



Sec. 422.2460  Reporting requirements.

    For each contract year, each MA organization must submit a report to 
CMS, in a timeframe and manner specified by CMS, which includes but is 
not limited to the data needed by the MA organization to calculate and 
verify the MLR and remittance amount, if any, for each contract, such as 
incurred claims, total revenue, expenditures on quality improving 
activities, non-claims costs, taxes, licensing and regulatory fees, and 
any remittance owed to CMS under Sec. 422.2410.



Sec. 422.2470  Remittance to CMS if the applicable MLR requirement is not met.

    (a) General requirement. For each contract year, an MA organization 
must

[[Page 571]]

provide a remittance to CMS if the contract's MLR does not meet the 
minimum MLR requirement required by Sec. 422.2410(b) of this subpart.
    (b) Amount of remittance. For each contract that does not meet the 
MLR requirement for a contract year, the MA organization must remit to 
CMS the amount by which the MLR requirement exceeds the contract's 
actual MLR multiplied by the total revenue of the contract, as provided 
in Sec. 422.2420(c), for the contract year.
    (c) Timing of remittance. CMS deducts the remittance from plan 
payments in a timely manner after the MLR is reported, on a schedule 
determined by CMS.
    (d) Treatment of remittance. Payment to CMS must not be included in 
the numerator or denominator of any year's MLR.



Sec. 422.2480  MLR review and non-compliance.

    To ensure the accuracy of MLR reporting, CMS conducts selected 
reviews of reports submitted under Sec. 422.2460 to determine that that 
the MLRs and remittance amounts under Sec. 422.2410(b) and sanctions 
under Sec. 422.2410(c) and (d), were accurately calculated, reported, 
and applied.
    (a) The reviews include a validation of amounts included in both the 
numerator and denominator of the MLR calculation reported to CMS.
    (b) MA organizations are required to maintain evidence of the 
amounts reported to CMS and to validate all data necessary to calculate 
MLRs.
    (c)(1) Documents and records must be maintained for 10 years from 
the date such calculations were reported to CMS with respect to a given 
MLR reporting year.
    (2) MA organizations must require any third party vendor supplying 
drug or medical cost contracting and claim adjudication services to the 
MA organization to provide all underlying data associated with MLR 
reporting to that MA organization in a timely manner, when requested by 
the MA organization, regardless of current contractual limitations, in 
order to validate the accuracy of MLR reporting.
    (d) Reports submitted under Sec. 422.2460, calculations, or any 
other MLR submission required by this subpart found to be materially 
incorrect or fraudulent--
    (1) Is noted by CMS;
    (2) Appropriate remittance amounts are recouped by CMS; and
    (3) Sanctions may be imposed by CMS as provided in Sec. 422.752.



Sec. 422.2490  Release of Part C MLR data.

    (a) Terminology. Subject to the exclusions in paragraph (b) of this 
section, Part C MLR data consists of the information contained in 
reports submitted under Sec. 422.2460.
    (b) Exclusions from Part C MLR data. For the purpose of this 
section, the following items are excluded from Part C MLR data:
    (1) Narrative descriptions that MA organizations submit to support 
the information reported to CMS pursuant to the reporting requirements 
at Sec. 422.2460, such as descriptions of expense allocation methods.
    (2) Information that is reported at the plan level, such as the 
number of member months associated with each plan under a contract, 
including information submitted for a contract consisting of only one 
plan.
    (3) Any information that could be used to identify Medicare 
beneficiaries or other individuals.
    (4) MLR review correspondence.
    (5) Any information for a contract for those contract years for 
which the contract is determined to be non-credible, as defined in 
accordance with Sec. 422.2440(d).
    (c) Data release. CMS releases to the public Part C MLR data, for 
each contract for each contract year, no earlier than 18 months after 
the end of the applicable contract year.

[81 FR 80557, Nov. 15, 2016]

Subpart Y [Reserved]



       Subpart Z_Part C Recovery Audit Contractor Appeals Process

    Source: 79 FR 29961, May 23, 2014, unless otherwise noted.



Sec. 422.2600  Payment appeals.

    If the Part C RAC did not apply its stated payment methodology 
correctly,

[[Page 572]]

an MA organization may appeal the findings of the applied methodology. 
The payment methodology itself is not subject to appeal.



Sec. 422.2605  Request for reconsideration.

    (a) Time for filing a request. The request for reconsideration must 
be filed with the designated independent reviewer within 60 calendar 
days from the date of the demand letter received by the MA organization.
    (b) Content of request. (1) The request for reconsideration must be 
in writing and specify the findings or issues with which the MA 
organization disagrees.
    (2) The MA organization must include with its request all supporting 
documentary evidence it wishes the independent reviewer to consider.
    (i) This material must be submitted in the format requested by CMS.
    (ii) Documentation, evidence, or substantiation submitted after the 
filing of the reconsideration request will not be considered.
    (c) CMS rebuttal. CMS may file a rebuttal to the MA organization's 
reconsideration request.
    (1) The rebuttal must be submitted within 30 calendar days of the 
review entity's notification to CMS that it has received the MA 
organization's reconsideration request.
    (2) CMS sends its rebuttal to the MA organization at the same time 
it is submitted to the independent reviewer.
    (d) Review entity. An independent reviewer conducts the 
reconsideration. The independent reviewer reviews the demand for 
repayment, the evidence and findings upon which it was based and any 
supporting documentation that the MA organization or CMS submitted in 
accordance with this section.
    (e) Notification of decision. The independent reviewer informs the 
CMS and the MA organization of its decision in writing.
    (f) Effect of decision. A reconsideration decision is final and 
binding unless the MA organization requests a hearing official review in 
accordance with Sec. 422.2610.
    (g) Right to hearing official review. An MA organization that is 
dissatisfied with the independent reviewer's reconsideration decision is 
entitled to a hearing official review as provided in Sec. 422.2610.



Sec. 422.2610  Hearing official review.

    (a) Time for filing a request. A MA organization must file with CMS 
a request for a hearing official review within 30 calendar days from the 
date of the independent reviewer's issuance of a reconsideration 
determination.
    (b) Content of the request. (1) The request must be in writing and 
must specify the findings or issues in the reconsideration decision with 
which the MA organization disagrees and the reasons for the 
disagreements.
    (2) The MA organization must submit with its request all supporting 
documentation, evidence, and substantiation that it wants to be 
considered.
    (3) No new evidence may be submitted.
    (4) Documentation, evidence, or substantiation submitted after the 
filing of the request will not be considered.
    (c) CMS rebuttal. CMS may file a rebuttal to the MA organization's 
hearing official review request.
    (1) The rebuttal must be submitted within 30 calendar days of the MA 
organization's submission of its hearing official review request.
    (2) CMS sends its rebuttal to the MA organization at the same time 
it is submitted to the hearing official.
    (d) Conducting a review. A CMS-designated hearing official conducts 
the hearing on the record.
    (1) The hearing is not to be conducted live or via telephone unless 
the hearing official, in his or her sole discretion, requests a live or 
telephonic hearing.
    (2) In all cases, the hearing official's review is limited to 
information that meets one or more of the following:
    (i) The Part C RAC used in making its determinations.
    (ii) The independent reviewer used in making its determinations.
    (iii) The MA organization submits with its hearing request.
    (iv) CMS submits in accordance with paragraph (c) of this section.
    (3) Neither the MA organization nor CMS may submit new evidence.
    (e) Hearing official decision. The CMS hearing official decides the 
case within 60 days and sends a written decision to

[[Page 573]]

the MA organization and CMS, explaining the basis for the decision.
    (f) Effect of hearing official decision. The hearing official's 
decision is final and binding, unless the decision is reversed or 
modified by the CMS Administrator in accordance with Sec. 422.2615.



Sec. 422.2615  Review by the Administrator.

    (a) Request for review by Administrator. If an MA organization is 
dissatisfied with the hearing official's decision, it may request that 
the CMS Administrator review the decision.
    (1) The request must be filed with the CMS Administrator within 30 
calendar days of the date of the hearing official's decision.
    (2) The request must provide evidence or reasons to substantiate the 
request.
    (b) Content of request. The MA organization must submit with its 
request all supporting documentation, evidence, and substantiation that 
it wants to be considered.
    (1) Documentation, evidence, or substantiation submitted after the 
filing of the request will not be considered.
    (2) Neither the MA organization, nor CMS may submit new evidence.
    (c) Discretionary review. After receiving a request for review, the 
CMS Administrator has the discretion to review the hearing official's 
decision in accordance with paragraph (e) of this section or to decline 
to review said decision.
    (d) Notification of decision whether to review. The Administrator 
notifies the MA organization within 45 days of receiving the MA 
organization's hearing request of whether he or she intends to review 
the hearing official's decision.
    (1) If the Administrator agrees to review the hearing official's 
decision, CMS may file a rebuttal statement within 30 days of the 
Administrator's notice to the plan that the request for review has been 
accepted. CMS sends its rebuttal statement to the plan at the same time 
it is submitted to the Administrator.
    (2) If the CMS Administrator declines to review the hearing 
official's decision, the hearing official's decision is final and 
binding.
    (e) CMS Administrator's review. If the CMS Administrator agrees to 
review the hearing official's decision, he or she determines, based upon 
this decision, the hearing record, and any arguments submitted by the MA 
organization or CMS in accordance with this section, whether the 
determination should be upheld, reversed, or modified. The Administrator 
furnishes a written decision, which is final and binding, to the MA 
organization and to CMS. /



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 low-income subsidy eligible individuals.
423.36  Disenrollment process
423.38  Enrollment periods.
423.40  Effective dates.
423.44  Involuntary disenrollment from Part D coverage.
423.46  Late enrollment penalty.
423.48  Information about Part D.
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).

[[Page 574]]

423.154  Appropriate dispensing of prescription drugs in long-term care 
          facilities under PDPs and MA-PD plans.
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.

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.
423.352  CMS-identified overpayments associated with payment data 
          submitted by Part D sponsors.
423.360  Reporting and returning of overpayments.

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.
423.466  Timeframes for coordination of benefits.

    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  Validation of Part D reporting requirements.
423.516  Prohibition of midyear implementation of significant new 
          regulatory requirements.
423.520  Prompt payment by Part D sponsors.

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, Redeterminations, and 
                            Reconsiderations

423.558  Scope.
423.560  Definitions.
423.562  General provisions.
423.564  Grievance procedures
423.566  Coverage determinations.

[[Page 575]]

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.
423.610-423.634  [Reserved]
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.
423.650  Right to a hearing, burden of proof, standard of proof, and 
          standards of review.
423.651  Request for hearing.
423.652  Postponement of effective date of a contract determination when 
          a request for a hearing 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  Prehearing and summary judgment.
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 a contract determination or decision of a hearing 
          officer or the Administrator.

                    Subpart O_Intermediate Sanctions

423.750  Types of intermediate sanctions and civil money penalties.
423.752  Basis for imposing intermediate sanctions and civil money 
          penalties.
423.756  Procedures for imposing intermediate sanctions and civil money 
          penalties.
423.758  Maximum amount of civil money penalties imposed by CMS.
423.760  Determinations regarding the amount of civil money penalties 
          and assessment imposed by CMS.
423.762  Settlement of penalties.
423.764  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.

[[Page 576]]

          Subpart T_Appeal Procedures for Civil Money Penalties

423.1000  Basis and scope.
423.1002  Definitions.
423.1004  Scope and applicability.
423.1006  Appeal rights.
423.1008  Appointment of representatives.
423.1010  Authority of representatives.
423.1012  Fees for services of representative.
423.1014  Charge for transcripts.
423.1016  Filing of briefs with the Administrative Law Judge or 
          Departmental Appeals Board, and opportunity for rebuttal.
423.1018  Notice and effect of initial determinations.
423.1020  Request for hearing.
423.1022  Parties to the hearing.
423.1024  Designation of hearing official.
423.1026  Disqualification of Administrative Law Judge.
423.1028  Prehearing conference.
423.1030  Notice of prehearing conference.
423.1032  Conduct of prehearing conference.
423.1034  Record, order, and effect of prehearing conference.
423.1036  Time and place of hearing.
423.1038  Change in time and place of hearing.
423.1040  Joint hearings.
423.1042  Hearing on new issues.
423.1044  Subpoenas.
423.1046  Conduct of hearing.
423.1048  Evidence.
423.1050  Witnesses.
423.1052  Oral and written summation.
423.1054  Record of hearing.
423.1056  Waiver of right to appear and present evidence.
423.1058  Dismissal of request for hearing.
423.1060  Dismissal for abandonment.
423.1062  Dismissal for cause.
423.1064  Notice and effect of dismissal and right to request review.
423.1066  Vacating a dismissal of request for hearing.
423.1068  Administrative Law Judge's decision.
423.1070  Removal of hearing to Departmental Appeals Board.
423.1072  Remand by the Administrative Law Judge.
423.1074  Right to request Departmental Appeals Board review of 
          Administrative Law Judge's decision or dismissal.
423.1076  Request for Departmental Appeals Board review.
423.1078  Departmental Appeals Board action on request for review.
423.1080  Procedures before the Departmental Appeals Board on review.
423.1082  Evidence admissible on review.
423.1084  Decision or remand by the Departmental Appeals Board.
423.1086  Effect of Departmental Appeals Board Decision.
423.1088  Extension of time for seeking judicial review.
423.1090  Basis, timing, and authority for reopening an Administrative 
          Law Judge or Board decision.
423.1092  Revision of reopened decision.
423.1094  Notice and effect of revised decision.

   Subpart U_Reopening, ALJ Hearings and ALJ and Attorney Adjudicator 
             Decisions, Council Review, and Judicial Review

423.1968  Scope.
423.1970  Right to an ALJ hearing.
423.1972  Request for an ALJ hearing.
423.1974  Council review.
423.1976  Judicial review.
423.1978  Reopening determinations and decisions.
423.1980  Reopening of coverage determinations, redeterminations, 
          reconsiderations, decisions, and reviews.
423.1982  Notice of a revised determination or decision.
423.1984  Effect of a revised determination or decision.
423.1986  Good cause for reopening.
423.1990  Expedited access to judicial review.
423.2000  Hearing before an ALJ and decision by an ALJ or attorney 
          adjudicator: General rule.
423.2002  Right to an ALJ hearing.
423.2004  Right to a review of IRE notice of dismissal.
423.2008  Parties to the proceedings on a request for an ALJ hearing.
423.2010  When CMS, the IRE, or Part D plan sponsors may participate in 
          the proceedings on a request for an ALJ hearing.
423.2014  Request for an ALJ hearing or a review of an IRE dismissal.
423.2016  Timeframes for deciding an appeal of an IRE reconsideration.
423.2018  Submitting evidence.
423.2020  Time and place for a hearing before an ALJ.
423.2022  Notice of a hearing before an ALJ.
423.2024  Objections to the issues.
423.2026  Disqualification of the ALJ or attorney adjudicator.
423.2030  ALJ hearing procedures.
423.2032  Issues before an ALJ or attorney adjudicator.
423.2034  Requesting information from the IRE.
423.2036  Description of an ALJ hearing process.
423.2038  Deciding a case without a hearing before an ALJ.
423.2040  Prehearing and posthearing conferences.
423.2042  The administrative record.
423.2044  Consolidated proceedings.
423.2046  Notice of an ALJ or attorney adjudicator decision.

[[Page 577]]

423.2048  The effect of an ALJ's or attorney adjudicator's decision.
423.2050  Removal of a hearing request from OMHA to the Council.
423.2052  Dismissal of a request for a hearing before an ALJ or request 
          for review of an IRE dismissal.
423.2054  Effect of dismissal of a request for a hearing or request for 
          review of an IRE's dismissal.
423.2056  Remands of requests for hearing and requests for review.
423.2058  Effect of a remand.
423.2062  Applicability of policies not binding on the ALJ and Council.
423.2063  Applicability of laws, regulations, CMS Rulings, and 
          precedential decisions.
423.2100  Medicare Appeals Council review: general.
423.2102  Request for Council review when ALJ or attorney adjudicator 
          issues decision or dismissal.
423.2106  Where a request for review may be filed.
423.2108  Council Actions when request for review is filed.
423.2110  Council reviews on its own motion.
423.2112  Content of request for review.
423.2114  Dismissal of request for review.
423.2116  Effect of dismissal of request for Council review or request 
          for hearing.
423.2118  Obtaining evidence from the Council.
423.2120  Filing briefs with the Council.
423.2122  What evidence may be submitted to the Council.
423.2124  Oral argument.
423.2126  Case remanded by the Council.
423.2128  Action of the Council.
423.2130  Effect of the Council's decision.
423.2134  Extension of time to file action in Federal District Court.
423.2136  Judicial review.
423.2138  Case remanded by a Federal District Court.
423.2140  Council review of ALJ or attorney adjudicator decision in a 
          case remanded by a Federal District Court.

                 Subpart V_Part D Marketing Requirements

423.2260  Definitions concerning marketing materials.
423.2262  Review and distribution of marketing materials.
423.2264  Guidelines for CMS review.
423.2266  [Reserved]
423.2268  Standards for Part D marketing.
423.2272  Licensing of marketing representatives and confirmation of 
          marketing resources.
423.2272  Licensing of marketing representatives and confirmation of 
          marketing resources.
423.2274  Broker and agent requirements.
423.2276  Employer group retiree marketing.

            Subpart W_Medicare Coverage Gap Discount Program

423.2300  Scope.
423.2305  Definitions.
423.2310  Condition for coverage of drugs under Part D.
423.2315  Medicare Coverage Gap Discount Program Agreement.
423.2320  Payment processes for Part D sponsors.
423.2325  Provision of applicable discounts.
423.2330  Manufacturer discount payment audit and dispute resolution.
423.2335  Beneficiary dispute resolution.
423.2340  Compliance monitoring and civil money penalties.
423.2345  Termination of Discount Program Agreement.

         Subpart X_Requirements for a Minimum Medical Loss Ratio

423.2400  Basis and scope.
423.2401  Definitions.
423.2410  General requirements.
423.2420  Calculation of medical loss ratio.
423.2430  Activities that improve health care quality.
423.2440  Credibility adjustment.
423.2450  [Reserved]
423.2460  Reporting requirements.
423.2470  Remittance to CMS if the applicable MLR requirement is not 
          met.
423.2480  MLR review and non-compliance.
423.2490  Release of Part D MLR data.

Subpart Y [Reserved]

       Subpart Z_Recovery Audit Contractor Part D Appeals Process

423.2600  Payment appeals.
423.2605  Request for reconsideration.
423.2610  Hearing official review.
423.2615  Review by the Administrator.

    Authority: Sections 1102, 1106, 1860D-1 through 1860D-42, and 1871 
of the Social Security Act (42 U.S.C. 1302, 1306, 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:
    1106. Disclosure of Information in Possession of Agency.
    1128J(d). Reporting and Returning of Overpayments.

[[Page 578]]

    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.
    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-14A. Medicare coverage gap discount program.
    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.
    1860D-43. Condition for coverage of drugs under this part.
    (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.
    (3) Section 1611 of Title 8 of the United States Code regarding 
individuals who are not lawfully present and ineligible for Federal 
public benefits.
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 30683, May 28, 2008; 79 
FR 29962, May 23, 2014; 80 FR 7962, Feb. 12, 2015]



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.
    Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, with persons or entities involved with 
the Part D benefit, below the level of the arrangement between a Part D 
plan sponsor (or applicant) and a first tier entity. These written 
arrangements continue down to the level of the ultimate provider of both 
health and administrative services.
    Eligible fallback entity or fallback entity is defined at 
Sec. 423.855.
    Fallback prescription drug plan is defined at Sec. 423.855.
    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.
    Fiscally sound operation means an operation which at least maintains 
a

[[Page 579]]

positive net worth (total assets exceed total liabilities).
    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 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.
    Pharmacist means any individual who holds a current valid license to 
practice pharmacy in a State or territory of the United States or the 
District of Columbia.
    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.
    Related entity means any entity that is related to the Part D 
sponsor by common ownership or control and
    (1) Performs some of the Part D plan sponsor's management functions 
under contract or delegation;
    (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.
    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

[[Page 580]]

    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68731, Dec. 5, 2007; 76 
FR 21570, Apr. 15, 2011]



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 does all of the following:
    (i) Is entitled to Medicare benefits under Part A or enrolled in 
Medicare Part B.
    (ii) Lives in the service area of a Part D plan, as defined under 
Sec. 423.4.
    (iii) Is a United States citizen or is lawfully present in the 
United States as determined in 8 CFR 1.3.
    (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:
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 80 FR 7962, Feb. 12, 2015]



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.

[[Page 581]]

    (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 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.
    (g) Passive enrollment by CMS. In situations involving either 
immediate terminations as provided in Sec. 423.509(a)(5) or 
Sec. 422.510(a)(5) of this chapter, or other situations in which CMS 
determines that remaining enrolled in a plan poses potential harm to 
plan members, CMS may implement passive enrollment procedures.
    (1) Passive enrollment procedures. Individuals will be considered to 
have enrolled in the plan selected by CMS unless individuals--
    (i) Decline the plan selected by CMS, in a form and manner 
determined by CMS; or
    (ii) Request enrollment in another plan.
    (2) Beneficiary notification. The organization that receives the 
enrollment must provide notification that describes the costs and 
benefits of the new plan and the process for accessing care under the 
plan and the beneficiary's ability to decline the enrollment or choose 
another plan. Such notification must be provided to all potential 
enrollees prior to the enrollment effective date (or as soon as possible 
after the effective date if prior notice is not practical), in a form 
and manner determined by CMS.
    (3) Special election period. All individuals will be provided with a 
special enrollment period, as described in Sec. 423.38(c)(8)(ii).

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1543, Jan. 12, 2009]



Sec. 423.34  Enrollment of low-income subsidy eligible individuals.

    (a) General rule. CMS must ensure the enrollment into Part D plans 
of low-income subsidy eligible individuals who fail to enroll in a Part 
D plan.

[[Page 582]]

    (b) Definitions--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) of this 
subpart.
    Low-income subsidy-eligible individual. For purposes of this 
section, a low-income subsidy eligible individual means an individual 
who meets the definition of full subsidy eligible (including full 
benefit dual eligible individuals as set forth in this section) or other 
subsidy eligible in Sec. 423.772 of this part.
    (c) Reassigning low income subsidy eligible individuals--(1) General 
rule. Notwithstanding Sec. 423.32(e) of this subpart, during the annual 
coordinated election period, CMS may reassign certain low income subsidy 
eligible individuals in another PDP if CMS determines that the further 
enrollment is warranted, except as specified in paragraph (c)(2) of this 
section.
    (2) Part D prescription drug plans that waive a de minimis premium 
amount. If a Part D plan offering basic prescription drug coverage in 
the area where the beneficiary resides has a monthly beneficiary premium 
amount that exceeds the low-income subsidy amount by a de minimis 
amount, and the Part D plan volunteers to waive that de minimis amount 
in accordance with Sec. 423.780, then CMS does not reassign low income 
subsidy individuals who would otherwise be enrolled under paragraph 
(d)(1) of this section on the basis that the monthly beneficiary premium 
exceeds the low-income subsidy by a de minimis amount. A Part D plan 
that volunteers to waive such a de minimis amount agrees to do so for 
each month during the contract year for which a beneficiary qualifies 
for 100 percent low-income premium subsidy as provided in 
Sec. 423.780(f).
    (d) Automatic enrollment rules--(1) General rule. Except for low 
income subsidy eligible individuals who are qualifying covered retirees 
with a group health plan sponsor, as specified in paragraph (d)(3) of 
this section, CMS enrolls those individuals who fail to enroll in a Part 
D plan into a PDP offering basic prescription drug coverage in the area 
where the beneficiary resides that has a monthly beneficiary premium 
amount that does not exceed the low income subsidy amount (as defined in 
Sec. 423.780(b) of this part). 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 are 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. Low-income subsidy eligible individuals 
enrolled in an MA private fee-for-service 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 enrolled into a PDP plan 
as described in paragraph (d)(1) of this section.
    (3) Exception for individuals who are qualifying covered retirees. 
(i) Full benefit dual eligible individuals who are qualifying covered 
retirees as defined in Sec. 423.882 of this part, and for whom CMS has 
approved the group health plan sponsor to receive the retirement drug 
subsidy described in subpart R of this part, also are automatically 
enrolled in a Part D plan, consistent with this paragraph, unless they 
elect to decline that enrollment.
    (ii) Before effectuating such an enrollment, CMS provides notice to 
such individuals of their choices and advises them to discuss the 
potential impact of Medicare Part D coverage on their group health plan 
coverage. The notice informs individuals that they will be deemed to 
have declined to enroll in Part D unless they affirmatively enroll in a 
Part D plan or contact CMS and confirm that they wish to be auto-
enrolled in a PDP. Individuals who elect

[[Page 583]]

not to be auto-enrolled, may enroll in Medicare Part D at a later time 
if they choose to do so.
    (iii) All other low income subsidy eligible beneficiaries who are 
qualified covered retirees are not enrolled by CMS into PDPs.
    (4) Enrollment in PDP plans that voluntarily waive a de minimis 
premium amount. CMS may include in the process specified in paragraph 
(d)(1) of this section that PDPs that voluntarily waive a de minimis 
amount as specified in Sec. 423.780, if CMS determines that such 
inclusion is warranted.
    (e) Declining enrollment and disenrollment. Nothing in this section 
prevents a low income subsidy 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 for full-benefit dual eligible 
individuals. 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.
    (3) For individuals who are eligible for Part D under 
Sec. 423.30(a)(1) of this subpart and subsequently become newly eligible 
for Medicaid on or after January 1, 2006, enrollment is effective with 
the first day of the month when the individuals become eligible for both 
Medicaid and Part D.
    (g) Effective date of enrollment for non-full-benefit dual-eligible 
individuals who are low-income subsidy-eligible individuals. The 
effective date for non-full-benefit dual-eligible individuals who are 
low-income subsidy-eligible individuals is no later than the first day 
of the second month after CMS determines that they meet the criteria for 
enrollment under this section.

[75 FR 19815, Apr. 15, 2010, as amended at 76 FR 21570, Apr. 15, 2011]



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--
    (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.

[[Page 584]]

    (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 through 2010. The annual coordinated election period 
for the following calendar year is November 15 through December 31.
    (3) For 2011 and subsequent years. Beginning with 2011, the annual 
coordinated election period for the following calendar year is October 
15 through December 7.
    (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-subsidy eligible individual or other 
subsidy-eligible individual as defined in Sec. 423.772 of this part.
    (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.
    (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.
    (d) Enrollment period to coordinate with MA annual 45-day 
disenrollment period. Beginning in 2011, an individual enrolled in an MA 
plan who elects Original Medicare from January 1 through February 14, as 
described in Sec. 422.62(a)(7), may also elect a PDP during this time.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19816, Apr. 15, 2010; 76 
FR 21570, Apr. 15, 2011]

[[Page 585]]



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.
    (d) PDP enrollment period to coordinate with the MA annual 
disenrollment period. Beginning in 2011, an enrollment made from January 
1 through February 14 by an individual who has disenrolled from an MA 
plan as described in Sec. 422.62(a)(7) will be effective the first day 
of the month following the month in which the enrollment in the PDP is 
made.

[70 FR 4525, Jan. 28, 2005, as amended at 76 FR 21570, Apr. 15, 2011]



Sec. 423.44  Involuntary disenrollment from Part D coverage.

    (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.
    (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.
    (vi) The individual is not lawfully present in the United States.
    (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

[[Page 586]]

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) Except as specified in paragraph 
(d)(1)(iv) of this section, 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) The PDP sponsor provides the individual with a grace period, 
that is, an opportunity to pay past due premiums in full. The grace 
period must--
    (A) Be at least 2 months; and
    (B) Begin on the first day of the month for which the premium is 
unpaid or the first day of the month following the date on which premium 
payment is requested, whichever is later.
    (iv) 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.
    (v) A PDP sponsor may not disenroll an individual who had monthly 
premiums withheld per Sec. 423.293(a) and (e) of this part or who is in 
premium withhold status, as defined by CMS.
    (vi) Extension of grace period for good cause and reinstatement. 
When an individual is disenrolled for failure to pay the plan premium, 
CMS (or a third party to which CMS has assigned this responsibility, 
such as a Part D sponsor) may reinstate enrollment in the PDP, without 
interruption of coverage, if the individual shows good cause for failure 
to pay within the initial grace period, and pays all overdue premiums 
within 3 calendar months after the disenrollment date. The individual 
must establish by a credible statement that failure to pay premiums 
within the initial grace period was due to circumstances for which the 
individual had no control, or which the individual could not reasonably 
have been expected to foresee.
    (vii) No extension of grace period. A beneficiary's enrollment in 
the PDP may not be reinstated if the only basis for such reinstatement 
is a change in the individual's circumstances subsequent to the 
involuntary disenrollment for non-payment of premiums.
    (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.

[[Page 587]]

    (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.
    (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. (i) 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.
    (ii) Special rule. If the individual has not moved from the PDP 
service area, but has been absent from the service area for more than 12 
consecutive months, the PDP sponsor must disenroll the individual from 
the plan effective on the first day of the 13th month after the 
individual left the service area.
    (iii) Incarceration. The PDP must disenroll an individual if the PDP 
establishes, on the basis of evidence acceptable to CMS, that the 
individual is incarcerated and does not reside in the service area of 
the PDP as specified at Sec. 423.4 or when notified of an incarceration 
by CMS as specified in paragraph (d)(5)(iv) of this section.
    (iv) Notification by CMS of incarceration. When CMS notifies the PDP 
of the disenrollment due to the individual being incarcerated and not 
residing in the service area of the PDP as per Sec. 423.4, disenrollment 
is effective the first of the month following the start of 
incarceration, unless otherwise specified by CMS.
    (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.

[[Page 588]]

    (8) Individual is not lawfully present in the United States. 
Disenrollment is effective the first day of the month following notice 
by CMS that the individual is ineligible in accordance with 
Sec. 423.30(a)(1)(iii).
    (e) Involuntary disenrollment by CMS--(1) General rule. CMS will 
disenroll individuals who fail to pay the Part D income related monthly 
adjustment amount (Part D--IRMAA) specified in Sec. 423.286(d)(4) and 
Sec. 423.293(d) of this part.
    (2) Initial grace period. For all Part D--IRMAA amounts directly 
billed to an enrollee in accordance with Sec. 423.293(d)(2), the grace 
period ends with the last day of the third month after the billing 
month.
    (3) Extension of grace period for good cause and reinstatement. When 
an individual is disenrolled for failing to pay the Part D--IRMAA within 
the initial grace period specified in paragraph (e)(2) of this section, 
CMS (or an entity acting on behalf of CMS) may reinstate enrollment, 
without interruption of coverage, if the individual shows good cause as 
specified in Sec. 423.44(d)(1)(vi), pays all Part D--IRMAA arrearages, 
and any overdue premiums due the Part D plan sponsor within 3 calendar 
months after the disenrollment date.
    (4) Notice of termination. Where CMS has disenrolled an individual 
in accordance with paragraph (e)(1) of this section, the Part D plan 
sponsor must provide notice of termination in a form and manner 
determined by CMS.
    (5) Effective date of disenrollment. After a grace period and notice 
of termination has been provided in accordance with paragraphs (e)(2) 
and (4) of this section, the effective date of disenrollment is the 
first day following the last day of the initial grace period.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1543, Jan. 12, 2009; 75 
FR 19816, Apr. 15, 2010; 76 FR 21570, Apr. 15, 2011; 79 FR 29962, May 
23, 2014; 80 FR 7962, Feb. 12, 2015]



Sec. 423.46  Late enrollment penalty.

    (a) General. A Part D eligible individual must pay the late penalty 
described under Sec. 423.286(d)(3), except as described at 
Sec. 423.780(e), if there is a continuous period of 63 days or longer at 
any time after the end of the individual's initial enrollment period 
during which the individual meets all of the following conditions:
    (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) Role of Part D plan in determination of the penalty. Part D 
sponsors must obtain information on prior creditable coverage from all 
enrolled or enrolling beneficiaries and report this information to CMS 
in a form and manner determined by CMS.
    (c) Reconsideration. Individuals determined to be subject to a late 
enrollment penalty may request reconsideration of this determination, 
consistent with Sec. 423.56(g) of this part. Such review will be 
conducted by CMS, or an independent review entity contracted by CMS, in 
accordance with guidance issued by CMS. Decisions made through this 
review are not subject to appeal, but may be reviewed and revised at the 
discretion of CMS.
    (d) Record retention. Part D plan sponsors must retain all 
information collected concerning a creditable coverage period 
determination in accordance with the enrollment records retention 
requirements described in Sec. 423.505(e)(1)(iii).

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 54251, Sept. 18, 2008; 
74 FR 1543, Jan. 12, 2009]



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. 423.56  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

[[Page 589]]

standard prescription drug coverage under Part D in effect at the start 
of such plan year, not taking into account the value of any discount or 
coverage provided during the coverage gap, and demonstrated through the 
use of generally accepted actuarial principles and in accordance with 
CMS 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. 403.205 of this chapter.
    (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.
    (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 as defined in Sec. 423.38(b); and
    (4) Upon request by the individual.

[[Page 590]]

    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20505, Apr. 15, 2008; 77 
FR 22168, Apr. 12, 2012]



             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)).
    Applicable beneficiary means an individual who, on the date of 
dispensing a covered Part D drug--
    (1) Is enrolled in a prescription drug plan or an MA-PD plan;
    (2) Is not enrolled in a qualified retiree prescription drug plan;
    (3) Is not entitled to an income-related subsidy under section 
1860D-14(a) of the Act;
    (4) Has reached or exceeded the initial coverage limit under section 
1860D-2(b)(3) of the Act during the year;
    (5) Has not incurred costs for covered part D drugs in the year 
equal to the annual out-of-pocket threshold specified in section 1860D-
2(b)(4)(B) of the Act; and
    (6) Has a claim that--
    (i) Is within the coverage gap;
    (ii) Straddles the initial coverage period and the coverage gap;
    (iii) Straddles the coverage gap and the annual out-of-pocket 
threshold; or
    (iv) Spans the coverage gap from the initial coverage period and 
exceeds the annual out-of-pocket threshold.
    Applicable drug means a Part D drug that is--
    (1)(i) Approved under a new drug application under section 505(b) of 
the Federal Food, Drug, and Cosmetic Act (FDCA); or
    (ii) In the case of a biological product, licensed under section 351 
of the Public Health Service Act (other than a product licensed under 
subsection (k) of such section 351); and
    (2)(i) If the PDP sponsor of the prescription drug plan or the MA 
organization offering the MA-PD plan uses a formulary, which is on the 
formulary of the prescription drug plan or MA-PD plan that the 
applicable beneficiary is enrolled in;
    (ii) If the PDP sponsor of the prescription drug plan or the MA 
organization offering the MA-PD plan does not use a formulary, for which 
benefits are available under the prescription drug plan or MA-PD plan 
that the applicable beneficiary is enrolled in; or
    (iii) Is provided to a particular applicable beneficiary through an 
exception or appeal for that particular applicable beneficiary.
    Basic prescription drug coverage means coverage of Part D drugs that 
is either 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 licensed pharmacies, including 
retail,

[[Page 591]]

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.
    Coverage gap means the period in prescription drug coverage that 
occurs between the initial coverage limit and the out-of-pocket 
threshold. For purposes of applying the initial coverage limit, Part D 
sponsors must apply their plan specific initial coverage limit under 
basic alternative, enhanced alternative or actuarially equivalent Part D 
benefit designs.
    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 
Secs. 423.566, 423.580, and 423.600, 423.610, 423,620, and 423.630, and 
obtained at a network pharmacy or an out-of-network pharmacy in 
accordance with Sec. 423.124.
    Daily cost-sharing rate means, as applicable, the established--
    (1) Monthly copayment under the enrollee's Part D plan, divided by 
the number of days in the approved month's supply for the drug dispensed 
and rounded to the nearest cent; or
    (2) Coinsurance percentage under the enrollee's Part D plan.
    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 salaries of pharmacists and other 
pharmacy workers as well as the costs associated with maintaining the 
pharmacy facility and acquiring and maintaining technology and equipment 
necessary to operate the pharmacy. Dispensing fees should take into 
consideration the number of dispensing events in a billing cycle, the 
incremental costs associated with the type of dispensing methodology, 
and with respect to Part D drugs dispensed in LTC facilities, the 
techniques to minimize the dispensing of unused drugs. Dispensing fees 
may also take into account costs associated with data collection on 
unused Part D drugs and restocking fees associated with return for 
credit and reuse in long-term care pharmacies, when return for credit 
and reuse is permitted under the State in law and is allowed under the 
contract between the Part D sponsor and the pharmacy.
    (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

[[Page 592]]

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--
    (1)(i) Covered Part D drugs 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); or
    (ii) Nominal cost-sharing paid by or on behalf of an enrollee, which 
is associated with drugs that would otherwise be covered Part D drugs, 
as defined in Sec. 423.100, but are instead paid for, with the exception 
of said nominal cost-sharing, by a patient assistance program providing 
assistance outside the Part D benefit, provided that documentation of 
such nominal cost-sharing has been submitted to the Part D plan 
consistent with the plan processes and instructions for the submission 
of such information; 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 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 State Pharmaceutical Assistance Program (as defined in 
Sec. 423.464); by the Indian Health Service, an Indian tribe or tribal 
organization, or urban Indian organization (as defined in section 4 of 
the Indian Health Care Improvement Act) or under an AIDS Drug Assistance 
Program (as defined in part B of title XXVI of the Public Health 
Service); or by a manufacturer as payment for an applicable discount (as 
defined in Sec. 423.2305) or under the Medicare Coverage Gap Discount 
Program (as defined in Sec. 423.2305); or
    (iii) Under Sec. 423.782 of this part.
    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 meet 
all of the following:
    (1) The Part D sponsor (or other intermediary contracting 
organization) and the network dispensing pharmacy or other network 
dispensing provider have negotiated as the amount such network entity 
will receive, in total, for a particular drug.
    (2) Are inclusive of all price concessions from network pharmacies 
except those contingent price concessions that cannot reasonably be 
determined at the point-of-sale; and
    (3) Include any dispensing fees; but
    (4) Excludes additional contingent amounts, such as incentive fees, 
if these amounts increase prices and cannot reasonably be determined at 
the point-of-sale.
    (5) Must not be rebated back to the Part D sponsor (or other 
intermediary

[[Page 593]]

contracting organization) in full or in part.
    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.
    Other authorized prescriber means, for purposes of 
Sec. 423.120(c)(6) only, an individual other than a physician (as 
defined in section 1861(r) of the Act) or eligible professional (as 
defined in section 1848(k)(3)(B) of the Act) who is authorized under 
State or other applicable law to write prescriptions.
    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 paragraph (2) of this definition, any of 
the following if used for a medically accepted indication (as defined in 
section 1860D-2(e)(4) 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.
    (v) A vaccine licensed under section 351 of the Public Health 
Service Act and for vaccine administration on or after January 1, 2008, 
its administration.
    (vi) Supplies that are directly associated with delivering insulin 
into the body, such as an inhalation chamber used to deliver the insulin 
through inhalation.
    (vii) A combination product approved and regulated by the FDA as a 
drug, vaccine, or biologic described in paragraphs (1)(i), (ii), (iii), 
or (v) of this definition.
    (2) Does not include any of the following:
    (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).
    (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.
    (iii) Medical foods, defined as a food that is formulated to be 
consumed or administered enterally under the supervision of a physician 
and which is intended for the specific dietary management of a disease 
or condition for which distinctive nutritional requirements, based on 
recognized scientific principles, are established by medical evaluation, 
and that are not regulated as drugs under section 505 of the Federal 
Food, Drug, and Cosmetic Act.
    Person means a natural person, corporation, mutual company, 
unincorporated association, partnership, joint venture, limited 
liability company, 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

[[Page 594]]

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 offered by Part D plans, other 
than employer group health or waiver plans, 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.
    Valid prescription means a prescription that complies with all 
applicable State law requirements constituting a valid prescription.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20506, Apr. 15, 2008; 74 
FR 1543, Jan. 12, 2009; 76 FR 21571, Apr. 15, 2011; 77 FR 22169, Apr. 
12, 2012; 77 FR 32407, June 1, 2012; 79 FR 29962, May 23, 2014; 80 FR 
7963, Feb. 12, 2015; 80 FR 25966, May 6, 2015]



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

[[Page 595]]

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 plan. A PDP sponsor offering a 
prescription drug plan must offer the plan--
    (1) To all Part D eligible beneficiaries residing in the plan's 
service area; and
    (2) At a uniform premium, with uniform benefits and level of cost-
sharing throughout 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) Subject to 
paragraph (d)(4) of this section, 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 paragraphs (d)(2)(i)(B) and 
(d)(4) of this section and are approved as described in 
Sec. 423.272(b)(2).
    (iii) Tiered cost sharing under paragraph (d)(2)(ii) of this section 
may not exceed levels annually determined by CMS to be discriminatory.
    (3) Initial coverage limit. Except as provided in paragraphs (d)(4) 
and (d)(5) of this section, 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 in the coverage gap for applicable beneficiaries. 
(i) Coinsurance in the coverage gap (as defined in Sec. 423.100) for 
costs for covered Part D drugs that are not applicable drugs (as defined 
in Sec. 423.100) under the Medicare coverage gap discount program that 
is--
    (A) Equal to the generic gap coinsurance percentage described in 
paragraph (d)(4)(iii) of this section; or
    (B) Actuarially equivalent to an average expected coinsurance for 
covered Part D drugs that are not applicable drugs under the Medicare 
coverage gap discount program, as determined through processes and 
methods established under Sec. 423.265 (c) and (d).
    (ii) Coinsurance in the coverage gap for the actual cost minus the 
dispensing fee and any vaccine administration fee for covered Part D 
drugs that are applicable drugs under the Medicare coverage gap discount 
program that is--
    (A) Equal to the difference between the applicable gap coinsurance 
percentage described in paragraph (d)(4)(iv) of this section and the 
discount percentage determined under the Medicare coverage gap discount 
program; or
    (B) Actuarially equivalent to an average expected coinsurance for 
covered Part D drugs that are applicable drugs under the Medicare 
coverage gap discount program, as determined through processes and 
methods established under Sec. 423.265 (c) and (d).
    (iii) Generic gap coinsurance percentage. The generic gap 
coinsurance percentage is equal to--
    (A) For 2011, 93 percent.
    (B) For years 2012 through 2019, the amount specified in this 
paragraph for

[[Page 596]]

the previous year, decreased by 7 percentage points.
    (C) For 2020 and each subsequent year, 25 percent.
    (iv) Applicable gap coinsurance percentage. The applicable gap 
coinsurance percentage is equal to--
    (A) For 2013 and 2014, 97.5 percent.
    (B) For 2015 and 2016, 95 percent.
    (C) For 2017, 90 percent.
    (D) For 2018, 85 percent.
    (E) For 2019, 80 percent.
    (F) For 2020 and subsequent years, 75 percent.
    (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 each year 2007 through 2013. 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 $50.
    (C) For years 2014 and 2015. 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, minus 0.25 percentage 
point.
    (D) For each year 2016 through 2019. The amount specified in this 
paragraph for the previous year, increased by the lesser of--
    (1) The annual percentage increase specified in (d)(5)(v) of this 
section plus 2 percentage points; or
    (2) The annual percentage increase specified in (d)(5)(iv) of this 
section.
    (E) For 2020. The amount specified in this paragraph for 2013 
increased by the annual percentage increases specified in paragraph 
(d)(5)(iv) of this section for 2014 through 2020, and rounded to the 
nearest $50.
    (F) For 2021 and subsequent years. 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 $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.
    (v) Additional annual percentage increase. The annual percentage 
increase for each year is equal to the annual percentage increase in the 
consumer price index for all urban consumers (United States city 
average) 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.

[[Page 597]]

    (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
    (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

[[Page 598]]

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. Negotiated prices 
must be provided when the negotiated price for a covered Part D drug 
under a Part D sponsor's benefit package is less than the applicable 
cost-sharing before the application of any deductible, before any 
initial coverage limit, before the annual out-of-pocket threshold, and 
after the annual out-of-pocket threshold.
    (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.
    (h) Valid prescription. A Part D sponsor may only provide benefits 
for Part D drugs that require a prescription if those drugs are 
dispensed upon a valid prescription.
    (i) Daily cost-sharing rate. Beginning January 1, 2014, a Part D 
sponsor is required to provide its enrollees access to a daily cost-
sharing rate in accordance with Sec. 423.153(b)(4).

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1544, Jan. 12, 2009; 75 
FR 19816, Apr. 15, 2010; 76 FR 21571, Apr. 15, 2011; 77 FR 22169, Apr. 
12, 2012; 80 FR 7963, Feb. 12, 2015]



Sec. 423.112  Establishment of prescription drug plan service areas.

    (a) Service area for prescription drug plan sponsors. The service 
area for a prescription drug plan sponsor other than a fallback 
prescription drug plan sponsor 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 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

[[Page 599]]

drug plan from being offered in two or more PDP regions in their 
entirety or in all PDP regions in their entirety.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19816, Apr. 15, 2010]



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 sponsor (as defined in Sec. 423.4 of this part) must 
have a contracted pharmacy network consisting of retail pharmacies 
sufficient to ensure that, for beneficiaries residing in each State in a 
PDP sponsor's service area (as defined in Sec. 423.112(a) of this part), 
each State in a regional MA-organization's service area (as defined in 
Sec. 422.2 of this part), the entire service area of a local MA 
organization (as defined in Sec. 422.2 of this chapter) or the entire 
geographic area of a cost contract (as defined in Sec. 417.401 of this 
chapter) all of the following requirements are satisfied:
    (i) At least 90 percent of Medicare beneficiaries, on average, in 
urban areas served by the Part D sponsor 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 sponsor live within 5 miles of a 
network pharmacy that is a retail pharmacy or a pharmacy described under 
paragraph (a)(2) of this section.
    (iii) At least 70 percent of Medicare beneficiaries, on average, in 
rural areas served by the Part D sponsor 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 sponsors 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 sponsor'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 sponsor's 
contracted pharmacy network must provide adequate access to home 
infusion pharmacies consistent with written policy guidelines and other 
CMS instructions. A Part D plan must ensure that such network 
pharmacies, at a minimum meet all the following requirements:
    (i) Are capable of delivering home-infused drugs in a form that can 
be administered in a clinically appropriate fashion.
    (ii) Are capable of providing infusible Part D drugs for both short-
term acute care and long-term chronic care therapies.
    (iii) Ensure that the professional services and ancillary supplies 
necessary for home infusion therapy are in place before dispensing Part 
D home infusion drugs.
    (iv) Provide delivery of home infusion drugs within 24 hours of 
discharge from an acute care setting, or later if so prescribed.
    (5) Access to long-term care pharmacies. A Part D sponsor 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 sponsor 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 sponsor 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 sponsor 
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 
either of the following:
    (i) An MA organization or cost contract (as described in section 
1876(h) of

[[Page 600]]

the Act) that provides its enrollees with access to covered Part D drugs 
through pharmacies owned and operated by the MA organization or cost 
contract, provided the organization's or plan's pharmacy network meets 
the access standard set forth--
    (A) At Sec. 422.112 of this chapter for an MA organization; or
    (B) At Sec. 417.416(e) of this chapter for a cost contract.
    (ii) An MA organization offering a 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 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 sponsor'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 sponsor'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 
sponsor 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) Clearly articulates and documents processes to determine that 
the requirements under paragraphs (b)(1)(i) through (iii) of this 
section have been met, including the determination by an objective party 
of whether disclosed financial interests are conflicts of interest and 
the management of any recusals due to such conflicts.
    (v) 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.
    (vi) 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.
    (vii) Reviews policies that guide exceptions and other utilization 
management processes, including drug utilization review, quantity 
limits, generic

[[Page 601]]

substitution, and therapeutic interchange.
    (viii) 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.
    (ix) Documents in writing its decisions regarding formulary 
development and revision and utilization management activities.
    (x) Reviews and approves all clinical prior authorization criteria, 
step therapy protocols, and quantity limit restrictions applied to each 
covered Part D drug.
    (xi) Meets other requirements consistent with written policy 
guidelines and other CMS instructions.
    (2) Provision of an Adequate Formulary. A Part D plan's formulary 
must--
    (i) Except as provided in paragraphs (b)(2)(ii) and (v) 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 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).
    (v) Until such time as there are established, through notice and 
comment rulemaking, criteria to identify, as appropriate, categories and 
classes of clinical concern, the categories and classes of clinical 
concern are as specified in section 1860D-4(b)(3)(G)(iv) of the Act.
    (vi) Exceptions to paragraph (b)(2)(v) of this section are as 
follows:
    (A) Drug products that are rated as therapeutically equivalent 
(under the Food and Drug Administration's most recent publication of 
``Approved Drug Products with Therapeutic Equivalence Evaluations,'' 
also known as the Orange Book).
    (B) Utilization management processes that limit the quantity of 
drugs due to safety.
    (C) Other drugs that CMS specifies through a process that is based 
upon scientific evidence and medical standards of practice (and, in the 
case of antiretroviral medications, is consistent with the Department of 
Health and Human Services Guidelines for the Use of Antiretroviral 
Agents in HIV-1-Infected Adults and Adolescents) and which permits 
public notice and comment.
    (3) Transition process. A Part D sponsor must provide for an 
appropriate transition process for enrollees prescribed Part D drugs 
that are not on its Part D plan's formulary (including Part D drugs that 
are on a sponsor's formulary but require prior authorization or step 
therapy under a plan's utilization management rules). The transition 
process must:
    (i) Be applicable to all of the following:
    (A) New enrollees into Part D plans following the annual coordinated 
election period.
    (B) Newly eligible Medicare enrollees from other coverage.
    (C) Individuals who switch from one plan to another after the start 
of the contract year.
    (D) Current enrollees remaining in the plan affected by formulary 
changes.
    (ii) Ensure access to a temporary supply of drugs within the first 
90 days of coverage under a new plan. This 90 day timeframe applies to 
retail, home infusion, long-term care and mail-order pharmacies,
    (iii) Ensure the provision of a temporary fill when an enrollee 
requests a fill of a non-formulary drug during the time period specified 
in paragraph (b)(3)(ii) of this section (including Part

[[Page 602]]

D drugs that are on a plan's formulary but require prior authorization 
or step therapy under a plan's utilization management rules).
    (A) In the outpatient setting, the one-time, temporary supply of 
non-formulary Part D drugs (including Part D drugs that are on a 
sponsor's formulary but require prior authorization or step therapy 
under a sponsor's utilization management rules) must be for at least 30 
days of medication, unless the prescription is written by a prescriber 
for less than 30 days and requires the Part D sponsor to allow multiple 
fills to provide up to a total of 30 days of medication.
    (B) In the long-term care setting, the temporary supply of non-
formulary Part D drugs (including Part D drugs that are on a sponsor's 
formulary but require prior authorization or step therapy under a 
sponsor's utilization management rules) must be for up to at least 91 
days and may be up to at least 98 days, consistent with the dispensing 
increment, with refills provided, if needed, unless a lesser amount is 
actually prescribed by the prescriber.
    (iv) Ensure written notice is provided to each affected enrollee 
within 3 business days after adjudication of the temporary fill. For 
long-term care residents dispensed multiple supplies of a Part D drug, 
in increments of 14-days-or-less, consistent with the requirements under 
Sec. 423.154, the written notice must be provided within 3 business days 
after adjudication of the first temporary fill.
    (v) Ensure that reasonable efforts are made to notify prescribers of 
affected enrollees who receive a transition notice under paragraph 
(b)(3)(iv) of this section.
    (vi) A Part D sponsor must charge cost sharing for a temporary 
supply of drugs provided under its transition process such that the 
following conditions are met:
    (A) For low-income subsidy (LIS) enrollees, a sponsor must not 
charge higher cost sharing for transition supplies than the statutory 
maximum copayment amounts.
    (B) For non-LIS enrollees, a sponsor must charge--
    (1) The same cost sharing for non-formulary Part D drugs provided 
during the transition that would apply for non-formulary drugs approved 
through a formulary exception in accordance with Sec. 423.578(b); and
    (2) The same cost sharing for formulary drugs subject to utilization 
management edits provided during the transition that would apply once 
the utilization management criteria are met.
    (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;

[[Page 603]]

    (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.
    (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. (1) 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.
    (2) When processing Part D claims, a Part D sponsor or its 
intermediary must comply with the electronic transaction standards 
established by 45 CFR 162.1102. CMS will issue guidance on the use of 
conditional fields within such standards.
    (3) A Part D sponsor must require its network pharmacies to submit 
claims to the Part D sponsor or its intermediary whenever the card 
described in paragraph (c)(1) of this section is presented or on file at 
the pharmacy unless the enrollee expressly requests that a particular 
claim not be submitted to the Part D sponsor or its intermediary.
    (4) Beginning January 1, 2012, a part D sponsor must assign and 
exclusively use a unique--
    (i) Part D BIN or RxBIN and Part D processor control number (RxPCN) 
combination in its Medicare line of business; and
    (ii) Part D cardholder identification number (RxID) to each Medicare 
Part D enrollee to clearly identify Medicare Part D beneficiaries.
    (5) Before January 1, 2016, the following are applicable:
    (i) A Part D sponsor must submit to CMS only a prescription drug 
event (PDE) record that contains an active and valid individual 
prescriber NPI.
    (ii) A Part D sponsor must ensure that the lack of an active and 
valid individual prescriber NPI on a network pharmacy claim does not 
unreasonably delay a beneficiary's access to a covered Part D drug, by 
taking the steps described in paragraph (c)(5)(iii) of this section.
    (iii) The sponsor must communicate at point-of-sale whether or not a 
submitted NPI is active and valid in accordance with this paragraph 
(c)(5)(iii).
    (A) If the sponsor communicates that the NPI is not active and 
valid, the sponsor must permit the pharmacy to--
    (1) Confirm that the NPI is active and valid; or
    (2) Correct the NPI.
    (B) If the pharmacy--
    (1) Confirms that the NPI is active and valid or corrects the NPI, 
the sponsor must pay the claim if it is otherwise payable; or
    (2) Cannot or does not correct or confirm that the NPI is active and 
valid, the sponsor must require the pharmacy

[[Page 604]]

to resubmit the claim (when necessary), which the sponsor must pay, if 
it is otherwise payable, unless there is an indication of fraud or the 
claim involves a prescription written by a foreign prescriber (where 
permitted by State law).
    (iv) A Part D sponsor must not later recoup payment from a network 
pharmacy for a claim that does not contain an active and valid 
individual prescriber NPI on the basis that it does not contain one, 
unless the sponsor--
    (A) Has complied with paragraphs (c)(5)(ii) and (iii) of this 
section;
    (B) Has verified that a submitted NPI was not in fact active and 
valid; and
    (C) The agreement between the parties explicitly permits such 
recoupment.
    (v) With respect to requests for reimbursement submitted by Medicare 
beneficiaries, a Part D sponsor may not make payment to a beneficiary 
dependent upon the sponsor's acquisition of an active and valid 
individual prescriber NPI, unless there is an indication of fraud. If 
the sponsor is unable to retrospectively acquire an active and valid 
individual prescriber NPI, the sponsor may not seek recovery of any 
payment to the beneficiary solely on that basis.
    (6) Beginning January 1, 2016, the following are applicable:
    (i) A Part D plan sponsor must reject, or must require its 
pharmaceutical benefit manager (PBM) to reject, a pharmacy claim for a 
Part D drug unless the claim contains the active and valid National 
Provider Identifier (NPI) of the prescriber who prescribed the drug.
    (ii)(A) Except as provided in paragraph (c)(6)(v) of this section, a 
Part D plan sponsor must reject, or must require its PBM to reject, a 
pharmacy claim for a Part D drug unless the physician or, when permitted 
by applicable State law, the eligible professional (as defined in 
section 1848(k)(3)(B) of the Act) who prescribed the drug--
    (1) Is enrolled in the Medicare program in an approved status; or
    (2) Has a valid opt-out affidavit on file with a Part A/B Medicare 
Administrative Contractor (MAC).
    (B) Pharmacy claims for Part D drugs prescribed by an other 
authorized prescriber (as defined in Sec. 423.100) are not subject to 
the requirements specified in paragraph (c)(6)(ii)(A) of this section.
    (iii) Except as provided in paragraph (c)(6)(v) of this section, a 
Part D plan sponsor must deny, or must require its PBM to deny, a 
request for reimbursement from a Medicare beneficiary unless the request 
pertains to a Part D drug that was prescribed by--
    (A) A physician or, when permitted by applicable State law, other 
eligible professional (as defined in section 1848(k)(3)(B) of the Act) 
who is identified by name in the request and who--
    (1) Is enrolled in Medicare in an approved status; or
    (2) Has a valid opt-out affidavit on file with a Part A/B MAC; or
    (B) An other authorized prescriber (as defined in Sec. 423.100) who 
is identified by name in the request.
    (iv) A Part D plan sponsor submitting a prescription drug event 
(PDE) to CMS must include on the PDE the active and valid individual NPI 
of the prescriber of the drug, who must--
    (A)(1) Be enrolled in Medicare in an approved status, or
    (2) Have a valid opt out affidavit on file with a Part A/B MAC; or
    (B) Be an other authorized prescriber (as defined in Sec. 423.100).
    (v)(A) A Part D sponsor or its PBM must not reject a pharmacy claim 
for a Part D drug under paragraph (c)(6)(ii) of the section or deny a 
request for reimbursement under paragraph (c)(6)(iii) of this section 
unless the sponsor has provided the provisional coverage of the drug and 
written notice to the beneficiary required by paragraph (c)(6)(v)(B) of 
this section.
    (B) Upon receipt of a pharmacy claim or beneficiary request for 
reimbursement for a Part D drug that a Part D sponsor would otherwise be 
required to reject or deny in accordance with paragraphs (c)(6)(ii) or 
(iii) of this section, a Part D sponsor or its PBM must do the 
following:
    (1) Provide the beneficiary with the following, subject to all other 
Part D rules and plan coverage requirements:
    (i) A 3-month provisional supply of the drug (as prescribed by the 
prescriber and if allowed by applicable law).

[[Page 605]]

    (ii) Written notice within 3 business days after adjudication of the 
claim or request in a form and manner specified by CMS.
    (2) Ensure that reasonable efforts are made to notify the prescriber 
of a beneficiary who was sent a notice under paragraph 
(c)(6)(v)(B)(1)(ii) of this section.
    (d) Treatment of compounded drug products. With respect to multi-
ingredient compounds, a Part D sponsor must--
    (1) Make a determination as to whether the compound is covered under 
Part D.
    (i) A compound that contains at least one ingredient covered under 
Part B as prescribed and dispensed or administered is considered a Part 
B compound, regardless of whether other ingredients in the compound are 
covered under Part B as prescribed and dispensed or administered.
    (ii) Only compounds that contain at least one ingredient that 
independently meets the definition of a Part D drug, and that do not 
meet the criteria under paragraph (d)(1)(i) of this section, may be 
covered under Part D. For purposes of this paragraph (d) these compounds 
are referred to as Part D compounds.
    (iii) For a Part D compound to be considered on-formulary, all 
ingredients that independently meet the definition of a Part D drug must 
be considered on-formulary (even if the particular Part D drug would be 
considered off-formulary if it were provided separately--that is, not as 
part of the Part D compound).
    (iv) For a Part D compound that is considered off-formulary--
    (A) Transition rules apply such that all ingredients in the Part D 
compound that independently meet the definition of a Part D drug must 
become payable in the event of a transition fill under 
Sec. 423.120(b)(3); and
    (B) All ingredients that independently meet the definition of a Part 
D drug must be covered if an exception under Sec. 423.578(b) is approved 
for coverage of the compound.
    (2) Establish consistent rules for beneficiary payment liabilities 
for both ingredients of the Part D compound that independently meet the 
definition of a Part D drug and non-Part D ingredients.
    (i) For low income subsidy beneficiaries the copayment amount is 
based on whether the most expensive ingredient that independently meets 
the definition of a Part D drug in the Part D compound is a generic or 
brand name drug (as described under Sec. 423.782).
    (ii) For any non-Part D ingredient of the Part D compound (including 
drugs described under Sec. 423.104(f)(1)(ii)(A)), the Part D sponsor's 
contract with the pharmacy must prohibit balance billing the beneficiary 
for the cost of any such ingredients.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20506, Apr. 15, 2008; 74 
FR 2888, Jan. 16, 2009; 75 FR 19816, Apr. 15, 2010; 75 FR 32860, June 
10, 2010; 76 FR 21572, Apr. 15, 2011; 77 FR 22169, Apr. 12, 2012; 79 FR 
29962, May 23, 2014; 80 FR 7963, Feb. 12, 2015; 80 FR 25966, May 6, 
2015]



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

[[Page 606]]

price and the Part D sponsor's plan allowance, consistent with the 
requirements of Secs. 423.104(d)(2)(i)(B) and 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, 15 
days before the annual coordinated election period.
    (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 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 determination, and appeal procedures. All 
grievance, coverage determination, and appeal rights and procedures 
required under Sec. 423.562 et. seq., including--
    (i) Access to a uniform model form used to request a coverage 
determination under Sec. 423.568 or Sec. 423.570, and a uniform model 
form used to request a redetermination under Sec. 423.582 or 
Sec. 423.584, to the extent such uniform model forms have been approved 
for use by CMS;
    (ii) Immediate access to the coverage determination and 
redetermination processes via an Internet Web site; and
    (iii) A system that transmits codes to network pharmacies so that 
the network pharmacy is notified to populate and/or provide a printed 
notice at the point-of-sale to an enrollee explaining how the enrollee 
can request a coverage determination by contacting the plan sponsor's 
toll free customer service line or by accessing the plan sponsor's 
internet Web site.
    (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

[[Page 607]]

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.
    (iii) Provides interpreters for non-English speaking and limited 
English proficient (LEP) individuals.
    (iv) Provides immediate access to the coverage determination and 
redetermination processes.
    (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.
    (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.

[[Page 608]]

    (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 no later than the end of the month following any 
month when prescription drug benefits are provided under this part, 
including the 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).
    (f) Disclosure requirements. CMS may require a Part D plan sponsor 
to disclose to its enrollees or potential enrollees, the Part D plan 
sponsor's performance and contract compliance deficiencies in a manner 
specified by CMS.
    (g) Changes in rules. If a Part D sponsor intends to change its 
rules for a Part D plan, it must do all of the following:
    (1) Submit the changes for CMS review under the procedures of 
Subpart V of this part.
    (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 as defined in section 1860D-1(b)(1)(B) of the Act.
    (3) Provide notice of all other changes in accordance with notice 
requirements as specified in this part.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 54222, Sept. 18, 2008; 
74 FR 1544, Jan. 12, 2009; 75 FR 19818, Apr. 15, 2010; 76 FR 21573, Apr. 
15, 2011; 80 FR 7963, Feb. 12, 2015]



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 any of the following 
cases:
    (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.
    (5) A long-term care network pharmacy.
    (6) 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 under circumstances where CMS deems 
compliance with this requirement to be impossible or impracticable.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19818, Apr. 15, 2010]



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

[[Page 609]]

health and enrollment information. The PDP sponsor must safeguard the 
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) Appropriate dispensing of prescription drugs in long-term care 
facilities under PDPs and MA-PD plans.
    (c) Consumer satisfaction surveys of Part D plans.
    (d) Electronic prescription drug programs for prescribers, 
dispensers, and Part D sponsors.
    (e) Quality improvement organization (QIO) activities.
    (f) Compliance deemed on the basis of accreditation.
    (g) Accreditation organizations.
    (h) 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; 76 
FR 21573, Apr. 15, 2011]



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 address all of the following:
    (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.
    (3) Provides CMS with information concerning the procedures and 
performance of its drug utilization management program, according to 
guidelines specified by CMS.
    (4)(i) Daily cost sharing rate. Subject to paragraph (b)(4)(ii) of 
this section, establishes a daily cost-sharing rate (as defined in 
Sec. 423.100) and applies it to a prescription presented to a network 
pharmacy for a covered Part D drug that is dispensed for a supply less 
than the approved month's supply, if the drug is in the form of a solid 
oral dose and may be dispensed for less than the approved month's supply 
under applicable law.
    (ii) Exceptions. The requirements of paragraph (b)(4)(i) of this 
section do not apply to either of the following:
    (A) Solid oral doses of antibiotics.
    (B) Solid oral doses that are dispensed in their original container 
as indicated in the Food and Drug Administration Prescribing Information 
or are customarily dispensed in their original packaging to assist 
patients with compliance.
    (iii) Cost-sharing--(A) Copayments. In the case of a drug that would 
incur a copayment, the Part D sponsor must apply cost-sharing as 
calculated by multiplying the applicable daily cost-sharing rate by the 
days' supply actually dispensed when the beneficiary receives less than 
the approved month's supply.
    (B) Coinsurance. In the case of a drug that would incur a 
coinsurance percentage, the Part D sponsor must apply the coinsurance 
percentage for the

[[Page 610]]

drug to the days' supply actually dispensed.
    (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 
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.
    (v) Must enroll targeted beneficiaries using an opt-out method of 
enrollment only.
    (vi) Must target beneficiaries for enrollment in the MTMP at least 
quarterly during each plan year.
    (vii) Must offer a minimum level of medication therapy management 
services for each beneficiary enrolled in the MTMP that includes all of 
the following:
    (A) Interventions for both beneficiaries and prescribers.
    (B) Annual comprehensive medication review with written summaries. 
(1) The beneficiary's comprehensive medication review--
    (i) Must include an interactive, person-to-person, or telehealth 
consultation performed by a pharmacist or other qualified provider; and
    (ii) May result in a recommended medication action plan.
    (2) If a beneficiary is offered the annual comprehensive medication 
review and is unable to accept the offer to participate, the pharmacist 
or other qualified provider may perform the comprehensive medication 
review with the beneficiary's prescriber, caregiver, or other authorized 
individual.
    (C) Quarterly targeted medication reviews with follow-up 
interventions when necessary.
    (D) Standardized action plans and summaries that comply with 
requirements as specified by CMS for the standardized format.
    (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 meet all of the following:
    (i) Have multiple chronic diseases, with three chronic diseases 
being the

[[Page 611]]

maximum number a Part D plan sponsor may require for targeted 
enrollment.
    (ii) Are taking multiple Part D drugs, with eight Part D drugs being 
the maximum number of drugs a Part D plan sponsor may require for 
targeted enrollment.
    (iii) Are likely to incur the following annual Part D drug costs:
    (A) For 2011, costs for covered Part D drugs greater than or equal 
to $3,000.
    (B) For 2012 and subsequent years, costs for covered Part D drugs in 
an amount greater than or equal to $3000 increased by the annual 
percentage specified in Sec. 423.104(d)(5)(iv) of this part.
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19818, Apr. 15, 2010; 75 
FR 32860, June 10, 2010; 76 FR 21573, Apr. 15, 2011; 77 FR 22169, Apr. 
12, 2012; 80 FR 7963, Feb. 12, 2015]



Sec. 423.154  Appropriate dispensing of prescription drugs in 
long-term care facilities under PDPs and MA-PD plans.

    (a) In general. Except as provided in paragraph (b) of this section, 
when dispensing covered Part D drugs to enrollees who reside in long-
term care facilities, a Part D sponsor must--
    (1) Require all pharmacies servicing long-term care facilities, as 
defined in Sec. 423.100 to--
    (i) Dispense solid oral doses of brand-name drugs, as defined in 
Sec. 423.4, to enrollees in such facilities in no greater than 14-day 
increments at a time;
    (ii) Permit the use of uniform dispensing techniques for Part D 
drugs dispensed to enrollees in long-term care facilities under 
paragraph (a)(1)(i) of this section as defined by each of the long-term 
care facilities in which such enrollees reside; and
    (2) Not penalize long-term care facilities' choice of more efficient 
uniform dispensing techniques described in paragraph (a)(1)(ii) of this 
section by prorating dispensing fees based on days' supply or quantity 
dispensed.
    (3) Ensure that any difference in payment methodology among long-
term care pharmacies incentivizes more efficient dispensing techniques.
    (4) Collect and report information, in a form and manner specified 
by CMS, on the dispensing methodology used for each dispensing event 
described by paragraph (a)(1) of this section.
    (b) Exclusions. CMS excludes from the requirements under paragraph 
(a) of this section--
    (1) Solid oral doses of antibiotics; or
    (2) Solid oral doses that are dispensed in their original container 
as indicated in the Food and Drug Administration Prescribing Information 
or are customarily dispensed in their original packaging to assist 
patients with compliance (for example, oral contraceptives).

[[Page 612]]

    (c) Waivers. CMS waives the requirements under paragraph (a) of this 
section, except paragraphs (a)(2) and (3), for pharmacies when they 
service intermediate care facilities for the mentally retarded (ICFs/
IID) and institutes for mental disease (IMDs) as defined in 
Sec. 435.1010 and for I/T/U pharmacies (as defined in Sec. 423.100).
    (d) Applicability date. The applicability date for this section is 
January 1, 2013. Nothing precludes a Part D sponsor and pharmacy from 
mutually agreeing to an earlier implementation date.
    (e) Unused drugs returned to the pharmacy. The terms and conditions 
that must be offered by a Part D sponsor under Sec. 423.120(a)(5) must 
include provisions that address the disposal of drugs that have been 
dispensed to an enrollee in a long-term care facility but not used and 
which have been returned to the pharmacy, in accordance with Federal and 
State regulations, as well as whether return for credit and reuse is 
authorized where permitted under State law.

[76 FR 21573, Apr. 15, 2011, as amended at 80 FR 7963, Feb. 12, 2015]



Sec. 423.156  Consumer satisfaction surveys.

    Part D contracts with 600 or more enrollees as of July of the prior 
year must contract with approved Medicare Consumer Assessment of 
Healthcare Providers and Systems (CAHPS) survey vendors to conduct the 
Medicare CAHPS satisfaction survey of Part D plan enrollees in 
accordance with CMS specifications and submit the survey data to CMS.

[75 FR 19818, Apr. 15, 2010]



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.
    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]

[[Page 613]]



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) Until January 1, 2012, 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. After January 1, 
2012, entities transmitting prescriptions or prescription-related 
information must utilize the NCPSP SCRIPT standard in all instances 
other than temporary/transient network transmission failures.
    (ii) After January 1, 2009, electronic transmission of prescriptions 
or prescription-related information by means of computer-generated 
facsimile is only permitted in instances of temporary/transient 
transmission failure and communication problems that would preclude the 
use of the NCPDP SCRIPT Standard adopted by this section.
    (iii) Entities may use either HL7 messages or the NCPDP SCRIPT 
Standard to transmit prescriptions or prescription-related information 
internally when the sender and the beneficiary 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.
    (iv) Until November 1, 2014, 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. As of November 1, 2014, such entities 
will be required to use the adopted NCPCP SCRIPT standard(s).
    (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, and prescriptions with 
respect to covered Part D drugs under Part D of Title XVIII of the Act.
    (b) Standards. (1) Entities described in paragraph (a) of this 
section must comply with the following adopted standards for 
transactions under this section:
    (i) Prior to April 1, 2009, the standards specified in paragraphs 
(b)(2)(i), (b)(3) and (4), (b)(5)(i), and (b)(6).
    (ii) On or after April 1, 2009, to February 7, 2014, the standards 
specified in paragraphs (b)(2)(ii), (b)(3) and (4), (b)(5)(i) and 
(b)(6).
    (iii) From February 8, 2014, until February 28, 2015, the standards 
specified in paragraphs (b)(2)(ii), (b)(3) and (4), (b)(5)(ii), and 
(b)(6).
    (iv) From March 1, 2015, the standards specified in paragraphs 
(b)(2)(ii), (b)(3) and (b)(4), (b)(5)(iii), and (b)(6).

[[Page 614]]

    (2) Prescription. (i) The National Council for Prescription Drug 
Programs SCRIPT Standard, Implementation Guide, Version 5, Release 0, 
(Version 5.0) May 12, 2004 (incorporated by reference in paragraph 
(c)(1)(iv) of this section), or the National Council for Prescription 
Drug Programs Prescriber/Pharmacist Interface SCRIPT Standard, 
Implementation Guide, Version 8, Release 1, (Version 8.1) October 2005 
(incorporated by reference in paragraph (c)(1)(i) of this section), to 
provide for the communication of a prescription or prescription-related 
information between prescribers and dispensers, for the following:
    (A) Get message transaction.
    (B) Status response transaction.
    (C) Error response transaction.
    (D) New prescription transaction.
    (E) Prescription change request transaction.
    (F) Prescription change response transaction.
    (G) Refill prescription request transaction.
    (H) Refill prescription response transaction.
    (I) Verification transaction.
    (J) Password change transaction.
    (K) Cancel prescription request transaction.
    (L) Cancel prescription response transaction.
    (ii) The National Council for Prescription Drug Programs SCRIPT 
standard, Implementation Guide Version 10.6, approved November 12, 2008 
(incorporated by reference in paragraph (c)(1)(v) of this section), or 
the National Council for Prescription Drug Programs Prescriber/
Pharmacist Interface SCRIPT Standard, Implementation Guide, Version 8, 
Release 1 (Version 8.1), October 2005 (incorporated by reference in 
paragraph (c)(1)(i) of this section), to provide for the communication 
of a prescription or prescription-related information between 
prescribers and dispensers, for the following:
    (A) Get message transaction.
    (B) Status response transaction.
    (C) Error response transaction.
    (D) New prescription transaction.
    (E) Prescription change request transaction.
    (F) Prescription change response transaction.
    (G) Refill prescription request transaction.
    (H) Refill prescription response transaction.
    (I) Verification transaction.
    (J) Password change transaction.
    (K) Cancel prescription request transaction.
    (L) Cancel prescription response transaction.
    (M) Fill status notification transaction.
    (iii) The National Council for Prescription Drug Programs SCRIPT 
standard, Implementation Guide Version 10.6 approved November 12, 2008 
(incorporated by reference in paragraph (c)(1)(v) of this section), to 
provide for the communication of a prescription or related prescription 
related information between prescribers and dispensers for the 
following:
    (A) Get message transaction.
    (B) Status response transaction.
    (C) Error response transaction.
    (D) New prescription transaction.
    (E) Prescription change request transaction.
    (F) Prescription change response transaction.
    (G) Refill prescription request transaction.
    (H) Refill prescription response transaction.
    (I) Verification transaction.
    (J) Password change transaction.
    (K) Cancel prescription request transaction.
    (L) Cancel prescription response transaction.
    (M) Fill status notification.
    (3) Eligibility. (i) The Accredited Standards Committee X12N 270/
271-Health Care Eligibility Benefit Inquiry and Response, Version 5010, 
April 2008, ASC X12N/005010x279 (incorporated by reference in paragraph 
(c)(2)(i) of this section), for transmitting eligibility inquiries and 
responses between prescribers and Part D sponsors.
    (ii) The National Council for Prescription Drug Programs 
Telecommunication Standard Specification, Version D, Release 0 (Version 
D.0), August 2007, and equivalent NCPDP Batch Standard Batch 
Implementation Guide, Version 1, Release 2

[[Page 615]]

(Version 1.2), January 2006 supporting Telecommunications Standard 
Implementation Guide, Version D, Release 0 (Version D.0), August 2007, 
for the NCPDP Data Record in the Detail Data Record (incorporated by 
reference in paragraph (c)(1)(iii) of this section), for transmitting 
eligibility inquiries and responses between dispensers and Part D 
sponsors.
    (4) Medication history. The National Council for Prescription Drug 
Programs Prescriber/Pharmacist Interface SCRIPT Standard, Implementation 
Guide Version 8, Release 1 (Version 8.1), October 2005 (incorporated by 
reference in paragraph (c)(1)(v) of this section) or the National 
Council for Prescription Drug Programs SCRIPT Standard, Implementation 
Guide Version 10.6, approved November 12, 2008 (incorporated by 
reference in paragraph (c)(1)(v) of this section) to provide for the 
communication of Medicare Part D medication history information among 
Medicare Part D sponsors, prescribers, and dispensers.
    (5) Formulary and benefits. The National Council for Prescription 
Drug Programs Formulary and Benefits Standard, Implementation Guide, 
Version 1, Release 0 (Version 1.0), October 2005 (incorporated by 
reference in paragraph (c)(1)(ii) of this section) for transmitting 
formulary and benefits information between prescribers and Medicare Part 
D sponsors.
    (i) Formulary and benefits. Before The National Council for 
Prescription Drug Programs Formulary and Benefits Standard, 
Implementation Guide, Version 1, Release 0 (Version 1.0), October 2005 
(incorporated by reference in paragraph (c)(1)(ii) of this section) for 
transmitting formulary and benefits information between prescribers and 
Medicare Part D sponsors.
    (ii) Formulary and benefits. On The National Council for 
Prescription Drug Programs Formulary and Benefits Standard, 
Implementation Guide, Version 1, Release 0 (Version 1.0), October 2005 
(incorporated by reference in paragraph (c)(1)(ii) of this section), or 
The National Council for Prescription Drug Programs Formulary and 
Benefits Standard, Implementation Guide, Version 3, Release 0 (Version 
3.0), April 2012 (incorporated by reference in paragraph (c)(1)(vi) of 
this section) for transmitting formulary and benefits information 
between prescribers and Medicare Part D sponsors.
    (iii) Formulary and benefits. The National Council for Prescription 
Drug Programs Formulary and Benefits Standard, Implementation Guide, 
Version 3, Release 0 (Version 3.0), April 2012 (incorporation by 
reference in paragraph (c)(1)(vi) of this section) for transmitting 
formulary and benefits information between prescribers and Medicare Part 
D sponsors.
    (6) Provider identifier. The National Provider Identifier (NPI), as 
defined at 45 CFR 162.406, to identify an individual health care 
provider to Medicare Part D sponsors, prescribers and dispensers, in 
electronically transmitted prescriptions or prescription-related 
materials for Medicare Part D covered drugs for Medicare Part D eligible 
individuals.
    (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 certain publications into this section. 
You may inspect copies of these publications 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 
more 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. The publications 
approved for incorporation by reference and their original sources are 
as follows:
    (1) National Council for Prescription Drug Programs, Incorporated, 
9240 E. Raintree Drive, Scottsdale, AZ 85260-7518; Telephone (480) 477-
1000; and Facsimile (480) 767-1042 or http://www.ncpdp.org.
    (i) National Council for Prescription Drug Programs Prescriber/
Pharmacist Interface SCRIPT Standard, Implementation Guide, Version 8, 
Release 1, October 2005.
    (ii) The National Council for Prescription Drug Programs Formulary

[[Page 616]]

and Benefits Standard, Implementation Guide, Version 1, Release 0, 
October 2005.
    (iii) National Council for Prescription Drug Programs 
Telecommunication Standard Specification, Version D, Release 0 (Version 
D.0), August 2007 and equivalent National Council for Prescription Drug 
Programs (NCPDP) Batch Standard Batch Implementation Guide, Version 1, 
Release 2 (Version 1.2), August 2007 supporting Telecommunication 
Standard Implementation Guide, Version D, Release 0 (Version D.0) for 
the NCPDP Data Record in the Detail Data Record.
    (iv) 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).
    (v) National Council for Prescription Drug Programs SCRIPT Standard, 
Implementation Guide Version 10.6, approved November 12, 2008.
    (vi) The National Council for Prescription Drug Programs Formulary 
and Benefits Standard, Implementation Guide, Version 3, Release 0 
(Version 3.0), published April 2012.
    (2) Accredited Standards Committee, 7600 Leesburg Pike, Suite 430, 
Falls Church, VA 22043; Telephone (301) 970-4488; and Facsimile: (703) 
970-4488 or http://www.x12.org.
    (i) Accredited Standards Committee (ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3--Health Care Eligibility 
Benefit Inquiry and Response (270/271), April 2008, ASC X12N/005010X279.
    (ii) [Reserved]

(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; 72 
FR 66405, Nov. 27, 2007; 73 FR 18941, Apr. 7, 2008; 73 FR 69938, Nov. 
19, 2008; 75 FR 38030, July 1, 2010; 77 FR 29030, May 16, 2012; 77 FR 
69371, Nov. 16, 2012; 78 FR 74822, Dec. 10, 2013]



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 Secs. 423.120 and 
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.
    (c) Effective date of deemed status. The date the Part D sponsor is 
deemed to

[[Page 617]]

meet the applicable requirements is the later of the following:
    (1) The date the accreditation organization is approved by CMS.
    (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) Authority. Nothing in this section limits CMS' authority under 
subparts K and O of this part, including, but not limited to the ability 
to impose intermediate sanctions, civil money penalties, and terminate a 
contract with a Part D plan sponsor.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19818, Apr. 15, 2010]



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

[[Page 618]]

sponsor'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 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.

[[Page 619]]

    (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 
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.

[[Page 620]]

    (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.
    (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

[[Page 621]]

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.
    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--(1) General. 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.
    (2) Substantial differences between bids. Potential Part D sponsors' 
bid submissions must reflect differences in benefit packages or plan 
costs that CMS determines to represent substantial differences relative 
to a sponsor's other bid submissions. In order to be considered 
``substantially different,'' each bid must be significantly different 
from the sponsor's other bids with respect to beneficiary out-of-pocket 
costs or formulary structures.
    (3) CMS may decline to accept any or every bid submitted by a Part D 
sponsor or potential Part D sponsor.
    (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.

[[Page 622]]

    (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 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.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19818, Apr. 15, 2010; 76 
FR 21573, Apr. 15, 2011]



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 
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

[[Page 623]]

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.
    (3) Substantial differences between bids--(i) General. CMS approves 
a bid only if it finds that the benefit package or plan costs 
represented by that bid are substantially different as provided under 
Sec. 423.265(b)(2) of this subpart from the benefit package or plan 
costs represented by another bid submitted by the same Part D sponsor.
    (ii) Transition period for PDP sponsors with new acquisitions. After 
a 2-year transition period, as determined by CMS, CMS approves a bid 
offered by a PDP sponsor (or by a parent organization to that PDP 
sponsor) that recently purchased (or otherwise acquired or merged with) 
another Part D sponsor if it finds that the benefit package or plan 
costs represented by that bid are substantially different from any 
benefit package or plan costs represented by another bid submitted by 
the same Part D sponsor (or parent organization to that Part D sponsor.
    (4) CMS may decline to approve a bid if the Part D sponsor proposes 
significant increases in cost sharing or decreases in benefits offered 
under the plan.
    (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 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, Secs. 423.120(a) and 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

[[Page 624]]

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.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19819, Apr. 15, 2010; 76 
FR 21574, Apr. 15, 2011]



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).
    (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), (d)(4), 
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

[[Page 625]]

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--
    (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.
    (4) Increase for income-related monthly adjustment amount (Part D--
IRMAA). Beginning January 1, 2011, Medicare beneficiaries enrolled in a 
Medicare Part D plan must pay an income-related monthly adjustment 
amount in addition to the Part D premium as determined under paragraph 
(c) of this section and adjusted under paragraph (d) of this section, if 
the enrollee's modified adjusted gross income exceeds the threshold 
amounts specified in 20 CFR 418.2115.
    (i) Social Security Administration determination. (A) SSA determines 
which Part D enrollees are subject to the Part D--IRMAA and the amount 
each enrollee will have to pay.
    (B) If an individual disagrees with SSA's determination that such 
individual is subject to the Part D--IRMAA, or about the amount the 
individual must pay, an individual may file an appeal or request a new 
initial determination consistent with 20 CFR part 418.
    (ii) Calculating the income-related monthly adjustment amount. The 
income-related monthly adjustment is equal to the product of the 
quotient obtained by dividing the applicable premium percentage 
specified in Sec. 418.2120 (35, 50, 65, or 80 percent) that is based on 
the level of the Part D enrollee's modified adjusted gross income for 
the calendar year reduced by 25.5 percent; and the base beneficiary 
premium as determined under paragraph (c) of this section.

[[Page 626]]

    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 76 FR 21574, Apr. 15, 2011]



Sec. 423.293  Collection of monthly beneficiary premium.

    (a) General rules. Part D sponsors must--
    (1) 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).
    (2) Permit payment of monthly Part D premiums (if any) under the 
timing of payments established in Sec. 422.262(e) of this chapter; and
    (3) 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.
    (4) Retroactive collection of premiums. In circumstances where 
retroactive collection of premium amounts is necessary and the enrollee 
is without fault in creating the premium arrearage, the Medicare 
Advantage organization shall offer the enrollee the option of payment by 
lump sum, by equal monthly installment spread out over at least the same 
period for which the premiums were due, or through other arrangements 
mutually acceptable to the enrollee and the Medicare Advantage 
organization. For monthly installments, for example, if 7 months of 
premiums are due, the member would have at least 7 months to repay.
    (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) Collection of the income-related monthly adjustment amount (Part 
D--IRMAA). (1) Collection through withholding. Where the Social Security 
Administration has determined the income-related monthly adjustment 
amount for an individual whose income exceeds the income threshold 
amounts specified at 20 CFR 418.2115, the Part D--IRMAA must be paid 
through withholding from the enrollee's Social Security benefit 
payments, or benefit payments by the Railroad Retirement Board (RRB) or 
the Office of Personnel Management (OPM) in the manner that the Part B 
premium is withheld.
    (2) Collection through direct billing. In cases where an enrollee's 
benefit payment check is not sufficient to have the Part D--IRMAA 
withheld, or if an enrollee is not receiving such benefits, the 
beneficiary must be billed directly for the Part D--IRMAA. The 
beneficiary will have the option of paying the amount through an 
electronic funds transfer mechanism (such as

[[Page 627]]

automatic charges of an account at a financial institution or a credit 
or debit card account) or according to other means that CMS may specify.
    (3) Failure to pay the income-related monthly adjustment amount: 
General rule. CMS will terminate Part D coverage for any individual who 
fails to pay the Part D--IRMAA as determined by the Social Security 
Administration. CMS will terminate an enrollee's Part D coverage as 
specified in Sec. 423.44(e).
    (e) 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).
    (f) Prohibition on improper billing of premiums. Part D plan 
sponsors shall not bill an enrollee for a premium payment period if the 
enrollee has had the premium for that period withheld from his or her 
Social Security, Railroad Retirement Board or Office of Personnel 
Management check.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20506, Apr. 15, 2008; 74 
FR 1544, Jan. 12, 2009; 76 FR 21574, Apr. 15, 2011]



 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, charge backs 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 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 under the Part D 
plan. Direct and indirect remuneration includes 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 price concessions or similar benefits 
from manufacturers, pharmacies or similar entities obtained by an 
intermediary contracting organization with which the Part D plan sponsor 
has contracted, regardless of whether the intermediary contracting 
organization retains all or a portion of the direct and indirect 
remuneration or passes the entire direct and indirect remuneration to 
the Part D plan sponsor and regardless of the terms of the contract 
between the plan sponsor and the intermediary contracting organization.
    Administrative costs means costs incurred by a Part D sponsor in 
complying with the requirements of this Part for a coverage year and 
that are not drug costs incurred to purchase or reimburse the purchase 
of Part D drugs. Administrative costs include amounts paid by the Part D 
sponsor to an intermediary contracting organization for covered Part D 
drugs dispensed to enrollees in the sponsor's Part D plan that differ 
from the amount paid by the intermediary contracting organization to a 
pharmacy or other entity that is the final dispenser of the covered Part 
D drugs. For example, any profit or loss retained by an intermediary 
contracting organization (through discounts, rebates, or other direct or 
indirect price concessions) when negotiating prices with dispensing 
entities is considered an administrative cost.
    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

[[Page 628]]

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--
    (1) The subset of costs incurred under a Part D plan (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 to--
    (i) A dispensing pharmacy or other dispensing provider (whether 
directly or through an intermediary contracting organization) under the 
Part D plan;
    (ii) The parties listed in Sec. 423.464(f)(1) of this part with 
which the Part D sponsor must coordinate benefits, including other Part 
D plans, as the result of any reconciliation process developed by CMS 
under Sec. 423.464 of this part; or
    (iii) An enrollee (or third party paying on behalf of the enrollee) 
to indemnify the enrollee when the reimbursement is associated with 
obtaining drugs under the Part D plan; and
    (2) These costs must be based upon imposition of the maximum amount 
of copayments permitted under Sec. 423.782 of this part. 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 mean those actually paid costs 
incurred under a Part D plan, excluding administrative costs, but 
including dispensing fees, during the coverage year. They equal the sum 
of the following:
    (1) The share of actual costs (as defined by Sec. 423.100 of this 
part) actually paid by the Part D plan that is received as reimbursement 
by the pharmacy, or other dispensing entity, reimbursement paid to 
indemnify an enrollee when the reimbursement is associated with an 
enrollee obtaining covered Part D drugs under the Part D plan, or 
payments made by the Part D sponsor to other parties listed in 
Sec. 423.464(f)(1) of this part with which the Part D sponsor must 
coordinate benefits, including other Part D plans, or as the result of 
any reconciliation process developed by CMS under Sec. 423.464 of this 
part.
    (2) Nominal cost-sharing paid by or on behalf of an enrollee which 
is associated with drugs that would otherwise be covered Part D drugs, 
as defined in Sec. 423.100 of this part, but are instead paid for, with 
the exception of said nominal cost-sharing, by a patient assistance 
program providing assistance outside the Part D benefit, provided that 
documentation of such nominal cost-sharing has been submitted to the 
Part D plan consistent with the plan processes and instructions for the 
submission of such information.
    (3) 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 Part D drugs that are covered under the Part D plan. If 
an enrollee who is paying 100 percent cost sharing (as a result of 
paying a deductible or because the enrollee is between the initial 
coverage limit and the out-of-pocket threshold) obtains a covered Part D 
drug at a lower cost than is available under the Part D plan, such cost-
sharing will be considered an amount paid under the plan by or on behalf 
of an enrollee under the previous sentence of this definition, if the 
enrollee's costs are incurred costs as defined under Sec. 423.100 of 
this part and documentation of the incurred costs has been submitted to 
the Part D plan consistent with plan processes and instructions

[[Page 629]]

for the submission of such information. These costs are determined 
regardless of whether the coverage under the plan exceeds basic 
prescription drug coverage.
    Target amount means the total amount of payments (from both CMS and 
by or on behalf of enrollees) to a Part D plan for the coverage year for 
all standardized bid amounts as risk adjusted under Sec. 423.329(b)(1) 
of this part, less the administrative expenses (including return on 
investment) assumed in the standardized bids.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1544, Jan. 12, 2009; 75 
FR 19819, Apr. 15, 2010]



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 Secs. 423.780 and 423.782. CMS provides low-income 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) Restrictions on use of information. (1) 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 for the purposes of, and to the extent necessary--
    (i) In carrying out this subpart, including, but not limited to, 
determination of payments, and payment-related oversight and program 
integrity activities.
    (ii) In conducting oversight, evaluation, and enforcement under 
Title XVIII of the Act.
    (2) The United States Attorney General and the Comptroller General 
of the United States may use the information disclosed or obtained in 
accordance with the provisions of this subpart for purposes of, and to 
the extent necessary in, carrying out health oversight activities.
    (3) The restrictions described in paragraphs (b)(1) and (2) of this 
section do not limit either of the following:
    (i) OIG's authority to fulfill the Inspector General's 
responsibilities in accordance with applicable Federal law.

[[Page 630]]

    (ii) CMS' ability to use data regarding drug claims in accordance 
with section 1848(m) of the Act.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 54251, Sept. 18, 2008; 
80 FR 7963, Feb. 12, 2015]



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 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

[[Page 631]]

    (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 difference between the cost sharing for a non-low-
income subsidy eligible beneficiary under the Part D plan and the 
statutory cost sharing for a low-income subsidy eligible beneficiary.
    (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) of this part and negotiated and 
approved under Sec. 423.272 of this part, or by an alternative method 
that CMS determines.
    (ii) Final payments. CMS reconciles the interim payments to actual 
incurred low-income cost-sharing costs as provided in Sec. 423.343(d).

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1545, Jan. 12, 2009; 80 
FR 7964, Feb. 12, 2015]



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
    (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

[[Page 632]]

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 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

[[Page 633]]

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, 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

[[Page 634]]

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) or the Coverage Gap Discount 
Reconciliation (as described at Sec. 423.2320(b))--
    (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.

[ 70 FR 4525, Jan. 28, 2005, as amended at 80 FR 7964, Feb. 12, 2015]



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).
    (iv) Final risk-sharing payments made under Sec. 423.336.
    (v) The reconciled coverage gap discount payment under 
Sec. 423.2320(b).
    (2) Payment information not subject to appeal. Payment information 
submitted to CMS under Sec. 423.322 and reconciled under Sec. 423.343 or 
submitted and reconciled under Sec. 423.2320(b) 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 final payment. For purposes of this paragraph, the date of final 
payment is one of the following:
    (i) For risk adjustment, the date of the final reconciled payment 
under Sec. 423.343(b) of this subpart.
    (ii) For reinsurance, the date of the final reconciled payment under 
Sec. 423.343(c) of this subpart; for low-income cost sharing subsidies, 
the date of the final reconciled payment under Sec. 423.343(d) of this 
subpart.
    (iii) For risk-sharing payments, the date of the final payments 
under Sec. 423.336 of this subpart.
    (iv) For the Coverage Gap Discount Program, the date of the final 
reconciled payment under Sec. 423.2320(b).

[[Page 635]]

    (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.
    (3) The Administrator's determination is final and binding.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20506, Apr. 15, 2008; 80 
FR 7964, Feb. 12, 2015]



Sec. 423.352  CMS-identified overpayments associated with payment 
data submitted by Part D sponsors.

    (a) Definitions. For purposes of this section--
    Applicable reconciliation date occurs on the later of either the 
annual deadline for submitting--

[[Page 636]]

    (1) Prescription drug event (PDE) data for the annual Part D payment 
reconciliations referred to in Sec. 423.343(c) and (d); or
    (2) Direct and indirect remuneration data.
    Erroneous payment data means payment data that should not have been 
submitted either because the data submitted are inaccurate or because 
the data are inconsistent with Medicare Part D requirements.
    Payment data means data submitted by a Part D sponsor to CMS and 
used for payment purposes, including enrollment data and data submitted 
under Sec. 423.329(b)(3), Sec. 423.336(c)(1), and Sec. 423.343, and data 
provided for purposes of supporting allowable reinsurance costs and 
allowable risk corridor costs as defined in Sec. 423.308, including data 
submitted to CMS regarding direct and indirect remuneration.
    (b) Request to correct payment data. (1) When CMS identifies 
erroneous payment data submitted by a Part D sponsor, CMS may send a 
data correction notice to the Part D sponsor requesting that the Part D 
sponsor correct the payment data.
    (2) The notice will include or make reference to the specific 
payment data that need to be corrected, the reason why CMS believes that 
the payment data are erroneous, and the timeframe for correcting the 
payment data.
    (c) Payment offset. (1) If the Part D sponsor fails to submit the 
corrected payment data within the timeframe as requested in accordance 
with paragraph (b) of this section, CMS will conduct a payment offset 
against payments made to the Part D sponsor if--
    (i) The payment error affects payments for any of the 6 most 
recently completed payment years; and
    (ii) The payment error for a particular payment year is identified 
after the applicable reconciliation date for that payment year.
    (2) CMS will calculate the payment offset amount using the correct 
payment data and a payment algorithm that applies the payment rules for 
the applicable year.
    (d) Payment offset notification. CMS will issue a payment offset 
notice to the Part D sponsor that includes at least the following:
    (1) The dollar amount of the offset from plan payments.
    (2) An explanation of how the erroneous data were identified and 
used to calculate the payment offset amount.
    (3) An explanation that, if the Part D sponsor disagrees with the 
payment offset, it may request an appeal within 30 days of issuance of 
the payment offset notification.
    (e) Appeals process. If a Part D sponsor does not agree with the 
payment offset described in paragraph (c) of this section, it may appeal 
under the following three-level appeal process:
    (1) Reconsideration. A Part D sponsor may request reconsideration of 
the payment offset described in paragraph (c) of this section, according 
to the following process:
    (i) Manner and timing of request. A written request for 
reconsideration must be filed within 30 days from the date that CMS 
issued the payment offset notice to the Part D sponsor.
    (ii) Content of request. The written request for reconsideration 
must specify the findings or issues with which the Part D sponsor 
disagrees and the reasons for its disagreement. As part of its request 
for reconsideration, the Part D sponsor may include any additional 
documentary evidence in support of its position. Any additional evidence 
must be submitted with the request for reconsideration. Additional 
information submitted after this time will be rejected as untimely.
    (iii) Conduct of reconsideration. In conducting the reconsideration, 
the CMS reconsideration official reviews the underlying data that were 
used to determine the amount of the payment offset and any additional 
documentary evidence timely submitted by the Part D sponsor.
    (iv) Reconsideration decision. The CMS reconsideration official 
informs the Part D sponsor of its decision on the reconsideration 
request.
    (v) Effect of reconsideration decision. The decision of the CMS 
reconsideration official is final and binding unless a timely request 
for an informal hearing is filed in accordance with paragraph (e)(2) of 
this section.
    (2) Informal hearing. A Part D sponsor dissatisfied with CMS' 
reconsideration decision made under paragraph (e)(1) of

[[Page 637]]

this section is entitled to an informal hearing as provided for under 
paragraphs (e)(2)(i) through (e)(2)(v) of this section.
    (i) Manner and timing for request. A request for an informal hearing 
must be made in writing and filed with CMS within 30 days of the date of 
CMS' reconsideration decision.
    (ii) Content of request. The request for an informal hearing must 
include a copy of the reconsideration decision and must specify the 
findings or issues in the decision with which the Part D sponsor 
disagrees and the reasons for its disagreement.
    (iii) Informal hearing procedures. The informal hearing will be 
conducted in accordance with the following:
    (A) CMS provides written notice of the time and place of the 
informal hearing at least 30 days before the scheduled date.
    (B) The informal hearing is conducted by a CMS hearing officer who 
neither receives testimony nor accepts any new evidence that was not 
timely presented with the reconsideration request. The CMS hearing 
officer is limited to the review of the record that was before the CMS 
reconsideration official when CMS made its reconsideration 
determination.
    (C) The CMS hearing officer will review the proceeding before the 
CMS reconsideration official on the record made before the CMS 
reconsideration official using the clearly erroneous standard of review.
    (iv) 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.
    (v) Effect of hearing officer's decision. The hearing officer's 
decision is final and binding, unless the decision is reversed or 
modified by the Administrator in accordance with paragraph (e)(3) of 
this section.
    (3) Review by the Administrator. The Administrator review will be 
conducted in the following manner:
    (i) A Part D sponsor that has received a hearing officer's decision 
may request review by the Administrator within 30 days of the date of 
issuance of the hearing officer's decision under paragraph (e)(2)(iv) of 
this section. The Part D sponsor may submit written arguments to the 
Administrator for review.
    (ii) After receiving a request for review, the Administrator has the 
discretion to elect to review the hearing officer's determination in 
accordance with paragraph (e)(3)(iv) of this section or to decline to 
review the hearing officer's decision.
    (iii) If the Administrator declines to review the hearing officer's 
decision, the hearing officer's decision is final and binding.
    (iv) If the Administrator elects to review the hearing officer's 
decision, the Administrator will review the hearing officer's decision, 
as well as any information included in the record of the hearing 
officer's decision and any written argument submitted by the Part D 
sponsor, and determine whether to uphold, reverse, or modify the hearing 
officer's decision.
    (v) The Administrator's determination is final and binding.
    (f) Matters subject to appeal and burden of proof. (1) The Part D 
sponsor's appeal is limited to CMS' finding that the payment data 
submitted by the Part D sponsor are erroneous.
    (2) The Part D sponsor bears the burden of proof by a preponderance 
of the evidence in demonstrating that CMS' finding that the payment data 
were erroneous was incorrect or otherwise inconsistent with applicable 
program requirements.
    (g) Applicability of appeals process. The appeals process under 
paragraph (e) of this section applies only to payment offsets under 
paragraph (c) of this section.

[79 FR 67032, Nov. 10, 2014]



Sec. 423.360  Reporting and returning of overpayments.

    (a) Definitions. For the purposes of this section the following 
definitions are applicable:
    Applicable reconciliation means the later of either the annual 
deadline for submitting--
    (i) PDE data for the annual Part D payment reconciliations referred 
to in Sec. 423.343(c) and (d); or
    (ii) Direct and indirect remuneration data.

[[Page 638]]

    Funds for purposes of this section, means any payment that a Part D 
sponsor has received that is based on data submitted by the Part D 
sponsor to CMS for payment purposes, including data submitted under 
Sec. 423.329(b)(3), Sec. 423.336(c)(1), Sec. 423.343, and data provided 
for purposes of supporting allowable costs as defined in Sec. 423.308 
which includes data submitted to CMS regarding direct or indirect 
remuneration.
    Overpayment means funds that a Part D sponsor has received or 
retained under title XVIII of the Act to which the Part D sponsor, after 
applicable reconciliation, is not entitled under such title.
    (b) General rule. If a Part D sponsor has identified that it has 
received an overpayment, the Part D sponsor must report and return that 
overpayment in the form and manner set forth in this section.
    (c) Identified overpayment. The Part D sponsor has identified an 
overpayment when the Part D sponsor has determined, or should have 
determined through the exercise of reasonable diligence, that the Part D 
sponsor has received an overpayment.
    (d) Reporting and returning of an overpayment. A Part D sponsor must 
report and return any overpayment it received no later than 60 days 
after the date on which it identified it received an overpayment.
    (1) Reporting. A Part D sponsor must notify CMS of the amount and 
reason for the overpayment, using the notification process determined by 
CMS.
    (2) Returning. A Part D sponsor must return identified overpayments 
in a manner specified by CMS.
    (e) Enforcement. Any overpayment retained by a Part D sponsor is an 
obligation under 31 U.S.C. 3729(b)(3) if not reported and returned in 
accordance with paragraph (d) of this section.
    (f) Look-back period. A Part D sponsor must report and return any 
overpayment identified within the 6 most recent completed payment years.

[79 FR 29963, May 23, 2014]

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 etity 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

[[Page 639]]

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 in effect, CMS 
grants a waiver upon a demonstration that an applicant to become a PDP 
sponsor has submitted a substantially 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).

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20506, Apr. 15, 2008]



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

[[Page 640]]

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 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. For purposes of this 
subpart, employment-based retiree health coverage is such coverage (as 
defined in Sec. 423.882) provided through a Medicare Part D plan, or for 
which a plan sponsor could qualify for payments under subpart R of this 
part.
    State Pharmaceutical Assistance Program (SPAP) means a State program 
that meets the requirements described under Sec. 423.464(e)(1).

[70 FR 4525, Jan. 28, 2005, as amended at 77 FR 1882, Jan. 12, 2012]



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

[[Page 641]]

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 for employer-sponsored 
group prescription drug plans that are Medicare Part D plans. 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.
    (2) General rule for employer-sponsored group prescription drug 
plans for which a sponsor could qualify for payments under subpart R of 
this part. 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.
    (3) 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.
    (4) Employer-sponsored group prescription drug plans must comply 
with all applicable requirements under this part that are not 
specifically waived or modified in accordance with in paragraph (c)(3) 
of this section.
    (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

[[Page 642]]

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 sections 1894 and 1934 of the 
Act, with the benefits under Part D.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20506, Apr. 15, 2008; 77 
FR 1882, Jan. 12, 2012; 77 FR 22170, Apr. 12, 2012]



Sec. 423.462  Medicare secondary payer procedures.

    (a) General rule. 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.
    (b) Reporting requirements. A Part D sponsor must report credible 
new or changed primary payer information to the CMS Coordination of 
Benefits Contractor in accordance with the processes and timeframes 
specified by CMS.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19819, Apr. 15, 2010]



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.
    (3) Retroactive claims adjustments, underpayment reimbursements, and 
overpayment recoveries as described in paragraph (g) of this section and 
Sec. 423.466(a) of this subpart.
    (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 
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-

[[Page 643]]

    (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.
    (vi) Does not engage in midyear plan or noncalendar year plan 
enrollment changes on behalf of a substantial number of its members when 
authorized to do so on the beneficiary's behalf.
    (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 clinics. Rural health clinics as defined under 
section 1861(aa)(2) of the Act.
    (viii) Other Part D plans.
    (ix) 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. (i) 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 plan 
must do all of the following:
    (A) Include the enrollee's incurred costs (as defined in 
Sec. 423.100).
    (B) Report, accept and apply benefit accumulator data in a timeframe 
and manner determined by CMS.
    (C) 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.
    (ii) 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 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.

[[Page 644]]

    (5) Plan-to-plan liability. In the process of coordinating benefits 
between Part D plans when a Part D plan from which a beneficiary has 
transferred has incorrectly made payment for covered prescription drug 
costs incurred after the effective date of the Part D enrollee's 
enrollment in the new Part D plan of record, the new Part D plan of 
record must make the reconciling payments based on amounts reported to 
it by CMS without regard to the Part D plan's own formulary or drug 
utilization review edits.
    (6) Use of other reconciliation processes. In the process of 
coordinating benefits between the correct Part D plan of record and 
another entity providing prescription drug coverage when that entity has 
incorrectly paid as primary payer for a covered Part D drug on behalf of 
a Part D enrollee, the correct Part D plan of record must achieve timely 
reconciliation through working directly with the other entity that 
incorrectly paid as primary payer, unless CMS has established 
reconciliation processes for payment reconciliation, rather than 
requesting pharmacy claims reversal and re-adjudication.
    (g) Responsibility to account for other providers of prescription 
drug coverage when a retroactive claims adjustment creates an 
overpayment or underpayment. When a Part D sponsor makes a retroactive 
claims adjustment, the sponsor has the responsibility to account for 
SPAPs and other entities providing prescription drug coverage in 
reconciling the claims adjustments that create overpayments or 
underpayments. In carrying out these reimbursements and recoveries, Part 
D sponsors must also account for payments made and for amounts being 
held for payment by other individuals or entities. Part D sponsors must 
have systems to track and report adjustment transactions and to support 
all of the following:
    (1) Adjustments involving payments by other plans and programs 
providing prescription drug coverage have been made.
    (2) Reimbursements for excess cost-sharing and premiums for low-
income subsidy eligible individuals have been processed in accordance 
with the requirements in Sec. 423.800(c).
    (3) Recoveries of erroneous payments for enrollees as specified in 
Sec. 423.464(f)(4) have been sought.
    (h) Reporting requirements. A Part D sponsor must report credible 
new or changed supplemental prescription drug coverage information to 
the CMS Coordination of Benefits Contractor in accordance with the 
processes and timeframes specified by CMS.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20507, Apr. 15, 2008; 75 
FR 19819, Apr. 15, 2010; 76 FR 21574, Apr. 15, 2011; 79 FR 29963, May 
23, 2014; 80 FR 7964, Feb. 12, 2015]



Sec. 423.466  Timeframes for coordination of benefits 
and claims adjustments.

    (a) Retroactive claims adjustments, underpayment refunds, and 
overpayment recoveries. Whenever a sponsor receives information that 
necessitates a retroactive claims adjustment, the sponsor must process 
the adjustment and issue refunds or recovery notices within 45 days of 
the sponsor's receipt of complete information regarding claims 
adjustment.
    (b) Coordination of benefits. Part D sponsors must coordinate 
benefits with SPAPs, other entities providing prescription drug 
coverage, beneficiaries, and others paying on the beneficiaries' behalf 
for a period of 3 years from the date on which the prescription for a 
covered Part D drug was filled.

[75 FR 19819, Apr. 15, 2010, as amended at 80 FR 7964, Feb. 12, 2015]



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.

[[Page 645]]



Sec. 423.501  Definitions

    For purposes of this subpart, the following definitions apply:
    Bona fide service fees means fees paid by a manufacturer to an 
entity that represent fair market value for a bona fide, itemized 
service actually performed on behalf of the manufacturer that the 
manufacturer would otherwise perform (or contract for) in the absence of 
the service arrangement, and that are not passed on in whole or in part 
to a client or customer of an entity, whether or not the entity takes 
title to the drug.
    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.
    Prescription drug pricing standard means any methodology or formula 
for varying the pricing of a drug or drugs during the term of a pharmacy 
reimbursement contract that is based on the cost of a drug, which 
includes, but is not limited to, drug pricing references and amounts 
based on any of the following:
    (1) Average wholesale price.
    (2) Wholesale acquisition cost.
    (3) Average manufacturer price.
    (4) Average sales price.
    (5) Maximum allowable cost.
    (6) Other cost, whether publicly available or not.
    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

[[Page 646]]

value that exceeds $25,000 or 5 percent of the PDP sponsor's total 
operating expenses, whichever is less.

[70 FR 4525, Jan. 28, 2005, as amended at 77 FR 22170, Apr. 12, 2012; 80 
FR 29963, Nov. 6, 2015]



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 a notice of intent to apply. (1) An organization 
submitting an application under this section for a particular contract 
year must first submit a completed Notice of Intent to Apply by the date 
established by CMS. CMS will not accept applications from organizations 
that do not submit a timely Notice of Intent to Apply.
    (2) Submitting a Notice of Intent to Apply does not bind that 
organization to submit an application for the applicable contract year.
    (3) An organization's decision not to submit an application after 
submitting an Notice of Intent to Apply will not form the basis of any 
action taken against the organization by CMS.
    (c) 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 fully complete all parts of 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 all requirements described in this part.
    (d) 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.
    (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 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.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19819, Apr. 15, 2010]



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) With the exception 
of evaluations conducted under paragraph (b) of this section, CMS 
evaluates an entity's application solely on the basis of information 
contained in the application itself and any additional information that 
CMS obtains through on-site visits and any essential operations test.
    (2) After evaluating all relevant information, CMS determines 
whether the application meets all the requirements described in this 
part.
    (3) CMS does not approve an application when it would result in the 
applicant's parent organization, directly or through its subsidiaries, 
holding more than one PDP sponsor contract in the PDP Region for which 
the applicant is seeking qualification as a PDP sponsor. A parent 
organization is an entity that exercises a controlling interest in the 
applicant.
    (b) Use of information from a current or prior contract. (1) Except 
as provided in paragraphs (b)(2), (3), and (4) of this section, if a 
Part D plan sponsor fails during the 14 months preceding the deadline 
established by CMS for the submission of contract qualification

[[Page 647]]

applications (or in the case of a fallback entity, the previous 3-year 
contract) to comply with the requirements of the Part D program under 
any current or prior contract with CMS under title XVIII of the Act or 
fails to complete a corrective action plan during the 14 months 
preceding the deadline established by CMS for the submission of contract 
qualification applications, CMS may deny an application based on the 
applicant's failure to comply with the requirements of the Part D 
program under any current or prior contract with CMS even if the 
applicant currently meets all of the requirements of this part.
    (2) In the absence of 14 months of performance history, CMS may deny 
an application based on a lack of information available to determine an 
applicant's capacity to comply with the requirements of the Part D 
program.
    (3) If CMS has terminated, under Sec. 423.509, or non-renewed, under 
Sec. 423.507(b), a Part D plan sponsor's contract, effective within the 
38 months preceding the deadline established by CMS for the submission 
of contract qualification applications, CMS may deny an application 
based on the applicant's substantial failure to comply with the 
requirements of the Part D program even if the applicant currently meets 
all of the requirements of this part.
    (4) During the same 38-month period as specified in (b)(3) of this 
section, CMS may deny an application where the applicant's covered 
persons also served as covered persons for the terminated or non-renewed 
contract. A ``covered person'' as used in this paragraph means one of 
the following:
    (i) All owners of terminated organizations who are natural persons, 
other than shareholders who have an ownership interest of less than 5 
percent.
    (ii) An owner in whole or part interest in any mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (iii) A member of the board of directors or board of trustees of the 
entity, if the organization is organized as a corporation.
    (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 sponsor, 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 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.
    (iii) If CMS does not receive a revised application within 10 days 
from the date of the notice, or if after timely submission of a revised 
application, CMS still finds the applicant does not appear qualified to 
contract as a Part D plan sponsor or has not provided enough information 
to allow CMS to evaluate the application, CMS denies the application.
    (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 a hearing in accordance with 
the procedures specified in subpart N of this part.
    (4) Nullification of approval of application. If CMS discovers 
through any means that an applicant is not qualified to contract based 
on information

[[Page 648]]

gained subsequent to application approval (for example, failure of an 
essential operations test, absence of required employees, etc.), CMS 
gives the applicant written notice indicating that the approval issued 
under paragraph (c)(1) of this section is nullified and the applicant no 
longer qualifies to contract as a Part D plan sponsor.
    (i) This determination is not subject to the appeals provisions in 
subpart N of this part.
    (ii) This provision only applies to applicants that have not 
previously entered into a Part D contract with CMS and neither it, nor 
another subsidiary of the applicant's parent organization, is offering 
Part D benefits during the current year.
    (d) Withdrawal of application and bid in a previous year. An 
applicant that withdraws its application and corresponding bid after the 
release of the low-income subsidy benchmark is not eligible to be 
approved as a Part D plan sponsor for the 2 succeeding annual 
contracting cycles.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19820, Apr. 15, 2010; 76 
FR 21574, Apr. 15, 2011; 77 FR 22170, Apr. 12, 2012; 79 FR 29963, May 
23, 2014; 80 FR 7964, Feb. 12, 2015]



Sec. 423.504  General provisions.

    (a) General rule. Subject to the provisions at Sec. 423.265 of this 
part 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) Adopt and implement an effective compliance program, which must 
include measures that prevent, detect, and correct noncompliance with 
CMS' program requirements as well as measures that prevent, detect, and 
correct

[[Page 649]]

fraud, waste, and abuse. The compliance program must, at a minimum, 
include the following core requirements:
    (A) Written policies, procedures, and standards of conduct that--
    (1) Articulate the Part D plan sponsor's commitment to comply with 
all applicable Federal and State standards;
    (2) Describe compliance expectations as embodied in the standards of 
conduct;
    (3) Implement the operation of the compliance program;
    (4) Provide guidance to employees and others on dealing with 
potential compliance issues;
    (5) Identify how to communicate compliance issues to appropriate 
compliance personnel;
    (6) Describe how potential compliance issues are investigated and 
resolved by the Part D plan sponsor; and
    (7) Include a policy of non-intimidation and non-retaliation for 
good faith participation in the compliance program, including but not 
limited to reporting potential issues, investigating issues, conducting 
self-evaluations, audits and remedial actions, and reporting to 
appropriate officials.
    (B) The designation of a compliance officer and a compliance 
committee who report directly and are accountable to the Part D plan 
sponsor's chief executive or other senior management.
    (1) The compliance officer, vested with the day-to-day operations of 
the compliance program, must be an employee of the Part D plan sponsor, 
parent organization or corporate affiliate. The compliance officer may 
not be an employee of the Part D plan sponsor's first tier, downstream 
or related entity.
    (2) The compliance officer and the compliance committee must 
periodically report directly to the governing body of the Part D plan 
sponsor on the activities and status of the compliance program, 
including issues identified, investigated, and resolved by the 
compliance program.
    (3) The governing body of the Part D plan sponsor must be 
knowledgeable about the content and operation of the compliance program 
and must exercise reasonable oversight with respect to the 
implementation and effectiveness of the compliance programs.
    (C)(1) Each Part D plan sponsor must establish, implement and 
provide effective training and education for its employees including, 
the chief executive and senior administrators or managers; governing 
body members; and first tier, downstream, and related entities.
    (2) The training and education must occur at a least annually and be 
a part of the orientation for new employees including, the chief 
executive and senior administrators or managers; governing body members; 
and first tier, downstream, and related entities.
    (3) First tier, downstream, and related entities who have met the 
fraud, waste, and abuse certification requirements through enrollment 
into the Medicare program or accreditation as a Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) are deemed to 
have met the training and educational requirements for fraud, waste, and 
abuse.
    (4) A Part D plan sponsor must require all of its first tier, 
downstream and related entities to take the CMS training and accept the 
certificate of completion of the CMS training as satisfaction of this 
requirement. Part D plan sponsors are prohibited from developing and 
implementing their own training or providing supplemental training 
materials to fulfill this requirement.
    (D) Establishment and implementation of effective lines of 
communication, ensuring confidentiality, between the compliance officer, 
members of the compliance committee, the Part D plan sponsor's 
employees, managers and governing body, and the Part D plan sponsor's 
first tier, downstream, and related entities. Such lines of 
communication must be accessible to all and allow compliance issues to 
be reported including a method for anonymous and confidential good faith 
reporting of potential compliance issues as they are identified.
    (E) Well-publicized disciplinary standards through the 
implementation of procedures which encourage good faith participation in 
the compliance program by all affected individuals. These standards must 
include policies that--

[[Page 650]]

    (1) Articulate expectations for reporting compliance issues and 
assist in their resolution;
    (2) Identify non-compliance or unethical behavior; and
    (3) Provide for timely, consistent, and effective enforcement of the 
standards when non-compliance or unethical behavior is determined.
    (F) Establishment and implementation of an effective system for 
routine monitoring and identification of compliance risks. The system 
should include internal monitoring and audits and, as appropriate, 
external audits, to evaluate the Part D plan sponsors, including first 
tier entities', compliance with CMS requirements and the overall 
effectiveness of the compliance program.
    (G) Establishment and implementation of procedures and a system for 
promptly responding to compliance issues as they are raised, 
investigating potential compliance problems as identified in the course 
of self-evaluations and audits, correcting such problems promptly and 
thoroughly to reduce the potential for recurrence, and ensure ongoing 
compliance with CMS requirements.
    (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.
    (3) The Part D plan sponsor should have procedures to voluntarily 
self-report potential fraud or misconduct related to the Part D program 
to CMS or its designee.
    (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) Not have terminated a contract by mutual consent under which, as 
a condition of the consent, the Part D plan sponsor agreed that it was 
not eligible to apply for new contracts or service area expansions for a 
period up to 2 years per Sec. 423.508(e) of this subpart.
    (7) 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.
    (8) If neither the applicant, nor its parent or another subsidiary 
of the same parent, holds a Part D sponsor contract that has been in 
effect for at least 1 year at the time it submits an application, the 
applicant must have arrangements in place such that the applicant and 
its contracted first tier, downstream, or related entities, in 
combination, have at least 1 full-benefit year of experience within the 
2 years preceding the application submission performing at a minimum all 
of the following functions in support of

[[Page 651]]

the operation of another Part D contract:
    (i) Authorization, adjudication, and processing of prescription drug 
claims at the point of sale.
    (ii) Administration and tracking of enrollees' drug benefits in real 
time, including automated coordination of benefits with other payers.
    (iii) Operation of an enrollee appeals and grievance process.
    (9) For organizations applying to offer stand-alone prescription 
drug plans, the organization, its parent, or a subsidiary of the 
organization or its parent, must have either of the following:
    (i) For 2 continuous years immediately prior to submitting an 
application, actively offered health insurance or health benefits 
coverage, including prescription drug coverage, as a risk-bearing entity 
in at least one State.
    (ii) For 5 continuous years immediately prior to submitting an 
application, actively managed prescription drug benefits for an 
organization that offers health insurance or health benefits coverage, 
including at a minimum, all of the services listed in paragraph (b)(8) 
of this section.
    (10) Pass an essential operations test prior to the start of the 
benefit year. This provision only applies to new sponsors that have not 
previously entered into a Part D contract with CMS when neither it, nor 
another subsidiary of the applicant's parent organization, is offering 
Part D benefits during the current year.
    (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
    (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.
    (iv) CMS may require that the Part D Plan sponsor hire an 
independent auditor to provide CMS with additional information to 
determine if deficiencies found during an audit or inspection have been 
corrected and are not likely to recur. The independent auditor must work 
in accordance with CMS specifications and must be willing to attest that 
a complete and full independent review has been performed.
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68732, Dec. 5, 2007; 73 
FR 20507, Apr. 15, 2008; 75 FR 19820, Apr. 15, 2010; 79 FR 29964, May 
23, 2014; 80 FR 7964, Feb. 12, 2015]



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--

[[Page 652]]

    (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 disclosure and reporting requirements in 
Sec. 423.505(f), Sec. 423.514, and the requirements in Sec. 423.329(b) 
of this part for submitting current and prior drug claims and related 
information to CMS for its use in risk adjustment calculations and for 
the purposes of implementing Sec. 423.505(f), (l), and (m) and 
Sec. 423.329(b) of this part.
    (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 and its delegated first tier, downstream and related 
entities, that pertain to the information regarding costs provided to 
CMS under paragraph (b)(9) of this section, or, if a fallback entity, 
the information submitted under subpart Q of this part.
    (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).
    (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.
    (19) Effective contract year 2010, include the prompt payment 
provisions described in Sec. 423.520.
    (20) Effective contract year 2010, provide that pharmacies located 
in, or having a contract with, a long-term care facility (as defined in 
Sec. 423.100) must have not less than 30 days, nor more than 90 days, to 
submit to the Part D sponsor claims for reimbursement under the plan.
    (21)(i) Update any prescription drug pricing standard (as defined in 
Sec. 423.501) based on the cost of the drug used for reimbursement of 
network pharmacies

[[Page 653]]

by the Part D sponsor on January 1 of each contract year and not less 
frequently than once every 7 days thereafter;
    (ii) Indicate the source used for making any such updates; and
    (iii) Disclose all individual drug prices to be updated to the 
applicable pharmacies in advance of their use for reimbursement of 
claims, if the source for any prescription drug pricing standard is not 
publicly available.
    (22) Address complaints received by CMS against the Part D sponsor 
by--
    (i) Addressing and resolving complaints in the CMS complaint 
tracking system.
    (ii) Displaying a link to the electronic complaint form on the 
Medicare.gov Internet Web site on the Part D plan's main Web page.
    (23) Maintain a fiscally sound operation by at least maintaining a 
positive net worth (total assets exceed total liabilities).
    (24) Provide applicable beneficiaries with applicable discounts on 
applicable drugs in accordance with the requirements in subpart W of 
part 423.
    (25) Maintain administrative and management capabilities sufficient 
for the organization to organize, implement, and control the financial, 
marketing, benefit administration, and quality assurance activities 
related to the delivery of Part D services.
    (26) Maintain a Part D summary plan rating score of at least 3 
stars. A Part D summary plan rating is calculated by taking an average 
of a contract's Part D performance measure scores.
    (27) Pass an essential operations test prior to the start of the 
benefit year. This provision only applies to new sponsors that have not 
previously entered into a Part D contract with CMS and neither it, nor 
another subsidiary of the applicant's parent organization, is offering 
Part D benefits during the current year.
    (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.

[[Page 654]]

    (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 audit, inspection, or other means--
    (i) The quality, appropriateness, and timeliness of services 
furnished to Medicare enrollees under the contract;
    (ii) Compliance with CMS requirements for maintaining the privacy 
and security of protected health information and other personally 
identifiable information of Medicare enrollees;
    (iii) The facilities of the Part D sponsor to include computer and 
other electronic systems; and
    (iv) The enrollment and disenrollment records for the current 
contract period and 10 prior periods.
    (2) The Part D plan sponsor agrees to make available to HHS, the 
Comptroller General, or their designees, for the purposes specified in 
paragraph (d) of this section, its premises, physical facilities and 
equipment, records relating to its Medicare enrollees, and any 
additional relevant information that CMS may require. The Part D plan 
sponsor also agrees to make available any books, contracts, records and 
documentation of the Part D plan sponsor, first tier, downstream and 
related entity(s), or its transferee that pertain to any aspect of 
services performed, reconciliation of benefit liabilities, and 
determination of amounts payable under the contract, or as the Secretary 
may deem necessary to enforce the contract.
    (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.
    (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

[[Page 655]]

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) All data elements included in all its drug claims for purposes 
deemed necessary and appropriate by the Secretary, including, but not 
limited to the following:
    (i) Reporting to Congress and the public on overall statistics 
associated with the operation of the Medicare prescription drug program.
    (ii) Conducting evaluations of the overall Medicare program, 
including the interaction between prescription drug coverage under Part 
D of Title XVIII of the Social Security Act and the services and 
utilization under Parts A, B, and C of title XVIII of the Act and under 
titles XIX and XXI of the Act, as well as other studies addressing 
public health questions.
    (iii) Making legislative proposals to the Congress regarding Federal 
health care programs and related programs.
    (iv) Conducting demonstration and pilot projects and making 
recommendations for improving the economy, efficiency, or effectiveness 
of the Medicare program.
    (v) Supporting care coordination and disease management programs.
    (vi) Supporting quality improvement and performance measurement 
activities.
    (vii) Populating personal health care records.
    (viii) Supporting program integrity purposes, including coordination 
with the States.
    (4) 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 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

[[Page 656]]

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).
    (2) HIPAA Administrative Simplification rules at 45 CFR parts 160, 
162, and 164.
    (i) Relationship with first tier, downstream, and related entities. 
(1) Notwithstanding any relationship(s) that the Part D plan sponsor may 
have with first tier, downstream, and related entities, the Part D 
sponsor maintains ultimate responsibility for adhering to and otherwise 
fully complying with all terms and conditions of its contract with CMS.
    (2) The Part D sponsor agrees to require all first tier, downstream, 
and related entities to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to audit, evaluate, collect, and inspect any books, contracts, computer 
or other electronic systems, including medical records and documentation 
of the first tier, downstream, and related entities related to CMS' 
contract with the Part D sponsor.
    (ii) HHS, the Comptroller General or their designees have the right 
to audit, evaluate, collect, and inspect any records under paragraph 
(i)(2)(i) of this section directly from any first tier, downstream, or 
related entity.
    (iii) For records subject to review under paragraph (i)(2)(ii) of 
this section, except in exceptional circumstances, CMS will provide 
notification to the Part D sponsor that a direct request for information 
has been initiated.
    (iv) 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) Each and every contract governing Part D sponsors and first 
tier, downstream, and related 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 first tier, downstream, or 
related entity only in a manner consistent with requirements set forth 
at paragraph (i)(4) of this section.
    (iii) A provision requiring that any services or other activity 
performed by a first tier, downstream, and related entity in accordance 
with a contract are consistent and comply with the Part D sponsor's 
contractual obligations.
    (iv) Each and every contract must specify that first tier, 
downstream, and related entities must comply with all applicable Federal 
laws, regulations, and CMS instructions.
    (v) A provision requiring prompt payment of clean claims by the Part 
D sponsor, consistent with Sec. 423.520.
    (vi) A provision that establishes timeframes, consistent with 
Sec. 423.505(b)(20), for long-term care pharmacies to submit claims to 
the Part D sponsor for reimbursement under the plan.
    (vii) If applicable, provisions addressing the drug pricing standard 
requirements of Sec. 423.505(b)(21).
    (4) If any of the Part D plan sponsors' activities or 
responsibilities under its contract with CMS is delegated to other 
parties, the following requirements apply to any first tier, downstream, 
and related entity:
    (i) Each and every contract must specify delegated activities and 
reporting responsibilities.
    (ii) Each and every contract 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) Each and every contract must specify that the Part D plan 
sponsor on an ongoing basis monitors the performance of the parties.

[[Page 657]]

    (iv) Each and every contract must specify that the related entity, 
contractor, or subcontractor must comply with all applicable Federal 
laws, regulations, and CMS instructions.
    (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 Chief Executive Officer, Chief Financial 
Officer, 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 of this part, including data submitted to CMS 
regarding direct or indirect remuneration (DIR) that serves to reduce 
the costs incurred by the Part D sponsor for Part D drugs, is accurate, 
complete, and truthful and fully conforms to the requirements in 
Sec. 423.336 and Sec. 423.343 of this part 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,

[[Page 658]]

must certify (based on best knowledge, information, and belief) that the 
information provided for purposes of price comparison is accurate, 
complete, and truthful.
    (7) Certification of accuracy of data for overpayments. The CEO, 
CFO, or COO must certify (based on best knowledge, information, and 
belief) that the information provided for purposes of reporting and 
returning of overpayments under Sec. 423.360 is accurate, complete, and 
truthful.
    (l) CMS may use the information collected under paragraph (f)(3) of 
this section. Any restriction set forth by Sec. 423.322(b) of this part 
must not be construed to limit the Secretary's authority to use the 
information collected under paragraph (f)(3).
    (m) Release of data. (1) CMS may release the minimum data necessary 
for a given purpose from the data collected under paragraph (f)(3) of 
this section to Federal executive branch agencies, States, and external 
entities in accordance with the following:
    (i) Applicable Federal laws.
    (ii) CMS data sharing procedures.
    (iii) Subject, in certain cases, to encryption of beneficiary 
identifiers and aggregation of cost data to protect beneficiary 
confidentiality and commercially sensitive data of Part D sponsors, in 
accordance with all of the following principles:
    (A) Subject to the restrictions in this paragraph, all elements on 
the claim are available to HHS, other executive branch agencies, and the 
States.
    (B) Cost data elements on the claim generally are aggregated for 
releases to other executive branch agencies, States, and external 
entities. Upon request, CMS excludes sales tax from the aggregation at 
the individual level if necessary for the project.
    (C) Beneficiary identifier elements on the claim generally are 
encrypted for release, except in limited circumstances, such as the 
following:
    (1) If needed, in the case of release to other HHS entities, 
Congressional oversight agencies, non-HHS executive agencies and the 
States.
    (2) If needed to link to another dataset, in the case of release to 
external entities. Public disclosure of research results will not 
include beneficiary identifying information.
    (iv) For purposes of paragraph (m)(1)(iii) of this section, States 
and executive-branch Federal agencies are not considered to be external 
entities.
    (2) Any restriction set forth by Sec. 423.322(b) of this part must 
not be construed to limit the Secretary's authority to release the 
information collected under paragraph (f)(3) of this section.
    (3)(i) CMS must make available to Congressional support agencies 
(the Congressional Budget Office, the Government Accountability Office, 
the Medicare Payment Advisory Commission, and the Congressional Research 
Service when it is acting on behalf of a Congressional committee in 
accordance with 2 U.S.C. 166(d)(1)) all information collected under 
paragraph (f)(3) of this section for the purposes of conducting 
congressional oversight, monitoring, making recommendations, and 
analysis of the Medicare program.
    (ii) The Congressional Research Service is considered an external 
entity when it is not acting on behalf of a Congressional committee in 
accordance with 2 U.S.C. 166(d)(1) for the purposes of paragraph (m)(1) 
of this section.
    (n)(1) CMS may determine that a Part D plan sponsor is out of 
compliance with a Part D requirement when the sponsor fails to meet 
performance standards articulated in the Part D statutes, regulations, 
or guidance.
    (2) If CMS has not already articulated a measure for determining 
noncompliance, CMS may determine that a Part D sponsor is out of 
compliance when its performance in fulfilling Part D requirements 
represents an outlier relative to the performance of other Part D 
sponsors.
    (o) Acknowledgements of CMS release of data--(1) Summary CMS payment 
data. The contract must provide that the Part D sponsor acknowledges 
that CMS releases to the public summary reconciled Part D payment data 
after the reconciliation of Part D payments for the contract year as 
follows:
    (i) The average per member per month Part D direct subsidy 
standardized to the 1.0 (average risk score) beneficiary for each Part D 
plan offered.

[[Page 659]]

    (ii) The average Part D risk score for each Part D plan offered.
    (iii) The average per member per month Part D plan low-income cost 
sharing subsidy for each Part D plan offered.
    (iv) The average per member per month Part D Federal reinsurance 
subsidy for each Part D plan offered.
    (v) The actual Part D reconciliation payment data summarized at the 
Parent Organization level including breakouts of risk sharing, 
reinsurance, and low income cost sharing reconciliation amounts.
    (2) Part D MLR data. The contract must provide that the Part D 
sponsor acknowledges that CMS releases to the public data as described 
at Sec. 423.2490.
    (p) Business continuity. (1) The Part D sponsor agrees to develop, 
maintain, and implement a business continuity plan containing policies 
and procedures to ensure the restoration of business operations 
following disruptions to business operations during disruptions to 
business operations which would include natural or man-made disasters, 
system failures, emergencies, and other similar circumstances and the 
threat of such occurrences. To meet the requirement, the business 
continuity plan must, at a minimum, include the following:
    (i) Risk assessment. Identify threats and vulnerabilities that might 
affect business operations.
    (ii) Mitigation strategy. Design strategies to mitigate hazards. 
Identify essential functions in addition to those specified in paragraph 
(p)(2) of this section and prioritize the order in which to restore all 
other functions to normal operations. At a minimum, each Part D sponsor 
must do the following:
    (A) Identify specific events that will activate the business 
continuity plan.
    (B) Develop a contingency plan to maintain, during any business 
disruption, the availability and, as applicable, confidentiality of 
communication systems and essential records in all forms (including 
electronic and paper copies). The contingency plan must do the 
following:
    (1) Ensure that during any business disruption the following systems 
will operate continuously or, should they fail, be restored to 
operational capacity on a timely basis:
    (i) Information technology (IT) systems including those supporting 
claims processing at point of service.
    (ii) Provider and enrollee communication systems including 
telephone, Web site, and email.
    (2) With respect to electronic protected health information, comply 
with the contingency plan requirements of the Health Insurance 
Portability and Accountability Act of 1996 Security Regulations at 45 
CFR parts 160 and 164, subparts A and C.
    (C) Establish a chain of command.
    (D) Establish a business communication plan that includes emergency 
capabilities and procedures to contact and communicate with the 
following:
    (1) Employees.
    (2) First tier, downstream, and related entities.
    (3) Other third parties (including pharmacies, providers, suppliers, 
and government and emergency management officials).
    (E) Establish employee and facility management plans to ensure that 
essential operations and job responsibilities can be assumed by other 
employees or moved to alternate sites as necessary or both.
    (F) Establish a restoration plan including procedures to transition 
to normal operations.
    (G) Comply with all applicable Federal, State, and local laws.
    (iii) Testing and revision. On at least an annual basis, test and 
update the business operations continuity plan to ensure the following:
    (A) That it can be implemented in emergency situations.
    (B) That employees understand how it is to be executed.
    (iv) Training. On at least an annual basis, educate appropriate 
employees about the business continuity plan and their own respective 
roles.
    (v) Records. (A) Develop and maintain records documenting the 
elements of the business continuity plan described in paragraph 
(p)(1)(i) through (iv) of this section.
    (B) Make the information specified in paragraph (p)(1)(v)(A) of this 
section available to CMS upon request.

[[Page 660]]

    (2) Restoration of essential functions. Every Part D sponsor must 
plan to restore essential functions within 72 hours after any of the 
essential functions fail or otherwise stop functioning as usual. In 
addition to any essential functions that the Part D sponsor identifies 
under paragraph (p)(1)(ii) of this section, for purposes of this 
paragraph (p)(2) of this section essential functions include at a 
minimum, the following:
    (i) Benefit authorization (if not waived), adjudication, and 
processing of prescription drug claims at the point of sale.
    (ii) Administration and tracking of enrollees' drug benefits in real 
time, including automated coordination of benefits with other payers.
    (iii) Provision of pharmacy technical assistance.
    (iv) Operation of an enrollee exceptions and appeals process 
including coverage determinations.
    (v) Operation of call center customer services.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20507, Apr. 15, 2008; 73 
FR 30683, May 28, 2008; 73 FR 54251, Sept. 18, 2008; 73 FR 70599, Nov. 
21, 2008; 74 FR 1545, Jan. 12, 2009; 75 FR 19821, Apr. 15, 2010; 76 FR 
21574, Apr. 15, 2011; 76 FR 54634, Sept. 1, 2011; 77 FR 22170, Apr. 12, 
2012; 79 FR 29964, May 23, 2014; 80 FR 7964, Feb. 12, 2015; 81 FR 80557, 
Nov. 15, 2016]



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 423.507, 
an entity is determined qualified to renew its contract annually only if 
the Part D plan sponsor has not provided CMS with a notice of intention 
not to renew and CMS has not provided the Part D organization 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.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68732, Dec. 5, 2007]



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 by mail at least 90 calendar days before 
the date on which the nonrenewal is effective. The sponsor must also 
provide information about alternative enrollment options by doing one or 
more of the following:
    (A) Provide a CMS approved written description of alternative MA 
plan and PDP options available for obtaining qualified prescription drug 
coverage within the beneficiaries' region.
    (B) Place outbound calls to all affected enrollees to ensure 
beneficiaries know who to contact to learn about their enrollment 
options.
    (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) During the same 2-year period specified under paragraph (a)(3) 
of this section, CMS will not contract with an organization whose 
covered persons also served as covered persons for the non-renewing 
sponsor. A ``covered person'' as used in this paragraph means one of the 
following:
    (i) All owners of nonrenewed or terminated organizations who are 
natural persons, other than shareholders who have an ownership interest 
of less than 5 percent.

[[Page 661]]

    (ii) An owner of a whole or part interest in a mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or by any of the property or assets thereof, which whole 
or part interest is equal to or exceeds 5 percent of the total property 
and assets of the organization.
    (iii) A member of the board of directors or board of trustees of the 
entity, if the organization is organized as a corporation.
    (5) 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.
    (iii) The contract must be nonrenewed as to an individual PDP if 
that plan does not have a sufficient number of enrollees to establish 
that it is a viable independent plan option.
    (2) Notice of non-renewal. CMS provides notice of its decision not 
to authorize renewal of a contract as follows:
    (i) To the Part D plan sponsor by August 1 of the contract year.
    (ii) To each of the Part D plan sponsor's Medicare enrollees by mail 
at least 90 calendar days before the date on which the nonrenewal is 
effective, or at the conclusion of the appeals process if applicable.
    (iii) The notice provisions in paragraph (b)(2)(ii) 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.
    (3) Opportunity to develop and implement a corrective action plan. 
(i) Before providing a notice of intent of nonrenewal of the contract, 
CMS will provide the Part D plan sponsor with notice specifying the Part 
D sponsor's deficiencies and reasonable opportunity of at least 30 
calendar days to develop and implement a corrective action plan to 
correct the deficiencies.
    (ii) The Part D plan sponsor is solely responsible for the 
identification, development, and implementation of its corrective action 
plan and for demonstrating to CMS that the underlying deficiencies have 
been corrected within the time period specified by CMS in the notice 
requesting corrective action.
    (4) 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).

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68733, Dec. 5, 2007; 74 
FR 1546, Jan. 12, 2009; 75 FR 19821, Apr. 15, 2010; 76 FR 21575, Apr. 
15, 2011]



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.
    (e) Agreement to limit new Part D applications. As a condition of 
the consent to a mutual termination, CMS will require, as a provision of 
the termination agreement language prohibiting the Part D plan sponsor 
from applying for new contracts or service area expansions for a period 
up to 2 years, absent circumstances warranting special consideration.
    (f) Prohibition against Part D program participation by 
organizations whose

[[Page 662]]

owners, directors, or management employees served in a similar capacity 
with another organization that mutually terminated its Medicare contract 
within the previous 2 years. During the 2-year period specified in 
paragraph (e) of this section, CMS will not contract with an 
organization whose covered persons also served as covered persons for 
the mutually terminating sponsor. A ``covered person'' as used in this 
paragraph means one of the following:
    (1) All owners of nonrenewed or terminated organizations who are 
natural persons, other than shareholders who have an ownership interest 
of less than 5 percent.
    (2) An owner of a whole or part interest in a mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property, 
and assets of the organization.
    (3) A member of the board of directors or board of trustees of the 
entity, if the organization is organized as a corporation.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19821, Apr. 15, 2010; 76 
FR 21575, Apr. 15, 2011]



Sec. 423.509  Termination of contract by CMS.

    (a) Termination by CMS. CMS may at any time terminate a contract if 
CMS determines that the Part D plan sponsor meets any of the following:
    (1) Has failed substantially to carry out the contract.
    (2) Is carrying out the contract in a manner that is inconsistent 
with the efficient and effective administration of this part.
    (3) No longer substantially meets the applicable conditions of this 
part.
    (4) CMS may make a determination under paragraph (a)(1), (2) or (3) 
of this section if the Part D Plan sponsor has had one or more of the 
following occur:
    (i) Based on credible evidence, has committed or participated in 
false, fraudulent, or abusive activities affecting the Medicare, 
Medicaid, or other State or Federal health care programs, including 
submission of false or fraudulent data.
    (ii) Substantially failed to comply with the requirements in subpart 
M of this part relating to grievances and appeals.
    (iii) Failed to provide CMS with valid risk adjustment, reinsurance 
and risk corridor related data as required under Secs. 423.322 and 
423.329 (or, for fallback entities, failed to provide the information in 
Sec. 423.871(f)).
    (iv) Substantially failed to comply with the service access 
requirements in Sec. 423.120.
    (v) Substantially failed to comply with either of the following:
    (A) Marketing requirements in subpart V of this part.
    (B) Information dissemination requirements of Sec. 423.128 of this 
part.
    (vi) Substantially failed to comply with the coordination with plans 
and programs that provide prescription drug coverage as described in 
subpart J of this part.
    (vii) Substantially failed 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.
    (viii) Failed to comply with the regulatory requirements contained 
in this part.
    (ix) Failed to meet CMS performance requirements in carrying out the 
regulatory requirements contained in this part.
    (x) Achieves a Part D summary plan rating of less than 3 stars for 3 
consecutive contract years. Plan ratings issued by CMS before September 
1, 2012 are not included in the calculation of the 3-year period.
    (xi)(A) Has failed to report MLR data in a timely and accurate 
manner in accordance with Sec. 423.2460; or
    (B) That any MLR data required by this subpart is found to be 
materially incorrect or fraudulent.
    (xii) Failure of an essential operations test before the start of 
the benefit year by an organization that has entered into a Part D 
contract with CMS when neither it, nor another subsidiary of the 
organization's parent organization, is offering Part D benefits during 
the current year.

[[Page 663]]

    (b) Notice. If CMS decides to terminate a contract it gives notice 
of the termination as follows:
    (1) Termination of contract by CMS. (i) CMS notifies the Part D plan 
sponsor in writing at least 45 calendar 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 calendar days before the effective date 
of the termination.
    (iii) The Part D plan sponsor notifies the general public of the 
termination at least 30 calendar days before the effective date of the 
termination by releasing a press statement to news media serving the 
affected community or county and posting the press statement prominently 
on the organization's Web site.
    (iv) CMS notifies the general public of the termination no later 
than 30 calendar days after notifying the plan of CMS's decision to 
terminate the Part D plan sponsor's contract by releasing a press 
statement.
    (2) Immediate termination of contract by CMS. (i) The procedures 
specified in (b)(1) of this section do not apply if--
    (A) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the Part D plan sponsor;
    (B) The Part D plan sponsor 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; or
    (C) The contract is being terminated based on the grounds specified 
in paragraphs (a)(4)(i) and (xii) of this section.
    (ii) CMS notifies the Part D plan sponsor in writing that its 
contract will be terminated on a date specified by CMS. If a termination 
in is effective in the middle of a month, CMS has the right to recover 
the prorated share of the capitation payments made to the Part D plan 
sponsor covering the period of the month following the contract 
termination.
    (iii) 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.
    (iv) 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) Opportunity to develop and implement a corrective action plan--
(1) General. (i) Before providing a notice of intent to terminate the 
contract, CMS will provide the Part D plan sponsor with notice 
specifying the Part D plan sponsor's deficiencies and a reasonable 
opportunity of at least 30 calendar days to develop and implement a 
corrective action plan to correct the deficiencies.
    (ii) The Part D plan sponsor is solely responsible for the 
identification, development, and implementation of its corrective action 
plan and for demonstrating to CMS that the underlying deficiencies have 
been corrected within the time period specified by CMS in the notice 
requesting corrective action.
    (2) Exceptions. The Part D plan sponsor will not be provided with an 
opportunity to develop and implement a corrective action plan prior to 
termination if--
    (i) CMS determines that a delay in termination, resulting from 
compliance with the procedures provided in this part prior to 
termination, would pose an imminent and serious risk to the health of 
the individuals enrolled with the Part D plan sponsor;
    (ii) The Part D plan sponsor experiences financial difficulties so 
severe that its ability to make necessary health services available is 
impaired to the point of posing an imminent and

[[Page 664]]

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; or
    (iii) The contract is being terminated based on the violation 
specified in (a)(4)(i) of this section.
    (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 subpart N of this part.
    (e) 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.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68733, Dec. 5, 2007; 73 
FR 20507, Apr. 15, 2008; 75 FR 19822, Apr. 15, 2010; 76 FR 21575, Apr. 
15, 2011; 77 FR 22170, Apr. 12, 2012; 78 FR 31310, May 23, 2013; 79 FR 
29965, May 23, 2014; 80 FR 7965, Feb. 12, 2015]



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. (1) 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.
    (2) During the same 2-year period specified in (e)(1) of this 
section, CMS will not contract with an organization whose covered 
persons also served as covered persons for the terminating sponsor. A 
``covered person'' as used in this paragraph means one of the following:
    (i) All owners of nonrenewed or terminated organizations who are 
natural persons, other than shareholders who have an ownership interest 
of less than 5 percent.
    (ii) An owner of a whole or part interest in a mortgage, deed of 
trust, note or other obligation secured (in whole or in part) by the 
organization, or any of the property or assets thereof, which whole or 
part interest is equal to or exceeds 5 percent of the total property and 
assets of the organization.
    (iii) A member of the board of directors or board of trustees of the 
entity, if the organization is organized as a corporation.
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 76 FR 21575, Apr. 15, 2011]



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:
    (1) At least 5,000 individuals are enrolled for the purpose of 
receiving prescription drug benefits from the organization; or

[[Page 665]]

    (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  Validation of Part D 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 requirements for pharmacy benefits manager data. Each 
entity that provides pharmacy benefits management services must provide 
to the Part D sponsor, and each Part D sponsor must provide to CMS, in a 
manner specified by CMS, the following:
    (1) The total number of prescriptions that were dispensed.
    (2) The percentage of all prescriptions that were provided through 
retail pharmacies compared to mail order pharmacies.
    (3) The percentage of prescriptions for which a generic drug was 
available and dispensed (generic dispensing rate), by pharmacy type 
(which includes an independent pharmacy, chain pharmacy, supermarket 
pharmacy, or mass merchandiser pharmacy that is licensed as a pharmacy 
by the State and that dispenses medication to the general public), that 
is paid by the Part D sponsor or PBM under the contract.
    (4) The aggregate amount and type of rebates, discounts, or price 
concessions

[[Page 666]]

(excluding bona fide service fees as defined in Sec. 423.501) that the 
PBM negotiates that are attributable to patient utilization under the 
plan.
    (5) The aggregate amount of the rebates, discounts, or price 
concessions that are passed through to the plan sponsor, and the total 
number of prescriptions that were dispensed.
    (6) The aggregate amount of the difference between the amount the 
Part D sponsor pays the PBM and the amount that the PBM pays retail 
pharmacies, and mail order pharmacies.
    (e) Confidentiality of pharmacy benefits manager data. Information 
disclosed by a Part D sponsor or PBM as specified in paragraph (d) of 
this section is confidential and must not be disclosed by the Secretary 
or by a plan receiving the information, except that the Secretary may 
disclose the information in a form which does not disclose the identity 
of a specific PBM, plan, or prices charged for drugs, for the following 
purposes:
    (1) As the Secretary determines necessary to carry out section 1150A 
of the Act or Part D of Title XVIII.
    (2) To permit the Comptroller General to review the information 
provided.
    (3) To permit the Director of the Congressional Budget Office to 
review the information provided.
    (f) Penalties for failure to provide pharmacy benefits manager data. 
The provisions of section 1927(b)(3)(C) of the Act are applicable to a 
Part D sponsor or PBM that fails to provide the required information on 
a timely basis or knowingly provides false information in the same 
manner as such provisions apply to a manufacturer with an agreement 
under section 1927 of the Act.
    (g) 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.
    (h) 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.
    (i) 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.
    (j) Data validation. Each Part D sponsor must subject information 
collected under paragraph (a) of this section to a yearly independent 
audit to determine its reliability, validity, completeness, and 
comparability in accordance with specifications developed by CMS.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19822, Apr. 15, 2010; 77 
FR 22171, Apr. 12, 2012]



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.



Sec. 423.520  Prompt payment by Part D sponsors.

    (a) Contract between CMS and the Part D sponsor. (1) Effective 
contract year 2010, the contract between the Part D sponsor and CMS must 
provide that the Part D sponsor will issue, mail, or otherwise transmit 
payment with respect to all clean claims, as defined in paragraph (b) of 
this section, submitted by network pharmacies (other than mail-order and 
long-term care pharmacies) within--
    (i) 14 days after the date on which the claim is received, as 
defined in paragraph (a)(2)(i) of this section, for an electronic claim; 
or
    (ii) 30 days after the date on which the claim is received, as 
defined in paragraph (a)(2)(ii) of this section, for any other claim.
    (2) Date of receipt of claim. A claim is considered to have been 
received--
    (i) On the date on which the claim is transferred, for an electronic 
claim; or

[[Page 667]]

    (ii) On the 5th day after the postmark day of the claim or the date 
specified in the time stamp of the transmission, for any other claim, 
whichever is sooner.
    (b) Clean claim. A clean claim means a claim that has no defect or 
impropriety (including any lack of any required substantiating 
documentation) or particular circumstance requiring special treatment 
that prevents timely payment of the claim from being made under this 
section.
    (c) Procedures involving claims--(1) Claims determined to be clean. 
A claim is deemed to be a clean claim if the Part D sponsor receiving 
the claim does not provide notice to the submitting network pharmacy of 
any deficiency in the claim within--
    (i) 10 days after the date on which the claim is received, as 
defined in paragraph (a)(2)(i) of this section, for an electronic claim; 
or
    (ii) 15 days after the date on which the claim is received, as 
defined in paragraph (a)(2)(ii) of this section, for any other claim.
    (2) Claims determined not to be clean--(i) General. If a Part D 
sponsor determines that a submitted claim is not a clean claim, as 
defined in paragraph (b) of this section, the Part D sponsor must notify 
the submitting network pharmacy of such determination within the period 
described in paragraph (c)(1) of this section. Such notification must 
specify all defects or improprieties in the claim and must list all 
additional information necessary for the proper processing and payment 
of the claim.
    (ii) Determination after submission of additional information. A 
claim is deemed to be a clean claim under paragraph (b) of this section 
if the Part D sponsor that receives the claim does not provide notice to 
the submitting network pharmacy of any remaining defect or impropriety, 
or of any new defect or impropriety raised by the additional 
information, in the claim within 10 days of the date on which additional 
information is received under paragraph (c)(2)(i) of this section. A 
Part D sponsor may not provide notice of a new deficiency or impropriety 
in the claim that could have been identified by the sponsor in the 
original claim submission under this paragraph.
    (3) Obligation to pay. A claim submitted to a Part D sponsor that is 
not paid by the Part D sponsor within the timeframes specified in 
paragraphs (a)(1)(i) and (ii) or contested by the Part D sponsor within 
the timeframe specified in paragraph (c)(1)(i) and (ii) of this section 
must be deemed to be a clean claim and must be paid by the Part D 
sponsor in accordance with paragraph (a) of this section.
    (d) Date of payment of claim. Payment of a clean claim under 
paragraph (c)(3) of this section is considered to have been made on the 
date on which--
    (1) The payment is transferred, for an electronic claim; or
    (2) The payment is submitted to the United States Postal Service or 
common carrier for delivery, for any other claim.
    (e) Interest payment--(1) General. Subject to paragraph (e)(2) of 
this section, if payment is not issued, mailed or otherwise transmitted 
for a clean claim as required under paragraph (a) of this section, the 
Part D sponsor must pay interest to the network pharmacy that submitted 
the claim at a rate equal to the weighted average of interest on 3-month 
marketable Treasury securities determined for such period, increased by 
0.1 percentage point for the period beginning on the day after the 
required payment date and ending on the date on which the payment is 
made, as determined under paragraph (d). Interest amounts paid under 
this paragraph will not count against the Part D sponsor's 
administrative costs, as defined in Sec. 423.308, and will not be 
treated as allowable risk corridor costs, as defined in Sec. 423.308.
    (2) Authority not to charge interest. As CMS determines, a Part D 
sponsor is not charged interest under paragraph (e)(1) in exigent 
circumstances that prevent the timely processing of claims, including 
natural disasters and other unique and unexpected events.
    (f) Electronic transfer of funds. A Part D sponsor must pay all 
clean claims submitted electronically by electronic transfer of funds 
provided the submitting network pharmacy so requests or has so requested 
previously that contract year. When such payment is made

[[Page 668]]

electronically, remittance may also be made electronically by the Part D 
sponsor.
    (g) Protecting the rights of the claimants--(1) General. Nothing in 
this section may be construed to prohibit or limit a claim or action 
that any individual or organization has against a pharmacy, provider, or 
Part D sponsor that is not covered by the subject matter of this 
section.
    (2) Anti-retaliation. Consistent with applicable Federal or State 
law, a Part D sponsor may not retaliate against an individual, pharmacy, 
or provider for exercising a right of action under paragraph (g)(1) of 
this section.
    (h) Construction. A determination under this section that a claim 
submitted by a network pharmacy is a clean claim shall not be construed 
as a positive determination regarding eligibility for payment under 
title XVIII of the Act, nor is it an indication of government approval 
of, or acquiescence regarding, the claim submitted. The determination 
does not relieve any party of civil or criminal liability with respect 
to the claim, nor does it offer a defense to any administrative, civil, 
or criminal action with respect to the claim.

[73 FR 54252, Sept. 18, 2008, as amended at 76 FR 54634, Sept. 1, 2011]



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.

[[Page 669]]

    (g) Sale of beneficiaries not permitted. (1) CMS will only recognize 
the sale or transfer of an organization's entire PDP line of business, 
consisting of all PDP contracts held by the PDP sponsor with the 
exception of the sale or transfer of a full contract between wholly 
owned subsidiaries of the same parent organization which will be 
recognized and allowed by CMS.
    (2) CMS will not recognize or allow a sale or transfer that consists 
solely of the sale or transfer of individual beneficiaries, groups of 
beneficiaries enrolled in a pharmacy benefit package, or one contract if 
the sponsor holds more than one PDP contract.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1546, Jan. 12, 2009; 75 
FR 19822, Apr. 15, 2010; 75 FR 32860, June 10, 2010]



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 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, Redeterminations, and 
                            Reconsiderations



Sec. 423.558  Scope.

    (a) This subpart sets forth the requirements relating to the 
following:

[[Page 670]]

    (1) Part D plan sponsors with respect to grievances, coverage 
determinations, and redeterminations.
    (2) Part D IRE with respect to reconsiderations.
    (3) Part D enrollees' rights with respect to grievances, coverage 
determinations, redeterminations, and reconsiderations.
    (b) The requirements regarding reopenings, ALJ hearings and ALJ and 
attorney adjudicator decisions, Council review, and judicial review are 
set forth in subpart U of this chapter.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5125, Jan. 17, 2017]



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 (Council)), 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 filing a grievance, 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 filing a grievance, 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.
    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.
    Other prescriber means a health care professional other than a 
physician who is authorized under State law or other applicable law to 
write prescriptions.
    Physician has the meaning given the term in section 1861(r) of the 
Act.
    Projected value of a Part D drug or drugs includes any costs the 
enrollee could incur based on the number of refills prescribed for the 
drug(s) in dispute during the plan year. 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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20507, Apr. 15, 2008; 74 
FR 1546, Jan. 12, 2009; 82 FR 5125, Jan. 17, 2017]



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) Use a single, uniform exceptions and appeals process which 
includes,

[[Page 671]]

procedures for accepting oral and written requests for coverage 
determinations and redeterminations that are in accordance with 
Sec. 423.128 (b)(7) and (d)(1)(iii).
    (iii) A procedure for making timely coverage determinations, 
including determinations on requests for exceptions to a tiered cost-
sharing structure or to a formulary; and
    (iv) 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 distribute notices instructing enrollees how to contact their plans 
to obtain a coverage determination or request an exception. These 
notices must comply with the standards established in 
Sec. 423.128(b)(7)(iii).
    (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.
    (5) A Part D plan sponsor must employ a medical director who is 
responsible for ensuring the clinical accuracy of all coverage 
determinations and redeterminations involving medical necessity. The 
medical director must be a physician with a current and unrestricted 
license to practice medicine in a State, Territory, Commonwealth of the 
United States (that is, Puerto Rico), or the District of Columbia.
    (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.
    (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. 423.1970.
    (v) If the ALJ or attorney adjudicator affirms the IRE's adverse 
coverage determination, in whole or in part, the right to request 
Council review of the ALJ's or attorney adjudicator's decision, as 
specified in Sec. 423.1974.
    (vi) If the Council affirms the ALJ's or attorney adjudicator's 
adverse coverage determination, in whole or in part, the right to 
judicial review of the decision if the amount in controversy meets the 
requirements in Sec. 423.1976.
    (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.

[[Page 672]]

    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 65363, Dec. 9, 2009; 76 
FR 21575, Apr. 15, 2011; 80 FR 7965, Feb. 12, 2015; 82 FR 5125, Jan. 17, 
2017]



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 calendar 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 calendar 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 calendar day timeframe 
by up to 14 calendar 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 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.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 65363, Dec. 9, 2009]

[[Page 673]]



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 or other prescriber, on behalf of the 
enrollee.
    (d) Who must review coverage determinations. If the Part D plan 
sponsor expects to issue a partially or fully adverse medical necessity 
(or any substantively equivalent term used to describe the concept of 
medical necessity) decision based on the initial review of the request, 
the coverage determination must be reviewed by a physician or other 
appropriate health care professional with sufficient medical and other 
expertise, including knowledge of Medicare coverage criteria, before the 
Part D plan sponsor issues the coverage determination decision. The 
physician or other health care professional must have a current and 
unrestricted license to practice within the scope of his or her 
profession in a State, Territory, Commonwealth of the United States 
(that is, Puerto Rico), or the District of Columbia.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1546, Jan. 12, 2009; 76 
FR 21576, Apr. 15, 2011]



Sec. 423.568  Standard timeframe and notice requirements for 
coverage determinations.

    (a) Method and place for filing a request. An enrollee must ask for 
a standard coverage determination by making a request with the Part D 
plan sponsor in accordance with the following:
    (1) Except as specified in paragraph (a)(2) of this section, the 
request may be made orally or in writing.
    (2) Requests for payment must be made in writing (unless the Part D 
plan sponsor has implemented a voluntary policy of accepting oral 
payment requests).
    (3) The Part D plan sponsor must establish and maintain a method of 
documenting all oral requests and retain the documentation in the case 
file.
    (b) 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 or other prescriber involved, as 
appropriate) of its determination as expeditiously as the enrollee's 
health condition requires, but no later than 72 hours after receipt of

[[Page 674]]

the request, or, for an exceptions request, the physician's or other 
prescriber's supporting statement.
    (c) 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 and make payment (when applicable) no later than 14 
calendar days after receipt of the request.
    (d) Written notice for favorable decisions by a Part D plan sponsor. 
If a Part D plan sponsor makes a completely favorable decision under 
paragraph (b) of this section, it must give the enrollee written notice 
of the determination. The initial notice may be provided orally, so long 
as a written follow-up notice is sent within 3 calendar days of the oral 
notification.
    (e) Form and content of the approval notice. The notice of any 
approval under paragraph (d) of this section must explain the conditions 
of the approval in a readable and understandable form.
    (f) 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. The initial 
notice may be provided orally, so long as a written follow-up notice is 
mailed to the enrollee within 3 calendar days of the oral notification.
    (g) Form and content of the denial notice. The notice of any denial 
under paragraph (f) of this section must meet the following 
requirements:
    (1) Use approved notice language in a readable and understandable 
form.
    (2) State the specific reasons for the denial.
    (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.
    (3) Inform the enrollee of his or her right to a redetermination.
    (4) Comply with any other notice requirements specified by CMS.
    (h) 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 (b) or (c) 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.

[75 FR 19823, Apr. 15, 2010, as amended at 76 FR 21576, Apr. 15, 2011]



Sec. 423.570  Expediting certain coverage determinations.

    (a) Request for expedited determination. An enrollee or an 
enrollee's prescribing physician or other prescriber may request that a 
Part D plan sponsor expedite a coverage determination involving issues 
described in Sec. 423.566(b) of this part. 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 or 
other prescriber 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 or other prescriber 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, prescribing physicians, or other 
prescribers.
    (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

[[Page 675]]

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 or other prescriber, provide an expedited determination if the 
physician or other prescriber 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(b) 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 
or other prescriber's supporting statement.
    (2) Give the enrollee and prescribing physician or other prescriber 
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 or other 
prescriber's support and
    (iv) Provides instructions about the plan's grievance process and 
its timeframes.
    (3) Subsequently deliver to the enrollee, 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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20507, Apr. 15, 2008; 74 
FR 1546, Jan. 12, 2009; 75 FR 19823, Apr. 15, 2010]



Sec. 423.572  Timeframes and notice requirements for expedited 
coverage determinations.

    (a) Timeframe for determination 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 or other prescriber 
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 or other prescriber's supporting statement.
    (b) Confirmation of oral notice. If the Part D plan sponsor first 
notifies an enrollee of an adverse or favorable 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) If the 
determination is completely favorable to the enrollee, the notice must 
explain the conditions of the approval in a readable and understandable 
form.
    (2) If the determination is not completely favorable to the 
enrollee, the notice must--
    (i) Use approved language in a readable and understandable form;
    (ii) State the specific reasons for the denial;
    (iii) Inform the enrollee of his or her right to a redetermination;
    (iv) Describe--
    (A) Both the standard and expedited redetermination processes, 
including the enrollee's right to request an expedited redetermination;
    (B) Conditions for obtaining an expedited redetermination; and
    (C) Other aspects of the appeal process.
    (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

[[Page 676]]

hours of the expiration of the adjudication timeframe.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1564, Jan. 12, 2009; 75 
FR 19823, Apr. 15, 2010]



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. 423.604 and Sec. 423.1970 through Sec. 423.1976 or is 
reopened and revised under Sec. 423.1978.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 65363, Dec. 9, 2009]



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 or 
other prescriber'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 or 
other prescriber 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 or other 
prescriber may file a request for an exception.
    (4) A prescribing physician or other prescriber must provide an oral 
or written supporting statement that the preferred drug for the 
treatment of the enrollee's conditions--
    (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.
    (5) If the physician or other prescriber provides an oral supporting 
statement, the Part D plan sponsor may require the physician or other 
prescriber 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 or other prescriber 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 or other 
prescriber'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-

[[Page 677]]

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 or other prescriber'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 or other prescriber (on behalf of the enrollee) 
may file a request for an exception.
    (5) A prescribing physician or other prescriber 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;
    (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 or other prescriber provides an oral supporting 
statement, the Part D plan sponsor may require the physician or other 
prescriber to subsequently provide a written supporting statement. The 
Part D

[[Page 678]]

plan sponsor may require the prescribing physician or other prescriber 
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 or other prescriber 
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 or other prescriber 
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 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 or other prescriber's supporting 
statement. Nothing in this section should be construed to mean that the 
physician's or other prescriber's supporting statement required for an 
exceptions request will result in an automatic favorable decision.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1546, Jan. 12, 2009]



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. 423.1978) may request 
that it be redetermined under the procedures described in Sec. 423.582, 
which address requests for a standard redetermination. The prescribing 
physician or other prescriber (acting on behalf of an enrollee), upon 
providing notice to the

[[Page 679]]

enrollee, may request a standard redetermination under the procedures 
described in Sec. 423.582. An enrollee or an enrollee's prescribing 
physician or other prescriber (acting on behalf of an enrollee) may 
request an expedited redetermination as specified in Sec. 423.584.

[74 FR 1547, Jan. 12, 2009, as amended at 74 FR 65363, Dec. 9, 2009]



Sec. 423.582  Request for a standard redetermination.

    (a) Method and place for filing a request. An enrollee or an 
enrollee's prescribing physician or other prescriber (acting on behalf 
of the 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, a request for a redetermination must be filed 
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 or prescribing physician or other prescriber acting on behalf 
of 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 calendar day 
period in which to file a request for a redetermination has expired, an 
enrollee or a prescribing physician or other prescriber acting on behalf 
of 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.

[74 FR 1547, Jan. 12, 2009, as amended at 74 FR 65363, Dec. 9, 2009]



Sec. 423.584  Expediting certain redeterminations.

    (a) Who may request an expedited redetermination. An enrollee or an 
enrollee's prescribing physician or other prescriber 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 or other 
prescriber 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 or other prescriber 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 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 or 
other prescriber, the Part D plan sponsor must provide an expedited 
redetermination if the physician or other prescriber indicates that 
applying the standard

[[Page 680]]

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 calendar day timeframe 
established in Sec. 423.590(a). The 7 calendar 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 calendar 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 or other 
prescriber'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).

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20507, Apr. 15, 2008; 74 
FR 1547, Jan. 12, 2009; 74 FR 65363, Dec. 9, 2009]



Sec. 423.586  Opportunity to submit evidence.

    The Part D plan sponsor must provide the enrollee or the prescribing 
physician or other prescriber, 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 or other prescriber of the conditions for submitting the 
evidence.

[74 FR 1548, Jan. 12, 2009]



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 the IRE within 24 hours of the 
expiration of the adjudication timeframe.

[[Page 681]]

    (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 or 
other prescriber 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) Confirmation of oral notice. If the Part D plan sponsor first 
notifies an enrollee of an adverse or favorable expedited 
redetermination orally, it must mail written confirmation to the 
enrollee within 3 calendar days of the oral notification.
    (3) 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 or other prescriber, 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 or other prescriber.
    (g) Form and content of an adverse redetermination notice. The 
notice of any adverse determination under paragraphs (a)(2), (b)(2), 
(d)(1) or (d)(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.
    (h) Form and content of a completely favorable redetermination 
notice. The notice of any completely favorable determination under 
paragraphs (a)(1), (d)(1) or (d)(2) of this section must explain the 
conditions of the approval in a readable and understandable form.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1548, Jan. 12, 2009; 75 
FR 19823, Apr. 15, 2010]



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. The prescribing physician or 
other prescriber (acting on behalf of an enrollee), upon providing 
notice to the enrollee, may request an IRE reconsideration. The 
enrollee, or the enrollee's prescribing physician or other prescriber 
(acting on behalf of the enrollee) must file a written request for 
reconsideration with the IRE within 60 calendar days of the date of the 
redetermination by the Part D plan sponsor.

[[Page 682]]

    (b) When an enrollee, or an enrollee's prescribing physician or 
other prescriber (acting on behalf of the enrollee) files an appeal, the 
IRE is required to solicit the views of the prescribing physician or 
other prescriber. The IRE may solicit the views of the prescribing 
physician or other prescriber orally or in writing. A written account of 
the prescribing physician's or other prescriber's views (prepared by 
either the prescribing physician, other prescriber, or IRE, as 
appropriate) must be contained in the IRE record.
    (c) In order for an enrollee or a prescribing physician or other 
prescriber (acting on behalf of 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 or other prescriber 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 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 or other prescriber.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1548, Jan. 12, 2009; 74 
FR 65363, Dec. 9, 2009; 77 FR 22171, Apr. 12, 2012]



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. When the prescribing physician or other 
prescriber requests the reconsideration on behalf of the enrollee, the 
IRE is also responsible for notifying the prescribing physician or other 
prescriber of its decision.
    (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. 423.1970;
    (3) Describe the procedures that must be followed to obtain an ALJ 
hearing; and
    (4) Comply with any other requirements specified by CMS.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 65363, Dec. 9, 2009; 77 
FR 22171, Apr. 12, 2012]



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. 423.1972.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 65363, Dec. 9, 2009]



Secs. 423.610-423.634  [Reserved]



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.

[[Page 683]]

    (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 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) The Part D sponsor's right to request a hearing.
    (c) CMS-initiated terminations--(1) General rule. Except as provided 
in (c)(2) of this section, CMS mails notice to the Part D plan sponsor 
45 calendar days before the anticipated effective date of the 
termination.
    (2) Exception. If a contract is terminated in accordance with 
Sec. 423.509(b)(2)(i) of this part, CMS notifies the Part D plan sponsor 
of the date that it will terminate the Part D plan sponsor's contract.

[[Page 684]]

    (d) When CMS determines that it will not authorize a contract 
renewal, CMS mails the notice to the Part D sponsor by August 1 of the 
current contract year.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68733, Dec. 5, 2007; 75 
FR 19823, Apr. 15, 2010; 79 FR 29965, May 23, 2014]



Sec. 423.643  Effect of contract determination.

    The contract determination is final and binding unless a timely 
request for a hearing is filed under 423.651.

[72 FR 68733, Dec. 5, 2007]



Sec. 423.650  Right to a hearing, burden of proof, standard 
of proof, and standards of review.

    (a) Right to a hearing. The following parties are entitled to a 
hearing:
    (1) A contract applicant that has been determined to be unqualified 
to enter into a contract with CMS under Part D of Title XVIII of the Act 
in accordance with Sec. 423.502 and Sec. 423.503 of this part.
    (2) A Part D sponsor whose contract has been terminated in 
accordance with Sec. 423.509 of this part.
    (3) A Part D sponsor whose contract has not been renewed in 
accordance with Sec. 423.507 of this part.
    (4) A Part D sponsor who has had an intermediate sanction imposed in 
accordance with Sec. 423.752(a) through (b).
    (b) Burden of proof, standard of proof, and standard of review at 
hearing. (1) During a hearing to review a contract determination as 
described at Sec. 423.641(a) of this subpart, the applicant has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec. 423.502 and 
Sec. 423.503 of this part.
    (2) During a hearing to review a contract determination as described 
at Sec. 423.641(b) of this part, the Part D plan sponsor has the burden 
of proving by a preponderance of the evidence that CMS' determination 
was inconsistent with the requirements of Sec. 423.507 of this part.
    (3) During a hearing to review a contract determination as described 
at Sec. 423.641(c) of this subpart, the Part D plan sponsor has the 
burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec. 423.509 of 
this part.
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec. 423.750 of this part, the Part D sponsor 
has the burden of proving by a preponderance of the evidence that CMS' 
determination was inconsistent with the requirements of Sec. 423.752 of 
this part.
    (c) Timing of favorable decision. Notice of any decision favorable 
to the Part D sponsor appealing a determination that it is not qualified 
to enter into a contract with CMS must be issued by September 1 for the 
contract in question to be effective on January 1 of the following year.

[75 FR 19824, Apr. 15, 2010, as amended at 80 FR 7965, Feb. 12, 2015]



Sec. 423.651  Request for hearing.

    (a) Method and place for filing a request. (1) A request for a 
hearing must be made in writing and filed by an authorized official of 
the contract applicant or Part D plan sponsor that was the party to the 
determination under the appeal.
    (2) The request for the hearing must be filed in accordance with the 
requirements specified in the notice.
    (b) Time for filing a request. A request for a hearing must be filed 
within 15 calendar days after the receipt of the notice of the contract 
determination or intermediate sanction.
    (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 be prejudiced by the decision 
to be rendered at the hearing; and
    (3) CMS.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68734, Dec. 5, 2007; 75 
FR 19824, Apr. 15, 2010]



Sec. 423.652  Postponement of effective date of a contract determination
when a request for a hearing is filed timely.

    (a) Hearing. When a request for a hearing is timely filed, CMS will 
postpone the proposed effective date of the contract determination 
listed at 423.641

[[Page 685]]

until a hearing decision is reached and affirmed by the Administrator 
following review pursuant to 423.666 in instances where a Part D sponsor 
or CMS requests Administrator review and the Administrator accepts the 
matter for review.
    (b) Exceptions: (1) If a final decision is not reached on CMS' 
determination for an initial contract by July 15, CMS will not enter 
into a contract with the applicant for the following year.
    (2) A contract terminated in accordance with Sec. 423.509(b)(2)(i) 
of this part will be terminated on the date specified by CMS and will 
not be postponed if a hearing is requested.

[72 FR 68734, Dec. 5, 2007, as amended at 75 FR 19824, Apr. 15, 2010]



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--
    (1) Fixes a time and place for the hearing, which is not to exceed 
30 calendar days after the receipt of request for the hearing;
    (2) Sends written notice to the parties that informs the parties of 
the general and specific issues to be resolved, the burden of proof, and 
information about the hearing procedure.
    (b)(1) The hearing officer may, on his or her own motion, change the 
time and place of the hearing.
    (2) The hearing officer may adjourn or postpone the hearing.
    (c)(1) The Part D plan sponsor or CMS may request an extension by 
filing a written request no later than 10 calendar days prior to the 
scheduled hearing.
    (2) When either the Part D plan sponsor or CMS requests an extension 
the hearing officer will provide a one-time 15-calendar day extension.
    (3) Additional extensions may be granted at the discretion of the 
hearing officer.

[75 FR 19824, Apr. 15, 2010]



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 686]]

    (c) The hearing officer provides the parties an opportunity to enter 
any objection to the inclusion of any document.
    (d) The Part D sponsor bears the burden of going forward and must 
first present evidence and argument before CMS presents its evidence and 
argument.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19824, Apr. 15, 2010]



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  Witnesses lists and documents.

    Witness lists and documents must be identified and exchanged at 
least 5 calendar days prior to the scheduled hearing

[75 FR 19824, Apr. 15, 2010]



Sec. 423.662  Prehearing and summary judgment.

    (a) Prehearing. The hearing officer may schedule a prehearing 
conference if he or she believes that a conference would more clearly 
define the issues.
    (b) Summary judgment. Either party to the hearing, may ask the 
hearing officer to rule on a motion for summary judgment.

[72 FR 68734, Dec. 5, 2007]



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 Administrator. CMS or a Part D plan 
sponsor that has received a hearing decision may request a review by the 
Administrator within 15 calendar days after receipt of the hearing 
decision as provided under Sec. 423.665(b) of this subpart. Both the 
Part D plan sponsor and CMS may provide written arguments to the 
Administrator for review.
    (b) Decision to review the hearing decision. After receiving a 
request for review, the Administrator has the discretion to elect to 
review the hearing determination in accordance with paragraph (d) of 
this section or to decline to review the hearing decision.
    (c) Notification of Administrator determination. The Administrator 
notifies both parties of his or her determination regarding review of 
the hearing decision within 30 calendar days after receipt of request 
for review. If the Administrator declines to review the hearing decision 
or the Administrator does not make a determination regarding review 
within 30 calendar days, the decision of the hearing officer is final.
    (d) Review by the Administrator. If the Administrator elects to 
review the hearing decision regarding a contract determination, the 
Administrator shall review the hearing officer's decision

[[Page 687]]

and determine, based upon this decision, the hearing record, and any 
written arguments submitted by the Part D sponsor or CMS, whether the 
determination should be upheld, reversed, or modified.
    (e) Decision by the Administrator. The Administrator issues a 
written decision, and furnishes the decision to the PDP sponsor 
requesting review.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68734, Dec. 5, 2007; 75 
FR 19824, Apr. 15, 2010]



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 a contract determination or decision 
of a hearing officer or the Administrator.

    (a) CMS may reopen and revise an initial determination upon its own 
motion.
    (b) Contract determination. 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 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.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68734, Dec. 5, 2007; 75 
FR 19824, Apr. 15, 2010]



                    Subpart O_Intermediate Sanctions



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

    (a) The following intermediate sanctions may be imposed and will 
continue in effect until CMS is satisfied that the deficiencies that are 
the basis for the sanction determination have been corrected and are not 
likely to recur:
    (1) Suspension of the Part D plan sponsor's enrollment of Medicare 
beneficiaries.
    (2) Suspension of payment to the Part D plan sponsor for Medicare 
beneficiaries enrolled after the date CMS notifies the organization of 
the intermediate sanction.
    (3) Suspension of all marketing activities to Medicare beneficiaries 
by a Part D plan sponsor.
    (b) CMS may impose civil money penalties as specified in 423.760.

[72 FR 68734, Dec. 5, 2007, as amended at 75 FR 19824, Apr. 15, 2010]



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

    (a) All intermediate sanctions. For the violations listed in this 
paragraph (a), CMS may impose one or more of the sanctions specified in 
Sec. 423.750(a) of this subpart on any Part D plan sponsor with a 
contract. The Part D plan sponsor may also be subject to other remedies 
authorized under law.
    (1) Fails substantially to provide medically necessary items and 
services that are required (under law or under the contract) to be 
provided to an individual covered under the contract, if the failure has 
adversely affected (or has the substantial likelihood of adversely 
affecting) the individual.
    (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 re-enroll a beneficiary in violation 
of the provisions of this part.
    (4) Engages in any practice that would reasonably be expected to 
have the effect of denying or discouraging enrollment (except as 
permitted by

[[Page 688]]

this part) by eligible individuals with the organization 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.
    (7) Except as provided under Sec. 423.34, enrolls an individual in 
any plan under this part without the prior consent of the individual or 
the designee of the individual.
    (8) Transfers an individual enrolled under this part from one plan 
to another without the prior consent of the individual or the designee 
of the individual or solely for the purpose of earning a commission.
    (9) Fails to comply with marketing restrictions described in subpart 
V or applicable implementing guidance.
    (10) Employs or contracts with any individual, agent, provider, 
supplier or entity who engages in the conduct described in paragraphs 
(a)(1) through (9) of this section.
    (b) Suspension of enrollment and marketing. If CMS makes a 
determination that could lead to a contract termination under 
423.509(a), CMS may impose the intermediate sanctions at 423.750(a)(1) 
and (a)(3).
    (c) Civil money penalties (1) CMS. In addition to, or in place of, 
any intermediate sanctions, CMS may impose civil money penalties in the 
amounts specified in either of the following:
    (i) Section 423.760(b) for any of the determinations at 
Sec. 423.509(a), except Sec. 423.509(a)(4)(i).
    (ii) Section 423.760(c) for any of the determinations in paragraph 
(a) of this section except Sec. 422.752(a)(5) of this chapter.
    (2) OIG. In addition to, or in place of any intermediate sanctions 
imposed by CMS, the OIG, in accordance with part 1003 of Chapter V of 
this title, may impose civil money penalties for the following:
    (i) Violations listed at 423.752(a).
    (ii) Determinations made pursuant to Sec. 422.510(a)(4)(i) of this 
chapter.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68734, Dec. 5, 2007; 75 
FR 19825, Apr. 15, 2010; 79 FR 29965, May 23, 2014]



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

    (a) Notice of intermediate sanction and opportunity to respond--(1) 
Notice of intent. Before imposing the intermediate sanctions, CMS--
    (i) Sends a written notice to the Part D plan sponsor stating the 
nature and basis of the proposed intermediate sanction, and the Part D 
plan sponsor's right to a hearing as specified in paragraph (b) of this 
section; and
    (ii) Sends the OIG a copy of the notice.
    (2) Opportunity to respond. CMS allows the Part D plan sponsor 10 
calendar days after receipt of the notice to provide a written rebuttal. 
CMS considers receipt of the notice as the day after notice is sent by 
fax, e-mail, or submitted for overnight mail.
    (b) Hearing. (1) The Part D plan sponsor may request a hearing 
before a CMS hearing officer.
    (2) A written request must be received by the designated CMS office 
within 15 calendar days after the receipt of the notice.
    (3) A request for a hearing under Sec. 423.650 of this part does not 
delay the date specified by CMS when the sanction becomes effective.
    (4) The Part D plan sponsor must follow the right to a hearing 
procedure as specified at subpart N of this part.
    (c) Effective date and duration of sanctions--(1) Effective date. 
The effective date of the sanction is the date specified by CMS in the 
notice.
    (2) Exception. If CMS determines that the Part D sponsor's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on an earlier date that CMS specifies.

[[Page 689]]

    (3) Duration of sanction. The sanction remains in effect until CMS 
is satisfied that the deficiencies that are the basis for the sanction 
determination have been corrected and are not likely to recur.
    (i) CMS may require that the Part D plan sponsor hire an independent 
auditor to provide CMS with additional information to determine if the 
deficiencies that are the basis for the sanction determination have been 
corrected and are not likely to recur. The independent auditor must work 
in accordance with CMS specifications and must be willing to attest that 
a complete and full independent review has been performed.
    (ii) In instances where intermediate sanctions have been imposed, 
CMS may require a Part D plan sponsor to market or to accept enrollments 
or both for a limited period of time in order to assist CMS in making a 
determination as to whether the deficiencies that are the bases for the 
intermediate sanctions have been corrected and are not likely to recur.
    (A) If, following this time period, CMS determines the deficiencies 
have not been corrected or are likely to recur, the intermediate 
sanctions will remain in effect until such time that CMS is assured the 
deficiencies have been corrected and are not likely to recur.
    (B) The Part D plan sponsor does not have a right to a hearing under 
Sec. 423.650(a)(4) of this subpart to challenge CMS' determination to 
keep the intermediate sanctions in effect.
    (C) During the limited time period, sanctioned Part D plan sponsors 
under the benchmark that would normally participate in the annual and 
monthly auto enrollment process for enrollees receiving the low income 
subsidy will not be allowed to receive or process these types of 
enrollments.
    (d) Non-renewal or termination by CMS. In addition to or as an 
alternative to the sanctions described in Sec. 423.750, CMS may decline 
to authorize the renewal of an organization's contract in accordance 
with Sec. 423.507(b), or terminate the contract in accordance with 
Sec. 423.509.
    (1) Decline to authorize the renewal of an organization's contract 
in accordance with Sec. 423.507(b); or
    (2) Terminate the contract in accordance with Sec. 423.509.
    (e) Notice to impose civil money penalties--(1) CMS notice to OIG. 
If CMS determines that a Part D sponsor has committed an act or failed 
to comply with a requirement as described in 423.752, CMS notifies the 
OIG of this determination. OIG may impose a civil money penalty upon a 
Part D sponsor as specified at 423.752(c)(2).
    (2) CMS notice of civil money penalties to Part D plan sponsors. If 
CMS makes a determination to impose a CMP described in 423.752(c)(1), 
CMS will send a written notice of the Agency's decision to impose a 
civil money penalty to include--
    (i) A description of the basis for the determination.
    (ii) The basis for the penalty.
    (iii) The amount of the penalty.
    (iv) The date the penalty is due.
    (v) The Part D sponsor's right to a hearing as specified under 
Subpart T of this part.
    (vi) Information about where to file the request for hearing.

[70 FR 4525, Jan. 28, 2005, as amended at 72 FR 68735, Dec. 5, 2007; 73 
FR 55764, Sept. 26, 2008; 75 FR 19825, Apr. 15, 2010; 79 FR 29965, May 
23, 2014]



Sec. 423.758  Collection of civil money penalties imposed by CMS.

    (a) When a Part D plan sponsor does not request a hearing CMS 
initiates collection of the civil money penalty following the expiration 
of the timeframe for requesting an ALJ hearing as specified in subpart 
T.
    (b) If a Part D sponsor requests a hearing and CMS' decision to 
impose a civil money penalty is upheld, CMS may initiate collection of 
the civil money penalty once the administrative decision is final.

[72 FR 68735, Dec. 5, 2007]



Sec. 423.760  Determinations regarding the amount of civil money 
penalties and assessment imposed by CMS.

    (a) Determining the appropriate amount of any penalty. In 
determining the amount of penalty imposed under

[[Page 690]]

Sec. 423.752(c)(1), CMS considers the following as appropriate:
    (1) The nature of the conduct.
    (2) The degree of culpability of the Part D sponsor.
    (3) The adverse effect to enrollees which resulted or could have 
resulted from the conduct of the Part D sponsor.
    (4) The financial condition of the Part D sponsor.
    (5) The history of prior offenses by the Part D sponsor or 
principals of the Part D sponsor.
    (6) Such other matters as justice may require.
    (b) Amount of penalty. CMS may impose civil money penalties in the 
following amounts:
    (1) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more Part D enrollees--up to $25,000 as 
adjusted annually under 45 CFR part 102 for each determination.
    (2) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more Part D enrollees, CMS may calculate a 
CMP of up to $25,000 as adjusted annually under 45 CFR part 102 for each 
Part D enrollee directly adversely affected (or with a substantial 
likelihood of being adversely affected) by a deficiency .
    (3) 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 as adjusted annually under 45 CFR part 102.
    (4) If CMS makes a determination that a Part D sponsor has 
terminated its contract other than in a manner described under 423.510 
and that the Part D sponsor has therefore failed to substantially carry 
out the terms of the contract, $250 as adjusted annually under 45 CFR 
part 102 per Medicare enrollee from the terminated Part D sponsor or 
plans at the time the Part D sponsor terminated its contract, or 
$100,000 as adjusted annually under 45 CFR part 102, whichever is 
greater.
    (c) Amount of penalty imposed by CMS or OIG. CMS or the OIG may 
impose civil money penalties in the following amounts for a 
determination made under Sec. 423.752(a):
    (1) Civil money penalties of not more than $25,000 as adjusted 
annually under 45 CFR part 102 for each determination made.
    (2) With respect to a determination made under Sec. 423.752(a)(4) or 
(a)(5)(i), not more than $100,000 as adjusted annually under 45 CFR part 
102 for each such determination except with respect to a determination 
made under Sec. 423.752(a)(5), an assessment of not more than the amount 
claimed by such plan or PDP sponsor based upon the misrepresentation or 
falsified information involved.
    (3) Plus with respect to a determination made under 
Sec. 423.752(a)(2), double the excess amount charged in violation of 
such paragraph (and the excess amount charged must be deducted from the 
penalty and returned to the individual concerned).
    (4) Plus with respect to a determination made under 
Sec. 423.752(a)(4), $15,000 as adjusted annually under 45 CFR part 102 
for each individual not enrolled as a result of the practice involved.

[72 FR 68735, Dec. 5, 2007, as amended at 74 FR 1548, Jan. 12, 2009; 79 
FR 29966, May 23, 2014; 81 FR 61562, Sept. 6, 2016]



Sec. 423.762  Settlement of penalties.

    For civil money penalties imposed by CMS, CMS may settle civil money 
penalty cases at any time before a final decision is rendered.

[72 FR 68735, Dec. 5, 2007]



Sec. 423.764  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.

[70 FR 4525, Jan. 28, 2005. Redesignated at 72 FR 68735, Dec. 5, 2007]

[[Page 691]]



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.
    Best available evidence means evidence recognized by CMS as 
documentation or other information that is directly tied to State or 
Social Security Administration systems that confirm an individual's low-
income subsidy eligibility status, and that must be accepted and used by 
the Part D sponsor to change low-income subsidy status.
    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).
    Income means income as described under section 1905(p)(1) of the Act 
without use of any more liberal disregards under section 1902(r)(2) of 
the Act (that is defined by section 1612 of the Act) and exempts support 
and maintenance furnished in kind. This definition includes the income 
of the applicant and spouse who is living in the same household, if any, 
regardless of whether the spouse is also an applicant.
    Individual receiving home and community-based services means a full-
benefit dual-eligible individual who is receiving services under a home 
and community-based program authorized for a State in accordance with 
one of the following:
    (1) Section 1115 of the Act.
    (2) Section 1915(c) or (d) of the Act.
    (3) State plan amendment under section 1915(i) of the Act.
    (4) Services are provided through enrollment in a Medicaid managed 
care organization with a contract under section 1903(m) of the Act or 
section 1932 of the Act.
    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).

[[Page 692]]

    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. It exempts the value of any life insurance policy.
    State means for purposes of this subpart each of the 50 States and 
the District of Columbia.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 54253, Sept. 18, 2008; 
74 FR 1548, Jan. 12, 2009; 76 FR 21576, Apr. 15, 2011]



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) Beneficiary 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) that he or she does not need to apply for the 
subsidies under this subpart, and, at a minimum, is deemed eligible for 
a full subsidy as follows:
    (i) For an individual deemed eligible between January 1 and June 30 
of a calendar year, the individual is deemed eligible for a full subsidy 
for the remainder of the calendar year.
    (ii) For an individual deemed eligible between July 1 and December 
31 of a calendar year, the individual is deemed eligible for the 
remainder of the calendar year and the following calendar 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--
    (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),

[[Page 693]]

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.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19825, Apr. 15, 2010]



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 the lesser of--
    (i) Under the Part D plan selected by the beneficiary, the portion 
of the monthly beneficiary premium attributable to basic coverage (for 
enrollees in PDPs) or the portion of the MA monthly prescription drug 
beneficiary premium attributable to basic prescription drug coverage 
(for enrollees in MA-PD plans); or
    (ii) The greater of the low-income benchmark premium amount 
(determined under paragraph (b)(2) of this section) for the PDP region 
in which the subsidy eligible individual resides or the lowest monthly 
beneficiary premium for a PDP 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 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 low-income 
subsidy eligible individuals enrolled in the plan in the reference month 
(as defined in

[[Page 694]]

Sec. 422.258(c)(1) of this chapter) and the denominator equal to the 
total number of Part D low-income subsidy 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 and determined 
before the application of the monthly rebate computed under section 
1854(b)(1)(C)(i) of the Act for that plan and year involved.
    (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) Waiver of late enrollment penalty for subsidy-eligible 
individuals. Subsidy eligible individuals, as defined in Sec. 423.773, 
are not subject to a late enrollment penalty, as defined in Sec. 423.46.
    (f) Waiver of de minimis premium amounts. CMS will permit a Part D 
plan to waive a de minimis amount that is above the monthly beneficiary 
premium defined in Sec. 423.780(b)(2)(ii)(A) or (B) for full subsidy 
individuals as defined in Sec. 423.780(a) or Sec. 423.780(d)(1), 
provided waiving the de minimis amount results in a monthly beneficiary 
premium that is equal to the established low income benchmark as defined 
in Sec. 423.780(b)(2).

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 18182, Apr. 3, 2008; 73 
FR 20508, Apr. 15, 2008; 73 FR 54253, Sept. 18, 2008; 76 FR 21576, Apr. 
15, 2011]



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

[[Page 695]]

    (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 or who are receiving home and community-based services 
have no cost-sharing for Part D drugs covered under their PDP or MA-PD 
plans.
    (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.
    (c) When the out-of-pocket cost for a covered Part D drug under a 
Part D sponsor's plan benefit package is less than the maximum allowable 
copayment, coinsurance or deductible amounts under paragraphs (a) and 
(b) of this section, the Part D sponsor may only charge the lower 
benefit package amount.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1548, Jan. 12, 2009; 76 
FR 21576, Apr. 15, 2011]



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. Based on information provided by CMS under paragraph (a) 
of this section, or obtained under paragraph (d) of this section, 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.

[[Page 696]]

    (d) Use of the best available evidence process to establish cost-
sharing. Part D sponsors must--
    (1) Accept best available evidence as defined in Sec. 423.772 of 
this part received from beneficiaries or other individuals acting 
directly on their behalf; and
    (2) Update the subsidy eligible individual's LIS status. and respond 
to requests for assistance in securing acceptable evidence of subsidy 
eligibility from beneficiaries or other individuals acting directly on 
their behalf in accordance with the process(es) established by CMS, and 
within the reasonable timeframe(s) as determined by CMS.
    (e) Timeframe for refunds and recoveries due to retroactive 
adjustments to cost sharing. Sponsors must process retroactive 
adjustments to cost-sharing for low-income subsidy eligible individuals 
and any resulting refunds and recoveries in accordance with the 
timeframe specified in Sec. 423.466(a) of this part.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1549, Jan. 12, 2009; 75 
FR 19825, Apr. 15, 2010]



    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 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.

[[Page 697]]



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
    (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

[[Page 698]]

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 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 Secs. 423.504 and 
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.

[[Page 699]]

    (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 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:
    Actually paid means that the costs must be actually incurred by the 
qualified retiree prescription drug plan and must be net of any direct 
or indirect remuneration (including discounts, charge backs 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 price concessions or similar benefits offered to some 
or all purchasers) from any source that would serve to decrease the 
costs incurred under the qualified retiree prescription drug plan.
    Administrative costs means costs incurred by a qualified retiree 
prescription drug plan that are not drug costs incurred to purchase or 
reimburse the purchase of Part D drugs.
    Allowable retiree costs means the subset of gross covered retiree 
plan-related prescription drug costs actually paid by the sponsor of the 
qualified retiree prescription drug plan or by (or on behalf of) a 
qualifying covered retiree under the plan.
    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

[[Page 700]]

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 those Part D drug costs incurred under a qualified 
retiree prescription drug plan, excluding administrative costs, but 
including dispensing fees, during the coverage year. They equal the sum 
of the following:
    (1) The share of prices paid by the qualified retiree prescription 
drug plan that is received as reimbursement by the pharmacy or by an 
intermediary contracting organization, and reimbursement paid to 
indemnify a qualifying covered retiree when the reimbursement is 
associated with a qualifying covered retiree obtaining Part D drugs 
under the qualified retiree prescription drug plan.
    (2) All amounts paid under the qualified retiree prescription drug 
plan by or on behalf of a qualifying covered retiree (such as the 
deductible, coinsurance, or cost sharing) in order to obtain Part D 
drugs that are covered under the qualified retiree prescription drug 
plan.
    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 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

[[Page 701]]

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.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1549, Jan. 12, 2009; 77 
FR 1883, Jan. 12, 2012]



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 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;

[[Page 702]]

    (ii) Acknowledge that at the same time CMS releases Part C and Part 
D summary payment data in accordance with Secs. 422.504(n) and 
423.505(o) CMS will also release Part D retiree drug subsidy payment 
data for the most recently reconciled year including the name of the 
eligible sponsor, the total gross aggregate dollar amount of the CMS 
subsidy, and the number of eligible retirees;
    (iii) Acknowledge that the information in the application is being 
provided to obtain Federal funds; and
    (iv) 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 prior to the beginning of the plan year by a date 
specified by CMS in published guidance, unless a request for an 
extension has been filed and approved under procedures set forth in such 
guidance.
    (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 for the 
individuals submitted as qualifying covered retirees with a CMS 
database(s) 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 coverage (as defined at Sec. 423.100), not taking into 
account the value of any discount or coverage provided during the 
coverage gap (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, not taking into account the 
value of any discount or coverage provided during the coverage gap.
    (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 that plan year in question, not taking into account the 
value of any discount or coverage provided during the coverage gap.
    (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 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.

[[Page 703]]

    (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 
actually 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, not 
taking into account the value of any discount or coverage provided 
during the coverage gap.
    (D) Example: If a sponsor's retiree prescription drug plan operates 
under a plan year that ends March 30, the sponsor has a choice of basing 
the attestation for the year April 1, 2007 through March 30, 2008 on 
either the initial coverage limit, cost-sharing amounts, and out-of-
pocket threshold amounts that apply to defined standard prescription 
drug coverage under Part D in CY 2007, or the amounts announced for CY 
2008. However, in order to use the amounts applicable in CY 2007, the 
sponsor must submit the attestation within 60 days after the publication 
of the Part D coverage limits for CY 2008. If the attestation is 
submitted more than 60 days

[[Page 704]]

after the 2008 coverage limits have been published, the CY 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 (or for a subset of 
the benefit options).
    (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 retiree prescription drug 
plan. For purposes of this clause, the term ``material change'' means 
the addition of a benefit option that does not impact the actuarial 
value of the retiree prescription drug coverage under the sponsor's plan 
such that it no longer meets the standards set forth in paragraph 
(d)(1)(i) or (ii) of this section.
    (7) Notice of failure to continue to satisfy the actuarial 
equivalence standards. A sponsor must notify CMS, in a form and manner 
specified by CMS, no later than 90 days before the implementation of a 
change to the drug coverage that impacts the actuarial value of the 
retiree prescription drug coverage under the sponsor's plan such that it 
no longer meets the standards set forth in paragraph (d)(1)(i) or (ii) 
of this section.
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20508, Apr. 15, 2008; 76 
FR 21576, Apr. 15, 2011]



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.

[[Page 705]]

    (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 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

[[Page 706]]

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 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 covered plan-
related retiree prescription drug costs incurred by the health insurance 
issuer (as defined in 45 CFR 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.

[[Page 707]]

    (4) CMS may issue additional guidance addressing recordkeeping 
requirements, including (but not limited to) the use of electronic 
media.

[70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1549, Jan. 12, 2009]



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:
    (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

[[Page 708]]

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 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

[[Page 709]]

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);
    (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).

[[Page 710]]

    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 (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.
    Noncovered drugs are those drugs specifically excluded from the 
definition of Part D drug, 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.
    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 \1/12\th 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

[[Page 711]]

the State for the fiscal year in which the month occurs.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20509, Apr. 15, 2008]



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 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) Part D drugs; or
    (2) Any cost-sharing obligations under Part D relating to Part D 
drugs.
    (3) The effective date of paragraphs (b)(1) and (b)(2) of this 
section is January 1, 2006.
    (c) Noncovered drugs. States may elect to provide coverage for 
outpatient drugs other than 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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20509, Apr. 15, 2008]



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.

[[Page 712]]

    (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.
    (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 monthly 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)
                                     capita expenditures for covered                         x  (6)]  [(7) +
                                     Part D drugs for full-benefit                           (8)]
                                     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).

[[Page 713]]

 
(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
                                     for the month.                                          (10)  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.
    (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.

[70 FR 4525, Jan. 28, 2005, as amended at 73 FR 20509, Apr. 15, 2008]



          Subpart T_Appeal Procedures for Civil Money Penalties

    Source: 72 FR 68736, Dec. 5, 2007, unless otherwise noted.



Sec. 423.1000  Basis and scope.

    (a) Statutory basis. (1) Section 1128A(c)(2) of the Act provides 
that the Secretary may not collect a civil

[[Page 714]]

money penalty until the affected party has had notice and opportunity 
for a hearing.
    (2) Section 1857 (g) of the Act provides that, for Part D sponsors 
found to be out of compliance with the requirements in part 423, 
specified remedies may be imposed instead of, or in addition to, 
termination of the Part D sponsor's contract. Section 1857(g)(4) of the 
Act makes certain provisions of section 1128A of the Act applicable to 
civil money penalties imposed on Part D sponsors.
    (3) Section 1860D-14A(e)(2) of the Act specifies that the Secretary 
must impose a civil money penalty on a manufacturer that fails to 
provide applicable beneficiaries discounts for applicable drugs of the 
manufacturer in accordance with its Discount Program Agreement. Section 
1860D-14A(e)(2)(B) of the Act makes certain provisions of section 1128A 
of the Act applicable to such civil money penalties imposed on 
manufacturers.
    (b) [Reserved]

[72 FR 68736, Dec. 5, 2007, as amended 77 FR 22171, Apr. 12, 2012]



Sec. 423.1002  Definitions.

    As used in this subpart--
    Affected party means any Part D sponsor or manufacturer (as defined 
in Sec. 423.2305) impacted by an initial determination or, if 
applicable, by a subsequent determination or decision issued under this 
part, and ``party'' means the affected party or CMS, as appropriate.
    ALJ stands for Administrative Law Judge.
    Departmental Appeals Board or Board means a Board established in the 
Office of the Secretary to provide impartial review of disputed 
decisions made by the operating components of the Department.
    Part D sponsor has the meaning given the term in 423.4.

[72 FR 68736, Dec. 5, 2007, as amended 77 FR 22171, Apr. 12, 2012]



Sec. 423.1004  Scope and applicability.

    (a) Scope. This subpart sets forth procedures for reviewing initial 
determinations that CMS makes with respect to the matters specified in 
paragraph (b) of this section.
    (b) Initial determinations by CMS. CMS makes initial determinations 
with respect to the imposition of civil money penalties in accordance 
with part 423, subpart O.



Sec. 423.1006  Appeal rights.

    (a) Appeal rights of Part D sponsors. (1) Any Part D sponsor 
dissatisfied with an initial determination as specified in 423.1004, has 
a right to a hearing before an ALJ in accordance with this subpart and 
may request Departmental Appeals Board review of the ALJ decision.
    (2) Part D sponsors may request judicial review of the Departmental 
Appeals Board's decision that imposes a CMP.
    (b) [Reserved]



Sec. 423.1008  Appointment of representatives.

    (a) An affected party may appoint as its representative anyone not 
disqualified or suspended from acting as a representative in proceedings 
before the Secretary or otherwise prohibited by law.
    (b) If the representative appointed is not an attorney, the party 
must file written notice of the appointment with the ALJ or the 
Departmental Appeals Board.
    (c) If the representative appointed is an attorney, the attorney's 
statement that he or she has the authority to represent the party is 
sufficient.



Sec. 423.1010  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
423.1008 may, on behalf of the represented party--
    (1) Give and accept any notice or request pertinent to the 
proceedings set forth in this part;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party to the same extent as the party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request may be sent to the affected party, to the 
party's representative, or to both. A notice or request sent to the 
representative has the same force and effect as if it had been sent to 
the party.

[[Page 715]]



Sec. 423.1012  Fees for services of representatives.

    Fees for any services performed on behalf of an affected party by an 
attorney appointed and qualified in accordance with 423.1008 are not 
subject to the provisions of section 206 of Title II of the Act, which 
authorizes the Secretary to specify or limit those fees.



Sec. 423.1014  Charge for transcripts.

    A party that requests a transcript of prehearing or hearing 
proceedings or Board review must pay the actual or estimated cost of 
preparing the transcript unless, for good cause shown by that party, the 
payment is waived by the ALJ or the Departmental Appeals Board, as 
appropriate.



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

    (a) Filing of briefs and related documents. If a party files a brief 
or related document such as a written argument, contention, suggested 
finding of fact, conclusion of law, or any other written statement, it 
must submit an original and 1 copy to the ALJ or the Departmental 
Appeals Board, as appropriate. The material may be filed by mail or in 
person and must include a statement certifying that a copy has been 
furnished to the other party.
    (b) Opportunity for rebuttal. (1) The other party will have 20 
calendar days from the date of mailing or in person filing to submit any 
rebuttal statement or additional evidence. If a party submits a rebuttal 
statement or additional evidence, it must file an original and 1 copy 
with the ALJ or the Board and furnish a copy to the other party.
    (2) The ALJ or the Board will grant an opportunity to reply to the 
rebuttal statement only if the party shows good cause.

[72 FR 68736, Dec. 5, 2007, as amended at 79 FR 29966, May 23, 2014]



Sec. 423.1018  Notice and effect of initial determinations.

    (a) Notice of initial determination--(1) General rule. CMS, as 
required under 422.756(f)(2), mails notice of an initial determination 
to the affected party, setting forth the basis or reasons for the 
determination, the effect of the determination, the party's right to a 
hearing, and information about where to file the request for a hearing.
    (b) Effect of initial determination. An initial determination is 
binding unless--
    (1) The affected party requests a hearing; or
    (2) CMS revises its decision.



Sec. 423.1020  Request for hearing.

    (a) Manner and timing of request. (1) A Part D sponsor is entitled 
to a hearing as specified in 423.1006 and may file a request with the 
Departmental Appeals Board office specified in the initial 
determination.
    (2) The Part D sponsor or its legal representative or other 
authorized official must file the request, in writing, to the 
appropriate Departmental Appeals Board office, with a copy to CMS, 
within 60 calendar days after receipt of the notice of initial 
determination, to request a hearing before an ALJ to appeal any 
determination by CMS to impose a civil money penalty.
    (b) Content of request for hearing. The request for hearing must--
    (1) Identify the specific issues, and the findings of fact and 
conclusions of law with which the affected party disagrees; and
    (2) Specify the basis for each contention that a CMS finding or 
conclusion of law is incorrect.

[72 FR 68736, Dec. 5, 2007, as amended at 79 FR 29966, May 23, 2014]



Sec. 423.1022  Parties to the hearing.

    The parties to the hearing are the affected party and CMS, as 
appropriate.



Sec. 423.1024  Designation of hearing official.

    (a) The Chair of the Departmental Appeals Board, or his or her 
delegate, designates an ALJ or a member or members of the Departmental 
Appeals Board to conduct the hearing.
    (b) If appropriate, the Chair or the delegate may substitute another 
ALJ or another member or other members of the Departmental Appeals Board 
to conduct the hearing.

[[Page 716]]

    (c) As used in this part, ``ALJ'' includes a member or members of 
the Departmental Appeals Board who are designated to conduct a hearing.



Sec. 423.1026  Disqualification of Administrative Law Judge.

    (a) An ALJ may not conduct a hearing in a case in which he or she is 
prejudiced or partial to the affected party or has any interest in the 
matter pending for decision.
    (b) A party that objects to the ALJ designated to conduct the 
hearing must give notice of its objections at the earliest opportunity.
    (c) The ALJ will consider the objections and decide whether to 
withdraw or proceed with the hearing.
    (1) If the ALJ withdraws, another ALJ will be designated to conduct 
the hearing.
    (2) If the ALJ does not withdraw, the objecting party may, after the 
hearing, present its objections to the Departmental Appeals Board as 
reasons for changing, modifying, or reversing the ALJ's decision or 
providing a new hearing before another ALJ.



Sec. 423.1028  Prehearing conference.

    (a) At any time before the hearing, the ALJ may call a prehearing 
conference for the purpose of delineating the issues in controversy, 
identifying the evidence and witnesses to be presented at the hearing, 
and obtaining stipulations accordingly.
    (b) On the request of either party or on his or her own motion, the 
ALJ may adjourn the prehearing conference and reconvene at a later date.



Sec. 423.1030  Notice of prehearing conference.

    (a) Timing of notice. The ALJ will fix a time and place for the 
prehearing conference and mail written notice to the parties at least 10 
calendar days before the scheduled date.
    (b) Content of notice. The notice will inform the parties of the 
purpose of the conference and specify what issues are sought to be 
resolved, agreed to, or excluded.
    (c) Additional issues. Issues other than those set forth in the 
notice of determination or the request for hearing may be considered at 
the prehearing conference if--
    (1) Either party gives timely notice to that effect to the ALJ and 
the other party; or
    (2) The ALJ raises the issues in the notice of prehearing conference 
or at the conference.



Sec. 423.1032  Conduct of prehearing conference.

    (a) The prehearing conference is open to the affected party or its 
representative, to the CMS representatives and their technical advisors, 
and to any other persons whose presence the ALJ considers necessary or 
proper.
    (b) The ALJ may accept the agreement of the parties as to the 
following:
    (1) Facts that are not in controversy.
    (2) Questions that have been resolved favorably to the affected 
party after the determination in dispute.
    (3) Remaining issues to be resolved.
    (c) The ALJ may request the parties to indicate the following:
    (1) The witnesses that will be present to testify at the hearing.
    (2) The qualifications of those witnesses.
    (3) The nature of other evidence to be submitted.



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

    (a) Record of prehearing conference. (1) A record is made of all 
agreements and stipulations entered into at the prehearing conference.
    (2) The record may be transcribed at the request of either party or 
the ALJ.
    (b) Order and opportunity to object. (1) The ALJ issues an order 
setting forth the results of the prehearing conference, including the 
agreements made by the parties as to facts not in controversy, the 
matters to be considered at the hearing, and the issues to be resolved.
    (2) Copies of the order are sent to all parties and the parties have 
10 calendar days to file objections to the order.
    (3) After the 10 calendar days have elapsed, the ALJ settles the 
order.
    (c) Effect of prehearing conference. The agreements and stipulations 
entered into at the prehearing conference are binding on all parties, 
unless a party presents facts that, in the opinion of

[[Page 717]]

the ALJ, would make an agreement unreasonable or inequitable.



Sec. 423.1036  Time and place of hearing.

    (a) The ALJ fixes a time and place for the hearing and gives the 
parties written notice at least 10 calendar days before the scheduled 
date.
    (b) The notice informs the parties of the general and specific 
issues to be resolved at the hearing.



Sec. 423.1038  Change in time and place of hearing.

    (a) The ALJ may change the time and place for the hearing either on 
his or her own initiative or at the request of a party for good cause 
shown, or may adjourn or postpone the hearing.
    (b) The ALJ may reopen the hearing for receipt of new evidence at 
any time before mailing the notice of hearing decision.
    (c) The ALJ gives the parties reasonable notice of any change in 
time or place or any adjournment or reopening of the hearing.



Sec. 423.1040  Joint hearings.

    When two or more affected parties have requested hearings and the 
same or substantially similar matters are at issue, the ALJ may, if all 
parties agree, fix a single time and place for the prehearing conference 
or hearing and conduct all proceedings jointly. If joint hearings are 
held, a single record of the proceedings is made and a separate decision 
issued with respect to each affected party.



Sec. 423.1042  Hearing on new issues.

    (a) Basic rules. (1) Within the time limits specified in paragraph 
(b) of this section, the ALJ may, at the request of either party, or on 
his or her own motion, provide a hearing on new issues that impinge on 
the rights of the affected party.
    (2) The ALJ may consider new issues even if CMS has not made initial 
determinations on them, and even if they arose after the request for 
hearing was filed or after a prehearing conference.
    (3) The ALJ may give notice of hearing on new issues at any time 
after the hearing request is filed and before the hearing record is 
closed.
    (b) Notice and conduct of hearing on new issues. (1) Unless the 
affected party waives its right to appear and present evidence, notice 
of the time and place of hearing on any new issue will be given to the 
parties in accordance with 423.1036.
    (2) After giving notice, the ALJ will, except as provided in 
paragraph (c) of this section, proceed to hearing on new issues in the 
same manner as on an issue raised in the request for hearing.
    (c) Remand to CMS. At the request of either party, or on his or her 
own motion, in lieu of a hearing under paragraph (b) of this section, 
the ALJ may remand the case to CMS for consideration of the new issue 
and, if appropriate, a determination. If necessary, the ALJ may direct 
CMS to return the case to the ALJ for further proceedings.



Sec. 423.1044  Subpoenas.

    (a) Basis for issuance. The ALJ, upon his or her own motion or at 
the request of a party, may issue subpoenas if they are reasonably 
necessary for the full presentation of a case.
    (b) Timing of request by a party. The party must file a written 
request for a subpoena with the ALJ at least 5 calendar days before the 
date set for the hearing.
    (c) Content of request. The request must:
    (1) Identify the witnesses or documents to be produced;
    (2) Describe their addresses or location with sufficient 
particularity to permit them to be found; and
    (3) Specify the pertinent facts the party expects to establish by 
the witnesses or documents, and indicate why those facts could not be 
established without use of a subpoena.
    (d) Method of issuance. Subpoenas are issued in the name of the 
Secretary.



Sec. 423.1046  Conduct of hearing.

    (a) Participants in the hearing. The hearing is open to the parties 
and their representatives and technical advisors, and to any other 
persons whose presence the ALJ considers necessary or proper.
    (b) Hearing procedures. (1) The ALJ inquires fully into all of the 
matters at

[[Page 718]]

issue, and receives in evidence the testimony of witnesses and any 
documents that are relevant and material.
    (2) If the ALJ believes that there is relevant and material evidence 
available which has not been presented at the hearing, he may, at any 
time before mailing of notice of the decision, reopen the hearing to 
receive that evidence.
    (3) The ALJ decides the order in which the evidence and the 
arguments of the parties are presented and the conduct of the hearing.
    (4) CMS has the burden of coming forward with evidence related to 
disputed findings that is sufficient (together with any undisputed 
findings and legal authority) to establish a prima facie case that CMS 
has a legally sufficient basis for its determination.
    (5) The affected party has the burden of coming forward with 
evidence sufficient to establish the elements of any affirmative 
argument or defense which it offers.
    (6) The affected party bears the ultimate burden of persuasion. To 
prevail, the affected party must prove by a preponderance of the 
evidence on the record as a whole that there is no basis for the 
determination.
    (c) Review of the penalty. When an ALJ finds that the basis for 
imposing a civil money penalty exists, as specified in 423.752, the ALJ 
may not--
    (1) Set a penalty of zero or reduce a penalty to zero, or
    (2) Review the exercise of discretion by CMS to impose a civil money 
penalty.



Sec. 423.1048  Evidence.

    Evidence may be received at the hearing even though inadmissible 
under the rules of evidence applicable to court procedure. The ALJ rules 
on the admissibility of evidence.



Sec. 423.1050  Witnesses.

    Witnesses at the hearing testify under oath or affirmation. The 
representative of each party is permitted to examine his or her own 
witnesses subject to interrogation by the representative of the other 
party. The ALJ may ask any questions that he or she deems necessary. The 
ALJ rules upon any objection made by either party as to the propriety of 
any question.



Sec. 423.1052  Oral and written summation.

    The parties to a hearing are allowed a reasonable time to present 
oral summation and to file briefs or other written statements of 
proposed findings of fact and conclusions of law. Copies of any briefs 
or other written statements must be sent in accordance with 423.1016.



Sec. 423.1054  Record of hearing.

    A complete record of the proceedings at the hearing is made and 
transcribed in all cases.



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

    (a) Waiver procedures. (1) If an affected party wishes to waive its 
right to appear and present evidence at the hearing, it must file a 
written waiver with the ALJ.
    (2) If the affected party wishes to withdraw a waiver, it may do so, 
for good cause, at any time before the ALJ mails notice of the hearing 
decision.
    (b) Effect of waiver. If the affected party waives the right to 
appear and present evidence, the ALJ need not conduct an oral hearing 
except in one of the following circumstances:
    (1) The ALJ believes that the testimony of the affected party or its 
representatives or other witnesses is necessary to clarify the facts at 
issue.
    (2) CMS shows good cause for requiring the presentation of oral 
evidence.
    (c) Dismissal for failure to appear. If, despite the waiver, the ALJ 
sends notice of hearing and the affected party fails to appear, or to 
show good cause for the failure, the ALJ will dismiss the appeal in 
accordance with 423.1058.
    (d) Hearing without oral testimony. When there is no oral testimony, 
the ALJ will--
    (1) Make a record of the relevant written evidence that was 
considered in making the determination being appealed, and of any 
additional evidence submitted by the parties;
    (2) Furnish to each party copies of the additional evidence 
submitted by the other party; and

[[Page 719]]

    (3) Give both parties a reasonable opportunity for rebuttal.
    (e) Handling of briefs and related statements. If the parties submit 
briefs or other written statements of evidence or proposed findings of 
facts or conclusions of law, those documents will be handled in 
accordance with 423.1016.



Sec. 423.1058  Dismissal of request for hearing.

    (a) The ALJ may, at any time before mailing the notice of the 
decision, dismiss a hearing request if a party withdraws its request for 
a hearing or the affected party asks that its request be dismissed.
    (b) An affected party may request a dismissal by filing a written 
notice with the ALJ.



Sec. 423.1060  Dismissal for abandonment.

    (a) The ALJ may dismiss a request for hearing if it is abandoned by 
the party that requested it.
    (b) The ALJ may consider a request for hearing to be abandoned if 
the party or its representative--
    (1) Fails to appear at the prehearing conference or hearing without 
having previously shown good cause for not appearing; and
    (2) Fails to respond, within 10 calendar days after the ALJ sends a 
``show cause'' notice, with a showing of good cause.



Sec. 423.1062  Dismissal for cause.

    On his or her own motion, or on the motion of a party to the 
hearing, the ALJ may dismiss a hearing request either entirely or as to 
any stated issue, under any of the following circumstances:
    (a) Res judicata. There has been a previous determination or 
decision with respect to the rights of the same affected party on the 
same facts and law pertinent to the same issue or issues which has 
become final either by judicial affirmance or, without judicial 
consideration, because the affected party did not timely request 
reconsideration, hearing, or review, or commence a civil action with 
respect to that determination or decision.
    (b) No right to hearing. The party requesting a hearing is not a 
proper party or does not otherwise have a right to a hearing.
    (c) Hearing request not timely filed. The affected party did not 
file a hearing request timely and the time for filing has not been 
extended.



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

    (a) Notice of the ALJ's dismissal action is mailed to the parties. 
The notice advises the affected party of its right to request that the 
dismissal be vacated as provided in 423.1066.
    (b) The dismissal of a request for hearing is binding unless it is 
vacated by the ALJ or the Departmental Appeals Board.



Sec. 423.1066  Vacating a dismissal of request for hearing.

    An ALJ may vacate any dismissal of a request for hearing if a party 
files a request to that effect within 60 calendar days from receipt of 
the notice of dismissal and shows good cause for vacating the dismissal.



Sec. 423.1068  Administrative Law Judge's decision.

    (a) Timing, basis and content. As soon as practical after the close 
of the hearing, the ALJ issues a written decision in the case. The 
decision is based on the evidence of record and contains separate 
numbered findings of fact and conclusions of law.
    (b) Notice and effect. A copy of the decision is mailed to the 
parties and is binding on them unless--
    (1) A party requests review by the Departmental Appeals Board within 
the time period specified in 423.1076, and the Board reviews the case;
    (2) The Departmental Appeals Board denies the request for review and 
the party seeks judicial review by filing an action in a United States 
District Court or, in the case of a civil money penalty, in a United 
States Court of Appeals;
    (3) The decision is revised by an ALJ or the Department Appeals 
Board; or
    (4) The decision is a recommended decision directed to the Board.

[[Page 720]]



Sec. 423.1070  Removal of hearing to Departmental Appeals Board.

    (a) At any time before the ALJ receives oral testimony, the Board 
may remove to itself any pending request for a hearing.
    (b) Notice of removal is mailed to each party.
    (c) The Board conducts the hearing in accordance with the rules that 
apply to ALJ hearings under this subpart.



Sec. 423.1072  Remand by the Administrative Law Judge.

    (a) If CMS requests remand, and the affected party concurs in 
writing or on the record, the ALJ may remand any case properly before 
him or her to CMS for a determination satisfactory to the affected 
party.
    (b) The ALJ may remand at any time before notice of hearing decision 
is mailed.



Sec. 423.1074  Right to request Departmental Appeals Board review of
Administrative Law Judge's decision or dismissal.

    Either of the parties has a right to request Departmental Appeals 
Board review of the ALJ's decision or dismissal order, and the parties 
are so informed in the notice of the ALJ's action.



Sec. 423.1076  Request for Departmental Appeals Board review.

    (a) Manner and time of filing. (1) Any party that is dissatisfied 
with an ALJ's decision or dismissal of a hearing request, may file a 
written request for review by the Departmental Appeals Board.
    (2) The requesting party or its representative or other authorized 
official must file the request with the DAB within 60 calendar days from 
receipt of the notice of decision or dismissal, unless the Board, for 
good cause shown by the requesting party, extends the time for filing.
    (b) Content of request for review. A request for review of an ALJ 
decision or dismissal must specify the issues, the findings of fact or 
conclusions of law with which the party disagrees, and the basis for 
contending that the findings and conclusions are incorrect.



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

    (a) Request by CMS. The Departmental Appeals Board may dismiss, 
deny, or grant a request made by CMS for review of an ALJ decision or 
dismissal.
    (b) Request by the affected party. The Board may deny or grant the 
affected party's request for review or may dismiss the request for one 
of the following reasons:
    (1) The affected party requests dismissal of its request for review.
    (2) The affected party did not file timely or show good cause for 
late filing.
    (3) The affected party does not have a right to review.
    (4) A previous determination or decision, based on the same facts 
and law, and regarding the same issue, has become final through judicial 
affirmance or because the affected party failed to timely request 
reconsideration, hearing, Board review, or judicial review, as 
appropriate.
    (c) Effect of dismissal. The dismissal of a request for Departmental 
Appeals Board review is binding and not subject to further review.
    (d) Review panel. If the Board grants a request for review of the 
ALJ's decision, the review will be conducted by a panel of three members 
of the Board, designated by the Chair or Deputy Chair.



Sec. 423.1080  Procedures before the Departmental Appeals Board on review.

    The parties are given, upon request, a reasonable opportunity to 
file briefs or other written statements as to fact and law, and to 
appear before the Departmental Appeals Board to present evidence or oral 
arguments. Copies of any brief or other written statement must be sent 
in accordance with 423.1016.



Sec. 423.1082  Evidence admissible on review.

    (a) The Departmental Appeals Board may admit evidence into the 
record in addition to the evidence introduced at the ALJ hearing, (or 
the documents considered by the ALJ if the hearing was waived), if the 
Board considers

[[Page 721]]

that the additional evidence is relevant and material to an issue before 
it.
    (b) If it appears to the Board that additional relevant evidence is 
available, the Board will require that it be produced.
    (c) Before additional evidence is admitted into the record--
    (1) Notice is mailed to the parties (unless they have waived notice) 
stating that evidence will be received regarding specified issues; and
    (2) The parties are given a reasonable time to comment and to 
present other evidence pertinent to the specified issues.
    (d) If additional evidence is presented orally to the Board, a 
transcript is prepared and made available to any party upon request.



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

    (a) When the Departmental Appeals Board reviews an ALJ's decision or 
order of dismissal, or receives a case remanded by a court, the Board 
may either issue a decision or remand the case to an ALJ for a hearing 
and decision or a recommended decision for final decision by the Board.
    (b) In a remanded case, the ALJ initiates additional proceedings and 
takes other actions as directed by the Board in its order of remand, and 
may take other action not inconsistent with that order.
    (c) Upon completion of all action called for by the remand order and 
any other consistent action, the ALJ promptly makes a decision or, as 
specified by the Board, certifies the case to the Board with a 
recommended decision.
    (d) The parties have 20 calendar days from the date of a notice of a 
recommended decision to submit to the Board any exception, objection, or 
comment on the findings of fact, conclusions of law, and recommended 
decision.
    (e) After the 20-calendar day period, the Board issues its decision 
adopting, modifying or rejecting the ALJ's recommended decision.
    (f) If the Board does not remand the case to an ALJ, the following 
rules apply:
    (1) The Board's decision--
    (i) Is based upon the evidence in the hearing record and any further 
evidence that the Board receives during its review;
    (ii) Is in writing and contains separate numbered findings of fact 
and conclusions of law; and
    (iii) May modify, affirm, or reverse the ALJ's decision.
    (2) A copy of the Board's decision is mailed to each party.



Sec. 423.1086  Effect of Departmental Appeals Board Decision.

    (a) General rule. The Board's decision is binding unless--
    (1) The affected party has a right to judicial review and timely 
files a civil action in a United States District Court or, in the case 
of a civil money penalty, in a United States Court of Appeals; or
    (2) The Board reopens and revises its decision in accordance with 
423.1092.
    (b) Right to judicial review. Section 423.1006 specifies the 
circumstances under which an affected party has a right to seek judicial 
review.
    (c) Special rules: Civil money penalty. Finality of Board's 
decision. When CMS imposes a civil money penalty, notice of the Board's 
decision (or denial of review) is the final administrative action that 
initiates the 60-calendar day period for seeking judicial review.



Sec. 423.1088  Extension of time for seeking judicial review.

    (a) Any affected party that is dissatisfied with an Departmental 
Appeals Board decision and is entitled to judicial review must commence 
civil action within 60 calendar days from receipt of the notice of the 
Board's decision, unless the Board extends the time in accordance with 
paragraph (c) of this section.
    (b) The request for extension must be filed in writing with the 
Board before the 60-calendar day period ends.
    (c) For good cause shown, the Board may extend the time for 
commencing civil action.


[[Page 722]]





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

    (a) Basis and timing for reopening. An ALJ of Departmental Appeals 
Board decision may be reopened, within 60 calendar days from the date of 
the notice of decision, upon the motion of the ALJ or the Board or upon 
the petition of either party to the hearing.
    (b) Authority to reopen. (1) A decision of the Departmental Appeals 
Board may be reopened only by the Departmental Appeals Board.
    (2) A decision of an ALJ may be reopened by that ALJ, by another ALJ 
if that one is not available, or by the Departmental Appeals Board. For 
purposes of this paragraph, an ALJ is considered to be unavailable if 
the ALJ has died, terminated employment, or been transferred to another 
duty station, is on leave of absence, or is unable to conduct a hearing 
because of illness.



Sec. 423.1092  Revision of reopened decision.

    (a) Revision based on new evidence. If a reopened decision is to be 
revised on the basis of new evidence that was not included in the record 
of that decision, the ALJ or the Departmental Appeals Board--
    (1) Notifies the parties of the proposed revision; and
    (2) Unless the parties waive their right to hearing or appearance--
    (i) Grants a hearing in the case of an ALJ revision; and
    (ii) Grants opportunity to appear in the case of a Board revision.
    (b) Basis for revised decision and right to review. (1) If a revised 
decision is necessary, the ALJ or the Departmental Appeals Board, as 
appropriate, renders it on the basis of the entire record.
    (2) If the decision is revised by an ALJ, the Departmental Appeals 
Board may review that revised decision at the request of either party or 
on its own motion.



Sec. 423.1094  Notice and effect of revised decision.

    (a) Notice. The notice mailed to the parties states the basis or 
reason for the revised decision and informs them of their right to 
Departmental Appeals Board review of an ALJ revised decision, or to 
judicial review of a Board reviewed decision.
    (b) Effect--(1) ALJ revised decision. An ALJ revised decision is 
binding unless it is reviewed by the Departmental Appeals Board.
    (2) Departmental Appeals Board revised decision. A Board revised 
decision is binding unless a party files a civil action in a district 
court of the United States within the time frames specified in 423.858.



   Subpart U_Reopening, ALJ Hearings and ALJ and Attorney Adjudicator 
             Decisions, Council Review, and Judicial Review

    Source: 74 FR 65363, Dec. 9, 2009, unless otherwise noted.



Sec. 423.1968  Scope.

    This subpart sets forth the requirements relating to the following:
    (a) Part D sponsors, the Part D IRE, ALJs and attorney adjudicators, 
and the Council with respect to reopenings.
    (b) ALJs with respect to hearings and decisions or decisions of 
attorney adjudicators if no hearing is conducted.
    (c) The Council with respect to review of Part D appeals.
    (d) Part D enrollees' rights with respect to reopenings, ALJ 
hearings and ALJ or attorney adjudicator reviews, Council reviews, and 
judicial review by a Federal District Court.

[82 FR 5125, Jan. 17, 2017]



Sec. 423.1970  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

[[Page 723]]

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 enrollee requests aggregation at the same time the requests 
for hearing are filed, and the request for aggregation and requests for 
hearing are filed within 60 calendar days after receipt of the notice of 
reconsideration for each of the reconsiderations being appealed, unless 
the deadline to file one or more of the requests for hearing has been 
extended in accordance with Sec. 423.2014(d); and
    (iii) The appeals the enrollee seeks to aggregate involve the 
delivery of prescription drugs to a single enrollee, as determined by an 
ALJ or attorney adjudicator. Only an ALJ may determine the appeals the 
enrollee seeks to aggregate do not 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--
    (i) The appeals have previously been reconsidered by an IRE;
    (ii) The enrollees request aggregation at the same time the requests 
for hearing are filed, and the request for aggregation and requests for 
hearing are filed within 60 calendar days after receipt of the notice of 
reconsideration for each of the reconsiderations being appealed, unless 
the deadline to file one or more of the requests for hearing has been 
extended in accordance with Sec. 423.2014(d); and
    (iii) The appeals the enrollees seek to aggregate involve the same 
prescription drugs, as determined by an ALJ or attorney adjudicator. 
Only an ALJ may determine the appeals the enrollees seek to aggregate do 
not involve the same prescription drugs.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5126, Jan. 17, 2017]



Sec. 423.1972  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 OMHA office specified in the 
IRE's reconsideration notice.
    (b) When to file a request. (1) Except when an ALJ or attorney 
adjudicator extends the timeframe as provided in Sec. 423.2014(d), the 
enrollee must file a request for a hearing within 60 calendar days of 
receipt of the notice of an IRE reconsideration determination. The time 
and place for a hearing before an ALJ will be set in accordance with 
Sec. 423.2020.
    (2) For purposes of this section, the date of receipt of the 
reconsideration determination is presumed to be 5 calendar days after 
the date of the written reconsideration determination, unless there is 
evidence to the contrary.
    (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. 423.1970, the ALJ or attorney adjudicator 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. 423.1970, the 
ALJ discontinues the hearing and does not rule on the substantive issues 
raised in the appeal.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5126, Jan. 17, 2017]



Sec. 423.1974  Council review.

    An enrollee who is dissatisfied with an ALJ's or attorney 
adjudicator's decision or dismissal may request that the Council review 
the ALJ's or attorney adjudicator's decision or dismissal as provided in 
Sec. 423.2102.

[82 FR 5126, Jan. 17, 2017]



Sec. 423.1976  Judicial review.

    (a) Review of ALJ's or attorney adjudicator's decision. The enrollee 
may request judicial review of an ALJ's or attorney adjudicator's 
decision if--
    (1) The Council 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 Council decision. The enrollee may request judicial 
review of the Council decision if it is the final decision of CMS and 
the amount in

[[Page 724]]

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 
Sec. 423.2136 for a description of the procedures to follow in 
requesting judicial review.)

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5126, Jan. 17, 2017]



Sec. 423.1978  Reopening 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 attorney 
adjudicator or the Council that is otherwise binding may be reopened and 
revised by the entity that made the determination or decision as 
provided in Sec. 423.1980 through Sec. 423.1986.
    (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 of this chapter.
    (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.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5126, Jan. 17, 2017]



Sec. 423.1980  Reopening of coverage determinations, redeterminations, 
reconsiderations, decisions, and reviews.

    (a) General rules. (1) A reopening is a remedial action taken to 
change a binding determination or decision, even though the binding 
determination or decision may have been correct at the time it was made 
based on the evidence of record. Consistent with Sec. 423.1978(a), that 
action may be taken by--
    (i) A Part D plan sponsor to revise the coverage determination or 
redetermination;
    (ii) An IRE to revise the reconsideration;
    (iii) An ALJ or attorney adjudicator to revise his or her decision; 
or
    (iv) The Council to revise the ALJ or attorney adjudicator decision, 
or its review decision.
    (2) When an enrollee has filed a valid request for an appeal of a 
coverage determination, redetermination, reconsideration, ALJ or 
attorney adjudicator decision, or Council review, no adjudicator has 
jurisdiction to reopen an issue that is under appeal until all appeal 
rights for that issue are exhausted. Once the appeal rights for the 
issue have been exhausted, the Part D plan sponsor, IRE, ALJ or attorney 
adjudicator, or Council may reopen as set forth in this section.
    (3) Consistent with Sec. 423.1978(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.
    (4) Consistent with Sec. 423.1978(d), the Part D plan sponsor's, 
IRE's, ALJ's or attorney adjudicator's, or Council's decision on whether 
to reopen is binding and not subject to appeal.
    (5) A determination under the Medicare secondary payer provisions of 
section 1862(b) of the Act that Medicare has an MSP recovery claim for 
drug claims that were already reimbursed by the Part D plan sponsor is 
not a reopening.
    (b) Timeframes and requirements for reopening coverage 
determinations and redeterminations initiated by a Part D plan sponsor. 
A Part D plan sponsor may reopen its coverage determination or 
redetermination on its own motion:
    (1) Within 1 year from the date of the coverage determination or 
redetermination for any reason.
    (2) Within 4 years from the date of the coverage determination or 
redetermination for good cause as defined in Sec. 423.1986.
    (3) At any time if there exists reliable evidence as defined in 
Sec. 405.902 of this chapter that the coverage determination was 
procured by fraud or similar fault as defined in Sec. 405.902.
    (c) Timeframe and requirements for reopening coverage determinations 
and redeterminations requested by an enrollee. (1) An enrollee may 
request that a Part

[[Page 725]]

D plan sponsor reopen its coverage determination or redetermination 
within 1 year from the date of the coverage determination or 
redetermination for any reason.
    (2) An enrollee may request that a Part D plan sponsor reopen its 
coverage determination or redetermination within 4 years from the date 
of the coverage determination or redetermination for good cause in 
accordance with Sec. 423.1986.
    (d) Time frame and requirements for reopening reconsiderations, 
decisions and reviews initiated by an IRE, ALJ or attorney adjudicator, 
or the Council. (1) An IRE may reopen its reconsideration on its own 
motion within 180 calendar days from the date of the reconsideration for 
good cause in accordance with Sec. 423.1986. If the IRE's 
reconsideration was procured by fraud or similar fault, then the IRE may 
reopen at any time.
    (2) An ALJ or attorney adjudicator may reopen his or her decision, 
or the Council may reopen an ALJ or attorney adjudicator decision on its 
own motion within 180 calendar days from the date of the decision for 
good cause in accordance with Sec. 423.1986. If the decision was 
procured by fraud or similar fault, then the ALJ or attorney adjudicator 
may reopen his or her decision, or the Council may reopen an ALJ or 
attorney adjudicator decision at any time.
    (3) The Council may reopen its review decision on its own motion 
within 180 calendar days from the date of the review decision for good 
cause in accordance with Sec. 423.1986. If the Council's decision was 
procured by fraud or similar fault, then the Council may reopen at any 
time.
    (e) Time frames and requirements for reopening reconsiderations, 
decisions, and reviews requested by an enrollee or a Part D plan 
sponsor. (1) An enrollee who received a reconsideration or a Part D plan 
sponsor may request that an IRE reopen its reconsideration decision 
within 180 calendar days from the date of the reconsideration for good 
cause in accordance with Sec. 423.1986.
    (2) An enrollee who received an ALJ's or attorney adjudicator's 
decision or a Part D plan sponsor may request that an ALJ or attorney 
adjudicator reopen his or her decision, or the Council reopen an ALJ or 
attorney adjudicator decision, within 180 calendar days from the date of 
the decision for good cause in accordance with Sec. 423.1986.
    (3) An enrollee who received a Council decision or a Part D plan 
sponsor may request that the Council reopen its decision within 180 
calendar days from the date of the review decision for good cause in 
accordance with Sec. 423.1986.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5126, Jan. 17, 2017]



Sec. 423.1982  Notice of a revised determination or decision.

    (a) When adjudicators initiate reopenings. When any determination or 
decision is reopened and revised as provided in Sec. 423.1980:
    (1) The Part D plan sponsor, IRE, ALJ or attorney adjudicator, or 
the Council must mail its revised determination or decision to the 
enrollee at his or her last known address.
    (2) The IRE, ALJ or attorney adjudicator, or the Council must mail 
its revised determination or decision to the Part D plan sponsor.
    (3) An adverse revised determination or decision must state the 
rationale and basis for the reopening and revision and any right to 
appeal.
    (b) Reopenings initiated at the request of an enrollee or a Part D 
plan sponsor. (1) The Part D plan sponsor, IRE, ALJ or attorney 
adjudicator, or the Council must mail its revised determination or 
decision to the enrollee at his or her last known address.
    (2) The IRE, ALJ or attorney adjudicator or the Council must mail 
its revised determination or decision to the Part D plan sponsor.
    (3) An adverse revised determination or decision must state the 
rationale and basis for the reopening and revision and any right to 
appeal.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5126, Jan. 17, 2017]



Sec. 423.1984  Effect of a revised determination or decision.

    (a) Coverage determinations. The revision of a coverage 
determination is binding unless an enrollee submits a request for a 
redetermination that is accepted and processed in accordance with 
Sec. 423.580 through Sec. 423.590.

[[Page 726]]

    (b) Redeterminations. The revision of a redetermination is binding 
unless an enrollee submits a request for an IRE reconsideration that is 
accepted and processed in accordance with Sec. 423.600 through 
Sec. 423.604.
    (c) Reconsiderations. The revision of a reconsideration is binding 
unless an enrollee submits a request for an ALJ hearing that is accepted 
and processed in accordance with Sec. 423.1970 through Sec. 423.1972 and 
Sec. 423.2000 through Sec. 423.2063.
    (d) ALJ or attorney adjudicator decisions. The revision of an ALJ or 
attorney adjudicator decision is binding unless an enrollee submits a 
request for a Council review that is accepted and processed as specified 
in Sec. 423.1974 and Sec. 423.2100 through Sec. 423.2130.
    (e) Council review. The revision of a Council determination or 
decision is binding unless an enrollee files a civil action in which a 
Federal District Court accepts jurisdiction and issues a decision.
    (f) Appeal of only the portion of the determination or decision 
revised by the reopening. Only the portion of the coverage 
determination, redetermination, reconsideration, or hearing decision 
revised by the reopening may be subsequently appealed.
    (g) Effect of a revised determination or decision. Consistent with 
Sec. 423.1978(c), a revised determination or decision is binding unless 
it is appealed or otherwise reopened.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5127, Jan. 17, 2017]



Sec. 423.1986  Good cause for reopening.

    (a) Establishing good cause. Good cause may be established when--
    (1) There is new and material evidence that--
    (i) Was not available or known at the time of the determination or 
decision; and
    (ii) May result in a different conclusion; or
    (2) The evidence that was considered in making the determination or 
decision clearly shows on its face that an obvious error was made at the 
time of the determination or decision.
    (b) Change in substantive law or interpretative policy. (1) General 
rule. A change of legal interpretation or policy by CMS in a regulation, 
CMS ruling, or CMS general instruction, whether made in response to 
judicial precedent or otherwise, is not a basis for reopening a 
determination or hearing decision regarding appeals under this section.
    (2) An adjudicator may reopen a determination or decision to apply 
the current law or CMS or the Part D plan sponsor policy rather than the 
law or CMS or the Part D plan sponsor policy at the time the coverage 
determination is made in situations where the enrollee has not yet 
received the drug and the current law or CMS or the Part D plan sponsor 
policy may affect whether the drug should be received.
    (c) Third party payer error. A request to reopen a claim based upon 
a third party payer's error in making a primary payment determination 
when Medicare processed the claim in accordance with the information in 
its system of records or on the claim form does not constitute good 
cause for reopening.



Sec. 423.1990  Expedited access to judicial review.

    (a) Process for expedited access to judicial review. (1) For 
purposes of this section, a ``review entity'' means an entity of up to 
three reviewers who are ALJs or members of the Departmental Appeals 
Board, as determined by the Secretary.
    (2) In order to obtain expedited access to judicial review (EAJR), a 
review entity must certify that the Council does not have the authority 
to decide the question of law or regulation relevant to the matters in 
dispute and that there is no material issue of fact in dispute.
    (3) An enrollee may make a request for EAJR only once with respect 
to a question of law or regulation for a specific matter in dispute in 
an appeal.
    (b) Conditions for making the expedited appeals request. (1) An 
enrollee may request EAJR in place of an ALJ hearing or Council review 
if the following conditions are met:
    (i) An IRE has made a reconsideration determination and the enrollee 
has filed a request for an ALJ hearing in accordance with Sec. 423.2002 
and a decision, dismissal order, or remand order

[[Page 727]]

of the ALJ or an attorney adjudicator has not been issued; or
    (ii) An ALJ or attorney adjudicator has made a decision and the 
enrollee has filed a request for Council review in accordance with 
Sec. 423.2102 and a final decision, dismissal order, or remand order of 
the Council has not been issued.
    (2) The requestor is an enrollee.
    (3) The amount remaining in controversy meets the threshold 
requirements established annually by the Secretary.
    (4) If there is more than one enrollee to the hearing or Council 
review, each enrollee concurs, in writing, with the request for the 
EAJR.
    (5) There are no material issues of fact in dispute.
    (c) Content of the request for EAJR. The request for EAJR must--
    (1) Allege that there are no material issues of fact in dispute and 
identify the facts that the enrollee considers material and that are not 
disputed; and
    (2) Assert that the only factor precluding a decision favorable to 
the enrollee is--
    (i) A statutory provision that is unconstitutional, or a provision 
of a regulation that is invalid and specify the statutory provision that 
the enrollee considers unconstitutional or the provision of a regulation 
that the enrollee considers invalid; or
    (ii) A CMS Ruling that the enrollee considers invalid.
    (3) Include a copy of the IRE reconsideration and of any ALJ or 
attorney adjudicator decision that the enrollee has received;
    (4) If the IRE reconsideration or ALJ or attorney adjudicator 
decision was based on facts that the enrollee is disputing, state why 
the enrollee considers those facts to be immaterial; and
    (5) If the IRE reconsideration or ALJ or attorney adjudicator 
decision was based on a provision of a law, regulation, or CMS Ruling in 
addition to the one the enrollee considers unconstitutional or invalid, 
a statement as to why further administrative review of how that 
provision applies to the facts is not necessary.
    (d) Place and time for an EAJR request. (1) Method and place for 
filing request. The enrollee may--
    (i) If a request for ALJ hearing or Council review is not pending, 
file a written EAJR request with the HHS Departmental Appeals Board, 
with his or her request for an ALJ hearing or Council review; or
    (ii) If an appeal is already pending for an ALJ hearing or otherwise 
before OMHA or the Council, file a written EAJR request with the HHS 
Departmental Appeals Board.
    (2) Time of filing request. The enrollee may file a request for 
EAJR--
    (i) If the enrollee has requested a hearing, at any time before 
receipt of the notice of the ALJ's or attorney adjudicator's decision; 
or
    (ii) If the enrollee has requested MAC review, at any time before 
receipt of notice of the Council's decision.
    (e) Determination on EAJR request. (1) The review entity described 
in paragraph (a) of this section will determine whether the request for 
EAJR meets all of the requirements of paragraphs (b), (c), and (d) of 
this section.
    (2) Within 60 calendar days after the date the review entity 
receives a request and accompanying documents and materials meeting the 
conditions in paragraphs (b), (c), and (d) of this section, the review 
entity will issue either a certification in accordance with paragraph 
(f) of this section or a denial of the request.
    (3) A determination by the review entity either certifying that the 
requirements for EAJR are met pursuant to paragraph (f) of this section 
or denying the request is not subject to review by the Secretary.
    (4) If the review entity fails to make a determination within the 
timeframe specified in paragraph (e)(2) of this section, then the 
enrollee may bring a civil action in Federal District Court within 60 
calendar days of the end of the timeframe.
    (f) Certification by the review entity. If an enrollee meets the 
requirements for the EAJR, the review entity certifies in writing that--
    (1) The material facts involved in the appeal are not in dispute;
    (2) Except as indicated in paragraph (f)(3) of this section, the 
Secretary's interpretation of the law is not in dispute;

[[Page 728]]

    (3) The sole issue(s) in dispute is the constitutionality of a 
statutory provision, or the validity of a provision of a regulation or 
CMS Ruling;
    (4) But for the provision challenged, the enrollee would receive a 
favorable decision on the ultimate issue; and
    (5) The certification by the review entity is the Secretary's final 
action for purposes of seeking expedited judicial review.
    (g) Effect of certification by the review entity. If an EAJR request 
results in a certification described in paragraph (f) of this section:
    (1) The enrollee that requested the EAJR is considered to have 
waived any right to completion of the remaining steps of the 
administrative appeals process regarding the matter certified.
    (2) The enrollee has 60 calendar days, beginning on the date of the 
review entity's certification within which to bring a civil action in 
Federal District Court.
    (3) The enrollee must satisfy the requirements for venue under 
section 205(g) of the Act, as well as the requirements for filing a 
civil action in a Federal District Court under Sec. 423.2136.
    (h) Rejection of EAJR. (1) If a request for EAJR does not meet all 
the conditions set out in paragraphs (b), (c), and (d) of this section, 
or if the review entity does not certify a request for EAJR, the review 
entity advises the enrollee in writing that the request has been denied, 
and forwards the request to OMHA or the Council, which will treat it as 
a request for hearing or for Council review, as appropriate.
    (2) Whenever a review entity forwards a rejected EAJR request to 
OMHA or the Council, the appeal is considered timely filed and, if an 
adjudication time frame applies to the appeal, the adjudication time 
frame begins on the day the request is received by OMHA or the Council 
from the review entity.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5127, Jan. 17, 2017]



Sec. 423.2000  Hearing before an ALJ and decision by an ALJ or 
attorney adjudicator: General rule.

    (a) If an enrollee is dissatisfied with an IRE's reconsideration, 
the enrollee may request a hearing before an ALJ.
    (b) A hearing before an ALJ may be conducted in-person, by video-
teleconference, or by telephone. At the hearing, the enrollee may submit 
evidence subject to the restrictions in Sec. 423.2018, examine the 
evidence used in making the determination under review, and present and/
or question witnesses.
    (c) In some circumstances, the Part D plan sponsor, CMS, or the IRE 
may participate in the proceedings on a request for an ALJ hearing as 
specified in Sec. 423.2010.
    (d) The ALJ or attorney adjudicator conducts a de novo review and 
issues a decision based on the administrative record, including, for an 
ALJ, any hearing record.
    (e) If an enrollee waives his or her right to appear at the hearing 
in person or by telephone or video-teleconference, the ALJ or an 
attorney adjudicator may make a decision based on the evidence that is 
in the file and any new evidence that is submitted for consideration.
    (f) The ALJ may require the enrollee to participate in a hearing if 
it is necessary to decide the case. If the ALJ determines that it is 
necessary to obtain testimony from a person other than the enrollee, he 
or she may hold a hearing to obtain that testimony, even if the enrollee 
has waived the right to appear. In that event, however, the ALJ will 
give the enrollee the opportunity to appear when the testimony is given, 
but may hold the hearing even if the enrollee decides not to appear.
    (g) An ALJ or attorney adjudicator may also issue a decision on the 
record on his or her own initiative if the evidence in the 
administrative record supports a fully favorable finding.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5127, Jan. 17, 2017]



Sec. 423.2002  Right to an ALJ hearing.

    (a) Consistent with Sec. 423.1970(a), an enrollee has a right to a 
hearing before an ALJ if--
    (1) The enrollee files a written request for an ALJ hearing within 
60 calendar days after receipt of the written notice of the IRE's 
reconsideration; and
    (2) The enrollee meets the amount in controversy requirements of 
Sec. 423.1970.

[[Page 729]]

    (b) An enrollee may request that the hearing before an ALJ be 
expedited if:
    (1) The appeal involves an issue specified in Sec. 423.566(b) but 
does not include solely a request for payment of Part D drugs already 
furnished.
    (2) The enrollee submits a written or oral request for an expedited 
ALJ hearing within 60 calendar days of the date of the written notice of 
an IRE reconsideration determination. The request can only be submitted 
after the enrollee receives the written IRE reconsideration notice. The 
request should also explain why applying the standard timeframe may 
seriously jeopardize the life or health of the enrollee; and
    (3) The enrollee meets the amount in controversy requirements of 
Sec. 423.1970.
    (c) OMHA must document all oral requests for expedited hearings in 
writing and maintain the documentation in the case files.
    (d) For purposes of this section, the date of receipt of the 
reconsideration is presumed to be 5 calendar days after the date of the 
written reconsideration, unless there is evidence to the contrary.
    (e) For purposes of meeting the 60 calendar day filing deadline, the 
request is considered as filed on the date it is received by the office 
specified in the IRE's reconsideration.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5127, Jan. 17, 2017]



Sec. 423.2004  Right to a review of IRE notice of dismissal.

    (a) An enrollee has a right to have an IRE's dismissal of a request 
for reconsideration reviewed by an ALJ or attorney adjudicator if--
    (1) The enrollee files a written request for review within 60 
calendar days after receipt of the notice of the IRE's dismissal.
    (2) The enrollee meets the amount in controversy requirements of 
Sec. 423.1970.
    (3) For purposes of this section, the date of receipt of the IRE's 
dismissal is presumed to be 5 calendar days after the date of the 
written dismissal notice, unless there is evidence to the contrary.
    (4) For purposes of meeting the 60 calendar day filing deadline, the 
request is considered as filed on the date it is received by the office 
specified in the IRE's dismissal.
    (b) If the ALJ or attorney adjudicator determines that the IRE's 
dismissal was in error, he or she vacates the dismissal and remands the 
case to the IRE for a reconsideration in accordance with Sec. 423.2056.
    (c) If the ALJ or attorney adjudicator affirms the IRE's dismissal 
of a reconsideration request, he or she issues a notice of decision 
affirming the IRE's dismissal in accordance with Sec. 423.2046(b).
    (d) The ALJ or attorney adjudicator may dismiss the request for 
review of an IRE's dismissal in accordance with Sec. 423.2052(b).

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5127, Jan. 17, 2017]



Sec. 423.2008  Parties to the proceedings on a request for an ALJ hearing.

    The enrollee (or the enrollee's representative) who filed the 
request for hearing is the only party to the proceedings on a request 
for an ALJ hearing.

[82 FR 5127, Jan. 17, 2017]



Sec. 423.2010  When CMS, the IRE, or Part D plan sponsors may participate
in the proceedings on a request for an ALJ hearing.

    (a) When CMS, the IRE, or the Part D plan sponsor may participate. 
(1) CMS, the IRE, and/or the Part D plan sponsor may request to 
participate in the proceedings on a request for an ALJ hearing upon 
filing a request to participate in accordance with paragraph (b) of this 
section.
    (2) An ALJ may request, but may not require, CMS, the IRE, and/or 
the Part D plan sponsor to participate in any proceedings before the 
ALJ, including the oral hearing, if any. The ALJ cannot draw any adverse 
inferences if CMS, the IRE, and/or the Part D plan sponsor decide not to 
participate in any proceedings before an ALJ, including the hearing.
    (b) How a request to participate is made--(1) No notice of hearing. 
If CMS, the IRE, and/or the Part D plan sponsor requests participation 
before it receives a notice of hearing, or when no notice is required, 
it must send written notice of its request to participate to

[[Page 730]]

the assigned ALJ or attorney adjudicator, or a designee of the Chief ALJ 
if the request is not yet assigned to an ALJ or attorney adjudicator, 
and the enrollee, except that the request may be made orally if a 
request for an expedited hearing was filed and OMHA will notify the 
enrollee of the request to participate.
    (2) Notice of hearing. If CMS, the IRE, and/or the Part D plan 
sponsor requests participation after the IRE and Part D plan sponsor 
receive a notice of hearing, it must send written notice of its request 
to participate to the ALJ and the enrollee, except that the request to 
participate may be made orally for an expedited hearing and OMHA will 
notify the enrollee of the request to participate.
    (3) Timing of request. CMS, the IRE, and/or the Part D plan sponsor 
must send its request to participate--
    (i) If a standard request for hearing was filed, if no hearing is 
scheduled, within 30 calendar days after notification that a standard 
request for hearing was filed;
    (ii) If an expedited hearing is requested, but no hearing has been 
scheduled, within 2 calendar days after notification that a request for 
an expedited hearing was filed.
    (iii) If a non-expedited hearing is scheduled, within 5 calendar 
days after receiving the notice of hearing; or
    (iv) If an expedited hearing is scheduled, within 1 calendar day 
after receiving the notice of hearing. Requests may be made orally or 
submitted by facsimile to the hearing office.
    (c) The ALJ's or attorney adjudicator's decision on a request to 
participate. The assigned ALJ or attorney adjudicator has discretion not 
to allow CMS, the IRE, and/or the Part D plan sponsor to participate. 
The ALJ or attorney adjudicator must notify the entity requesting 
participation, the Part D plan sponsor, if applicable, and the enrollee 
of his or her decision on the request to participate within the 
following time frames--
    (1) If no hearing is scheduled, at least 20 calendar days before the 
ALJ or attorney adjudicator issues a decision, dismissal, or remand;
    (2) If a non-expedited hearing is scheduled, within 5 calendar days 
of receipt of a request to participate; or
    (3) If an expedited hearing is scheduled, within 1 calendar of 
receipt of a request to participate.
    (d) Roles and responsibilities of CMS, the IRE, and/or the Part D 
plan sponsor as a participant. (1) Participation may include filing 
position papers and/or providing testimony to clarify factual or policy 
issues in a case, but it does not include calling witnesses or cross-
examining the witnesses of an enrollee to the hearing.
    (2) When CMS, the IRE, and/or the Part D plan sponsor participates 
in an ALJ hearing, CMS, the IRE, and/or the Part D plan sponsor may not 
be called as a witness during the hearing and is not subject to 
examination or cross-examination by the enrollee, but the enrollee may 
provide testimony to rebut factual or policy statements made by a 
participant and the ALJ may question the participant about its 
testimony.
    (3) CMS, IRE, and/or Part D plan sponsor positon papers and written 
testimony are subject to the following:
    (i) Unless the ALJ or attorney adjudicator grants additional time to 
submit a position paper or written testimony, a position paper and 
written testimony must be submitted--
    (A) Within 14 calendar days for a standard appeal, or 1 calendar day 
for an expedited appeal, after receipt of the ALJ's or attorney 
adjudicator's decision on a request to participate if no hearing has 
been scheduled; or
    (B) No later than 5 calendar days prior to the hearing if a non-
expedited hearing is scheduled, or 1 calendar day prior to the hearing 
if an expedited hearing is scheduled.
    (ii) A copy of any position paper and written testimony that CMS, 
the IRE, or the Part D plan sponsor submits to OMHA must be sent within 
the same time frames specified in paragraph (d)(3)(i)(A) and (B) of this 
section to the enrollee.
    (iii) If CMS, the IRE, and/or the Part D plan sponsor fails to send 
a copy of its position paper or written testimony to the enrollee or 
fails to submit its position paper or written testimony within the time 
frames described in this section, the position paper or written

[[Page 731]]

testimony will not be considered in deciding the appeal.
    (e) Invalid requests to participate. (1) An ALJ or attorney 
adjudicator may determine that a CMS, IRE, and/or Part D plan sponsor 
request to participate is invalid under this section if the request to 
participate was not timely filed or the request to participate was not 
sent to the enrollee.
    (2) If the request to participate is determined to be invalid, the 
written notice of an invalid request to participate must be sent to the 
entity that made the request to participate and the enrollee.
    (i) If no hearing is scheduled or the request to participate was 
made after the hearing occurred, the written notice of an invalid 
request to participate must be sent no later than the date the notice of 
decision, dismissal, or remand is mailed.
    (ii) If a non-expedited hearing is scheduled, the written notice of 
an invalid request to participate must be sent prior to the hearing. If 
the notice would be sent fewer than 5 calendar days before the hearing 
is scheduled to occur, oral notice must be provided to the entity that 
submitted the request, and the written notice must be sent as soon as 
possible after the oral notice is provided.
    (iii) If an expedited hearing is scheduled, oral notice of an 
invalid request to participate must be provided to the entity that 
submitted the request, and the written notice must be sent as soon as 
possible after the oral notice is provided.

[82 FR 5127, Jan. 17, 2017]



Sec. 423.2014  Request for an ALJ hearing or a review of an IRE dismissal.

    (a) Content of the request. (1) The request for an ALJ hearing or a 
review of an IRE dismissal must be made in writing, except as set forth 
in paragraph (b) of this section. The request, including any oral 
request, must include all of the following--
    (i) The name, address, telephone number, and Medicare health 
insurance claim number of the enrollee.
    (ii) The name, address, and telephone number of the appointed 
representative, as defined at Sec. 423.560, if any.
    (iii) The Medicare appeal number, if any, assigned to the IRE 
reconsideration or dismissal being appealed.
    (iv) The prescription drug in dispute.
    (v) The plan name.
    (vi) The reasons the enrollee disagrees with the IRE's 
reconsideration or dismissal being appealed.
    (2) The enrollee must submit a statement of any additional evidence 
to be submitted and the date it will be submitted.
    (3) The enrollee must submit a statement that the enrollee is 
requesting an expedited hearing, if applicable.
    (b) Request for expedited hearing. If an enrollee is requesting that 
the hearing be expedited, the enrollee may make the request for an ALJ 
hearing orally, but only after receipt of the written IRE 
reconsideration notice. OMHA must document all oral requests in writing 
and maintain the documentation in the case files. A prescribing 
physician or other prescriber may provide oral or written support for an 
enrollee's request for expedited review.
    (c) Complete request required. (1) A request must contain the 
information in paragraph (a)(1) of this section to the extent the 
information is applicable, to be considered complete. If a request is 
not complete, the enrollee will be provided with an opportunity to 
complete the request, and if an adjudication time frame applies it does 
not begin until the request is complete. If the enrollee fails to 
provide the information necessary to complete the request within the 
time frame provided, the enrollee's request for hearing or review will 
be dismissed.
    (2) If supporting materials submitted with a request clearly provide 
information required for a complete request, the materials will be 
considered in determining whether the request is complete.
    (d) When and where to file. Consistent with Sec. 423.1972(a) and 
(b), the request for an ALJ hearing after an IRE reconsideration or 
request for review of an IRE dismissal must be filed:
    (1) Within 60 calendar days from the date the enrollee receives 
written notice of the IRE's reconsideration or dismissal being appealed.
    (2) With the office specified in the IRE's reconsideration or 
dismissal.

[[Page 732]]

    (i) If the request for hearing is timely filed with an office other 
than the office specified in the IRE's reconsideration, the request is 
not treated as untimely, and any applicable time frame specified in 
Sec. 423.2016 for deciding the appeal begins on the date the office 
specified in the IRE's reconsideration or dismissal receives the request 
for hearing.
    (ii) If the request for hearing is filed with an office, other than 
the office specified in the IRE's reconsideration or dismissal, OMHA 
must notify the enrollee of the date the request was received in the 
correct office and the commencement of any applicable adjudication 
timeframe.
    (e) Extension of time to request a hearing or review. (1) Consistent 
with Sec. 423.1972(b), if the request for hearing or review is not filed 
within 60 calendar days of receipt of the written IRE's reconsideration 
or dismissal, an enrollee may request an extension for good cause.
    (2) Any request for an extension of time must be in writing or, for 
expedited reviews, in writing or oral. OMHA must document all oral 
requests in writing and maintain the documentation in the case file.
    (3) The request must give the reasons why the request for a hearing 
or review was not filed within the stated time period, and must be filed 
with the request for hearing or review of an IRE dismissal with the 
office specified in the notice of reconsideration or dismissal.
    (4) An ALJ or attorney adjudicator may find there is good cause for 
missing the deadline to file a request for an ALJ hearing or request for 
review of an IRE dismissal, or there is no good cause for missing the 
deadline to file a request for a review of an IRE dismissal, but only an 
ALJ may find there is no good cause for missing the deadline to file a 
request for an ALJ hearing. If good cause is found for missing the 
deadline, the time period for filing the request for hearing or request 
for review of an IRE dismissal will be extended. To determine whether 
good cause for late filing exists, the ALJ or attorney adjudicator uses 
the standards set forth in Sec. 405.942(b)(2) and (3) of this chapter.
    (5) If a request for hearing is not timely filed, any applicable 
adjudication period in Sec. 423.2016 begins the date the ALJ or attorney 
adjudicator grants the request to extend the filing deadline.
    (6) A determination granting a request to extend the filing deadline 
is not subject to further review.

[82 FR 5128, Jan. 17, 2017]



Sec. 423.2016  Timeframes for deciding an appeal of an IRE reconsideration.

    (a) Standard appeals. (1) When a request for an ALJ hearing is filed 
after an IRE has issued a written reconsideration, an ALJ or attorney 
adjudicator issues a decision, dismissal order, or remand, as 
appropriate, no later than the end of the 90 calendar day period 
beginning on the date the request for hearing is received by the office 
specified in the IRE's notice of reconsideration, unless the 90 calendar 
day period has been extended as provided in this subpart.
    (2) The adjudication period specified in paragraph (a)(1) of this 
section begins on the date that a timely filed request for hearing is 
received by the office specified in the IRE's reconsideration, or, if it 
is not timely filed, the date that the ALJ or attorney adjudicator 
grants any extension to the filing deadline.
    (3) If the Council remands a case and the case was subject to an 
adjudication time frame under paragraph (a)(1) of this section, the 
remanded appeal will be subject to the same adjudication time frame 
beginning on the date that OMHA receives the Council remand.
    (b) Expedited appeals--(1) Standard for expedited appeal. An ALJ or 
attorney adjudicator issues an expedited decision if the appeal involves 
an issue specified in Sec. 423.566(b), but is not solely a request for 
payment of Part D drugs already furnished, and the enrollee's 
prescribing physician or other prescriber indicates, or an ALJ or 
attorney adjudicator determines that applying the standard timeframe for 
making a decision may seriously jeopardize the enrollee's life, health 
or ability to regain maximum function. An ALJ or attorney adjudicator 
may consider this standard as met if a lower level adjudicator has 
granted a request for an expedited hearing.

[[Page 733]]

    (2) Grant of a request. If an ALJ or attorney adjudicator grants a 
request for expedited hearing, an ALJ or attorney adjudicator must--
    (i) Make the decision to grant an expedited appeal within 5 calendar 
days of receipt of the request for an expedited hearing;
    (ii) Give the enrollee prompt oral notice of this decision; and
    (iii) Subsequently send to the enrollee at his or her last known 
address and to the Part D plan sponsor written notice of the decision. 
This notice may be provided within the written notice of hearing.
    (3) Denial of a request. If an ALJ or attorney adjudicator denies a 
request for expedited hearing, an ALJ or attorney adjudicator must--
    (i) Make this decision within 5 calendar days of receipt of the 
request for expedited hearing;
    (ii) Give the enrollee prompt oral notice of the denial that informs 
the enrollee of the denial and explains that an ALJ or attorney 
adjudicator will process the enrollee's request using the 90 calendar 
day timeframe for non-expedited appeals; and
    (iii) Subsequently send to the enrollee at his or her last known 
address and to the Part D plan sponsor an equivalent written notice of 
the decision within 3 calendar days after the oral notice.
    (4) Decision not appealable. A decision on a request for expedited 
hearing may not be appealed.
    (5) Time frame for adjudication. (i) If an ALJ or attorney 
adjudicator accepts a request for expedited hearing, an ALJ or attorney 
adjudicator issues a written decision, dismissal order, or remand as 
expeditiously as the enrollee's health condition requires, but no later 
than the end of the 10 calendar day period beginning on the date the 
request for hearing is received by the office specified in the IRE's 
written notice of reconsideration, unless the 10 calendar day period has 
been extended as provided in this subpart.
    (ii) The adjudication period specified in paragraph (b)(5)(i) of 
this section begins on the date that a timely provided request for 
hearing is received by the office specified in the IRE's 
reconsideration, or, if it is not timely provided, the date that an ALJ 
or attorney adjudicator grants any extension to the filing deadline.
    (6) Time frame for Council remands. If the Council remands a case 
and the case was subject to an adjudication time frame under paragraph 
(b)(5) of this section, the remanded appeal will be subject to the same 
adjudication timeframe beginning on the date that OMHA receives the 
Council remand, if the standards for an expedited appeal continue to be 
met. If the standards for an expedited appeal are no longer met, the 
appeal will be subject to the adjudication time frame for a standard 
appeal.
    (c) Waivers and extensions of adjudication period. (1) At any time 
during the adjudication process, the enrollee may waive the adjudication 
period specified in paragraphs (a)(1) and (b)(5) of this section. The 
waiver may be for a specific period of time agreed upon by the ALJ or 
attorney adjudicator and the enrollee.
    (2) The adjudication periods specified in paragraphs (a)(1) and 
(b)(5) of this section are extended as otherwise specified in this 
subpart, and for the following events--
    (i) The duration of a stay of action on adjudicating the matters at 
issue ordered by a court or tribunal of competent jurisdiction;
    (ii) The duration of a stay of proceedings granted by an ALJ or 
attorney adjudicator on a motion by an enrollee.

[82 FR 5129, Jan. 17, 2017]



Sec. 423.2018  Submitting evidence.

    (a) All appeals. An enrollee must submit any written or other 
evidence that he or she wishes to have considered.
    (1) An ALJ or attorney adjudicator will not consider any evidence 
submitted regarding a change in condition of an enrollee after the 
appealed coverage determination was made.
    (2) An ALJ or attorney adjudicator will remand a case to the Part D 
IRE where an enrollee wishes evidence on his or her change in condition 
after the coverage determination to be considered.

[[Page 734]]

    (b) Non-expedited appeals. (1) Except as provided in this paragraph, 
a represented enrollee must submit all written or other evidence he or 
she wishes to have considered with the request for hearing, by the date 
specified in the request for hearing in accordance with 
Sec. 423.2014(a)(2), or, if a hearing is scheduled, within 10 calendar 
days of receiving the notice of hearing.
    (2) If a represented enrollee submits written or other evidence 
later than 10 calendar days after receiving the notice of hearing, any 
applicable adjudication period specified in Sec. 423.2016 is extended by 
the number of calendar days in the period between 10 calendar days after 
receipt of the notice of hearing and the day the evidence is received.
    (3) The requirements of paragraph (b) of this section do not apply 
to unrepresented enrollees.
    (c) Expedited appeals. (1) Except as provided in this section, an 
enrollee must submit all written or other evidence he or she wishes to 
have considered with the request for hearing, by the date specified in 
the request for hearing pursuant to Sec. 423.2014(a)(2), or, if an 
expedited hearing is scheduled, within 2 calendar days of receiving the 
notice of the expedited hearing.
    (2) If an enrollee submits written or other evidence later than 2 
calendar days after receiving the notice of expedited hearing, any 
applicable adjudication period specified in Sec. 423.2016 is extended by 
the number of calendar days in the period between 2 calendar days after 
receipt of the notice of expedited hearing and the day the evidence is 
received.
    (d) When this section does not apply. The requirements of paragraphs 
(b) and (c) of this section do not apply to oral testimony given at a 
hearing.

[82 FR 5130, Jan. 17, 2017]



Sec. 423.2020  Time and place for a hearing before an ALJ.

    (a) General. Consistent with Sec. 423.1972(b), the ALJ sets the time 
and place for the hearing, and may change the time and place, if 
necessary.
    (b) Determining how appearances are made. (1) Appearances by 
unrepresented enrollees. The ALJ will direct that the appearance of an 
unrepresented enrollee who filed a request for hearing be conducted by 
video-teleconferencing if the ALJ finds that video-teleconferencing 
technology is available to conduct the appearance, unless the ALJ finds 
good cause for an in-person appearance.
    (i) The ALJ may also offer to conduct a hearing by telephone if the 
request for hearing or administrative record suggests that a telephone 
hearing may be more convenient for the unrepresented enrollee.
    (ii) The ALJ, with the concurrence of the Chief ALJ or designee, may 
find good cause that an in-person hearing should be conducted if--
    (A) The video-teleconferencing or telephone technology is not 
available; or
    (B) Special or extraordinary circumstances exist.
    (2) Appearances by represented enrollees. The ALJ will direct that 
the appearance of an individual, other than an unrepresented enrollee 
who filed a request for hearing, be conducted by telephone, unless the 
ALJ finds good cause for an appearance by other means.
    (i) The ALJ may find good cause for an appearance by video-
teleconferencing if he or she determines that video-teleconferencing is 
necessary to examine the facts or issues involved in the appeal.
    (ii) The ALJ, with the concurrence of the Chief ALJ or designee, may 
find good cause that an in-person hearing should be conducted if--
    (A) The video-teleconferencing and telephone technology are not 
available; or
    (B) Special or extraordinary circumstances exist.
    (c) Notice of hearing. (1) A notice of hearing is sent to the 
enrollee, the Part D plan sponsor that issued the coverage 
determination, and the IRE that issued the reconsideration, advising 
them of the proposed time and place of the hearing.
    (2) The notice of hearing will require the enrollee to reply to the 
notice by:
    (i) Acknowledging whether they plan to attend the hearing at the 
time and place proposed in the notice of hearing, or whether they object 
to the proposed time and/or place of the hearing;

[[Page 735]]

    (ii) If the representative is an entity or organization, specifying 
who from the entity or organization plans to attend the hearing, if 
anyone, and in what capacity, in addition to the individual who filed 
the request for hearing; and
    (iii) Listing the witnesses who will be providing testimony at the 
hearing.
    (3) The notice of hearing will require CMS, the IRE, or the Part D 
plan sponsor that requests to attend the hearing as a participant to 
reply to the notice by:
    (i) Acknowledging whether it plans to attend the hearing at the time 
and place proposed in the notice of hearing; and
    (ii) Specifying who from the entity plans to attend the hearing,
    (d) An enrollee's right to waive a hearing. An enrollee may also 
waive the right to a hearing and request a decision based on the written 
evidence in the record in accordance with Sec. 423.2038(b).
    (1) As specified in Sec. 423.2000, an ALJ may require the enrollee 
to attend a hearing if it is necessary to decide the case.
    (2) If an ALJ determines that it is necessary to obtain testimony 
from a person other than the enrollee, he or she may still hold a 
hearing to obtain that testimony, even if the enrollee has waived the 
right to appear. In those cases, the ALJ would give the enrollee the 
opportunity to appear when the testimony is given but may hold the 
hearing even if the enrollee decides not to appear.
    (e) An enrollee's objection to time and place of hearing. (1) If an 
enrollee objects to the time and place of the hearing, the enrollee must 
notify the ALJ at the earliest possible opportunity before the time set 
for the hearing.
    (2) The enrollee must state the reason for the objection and state 
the time and place he or she wants the hearing to be held.
    (3) The objection must be in writing except for an expedited hearing 
when the objection may be provided orally, and except that the enrollee 
may orally request that a non-expedited hearing be rescheduled in an 
emergency circumstance the day prior to or day of the hearing. The ALJ 
must document all oral objections to the time and place of a hearing in 
writing and maintain the documentation in the case files.
    (4) The ALJ may change the time or place of the hearing if the 
enrollee has good cause.
    (f) Good cause for changing the time or place. The ALJ can find good 
cause for changing the time or place of the scheduled hearing and 
reschedule the hearing if the information available to the ALJ supports 
the enrollee's contention that--
    (1) The enrollee or his or her representative is unable to attend or 
to travel to the scheduled hearing because of a serious physical or 
mental condition, incapacitating injury, or death in the family; or
    (2) Severe weather conditions make it impossible to travel to the 
hearing; or
    (3) Good cause exists as set forth in paragraph (g) of this section.
    (g) Good cause in other circumstances. (1) In determining whether 
good cause exists in circumstances other than those set forth in 
paragraph (f) of this section, the ALJ considers the enrollee's reason 
for requesting the change, the facts supporting the request, and the 
impact of the change on the efficient administration of the hearing 
process.
    (2) Factors evaluated to determine the impact of the change include, 
but are not limited to, the effect on processing other scheduled 
hearings, potential delays in rescheduling the hearing, and whether any 
prior changes were granted the enrollee.
    (3) Examples of other circumstances an enrollee might give for 
requesting a change in the time or place of the hearing include, but are 
not limited to, the following:
    (i) The enrollee has attempted to obtain a representative but needs 
additional time.
    (ii) The enrollee's representative was appointed within 10 calendar 
days of the scheduled hearing for non-expedited hearings (or 2 calendar 
days for expedited hearings) and needs additional time to prepare for 
the hearing.
    (iii) The enrollee's representative has a prior commitment to be in 
court or

[[Page 736]]

at another administrative hearing on the date scheduled for the hearing.
    (iv) A witness who will testify to facts material to an enrollee's 
case is unavailable to attend the scheduled hearing and the evidence 
cannot be otherwise obtained.
    (v) Transportation is not readily available for an enrollee to 
travel to the hearing.
    (vi) The enrollee is unrepresented, and is unable to respond to the 
notice of hearing because of any physical, mental, educational, or 
linguistic limitations (including any lack of facility with the English 
language).
    (vii) The enrollee or enrollee's representative has a prior 
commitment that cannot be changed without significant expense.
    (viii) The enrollee or enrollee's representative asserts he or she 
did not receive the notice of hearing and is unable to appear at the 
scheduled time and place.
    (h) Effect of rescheduling hearing. If a hearing is postponed at the 
request of the enrollee for any of the above reasons, the time between 
the originally scheduled hearing date and the new hearing date is not 
counted toward the adjudication period specified in Sec. 423.2016.
    (i) An enrollee's request for an in-person or video-teleconferencing 
hearing. (1) If an unrepresented enrollee objects to a video-
teleconferencing hearing or to the ALJ's offer to conduct a hearing by 
telephone, or a represented enrollee who filed the request for hearing 
objects to a telephone or video-teleconferencing hearing, the enrollee 
or the enrollee's representative must notify the ALJ at the earliest 
possible opportunity before the time set for the hearing and request a 
video-teleconferencing or an in-person hearing.
    (2) The enrollee must state the reason for the objection and state 
the time and/or place he or she wants an in-person or video-
teleconferencing hearing to be held.
    (3) The request must be in writing except for an expedited hearing 
for which the request may be provided orally. The ALJ must document all 
oral objections to an expedited video-teleconferencing or telephone 
hearing in writing and maintain the documentation in the case files.
    (4) When an enrollee's request for an in-person or video-
teleconferencing hearing is granted and an adjudication time frame 
applies in accordance with Sec. 423.2016, the ALJ issues a decision, 
dismissal, or remand to the IRE within the adjudication time frame 
specified in Sec. 423.2016 (including any applicable extensions provided 
in this subpart), unless the enrollee requesting the hearing agrees to 
waive such adjudication timeframe in writing.
    (5) The ALJ may grant the request, with the concurrence of the Chief 
ALJ or designee, upon a finding of good cause and will reschedule the 
hearing for a time and place when the enrollee may appear in person or 
by video-teleconference before the ALJ.
    (j) Amended notice of hearing. If the ALJ changes or will change the 
time and/or place of the hearing, an amended notice of hearing must be 
sent to the enrollee and CMS, the IRE, and/or the Part D plan sponsor in 
accordance with Sec. 423.2022(a)(2).

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5130, Jan. 17, 2017]



Sec. 423.2022  Notice of a hearing before an ALJ.

    (a) Issuing the notice. (1) After the ALJ sets the time and place of 
the hearing, the notice of the hearing will be mailed or otherwise 
transmitted in accordance with OMHA procedures to the enrollee and other 
potential participants, as provided in Sec. 423.2020(c) at their last 
known addresses, or given by personal service, except to an enrollee or 
other potential participant who indicates in writing that he or she does 
not wish to receive this notice.
    (2) The notice is mailed, transmitted, or served at least 20 
calendar days before the hearing, except for expedited hearings where 
written notice is mailed, transmitted, or served at least 3 calendar 
days before the hearing, unless the enrollee or other potential 
participant agrees in writing to the notice being mailed, transmitted, 
or served fewer than 20 calendar days before the non-expedited hearing 
or 3 calendar days before the expedited hearing. For expedited hearings, 
the ALJ may orally provide notice of the hearing to the

[[Page 737]]

enrollee and other potential participants but oral notice must be 
followed by an equivalent written notice within 1 calendar day of the 
oral notice.
    (b) Notice information. (1) The notice of hearing contains--
    (b) Notice information. (1) The notice of hearing contains--
    (i) A statement that the issues before the ALJ include all of the 
issues brought out in the coverage determination, redetermination, or 
reconsideration that were not decided entirely in the enrollee's favor 
and that were specified in the request for hearing; and
    (ii) A statement of any specific new issues the ALJ will consider in 
accordance with Sec. 423.2032.
    (2) The notice will inform the enrollee that he or she may designate 
a person to represent him or her during the proceedings.
    (3) The notice must include an explanation of the procedures for 
requesting a change in the time or place of the hearing, a reminder that 
the ALJ may dismiss the hearing request if the enrollee fails to appear 
at the scheduled hearing without good cause, and other information about 
the scheduling and conduct of the hearing.
    (4) The enrollee will also be told if his or her appearance or that 
of any other witness is scheduled by video-teleconferencing, telephone, 
or in person. If the ALJ has scheduled the enrollee to appear at the 
hearing by video-teleconferencing, the notice of hearing will advise 
that the scheduled place for the hearing is a video-teleconferencing 
site and explain what it means to appear at the hearing by video-
teleconferencing.
    (5) The notice advises the enrollee that if he or she objects to 
appearing by video-teleconferencing or telephone, and wishes instead to 
have his or her hearing at a time and place where he or she may appear 
in person before the ALJ, he or she must follow the procedures set forth 
at Sec. 423.2020(i) for notifying the ALJ of his or her objections and 
for requesting an in-person hearing.
    (c) Acknowledging the notice of hearing. (1) If the enrollee or his 
or her representative does not acknowledge receipt of the notice of 
hearing, OMHA attempts to contact the enrollee for an explanation.
    (2) If the enrollee states that he or she did not receive the notice 
of hearing, a copy of the notice is sent to him or her by certified mail 
or other means requested by the enrollee and in accordance with OMHA 
procedures.
    (3) The enrollee may request that the ALJ reschedule the hearing in 
accordance with Sec. 423.2020(e).

[82 FR 5131, Jan. 17, 2017]



Sec. 423.2024  Objections to the issues.

    (a) If an enrollee objects to the issues described in the notice of 
hearing, he or she must notify the ALJ in writing at the earliest 
possible opportunity before the time set for the hearing, and no later 
than 5 calendar days before the hearing, except for expedited hearings 
in which the enrollee must submit written or oral notice of objection no 
later than 2 calendar days before the hearing. OMHA must document all 
oral objections in writing and maintain the documentation in the case 
files.
    (b) The enrollee must provide the reasons for his or her objections.
    (c) The ALJ makes a decision on the objections either in writing, at 
a prehearing conference, or at the hearing.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5132, Jan. 17, 2017]



Sec. 423.2026  Disqualification of the ALJ or attorney adjudicator.

    (a) An ALJ or attorney adjudicator may not adjudicate an appeal if 
he or she is prejudiced or partial to the enrollee or has any interest 
in the matter pending for decision.
    (b) If an enrollee objects to the ALJ or attorney adjudicator 
assigned to adjudicate the appeal, the enrollee must notify the ALJ 
within 10 calendar days of the date of the notice of hearing if a non-
expedited hearing is scheduled, except for expedited hearings in which 
the enrollee must submit written or oral notice no later than 2 calendar 
days after the date of the notice of hearing, or the ALJ or attorney 
adjudicator at any time before a decision, dismissal order, or remand 
order is issued if no hearing is scheduled. The ALJ or attorney 
adjudicator must document all oral objections in writing

[[Page 738]]

and maintain the documentation in the case files. The ALJ or attorney 
adjudicator considers the enrollee's objections and decides whether to 
proceed with the appeal or withdraw.
    (c) If the ALJ or attorney adjudicator withdraws, another ALJ or 
attorney adjudicator will be assigned to adjudicate the appeal. If the 
ALJ or attorney adjudicator does not withdraw, the enrollee may, after 
the ALJ or attorney adjudicator has issued an action in the case, 
present his or her objections to the Council in accordance with 
Sec. 423.2100 through Sec. 423.2130. The Council will then consider 
whether the decision or dismissal should be revised or, if applicable, a 
new hearing held before another ALJ.
    (d) If the enrollee objects to the ALJ or attorney adjudicator and 
the ALJ or attorney adjudicator subsequently withdraws from the appeal, 
any adjudication period that applies to the appeal in accordance with 
Sec. 423.2016 is extended by 14 calendar days for a standard appeal, or 
2 calendar days for an expedited appeal.

[82 FR 5132, Jan. 17, 2017]



Sec. 423.2030  ALJ hearing procedures.

    (a) General rule. A hearing is open to the enrollee and to other 
persons the ALJ considers necessary and proper.
    (b) At the hearing. (1) The ALJ fully examines the issues, questions 
the enrollee and other witnesses, and may accept evidence that is 
material to the issues consistent with Sec. 423.2018.
    (2) The ALJ may limit testimony and argument at the hearing that are 
not relevant to an issue before the ALJ, that are repetitive of evidence 
or testimony already in the record, or that relate to an issue that has 
been sufficiently developed or on which the ALJ has already ruled. The 
ALJ may, but is not required to, provide the enrollee or representative 
with an opportunity to submit additional written statements and 
affidavits on the matter in lieu of testimony and/or argument at the 
hearing. The written statements and affidavits must be submitted within 
the time frame designated by the ALJ.
    (3) If the ALJ determines that the enrollee or enrollee's 
representative is uncooperative, disruptive to the hearing, or abusive 
during the course of the hearing after the ALJ has warned the enrollee 
or representative to stop such behavior, the ALJ may excuse the enrollee 
or representative from the hearing and continue with the hearing to 
provide the participants with an opportunity to offer testimony and/or 
argument. If an enrollee or representative was excused from the hearing, 
the ALJ will provide the enrollee or representative with an opportunity 
to submit written statements and affidavits in lieu of testimony and/or 
argument at the hearing, and the enrollee or representative may request 
a recording of the hearing in accordance with Sec. 423.2042 and respond 
in writing to any statements made by participants and/or testimony of 
the witnesses at the hearing. The written statements and affidavits must 
be submitted within the time frame designated by the ALJ.
    (c) Missing evidence. The ALJ may also stop the hearing temporarily 
and continue it at a later date if he or she believes that there is 
material evidence missing at the hearing.
    (d) Effect of new evidence on adjudication period. If an enrollee, 
other than an unrepresented enrollee in a standard appeal, submits 
evidence pursuant to paragraph (b) or (c) of this section, and an 
adjudication period applies to the appeal, the adjudication period 
specified in Sec. 423.2016 is extended in accordance with 
Sec. 423.2018(b) or (c), as applicable.
    (e) Continued hearing. (1) A hearing may be continued to a later 
date. Notice of the continued hearing must be sent in accordance with 
Sec. 423.2022, except that a waiver of notice of the hearing may be made 
in writing or on the record, and the notice is sent to the enrollee and 
participants who attended the hearing, and any additional potential 
participants the ALJ determines are appropriate.
    (2) If the enrollee requests the continuance and an adjudication 
time frame applies to the appeal in accordance with Sec. 423.2016, the 
adjudication period is extended by the period between the initial 
hearing date and the continued hearing date.
    (f) Supplemental hearing. (1) The ALJ may conduct a supplemental 
hearing at any time before he or she mails a notice of the decision in 
order to receive

[[Page 739]]

new and material evidence, obtain additional testimony, or address a 
procedural matter. The ALJ determines whether a supplemental hearing is 
necessary and if one is held, the scope of the hearing, including when 
evidence is presented and what issues are discussed. Notice of the 
supplemental hearing must be sent in accordance with Sec. 423.2022, 
except that the notice is sent to the enrollee and participants who 
attended the hearing, and any additional potential participants the ALJ 
determines are appropriate.
    (2) If the enrollee requests the supplemental hearing and an 
adjudication period applies to the appeal in accordance with 
Sec. 423.2016, the adjudication period is extended by the period between 
the initial hearing date and the supplemental hearing date.

[82 FR 5132, Jan. 17, 2017]



Sec. 423.2032  Issues before an ALJ or attorney adjudicator.

    (a) General rule. The issues before the ALJ or attorney adjudicator 
include all the issues for the appealed matter specified in the request 
for hearing that were brought out in the coverage determination, 
redetermination, or reconsideration that were not decided entirely in an 
enrollee's favor.
    (b) New issues--(1) When a new issue may be considered. A new issue 
may include issues resulting from the participation of CMS, the IRE, or 
the Part D plan sponsor at the OMHA level of adjudication and from any 
evidence and position papers submitted by CMS, the IRE, or the Part D 
plan sponsor for the first time to the ALJ. The ALJ or the enrollee may 
raise a new issue; however, the ALJ may only consider a new issue 
relating to a determination or appealed matter specified in the request 
for hearing, including a favorable portion of a determination or 
appealed matter specified in the request for hearing, if its resolution 
could have a material impact on the appealed matter and--
    (i) There is new and material evidence that was not available or 
known at the time of the determination and that may result in a 
different conclusion; or
    (ii) The evidence that was considered in making the determination 
clearly shows on its face that an obvious error was made at the time of 
the determination.
    (2) Notice of the new issue. The ALJ may consider a new issue at the 
hearing if he or she notifies the enrollee about the new issue before 
the start of the hearing.
    (3) Opportunity to submit evidence. If notice of the new issue is 
sent after the notice of hearing, the enrollee will have at least 10 
calendar days in standard appeals or 2 calendar days in expedited 
appeals after receiving notice of the new issue to submit evidence 
regarding the issue, and without affecting any applicable adjudication 
period. If a hearing is conducted before the time to submit evidence 
regarding the issue expires, the record will remain open until the 
opportunity to submit evidence expires.
    (c) Adding coverage determinations to a pending appeal. A coverage 
determination on a drug that was not specified in a request for hearing 
may only be added to pending appeal if the coverage determination was 
adjudicated in the same reconsideration that is appealed, and the period 
to request an ALJ hearing for that reconsideration has not expired, or 
an ALJ or attorney adjudicator extends the time to request an ALJ 
hearing on the reconsideration in accordance with Sec. 423.2014(e).

[82 FR 5132, Jan. 17, 2017]



Sec. 423.2034  Requesting information from the IRE.

    (a) If an ALJ or attorney adjudicator believes that the written 
record is missing information that is essential to resolving the issues 
on appeal and that information can be provided only by CMS, the IRE, 
and/or the Part D plan sponsor, the information may be requested from 
the IRE that conducted the reconsideration or its successor.
    (1) Official copies of redeterminations and reconsiderations that 
were conducted on the appealed issues can be provided only by CMS, the 
IRE, and/or the Part D plan sponsor. Prior to issuing a request for 
information to the IRE, OMHA will confirm whether an electronic copy of 
the missing redetermination or reconsideration is available in the 
official system of record,

[[Page 740]]

and if so will accept the electronic copy as an official copy.
    (2) ``Can be provided only by CMS, the IRE, and/or the Part D plan 
sponsor'' means the information is not publicly available, is not in the 
possession of the enrollee, and cannot be requested and obtained by the 
enrollee. Information that is publicly available is information that is 
available to the general public via the Internet or in a printed 
publication. Information that is publicly available includes, but is not 
limited to, information available on a CMS, IRE or Part D Plan sponsor 
Web site or information in an official CMS or HHS publication.
    (b) The ALJ or attorney adjudicator retains jurisdiction of the 
case, and the case remains pending at OMHA.
    (c) The IRE has 15 calendar days for standard appeals, or 2 calendar 
days for expedited appeals, after receiving the request for information 
to furnish the information or otherwise respond to the information 
request directly or through CMS or the Part D plan sponsor.
    (d) If an adjudication period applies to the appeal in accordance 
with Sec. 423.2016, the adjudication period is extended by the period 
between the date of the request for information and the date the IRE 
responds to the request or 20 calendar days after the date of the 
request for standard appeals, or 3 calendar days after the date of the 
request for expedited appeals, whichever occurs first.

[82 FR 5133, Jan. 17, 2017]



Sec. 423.2036  Description of an ALJ hearing process.

    (a) The right to appear and present evidence. (1) An enrollee has 
the right to appear at the hearing before the ALJ to present evidence 
and to state his or her position. An enrollee may appear by video-
teleconferencing, telephone, or in person as determined under 
Sec. 423.2020.
    (2) An enrollee may also make his or her appearance by means of a 
representative, who may make his or her appearance by video-
teleconferencing, telephone, or in person, as determined under 
Sec. 423.2020.
    (3) Witness testimony may be given and CMS, IRE, and Part D plan 
sponsor participation may also be accomplished by video-
teleconferencing, telephone, or in person, as determined under 
Sec. 423.2020.
    (b) Waiver of the right to appear. (1) An enrollee may submit to 
OMHA a written statement indicating that he or she does not wish to 
appear at the hearing.
    (i) For expedited hearings, an enrollee may indicate in writing or 
orally that he or she does not wish to appear at the hearing.
    (ii) The OMHA hearing office must document all oral waivers in 
writing and maintain the documentation in the case files.
    (2) The enrollee may subsequently withdraw his or her waiver in 
writing at any time before the notice of the hearing decision is issued; 
however, by withdrawing the waiver the enrollee agrees to an extension 
of the adjudication period as specified in Sec. 423.2016, that may be 
necessary to schedule and hold the hearing.
    (3) Even if the enrollee waives his or her right to appear at a 
hearing, the ALJ may require him or her to attend an oral hearing if the 
ALJ believes that a personal appearance and testimony by the enrollee is 
necessary to decide the case.
    (c) Presenting written statements and oral arguments. An enrollee or 
an enrollee's appointed representative, as defined at Sec. 423.560, may 
appear before the ALJ to state the enrollee's case, to present a written 
summary of the case, or to enter written statements about the facts and 
law material to the case in the record.
    (d) Witnesses at a hearing. Witnesses may appear at a hearing. They 
testify under oath or affirmation, unless the ALJ finds an important 
reason to excuse them from taking an oath or affirmation. The ALJ may 
ask the witnesses any questions relevant to the issues and allow the 
enrollee or his or her appointed representative, as defined at 
Sec. 423.560.
    (e) What evidence is admissible at a hearing. The ALJ may receive 
evidence at the hearing even though the evidence is not admissible in 
court under the rules of evidence used by the court. However, the ALJ 
may not consider evidence on any change in condition of

[[Page 741]]

an enrollee after a coverage determination. If the enrollee wishes for 
the evidence to be considered, the ALJ must remand the case to the Part 
D IRE as set forth in Sec. 423.2034(b)(2).
    (f)(1) Subpoenas. When it is reasonably necessary for the full 
presentation of a case, an ALJ may, on his or her own initiative, issue 
subpoenas for the appearance and testimony of witnesses and for the 
enrollee and/or the Part D plan sponsor to make books, records, 
correspondence, papers, or other documents that are material to an issue 
at the hearing available for inspection and copying. An ALJ may not 
issue a subpoena to CMS, or the IRE to compel an appearance, testimony, 
or the production of evidence, or to the Part D plan sponsor to compel 
an appearance or testimony.
    (2) Reviewability of an ALJ Subpoena. A subpoena issued by an ALJ is 
not subject to immediate review by the Council. The subpoena may be 
reviewed solely during the Council's review specified in Sec. 423.2102 
and Sec. 423.2110.
    (3) Exception. To the extent a subpoena compels disclosure of a 
matter which an objection based on privilege, or other protection from 
disclosure such as case preparation, confidentiality, or undue burden, 
was made before an ALJ, the Council may review immediately the ruling of 
the ALJ on the objections to the subpoena or that portion of the 
subpoena as applicable.
    (i) Upon notice to the ALJ that the enrollee or a non-party, as 
applicable, intends to seek Council review of the ALJ's ruling on the 
subpoena, the ALJ must stay all proceedings affected by the subpoena.
    (ii) The proceedings are stayed for 15 calendar days or until the 
Council issues a written decision that affirms, reverses, or modifies 
the ALJ's subpoena, whichever comes first.
    (iii) If the Council does not take action within the 15 calendar 
days, then the stay is lifted and the enrollee or non-party must comply 
with the ALJ's subpoena.
    (4) Enforcement. (i) If the ALJ determines that an enrollee or 
person other than the enrollee subject to a subpoena issued under this 
section has refused to comply with the subpoena, the ALJ may request 
that the Secretary seek enforcement of the subpoena in accordance with 
section 205(e) of the Act, 42 U.S.C. 405(e).
    (ii) After submitting the enforcement request, the time period for 
the ALJ to issue a decision, dismissal or remand a case in response to a 
request for hearing is stayed for 15 calendar days or until the 
Secretary makes a decision with respect to the enforcement request, 
whichever occurs first.
    (iii) Any enforcement request by an ALJ must consist of a written 
notice to the Secretary describing in detail the ALJ's findings of 
noncompliance and his or her specific request for enforcement, and 
providing a copy of the subpoena and evidence of its receipt by 
certified mail by the enrollee or person other than the enrollee subject 
to the subpoena.
    (iv) The ALJ must promptly mail a copy of the notice and related 
documents to the individual or entity subject to the subpoena, to the 
enrollee, and to any other affected person.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5133, Jan. 17, 2017]



Sec. 423.2038  Deciding a case without a hearing before an ALJ.

    (a) Decision fully favorable. If the evidence in the administrative 
record supports a finding fully in favor of the enrollee(s) on every 
issue, the ALJ or attorney adjudicator may issue a decision without 
giving the enrollee(s) prior notice and without an ALJ conducting a 
hearing. The notice of the decision informs the enrollee(s) that he or 
she has the right to a hearing and a right to examine the evidence on 
which the decision is based.
    (b) Enrollee does not wish to appear. (1) The ALJ or attorney 
adjudicator may decide a case on the record and without an ALJ 
conducting a hearing if--
    (i) The enrollee indicates in writing or, for expedited hearings 
orally or in writing, that he or she does not wish to appear before an 
ALJ at a hearing, including a hearing conducted by telephone or video-
teleconferencing, if available. OMHA must document all oral requests not 
to appear at a hearing in writing and maintain the documentation in the 
case files; or
    (ii) The enrollee lives outside the United States and does not 
inform

[[Page 742]]

OMHA that he or she wants to appear at a hearing before an ALJ.
    (2) When a hearing is not held, the decision of the ALJ or attorney 
adjudicator must refer to the evidence in the record on which the 
decision was based.
    (c) Stipulated decision. If CMS, the IRE, and/or the Part D plan 
sponsor submits a written statement or makes an oral statement at a 
hearing indicating the drug should be covered or payment may be made, 
and the written or oral statement agrees to the amount of payment the 
parties believe should be made if the amount of payment is an issue 
before the ALJ or attorney adjudicator, an ALJ or attorney adjudicator 
may issue a stipulated decision finding in favor of the enrollee on the 
basis of the statement, and without making findings of fact, conclusions 
of law, or further explaining the reasons for the decision.

[82 FR 5133, Jan. 17, 2017]



Sec. 423.2040  Prehearing and posthearing conferences.

    (a) The ALJ may decide on his or her own, or at the request of the 
enrollee to the hearing, to hold a prehearing or posthearing conference 
to facilitate the hearing or the hearing decision.
    (b) For non-expedited hearings, the ALJ informs the enrollee, and 
CMS, the IRE, and/or the Part D plan sponsor if the ALJ has granted 
their request(s) to be a participant to the hearing at the time the 
notice of conference is sent, of the time, place, and purpose of the 
conference at least 7 calendar days before the conference date, unless 
the enrollee indicates in writing that he or she does not wish to 
receive a written notice of the conference.
    (c) For expedited hearings, the ALJ informs the enrollee, and CMS, 
the IRE, and/or the Part D plan sponsor if the ALJ has granted their 
request(s) to be a participant to the hearing, of the time, place, and 
purpose of the conference at least 2 calendar days before the conference 
date, unless the enrollee indicates orally or in writing that he or she 
does not wish to receive a written notice of the conference.
    (d) All oral requests not to receive written notice of the 
conference must be documented in writing and the documentation must be 
made part of the administrative record.
    (e) At the conference--
    (1) The ALJ or an OMHA attorney designated by the ALJ conducts the 
conference, but only the ALJ conducting a conference may consider 
matters in addition to those stated in the conference notice, if the 
enrollee consents to consideration of the additional matters in writing.
    (2) An audio recording of the conference is made.
    (f) The ALJ issues an order to the enrollee and all participants who 
attended the conference stating all agreements and actions resulting 
from the conference. If the enrollee does not object within 10 calendar 
days of receiving the order for non-expedited hearings or 1 calendar day 
for expedited hearings, or any additional time granted by the ALJ, the 
agreements and actions become part of the administrative record and are 
binding on the enrollee.

[82 FR 5133, Jan. 17, 2017]



Sec. 423.2042  The administrative record.

    (a) Creating the record. (1) OMHA makes a complete record of the 
evidence and administrative proceedings on the appealed matter, 
including any prehearing and posthearing conference and hearing 
proceedings that were conducted.
    (2) The record will include marked as exhibits, the appealed 
determinations and documents and other evidence used in making the 
appealed determinations and the ALJ's or attorney adjudicator's 
decision, including, but not limited to, medical records, written 
statements, certificates, reports, affidavits, and any other evidence 
the ALJ or attorney adjudicator admits. The record will also include any 
evidence excluded or not considered by the ALJ or attorney adjudicator, 
including but not limited to duplicative evidence submitted by the 
enrollee.
    (3) An enrollee may request and receive a copy of the record prior 
to or at the hearing, or, if a hearing is not held, at any time before 
the notice of decision is issued.
    (4) If a request for review is filed, the complete record, including 
any prehearing and posthearing conference

[[Page 743]]

and hearing recordings, is forwarded to the Council.
    (5) A typed transcription of the hearing is prepared if an enrollee 
seeks judicial review of the case in a Federal district court within the 
stated time period and all other jurisdictional criteria are met, 
unless, upon the Secretary's motion prior to the filing of an answer, 
the court remands the case.
    (b) Requesting and receiving copies of the record. (1) While an 
appeal is pending at OMHA, an enrollee may request and receive a copy of 
all or part of the record from OMHA, including any index of the 
administrative record, documentary evidence, and a copy of the audio 
recording of the oral proceedings. The enrollee may be asked to pay the 
costs of providing these items.
    (2) If an enrollee requests a copy of all or part of the record from 
OMHA or the ALJ or attorney adjudicator and an opportunity to comment on 
the record, any adjudication period that applies in accordance with 
Sec. 423.2016 is extended by the time beginning with the receipt of the 
request through the expiration of the time granted for the enrollee's 
response.
    (3) If the enrollee requests a copy of all or part of the record and 
the record, including any audio recordings, contains information 
pertaining to an individual that the enrollee is not entitled to 
receive, such as personally identifiable information or protected health 
information, such portions of the record will not be furnished unless 
the enrollee obtains consent from the individual.

[82 FR 5134, Jan. 17, 2017]



Sec. 423.2044  Consolidated proceedings.

    (a) Consolidated hearing. (1) A consolidated hearing may be held if 
one or more of the issues to be considered at the hearing are the same 
issues that are involved in one or more other appeals pending before the 
same ALJ.
    (2) It is within the discretion of the ALJ to grant or deny an 
enrollee's request for consolidation. In considering an enrollee's 
request, the ALJ may consider factors such as whether the issue(s) may 
be more efficiently decided if the appeals are consolidated for hearing. 
In considering the enrollee's request for consolidation, the ALJ must 
take into account any adjudication deadlines for each appeal and may 
require an enrollee to waive the adjudication deadline associated with 
one or more appeals if consolidation otherwise prevents the ALJ from 
deciding all of the appeals at issue within their respective deadlines.
    (3) The ALJ may also propose on his or her own motion to consolidate 
two or more appeals in one hearing for administrative efficiency, but 
may not require an enrollee to waive the adjudication deadline for any 
of the consolidated cases.
    (4) Notice of a consolidated hearing must be included in the notice 
of hearing issued in accordance with Secs. 423.2020 and 423.2022.
    (b) Consolidated decision and record. (1) If the ALJ decides to hold 
a consolidated hearing, he or she may make either--
    (i) A consolidated decision and record; or
    (ii) A separate decision and record on each appeal.
    (2) If a separate decision and record on each appeal is made, the 
ALJ is responsible for making sure that any evidence that is common to 
all appeals and material to the common issue to be decided, and audio 
recordings of any conferences that were conducted and the consolidated 
hearing are included in each individual administrative record, as 
applicable.
    (3) If a hearing will not be conducted for multiple appeals that are 
before the same ALJ or attorney adjudicator, and the appeals involve one 
or more of the same issues, the ALJ or attorney adjudicator may make a 
consolidated decision and record at the request of the enrollee or on 
the ALJ's or attorney adjudicator's own motion.
    (c) Limitation on consolidated proceedings. Consolidated proceedings 
may only be conducted for appeals filed by the same enrollee, unless 
multiple enrollees aggregated appeals to meet the amount in controversy 
requirement in accordance with Sec. 423.1970 and the enrollees have all 
authorized disclosure of information to the other enrollees.

[82 FR 5134, Jan. 17, 2017]

[[Page 744]]



Sec. 423.2046  Notice of an ALJ or attorney adjudicator decision.

    (a) Decisions on requests for hearing--(1) General rule. Unless the 
ALJ or attorney adjudicator dismisses or remands the request for 
hearing, the ALJ or attorney adjudicator will issue a written decision 
that gives the findings of fact, conclusions of law, and the reasons for 
the decision.
    (i) The decision must be based on evidence offered at the hearing or 
otherwise admitted into the record, and shall include independent 
findings and conclusions.
    (ii) A copy of the decision should be mailed or otherwise 
transmitted to the enrollee at his or her last known address.
    (iii) A copy of the written decision should also be provided to the 
IRE that issued the reconsideration determination, and to the Part D 
plan sponsor that issued the coverage determination.
    (2) Content of the notice. The decision must be provided in a manner 
calculated to be understood by an enrollee and must include--
    (i) The specific reasons for the determination, including, to the 
extent appropriate, a summary of any clinical or scientific evidence 
used in making the determination;
    (ii) The procedures for obtaining additional information concerning 
the decision; and
    (iii) Notification of the right to appeal the decision to the 
Council, including instructions on how to initiate an appeal under this 
section.
    (3) Limitation on decision. When the amount of payment for the Part 
D drug is an issue before the ALJ or attorney adjudicator, the ALJ or 
attorney adjudicator may make a finding as to the amount of payment due. 
If the ALJ or attorney adjudicator makes a finding concerning payment 
when the amount of payment was not an issue before the ALJ or attorney 
adjudicator, the Part D plan sponsor may independently determine the 
payment amount. In either of the aforementioned situations, an ALJ's or 
attorney adjudicator's decision is not binding on the Part D plan 
sponsor for purposes of determining the amount of payment due. The 
amount of payment determined by the Part D plan sponsor in effectuating 
the ALJ's or attorney adjudicator's decision is a new coverage 
determination under Sec. 423.566.
    (b) Decisions on requests for review of an IRE dismissal--(1) 
General rule. Unless the ALJ or attorney adjudicator dismisses the 
request for review of an IRE dismissal, or the dismissal is vacated and 
remanded, the ALJ or attorney adjudicator will issue a written decision 
affirming the IRE's dismissal. OMHA mails or otherwise transmits a copy 
of the decision to the enrollee.
    (2) Content of the notice. The decision must be written in a manner 
calculated to be understood by an enrollee and must include--
    (i) The specific reasons for the determination, including a summary 
of the evidence considered and applicable authorities;
    (ii) The procedures for obtaining additional information concerning 
the decision; and
    (iii) Notification that the decision is binding and is not subject 
to further review, unless reopened and revised by the ALJ or attorney 
adjudicator.
    (c) Recommended decision. An ALJ or attorney adjudicator issues a 
recommended decision if he or she is directed to do so in the Council's 
remand order. An ALJ or attorney adjudicator may not issue a recommended 
decision on his or her own motion. The ALJ or attorney adjudicator mails 
a copy of the recommended decision to the enrollee at his or her last 
known address.

[82 FR 5134, Jan. 17, 2017]



Sec. 423.2048  The effect of an ALJ's or attorney adjudicator's decision.

    (a) The decision of the ALJ or attorney adjudicator on a request for 
hearing is binding unless--
    (1) An enrollee requests a review of the decision by the Council 
within the stated time period or the Council reviews the decision issued 
by an ALJ or attorney adjudicator under the procedures set forth in 
Sec. 423.2110, and the Council issues a final decision or remand order;
    (2) The decision is reopened and revised by an ALJ or attorney 
adjudicator or the Council under the procedures explained in 
Sec. 423.1980;

[[Page 745]]

    (3) The expedited access to judicial review process at Sec. 423.1990 
is used;
    (4) The ALJ's or attorney adjudicator's decision is a recommended 
decision directed to the Council and the Council issues a decision; or
    (5) In a case remanded by a Federal district court, the Council 
assumes jurisdiction under the procedures in Sec. 423.2138 and the 
Council issues a decision.
    (b) The decision of the ALJ or attorney adjudicator on a request for 
review of an IRE dismissal is binding on the enrollee unless the 
decision is reopened and revised by the ALJ or attorney adjudicator 
under the procedures explained in Sec. 423.1980.

[82 FR 5135, Jan. 17, 2017]



Sec. 423.2050  Removal of a hearing request from OMHA to the Council.

    If a request for hearing is pending before OMHA, the Council may 
assume responsibility for holding a hearing by requesting that OMHA send 
the hearing request. If the Council holds a hearing, it conducts the 
hearing according to the rules for hearings before an ALJ. Notice is 
mailed to the enrollee at his or her last known address informing him or 
her that the Council has assumed responsibility for the case.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5135, Jan. 17, 2017]



Sec. 423.2052  Dismissal of a request for a hearing before an ALJ 
or request for review of an IRE dismissal.

    (a) Dismissal of request for hearing. An ALJ dismisses a request for 
a hearing under any of the following conditions:
    (1) Neither the enrollee that requested the hearing nor the 
enrollee's representative appears at the time and place set for the 
hearing, if--
    (i) The enrollee was notified before the time set for the hearing 
that the request for hearing might be dismissed for failure to appear, 
the record contains documentation that the enrollee acknowledged the 
notice of hearing, and the enrollee does not contact the ALJ within 10 
calendar days after the hearing for non-expedited hearings and 2 
calendar days after the hearing for expedited hearings, or does contact 
the ALJ but the ALJ determines the enrollee did not demonstrate good 
cause for not appearing; or
    (ii) The record does not contain documentation that the enrollee 
acknowledged the notice of hearing, the ALJ sends a notice to the 
enrollee at his or her last known address asking why the enrollee did 
not appear, and the enrollee does not respond to the ALJ's notice within 
10 calendar days for non-expedited hearings or within 2 calendar days 
for expedited hearings after receiving the notice, or does contact the 
ALJ but the ALJ determines the enrollee did not demonstrate good cause 
for not appearing. For expedited hearings, an enrollee may submit his or 
her response orally to the ALJ.
    (iii) In determining whether good cause exists under paragraphs 
(a)(1)(i) and (ii) of this section, the ALJ considers any physical, 
mental, educational, or linguistic limitations (including any lack of 
facility with the English language) the enrollee may have.
    (2) The person requesting a hearing has no right to it under 
Sec. 423.2002.
    (3) The enrollee did not request a hearing within the stated time 
period and the ALJ or attorney adjudicator has not found good cause for 
extending the deadline, as provided in Sec. 423.2014(e).
    (4) The enrollee died while the request for hearing is pending and 
the request for hearing was filed by the enrollee or the enrollee's 
representative, and the enrollee's surviving spouse or estate has no 
remaining financial interest in the case and the enrollee's 
representative, if any, does not wish to continue the appeal.
    (5) The ALJ or attorney adjudicator dismisses a hearing request 
entirely or refuses to consider any one or more of the issues because an 
IRE, an ALJ or attorney adjudicator, or the Council has made a previous 
determination or decision under this subpart about the enrollee's rights 
on the same facts and on the same issue(s), and this previous 
determination or decision has become binding by either administrative or 
judicial action.
    (6) The enrollee abandons the request for hearing. An ALJ or 
attorney adjudicator may conclude that an enrollee has abandoned a 
request for hearing when OMHA attempts to schedule a

[[Page 746]]

hearing and is unable to contact the enrollee after making reasonable 
efforts to do so.
    (7) The enrollee's request is not complete in accordance with 
Sec. 423.2014(a)(1), even after the enrollee is provided with an 
opportunity to complete the request.
    (b) Dismissal of request for review of IRE dismissal. An ALJ or 
attorney adjudicator dismisses a request for review of an IRE dismissal 
under any of the following conditions:
    (1) The enrollee has no right to a review of the IRE dismissal under 
Sec. 423.2004.
    (2) The enrollee did not request a review within the stated time 
period and the ALJ or attorney adjudicator has not found good cause for 
extending the deadline, as provided in Sec. 423.2014(e).
    (3) The enrollee died while the request for review was pending and 
the request was filed by the enrollee or the enrollee's representative, 
and the enrollee's surviving spouse or estate has no remaining financial 
interest in the case and the enrollee's representative, if any, does not 
wish to continue the appeal.
    (4) The enrollee's request is not complete in accordance with 
Sec. 423.2014(a)(1), even after the enrollee is provided with an 
opportunity to complete the request.
    (c) Withdrawal of request. At any time before notice of the 
decision, dismissal, or remand is mailed, if the enrollee asks to 
withdraw the request, an ALJ or attorney adjudicator may dismiss the 
request for hearing or request for review of an IRE dismissal. This 
request for withdrawal may be submitted in writing, or a request to 
withdraw a request for hearing may be made orally at a hearing before 
the ALJ. The request for withdrawal must include a clear statement that 
the enrollee is withdrawing the request for hearing or review of the IRE 
dismissal and does not intend to further proceed with the appeal. If an 
attorney or other legal professional on behalf of an enrollee files the 
request for withdrawal, the ALJ or attorney adjudicator may presume that 
the representative has advised the enrollee of the consequences of the 
withdrawal and dismissal.
    (d) Notice of dismissal. OMHA mails or otherwise transmits a written 
notice of the dismissal of the hearing or review request to the enrollee 
at his or her last known address. The written notice provides that there 
is a right to request that the ALJ or attorney adjudicator vacate the 
dismissal action.
    (e) Vacating a dismissal. If good and sufficient cause is 
established, the ALJ or attorney adjudicator may vacate his or her 
dismissal of a request for hearing or review within 6 months of the date 
of the notice of dismissal.

[82 FR 5135, Jan. 17, 2017]



Sec. 423.2054  Effect of dismissal of a request for a hearing or 
request for review of an IRE's dismissal.

    (a) The dismissal of a request for a hearing is binding, unless it 
is vacated by the Council under Sec. 423.2108(b), or vacated by the ALJ 
or attorney adjudicator under Sec. 423.2052(e).
    (b) The dismissal of a request for review of an IRE dismissal of a 
request for reconsideration is binding and not subject to further review 
unless vacated by the ALJ or attorney adjudicator under 
Sec. 423.2052(e).

[82 FR 5136, Jan. 17, 2017]



Sec. 423.2056  Remands of requests for hearing and requests for review.

    (a) Missing appeal determination or case record. (1) If an ALJ or 
attorney adjudicator requests an official copy of a missing 
redetermination or reconsideration for an appealed coverage 
determination in accordance with Sec. 423.2034, and the IRE, CMS, or 
Part D plan sponsor does not furnish the copy within the time frame 
specified in Sec. 423.2034, an ALJ or attorney adjudicator may issue a 
remand directing the IRE or Part D plan sponsor to reconstruct the 
record or, if it is not able to do so, initiate a new appeal 
adjudication.
    (2) If the IRE does not furnish the case file for an appealed 
reconsideration, an ALJ or attorney adjudicator may issue a remand 
directing the IRE to reconstruct the record or, if it is not able to do 
so, initiate a new appeal adjudication.
    (3) If the IRE or Part D plan sponsor is able to reconstruct the 
record for a remanded case and returns the case to

[[Page 747]]

OMHA, the case is no longer remanded and the reconsideration is no 
longer vacated, and any adjudication period that applies to the appeal 
in accordance with Sec. 423.2016 is extended by the period between the 
date of the remand and the date that case is returned to OMHA.
    (b) No redetermination. If an ALJ or attorney adjudicator finds that 
the IRE issued a reconsideration and no redetermination was made with 
respect to the issue under appeal or the request for redetermination was 
dismissed, the reconsideration will be remanded to the IRE, or its 
successor, to re-adjudicate the request for reconsideration.
    (c) Requested remand--(1) Request contents and timing. At any time 
prior to an ALJ or attorney adjudicator issuing a decision or dismissal, 
the enrollee and CMS, the IRE, or the Part D plan sponsor may jointly 
request a remand of the appeal to the IRE. The request must include the 
reasons why the appeal should be remanded, and indicate whether 
remanding the case will likely resolve the matter in dispute.
    (2) Granting the request. An ALJ or attorney adjudicator may grant 
the request and issue a remand if he or she determines that remanding 
the case will likely resolve the matter in dispute.
    (d) Remanding an IRE's dismissal of a request for reconsideration. 
Consistent with Sec. 423.2004(b), an ALJ or attorney adjudicator will 
remand a case to the appropriate IRE if the ALJ or attorney adjudicator 
determines that an IRE's dismissal of a request for reconsideration was 
in error.
    (e) Consideration of change in condition. The ALJ or attorney 
adjudicator will remand a case to the appropriate IRE if the ALJ or 
attorney adjudicator determines that the enrollee wants evidence on his 
or her change in condition after the coverage determination to be 
considered in the appeal.
    (f) Notice of a remand. OMHA mails or otherwise transmits a written 
notice of the remand of the request for hearing or request for review to 
the enrollee at his or her last known address, and CMS, the IRE, and/or 
the Part D plan sponsor if a request to be a participant was granted by 
the ALJ or attorney adjudicator. The notice states that there is a right 
to request that the Chief ALJ or a designee review the remand.
    (g) Review of remand. Upon a request by the enrollee or CMS, the 
IRE, or the Part D plan sponsor filed within 30 calendar days of 
receiving a notice of remand, the Chief ALJ or designee will review the 
remand, and if the remand is not authorized by this section, vacate the 
remand order. The determination on a request to review a remand order is 
binding and not subject to further review. The review of remand 
procedures provided for in this paragraph are not available for and do 
not apply to remands that are issued under paragraph (d) of this 
section.

[82 FR 5136, Jan. 17, 2017]



Sec. 423.2058  Effect of a remand.

    A remand of a request for hearing or request for review is binding 
unless vacated by the Chief ALJ or a designee in accordance with 
Sec. 423.2056(g).

[82 FR 5137, Jan. 17, 2017]



Sec. 423.2062  Applicability of policies not binding on the ALJ and Council.

    (a) ALJs or attorney adjudicators and the Council are not bound by 
CMS program guidance, such as program memoranda and manual instructions, 
but will give substantial deference to these policies if they are 
applicable to a particular case.
    (b) If an ALJ or attorney adjudicator or Council declines to follow 
a policy in a particular case, the ALJ or attorney adjudicator or 
Council decision must explain the reasons why the policy was not 
followed. An ALJ or attorney adjudicator or Council decision to 
disregard a policy applies only to the specific coverage determination 
being considered and does not have precedential effect.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5137, Jan. 17, 2017]



Sec. 423.2063  Applicability of laws, regulations, CMS Rulings, 
and precedential decisions.

    (a) All laws and regulations pertaining to the Medicare program, 
including, but not limited to Titles XI, XVIII, and XIX of the Social 
Security

[[Page 748]]

Act and applicable implementing regulations, are binding on ALJs and 
attorney adjudicators, and the Council.
    (b) CMS Rulings are published under the authority of the CMS 
Administrator. Consistent with Sec. 401.108 of this chapter, rulings are 
binding on all CMS components, and on all HHS components that adjudicate 
matters under the jurisdiction of CMS.
    (c) Precedential decisions designated by the Chair of the 
Departmental Appeals Board in accordance with Sec. 401.109 of this 
chapter are binding on all CMS components, and all HHS components that 
adjudicate matters under the jurisdiction of CMS.

[82 FR 5137, Jan. 17, 2017]



Sec. 423.2100  Medicare Appeals Council review: general.

    (a) Consistent with Sec. 423.1974, the enrollee may request that the 
Council review an ALJ's or attorney adjudicator's decision or dismissal.
    (b) When the Council reviews an ALJ's or attorney adjudicator's 
written decision, it undertakes a de novo review.
    (c) The Council issues a final decision, dismissal order, or remands 
a case to the ALJ or attorney adjudicator no later than the end of the 
90 calendar day period beginning on the date the request for review is 
received (by the entity specified in the ALJ's or attorney adjudicator's 
written notice of decision), unless the 90 calendar day period is 
extended as provided in this subpart or the enrollee requests expedited 
Council review.
    (d) If an enrollee requests expedited Council review, the Council 
issues a final decision, dismissal order or remand as expeditiously as 
the enrollee's health condition requires, but no later than the end of 
the 10 calendar day period beginning on the date the request for review 
is received (by the entity specified in the ALJ's or attorney 
adjudicator's written notice of decision), unless the 10 calendar day 
period is extended as provided in this subpart.

[82 FR 5137, Jan. 17, 2017]



Sec. 423.2102  Request for Council review when ALJ or attorney 
adjudicator issues decision or dismissal.

    (a)(1) An enrollee may request Council review of a decision or 
dismissal issued by an ALJ or attorney adjudicator if the enrollee files 
a written request for a Council review within 60 calendar days after 
receipt of the ALJ's or attorney adjudicator's written decision or 
dismissal.
    (2) An enrollee may request that Council review be expedited if the 
appeal involves an issue specified in Sec. 423.566(b) but does not 
include solely a request for payment of Part D drugs already furnished.
    (i) If an enrollee is requesting that the Council review be 
expedited, the enrollee submits an oral or written request within 60 
calendar days after the receipt of the ALJ's or attorney adjudicator's 
written decision or dismissal. A prescribing physician or other 
prescriber may provide oral or written support for an enrollee's request 
for expedited review.
    (ii) The Council must document all oral requests for expedited 
review in writing and maintain the documentation in the case files.
    (3) For purposes of this section, the date of receipt of the ALJ's 
or attorney adjudicator's written decision or dismissal is presumed to 
be 5 calendar days after the date of the notice of the decision or 
dismissal, unless there is evidence to the contrary.
    (4) The request is considered as filed on the date it is received by 
the entity specified in the notice of the ALJ's or attorney 
adjudicator's action.
    (b) An enrollee requesting a review may ask that the time for filing 
a request for Council review be extended if--
    (1) The request for an extension of time is in writing or, for 
expedited reviews, in writing or oral. The Council must document all 
oral requests in writing and maintain the documentation in the case 
file.
    (2) The request explains why the request for review was not filed 
within the stated time period. If the Council finds that there is good 
cause for missing the deadline, the time period will be extended. To 
determine whether good cause exists, the Council uses the

[[Page 749]]

standards outlined at Sec. 405.942(b)(2) and (3) of this chapter.
    (c) An enrollee does not have the right to seek Council review of an 
ALJ's or attorney adjudicator's remand to an IRE, or an ALJ's or 
attorney adjudicator's affirmation of an IRE's dismissal of a request 
for reconsideration, or dismissal of a request to review an IRE 
dismissal.

[82 FR 5137, Jan. 17, 2017]



Sec. 423.2106  Where a request for review may be filed.

    When a request for a Council review is filed after an ALJ or 
attorney adjudicator has issued a written decision or dismissal, the 
request for review must be submitted to the entity specified in the 
notice of the ALJ's or attorney adjudicator's action. If the request for 
review is timely filed with an entity other than the entity specified in 
the notice of the ALJ's or attorney adjudicator's action, the Council's 
adjudication period to conduct a review begins on the date the request 
for review is received by the entity specified in the notice of the 
ALJ's or attorney adjudicator's action. Upon receipt of a request for 
review from an entity other than the entity specified in the notice of 
the ALJ's or attorney adjudicator's action, the Council sends written 
notice to the enrollee of the date of receipt of the request and 
commencement of the adjudication timeframe.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5137, Jan. 17, 2017]



Sec. 423.2108  Council Actions when request for review is filed.

    (a) General. Except as specified in paragraph (c) of this section, 
when an enrollee requests that the Council review an ALJ's or attorney 
adjudicator's decision, the Council will review the ALJ's or attorney 
adjudicator's decision de novo. The enrollee requesting review does not 
have a right to a hearing before the Council. The Council will consider 
all of the evidence admitted into the administrative record. Upon 
completion of its review, the Council may adopt, modify, or reverse the 
ALJ's or attorney adjudicator's decision or remand the case to the ALJ 
or attorney adjudicator for further proceedings. Unless the Council's 
review is expedited as provided in paragraph (d) of this section, the 
Council must issue its action no later than 90 calendar days after 
receiving the request for review, unless the 90 calendar day period has 
been extended as provided in this subpart.
    (b) Review of ALJ's or attorney adjudicator's dismissal of a request 
for a hearing. When an enrollee requests that the Council review an 
ALJ's or attorney adjudicator's dismissal of a request for a hearing, 
the Council may deny review or vacate the dismissal and remand the case 
to the ALJ or attorney adjudicator for further proceedings.
    (c) Council dismissal of request for review. The Council will 
dismiss a request for review when the individual or entity requesting 
review does not have a right to a review by the MAC, or will dismiss the 
request for a hearing for any reason that the ALJ or attorney 
adjudicator could have dismissed the request for hearing.
    (d) Expedited reviews. (1) Standard for expedited reviews. The 
Council must provide an expedited review if the appeal involves an issue 
specified in Sec. 423.566(b), but does not include solely a request for 
payment of Part D drugs already furnished, enrollee's prescribing 
physician or other prescriber indicates, or the Council determines that 
applying the standard timeframe for making a decision may seriously 
jeopardize the enrollee's life or health or ability to regain maximum 
function. The Council may consider this standard as met if a lower level 
adjudicator has granted a request for an expedited appeal.
    (2) Grant of a request. If the Council grants a request for 
expedited review, the Council must:
    (i) Make this decision within 5 calendar days of receipt of the 
request for expedited review;
    (ii) Give the enrollee prompt oral notice of this decision; and
    (iii) Issue a decision, dismissal order or remand, as expeditiously 
as the enrollee's health condition requires, but no later than the end 
of the 10 calendar day period beginning on the date the request for 
review is received by the

[[Page 750]]

entity specified in the ALJ's or attorney adjudicator's written notice 
of decision.
    (3) Denial of a request. If the Council denies a request for 
expedited review, the Council must:
    (i) Make this decision within 5 calendar days of receipt of the 
request for expedited review;
    (ii) Give the enrollee and Part D plan sponsor within 5 calendar 
days of receiving the request written notice of the denial. The written 
notice must inform the enrollee of the denial and explain that the 
Council will process the enrollee's request using the 90 calendar day 
timeframe for non-expedited reviews.
    (4) Decision on a request. A decision on a request for expedited 
review may not be appealed.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5137 Jan. 17, 2017]



Sec. 423.2110  Council reviews on its own motion.

    (a) General rule. The Council may decide on its own motion to review 
a decision or dismissal issued by an ALJ or attorney adjudicator. CMS or 
the IRE may refer a case to the Council for it to consider reviewing 
under this authority any time within 60 calendar days after the date of 
an ALJ's or attorney adjudicator's written decision or dismissal.
    (b) Referral of cases. (1) CMS or the IRE may refer a case to the 
Council if, in the view of CMS or the IRE, the decision or dismissal 
contains an error of law material to the outcome of the appeal or 
presents a broad policy or procedural issue that may affect the public 
interest. CMS or the IRE may also request that the Council take own 
motion review of a case if--
    (i) CMS or the IRE participated or requested to participate in the 
appeal at the OMHA level; and
    (ii) In CMS' or the IRE's view, the ALJ's or attorney adjudicator's 
decision or dismissal is not supported by the preponderance of evidence 
in the record or the ALJ or attorney adjudicator abused his or her 
discretion.
    (2) CMS' or the IRE's referral to the Council is made in writing and 
must be filed with the Council no later than 60 calendar days after the 
ALJ's or attorney adjudicator's written decision or dismissal is issued.
    (i) The written referral will state the reasons why CMS or the IRE 
believes that the Council should review the case on its own motion.
    (ii) CMS or the IRE will send a copy of its referral to the enrollee 
and to the OMHA Chief ALJ.
    (iii) The enrollee may file exceptions to the referral by submitting 
written comments to the Council within 20 calendar days of the referral 
notice.
    (iv) An enrollee submitting comments to the Council must send the 
comments to CMS or the IRE.
    (c) Standard of review--(1) Referral by CMS or the IRE when CMS or 
the IRE participated or requested to participate in the OMHA level. If 
CMS or the IRE participated or requested to participate in an appeal at 
the OMHA level, the Council exercises its own motion authority if there 
is an error of law material to the outcome of the case, an abuse of 
discretion by the ALJ or attorney adjudicator, the decision is not 
consistent with the preponderance of the evidence of record, or there is 
a broad policy or procedural issue that may affect the general public 
interest. In deciding whether to accept review under this standard, the 
Council will limit its consideration of the ALJ's or attorney 
adjudicator's action to those exceptions raised by CMS or the IRE.
    (2) Referral by CMS or the IRE when CMS or the IRE did not 
participate or request to participate in the OMHA proceedings. The 
Council will accept review if the decision or dismissal contains an 
error of law material to the outcome of the case or presents a broad 
policy or procedural issue that may affect the general public interest. 
In deciding whether to accept review, the Council will limit its 
consideration of the ALJ's or attorney adjudicator's action to those 
exceptions raised by CMS or the IRE.
    (d) Council's action. (1) If the Council decides to review a 
decision or dismissal on its own motion, it will mail the results of its 
action to the enrollee and to CMS or the IRE, as appropriate.
    (2) The Council may adopt, modify, or reverse the decision or 
dismissal,

[[Page 751]]

may remand the case to an ALJ or attorney adjudicator for further 
proceedings, or may dismiss a hearing request.
    (3) The Council must issue its action no later than 90 calendar days 
after receipt of the CMS or the IRE referral, unless the 90 calendar day 
period has been extended as provided in this subpart.
    (4) The Council may not issue its action before the 20 calendar day 
comment period has expired, unless it determines that the agency's 
referral does not provide a basis for reviewing the case.
    (5) If the Council declines to review a decision or dismissal on its 
own motion, the ALJ's or attorney adjudicator's decision or dismissal is 
binding.

[82 FR 5137, Jan. 17, 2017]



Sec. 423.2112  Content of request for review.

    (a)(1) The request for Council review must be filed with the entity 
specified in the notice of the ALJ's or attorney adjudicator's action.
    (2) The request for review must be in writing and may be made on a 
standard form, except for requests for expedited reviews which may be 
made orally.
    (3) The Council must document all oral requests in writing and 
maintain the documentation in the case file.
    (4) A written request that is not made on a standard form or, for 
expedited requests, an oral request, is accepted if it includes the 
enrollee's name and telephone number, the plan name; Medicare health 
insurance claim number; the ALJ appeal number; the specific Part D 
drug(s) for which the review is requested; a statement that the enrollee 
is requesting an expedited review, if applicable; and the name and 
signature of the enrollee or the representative of the enrollee.
    (b) The request for review must identify the parts of the ALJ or 
attorney adjudicator action with which the enrollee requesting review 
disagrees and explain why he or she disagrees with the ALJ's or attorney 
adjudicator's decision, dismissal, or other determination being 
appealed.
    (c) The Council will limit its review of an ALJ's or attorney 
adjudicator's actions to those exceptions raised by the enrollee in the 
request for review, unless the enrollee is unrepresented. For purposes 
of this section only, a representative is either anyone with a valid 
appointment as the enrollee's representative or is a member of the 
enrollee's family, a legal guardian or an individual who routinely acts 
on behalf of the enrollee, such as a family member or friend who has a 
power of attorney.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2114  Dismissal of request for review.

    The Council dismisses a request for review if the enrollee 
requesting review did not file the request within the stated period of 
time and the time for filing has not been extended. The Council also 
dismisses the request for review if--
    (a) The enrollee asks to withdraw the request for review;
    (b) The individual or entity does not have a right to request 
Council review; or
    (c) The enrollee died while the request for review is pending and 
the enrollee's estate or representative, if any, either has no remaining 
financial interest in the case or does not want to continue the appeal.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2116  Effect of dismissal of request for Council review or 
request for hearing.

    The dismissal of a request for Council review or denial of a request 
for review of a dismissal issued by an ALJ or attorney adjudicator is 
binding and not subject to further review unless reopened and vacated by 
the Council. The Council's dismissal of a request for hearing is also 
binding and not subject to judicial review.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2118  Obtaining evidence from the Council.

    An enrollee may request and receive a copy of all or part of the 
record of the ALJ's or attorney adjudicator's action,

[[Page 752]]

including any index of the administrative record, documentary evidence, 
and a copy of the audio recording of the oral proceedings. However, the 
enrollee may be asked to pay the costs of providing these items. If an 
enrollee requests evidence from the Council and an opportunity to 
comment on that evidence, the time beginning with the Council's receipt 
of the request for evidence through the expiration of the time granted 
for the enrollee's response will not be counted toward the adjudication 
deadline.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2120  Filing briefs with the Council.

    Upon request, the Council will give the enrollee requesting review a 
reasonable opportunity to file a brief or other written statement about 
the facts and law relevant to the case. Unless the enrollee requesting 
review files the brief or other statement with the request for review, 
the time beginning with the date of receipt of the request to submit the 
brief and ending with the date the brief is received by the Council will 
not be counted toward the adjudication timeframe set forth in 
Sec. 423.2100. The Council may also request, but not require, CMS, the 
IRE, and/or the Part D plan sponsor to file a brief or position paper if 
the Council determines that it is necessary to resolve the issues in the 
case. The Council cannot draw any adverse inference if CMS, the IRE, 
and/or the Part D plan sponsor either participates, or decides not to 
participate in Council review.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2122  What evidence may be submitted to the Council.

    (a) Appeal before the Council on request for review of ALJ's or 
attorney adjudicator's decision. (1) If the Council is reviewing an 
ALJ's or attorney adjudicator's decision, the Council will consider the 
evidence contained in the record of the proceedings before the ALJ or 
attorney adjudicator, and any new evidence that relates to the period 
before the coverage determination. If the ALJ's or attorney 
adjudicator's decision decides a new issue that the enrollee was not 
afforded an opportunity to address at the OMHA level, the Council 
considers any evidence related to that issue that is submitted with the 
request for review.
    (2) If the Council determines that additional evidence is needed to 
resolve the issues in the case and the administrative record indicates 
that the previous decision-makers have not attempted to obtain the 
evidence, the Council may remand the case to an ALJ or attorney 
adjudicator to obtain the evidence and issue a new decision.
    (3) The Council will not consider any new evidence submitted 
regarding a change in condition of an enrollee after a coverage 
determination is made. The Council will remand a case to the Part D IRE 
if the Council determines that the enrollee wishes to have evidence on 
his or her change in condition after the coverage determination 
considered.
    (b) Subpoenas. When it is reasonably necessary for the full 
presentation of a case, the Council may, on its own initiative, issue 
subpoenas requiring an enrollee or Part D plan sponsor to make books, 
records, correspondence, papers, or other documents that are material to 
an issue at the hearing available for inspection and copying. The 
Council may not issue a subpoena to CMS, or the IRE to compel the 
production of evidence.
    (1) To the extent a subpoena compels disclosure of a matter for 
which an objection based on privilege, or other protection from 
disclosure such as case preparation, confidentiality or undue burden, 
was made before the Council, the Secretary may review immediately that 
subpoena or a portion of the subpoena.
    (2) Upon notice to the Council that an enrollee or Part D plan 
sponsor intends to seek the Secretary review of the subpoena, the 
Council must stay all proceedings affected by the subpoena, tolling the 
time period for the Council to issue a final action or remand a case in 
response to a request for review for 15 calendar days or until the 
Secretary makes a decision with respect to the review request, whichever 
occurs first.
    (3) If the Secretary does not grant review within the time allotted 
for the

[[Page 753]]

stay, the stay is lifted and the subpoena stands.
    (c) Enforcement. (1) If the CouncilC determines that an enrollee or 
other person or entity subject to a subpoena issued under this section 
has refused to comply with the subpoena, the Council may request the 
Secretary to seek enforcement of the subpoena in accordance with section 
205(e) of the Act, 42 U.S.C. 405(e).
    (2) After submitting the enforcement request, the time period for 
the Council to issue a final action or remand a case in response to a 
request for review is stayed for 15 calendar days or until the Secretary 
makes a decision with respect to the enforcement request, whichever 
occurs first.
    (3) Any enforcement request by the Council must consist of a written 
notice to the Secretary describing in detail the Council's findings of 
noncompliance and its specific request for enforcement, and providing a 
copy of the subpoena and evidence of its receipt by certified mail by 
the enrollee or other person or entity subject to the subpoena.
    (4) The Council must promptly mail a copy of the notice and related 
documents to the enrollee or other person or entity subject to the 
subpoena, and to any other affected person.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2124  Oral argument.

    An enrollee may request to appear before the Council to present oral 
argument.
    (a) The Council grants a request for oral argument if it decides 
that the case raises an important question of law, policy, or fact that 
cannot be readily decided based on written submissions alone.
    (b) The Council may decide on its own that oral argument is 
necessary to decide the issues in the case. If the Council decides to 
hear oral argument, it informs the enrollee of the time and place of the 
oral argument at least 10 calendar days before the scheduled date or, in 
the case of an expedited review, at least 2 calendar days before the 
scheduled date.
    (c) In case of a previously unrepresented enrollee, a newly hired 
representative may request an extension of time for preparation of the 
oral argument and the Council must consider whether the extension is 
reasonable.
    (d) The Council may also request, but not require, CMS, the IRE, 
and/or the Part D plan sponsor to appear before it if the Council 
determines that it may be helpful in resolving the issues in the case.
    (e) The Council cannot draw any adverse inference if CMS, the IRE, 
and/or the Part D plan sponsor decide not to participate in the oral 
argument.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2126  Case remanded by the Council.

    (a) When the Council may remand a case to the ALJ or attorney 
adjudicator. (1) The Council may remand a case in which additional 
evidence is needed or additional action by the ALJ or attorney 
adjudicator is required. The Council will designate in its remand order 
whether the ALJ or attorney adjudicator will issue a decision or a 
recommended decision on remand.
    (2) Action by ALJ or attorney adjudicator on remand. The ALJ or 
attorney adjudicator will take any action that is ordered by the Council 
and may take any additional action that is not inconsistent with the 
Council's remand order.
    (3) Notice when case is returned with a recommended decision. When 
the ALJ or attorney adjudicator sends a case to the Council with a 
recommended decision, a notice is mailed to the enrollee at his or her 
last known address. The notice tells the enrollee that the case was sent 
to the Council, explains the rules for filing briefs or other written 
statements with the Council, and includes a copy of the recommended 
decision.
    (4) Filing briefs with the Council when ALJ or attorney adjudicator 
issues recommended decision. (i) An enrollee may file with the Council 
briefs or other written statements about the facts and law relevant to 
the case within 20 calendar days of the date on the recommended decision 
or with the request for review for expedited appeals. An enrollee may 
ask the Council for additional time to file a brief or written

[[Page 754]]

statement. The Council will extend this period, as appropriate, if the 
enrollee shows that he or she has good cause for requesting the 
extension.
    (ii) All other rules for filing briefs with and obtaining evidence 
from the Council follow the procedures explained in this subpart.
    (5) Procedures before the Council. (i) The Council, after receiving 
a recommended decision, will conduct proceedings and issue its decision 
or dismissal according to the procedures explained in this subpart.
    (ii) If the Council determines that more evidence is required, it 
may again remand the case to an ALJ or attorney adjudicator for further 
inquiry into the issues, rehearing if applicable, receipt of evidence, 
and another decision or recommended decision. However, if the Council 
decides that it can get the additional evidence more quickly, it will 
take appropriate action.
    (b) When the Council must remand a case to the Part D IRE. The 
Council will remand a case to the appropriate Part D IRE if the Council 
determines that the enrollee wishes evidence on his or her change in 
condition after the coverage determination to be considered in the 
appeal.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5138, Jan. 17, 2017]



Sec. 423.2128  Action of the Council.

    (a) After it has reviewed all the evidence in the administrative 
record and any additional evidence received, subject to the limitations 
on Council consideration of additional evidence in Sec. 423.2122, the 
Council will make a decision or remand the case to an ALJ or attorney 
adjudicator.
    (b) The Council may adopt, modify, or reverse the ALJ or attorney 
adjudicator decision or recommended decision.
    (c) The Council mails a copy of its decision to the enrollee at his 
or her last known address, to CMS, to the IRE, and to the Part D plan 
sponsor.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5139, Jan. 17, 2017]



Sec. 423.2130  Effect of the Council 's decision.

    The Council's decision is final and binding unless a Federal 
District Court issues a decision modifying the Council's decision or the 
decision is revised as the result of a reopening in accordance with 
Sec. 423.1980. An enrollee may file an action in a Federal District 
Court within 60 calendar days after the date the enrollee receives 
written notice of the Council's decision.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5139, Jan. 17, 2017]



Sec. 423.2134  Extension of time to file action in Federal District Court.

    (a) An enrollee may request that the time for filing an action in a 
Federal District Court be extended.
    (b) The request must:
    (1) Be in writing.
    (2) Give the reasons why the action was not filed within the stated 
time period.
    (3) Be filed with the Council.
    (c) If the enrollee shows that he or she had good cause for missing 
the deadline, the time period will be extended. To determine whether 
good cause exists, the Council uses the standards specified in 
Secs. 405.942(b)(2) or (b)(3) of this chapter.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5139, Jan. 17, 2017]



Sec. 423.2136  Judicial review.

    (a) General rule. To the extent authorized by sections 1876(c)(5)(B) 
and 1860D-4(h) of the Act and consistent with Sec. 423.1976, an enrollee 
may obtain a court review of a Council decision if the amount in 
controversy meets the threshold requirement estimated annually by the 
Secretary.
    (b) Court in which to file civil action. (1) Consistent with 
Sec. 423.1976(c), any civil action described in paragraph (a) of this 
section must be filed in the District Court of the United States for the 
judicial district in which the enrollee resides.
    (2) If the enrollee does not reside within any judicial district, 
the civil action must be filed in the District Court of the United 
States for the District of Columbia.

[[Page 755]]

    (c) Time for filing civil action. (1) Any civil action described in 
paragraph (a) of this section must be filed within the time periods 
specified in Sec. 423.2130 or Sec. 423.2134, as applicable.
    (2) For purposes of this section, the date of receipt of the notice 
of the Council's decision shall be presumed to be 5 calendar days after 
the date of the notice, unless there is a reasonable showing to the 
contrary.
    (3) Where a case is certified for judicial review in accordance with 
the expedited access to judicial review process in Sec. 423.1990, the 
civil action must be filed within 60 calendar days after receipt of the 
review entity's certification, except where the time is extended by the 
ALJ or attorney adjudicator or Council, as applicable, upon a showing of 
good cause.
    (d) Proper defendant. (1) In any civil action described in paragraph 
(a) of this section, the Secretary of HHS, in his or her official 
capacity, is the proper defendant. Any civil action properly filed shall 
survive notwithstanding any change of the person holding the Office of 
the Secretary of HHS or any vacancy in such office.
    (2) If the complaint is erroneously filed against the United States 
or against any agency, officer, or employee of the United States other 
than the Secretary, the plaintiff enrollee will be notified that he or 
she has named an incorrect defendant and is granted 60 calendar days 
from the date of receipt of the notice in which to commence the action 
against the correct defendant, the Secretary.
    (e) Standard of review. (1) Under section 205(g) of the Act, the 
findings of the Secretary of HHS as to any fact, if supported by 
substantial evidence, are conclusive.
    (2) When the Secretary's decision is adverse to an enrollee due to 
an enrollee's failure to submit proof in conformity with a regulation 
prescribed under section 205(a) of the Act pertaining to the type of 
proof an enrollee must offer to establish entitlement to payment, the 
court will review only whether the proof conforms with the regulation 
and the validity of the regulation.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5139, Jan. 17, 2017]



Sec. 423.2138  Case remanded by a Federal District Court.

    When a Federal District Court remands a case to the Secretary for 
further consideration, unless the court order specifies otherwise, the 
Council, acting on behalf of the Secretary, may make a decision, or it 
may remand the case to an ALJ or attorney adjudicator with instructions 
to take action and either issue a decision, take other action, or return 
the case to the Council with a recommended decision. If the Council 
remands a case, the procedures specified in Sec. 423.2140 will be 
followed.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5139, Jan. 17, 2017]



Sec. 423.2140   Council Review of ALJ or attorney adjudicator decision in 
a case remanded by a Federal District Court.

    (a) General rules. (1) In accordance with Sec. 423.2138, when a case 
is remanded by a Federal District Court for further consideration and 
the Council remands the case to an ALJ or attorney adjudicator, a 
decision subsequently issued by the ALJ or attorney adjudicator becomes 
the final decision of the Secretary unless the Council assumes 
jurisdiction.
    (2) The Council may assume jurisdiction based on written exceptions 
to the decision of the ALJ or attorney adjudicator that an enrollee 
files with the Council or based on its authority under paragraph (c) of 
this section.
    (3) The Council either makes a new, independent decision based on 
the entire record that will be the final decision of the Secretary after 
remand, or remands the case to an ALJ or attorney adjudicator for 
further proceedings.
    (b) An enrollee files exceptions disagreeing with the decision of 
the ALJ or attorney adjudicator. (1) If an enrollee disagrees with an 
ALJ or attorney adjudicator decision described in paragraph (a) of this 
section, in whole or in part, he or she may file exceptions to the 
decision with the Council Council .
    (2) Exceptions may be filed by submitting a written statement to the 
Council setting forth the reasons for disagreeing with the decision of 
the ALJ or attorney adjudicator.

[[Page 756]]

    (i) The enrollee must file exceptions within 30 calendar days of the 
date the enrollee receives the decision of the ALJ or attorney 
adjudicator or submit a written request for an extension within the 30 
calendar day period.
    (ii) The Council will grant a timely request for a 30 calendar day 
extension. A request for an extension of more than 30 calendar days must 
include a statement of reasons as to why the enrollee needs the 
additional time and may be granted if the Council finds good cause under 
the standard established in Secs. 405.942(b)(2) or (b)(3) of this 
chapter.
    (3) If written exceptions are timely filed, the Council considers 
the enrollee's reasons for disagreeing with the decision of the ALJ or 
attorney adjudicator. If the Council concludes that there is no reason 
to change the decision of the ALJ or attorney adjudicator, it will issue 
a notice addressing the exceptions and explaining why no change in the 
decision of the ALJ or attorney adjudicator is warranted. In this 
instance, the decision of the ALJ or attorney adjudicator is the final 
decision of the Secretary after remand.
    (4) When an enrollee files written exceptions to the decision of the 
ALJ, the Council may assume jurisdiction at any time. If the Council 
assumes jurisdiction, it makes a new, independent decision based on its 
consideration of the entire record adopting, modifying, or reversing the 
decision of the ALJ or attorney adjudicator or remanding the case to an 
ALJ or attorney adjudicator for further proceedings, including a new 
decision. The new decision of the Council is the final decision of the 
Secretary after remand.
    (c) Council assumes jurisdiction without exceptions being filed. (1) 
Any time within 60 calendar days after the date of the written decision 
of the ALJ or attorney adjudicator, the Council may decide to assume 
jurisdiction of the case even though no written exceptions have been 
filed.
    (2) Notice of this action is mailed to the enrollee at his or her 
last known address.
    (3) The enrollee will be provided with the opportunity to file a 
brief or other written statement with the Council about the facts and 
law relevant to the case.
    (4) After the brief or other written statement is received or the 
time allowed (usually 30 calendar days) for submitting them has expired, 
the Council will either issue a final decision of the Secretary 
affirming, modifying, or reversing the decision of the ALJ, or remand 
the case to an ALJ or attorney adjudicator for further proceedings, 
including a new decision.
    (d) Exceptions are not filed and the Council does not otherwise 
assume jurisdiction. If no exceptions are filed and the Council does not 
assume jurisdiction over the case within 60 calendar days after the date 
of the ALJ's or attorney adjudicator's written decision, the decision of 
the ALJ or attorney adjudicator becomes the final decision of the 
Secretary after remand.

[74 FR 65363, Dec. 9, 2009, as amended at 82 FR 5139, Jan. 17, 2017]



                 Subpart V_Part D Marketing Requirements

    Source: 73 FR 54222, Sept. 18, 2008, unless otherwise noted.



Sec. 423.2260  Definitions concerning marketing materials.

    As used in this subpart--
    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.
    (5) May 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.

[[Page 757]]

    (iii) Presentation materials such as slides and charts.
    (iv) Promotional materials such as brochures or leaflets, including 
materials for circulation by third parties (for example, physicians or 
other providers).
    (v) Membership communication materials such as membership rules, 
subscriber agreements, 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 activities (for example, materials on rules 
involving non-payment of premiums, confirmation of enrollment or 
disenrollment, or nonclaim-specific notification information).
    (6) Marketing materials exclude ad hoc enrollee communications 
materials, meaning informational materials that--
    (i) Are targeted to current enrollees;
    (ii) Are customized or limited to a subset of enrollees or apply to 
a specific situation;
    (iii) Do not include information about the plan's benefit structure; 
and
    (iv) Apply to a specific situation or cover member-specific claims 
processing or other operational issues.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19825, Apr. 15, 2010]



Sec. 423.2262  Review and distribution of marketing materials.

    (a) CMS review of marketing materials. (1) Except as provided in 
paragraph (a)(2) of this section, a Part D plan may not distribute any 
marketing materials (as defined in Sec. 423.2260 of this Part), 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 and 
format, including standardized language and formatting, 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 Sec. 423.2264 
of this subpart; and
    (ii) CMS does not disapprove the distribution of new material or 
form.
    (2) If CMS does not approve or does not disapprove marketing 
materials within the specified review timeframe, the materials are 
deemed approved and the Part D sponsor may use the material.
    (b) File and use. The Part D sponsor may distribute certain types of 
marketing material, designated by CMS, 5 days following their submission 
to CMS if the Part D sponsor certifies that in the case of these 
marketing materials, it followed all applicable marketing guidelines 
and, when applicable, used model language specified by CMS without 
modification.
    (c) Standardized model marketing materials. When specified by CMS, 
organizations must use standardized formats and language in model 
materials.
    (d) Ad hoc enrollee communication materials. Ad hoc enrollee 
communication materials may be reviewed by CMS, which may upon review 
determine that such materials must be modified, or may not longer be 
used.

[70 FR 4525, Jan. 28, 2005, as amended at 75 FR 19826, Apr. 15, 2010; 80 
FR 7965, Feb. 12, 2015]



Sec. 423.2264  Guidelines for CMS review.

    In reviewing marketing material or enrollment forms under 
Sec. 423.2262, CMS determines (unless otherwise specified in additional 
guidance) that the marketing materials--
    (a) 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:
    (1) 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;
    (2) Adequate written explanation of the grievance and appeals 
process, including differences between the two, and when it is 
appropriate to use each; and
    (3) Any other information necessary to enable beneficiaries to make 
an informed decision about enrollment.

[[Page 758]]

    (b) Notify the general public of its enrollment period in an 
appropriate manner, through appropriate media, throughout its service 
area.
    (c) 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.
    (d) Ensure that materials are not materially inaccurate or 
misleading or otherwise make material misrepresentations.
    (e) For markets with a significant non-English speaking population, 
provide materials in the language of these individuals. Specifically, 
Part D plan sponsors must translate marketing materials into any non-
English language that is the primary language of at least 5 percent of 
the individuals in a plan benefit package (PBP) service area.

[73 FR 54222, Sept. 18, 2008, as amended at 76 FR 21577, Apr. 15, 2011]



Sec. 423.2266  [Reserved]



Sec. 423.2268  Standards for Part D marketing.

    In conducting marketing activities, a Part D plan may not--
    (a) Provide cash or other remuneration as an inducement for 
enrollment or otherwise.
    (b) Offer gifts to potential enrollees, unless the gifts are of 
nominal (as defined in the CMS Marketing Guidelines) value, are offered 
to all potential enrollees without regard to whether or not the 
beneficiary enrolls, and are not in the form of cash or other monetary 
rebates.
    (c) Engage in any discriminatory activity such as, for example, 
attempts to recruit Medicare beneficiaries from higher income areas 
without making comparable efforts to enroll Medicare beneficiaries from 
lower income areas.
    (d) Solicit door-to-door for Medicare beneficiaries or through other 
unsolicited means of direct contact, including calling a beneficiary 
without the beneficiary initiating the contact.
    (e) 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 that CMS or Medicare 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.
    (f) Market non-health care related products to prospective enrollees 
during any MA or Part D sales activity or presentation. This is 
considered cross-selling and is prohibited.
    (g) Market any health care related product during a marketing 
appointment beyond the scope agreed upon by the beneficiary, and 
documented by the plan, prior to the appointment (48 hours in advance, 
when practicable).
    (h) Market additional health related lines of plan business not 
identified prior to an individual appointment without a separate scope 
of appointment identifying the additional lines of business to be 
discussed.
    (i) Distribute marketing materials for which, before expiration of 
the 45-day period, the PDP Sponsor receives from CMS written notice of 
disapproval because it is inaccurate or misleading, or misrepresents the 
PDP Sponsor, its marketing representatives, or CMS.
    (j) Use providers, provider groups, or pharmacies to distribute 
printed information for beneficiaries to use when comparing the benefits 
of different Part D plans unless providers, provider groups or 
pharmacies accept and display materials from all Part D plan sponsors 
with which the providers, provider groups or pharmacies contract. The 
use of publicly available comparison information is permitted if 
approved by CMS in accordance with the Medicare marketing guidelines.
    (k) Conduct sales presentations or distribute and accept Part D plan 
enrollment forms in provider offices, pharmacies or other areas where 
health care is delivered to individuals, except in the case where such 
activities are conducted in common areas in health care settings.

[[Page 759]]

    (l) Conduct sales presentations or distribute and accept plan 
applications at educational events.
    (m) Employ Part D plan names that suggest that a plan is not 
available to all Medicare beneficiaries.
    (n) Display the names and/or logos of co-branded network providers 
on the organization's member identification card. Other marketing 
materials (as defined in Sec. 423.2260) that include names and/or logos 
of provider co-branding partners must clearly indicate that other 
providers are available in the network.
    (o) Engage in any other marketing activity prohibited by CMS in its 
marketing guidance.
    (p) Provide meals for potential enrollees, which are prohibited, 
regardless of value.
    (q) Use a plan name that does not include the plan type. The plan 
type should be included at the end of the plan name.

[73 FR 54222, Sept. 18, 2008, as amended at 73 FR 54253, Sept. 18, 2008; 
76 FR 54634, Sept. 1, 2011]



Sec. 423.2272  Licensing of marketing representatives and
confirmation of marketing resources.

    In its marketing, the Part D organization must--
    (a) 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.
    (b) 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.
    (c) Employ as marketing representatives only individuals who are 
licensed by the State to conduct direct marketing activities (as defined 
in the Medicare Marketing Guidelines) in that State, and whom the 
sponsor has informed that State it has appointed, consistent with the 
appointment process provided for under State law.
    (d) Report to the State in which the MAO appoints an agent or 
broker, the termination of any such agent or broker, including the 
reasons for such termination if State law requires that the reasons for 
the termination be reported.
    (e) Terminate upon discovery any unlicensed agent or broker employed 
as a marketing representative and notify any beneficiaries enrolled by 
an unqualified agent or broker of the agent's or broker's status and, if 
requested, of their options to confirm enrollment or make a plan change 
(including a special election period, as described in 
Sec. 423.38(c)(8)(i)(C)).

[73 FR 54222, Sept. 18, 2008, as amended at 73 FR 54253, Sept. 18, 2008; 
76 FR 21577, Apr. 15, 2011]



Sec. 423.2274  Broker and agent requirements.

    If a Part D sponsor uses agents and brokers to sell its Part D 
plans, the following requirements in this section are applicable.
    (a) Definitions. For purposes of this section, the following 
definitions are applicable:
    Compensation--(1) Includes monetary or non-monetary remuneration of 
any kind relating to the sale or renewal of a policy including, but not 
limited to--
    (i) Commissions;
    (ii) Bonuses;
    (iii) Gifts;
    (iv) Prizes or Awards; or
    (v) Referral or Finder fees.
    (2) Does not include--
    (i) Payment of fees to comply with State appointment laws, training, 
certification, and testing costs;
    (ii) Reimbursement for mileage to, and from, appointments with 
beneficiaries; or
    (iii) Reimbursement for actual costs associated with beneficiary 
sales appointments such as venue rent, snacks, and materials.
    Like plan type means one of the following:
    (1) PDP replaced with another PDP.
    (2) MA or MA-PD replaced with another MA or MA-PD.
    (3) Cost plan replaced with another cost plan.
    Unlike plan type means one of the following:
    (1) PDP replaced with an MA-PD or an MA-PD replaced with a PDP.
    (2) PDP replaced with a cost plan or a cost plan replaced with a 
PDP.

[[Page 760]]

    (3) MA-PD replaced with a cost plan or a cost plan replaced with an 
MA-PD.
    Plan year means the year beginning January 1 and ending December 31.
    Renewal year means all years following the initial enrollment year 
in a like plan type.
    (b) Compensation rules. A Part D sponsor must compensate independent 
brokers and agents, if compensation is paid, only according to the 
following rules in this section.
    (1) Compensation amounts. (i) For an initial year enrollment of a 
Medicare beneficiary into a Part D plan, the compensation must be at or 
below the fair market value of such services, published annually as a 
cut-off amount by CMS.
    (ii) For renewal years, compensation may be up to 50 percent of the 
current fair market value cut-off amounts published annually by CMS.
    (iii) If the Part D sponsor contracts with a third party entity such 
as a Field Marketing Organization or similar type entity to sell its 
insurance products, or perform services (for example, training, customer 
service, or agent recruitment)--
    (A) The total amount paid by the Part D sponsor to the third party 
and its agents for enrollment of a beneficiary into a plan, if any, must 
be made in accordance with paragraph (b)(1) of this section; and
    (B) The amount paid to the third party for services other than 
selling insurance products, if any, must be fair-market value and must 
not exceed an amount that is commensurate with the amounts paid by the 
Part D sponsor to a third party for similar services during each of the 
previous 2 years.
    (2) Aggregate compensation. (i) An entity must not provide aggregate 
compensation to its agents or brokers greater than the renewal 
compensation payable by the replacing plan on renewal policies if an 
existing policy is replaced with a like plan at any time.
    (ii) An agent or broker must not receive aggregate compensation 
greater than the renewal compensation payable by the replacing plan on 
renewal policies if an existing policy is replaced with a like plan type 
at any time.
    (iii) The initial compensation is paid for replacements between 
unlike plan types.
    (3) Compensation payment and payment recovery. (i) Compensation may 
only be paid for the enrollee's months of enrollment during a plan year.
    (ii)(A) Subject to paragraph (b)(3)(iii) of this section, 
compensation payments may be made at one time for the entire current 
plan year or in installments throughout the year.
    (B) Compensation may not be paid until January 1 of the enrollment 
year and, if paid at all, must be paid in full by December 31 of the 
enrollment year.
    (iii) When a beneficiary disenrolls from an MA plan, compensation 
paid to agents and brokers must be recovered for those months of the 
plan year for which the beneficiary is not enrolled. For disenrollments 
occurring within the first 3 months, the entire compensation must be 
recovered unless CMS determines that recoupment is not in the best 
interests of the Medicare program.
    (4) Compensation structure. (i) A Part D sponsor must establish a 
compensation structure for new and replacement enrollments and renewals 
effective in a given plan year. Compensation structures must be in place 
by the beginning of the plan marketing period, October 1.
    (ii) Compensation structures must be available upon CMS request 
including for audits, investigations, and to resolve complaints.
    (c) Annual training. The Part D sponsor must ensure that all agents 
and brokers selling Medicare products are trained annually on the 
following:
    (1) Medicare rules and regulations.
    (2) Details specific to the plan products they intend to sell.
    (d) Annual testing. The Part D sponsor must ensure that all agents 
and brokers selling Medicare products are tested annually, to ensure the 
following:
    (1) Appropriate knowledge and understanding of Medicare rules and 
regulations.
    (2) Details specific to the plan products they intend to sell.
    (e) Upon CMS' request, the organization must provide to CMS, in a 
form consistent with current CMS guidance,

[[Page 761]]

the information necessary for it to conduct oversight of marketing 
activities.
    (f) It must comply with State requests for information about the 
performance of a licensed agent or broker as part of a state 
investigation into the individual's conduct. CMS will establish and 
maintain a memorandum of understanding (MOU) to share compliance and 
oversight information with States that agree to the MOU.
    (g) Plan sponsor must report annually, as directed by CMS the 
following:
    (1) Whether it intends to use independent agents or brokers or both 
in the upcoming plan year.
    (2) If applicable, the specific amount or range of amounts 
independent agents or brokers or both will be paid.
    (h) Finder's (referral) fees. Finder's (referral) fees paid to all 
agents and brokers--
    (1) May not exceed an amount that CMS determines could reasonably be 
expected to provide financial incentive for an agent or broker to 
recommend or enroll a beneficiary into a plan that is not the most 
appropriate to meet his or her needs; and
    (2) Must be included in the total compensation not to exceed the 
fair market value for that calendar year.

[73 FR 54253, Sept. 18, 2008, as amended at 73 FR 67413, Nov. 14, 2008; 
76 FR 21577, Apr. 15, 2011; 76 FR 54635, Sept. 1, 2011; 77 FR 22171, 
Apr. 12, 2012; 79 FR 29966, May 23, 2014; 80 FR 7965, Feb. 12, 2015]



Sec. 423.2276  Employer group retiree marketing.

    Part D sponsors may develop marketing materials designed for members 
of an employer group who are eligible for employer-sponsored benefits 
through the Part D sponsor, and furnish these materials only to the 
group members. These materials are not subject to CMS prior review and 
approval.



            Subpart W_Medicare Coverage Gap Discount Program

    Source: 77 FR 22172, Apr. 12, 2012, unless otherwise noted.



Sec. 423.2300  Scope.

    This subpart implements provisions included in sections 1860D-14A 
and 1860D-43 of the Act. This subpart sets forth requirements regarding 
the following:
    (a) Condition for coverage of applicable drugs under Part D.
    (b) The Medicare Coverage Gap Discount Program Agreement.
    (c) Coverage gap discount payment processes for Part D sponsors.
    (d) Provision of applicable discounts on applicable drugs for 
applicable beneficiaries.
    (e) Manufacturer audit and dispute resolution processes.
    (f) Resolution of beneficiary disputes involving coverage gap 
discounts.
    (g) Compliance monitoring and civil money penalties.
    (h) The termination of the Discount Program Agreement.



Sec. 423.2305  Definitions.

    As used in this subpart, unless otherwise specified--
    Applicable discount means 50 percent of the portion of the 
negotiated price (as defined in Sec. 423.2305) of the applicable drug of 
a manufacturer that falls within the coverage gap and that remains after 
such negotiated price is reduced by any supplemental benefits that are 
available.
    Applicable number of calendar days means, with respect to claims for 
reimbursement submitted electronically, 14 days, and otherwise, 30 days.
    Date of dispensing means the date of service.
    Labeler code means the first segment of the Food and Drug 
Administration national drug code (NDC) that identifies a particular 
manufacturer.
    Manufacturer means any entity which is engaged in the 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. For 
purposes of the Discount Program, such term does not include a wholesale 
distributor of drugs or a retail pharmacy licensed under State law, but 
includes entities otherwise engaged in repackaging or changing the 
container, wrapper, or labeling

[[Page 762]]

of any applicable drug product in furtherance of the distribution of the 
applicable drug from the original place of manufacture to the person who 
makes the final delivery or sale to the ultimate consumer or user.
    Medicare Coverage Gap Discount Program (or Discount Program) means 
the Medicare coverage gap discount program established under 
section1860D-14A of the Act.
    Medicare Coverage Gap Discount Program Agreement (or Discount 
Program Agreement) means the agreement described in section 1860D-14A(b) 
of the Act.
    Medicare Part D discount information means the information sent from 
CMS or the TPA to the manufacturer along with each quarterly invoice 
that is derived from applicable data elements available on prescription 
drug events as determined by CMS.
    National Drug Code (NDC) means the unique identifying prescription 
drug product number that is listed with the Food and Drug Administration 
(FDA) identifying the product and package size and type.
    Negotiated price for purposes of the Discount Program, means the 
price for a covered Part D drug that--
    (1) The Part D sponsor (or other intermediary contracting 
organization) and the network dispensing pharmacy or other network 
dispensing provider have negotiated as the amount such network entity 
will receive, in total, for a particular drug;
    (2) Is reduced by those discounts, direct or indirect subsidies, 
rebates, other price concessions, and direct or indirect remuneration 
that the Part D sponsor has elected to pass through to Part D enrollees 
at the point-of-sale; and
    (3) Excludes any dispensing fee or vaccine administration fee for 
the applicable drug.
    In connection with applicable drugs dispensed by an out-of-network 
provider in accordance with the applicable beneficiary's Part D plan 
out-of-network policies, the negotiated price means the plan allowance 
as set forth in Sec. 423.124, less any dispensing fee or vaccine 
administration fee.
    Other health or prescription drug coverage means any coverage or 
financial assistance under other health benefit plans or programs that 
provide coverage or financial assistance for the purchase or provision 
of prescription drug coverage on behalf of applicable beneficiaries, 
including, in the case of employer group health or waiver plans, other 
than basic prescription drug coverage as defined in Sec. 423.100.
    Third Party Administrator (TPA) means the CMS contractor responsible 
for administering the requirements established by the CMS to carry out 
section 1860D-14A of the Act.



Sec. 423.2310  Condition for coverage of drugs under Part D.

    (a) Covered Part D drug coverage requirement. Except as specified in 
paragraph (b) of this section, in order for coverage to be available 
under Medicare Part D for applicable drugs of a manufacturer, the 
manufacturer must do all of the following:
    (1) Participate in the Discount Program.
    (2) Have entered into and have in effect an agreement described in 
Sec. 423.2315(b).
    (3) Have entered into and have in effect, under terms and conditions 
specified by CMS, a contract with the TPA.
    (b) Exception to covered drug coverage requirement. Paragraph (a) of 
this section does not apply to an applicable drug if CMS has made a 
determination that the availability of the applicable drug is essential 
to the health of beneficiaries enrolled in Medicare Part D.



Sec. 423.2315  Medicare Coverage Gap Discount Program Agreement.

    (a) General rule. The Medicare Coverage Gap Discount Program 
Agreement (or Discount Program Agreement) between the manufacturer and 
CMS must contain the provisions specified in paragraph (b) of this 
section, and may contain such other provisions as are established in a 
model agreement consistent with section 1860D-14A (a)(1) of the Act.
    (b) Agreement requirements. The manufacturer agrees to the 
following:
    (1) All the applicable requirements and conditions set forth in this 
part and general instructions.
    (2) Reimburse all applicable discounts provided by Part D sponsors 
on

[[Page 763]]

behalf of the manufacturer for all applicable drugs having NDCs with the 
manufacturer's FDA-assigned labeler code(s) invoiced to the manufacturer 
within a maximum of 3 years of the date of dispensing based upon 
information reported to CMS by Part D sponsors.
    (3) Pay each Part D sponsor in the manner specified by CMS within 38 
calendar days of receipt of the invoice and Medicare Part D Discount 
Information for the applicable discounts included on the invoice, except 
as specified in Sec. 423.2330(c)(3).
    (4) Provide CMS with all labeler codes for all the manufacturer's 
applicable drugs and to promptly update such list with any additional 
labeler codes for applicable drugs no later than 3 business days after 
learning of a new code assigned by the FDA.
    (5) Collect, have available, and maintain appropriate data, 
including data related to manufacturer's labeler codes, FDA drug 
approvals, FDA NDC Directory listings, NDC last lot expiration dates, 
utilization and pricing information relied on by the manufacturer to 
dispute quarterly invoices, and any other data CMS determines are 
necessary to carry out the Discount Program, for a period of not less 
than 10 years from the date of payment of the invoice.
    (6) Comply with the audit and dispute resolution requirements in 
Sec. 423.2330.
    (7) Electronically list and maintain up-to-date electronic FDA 
listings of all NDCs of the manufacturer, including providing timely 
information about discontinued drugs to enable the publication of 
accurate information regarding what drugs, identified by NDC, are in 
current distribution.
    (8) Maintain up-to-date NDC listings with the electronic database 
vendors for which the manufacturer provides NDCs for pharmacy claims 
processing.
    (9) Enter into and have in effect, under terms and conditions 
specified by CMS, an agreement with the TPA that has a contract with CMS 
under section 1860D-14(A)(d)(3) of the Act.
    (10) Pay quarterly invoices directly to accounts established by Part 
D sponsors via electronic funds transfer, or other manner if specified 
by CMS, within the time period specified in paragraph (b)(3) of this 
section and within 5 business days of the transfer to provide the TPA 
with electronic documentation of such payment in a manner specified by 
CMS.
    (11) Use information disclosed to the manufacturer on the invoice, 
as part of the Medicare Part D Discount Information, or upon audit or 
dispute only for purposes of paying the discount under the Discount 
Program.
    (c) Timing and length of agreement. (1) For 2011, a manufacturer 
must enter into a Discount Program Agreement not later than 30 days 
after the date of establishment of the model Discount Program Agreement.
    (2) For 2012 and subsequent years, for a Discount Program Agreement 
to be effective for a year, a manufacturer must enter into a Discount 
Program Agreement not later than January 30th of the preceding year.
    (3) Unless terminated in accordance with Sec. 423.2345, the initial 
period of a Discount Program Agreement is 24 months and the agreement is 
automatically renewed for a 1-year period on January first each year for 
a period of 1 year thereafter.
    (d) Compliance with requirements for administration of the Program. 
Each manufacturer with an agreement in effect under this subpart must 
comply with the requirements imposed by CMS or the third party 
administrator (as defined in Sec. 423.2305) for purposes of 
administering the program.



Sec. 423.2320  Payment processes for Part D sponsors.

    (a) Interim payments. CMS provides monthly interim coverage gap 
discount program payments as necessary for Part D sponsors to advance 
coverage gap discounts to beneficiaries.
    (b) Coverage Gap Discount Reconciliation. CMS reconciles interim 
payments with invoiced manufacturer discount amounts made available to 
each Part D plan's enrollee under the Discount Program.
    (c) Manufacturer bankruptcy. In the event that a manufacturer 
declares bankruptcy, as described in Title 11 of the United States Code, 
and as a result of the bankruptcy, does not pay the quarterly invoices 
described in Sec. 423.2315(b)(10) used for a particular

[[Page 764]]

contract year's Coverage Gap Discount Reconciliation described in 
paragraph (b) of this section, CMS adjusts the Coverage Gap Discount 
Reconciliation amount of each of the affected Part D sponsors to account 
for the total unpaid quarterly invoiced amount owed to each of the Part 
D sponsors for that particular contract year being reconciled.

[77 FR 22172, Apr. 12, 2012, as amended at 80 FR 7965, Feb. 12, 2015]



Sec. 423.2325  Provision of applicable discounts.

    (a) General rule. On behalf of the manufacturers, Part D sponsors 
must provide applicable beneficiaries with applicable discounts on 
applicable drugs at the point-of-sale.
    (b) Discount determination. (1) Part D sponsors must determine the 
following:
    (i) Whether an enrollee is an applicable beneficiary (as defined in 
Sec. 423.100).
    (ii) Whether a Part D drug is an applicable drug (as defined in 
Sec. 423.100).
    (iii) The amount of the applicable discount (as defined in 
Sec. 423.2305) to be provided at the point-of-sale.
    (2) Part D sponsors must make retroactive adjustments to the 
applicable discount as necessary to reflect changes to the claim or 
beneficiary eligibility determined after the date of dispensing.
    (3) Part D sponsors must determine whether any affected 
beneficiaries need to be notified by the Part D sponsor that an 
applicable drug is eligible for Part D coverage whenever CMS specifies a 
retroactive effective date for a labeler code and notify such 
beneficiaries.
    (c) Exception to point-of-sale requirement. Part D sponsors must 
provide an applicable discount for applicable drugs submitted by 
applicable beneficiaries via paper claims, including out-of-network and 
in-network paper claims, if such claims are payable under the Part D 
plan.
    (d) Collection of data. Part D sponsors must provide CMS with 
appropriate data on the applicable discounts provided by the Part D 
sponsors in a manner specified by CMS.
    (e) Supplemental benefits. (1) An applicable discount must be 
applied to beneficiary cost-sharing after supplemental benefits (as 
defined in Sec. 423.100) have been applied to the claim for an 
applicable drug.
    (2) No applicable discount is available if supplemental benefits (as 
defined in Sec. 423.100) eliminate the coverage gap so that a 
beneficiary has zero cost-sharing.
    (f) Other health or prescription drug coverage. An applicable 
discount must be applied to beneficiary cost-sharing when Part D is the 
primary payer before any other health or prescription drug coverage is 
applied.
    (g) Pharmacy prompt payment. Part D sponsors must reimburse a 
network pharmacy (as defined in Sec. 423.100) the amount of the 
applicable discount no later than the applicable number of calendar days 
after the date of dispensing of an applicable drug. For long-term care 
and home infusion pharmacies, the date of dispensing can be interpreted 
as the date the pharmacy submits the discounted claim for reimbursement.
    (h) Treatment of employer group waiver plans. As of 2014, Part D 
sponsors offering employer group waiver plans must provide applicable 
discounts to applicable beneficiaries who are employer group waiver plan 
enrollees as determined consistent with the defined standard benefit.

[77 FR 22172, Apr. 12, 2012, as amended at 80 FR 7966, Feb. 12, 2015]



Sec. 423.2330  Manufacturer discount payment audit and dispute resolution.

    (a) Third-party Administration (TPA) audits. (1) Manufacturers 
participating in the Discount Program may conduct periodic audits, no 
more often than annually, directly or through third parties as specified 
in this section.
    (2) The manufacturer must provide the TPA with 60 days notice of the 
reasonable basis for the audit and a description of the information 
required for the audit.
    (3) The manufacturer must have the right to audit a statistically 
significant sample of data and information held by the TPA that were 
used to determine applicable discounts for applicable drugs having NDCs 
with the manufacturer's FDA-assigned labeler code(s). Such data and 
information will be made available on-site, and with the

[[Page 765]]

exception of work papers, such information cannot be removed from the 
audit site.
    (4) The auditor for the manufacturer may release only an opinion of 
the audit results and is prohibited from releasing other information 
obtained from the audit, including work papers, to its client, employer, 
or any other party.
    (b) Manufacturer audits. (1) A manufacturer is subject to periodic 
audit by CMS no more often than annually, directly or through third 
parties, as specified in this section.
    (2) CMS provides the manufacturer with 60 days notice of the audit 
and a description of the information required for the audit.
    (3) CMS has the right to audit appropriate data, including data 
related to a manufacturer's FDA-assigned labeler codes, NDC last lot 
expiration dates, utilization, and pricing information relied on by the 
manufacturer to dispute quarterly invoices, and any other data CMS 
determines are necessary to carry out the Discount Program.
    (c) Dispute resolution. (1) Manufacturers may dispute applicable 
discounts invoiced to the manufacturer on quarterly invoices by 
providing notice of the dispute to the TPA in a manner specified by CMS 
within 60 days of receipt of the information that is the subject of the 
dispute.
    (2) Such notice must be accompanied by supporting evidence that is 
material, specific, and related to the dispute in a manner specified by 
CMS.
    (3) The manufacturer must not withhold any invoiced discount 
payments pending dispute resolution with the sole exception of invoiced 
amounts for applicable drugs that do not have labeler codes provided by 
the manufacturer to CMS in accordance with Sec. 423.2306(b)(4) of this 
subpart. If payment is withheld in accordance with this paragraph, the 
manufacturer must notify the TPA and applicable Part D sponsors within 
38 days of receipt of the applicable invoice that payment is being 
withheld for this reason.
    (4) If the manufacturer receives an unfavorable determination from 
the TPA, or the dispute is not resolved within 60 calendar days of the 
TPA's receipt of the notice of dispute, the manufacturer may request 
review by the independent review entity contracted by CMS within--
    (i) Thirty calendar days of the unfavorable determination; or
    (ii) Ninety calendar days after the TPA's receipt of the notice of 
dispute if dispute is not resolved within 60 days, whichever is earlier.
    (5) The independent review entity must make a determination within 
90 calendar days of receipt of the manufacturer's request for review.
    (6)(i) CMS or a manufacturer that receives an unfavorable 
determination from the independent review entity may request review by 
the CMS Administrator within 30 calendar days of receipt of the 
notification of such determination.
    (ii) The decision of the CMS Administrator is final and binding.
    (7) CMS adjusts future invoices (or implements an alternative 
reimbursement process if determined necessary by CMS) if the dispute is 
resolved in favor of the manufacturer.



Sec. 423.2335  Beneficiary dispute resolution.

    The Part D coverage determination and appeals process as described 
in Secs. 423.558 through 423.638 applies to beneficiary disputes 
involving the availability and amount of applicable discounts under the 
Discount Program.



Sec. 423.2340  Compliance monitoring and civil money penalties.

    (a) General rule. CMS monitors compliance by a manufacturer with the 
terms of the Discount Program Agreement.
    (b) Basis for imposing civil money penalties. CMS imposes a civil 
money penalty (CMP) on a manufacturer that fails to provide applicable 
beneficiaries applicable discounts for applicable drugs of the 
manufacturer in accordance with the Discount Program Agreement.
    (c) Determination of the civil money penalty amounts. CMS imposes a 
CMP for each failure by a manufacturer to provide an applicable discount 
in accordance with the Discount Program Agreement equal to the sum of 
the following:

[[Page 766]]

    (1) The amount of applicable discount the manufacturer would have 
paid under the Discount Program Agreement, which will then be used to 
pay the applicable discount that the manufacturer had failed to provide.
    (2) Twenty-five percent of such amount.
    (d) Procedures for imposing civil money penalties. If CMS makes a 
determination to impose a CMP described in paragraph (c) of this 
section, CMS sends a written notice of its decision to impose a CMP to 
include the following:
    (1) A description of the basis for the determination.
    (2) The basis for the penalty.
    (3) The amount of the penalty.
    (4) The date the penalty is due.
    (5) The manufacturer's right to a hearing (as specified in 
Sec. 423.1006).
    (6) Information about where to file the request for hearing.
    (e) Collection of civil money penalties imposed by CMS. (1) When a 
manufacturer does not request a hearing, CMS initiates the collection of 
the CMP following the expiration of the timeframe for requesting an ALJ 
hearing as specified in Sec. 423.1020.
    (2) If a manufacturer requests a hearing and the Administrator 
upholds CMS' decision to impose a CMP, CMS may initiate collection of 
the CMP once the Administrator's decision is final.
    (f) Other applicable provisions. The provisions of section 1128A of 
the Act (except subsections (a) and (b) of section of 1128A of the Act) 
apply to CMPs under this section to the same extent that they apply to a 
CMP or procedure under section 1128A(a) of the Act.



Sec. 423.2345  Termination of Discount Program Agreement.

    (a)(1) CMS may terminate the Discount Program Agreement for a 
knowing and willful violation of the requirements of the agreement or 
other good cause shown in relation to the manufacturer's participation 
in the Discount Program.
    (2) The termination must not be effective earlier than 30 days after 
the date of notice to the manufacturer of such termination and must not 
be effective prior to resolution of timely appeal requests received in 
accordance with paragraphs (a)(4) and (5) of this section.
    (3)(i) CMS provides the manufacturer with an opportunity to cure any 
ground for termination for cause or to show the manufacturer is in 
compliance with the Discount Program Agreement within 30 calendar days 
of receipt of the written termination notice.
    (ii) If the manufacturer cures the violation, or establishes that it 
was in compliance within the cure period, CMS repeals the termination 
notice by written notice.
    (4) CMS provides upon request a manufacturer with a hearing with the 
hearing officer concerning such termination if requested in writing 
within 15 calendar days of receiving notice of the termination. The 
hearing takes place prior to the effective date of the termination with 
sufficient time for such effective date to be repealed if CMS determines 
appropriate.
    (5)(i) CMS or a manufacturer that has received an unfavorable 
determination from the hearing officer may request review by the CMS 
Administrator within 30 calendar days of receipt of the notification of 
such determination.
    (ii) The decision of the CMS Administrator is final and binding.
    (b)(1) The manufacturer may terminate the Discount Program Agreement 
for any reason.
    (2) Such termination is effective as of the day after the end of the 
calendar year if the termination occurs before January 30 of a calendar 
year, or as of the day after the end of the succeeding calendar year if 
the termination occurs on or after January 30 of a calendar year.
    (c) Any termination does not affect the manufacturer's 
responsibility to reimburse Part D sponsors for applicable discounts 
incurred before the effective date of the termination.
    (d) Upon the effective date of termination of the Discount Program 
Agreement, CMS ceases releasing data to the manufacturer except as 
necessary to ensure that the manufacturer reimburses applicable 
discounts for previous time periods in which the Discount Program 
Agreement was in effect, and notifies the manufacturer to destroy data 
files provided by CMS

[[Page 767]]

under the Discount Program Agreement.
    (e) Manufacturer reinstatement is available only upon payment of any 
and all outstanding applicable discounts incurred during any previous 
period under the Discount Program Agreement. The timing of any such 
reinstatement is consistent with the requirements for entering into a 
Discount Program Agreement under Sec. 423.2315(c) of this subpart.



         Subpart X_Requirements for a Minimum Medical Loss Ratio

    Source: 78 FR 31310, May 23, 2013, unless otherwise noted.



Sec. 423.2400  Basis and scope.

    This subpart is based on sections 1857(e)(4), 1860D-12(b)(3)(D), and 
1106 of the Act, and sets forth medical loss ratio requirements for Part 
D sponsors, financial penalties and sanctions against Part D sponsors 
when minimum medical loss ratios are not achieved by Part D sponsors and 
release of medical loss ratio data to entities outside of CMS.

[81 FR 80558, Nov. 15, 2016]



Sec. 423.2401  Definitions.

    Non-claims costs means those expenses for administrative services 
that are not--
    (1) Incurred claims (as provided in Sec. 423.2420(b)(2) through 
(b)(4));
    (2) Expenditures on quality improving activities (as provided in 
Sec. 423.2430);
    (3) Licensing and regulatory fees (as provided in 
Sec. 423.2420(c)(2)(i)); or
    (4) State and Federal taxes and assessments (as provided in 
Sec. 423.2420(c)(2)(ii) and (iii)).



Sec. 423.2410  General requirements.

    (a) For contracts beginning in 2014 or subsequent contract years, a 
Part D sponsor (defined at Sec. 423.4) is required to report an MLR for 
each contract under this part for each contract year.
    (b) If CMS determines for a contract year that a Part D sponsor has 
an MLR for a contract that is less than 0.85, the Part D sponsor must 
remit to CMS an amount equal to the product of the following:
    (1) The total revenue of the prescription drug plan for the contract 
year.
    (2) The difference between 0.85 and the MLR for the contract year.
    (c) If CMS determines that a Part D sponsor has an MLR for a 
contract that is less than 0.85 for 3 or more consecutive contract 
years, CMS does not permit the enrollment of new enrollees under the 
contract for coverage during the second succeeding contract year.
    (d) If CMS determines that a Part D sponsor has an MLR for a 
contract that is less than 0.85 for 5 consecutive contract years, CMS 
terminates the contract under the authority at 423.509(b)(1) and (d) 
effective as of the second succeeding contract year.

[78 FR 31310, May 23, 2013; 78 FR 43821, July 22, 2013]



Sec. 423.2420  Calculation of medical loss ratio.

    (a) Determination of the MLR. (1) The MLR for each contract under 
this part is the ratio of the numerator (as defined in paragraph (b) of 
this section) to the denominator (as defined in paragraph (c) of this 
section). An MLR may be increased by a credibility adjustment according 
to the rules at Sec. 423.2440, or subject to an adjustment determined by 
CMS to be warranted based on exceptional circumstances for areas outside 
the 50 states and the District of Columbia.
    (2) The MLR must reflect costs and revenues for benefits described 
at Sec. 423.104(d) through (f). The MLR for MA-PD plans (defined at 
Sec. 422.2 of this chapter) must also reflect costs and revenues for 
benefits described at Sec. 422.100(c) of this chapter.
    (b) Determining the MLR numerator. (1) For a contract year, the 
numerator of the MLR for a Part D prescription drug contract must equal 
the sum of paragraphs (b)(1)(i) through (iii) of this section and must 
be in accordance with paragraphs (b)(5) and (b)(6) of this section.
    (i) Incurred claims for all enrollees, as defined in paragraphs 
(b)(2) through (4) of this section.
    (ii) The expenditures under the contract for activities that improve 
health care quality, as defined in Sec. 423.2430;

[[Page 768]]

    (2) Incurred claims for prescription drug costs. Incurred claims 
must include the following:
    (i) Direct drug costs that are actually paid (as defined in 
Sec. 423.308, which are net of prescription drug rebates and other 
direct or indirect remuneration as defined herein) by the Part D 
sponsor.
    (ii) Unpaid claims reserves for the current contract year, including 
claims reported in the process of adjustment.
    (iii) Percentage withholds from payments made to contracted 
providers.
    (iv) Claims incurred but not reported based on past experience, and 
modified to reflect current conditions such as changes in exposure, 
claim frequency or severity.
    (v) Changes in other claims-related reserves.
    (vi) Claims that are recoverable for anticipated coordination of 
benefits.
    (vii) Claims payments recoveries received as a result of 
subrogation.
    (viii) Claims payments recoveries received as a result of fraud 
reduction efforts, not to exceed the amount of fraud reduction expenses.
    (ix) Reserves for contingent benefits and the Part D claim portion 
of lawsuits.
    (3) Adjustments that must be deducted from incurred claims include 
the following:
    (i) Overpayment recoveries received from providers.
    (4) Exclusions from incurred claims. The following amounts must not 
be included in incurred claims:
    (i) Non-claims costs, as defined in Sec. 423.2401, which include the 
following:
    (A) Amounts paid to third party vendors for secondary network 
savings.
    (B) Amounts paid to third party vendors for any of the following:
    (1) Network development.
    (2) Administrative fees.
    (3) Claims processing.
    (4) Utilization management.
    (C) Amounts paid, including amounts paid to a pharmacy, for 
professional or administrative services that do not represent 
compensation or reimbursement for covered services provided to an 
enrollee, such as the following:
    (1) Medical record copying costs.
    (2) Attorneys' fees.
    (3) Subrogation vendor fees.
    (4) Bona fide service fees.
    (5) Compensation to any of the following:
    (i) Paraprofessionals.
    (ii) Janitors.
    (iii) Quality assurance analysts.
    (iv) Administrative supervisors.
    (v) Secretaries to medical personnel.
    (vi) Medical record clerks.
    (ii) Amounts paid to CMS as a remittance under Sec. 423.2410(b).
    (5) Incurred claims under this part for policies issued by one Part 
D sponsor and later assumed by another entity must be reported by the 
assuming organization for the entire MLR reporting year during which the 
policies were assumed and no incurred claims under this part for that 
contract year must be reported by the ceding Part D sponsor.
    (6) Reinsured incurred claims for a block of business that was 
subject to indemnity reinsurance and administrative agreements effective 
before March 23, 2010, for which the assuming entity is responsible for 
100 percent of the ceding entity's financial risk and takes on all of 
the administration of the block, must be reported by the assuming issuer 
and must not be reported by the ceding issuer.
    (c) Determining the MLR denominator. For a contract year, the 
denominator of the MLR for a Part D prescription drug contract must 
equal the total revenue under the contract. Total revenue under the 
contract is as described in paragraph (c)(1) of this section, net of 
deductions described in paragraph (c)(2) of this section, taking into 
account the exclusions described in and paragraph (c)(3) of this 
section, and be in accordance with paragraphs (c)(4) and (5) of this 
section.
    (1) CMS' payments to the Part D sponsor for all enrollees under a 
contract, reported on a direct basis, including the following:
    (i) Payments under Sec. 423.329(a)(1) and (2).
    (ii) Payment adjustments resulting from reconciliation per 
Sec. 423.329(c)(2)(ii).
    (iii) All premiums paid by or on behalf of enrollees to the Part D 
sponsor as a condition of receiving coverage under a Part D plan, 
including CMS'

[[Page 769]]

payments for low income premium subsidies under Sec. 422.304(b)(2) of 
this chapter.
    (iv) All unpaid premium amounts that a Part D sponsor could have 
collected from enrollees in the Part D plan(s) under the contract.
    (v) All changes in unearned premium reserves.
    (vi) Payments under Sec. 423.315(e).
    (2) The following amounts must be deducted from total revenue in 
calculating the MLR:
    (i) Licensing and regulatory fees. Statutory assessments to defray 
operating expenses of any State or Federal department, such as the 
``user fee'' described in section 1857(e)(2) of the Act, and examination 
fees in lieu of premium taxes as specified by State law.
    (ii) Federal taxes and assessments. All Federal taxes and 
assessments allocated to health insurance coverage.
    (iii) State taxes and assessments. State taxes and assessments, such 
as the following:
    (A) Any industry-wide (or subset) assessments (other than surcharges 
on specific claims) paid to the State directly.
    (B) Guaranty fund assessments.
    (C) Assessments of State industrial boards or other boards for 
operating expenses or for benefits to sick employed persons in 
connection with disability benefit laws or similar taxes levied by 
States.
    (D) State income, excise, and business taxes other than premium 
taxes.
    (iv) Community benefit expenditures. Community benefit expenditures 
are payments made by a Federal income tax-exempt Part D sponsor for 
community benefit expenditures as defined in paragraph (c)(2)(iii)(A) of 
this section, limited to the amount defined in paragraph (c)(2)(iii)(B) 
of this section, and allocated to a contract as required under paragraph 
(d)(1) of this section.
    (A) Community benefit expenditures means expenditures for activities 
or programs that seek to achieve the objectives of improving access to 
health services, enhancing public health and relief of government 
burden.
    (B) Such payment may be deducted up to the limit of either 3 percent 
of total revenue under this part or the highest premium tax rate in the 
State for which the Part D sponsor is licensed, multiplied by the Part D 
sponsor's earned premium for the contract.
    (3) The following amounts must not be included in total revenue:
    (i) The amount of unpaid premiums for which the Part D sponsor can 
demonstrate to CMS that it made a reasonable effort to collect.
    (ii) Coverage Gap Discount Program payments under Sec. 423.2320.
    (4) Total revenue (as defined at Sec. 423.2420(c)) of this chapter) 
for policies issued by one Part D sponsor and later assumed by another 
entity must be reported by the assuming entity for the entire MLR 
reporting year during which the policies were assumed and no revenue 
under this part for that contract year must be reported by the ceding 
Part D sponsor.
    (5) Total revenue (as defined at Sec. 423.2420(c) of this chapter) 
that is reinsured for a block of business that was subject to indemnity 
reinsurance and administrative agreements effective before March 23, 
2010, for which the assuming entity is responsible for 100 percent of 
the ceding entity's financial risk and takes on all of the 
administration of the block, must be reported by the assuming issuer and 
must not be reported by the ceding issuer.
    (d) Allocation of expenses--(1) General requirements. (i) Each 
expense must be included under only one type of expense, unless a 
portion of the expense fits under the definition of or criteria for one 
type of expense and the remainder fits into a different type of expense, 
in which case the expense must be pro-rated between types of expenses.
    (ii) Expenditures that benefit multiple contracts, or contracts 
other than those being reported, including but not limited to those that 
are for or benefit self-funded plans, must be reported on a pro rata 
share.
    (2) Description of the methods used to allocate expenses. (i) 
Allocation to each category must be based on a generally accepted 
accounting method that is expected to yield the most accurate results.
    (ii) Specific identification of an expense with an activity that is 
represented by one of the categories in Sec. 423.2420(b) or (c) will 
generally be the most accurate method.

[[Page 770]]

    (ii) Shared expenses, including expenses under the terms of a 
management contract, must be apportioned pro rata to the entities 
incurring the expense.
    (iii)(A) Any basis adopted to apportion expenses must be that which 
is expected to yield the most accurate results and may result from 
special studies of employee activities, salary ratios, premium ratios or 
similar analyses.
    (B) Expenses that relate solely to the operations of a reporting 
entity, such as personnel costs associated with the adjusting and paying 
of claims, must be borne solely by the reporting entity and are not to 
be apportioned to other entities within a group.

[78 FR 31310, May 23, 2013; 78 FR 43821, July 22, 2013]



Sec. 423.2430  Activities that improve health care quality.

    (a) Activity requirements. Activities conducted by a Part D sponsor 
to improve quality fall into one of the categories in paragraph (a)(1) 
of this section and meet all of the requirements in paragraph (a)(2) of 
this section.
    (1) Categories of quality improving activities. The activity must be 
designed to achieve one or more of the following:
    (i) To improve health outcomes through the implementation of 
activities such as quality reporting, effective case management, care 
coordination, chronic disease management, and medication and care 
compliance initiatives, including through the use of the medical homes 
model as defined for purposes of section 3602 of the Patient Protection 
and Affordable Care Act, for treatment or services under the plan or 
coverage.
    (ii) To prevent hospital readmissions through a comprehensive 
program for hospital discharge that includes patient-centered education 
and counseling, comprehensive discharge planning, and post-discharge 
reinforcement by an appropriate health care professional.
    (iii) To improve patient safety and reduce medical errors through 
the appropriate use of best clinical practices, evidence-based medicine, 
and health information technology under the plan or coverage.
    (iv) To promote health and wellness.
    (v) To enhance the use of health care data to improve quality, 
transparency, and outcomes and support meaningful use of health 
information technology. Activities, such as Health Information 
Technology (HIT) expenses, are required to accomplish the activities 
that improve health care quality and that are designed for use by health 
plans, health care providers, or enrollees for the electronic creation, 
maintenance, access, or exchange of health information, and are 
consistent with meaningful use requirements, and which may in whole or 
in part improve quality of care, or provide the technological 
infrastructure to enhance current quality improving activities or make 
new quality improvement initiatives possible.
    (2) The activity must be designed for all of the following:
    (i) To improve health quality.
    (ii) To increase the likelihood of desired health outcomes in ways 
that are capable of being objectively measured and of producing 
verifiable results and achievements.
    (iii) To be directed toward individual enrollees or incurred for the 
benefit of specified segments of enrollees or provide health 
improvements to the population beyond those enrolled in coverage as long 
as no additional costs are incurred due to the non-enrollees.
    (iv) To be grounded in evidence-based medicine, widely accepted best 
clinical practice, or criteria issued by recognized professional medical 
associations, accreditation bodies, government agencies or other 
nationally recognized health care quality organizations.
    (b) Exclusions. Expenditures and activities that must not be 
included in quality improving activities include, but are not limited 
to, the following:
    (1) Those that are designed primarily to control or contain costs.
    (2) The pro rata share of expenses that are for lines of business or 
products other than those being reported, including but not limited to, 
those that are for or benefit self-funded plans.

[[Page 771]]

    (3) Those which otherwise meet the definitions for quality improving 
activities but which were paid for with grant money or other funding 
separate from premium revenue.
    (4) Those activities that can be billed or allocated by a pharmacy 
for care delivery and that are reimbursed as clinical services.
    (5) Establishing or maintaining a claims adjudication system, 
including costs directly related to upgrades in health information 
technology that are designed primarily or solely to improve claims 
payment capabilities or to meet regulatory requirements for processing 
claims, including ICD-10 implementation costs in excess of 0.3 percent 
of total revenue under this part, and maintenance of ICD-10 code sets 
adopted in accordance with the Health Insurance Portability and 
Accountability Act (HIPAA), 42 U.S.C. 1320d-2, as amended.
    (6) That portion of the activities of health care professional 
hotlines that does not meet the definition of activities that improve 
health quality.
    (7) All retrospective and concurrent utilization review.
    (8) Fraud prevention activities.
    (9) The cost of developing and executing pharmacy contracts and fees 
associated with establishing or managing a pharmacy network, including 
fees paid to a vendor for the same reason.
    (10) Pharmacy network credentialing.
    (11) Marketing expenses.
    (12) Costs associated with calculating and administering individual 
enrollee or employee incentives.
    (13) That portion of prospective utilization review that does not 
meet the definition of activities that improve health quality.
    (14) Any function or activity not expressly permitted by CMS under 
this part.



Sec. 423.2440  Credibility adjustment.

    (a) A Part D sponsor may add a credibility adjustment to a 
contract's MLR if the contract's experience is partially credible, as 
determined by CMS.
    (b) A Part D sponsor may not add a credibility adjustment to a 
contract's MLR if the contract's experience is fully credible, as 
determined by CMS.
    (c) For those contract years for which a contract has non-credible 
experience for their MLR, sanctions under Sec. 423.2410(b) through (d) 
will not apply.
    (d) CMS defines and publishes definitions of partial credibility, 
full credibility, and non-credibility and the credibility factors 
through the notice and comment process of publishing the Advance Notice 
and Final Rate Announcement.



Sec. 423.2450  [Reserved]



Sec. 423.2460  Reporting requirements.

    (a) For each contract year, each Part D sponsor must submit a report 
to CMS, in a timeframe and manner specified by CMS, which includes but 
is not limited to the data needed by the Part D sponsor to calculate and 
verify the MLR and remittance amount, if any, for each contract, such as 
incurred claims, total revenue, costs for quality improving activities, 
non-claims costs, taxes, licensing and regulatory fees, and any 
remittance owed to CMS under Sec. 423.2410.
    (b) Total revenue reported as part of the MLR report must be net of 
all projected reconciliations.
    (c) The MLR will be reported once, and will not be reopened as a 
result of any payment reconciliation processes.



Sec. 423.2470  Remittance to CMS if the applicable MLR requirement
is not met.

    (a) General requirement. For each contract year, a Part D sponsor 
must provide a remittance to CMS if the contract's MLR does not meet the 
minimum percentage required by Sec. 423.2410(b).
    (b) Amount of remittance. For each contract that does not meet MLR 
requirement for a contract year, the Part D sponsor must remit to CMS 
the amount by which the MLR requirement exceeds the contract's actual 
MLR multiplied by the total revenue of the contract, as provided in 
Sec. 423.2420(c), for the contract year.
    (c) Timing of remittance. CMS will deduct the remittance from plan 
payments in a timely manner after the MLR is reported, on a schedule 
determined by CMS.

[[Page 772]]

    (d) Treatment of remittance. Payment to CMS must not be included in 
the numerator or denominator of any year's MLR.



Sec. 423.2480  MLR review and non-compliance.

    To ensure the accuracy of MLR reporting, CMS conducts selected 
reviews of reports submitted under Sec. 423.2460 to determine that the 
MLRs and remittance amounts under Sec. 423.2410(b) and sanctions under 
Sec. 423.2410(c) and (d), were accurately calculated, reported, and 
applied.
    (a) The reviews will include a validation of amounts included in 
both the numerator and denominator of the MLR calculation reported to 
CMS.
    (b) Part D sponsors are required to maintain evidence of the amounts 
reported to CMS and to validate all data necessary to calculate MLRs.
    (c)(1) Documents and records must be maintained for 10 years from 
the date such calculations were reported to CMS with respect to a given 
contract year.
    (2) Part D sponsors must require any third party vendor supplying 
drug cost contracting and claim adjudication services to the Part D 
sponsors to provide all underlying data associated with MLR reporting to 
that Part D sponsor in a timely manner, when requested by the Part D 
sponsor, regardless of current contractual limitations, in order to 
validate the accuracy of MLR reporting.
    (d) Reports submitted under Sec. 423.2460, calculations, or any 
other MLR submission required by this subpart found to be materially 
incorrect or fraudulent--
    (1) Are noted by CMS;
    (2) Appropriate remittance amounts are recouped by CMS; and
    (3) Sanctions may be imposed by CMS as provided in Sec. 423.752.



Sec. 423.2490  Release of Part D MLR data.

    (a) Terminology. Subject to the exclusions in paragraph (b) of this 
section, Part D MLR data consists of the information contained in 
reports submitted under Sec. 423.2460.
    (b) Exclusions from Part D MLR data. For the purpose of this 
section, the following items are excluded from Part D MLR data:
    (1) Narrative descriptions that Part D sponsors submit to support 
the information reported to CMS pursuant to the reporting requirements 
at Sec. 423.2460, such as descriptions of expense allocation methods.
    (2) Information that is reported at the plan level, such as the 
number of member months associated with each plan under a contract, 
including information submitted for a contract consisting of only one 
plan.
    (3) Any information that could be used to identify Medicare 
beneficiaries or other individuals.
    (4) MLR review correspondence.
    (5) Any information for a contract for those contract years for 
which the contract is determined to be non-credible, as defined in 
accordance with Sec. 423.2440(d).
    (c) Data release. CMS releases to the public Part D MLR data, for 
each contract for each contract year, no earlier than 18 months after 
the end of the applicable contract year

[81 FR 80558, Nov. 15, 2016]

Subpart Y [Reserved]



       Subpart Z_Recovery Audit Contractor Part C Appeals Process

    Source: 79 FR 29967, May 23, 2014, unless otherwise noted.



Sec. 423.2600  Payment appeals.

    If the Part D RAC did not apply its stated payment methodology 
correctly, a Part D plan sponsor may appeal the findings of the applied 
methodology. The payment methodology itself is not subject to appeal.



Sec. 423.2605  Request for reconsideration.

    (a) Time for filing a request. The request for reconsideration must 
be filed with the designated independent reviewer within 60 calendar 
days from the date of the demand letter received by the Part D plan 
sponsor.
    (b) Content of request. (1) The request for reconsideration must be 
in writing and specify the findings or issues with

[[Page 773]]

which the Part D plan sponsor disagrees.
    (2) The Part D plan sponsor must include with its request all 
supporting documentary evidence it wishes the independent reviewer to 
consider.
    (i) This material must be submitted in the format requested by CMS.
    (ii) Documentation, evidence, or substantiation submitted after the 
filing of the reconsideration request will not be considered.
    (c) CMS Rebuttal. CMS may file a rebuttal to the Part D plan 
sponsor's reconsideration request.
    (1) The rebuttal must be submitted within 30 calendar days of the 
review entity's notification to CMS that it has received the Part D plan 
sponsor's reconsideration request.
    (2) CMS sends its rebuttal to the Part D plan sponsor at the same 
time it is submitted to the independent reviewer.
    (d) Review entity. An independent reviewer conducts the 
reconsideration. The independent reviewer reviews the demand for 
repayment, the evidence and findings upon which it was based, and any 
evidence that the Part D plan sponsor or CMS submitted in accordance 
with this section.
    (e) Notification of decision. The independent reviewer informs CMS 
and the Part D plan sponsor of its decision in writing.
    (f) Effect of decision. A reconsideration decision is final and 
binding unless the Part D plan sponsor requests a hearing official 
review in accordance with Sec. 423.2610.
    (g) Right to hearing official review. A Part D plan sponsor that is 
dissatisfied with the independent reviewer's reconsideration decision is 
entitled to a hearing official review as provided in Sec. 423.2610.



Sec. 423.2610  Hearing official review.

    (a) Time for filing a request. A Part D plan sponsor must file with 
CMS a request for a hearing official review within 30 calendar days from 
the date of the independent reviewer's issuance of a determination.
    (b) Content of the request. (1) The request must be in writing and 
must provide evidence or reasons or both to substantiate the request.
    (2) The Part D plan sponsor must submit with its request all 
supporting documentation, evidence, and substantiation that it wants to 
be considered.
    (3) No new evidence may be submitted.
    (4) Documentation, evidence, or substantiation submitted after the 
filing of the request will not be considered.
    (c) CMS rebuttal. CMS may file a rebuttal to the Part D plan 
sponsor's hearing official review request.
    (1) The rebuttal must be submitted within 30 calendar days of the 
Part D plan sponsor's submission of its hearing official review request.
    (2) CMS sends its rebuttal to the Part D plan sponsor at the same 
time it is submitted to the hearing official.
    (d) Conducting a review. A CMS-designated hearing official conducts 
the hearing on the record.
    (1) The hearing is not to be conducted live or via telephone unless 
the hearing official, in his or her sole discretion, requests a live or 
telephonic hearing.
    (2) In all cases, the hearing official's review is limited to 
information that meets one or more of the following:
    (i) The Part D RAC used in making its determinations.
    (ii) The independent reviewer used in making its determinations.
    (iii) The Part D plan sponsor submits with its hearing request.
    (iv) CMS submits in accordance with paragraph (c) of this section.
    (3) Neither the Part D plan sponsor nor CMS may submit new evidence.
    (e) Hearing official decision. The CMS hearing official decides the 
case within 60 days and sends a written decision to the Part D plan 
sponsor and CMS, explaining the basis for the decision.
    (f) Effect of hearing official decision. The hearing official's 
decision is final and binding, unless the decision is reversed or 
modified by the CMS Administrator in accordance with Sec. 423.2610.



Sec. 423.2615  Review by the Administrator.

    (a) Request for review by Administrator. If a Part D plan sponsor is 
dissatisfied with the hearing official's decision, it may request that 
the CMS Administrator review the decision.
    (1) The request must be filed with the CMS Administrator within 30 
calendar

[[Page 774]]

days of the date of the hearing official's decision.
    (2) The request must provide evidence or reasons to substantiate the 
request.
    (b) Content of request. The Part D plan sponsor must submit with its 
request all supporting documentation, evidence, and substantiation that 
it wants to be considered.
    (1) Documentation, evidence, or substantiation submitted after the 
filing of the request will not be considered.
    (2) Neither the Part D plan sponsor nor CMS may submit new evidence.
    (c) Discretionary review. After receiving a request for review, the 
CMS Administrator has the discretion to review the hearing official's 
decision in accordance with paragraph (e) of this section or to decline 
to review said decision.
    (d) Notification of decision whether to review. The CMS 
Administrator notifies the Part D plan sponsor within 45 days of 
receiving the Part D plan sponsor's hearing request of whether he or she 
intends to review the hearing official's decision. If the Administrator 
agrees to review the hearing official's decision, CMS may file a 
rebuttal statement within 30 days of the Administrator's notice to the 
plan sponsor that the request for review has been accepted. CMS sends 
its rebuttal statement to the plan sponsor at the same time it is 
submitted to the Administrator. If the CMS Administrator declines to 
review the hearing official's decision, the hearing official's decision 
is final and binding.
    (e) Administrator review. If the CMS Administrator agrees to review 
the hearing official's decision, he or she determines, based upon this 
decision, the hearing record, and any arguments submitted by the Part D 
plan sponsor or CMS in accordance with this section, whether the 
determination should be upheld, reversed, or modified. The CMS 
Administrator furnishes a written decision, which is final and binding, 
to the Part D plan sponsor and to CMS.



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 Requirements

424.10  Purpose and scope.
424.11  General procedures.
424.13  Requirements for inpatient services of hospitals other than 
          inpatient psychiatric facilities.
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.
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.

[[Page 775]]

424.57  Special payment rules for items furnished by DMEPOS suppliers 
          and issuance of DMEPOS supplier billing privileges.
424.58  Accreditation.
424.59  Requirements for Medicare diabetes prevention program suppliers.

         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.
424.506  National Provider Identifier (NPI) on all enrollment 
          applications and claims.
424.507  Ordering and referring covered items and services for Medicare 
          beneficiaries.
424.510  Requirements for enrolling in the Medicare program.
424.514  Application fee.
424.515  Requirements for reporting changes and updates to, and the 
          periodic revalidation of Medicare enrollment information.
424.516  Additional provider and supplier requirements for enrolling and 
          maintaining active enrollment status in the Medicare program.
424.517  Onsite review.
424.518  Screening levels for Medicare providers and suppliers.
424.520  Effective date of Medicare billing privileges.
424.521  Request for payment by physicians, non-physician practitioners, 
          physician and non-physician organizations, and ambulance 
          suppliers.
424.525  Rejection of a provider or supplier's enrollment application 
          for Medicare enrollment.
424.530  Denial of enrollment in the Medicare program.
424.535  Revocation of enrollment 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.

[[Page 776]]

424.565  Overpayment.
424.570  Moratoria on newly enrolling Medicare providers and suppliers.

    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.



                      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.
    1834(a)--Payment for durable medical equipment.
    1834(j)--Requirements for suppliers of medical equipment and 
supplies.
    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; 71 FR 48409, Aug. 18, 2006]



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 
Secs. 405.332 through 405.334 of this chapter, pertaining to limitation 
of liability.

[[Page 777]]

    (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) Beneficiary 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 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, clinical 
nurse specialists, or physician assistants 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, as amended at 78 FR 47968, Aug. 6, 2013]



Sec. 424.11  General procedures.

    (a) Responsibility of the provider. The provider must--
    (1) Obtain the required certification and recertification 
statements;

[[Page 778]]

    (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 timeframes for certification 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 
timeframe (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 reasons for the delay.
    (4) A delayed certification may be included with one or more 
recertifications on a single signed statement.
    (5) For all inpatient hospital services, including inpatient 
psychiatric facility services, a delayed certification may not extend 
past discharge.
    (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(d).
    (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, or a physician assistant as 
defined in section 1861(aa)(5)(A) of the Act, 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

[[Page 779]]

    (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 
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; 78 FR 47968, Aug. 6, 2013; 78 FR 50969, Aug. 19, 
2013; 79 FR 50359, Aug. 22, 2014]



Sec. 424.13  Requirements for inpatient services of hospitals other
than inpatient psychiatric facilities.

    (a) Content of certification and recertification. Medicare Part A 
pays for inpatient hospital services (other than inpatient psychiatric 
facility services) for cases that are 20 inpatient days or more, or are 
outlier cases under subpart F of part 412 of this chapter, only if a 
physician certifies or recertifies the following:
    (1) The reasons for either--
    (i) Continued hospitalization of the patient for medical treatment 
or medically required 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) Timing of certification. For outlier cases under subpart F of 
part 412 of this chapter, the certification must be signed and 
documented in the medical record and as specified in paragraphs (e) 
through (h) of this section. For all other cases, the certification must 
be signed and documented no later than 20 days into the hospital stay.
    (c) Certification of need for hospitalization when a SNF bed is not 
available. (1) The physician may certify or recertify need for continued 
hospitalization if he or she 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 
certifying physician is expected to continue efforts to place the 
patient in a participating SNF as soon as a bed becomes available.
    (d) Signatures--(1) Basic rule. Except as specified in paragraph 
(d)(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.
    (e) Timing of certifications and recertifications: Outlier cases not 
subject to the prospective payment system (PPS). (1) For outlier cases 
that are not subject to the 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.
    (f) Timing of certification and recertification: Outlier cases 
subject to PPS. For outlier cases subject to the PPS, certification is 
required as follows:
    (1) For day outlier cases, certification is required no later than 1 
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.

[[Page 780]]

    (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).
    (g) 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 recertifications required 
for outlier cases not 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 recertification would have been required. The next 
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 recertification, the review could be performed as late as the 
seventh day following the 30th day.
    (h) 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 outlier cases not subject to PPS and 
of PPS day outlier cases.

[78 FR 50969, Aug. 19, 2013, as amended at 79 FR 67033, Nov. 10, 2014]



Sec. 424.14  Requirements for inpatient services of inpatient psychiatric
facilities.

    (a) Requirements for certification and recertification: General 
considerations. Certification begins with the order for inpatient 
admission. The content requirements differ from those for other 
hospitals because the care furnished in inpatient psychiatric facilities 
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 services in an inpatient 
psychiatric facility only if a physician certifies and recertifies the 
need for services consistent with the requirements of this section, as 
appropriate.
    (b) Content of certification. The physician must certify--
    (1) That inpatient psychiatric services were required for treatment 
that could reasonably be expected to improve the patient's condition, or 
for diagnostic study.
    (2) That the inpatient psychiatric services were provided in 
accordance with Sec. 412.3 of this chapter.
    (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, and must be completed and documented in the 
medical record prior to discharge.
    (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. Inpatient psychiatric facilities must also 
meet the requirements set forth in Sec. 424.13(c), (d), (g), and (h).

[53 FR 6634, Mar. 2, 1988, as amended at 71 FR 27087, May 9, 2006; 71 FR 
37504, June 30, 2006; 78 FR 50970, Aug. 19, 2013]

[[Page 781]]



Sec. 424.15  Requirements for inpatient CAH services.

    (a) 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, and that the services are provided in accordance with 
Sec. 412.3 of this chapter.
    (b) Certification begins with the order for inpatient admission. All 
certification requirements must be completed, signed, and documented in 
the medical record no later than 1 day before the date on which the 
claim for payment for the inpatient CAH service is submitted.

[78 FR 50970, Aug. 19, 2013, as amended at 79 FR 50359, Aug. 22, 2014]



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 the time limits specified in subpart B of this part 
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, as amended at 78 
FR 50970, Aug. 19, 2013]



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 one of the case-mix 
classifiers that CMS designates 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.

[[Page 782]]

    (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 physician extender (that is, a nurse practitioner, a clinical 
nurse specialist, or a physician assistant as those terms are defined in 
section 1861(aa)(5) of the Act) who does not have 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. (A) Collaboration means a process whereby a 
physician extender works with a doctor of medicine or osteopathy to 
deliver health care services.
    (B) The services are delivered within the scope of the physician 
extender's professional expertise, with medical direction and 
appropriate supervision as provided for in guidelines jointly developed 
by the physician extender and the physician or other mechanisms defined 
by Federal regulations and the law of the State in which the services 
are performed.
    (ii) Types of employment relationships. (A) Direct employment 
relationship. A direct employment relationship with the facility is one 
in which the physician extender meets the common law definition of the 
facility's ``employee,'' as specified in Secs. 404.1005, 404.1007, and 
404.1009 of title 20 of the regulations. When a physician extender 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 physician extender.
    (B) Indirect employment relationship. (1) When a physician extender 
meets the definition of a direct employment relationship in paragraph 
(e)(2)(ii)(A) of this section 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 physician extender.
    (2) 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. 483.30(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; 75 FR 73626, Nov. 29, 
2010; 82 FR 36635, Aug. 4, 2017]



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 the patient's eligibility for the home 
health benefit, as outlined in sections 1814(a)(2)(C) and 1835(a)(2)(A) 
of the Act, as follows in paragraphs (a)(1)(i) through (v) of this 
section. The patient's medical record, as specified in paragraph (c) of 
this section, must support the certification of eligibility as outlined 
in paragraph (a)(1)(i) through (v) of this section.

[[Page 783]]

    (i) The individual needs or needed intermittent skilled nursing 
care, or physical therapy or speech-language pathology services as 
defined in Sec. 409.42(c) of this chapter. If a patient's underlying 
condition or complication requires a registered nurse to ensure that 
essential non-skilled care is achieving its purpose, and necessitates a 
registered nurse be involved in the development, management, and 
evaluation of a patient's care plan, the physician will include a brief 
narrative describing the clinical justification of this need. If the 
narrative is part of the certification form, then the narrative must be 
located immediately prior to the physician's signature. If the narrative 
exists as an addendum to the certification form, in addition to the 
physician's signature on the certification form, the physician must sign 
immediately following the narrative in the addendum.
    (ii) Home health services are or were required because the 
individual is or was confined to the home, as defined in sections 
1835(a) and 1814(a) of the Act, except when receiving outpatient 
services.
    (iii) A plan for furnishing the services has been established and 
will be or was 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 will be or were furnished while the individual was 
under the care of a physician who is a doctor of medicine, osteopathy, 
or podiatric medicine.
    (v) A face-to-face patient encounter, which is related to the 
primary reason the patient requires home health services, occurred no 
more than 90 days prior to the home health start of care date or within 
30 days of the start of the home health care and was performed by a 
physician or allowed non-physician practitioner as defined in paragraph 
(a)(1)(v)(A) of this section. The certifying physician must also 
document the date of the encounter as part of the certification.
    (A) The face-to-face encounter must be performed by one of the 
following:
    (1) The certifying physician himself or herself.
    (2) A physician, with privileges, who cared for the patient in an 
acute or post-acute care facility from which the patient was directly 
admitted to home health.
    (3) A nurse practitioner or a clinical nurse specialist (as those 
terms are defined in section 1861(aa)(5) of the Act) who is working in 
accordance with State law and in collaboration with the certifying 
physician or in collaboration with an acute or post-acute care physician 
with privileges who cared for the patient in the acute or post-acute 
care facility from which the patient was directly admitted to home 
health.
    (4) A certified nurse midwife (as defined in section 1861(gg) of the 
Act) as authorized by State law, under the supervision of the certifying 
physician or under the supervision of an acute or post-acute care 
physician with privileges who cared for the patient in the acute or 
post-acute care facility from which the patient was directly admitted to 
home health.
    (5) A physician assistant (as defined in section 1861(aa)(5) of the 
Act) under the supervision of the certifying physician or under the 
supervision of an acute or post-acute care physician with privileges who 
cared for the patient in the acute or post-acute care facility from 
which the patient was directly admitted to home health.
    (B) The face-to-face patient encounter may occur through telehealth, 
in compliance with section 1834(m) of the Act and subject to the list of 
payable Medicare telehealth services established by the applicable 
physician fee schedule regulation.
    (2) Timing and signature. The certification of need for home health 
services must be obtained at the time the plan of care is established or 
as soon thereafter as possible and must be signed and dated by the 
physician who establishes the plan.
    (b) Recertification--(1) Timing and signature of recertification. 
Recertification is required at least every 60 days when there is a need 
for continuous home

[[Page 784]]

health care after an initial 60-day episode. Recertification should 
occur at the time the plan of care is reviewed, and must be signed and 
dated by the physician who reviews the plan of care. Recertification is 
required at least every 60 days unless there is a--
    (i) Beneficiary elected transfer; or
    (ii) Discharge with goals met and/or no expectation of a return to 
home health care.
    (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 therapy 
or speech therapy. If a patient's underlying condition or complication 
requires a registered nurse to ensure that essential non-skilled care is 
achieving its purpose, and necessitates a registered nurse be involved 
in the development, management, and evaluation of a patient's care plan, 
the physician will include a brief narrative describing the clinical 
justification of this need. If the narrative is part of the 
recertification form, then the narrative must be located immediately 
prior to the physician's signature. If the narrative exists as an 
addendum to the recertification form, in addition to the physician's 
signature on the recertification form, the physician must sign 
immediately following the narrative in the addendum.
    (c) Determining patient eligibility for Medicare home health 
services. Documentation in the certifying physician's medical records 
and/or the acute/post-acute care facility's medical records (if the 
patient was directly admitted to home health) shall be used as the basis 
for certification of home health eligibility. This documentation shall 
be provided upon request to the home health agency, review entities, 
and/or CMS. Criteria for patient eligibility are described in paragraphs 
(a)(1) and (b) of this section. If the documentation used as the basis 
for the certification of eligibility is not sufficient to demonstrate 
that the patient is or was eligible to receive services under the 
Medicare home health benefit, payment will not be rendered for home 
health services provided.
    (d) Limitation of the performance of physician certification and 
plan of care functions. The need for home health services to be provided 
by an HHA may not be certified or recertified, and a plan of care 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.
    (1) If a physician has a financial relationship as defined in 
Sec. 411.354 of this chapter, with an HHA, the physician may not certify 
or recertify need for home health services provided by that HHA, 
establish or review a plan of treatment for such services, or conduct 
the face-to-face encounter required under sections 1814(a)(2)(C) and 
1835(a)(2)(A) of the Act unless the financial relationship meets one of 
the exceptions set forth in Sec. 411.355 through Sec. 411.357 of this 
chapter.
    (2) A Nonphysician practitioner may not perform the face-to-face 
encounter required under sections 1814(a)(2)(C) and 1835(a)(2)(A) of the 
Act if such encounter would be prohibited under paragraph (d)(1) if the 
nonphysician practitioner were a physician.

[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; 72 FR 51098, Sept. 5, 2007; 74 FR 
58133, Nov. 10, 2009; 75 FR 70463, Nov. 17, 2010; 76 FR 9503, Feb. 18, 
2011; 76 FR 68606, Nov. 4, 2011; 77 FR 67163, Nov. 8, 2012; 79 FR 66116, 
Nov. 6, 2014; 80 FR 68717, Nov. 5, 2015]



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

[[Page 785]]

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 initial certification must be obtained as soon as 
possible after the plan is established.
    (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 is required at 
least every 90 days.
    (ii) Content. When it is recertified, the plan or other 
documentation in the patient's record must indicate the continuing need 
for physical therapy, occupational therapy or speech-language pathology 
services.
    (iii) Signature. The physician, nurse practitioner, clinical nurse 
specialist, or physician assistant who reviews the plan must recertify 
the plan by signing the medical record.
    (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 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.

[[Page 786]]

    (f) Blood glucose testing. For each blood glucose test, the 
physician must certify that the test is medically necessary. A 
physician's standing order is not sufficient to order a series of blood 
glucose tests payable under the clinical laboratory fee schedule.
    (g) 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; 71 
FR 69788, Dec. 1, 2006; 72 FR 66405, Nov. 27, 2007]



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 for respiratory therapy services and every 90 days 
for physical therapy, occupational therapy, and speech-language 
pathology services based on review by a facility physician or the 
referring 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.

[53 FR 6634, Mar. 2, 1988, as amended at 72 FR 66405, Nov. 27, 2007]



                      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 an 
MA organization, or through cost settlement with either a health 
maintenance organization (HMO), a competitive medical plan (CMP), or a 
health care prepayment plan (HCPP), or as part of a demonstration. 
Therefore, claims must be filed by hospitals seeking IME payment under 
Sec. 412.105(g) of this chapter, and/or direct GME payment under 
Sec. 413.76(c) of this chapter, and/or nursing or allied health 
education payment under Sec. 413.87 of this chapter associated with 
inpatient services furnished on a prepaid capitation basis by an MA 
organization. Hospitals that must report patient data for purposes of 
the DSH payment adjustment under Sec. 412.106 of this chapter for 
inpatient services furnished on a prepaid capitation basis by an MA 
organization, or through cost settlement with an HMO/CMP, or as part of 
a demonstration, are required to file claims by submitting no pay bills 
for such inpatients. 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.

[77 FR 53682, Aug. 31, 2012]



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.

[[Page 787]]

    (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 on behalf of the 
beneficiary (in accordance with Sec. 424.36).
    (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 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.

[[Page 788]]

    (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; 72 FR 66405, Nov. 27, 
2007]



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 paragraphs 
(b), (c), or (d) of this section apply. For purposes of this section, 
``the claim'' includes the actual claim form or such other form that 
contains adequate notice to the beneficiary or other authorized 
individual that the purpose of the signature is to authorize a provider 
or supplier to submit a claim to Medicare for specified services 
furnished to the beneficiary.
    (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 789]]

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 after 
making reasonable efforts to locate and obtain the signature of one of 
the individuals specified in paragraph (b)(1), (2), (3), or (4) of this 
section.
    (6) An ambulance provider or supplier with respect to emergency or 
nonemergency ambulance transport services, if the following conditions 
and documentation requirements are met.
    (i) None of the individuals listed in paragraph (b)(1), (2), (3), or 
(4) of this section was available or willing to sign the claim on behalf 
of the beneficiary at the time the service was provided;
    (ii) The ambulance provider or supplier maintains in its files the 
following information and documentation for a period of at least four 
years from the date of service:
    (A) A contemporaneous statement, signed by an ambulance employee 
present during the trip to the receiving facility, that, at the time the 
service was provided, the beneficiary was physically or mentally 
incapable of signing the claim and that none of the individuals listed 
in paragraph (b)(1), (2), (3), or (4) of this section were available or 
willing to sign the claim on behalf of the beneficiary, and
    (B) Documentation with the date and time the beneficiary was 
transported, and the name and location of the facility that received the 
beneficiary, and
    (C) Either of the following:
    (1) A signed contemporaneous statement from a representative of the 
facility that received the beneficiary, which documents the name of the 
beneficiary and the date and time the beneficiary was received by that 
facility; or
    (2) The requested information from a representative of the hospital 
or facility using a secondary form of verification obtained at a later 
date, but prior to submitting the claim to Medicare for payment. 
Secondary forms of verification include a copy of any of the following:
    (i) The signed patient care/trip report;
    (ii) The facility or hospital registration/admission sheet;
    (iii) The patient medical record;
    (iv) The facility or hospital log; or
    (v) Other internal facility or hospital records.
    (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; 72 FR 66406, Nov. 27, 2007; 73 FR 2432, Jan. 
15, 2008; 73 FR 66938, Nov. 19, 2008]



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

[[Page 790]]

    (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;
    (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) Time limits. (1) Except as provided in paragraphs (b) and (e) of 
this section, for services furnished on or after January 1, 2010, the 
claim must be filed no later than the close of the period ending 1 
calendar year after the date of service.
    (2) Except as provided in paragraphs (b) and (e) of this section and 
except for services furnished during the last 3 months of 2009, for 
services furnished before January 1, 2010, the claim must be filed--
    (i) On or before December 31 of the following year for services that 
were

[[Page 791]]

furnished during the first 9 months of a calendar year; and
    (ii) On or before December 31st of the second following year for 
services that were furnished during the last 3 months of the calendar 
year.
    (3) For services furnished during the last 3 months of CY 2009 all 
claims must be filed no later than December 31, 2010.
    (b) Exceptions to time limits. Exceptions to the time limits for 
filing claims include the following:
    (1) The time for filing a claim will be extended if CMS or one of 
its contractors determines that a failure to meet the deadline in 
paragraph (a) of this section was caused by error or misrepresentation 
of an employee, Medicare contractor (including Medicare Administrative 
Contractor, intermediary, or carrier), or agent of HHS that was 
performing Medicare functions and acting within the scope of its 
authority.
    (2) The time for filing a claim will be extended if CMS or one of 
its contractors determines that a failure to meet the deadline in 
paragraph (a) of this section is caused by all of the following 
conditions:
    (i) At the time the service was furnished the beneficiary was not 
entitled to Medicare.
    (ii) The beneficiary subsequently received notification of Medicare 
entitlement effective retroactively to or before the date of the 
furnished service.
    (3) The time for filing a claim will be extended if CMS or one of 
its contractors determines that a failure to meet the deadline in 
paragraph (a) of this section is caused by all of the following 
conditions:
    (i) At the time the service was furnished the beneficiary was not 
entitled to Medicare.
    (ii) The beneficiary subsequently received notification of Medicare 
entitlement effective retroactively to or before the date of the 
furnished service.
    (iii) A State Medicaid agency recovered the Medicaid payment for the 
furnished service from a provider or supplier 6 months or more after the 
service was furnished.
    (4) The time for filing a claim will be extended if CMS or one of 
its contractors determines that a failure to meet the deadline in 
paragraph (a) of this section is caused by all of the following 
conditions:
    (i) At the time the service was furnished the beneficiary was 
enrolled in a Medicare Advantage plan or Program of All-inclusive Care 
for the Elderly (PACE) provider organization.
    (ii) The beneficiary was subsequently disenrolled from the Medicare 
Advantage plan or Program of All-inclusive Care for the Elderly (PACE) 
provider organization effective retroactively to or before the date of 
the furnished service.
    (iii) The Medicare Advantage plan or Program of All-inclusive Care 
for the Elderly (PACE) provider organization recovered its payment for 
the furnished service from a provider or supplier 6 months or more after 
the service was furnished.
    (5) Extension of time. (i) If CMS or one of its contractors 
determines that a failure to meet the deadline specified in paragraph 
(a) of this section was caused by error or misrepresentation of an 
employee, Medicare contractor (including Medicare Administrative 
Contractor, intermediary, or carrier), or agent of HHS that was 
performing Medicare functions and acting within the scope of its 
authority, the time to file a claim will be extended through the last 
day of the sixth calendar month following the month in which either the 
beneficiary or the provider or supplier received notification that the 
error or misrepresentation referenced in paragraph (b)(1) of this 
section was corrected. No extension of time will be granted for 
paragraph (b)(1) when the request for that exception is made to CMS or 
one of its contractors more than 4 years after the date of service.
    (ii) If CMS or one of its contractors determines that both of the 
conditions are met in paragraph (b)(2) of this section but that all of 
the conditions in paragraph (b)(3) are not satisfied, the time to file a 
claim will be extended through the last day of the sixth calendar month 
following the month in which either the beneficiary or the provider or 
supplier received notification of Medicare entitlement effective 
retroactively to or before the date of the furnished service.

[[Page 792]]

    (iii) If CMS or one of its contractors determines that all of the 
conditions are met in paragraph (b)(3) of this section, the time to file 
a claim will be extended through the last day of the sixth calendar 
month following the month in which the State Medicaid agency recovered 
the Medicaid payment for the furnished service from the provider or 
supplier.
    (iv) If CMS or one of its contractors determines that all of the 
conditions are met in paragraph (b)(4) of this section, the time to file 
a claim will be extended through the last day of the sixth calendar 
month following the month in which the Medicare Advantage plan or 
Program of All-inclusive Care for the Elderly (PACE) provider 
organization recovered its payment for the furnished service from the 
provider or supplier.
    (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.
    (e) As specified in Secs. 424.520 and 424.521 of this subpart, there 
are restrictions on the ability of the following newly-enrolled 
suppliers to submit claims for items or services furnished prior to the 
effective date of their Medicare billing privileges:
    (1) Physician or nonphysician practitioner organizations.
    (2) Physicians.
    (3) Nonphysician practitioners.
    (4) Independent diagnostic testing facilities.

[53 FR 6634, Mar. 2, 1988, as amended at 65 FR 83153, Dec. 29, 2000; 73 
FR 69939, Nov. 19, 2008; 75 FR 73627, Nov. 29, 2010]



              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 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.

[[Page 793]]

    (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]



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,

[[Page 794]]

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:
    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.
    Affiliate means a person or organization that is related to another 
person or organization through a compensation arrangement or ownership.
    Assessment means a sum certain that CMS or the Office of Inspector 
General (OIG) may assess against a DMEPOS supplier under Titles XI, 
XVIII, or XXI of the Social Security Act or as specified in this 
chapter.
    Attended facility-based polysomnogram means a comprehensive 
diagnostic sleep test including at least electroencephalography, 
electro-oculography, electromyography, heart rate or 
electrocardiography, airflow, breathing effort, and arterial oxygen 
saturation furnished in a sleep laboratory facility in which a 
technologist supervises the recording during sleep time and has the 
ability to intervene if needed.
    Authorized surety means a surety that has been issued a Certificate 
of Authority by the U.S. Department of the Treasury as an acceptable 
surety on Federal bonds and the certificate has neither expired nor been 
revoked.
    Civil money penalty (CMP) means a sum that CMS has the authority, as 
implemented by 42 CFR 402.1(c); or OIG has the authority, under section 
1128A of the Act or 42 CFR part 1003, to impose on a supplier as a 
penalty.
    CMS approved accreditation organization means a recognized 
independent accreditation organization approved by CMS under 
Sec. 424.58.
    Continuous positive airway pressure (CPAP) device means a machine 
that introduces air into the breathing passages at pressures high enough 
to overcome obstructions in the airway in order to improve airflow. The 
airway pressure delivered into the upper airway is continuous during 
both inspiration and expiration.
    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 paragraphs (c) 
and (d) of this section.
    Final adverse action means one or more of the following actions:
    (i) A Medicare-imposed revocation of any Medicare billing 
privileges.
    (ii) Suspension or revocation of a license to provide health care by 
any State licensing authority.
    (iii) Revocation for failure to meet DMEPOS quality standards.
    (iv) A conviction of a Federal or State felony offense (as defined 
in Sec. 424.535(a)(3)(i) within the last 10 years preceding enrollment, 
revalidation, or re-enrollment.
    (v) An exclusion or debarment from participation in a Federal or 
State health care program.
    Government-operated supplier is a DMEPOS supplier owned or operated 
by a Federal, State, or Tribal entity.
    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.
    Medicare covered items means medical equipment and supplies as 
defined in section 1834(j)(5) of the Act.
    Penal sum is the maximum obligation of the surety if a loss occurs.
    Rider means a notice issued by a surety that a change in the bond 
has occurred or will occur.
    Sleep test means an attended or unattended diagnostic test for a 
sleep disorder whether performed in or out of a sleep laboratory. The 
`provider of the sleep test' is the individual or entity that directly 
or indirectly administers and/or interprets the sleep test and/or 
furnishes the sleep test device used to administer the sleep test.

[[Page 795]]

    Sufficient evidence means documents CMS may supply to the surety in 
order to establish that a DMEPOS supplier had received Medicare funds in 
excess of the amount due and payable under the statute and regulations, 
the amount of a CMP, or the amount of some other assessment against the 
DMEPOS supplier.
    Surety bond means a bond issued by one or more sureties under 31 
U.S.C. 9304 through 9308 and 31 CFR parts 223, 224, and 225.
    Unpaid claim means an overpayment made by the Medicare program to 
the DMEPOS supplier for which the DMEPOS supplier is responsible, plus 
accrued interest that is effective 90 days after the date of the notice 
sent to the DMEPOS supplier of the overpayment. If a written agreement 
for payment, acceptable to CMS, is made, an unpaid claim also means a 
Medicare overpayment for which the DMEPOS supplier is responsible, plus 
accrued interest after the DME supplier's default on the arrangement.
    (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:
    (1) Operates its business and furnishes Medicare-covered items in 
compliance with the following applicable laws:
    (i) Federal regulatory requirements that specify requirements for 
the provision of DMEPOS and ensure accessibility for the disabled.
    (ii) State licensure and regulatory requirements. If a State 
requires licensure to furnish certain items or services, a DMEPOS 
supplier--
    (A) Must be licensed to provide the item or service; and
    (B) May contract with a licensed individual or other entity to 
provide the licensed services unless expressly prohibited by State law.
    (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 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

[[Page 796]]

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. An 
appropriate site must meet all of the following:
    (i) Must meet the following criteria:
    (A)(1) Except for orthotic and prosthetic personnel described in 
paragraph (c)(7)(i)(A)(2) of this section, maintains a practice location 
that is at least 200 square feet beginning--
    (i) September 27, 2010 for a prospective DMEPOS supplier;
    (ii) The first day after termination of an expiring lease for an 
existing DMEPOS supplier with a lease that expires on or after September 
27, 2010 and before September 27, 2013; or
    (iii) September 27, 2013, for an existing DMEPOS supplier with a 
lease that expires on or after September 27, 2013.
    (2) Orthotic and prosthetic personnel providing custom fabricated 
orthotics or prosthetics in private practice do not have to meet the 
practice location requirements in paragraph (c)(7)(i)(A)(1) of this 
section if the orthotic and prosthetic personnel are--
    (i) State-licensed; or
    (ii) Practicing in a State that does not offer State licensure for 
orthotic and prosthetic personnel.
    (B) Is in a location that is accessible to the public, Medicare 
beneficiaries, CMS, NSC, and its agents. (The location must not be in a 
gated community or other area where access is restricted.)
    (C) Is accessible and staffed during posted hours of operation.
    (D) Maintains a permanent visible sign in plain view and posts hours 
of operation. If the supplier's place of business is located within a 
building complex, the sign must be visible at the main entrance of the 
building or the hours can be posted at the entrance of the supplier.
    (E) Except for business records that are stored in centralized 
location as described in paragraph (c)(7)(ii) of this section, is in a 
location that contains space for storing business records (including the 
supplier's delivery, maintenance, and beneficiary communication 
records).
    (F) Is in a location that contains space for retaining the necessary 
ordering and referring documentation specified in Sec. 424.516(f).
    (ii) May be the centralized location for all of the business records 
and the ordering and referring documentation of a multisite supplier.
    (iii) May be a ``closed door'' business, such as a pharmacy or 
supplier providing services only to beneficiaries residing in a nursing 
home, that complies with all applicable Federal, State, and local laws 
and regulations. ``Closed door'' businesses must comply with all the 
requirements in this paragraph.
    (8) Permits CMS, the NSC, or agents of CMS or the NSC to conduct on-
site inspections to ascertain supplier compliance with the requirements 
of this section.
    (9) Maintains a primary business telephone that is operating at the 
appropriate site listed under the name of the business locally or toll-
free for beneficiaries.
    (i) Cellular phones, beepers, or pagers must not be used as the 
primary business telephone.
    (ii) Calls must not be exclusively forwarded from the primary 
business telephone listed under the name of the

[[Page 797]]

business to a cellular phone, beeper, or pager.
    (iii) Answering machines, answering services, facsimile machines or 
combination of these options must not be used exclusively as the primary 
business telephone during posted operating hours.
    (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 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.

[[Page 798]]

    (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.
    (26) Must meet the surety bond requirements specified in paragraph 
(d) of this section.
    (27) Must obtain oxygen from a State-licensed oxygen supplier 
(applicable only to those suppliers in States that require oxygen 
licensure.)
    (28) Is required to maintain ordering and referring documentation 
consistent with the provisions found in Sec. 424.516(f)
    (29)(i) Except as specified in paragraph (c)(29)(ii) of this 
section, is prohibited from sharing a practice location with any other 
Medicare supplier or provider.
    (ii) The prohibition specified in paragraph (c)(29)(i) of this 
section is not applicable at a practice location that meets one of the 
following:
    (A) Where a physician whose services are defined in section 
1848(j)(3) of the Act or a nonphysician practitioner, as described in 
section 1842(b)(18)(C) of the Act, furnishes items to his or her own 
patient as part of his or her professional service.
    (B) Where a physical or occupational therapist whose services are 
defined in sections 1861(p) and 1861(g) of the Act, furnishes items to 
his or her own patient as part of his or her professional service.
    (C) Where a DMEPOS supplier is co-located with and owned by an 
enrolled Medicare provider (as described in Sec. 489.2(b) of this 
chapter). The DMEPOS supplier--
    (1) Must operate as a separate unit; and
    (2) Meet all other DMEPOS supplier standards.
    (30)(i) Except as specified in paragraph (c)(30)(ii) of this 
section, is open to the public a minimum of 30 hours per week.
    (ii) The provision of paragraph (c)(30)(i) of this section is not 
applicable at a practice location where a--
    (A) Physician whose services are defined in section 1848(j)(3) of 
the Act furnishes items to his or her own patient(s) as part of his or 
her professional service;
    (B) A physical or occupational therapist whose services are defined 
in sections 1861(p) and 1861(g) of the Act furnishes items to his or her 
own patient(s) as part of his or her professional service; or
    (C) DMEPOS supplier is working with custom made orthotics and 
prosthetics.
    (d) Surety bonds requirements--(1) Effective date of surety bond 
requirements--(i) DMEPOS suppliers seeking enrollment or with a change 
in ownership. Except as provided in paragraph (d)(15) of this section, 
beginning May 4, 2009, DMEPOS suppliers seeking to enroll or to change 
the ownership of a supplier of DMEPOS must meet the requirements of 
paragraph (d) of this section for each assigned NPI for which the DMEPOS 
supplier is seeking to obtain Medicare billing privileges.
    (ii) Existing DMEPOS suppliers. Except as provided in paragraph 
(d)(15) of this section, beginning October 2, 2009,

[[Page 799]]

each Medicare-enrolled DMEPOS supplier must meet the requirements of 
paragraph (d) of this section for each assigned NPI to which Medicare 
has granted billing privileges.
    (2) Minimum requirements for a DMEPOS supplier. (i) A DMEPOS 
supplier enrolling in the Medicare program, making a change in 
ownership, or responding to a revalidation or reenrollment request must 
submit to the CMS contractor a surety bond from an authorized surety of 
$50,000 and, if required by the CMS contractor, an elevated bond amount 
as described in paragraph (d)(3) of this section with its paper or 
electronic Medicare enrollment application (CMS-855S, OMB number 0938-
1056). The term of the initial surety bond must be effective on the date 
that the application is submitted to the CMS contractor.
    (ii) A supplier that seeks to become an enrolled DMEPOS supplier 
through a purchase or transfer of assets or ownership interest must 
submit to the CMS contractor surety bond from an authorized surety of 
$50,000 and, if required by the CMS contractor, an elevated bond amount 
as described in paragraph (d)(3) of this section that is effective from 
the date of the purchase or transfer in order to exercise billing 
privileges as of that date. If the bond is effective at a later date, 
the effective date of the new DMEPOS supplier billing privileges is the 
effective date of the surety bond as validated by the CMS contractor.
    (iii) A DMEPOS supplier enrolling a new practice location must 
submit to the CMS contractor a new surety bond from an authorized surety 
or an amendment or rider to the existing bond, showing that the new 
practice location is covered by an additional base surety bond of 
$50,000 or, as necessary, an elevated surety bond amount as described in 
paragraph (d)(3) of this section.
    (3) Elevated surety bond amounts. (i) If required, a DMEPOS supplier 
must obtain and maintain a base surety bond in the amount of $50,000 as 
specified in paragraph (d)(2) of this section and an elevated surety 
bond in the amount prescribed by the CMS contractor as described in 
paragraph (d)(3)(ii) of this section.
    (ii) The CMS contractor prescribes an elevated surety bond amount of 
$50,000 per occurrence of an adverse legal action within the 10 years 
preceding enrollment, revalidation, or reenrollment, as defined in 
paragraph (a) of this section.
    (4) Type and terms of the surety bond--(i) Type of bond. A DMEPOS 
supplier must submit a bond that is continuous.
    (ii) Minimum requirements of liability coverage. (A) The terms of 
the bond submitted by a DMEPOS supplier for the purpose of complying 
with this section must meet the minimum requirements of liability 
coverage ($50,000) and surety and DMEPOS supplier responsibility as set 
forth in this section.
    (B) CMS requires a DMEPOS supplier to submit a bond that on its face 
reflects the requirements of this section. CMS revokes or denies a 
DMEPOS supplier's billing privileges based upon the submission of a bond 
that does not reflect the requirements of paragraph (d) of this section.
    (5) Specific surety bond requirements. (i) The bond must guarantee 
that the surety will, within 30 days of receiving written notice from 
CMS containing sufficient evidence to establish the surety's liability 
under the bond of unpaid claims, CMPs, or assessments, pay CMS a total 
of up to the full penal amount of the bond in the following amounts:
    (A) The amount of any unpaid claim, plus accrued interest, for which 
the DMEPOS supplier is responsible.
    (B) The amount of any unpaid claims, CMPs, or assessments imposed by 
CMS or OIG on the DMEPOS supplier, plus accrued interest.
    (ii) The bond must provide the following: The surety is liable for 
unpaid claims, CMPs, or assessments that occur during the term of the 
bond.
    (iii) If the DMEPOS supplier fails to furnish a bond meeting the 
requirements of paragraph (d) of this section, fails to submit a rider 
when required, or if the DMEPOS supplier's billing privileges are 
revoked, the last bond or rider submitted by the DMEPOS supplier remains 
in effect until the last day of the surety bond coverage period and the 
surety remains liable for unpaid claims, CMPs, or assessments that--

[[Page 800]]

    (A) CMS or the OIG imposes or asserts against the DMEPOS supplier 
based on overpayments or other events that took place during the term of 
the bond or rider; and
    (B) Were imposed or assessed by CMS or the OIG during the 2 years 
following the date that the DMEPOS supplier failed to submit a bond or 
required rider, or the date the DMEPOS supplier's billing privileges 
were terminated, whichever is later.
    (6) Cancellation of a bond and lapse of surety bond coverage. (i) A 
DMEPOS supplier may cancel its surety bond and must provide written 
notice at least 30 days before the effective date of the cancellation to 
the CMS contractor and the surety.
    (ii) Cancellation of a surety bond is grounds for revocation of the 
DMEPOS supplier's Medicare billing privileges unless the DMEPOS supplier 
provides a new bond before the effective date of the cancellation. The 
liability of the surety continues through the termination effective 
date.
    (iii) If CMS receives notification of a lapse in bond coverage from 
the surety, the DMEPOS supplier's billing privileges are revoked. During 
this lapse, Medicare does not pay for items or services furnished during 
the gap in coverage, and the DMEPOS supplier is held liable for the 
items or services (that is, the DMEPOS supplier would not be permitted 
to charge the beneficiary for the items or services).
    (iv) The surety must immediately notify the CMS contractor if there 
is a lapse in the surety's coverage of the DMEPOS supplier's coverage.
    (7) Actions under the surety bond. The bond must provide that 
actions under the bond may be brought by CMS or by CMS contractors.
    (8) Required surety information on the surety bond. The bond must 
provide the surety's name, street address or post office box number, 
city, state, and zip code.
    (9) Change of surety. A DMEPOS supplier that obtains a replacement 
surety bond from a different surety to cover the remaining term of a 
previously obtained bond must submit the new surety bond to the CMS 
contractor at least 30 days prior to the expiration of the previous 
surety bond. There must be no gap in the coverage of the surety bond 
periods. If a gap in coverage exists, the CMS contractor revokes the 
DMEPOS supplier's billing privileges and does not pay for any items or 
services furnished by the DMEPOS supplier during the period for which no 
bond coverage was available. If a DMEPOS supplier changes its surety 
during the term of the bond, the new surety is responsible for any 
overpayments, CMPs, or assessments incurred by the DMEPOS supplier 
beginning with the effective date of the new surety bond. The previous 
surety is responsible for any overpayments, CMPs, or assessments that 
occurred up to the date of the change of surety.
    (10) Parties to the surety bond. The surety bond must name the 
DMEPOS supplier as Principal, CMS as Obligee, and the surety (and its 
heirs, executors, administrators, successors and assignees, jointly and 
severally) as surety.
    (11) Effect of DMEPOS supplier's failure to obtain, maintain, and 
timely file a surety bond.
    (i) CMS revokes the DMEPOS supplier's billing privileges if an 
enrolled DMEPOS supplier fails to obtain, file timely, or maintain a 
surety bond as specified in this subpart and CMS instructions. 
Notwithstanding paragraph (e) of this section, the revocation is 
effective the date the bond lapsed and any payments for items furnished 
on or after that date must be repaid to CMS by the DMEPOS supplier.
    (ii) CMS denies billing privileges to a DMEPOS supplier if the 
supplier seeking to become an enrolled DMEPOS supplier fails to obtain 
and file timely a surety bond as specified with this subpart and CMS 
instructions.
    (12) Evidence of DMEPOS supplier's compliance. CMS may at any time 
require a DMEPOS supplier to show compliance with the requirements of 
paragraph (d) of this section.
    (13) Effect of subsequent DMEPOS supplier payment. If a surety has 
paid an amount to CMS on the basis of liability incurred under a bond 
and CMS subsequently collects from the DMEPOS supplier, in whole or in 
part, on the unpaid claim, CMPs, or assessment that was the basis for 
the surety's liability, CMS reimburses the surety the amount that it 
collected from the DMEPOS

[[Page 801]]

supplier, up to the amount paid by the surety to CMS, provided the 
surety has no other liability to CMS under the bond.
    (14) Effect of review reversing determination. If a surety has paid 
CMS on the basis of liability incurred under a surety bond and to the 
extent the DMEPOS supplier that obtained the bond is subsequently 
successful in appealing the determination that was the basis of the 
unpaid claim, CMP, or assessment that caused the DMEPOS supplier to pay 
CMS under the bond, CMS refunds the DMEPOS supplier the amount the 
DMEPOS supplier paid to CMS to the extent that the amount relates to the 
matter that was successfully appealed, provided all review, including 
judicial review, has been completed on the matter.
    (15) Exception to the surety bond requirement--(i) Qualifying 
entities and requirements. (A) Government-operated DMEPOS suppliers are 
provided an exception to the surety bond requirement if the DMEPOS 
supplier has provided CMS with a comparable surety bond under State law.
    (B) State-licensed orthotic and prosthetic personnel in private 
practice making custom made orthotics and prosthetics are provided an 
exception to the surety bond requirement if--
    (1) The business is solely-owned and operated by the orthotic and 
prosthetic personnel, and
    (2) The business is only billing for orthotic, prosthetics, and 
supplies.
    (C) Physicians and nonphysician practitioners as defined in section 
1842(b)(18) of the Act are provided an exception to the surety bond 
requirement when items are furnished only to the physician or 
nonphysician practitioner's own patients as part of his or her physician 
service.
    (D) Physical and occupational therapists in private practice are 
provided an exception to the surety bond requirement if--
    (1) The business is solely-owned and operated by the physical or 
occupational therapist;
    (2) The items are furnished only to the physical or occupational 
therapist's own patients as part of his or her professional service; and
    (3) The business is only billing for orthotics, prosthetics, and 
supplies.
    (ii) Loss of a DMEPOS supplier exception. A DMEPOS supplier that no 
longer qualifies for an exception as described in paragraph (d)(15)(i) 
of this section must submit a surety bond to the CMS contractor in 
accordance with requirements of paragraph (d) of this section within 60 
days after it knows or has reason to know that it no longer meets the 
criteria for an exception.
    (e) Failure to meet standards--(1) Revocation. CMS revokes a 
supplier's billing privileges if it is found not to meet the standards 
in paragraphs (b) and (c) of this section. Except as otherwise provided 
in this section, the revocation is effective 30 days after the entity is 
sent notice of the revocation, as specified in Sec. 405.874 of this 
subchapter.
    (2) Overpayments associated with final adverse actions. CMS or a CMS 
contractor may reopen (in accordance with Sec. 405.980 of this chapter) 
all Medicare claims paid on or after the date of a final adverse action 
(as defined in paragraph (a) of this section) in order to establish an 
overpayment determination.
    (f) Payment prohibition. No Medicare payment will be made to the 
supplier of a CPAP device if that supplier, or its affiliate, is 
directly or indirectly the provider of the sleep test used to diagnose 
the beneficiary with obstructive sleep apnea. This prohibition does not 
apply if the sleep test is an attended facility-based polysomnogram.
    (g) Revalidation of billing privileges. A supplier must revalidate 
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 revalidation.)

[65 FR 60377, Oct. 11, 2000, as amended at 71 FR 48409, Aug. 18, 2006; 
73 FR 69939, Nov. 19, 2008; 75 FR 52648, Aug. 27, 2010; 76 FR 5962, Feb. 
2, 2011; 77 FR 14994, Mar. 14, 2012; 79 FR 69773, Nov. 24, 2014]



Sec. 424.58  Accreditation.

    (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

[[Page 802]]

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 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

[[Page 803]]

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).
    (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.

[[Page 804]]

    (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 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.

[[Page 805]]

    (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.

[71 FR 48409, Aug. 18, 2006]



Sec. 424.59  Requirements for Medicare diabetes prevention 
program suppliers.

    (a) Conditions for enrollment. An entity may enroll as an MDPP 
supplier if it satisfies all of the following criteria and meets all 
other applicable Medicare enrollment requirements:
    (1) At the time of enrollment has full CDC DPRP recognition.
    (2) Has obtained and maintains an active and valid TIN and NPI at 
the organizational level.
    (3) Has passed application screening at a high categorical risk 
level per Sec. 424.518(c).
    (4) All coaches who will be furnishing MDPP services on the entity's 
behalf have obtained and maintain active and valid NPIs.
    (5) Submits a roster of all coaches who will be furnishing MDPP 
services on the entity's behalf that includes the coaches' first and 
last names, SSN, and NPI.
    (b) Documentation retention and provision requirements. An MDPP 
supplier must maintain all documentation in accordance with 
Sec. 424.516(f) and all other federal and state laws. The MDPP supplier 
must submit any documentation requested by the government or a 
contractor to substantiate the attestations or claims submitted for 
payment under the Medicare program.
    (1) The records must contain documentation of the services furnished 
including evidence of the beneficiary's eligibility, specific session 
topics attended, the NPI of the coach who furnished the session 
attended, the date and place of service of sessions attended, and 
weight.
    (2) MDPP suppliers are required to maintain and handle any 
beneficiary PII and PHI in compliance with HIPAA, other applicable 
privacy laws and CMS standards.
    (3) The MDPP supplier must maintain a crosswalk between the 
beneficiary identifiers submitted to CMS for billing and the beneficiary 
identifiers submitted to CDC for beneficiary level-clinical data.
    (4) The records must include an attestation from the supplier that 
the MDPP eligible beneficiary for which it is submitting a claim:
    (i) Has attended one, four or nine core sessions, or
    (ii) Has achieved the required minimum weight loss percentage 
specified in Sec. 410.79 of this chapter, or
    (iii) Has achieved maintenance of weight loss and attended core 
maintenance sessions, or

[[Page 806]]

    (iv) Has achieved maintenance of weight loss and attended ongoing 
maintenance sessions.
    (c) Conditions for payment of claims for MDPP services furnished. An 
MDPP supplier must meet all of the following requirements in order to 
receive payment for claims made for MDPP services furnished:
    (1) Establishes and maintains all enrollment and program 
requirements under Title 42.
    (2) Submits attestation as specified in paragraph (b) of this 
section.
    (d) Revocation of MDPP supplier enrollment. An MDPP supplier is 
subject to revocation of its MDPP supplier enrollment if:
    (1) It loses its CDC DPRP recognition or withdraws from seeking CDC 
DPRP recognition.
    (2) One of the revocation reasons specified in Sec. 424.535 applies.
    (e) Procedures for revoking or denying MDPP supplier enrollment. (1) 
MDPP suppliers are subject to the enrollment regulations set forth in 
subpart P of this part.
    (2) An MDPP supplier that has had its MDPP supplier enrollment 
revoked may:
    (i) Become eligible to bill for MDPP services again if it meets the 
requirements of paragraph (a)(1) of this section, and enrolls again in 
Medicare as an MDPP supplier subject to paragraph (a) of this section.
    (ii) Appeal in accordance with the procedures specified in 42 CFR 
part 405, subpart H, 42 CFR part 424, and 42 CFR part 498. References to 
suppliers in these sections apply to MDPP suppliers.

[81 FR 80558, Nov. 15, 2016; 81 FR 81698, Nov. 18, 2016]



         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 
Secs. 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 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

[[Page 807]]

(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 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;

[[Page 808]]

    (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 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

[[Page 809]]

    (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
    (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

[[Page 810]]

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 an employer-employee 
relationship or 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 who furnishes the service has 
unrestricted access to claims submitted by an entity for services 
provided by that supplier. This paragraph applies irrespective of 
whether the supplier is an employee or whether the service is provided 
under a contractual arrangement. If an entity refuses to provide, upon 
request, the billing information to the supplier performing the service, 
the entity's right to receive reassigned benefits may be revoked under 
Sec. 424.82(c)(3).
    (3) Reassignment of the technical or professional component of a 
diagnostic test. If a physician or other supplier bills for the 
technical or professional component of a diagnostic test covered under 
section 1861(s)(3) of the Act and paid for under part 414 of this 
chapter (other than clinical diagnostic laboratory tests paid under 
section 1833(a)(2)(D) of the Act, which are subject to the special rules 
set forth in section 1833(h)(5)(A) of the Act) following a reassignment 
from a physician or other supplier who performed the technical or 
professional component, the amount payable to the billing physician or 
other supplier may be subject to the limits specified in Sec. 414.50 of 
this chapter.

[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; 71 FR 69788, Dec. 1, 
2006; 72 FR 66406, Nov. 27, 2007]



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.
    (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).

[[Page 811]]

    (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 Secs. 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.
    (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

[[Page 812]]

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 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

[[Page 813]]

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.
    (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

[[Page 814]]

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
    (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:

[[Page 815]]

    (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 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--

[[Page 816]]

    (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 Secs. 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 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

[[Page 817]]

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 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

[[Page 818]]

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.
    Change in majority ownership occurs when an individual or 
organization acquires more than a 50 percent direct ownership interest 
in an HHA during the 36 months following the HHA's initial enrollment 
into the Medicare program or the 36 months following the HHA's most 
recent change in majority ownership (including asset sale, stock 
transfer, merger, and consolidation). This includes an individual or 
organization that acquires majority ownership in an HHA through the 
cumulative effect of asset sales, stock transfers, consolidations, or 
mergers during the 36-month period after Medicare billing privileges are 
conveyed or the 36-month period following the HHA's most recent change 
in majority ownership.
    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 items and services, 
and the process that Medicare uses to establish eligibility to order or 
certify Medicare-covered items and services. The process includes--
    (1) Identification of a provider or supplier;
    (2) Except for those suppliers that complete the CMS-855O form, CMS-
identified equivalent, successor form or process for the sole purpose of 
obtaining eligibility to order or certify Medicare-covered items and 
services, validating the provider 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) Except for those suppliers that complete the CMS-855O form, CMS-
identified equivalent, successor form or process for the sole purpose of 
obtaining eligibility to order or certify Medicare-covered items and 
services, granting the Medicare provider or supplier Medicare billing 
privileges.
    Enrollment application means a CMS-approved paper enrollment 
application or an electronic Medicare enrollment process approved by 
OMB.
    Final adverse action means one or more of the following actions:
    (1) A Medicare-imposed revocation of any Medicare billing 
privileges;
    (2) Suspension or revocation of a license to provide health care by 
any State licensing authority;
    (3) Revocation or suspension by an accreditation organization;
    (4) A conviction of a Federal or State felony offense (as defined in 
Sec. 424.535(a)(3)(i)) within the last 10 years preceding enrollment, 
revalidation, or re-enrollment; or
    (5) An exclusion or debarment from participation in a Federal or 
State health care program.
    Institutional provider means any provider or supplier that submits a 
paper Medicare enrollment application using the CMS-855A, CMS-855B (not 
including physician and nonphysician practitioner organizations), CMS-
855S or associated Internet-based PECOS enrollment application.
    Managing employee means a general manager, business manager, 
administrator, director, or other individual

[[Page 819]]

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.
    Physician or nonphysician practitioner organization means any 
physician or nonphysician practitioner entity that enrolls in the 
Medicare program as a sole proprietorship or organizational entity.
    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.
    Voluntary termination means that a provider or supplier, including 
an individual physician or nonphysician practitioner, submits written 
confirmation to CMS of its decision to discontinue enrollment in the 
Medicare program.

[71 FR 20776, Apr. 21, 2006, as amended at 73 FR 69939, Nov. 19, 2008; 
75 FR 70464, Nov. 17, 2010; 75 FR 73628, Nov. 29, 2010; 76 FR 5962, Feb. 
2, 2011; 79 FR 72531, Dec. 5, 2014]



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. Except for those suppliers 
that complete the CMS-855O form or CMS-identified equivalent, successor 
form or process for the sole purpose of obtaining eligibility to order 
or certify Medicare-covered items and services; 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 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.)

[71 FR 20776, Apr. 21, 2006, as amended at 79 FR 72531, Dec. 5, 2014]



Sec. 424.506  National Provider Identifier (NPI) on all enrollment 
applications and claims.

    (a) Definition. Eligible professional means any of the professionals 
specified in section 1848(k)(3)(B) of the Act.
    (b) Enrollment requirements. (1) A provider or a supplier that is 
eligible for an NPI must do the following:
    (i) Report its NPI on its Medicare enrollment application.
    (ii) If the provider or supplier was in the Medicare program before 
obtaining an NPI and the provider's or the supplier's NPI is not in the 
provider's or supplier's Medicare enrollment record, the provider or 
supplier must update its Medicare enrollment record by submitting its 
NPI using either of the following:
    (A) The applicable paper CMS-855 form.
    (B) Internet-based PECOS.
    (2) A physician or eligible professional who has validly opted-out 
of the Medicare program is not required to submit a Medicare enrollment 
application for any reason, including to order or certify.
    (c) Claims reporting requirements. (1) A provider or supplier that 
is enrolled in Medicare and submits a paper or an electronic claim must 
include its NPI and the NPI(s) of any other provider(s) or supplier(s) 
identified on the claim.
    (2) A Medicare beneficiary who submits a claim for service to 
Medicare--

[[Page 820]]

    (i) Must include the legal name of any provider or supplier who is 
required to be identified in that claim; and
    (ii) May, if known to the beneficiary, include the National Provider 
Identifier (NPI) of any provider or supplier who is required to be 
identified in that claim.
    (3) A Medicare contractor will reject a claim from a provider or a 
supplier if the required NPI(s) is not reported.

[75 FR 24448, May 5, 2010, as amended at 77 FR 25317, Apr. 27, 2012]



Sec. 424.507  Ordering covered items and services for Medicare beneficiaries.

    (a) Conditions for payment of claims for ordered covered imaging and 
clinical laboratory services and items of durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS)--(1) Ordered covered 
imaging, clinical laboratory services, and DMEPOS item claims. To 
receive payment for ordered imaging, clinical laboratory services, and 
DMEPOS items (excluding home health services described in 
Sec. 424.507(b), and Part B drugs), a provider or supplier must meet all 
of the following requirements:
    (i) The ordered covered imaging, clinical laboratory services, and 
DMEPOS items (excluding home health services described in paragraph (b) 
of this section, and Part B drugs) must have been ordered by a physician 
or, when permitted, an eligible professional (as defined in 
Sec. 424.506(a) of this part).
    (ii) The claim from the provider or supplier must contain the legal 
name and the National Provider Identifier (NPI) of the physician or the 
eligible professional (as defined in Sec. 424.506(a) of this part) who 
ordered the item or service.
    (iii) The physician or, when permitted, other eligible professional, 
as defined in Sec. 424.506(a), who ordered the item or service must--
    (A) Be identified by his or her legal name;
    (B) Be identified by his or her NPI; and
    (C)(1) Be enrolled in Medicare in an approved status; or
    (2) Have validly opted-out of the Medicare program.
    (iv) If the item or service is ordered by--
    (A) An unlicensed resident (as defined in Sec. 413.75), or by a non-
enrolled licensed resident (as defined in Sec. 413.75), the claim must 
identify a teaching physician, who must be enrolled in Medicare in an 
approved status, as follows:
    (1) As the ordering supplier.
    (2) By his or her legal name.
    (3) By his/her NPI.
    (B) A licensed resident (as defined in Sec. 413.75), he or she must 
have a provisional license or be otherwise permitted by State law, where 
the resident is enrolled in an approved graduate medical education 
program, to practice or order such items and services, the claim must 
identify by legal name and NPI the--
    (1) Resident, who is enrolled in Medicare in an approved status to 
order; or
    (2) Teaching physician, who is enrolled in Medicare in an approved 
status.
    (2) Part B beneficiary claims. To receive payment for ordered 
covered items and services listed at Sec. 424.507(a), a beneficiary's 
claim must meet all of the following requirements:
    (i) The physician or, when permitted, other eligible professional 
(as defined Sec. 424.506(a)) who ordered the item or service must--
    (A) Be identified by his or her legal name; and
    (B)(1) Be enrolled in Medicare in an approved status; or
    (2) Have validly opted out of the Medicare program.
    (ii) If the item or service is ordered by--
    (A) An unlicensed resident (as defined in Sec. 413.75) or a non-
enrolled licensed resident, (as defined in Sec. 413.75) the claim must 
identify a teaching physician, who must be enrolled in Medicare in an 
approved status as follows:
    (1) As the ordering supplier.
    (2) By his or her legal name.
    (B) A licensed resident (as defined in Sec. 413.75), he or she must 
have a provisional license or are otherwise permitted by State law, 
where the resident is enrolled in an approved graduate medical education 
program, to practice or to order such items and services, the claim must 
identify by legal name the--

[[Page 821]]

    (1) Resident, who is enrolled in Medicare in an approved status to 
order; or
    (2) Teaching physician, who is enrolled in Medicare in an approved 
status.
    (b) Conditions for payment of claims for covered home health 
services. To receive payment for covered Part A or Part B home health 
services, a provider's home health services claim must meet all of the 
following requirements:
    (1) The ordering/certifying physician must meet all of the following 
requirements:
    (i) Be identified by his or her legal name.
    (ii) Be identified by his or her NPI.
    (iii)(A) Be enrolled in Medicare in an approved status; or
    (B) Have validly opted-out of the Medicare program.
    (2) If the services were ordered/certified by--
    (i) An unlicensed resident, as defined in Sec. 413.75, or by a non-
enrolled licensed resident, as defined in Sec. 413.75, the claim must 
identify a teaching physician who must be enrolled in Medicare in an 
approved status--
    (A) As the ordering/certifying supplier;
    (B) By his or her legal name; and
    (C) By his or her NPI.
    (ii) A licensed resident (as defined in Sec. 413.75), he or she must 
have a provisional license or are otherwise permitted by State law, 
where the resident is enrolled in an approved graduate medical education 
program, to practice or to order/certify such items and services, the 
claim must identify by legal name and NPI the--
    (A) Resident, who is enrolled in Medicare in an approved status to 
order; or
    (B) Teaching physician, who is enrolled in Medicare in an approved 
status.
    (c) Denial of provider- or supplier-submitted claims. 
Notwithstanding Sec. 424.506(c)(3), a Medicare contractor denies a claim 
from a provider or a supplier for covered items and services described 
in paragraph (a) or (b) of this section if the claim does not meet the 
requirements of paragraphs (a)(1) and (b) of this section, respectively.
    (d) Denial of beneficiary-submitted claims. A Medicare contractor 
denies a claim from a Medicare beneficiary for covered items or services 
described in paragraphs (a) and (b) of this section if the claim does 
not meet the requirements of paragraph (a)(2) of this section.

[77 FR 25317, Apr. 27, 2012]



Sec. 424.510  Requirements for enrolling in the Medicare program.

    (a)(1) 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.
    (2) To be enrolled to furnish Medicare-covered items and services, a 
provider or supplier must meet the requirements specified in paragraphs 
(d) and (e) of this section.
    (3) To be enrolled solely to order and certify Medicare items or 
services, a physician or non-physician practitioner must meet the 
requirements specified in paragraph (d) of this section except for 
paragraphs (d)(2)(iii)(B), (d)(2)(iv), (d)(3)(ii), and (d)(5), (6), and 
(9) 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) 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

[[Page 822]]

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--
    (A) All applicable Federal and State licenses, certifications 
including, but not limited to Federal Aviation Administration; and
    (B) Documentation associated with regulatory and statutory 
requirements necessary to establish a provider's or supplier's 
eligibility to furnish Medicare covered items or services to 
beneficiaries in the Medicare program.
    (iv) At the time of enrollment, an enrollment change request, 
revalidation or change of Medicare contractors where the provider or 
supplier was already receiving payments via EFT, providers and suppliers 
must agree to receive Medicare payments via EFT, if not already 
receiving payment through EFT. In order to receive Medicare payments via 
EFT, providers and suppliers must submit the CMS-588 form.
    (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.
    (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

[[Page 823]]

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.
    (9) In order to obtain enrollment and to maintain enrollment for the 
first three months after Medicare billing privileges are conveyed, a 
home health agency must satisfy the home health ``initial reserve 
operating funds'' requirement as set forth in Sec. 489.28 of this 
chapter.
    (e) Providers and suppliers must--
    (1) Agree to receive Medicare payment via electronic funds transfer 
(EFT) at the time of enrollment, revalidation, change of Medicare 
contractors where the provider or supplier was already receiving 
payments via EFT or submission of an enrollment change request; and
    (2) Submit the CMS-588 form to receive Medicare payment via 
electronic funds transfer.

[71 FR 20776, Apr. 21, 2006, as amended at 73 FR 36461, June 27, 2008; 
75 FR 50418, Aug. 16, 2010; 75 FR 70464, Nov. 17, 2010; 75 FR 73628, 
Nov. 29, 2010; 77 FR 29030, July 16, 2012; 79 FR 72531, Dec. 5, 2014]



Sec. 424.514  Application fee.

    (a) Application fee requirements for prospective institutional 
providers. Beginning on or after March 25, 2011, prospective 
institutional providers that are submitting an initial application or 
currently enrolled institutional providers that are submitting an 
application to establish a new practice location must submit either or 
both of the following:
    (1) The applicable application fee.

[[Page 824]]

    (2) A request for a hardship exception to the application fee at the 
time of filing a Medicare enrollment application.
    (b) Application fee requirements for revalidating institutional 
providers. Beginning March 25, 2011, institutional providers that are 
subject to CMS revalidation efforts must submit either or both of the 
following:
    (1) The applicable application fee.
    (2) A request for a hardship exception to the application fee at the 
time of filing a Medicare enrollment application.
    (c) Hardship exception for disaster areas. CMS will assess on a 
case-by-case basis whether institutional providers enrolling in a 
geographic area that is a Presidentially-declared disaster under the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 
U.S.C. 5121-5206 (Stafford Act) should receive an exception to the 
application fee.
    (d) Application fee. The application fee and associated requirements 
are as follows:
    (1) For 2010, $500.00.
    (2) For 2011 and subsequent years--
    (i) Is adjusted by the percentage change in the consumer price index 
for all urban consumers (all items; United States city average) for the 
12-month period ending with June of the previous year;
    (ii) Is effective from January 1 to December 31 of a calendar year;
    (iii) Is based on the submission of an initial application, 
application to establish a new practice location or the submission of an 
application in response to a CMS revalidation request;
    (iv) Must be in the amount calculated by CMS in effect for the year 
during which the application for enrollment is being submitted;
    (v) Is nonrefundable, except if submitted with one of the following:
    (A) A request for hardship exception that is subsequently approved;
    (B) An application that is rejected prior to initiation of screening 
processes;
    (C) An application that is subsequently denied as a result of the 
imposition of a temporary moratorium;
    (e) Denial or revocation based on application fee. A Medicare 
contractor may deny or revoke Medicare billing privileges of a provider 
or supplier based on noncompliance if, in the absence of a written 
request for a hardship exception from the application fee that 
accompanies a Medicare enrollment application, the bank account on which 
the check that is submitted with the enrollment application is drawn 
does not contain sufficient funds to pay the application fee.
    (f) Information needed for submission of a hardship exception 
request. A provider or supplier requesting an exception from the 
application fee must include with its enrollment application a letter 
that describes the hardship and why the hardship justifies an exception.
    (g) Failure to submit application fee or hardship exception request. 
A Medicare contractor may--
    (1) Reject an enrollment application from a newly-enrolling 
institutional provider that, with the exceptions described in 
Sec. 424.514(b), is not accompanied by the application fee or by a 
letter requesting a hardship exception from the application fee.
    (2) Revoke the billing privileges of a currently enrolled 
institutional provider that, with the exceptions described in 
Sec. 424.514(b), is not accompanied by the application fee or by a 
letter requesting a hardship exception from the application fee.
    (3)(i) Notwithstanding the foregoing, the contractor must first 
inform the provider that the application fee was not submitted in 
accordance with this section.
    (ii) Within 30 days after the date of the notification, the 
contractor may reject the application of the newly-enrolling 
institutional provider or revoke the billing privileges of the currently 
enrolled institutional provider that has not submitted the fee.
    (h) Consideration of hardship exception request. CMS has 60 days in 
which to approve or disapprove a hardship exception request. If a 
provider submits a request for hardship exception to the fee and the 
provider or supplier has not already submitted the fee consistent with 
provisions in Sec. 424.514(a) and (b), and the request for hardship 
exception is not approved, CMS notifies the provider or supplier that 
the hardship exception request was not approved and allows the provider 
or supplier 30 days

[[Page 825]]

from the date of notification to submit the application fee.
    (1) A Medicare contractor does not--
    (i) Begin processing an enrollment application that is accompanied 
by a hardship exception request until CMS has made a decision to approve 
or disapprove the hardship exception request; and
    (ii) Deny an enrollment application that is accompanied by a 
hardship exception request unless the hardship exception request is 
denied by CMS and the provider or supplier fails to submit the required 
application fee within 30 days of being notified that the request for a 
hardship exception was denied.
    (2) A hardship exception determination made by CMS is appealable 
using Sec. 405.874 of this chapter.

[76 FR 5962, Feb. 2, 2011]



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(g)). 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,

[[Page 826]]

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 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(g) (Special payment rules for 
items furnished by DMEPOS suppliers and issuance of DMEPOS supplier 
billing numbers).
    (e) Additional off-cycle revalidation. On or after March 23, 2012, 
Medicare providers and suppliers, including DMEPOS suppliers, may be 
required to revalidate their enrollment outside the routine 5-year 
revalidation cycle (3-year DMEPOS supplier revalidation cycle).
    (1) CMS will contact providers or suppliers to revalidate their 
enrollment for off-cycle revalidation.
    (2) As with all revalidations, revalidations described in this 
paragraph are conducted in accordance with the screening procedures 
specified at Sec. 424.518.

[71 FR 20776, Apr. 21, 2006, as amended at 76 FR 5963, Feb. 2, 2011; 79 
FR 69775, Nov. 24, 2014]



Sec. 424.516  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 that 
meet either of the following conditions:
    (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.
    (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 Independent Diagnostic Testing Facilities 
(IDTFs). IDTF reporting requirements are specified in Sec. 410.33(g)(2) 
of this chapter.
    (c) Reporting requirements DMEPOS suppliers. DMEPOS reporting 
requirements are specified in Sec. 424.57(c)(2).
    (d) Reporting requirements for physicians, nonphysician 
practitioners, and physician and nonphysician practitioner 
organizations. Physicians, nonphysician practitioners, and physician and 
nonphysician practitioner organizations must report the following 
reportable events to their Medicare contractor within the specified 
timeframes:
    (1) Within 30 days--
    (i) A change of ownership;
    (ii) Any adverse legal action; or
    (iii) A change in practice location.
    (2) All other changes in enrollment must be reported within 90 days.
    (e) Reporting requirements for all other providers and suppliers. 
Reporting requirements for all other providers and suppliers not 
identified in paragraphs

[[Page 827]]

(a) through (d) of this section, must report to CMS the following 
information within the specified timeframes:
    (1) Within 30 days for a change of ownership or control, including 
changes in authorized official(s) or delegated official(s);
    (2) All other changes to enrollment must be reported within 90 days.
    (3) Within 30 days of any revocation or suspension of a Federal or 
State license or certification including Federal Aviation Administration 
certifications, an air ambulance supplier must report a revocation or 
suspension of its license or certification to the applicable Medicare 
contractor. The following FAA certifications must be reported:
    (i) Specific pilot certifications including but not limited to 
instrument and medical certifications.
    (ii) Airworthiness certification.
    (f) Maintaining and providing access to documentation. (1)(i) A 
provider or a supplier that furnishes covered ordered items of DMEPOS, 
clinical laboratory, imaging services, or covered ordered/certified home 
health services is required to--
    (A) Maintain documentation (as described in paragraph (f)(1)(ii) of 
this section) for 7 years from the date of service; and
    (B) Upon the request of CMS or a Medicare contractor, to provide 
access to that documentation (as described in paragraph (f)(1)(ii) of 
this section).
    (ii) The documentation includes written and electronic documents 
(including the NPI of the physician who ordered/certified the home 
health services and the NPI of the physician or, when permitted, other 
eligible professional who ordered items of DMEPOS or clinical laboratory 
or imaging services) relating to written orders and certifications and 
requests for payments for items of DMEPOS and clinical laboratory, 
imaging, and home health services.
    (2)(i) A physician who orders/certifies home health services and the 
physician or, when permitted, other eligible professional who orders 
items of DMEPOS or clinical laboratory or imaging services is required 
to--
    (A) Maintain documentation (as described in paragraph (f)(2)(ii) of 
this section) for 7 years from the date of the service; and
    (B) Upon request of CMS or a Medicare contractor, to provide access 
to that documentation (as described in paragraph (f)(2)(ii) of this 
section).
    (ii) The documentation includes written and electronic documents 
(including the NPI of the physician who ordered/certified the home 
health services and the NPI of the physician or, when permitted, other 
eligible professional who ordered the items of DMEPOS or the clinical 
laboratory or imaging services) relating to written orders or 
certifications or requests for payments for items of DMEPOS and clinical 
laboratory, imaging, and home health services.

[73 FR 69939, Nov. 19, 2008; 73 FR 80304, Dec. 31, 2008, as amended at 
75 FR 24449, May 5, 2010; 75 FR 73628, Nov. 29, 2010; 77 FR 25318, Apr. 
27, 2012]



Sec. 424.517  Onsite review.

    (a) CMS reserves the right, when deemed necessary, to perform onsite 
review 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. Based upon the 
results of CMS's onsite review, the provider may be subject to denial or 
revocation of Medicare billing privileges as specified in Sec. 424.530 
or Sec. 424.535 of this part.
    (1) Medicare Part A providers. CMS determines, upon on-site review, 
that the provider meets either of the following conditions:
    (i) Is unable to furnish Medicare-covered items or services.
    (ii) Has failed to satisfy any of the Medicare enrollment 
requirements.
    (2) Medicare Part B providers. CMS determines, upon review, that the 
supplier meets any of the following conditions:
    (i) Is unable to furnish Medicare-covered items or services.
    (ii) Has failed to satisfy any or all of the Medicare enrollment 
requirements.

[[Page 828]]

    (iii) Has failed to furnish Medicare covered items or services as 
required by the statute or regulations.
    (b) [Reserved]

[73 FR 66940, Nov. 19, 2008]



Sec. 424.518  Screening levels for Medicare providers and suppliers.

    A Medicare contractor is required to screen all initial 
applications, including applications for a new practice location, and 
any applications received in response to a revalidation request based on 
a CMS assessment of risk and assignment to a level of ``limited,'' 
``moderate,'' or ``high.''
    (a) Limited categorical risk--(1) Limited categorical risk: Provider 
and supplier categories. CMS has designated the following providers and 
suppliers as ``limited'' categorical risk:
    (i) Physician or nonphysician practitioners (including nurse 
practitioners, CRNAs, occupational therapists, speech/language 
pathologists, and audiologists) and medical groups or clinics.
    (ii) Ambulatory surgical centers.
    (iii) Competitive Acquisition Program/Part B Vendors.
    (iv) End-stage renal disease facilities.
    (v) Federally qualified health centers.
    (vi) Histocompatibility laboratories.
    (vii) Hospitals, including critical access hospitals, Department of 
Veterans Affairs hospitals, and other federally owned hospital 
facilities.
    (viii) Health programs operated by an Indian Health Program (as 
defined in section 4(12) of the Indian Health Care Improvement Act) or 
an urban Indian organization (as defined in section 4(29) of the Indian 
Health Care Improvement Act) that receives funding from the Indian 
Health Service pursuant to Title V of the Indian Health Care Improvement 
Act.
    (ix) Mammography screening centers.
    (x) Mass immunization roster billers
    (xi) Organ procurement organizations.
    (xii) Pharmacies newly enrolling or revalidating via the CMS-855B 
application.
    (xiii) Radiation therapy centers.
    (xiv) Religious non-medical health care institutions.
    (xv) Rural health clinics.
    (xvi) Skilled nursing facilities.
    (2) Limited screening level: Screening requirements. When CMS 
designates a provider or supplier as a ``limited'' categorical level of 
risk, the Medicare contractor does all of the following:
    (i) Verifies that a provider or supplier meets all applicable 
Federal regulations and State requirements for the provider or supplier 
type prior to making an enrollment determination.
    (ii) Conducts license verifications, including licensure 
verifications across State lines for physicians or nonphysician 
practitioners and providers and suppliers that obtain or maintain 
Medicare billing privileges as a result of State licensure, including 
State licensure in States other than where the provider or supplier is 
enrolling.
    (iii) Conducts database checks on a pre- and post-enrollment basis 
to ensure that providers and suppliers continue to meet the enrollment 
criteria for their provider/supplier type.
    (b) Moderate categorical risk--(1) Moderate categorical risk: 
Provider and supplier categories. CMS has designated the following 
providers and suppliers as ``moderate'' categorical risk:
    (i) Ambulance service suppliers.
    (ii) Community mental health centers.
    (iii) Comprehensive outpatient rehabilitation facilities.
    (iv) Hospice organizations.
    (v) Independent clinical laboratories.
    (vi) Independent diagnostic testing facilities.
    (vii) Physical therapists enrolling as individuals or as group 
practices.
    (viii) Portable x-ray suppliers.
    (ix) Revalidating home health agencies.
    (x) Revalidating DMEPOS suppliers.
    (2) Moderate screening level: Screening requirements. When CMS 
designates a provider or supplier as a ``moderate'' categorical level of 
risk, the Medicare contractor does all of the following:
    (i) Performs the ``limited'' screening requirements described in 
paragraph (a)(2) of this section.
    (ii) Conducts an on-site visit.
    (c) High categorical risk--(1) High categorical risk: Provider and 
supplier categories. CMS has designated the following home health 
agencies and suppliers of DMEPOS as ``high'' categorical risk:

[[Page 829]]

    (i) Prospective (newly enrolling) home health agencies.
    (ii) Prospective (newly enrolling) DMEPOS suppliers.
    (2) High screening level: Screening requirements. When CMS 
designates a provider or supplier as a ``high'' categorical level of 
risk, the Medicare contractor does all of the following:
    (i) Performs the ``limited'' and ``moderate'' screening requirements 
described in paragraphs (a)(2) and (b)(2) of this section.
    (ii)(A) Requires the submission of a set of fingerprints for a 
national background check from all individuals who maintain a 5 percent 
or greater direct or indirect ownership interest in the provider or 
supplier; and
    (B) Conducts a fingerprint-based criminal history record check of 
the Federal Bureau of Investigation's Integrated Automated Fingerprint 
Identification System on all individuals who maintain a 5 percent or 
greater direct or indirect ownership interest in the provider or 
supplier.
    (3) Adjustment in the categorical risk. CMS adjusts the screening 
level from ``limited'' or ``moderate'' to ``high'' if any of the 
following occur:
    (i) CMS imposes a payment suspension on a provider or supplier at 
any time in the last 10 years.
    (ii) The provider or supplier--
    (A) Has been excluded from Medicare by the OIG; or
    (B) Had billing privileges revoked by a Medicare contractor within 
the previous 10 years and is attempting to establish additional Medicare 
billing privileges by--
    (1) Enrolling as a new provider or supplier; or
    (2) Billing privileges for a new practice location;
    (C) Has been terminated or is otherwise precluded from billing 
Medicaid;
    (D) Has been excluded from any Federal health care program; or
    (E) Has been subject to any final adverse action, as defined at 
Sec. 424.502, within the previous 10 years.
    (iii) CMS lifts a temporary moratorium for a particular provider or 
supplier type and a provider or supplier that was prevented from 
enrolling based on the moratorium, applies for enrollment as a Medicare 
provider or supplier at any time within 6 months from the date the 
moratorium was lifted.
    (d) Fingerprinting requirements. An individual subject to the 
fingerprint-based criminal history record check requirement specified in 
paragraph (c)(2)(ii)(B) of this section--
    (1) Must submit a set of fingerprints for a national background 
check.
    (i) Upon submission of a Medicare enrollment application; or
    (ii) Within 30 days of a Medicare contractor request.
    (2) In the event the individual(s) required to submit fingerprints 
under paragraph (c)(2) of this section fail to submit such fingerprints 
in accordance with paragraph (d)(1) of this section, the provider or 
supplier will have its billing privileges--
    (i) Denied under Sec. 424.530(a)(1); or
    (ii) Revoked under Sec. 424.535(a)(1).

[76 FR 5963, Feb. 2, 2011]



Sec. 424.520  Effective date of Medicare billing privileges.

    (a) Surveyed, certified or accredited providers and suppliers. The 
effective date for billing privileges for providers and suppliers 
requiring State survey, certification or accreditation is specified in 
Sec. 489.13 of this chapter. If a provider or supplier is seeking 
accreditation from a CMS-approved accreditation organization, the 
effective date is specified in Sec. 489.13.
    (b) Independent Diagnostic Testing Facilities. The effective date 
for billing privileges for IDTFs is specified in Sec. 410.33(i) of this 
chapter.
    (c) DMEPOS suppliers. The effective date for billing privileges for 
DMEPOS suppliers is specified in Sec. 424.57(b) of this subpart and 
section 1834(j)(1)(A) of the Act.
    (d) Physicians, non-physician practitioners, physician and non-
physician practitioner organizations, and ambulance suppliers. The 
effective date for billing privileges for physicians, non-physician 
practitioners, physician and non-physician practitioner organizations, 
and ambulance suppliers is the later of--
    (1) The date of filing of a Medicare enrollment application that was 
subsequently approved by a Medicare contractor; or

[[Page 830]]

    (2) The date that the supplier first began furnishing services at a 
new practice location.

[73 FR 69940, Nov. 19, 2008, as amended at 75 FR 50418, Aug. 16, 2010; 
79 FR 72531, Dec. 5, 2014]



Sec. 424.521  Request for payment by physicians, non-physician 
practitioners, physician and non-physician organizations, and 
ambulance suppliers.

    (a) Physicians, non-physician practitioners, physician and non-
physician practitioner organizations, and ambulance suppliers may 
retrospectively bill for services when the physician, non-physician 
practitioner, physician or non-physician organization, and ambulance 
supplier has met all program requirements, including State licensure 
requirements, and services were provided at the enrolled practice 
location for up to--
    (1) Thirty days prior to their effective date if circumstances 
precluded enrollment in advance of providing services to Medicare 
beneficiaries; or
    (2) Ninety days prior to their effective date if a Presidentially-
declared disaster under the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act, 42 U.S.C. 5121-5206 (Stafford Act) precluded 
enrollment in advance of providing services to Medicare beneficiaries.
    (b) [Reserved]

[79 FR 72531, Dec. 5, 2014]



Sec. 424.525  Rejection of a provider or supplier's enrollment 
application for Medicare enrollment.

    (a) Reasons for rejection. CMS may reject a provider's or supplier's 
enrollment application for any of the following reasons:
    (1) The prospective provider or supplier fails to furnish complete 
information on the provider/supplier enrollment application within 30 
calendar days from the date of the contractor request for the missing 
information.
    (2) The prospective provider or supplier fails to furnish all 
required supporting documentation within 30 calendar days of submitting 
the enrollment application.
    (3) The prospective institutional provider or supplier does not 
submit the application fee in the designated amount or a hardship waiver 
request with the Medicare enrollment application at the time of filing.
    (b) Extension of 30-day period. CMS, at its discretion, may choose 
to extend the 30 day period if CMS determines that the prospective 
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.

[71 FR 20776, Apr. 21, 2006, as amended at 73 FR 36461, June 27, 2008; 
76 FR 5964, Feb. 2, 2011]



Sec. 424.530  Denial of enrollment in the Medicare program.

    (a) Reasons for denial. CMS may deny a provider's or supplier's 
enrollment in the Medicare program for the following reasons:
    (1) Noncompliance. The provider or supplier is determined to not be 
in compliance with the enrollment requirements in this subpart P 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.
    (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

[[Page 831]]

other Federal procurement or nonprocurement activity in accordance with 
section 2455 of the Federal Acquisition Streamlining Act (FASA).
    (3) Felonies. The provider, supplier, or any owner or managing 
employee of the provider or supplier was, within the preceding 10 years, 
convicted (as that term is defined in 42 CFR 1001.2) of a Federal or 
State felony offense that CMS determines is detrimental to the best 
interests of the Medicare program and its beneficiaries.
    (i) Offenses include, but are not limited in scope or severity to--
    (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 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, 
CMS determines that the provider or supplier:
    (i) Is not operational to furnish Medicare-covered items or 
services; or
    (ii) Otherwise fails to satisfy any Medicare enrollment requirement.
    (6) Medicare debt. (i) The enrolling provider, supplier, or owner 
thereof (as defined in Sec. 424.502), has an existing Medicare debt.
    (ii) The enrolling provider, supplier, or owner (as defined in 
Sec. 424.502) thereof was previously the owner (as defined in 
Sec. 424.502) of a provider or supplier that had a Medicare debt that 
existed when the latter's enrollment was voluntarily terminated, 
involuntarily terminated, or revoked, and all of the following criteria 
are met:
    (A) The owner left the provider or supplier with the Medicare debt 
within 1 year before or after that provider or supplier's voluntary 
termination, involuntary termination or revocation.
    (B) The Medicare debt has not been fully repaid.
    (C) CMS determines that the uncollected debt poses an undue risk of 
fraud, waste, or abuse. In making this determination, CMS considers the 
following factors:
    (1) The amount of the Medicare debt.
    (2) The length and timeframe that the enrolling provider, supplier, 
or owner thereof was an owner of the prior entity.
    (3) The percentage of the enrolling provider, supplier, or owner's 
ownership of the prior entity.
    (4) Whether the Medicare debt is currently being appealed.
    (5) Whether the enrolling provider, supplier, or owner thereof was 
an owner of the prior entity at the time the Medicare debt was incurred.
    (iii) A denial of Medicare enrollment under this paragraph (a)(6) 
can be avoided if the enrolling provider, supplier or owner thereof does 
either of the following:
    (A)(1) Satisfies the criteria set forth in Sec. 401.607; and
    (2) Agrees to a CMS-approved extended repayment schedule for the 
entire outstanding Medicare debt.
    (B) Repays the debt in full.
    (7) Payment suspension. The current owner (as defined in 
Sec. 424.502), physician or nonphysician practitioner has been placed 
under a Medicare payment suspension as defined in Sec. 405.370 through 
Sec. 405.372 of this subchapter.
    (8) Initial Reserve Operating Funds. (i) CMS or its designated 
Medicare contractor may deny Medicare billing

[[Page 832]]

privileges if, within 30 days of a CMS or Medicare contractor request, a 
home health agency (HHA) cannot furnish supporting documentation which 
verifies that the HHA meets the initial reserve operating funds 
requirement found in Sec. 489.28(a) of this title.
    (ii) CMS may deny Medicare billing privileges upon an HHA 
applicant's failure to satisfy the initial reserve operating funds 
requirement found in 42 CFR 489.28(a).
    (9) Application fee/hardship exception. An institutional provider's 
or supplier's hardship exception request is not granted, and the 
provider or supplier does not submit the application fee within 30 days 
of notification that the hardship exception request was not approved.
    (10) Temporary moratorium. A provider or supplier submits an 
enrollment application for a practice location in a geographic area 
where CMS has imposed a temporary moratorium.
    (11) Prescribing authority. (i) A physician or eligible 
professional's Drug Enforcement Administration (DEA) Certificate of 
Registration to dispense a controlled substance is currently suspended 
or revoked; or
    (ii) The applicable licensing or administrative body for any State 
in which a physician or eligible professional practices has suspended or 
revoked the physician or eligible professional's ability to prescribe 
drugs, and such suspension or revocation is in effect on the date the 
physician or eligible professional submits his or her enrollment 
application to the Medicare contractor.
    (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 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.

[71 FR 20776, Apr. 21, 2006, as amended at 73 FR 69940, Nov. 19, 2008; 
75 FR 70464, Nov. 17, 2010; 76 FR 5964, Feb. 2, 2011; 79 FR 29968, May 
23, 2014; 79 FR 72531, Dec. 5, 2014]



Sec. 424.535  Revocation of enrollment 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 to not be 
in compliance with the enrollment requirements described in this subpart 
P 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. The provider or supplier may also 
be determined not to be in compliance if it has failed to pay any user 
fees as assessed under part 488 of this chapter.
    (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,

[[Page 833]]

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. (i) The provider, supplier, or any owner or managing 
employee of the provider or supplier was, within the preceding 10 years, 
convicted (as that term is defined in 42 CFR 1001.2) of a Federal or 
State felony offense that CMS determines is detrimental to the best 
interests of the Medicare program and its beneficiaries.
    (ii) Offenses include, but are not limited in scope or severity to--
    (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.
    (iii) Revocations 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. Upon on-site review or other reliable evidence, 
CMS determines that the provider or supplier is either of the following:
    (i) No longer operational to furnish Medicare-covered items or 
services.
    (ii) Otherwise fails to satisfy any Medicare enrollment requirement.
    (6) Grounds related to provider and supplier screening requirements. 
(i)(A) An institutional provider does not submit an application fee or 
hardship exception request that meets the requirements set forth in 
Sec. 424.514 with the Medicare revalidation application; or
    (B) The hardship exception is not granted and the institutional 
provider does not submit the applicable application form or application 
fee within 30 days of being notified that the hardship exception request 
was denied.
    (ii)(A) Either of the following occurs:
    (1) CMS is not able to deposit the full application amount into a 
government-owned account.
    (2) The funds are not able to be credited to the U.S. Treasury.
    (B) The provider or supplier lacks sufficient funds in the account 
at the banking institution whose name is imprinted on the check or other 
banking instrument to pay the application fee; or
    (C) There is any other reason why CMS or its Medicare contractor is 
unable to deposit the application fee into a government-owned account.
    (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.
    (8) Abuse of billing privileges. Abuse of billing privileges 
includes either of the following:

[[Page 834]]

    (i) The provider or supplier submits a claim or claims for services 
that could not have been furnished to a specific individual on the date 
of service. These instances include but are not limited to the following 
situations:
    (A) Where the beneficiary is deceased.
    (B) The directing physician or beneficiary is not in the state or 
country when services were furnished.
    (C) When the equipment necessary for testing is not present where 
the testing is said to have occurred.
    (ii) CMS determines that the provider or supplier has a pattern or 
practice of submitting claims that fail to meet Medicare requirements. 
In making this determination, CMS considers, as appropriate or 
applicable, the following:
    (A) The percentage of submitted claims that were denied.
    (B) The reason(s) for the claim denials.
    (C) Whether the provider or supplier has any history of final 
adverse actions (as that term is defined under Sec. 424.502) and the 
nature of any such actions.
    (D) The length of time over which the pattern has continued.
    (E) How long the provider or supplier has been enrolled in Medicare.
    (F) Any other information regarding the provider or supplier's 
specific circumstances that CMS deems relevant to its determination as 
to whether the provider or supplier has or has not engaged in the 
pattern or practice described in this paragraph.
    (9) Failure to report. The provider or supplier did not comply with 
the reporting requirements specified in Sec. 424.516(d)(1)(ii) and (iii) 
of this subpart.
    (10) Failure to document or provide CMS access to documentation. (i) 
The provider or supplier did not comply with the documentation or CMS 
access requirements specified in Sec. 424.516(f) of this subpart.
    (ii) A provider or supplier that meets the revocation criteria 
specified in paragraph (a)(10)(i) of this section, is subject to 
revocation for a period of not more than 1 year for each act of 
noncompliance.
    (11) Initial reserve operating funds. CMS or its designated Medicare 
contractor may revoke the Medicare billing privileges of an HHA and the 
corresponding provider agreement if, within 30 days of a CMS or Medicare 
contractor request, the HHA cannot furnish supporting documentation 
verifying that the HHA meets the initial reserve operating funds 
requirement found in 42 CFR 489.28(a).
    (12) Medicaid termination. (i) Medicaid billing privileges are 
terminated or revoked by a State Medicaid Agency.
    (ii) Medicare may not terminate unless and until a provider or 
supplier has exhausted all applicable appeal rights.
    (13) Prescribing authority. (i) The physician or eligible 
professional's Drug Enforcement Administration (DEA) Certificate of 
Registration is suspended or revoked; or
    (ii) The applicable licensing or administrative body for any state 
in which the physician or eligible professional practices suspends or 
revokes the physician or eligible professional's ability to prescribe 
drugs.
    (14) Improper prescribing practices. CMS determines that the 
physician or eligible professional has a pattern or practice of 
prescribing Part D drugs that falls into one of the following 
categories:
    (i) The pattern or practice is abusive or represents a threat to the 
health and safety of Medicare beneficiaries or both. In making this 
determination, CMS considers the following factors:
    (A) Whether there are diagnoses to support the indications for which 
the drugs were prescribed.
    (B) Whether there are instances when the necessary evaluation of the 
patient for whom the drug was prescribed could not have occurred (for 
example, the patient was deceased or out of state at the time of the 
alleged office visit).
    (C) Whether the physician or eligible professional has prescribed 
controlled substances in excessive dosages that are linked to patient 
overdoses.
    (D) The number and type(s) of disciplinary actions taken against the 
physician or eligible professional by the licensing body or medical 
board for the State or States in which he or she practices, and the 
reason(s) for the action(s).
    (E) Whether the physician or eligible professional has any history 
of ``final

[[Page 835]]

adverse actions'' (as that term is defined in Sec. 424.502).
    (F) The number and type(s) of malpractice suits that have been filed 
against the physician or eligible professional related to prescribing 
that have resulted in a final judgment against the physician or eligible 
professional or in which the physician or eligible professional has paid 
a settlement to the plaintiff(s) (to the extent this can be determined).
    (G) Whether any State Medicaid program or any other public or 
private health insurance program has restricted, suspended, revoked, or 
terminated the physician or eligible professional's ability to prescribe 
medications, and the reason(s) for any such restriction, suspension, 
revocation, or termination.
    (H) Any other relevant information provided to CMS.
    (ii) The pattern or practice of prescribing fails to meet Medicare 
requirements. In making this determination, CMS considers the following 
factors:
    (A) Whether the physician or eligible professional has a pattern or 
practice of prescribing without valid prescribing authority.
    (B) Whether the physician or eligible professional has a pattern or 
practice of prescribing for controlled substances outside the scope of 
the prescriber's DEA registration.
    (C) Whether the physician or eligible professional has a pattern or 
practice of prescribing drugs for indications that were not medically 
accepted--that is, for indications neither approved by the FDA nor 
medically accepted under section 1860D-2(e)(4) of the Act--and whether 
there is evidence that the physician or eligible professional acted in 
reckless disregard for the health and safety of the patient.
    (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) Reapplying after revocation. If a provider, supplier, owner, or 
managing employee has their billing privileges revoked, they are barred 
from participating in the Medicare program from the date of the 
revocation until the end of the re-enrollment bar.
    (1) The re-enrollment bar begins 30 days after CMS or its contractor 
mails notice of the revocation and lasts a minimum of 1 year, but not 
greater than 3 years, depending on the severity of the basis for 
revocation.
    (2) The re-enrollment bar does not apply in the event a revocation 
of Medicare billing privileges is imposed under paragraph (a)(1) of this 
section based upon a provider or supplier's failure to respond timely to 
a revalidation request or other request for information.
    (d) 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.
    (e) 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.
    (f) 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

[[Page 836]]

warrants an adverse action of the associated Medicare provider or 
supplier.
    (g) Effective date of revocation. Revocation becomes effective 30 
days after CMS or the CMS contractor mails notice of its determination 
to the provider or supplier, except if the revocation is based on 
Federal exclusion or debarment, felony conviction, license suspension or 
revocation, or the practice location is determined by CMS or its 
contractor not to be operational. When a revocation is based on a 
Federal exclusion or debarment, felony conviction, license suspension or 
revocation, or the practice location is determined by CMS or its 
contractor not to be operational, the revocation is effective with the 
date of exclusion or debarment, felony conviction, license suspension or 
revocation or the date that CMS or its contractor determined that the 
provider or supplier was no longer operational.
    (h) Submission of claims for services furnished before revocation. 
(1)(i) Except for HHAs as described in paragraph (h)(1)(ii) of this 
section, a revoked provider or supplier must, within 60 calendar days 
after the effective date of revocation, submit all claims for items and 
services furnished before the date of the revocation letter.
    (ii) A revoked HHA must submit all claims for items and services 
within 60 days after the later of the following:
    (A) The effective date of the revocation.
    (B) The date that the HHA's last payable episode ends.
    (2) Nothing in this paragraph (h) impacts the requirements of 
Sec. 424.44 regarding the timely filing of claims.

[71 FR 20776, Apr. 21, 2006, as amended at 72 FR 53648, Sept. 19, 2007; 
73 FR 36461, June 27, 2008; 73 FR 69940, Nov. 19, 2008; 75 FR 24449, May 
5, 2010; 75 FR 70465, Nov. 17, 2010; 76 FR 5964, Feb. 2, 2011; 77 FR 
25318, Apr. 27, 2012; 77 FR 29030, May 16, 2012; 79 FR 29968, May 23, 
2014; 79 FR 72532, Dec. 5, 2014]



Sec. 424.540  Deactivation of Medicare billing privileges.

    (a) Reasons for deactivation. CMS may deactivate the Medicare 
billing privileges of a provider or supplier for any of 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 Secs. 424.520(b) and 424.550(b).
    (3) The provider or supplier does not furnish complete and accurate 
information and all supporting documentation within 90 calendar days of 
receipt of notification from CMS to submit an enrollment application and 
supporting documentation, or resubmit and certify to the accuracy of its 
enrollment information.
    (b) Reactivation of billing privileges. (1) When deactivated for any 
reason other than nonsubmission of a claim, the provider or supplier 
must complete and 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) Except as provided in paragraph (b)(3)(i) of this section, 
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.
    (i) An HHA whose Medicare billing privileges are deactivated under 
the provisions found at paragraph (a) of this section must obtain an 
initial

[[Page 837]]

State survey or accreditation by an approved accreditation organization 
before its Medicare billing privileges can be reactivated.
    (ii) [Reserved]
    (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.

[71 FR 20776, Apr. 21, 2006, as amended at 74 FR 58134, Nov. 10, 2009; 
77 FR 29030, May 16, 2012]



Sec. 424.545  Provider and supplier appeal rights.

    (a) General. A prospective provider or supplier that is denied 
enrollment in the Medicare program, or a provider or supplier whose 
Medicare enrollment has been revoked may appeal CMS' decision in 
accordance with part 498, subpart A of this chapter.
    (1) Appeals resulting in the termination of a provider agreement. 
(i) 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.
    (ii) When a provider appeals the revocation of billing privileges 
and the termination of its provider agreement, there will be one appeals 
process which will address both matters. The appeal procedures for 
revocation of Medicare billing privileges will apply.
    (2) Payment of unpaid claims. 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.

[71 FR 20776, Apr. 21, 2006, as amended at 73 FR 36461, June 27, 2008]



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 Secs. 424.520, 424.540, and 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.
    (1) Unless an exception in (b)(2) of this section applies, if there 
is a change in majority ownership of a home health agency by sale 
(including asset sales, stock transfers, mergers, and consolidations) 
within 36 months after the effective date of the HHA's initial 
enrollment in Medicare or within 36 months after the HHA's most recent 
change in majority ownership, the provider agreement and Medicare 
billing privileges do not convey to the new owner.

[[Page 838]]

The prospective provider/owner of the HHA must instead:
    (i) Enroll in the Medicare program as a new (initial) HHA under the 
provisions of Sec. 424.510 of this subpart.
    (ii) Obtain a State survey or an accreditation from an approved 
accreditation organization.
    (2)(i) The HHA submitted two consecutive years of full cost reports. 
For purposes of this exception, low utilization or no utilization cost 
reports do not qualify as full cost reports.
    (ii) An HHA's parent company is undergoing an internal corporate 
restructuring, such as a merger or consolidation.
    (iii) The owners of an existing HHA are changing the HHA's existing 
business structure (for example, from a corporation to a partnership 
(general or limited); from an LLC to a corporation; from a partnership 
(general or limited) to an LLC) and the owners remain the same.
    (iv) An individual owner of an HHA dies.
    (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 also changes the tax 
identification number requires the completion and submission of a new 
enrollment application from the new owner.

[71 FR 20776, Apr. 21, 2006, as amended at 74 FR 58134, Nov. 10, 2009; 
75 FR 70465, Nov. 17, 2010; 75 FR 76293, Dec. 8, 2010]



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.



Sec. 424.565  Overpayment.

    A physician or nonphysician practitioner organization, physician or 
nonphysician practitioner that does not comply with the reporting 
requirements specified in Sec. 424.516(d)(1)(ii) and (iii) of this 
subpart is assessed an overpayment back to the date of the final adverse 
action or change in practice location. Overpayments are processed in 
accordance with part 405 subpart C of this chapter.

[73 FR 69941, Nov. 19, 2008]



Sec. 424.570  Moratoria on newly enrolling Medicare providers and suppliers.

    (a) Temporary moratoria--(1) General rules. (i) CMS may impose a 
moratorium on the enrollment of new Medicare providers and suppliers of 
a particular type or the establishment of new practice locations of a 
particular type in a particular geographic area.
    (ii) CMS will announce the temporary enrollment moratorium in a 
Federal Register document that includes the rationale for imposition of 
the temporary enrollment moratorium.
    (iii) The temporary moratorium does not apply to changes in practice 
location, changes in provider or supplier information such as phone 
number, address or changes in ownership (except changes in ownership of 
home health agencies that would require an initial enrollment under 
Sec. 424.550).

[[Page 839]]

    (iv) The temporary enrollment moratorium does not apply to any 
enrollment application that has been approved by the enrollment 
contractor but not yet entered into PECOS at the time the moratorium is 
imposed.
    (2) Imposition of a temporary moratoria. CMS may impose the 
temporary moratorium if--
    (i) CMS determines that there is a significant potential for fraud, 
waste or abuse with respect to a particular provider or supplier type or 
particular geographic area or both. CMS's determination is based on its 
review of existing data, and without limitation, identifies a trend that 
appears to be associated with a high risk of fraud, waste or abuse, such 
as a--
    (A) Highly disproportionate number of providers or suppliers in a 
category relative to the number of beneficiaries; or
    (B) Rapid increase in enrollment applications within a category;
    (ii) A State Medicaid program has imposed a moratorium on a group of 
Medicaid providers or suppliers that are also eligible to enroll in the 
Medicare program;
    (iii) A State has imposed a moratorium on enrollment in a particular 
geographic area or on a particular provider or supplier type or both; or
    (iv) CMS, in consultation the HHS OIG or the Department of Justice 
or both and with the approval of the CMS Administrator identifies either 
or both of the following as having a significant potential for fraud, 
waste or abuse in the Medicare program:
    (A) A particular provider or supplier type.
    (B) Any particular geographic area.
    (b) Duration of moratoria. A moratorium under this section may be 
imposed for a period of 6 months and, if deemed necessary by CMS, may be 
extended in 6-month increments. CMS will publish a document in the 
Federal Register when it extends a moratorium.
    (c) Denial of enrollment: Moratoria. A Medicare contractor denies 
the enrollment application of a provider or supplier if the provider or 
supplier is subject to a moratorium as specified in paragraph (a) of 
this section.
    (d) Lifting moratoria. CMS will publish a document in the Federal 
Register when a moratorium is lifted. CMS may lift a temporary 
moratorium at any time after imposition of the moratorium if one of the 
following occur:
    (1) The President declares an area a disaster under the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-
5206 (Stafford Act).
    (2) Circumstances warranting the imposition of a moratorium have 
abated or CMS has implemented program safeguards to address the program 
vulnerability.
    (3) The Secretary has declared a public health emergency under 
section 319 of the Public Health Service Act in the area subject to a 
temporary moratorium.
    (4) In the judgment of the Secretary, the moratorium is no longer 
needed.

[76 FR 5965, Feb. 2, 2011]



PART 425_MEDICARE SHARED SAVINGS PROGRAM--Table of Contents



                      Subpart A_General Provisions

Sec.
425.10  Basis and scope.
425.20  Definitions.

        Subpart B_Shared Savings Program Eligibility Requirements

425.100  General.
425.102  Eligible providers and suppliers.
425.104  Legal entity.
425.106  Shared governance.
425.108  Leadership and management.
425.110  Number of ACO professionals and beneficiaries.
425.112  Required processes and patient-centeredness criteria.
425.114  Participation in other shared savings initiatives.
425.116  Agreements with ACO participants and ACO providers/suppliers.
425.118  Required reporting of ACO participants and ACO providers/
          suppliers.

      Subpart C_Application Procedures and Participation Agreement

425.200  Participation agreement with CMS.
425.202  Application procedures.
425.204  Content of the application.
425.206  Evaluation procedures for applications.
425.208  Provisions of participation agreement.

[[Page 840]]

425.210  Application of agreement to ACO participants, ACO providers/
          suppliers, and others.
425.212  Changes to program requirements during the agreement period.
425.214  Managing changes to the ACO during the agreement period.
425.216  Actions prior to termination.
425.218  Termination of the participation agreement by CMS.
425.220  Termination of the participation agreement by the ACO.
425.221  Close-out procedures and payment consequences of early 
          termination.
425.222  Reapplication after termination.
425.224  Renewal of participation agreements.

       Subpart D_Program Requirements and Beneficiary Protections

425.300  Compliance plan.
425.302  Program requirements for data submission and certifications.
425.304  Other program requirements.
425.306  Participant agreement and exclusivity of ACO participants.
425.308  Public reporting and transparency.
425.310  Marketing requirements.
425.312  Notification to beneficiaries of participation in shared 
          savings program.
425.314  Audits and record retention.
425.315  Reopening determinations of ACO shared savings or shared losses 
          to correct financial reconciliation calculations.
425.316  Monitoring of ACOs.

                  Subpart E_Assignment of Beneficiaries

425.400  General.
425.401  Criteria for a beneficiary to be assigned to an ACO.
425.402  Basic assignment methodology.
425.404  Special assignment conditions for ACOs including for FQHCs and 
          RHCs.

          Subpart F_Quality Performance Standards and Reporting

425.500  Measures to assess the quality of care furnished by an ACO.
425.502  Calculating ACO quality performance score.
425.504  Incorporating reporting requirements related to the Physician 
          Quality Reporting System Incentive and Payment Adjustment.
425.506  Incorporating reporting requirements related to adoption of 
          certified electronic health record technology.
425.508  Incorporating quality reporting requirements related to the 
          Quality Payment Program.

                   Subpart G_Shared Savings and Losses

425.600  Selection of risk model.
425.602  Establishing, adjusting, and updating the benchmark for an 
          ACO's first agreement period.
425.603  Resetting, adjusting, and updating the benchmark for a 
          subsequent agreement period.
425.604  Calculation of savings under the one-sided model.
425.606  Calculation of shared savings and losses under Track 2.
425.608  Determining first year performance for ACOs beginning April 1 
          or July 1, 2012.
425.610  Calculation of shared savings and losses under Track 3.
425.612  Waivers of payment rules or other Medicare requirements.

                    Subpart H_Data Sharing With ACOs

425.700  General rules.
425.702  Aggregate reports.
425.704  Beneficiary-identifiable data.
425.706  Minimum necessary data.
425.708  Beneficiaries may decline claims data sharing.
425.710  Data use agreement.

                Subpart I_Reconsideration Review Process

425.800  Preclusion of administrative and judicial review.
425.802  Request for review.
425.804  Reconsideration review process.
425.806  On-the-record review of reconsideration official's 
          recommendation by independent CMS Official.
425.808  Effect of independent CMS official's decision.
425.810  Effective date of decision.

    Authority: Secs. 1102, 1106, 1871, and 1899 of the Social Security 
Act (42 U.S.C. 1302, 1306, 1395hh, and 1395jjj).

    Source: 76 FR 67973, Nov. 2, 2011, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 425.10  Basis and scope.

    (a) Basis. This part implements section 1899 of the Act by 
establishing a shared savings program that promotes accountability for a 
patient population, coordinates items and services under Medicare parts 
A and B, and encourages investment in infrastructure and redesigned care 
processes for high quality and efficient services. The regulations under 
this part must not be construed to affect the payment, coverage, program 
integrity, and other requirements that apply to providers and suppliers 
under FFS Medicare, except

[[Page 841]]

as permitted under section 1899(f) of the Act.
    (b) Scope. This part sets forth the following:
    (1) The eligibility requirements for an ACO to participate in the 
Medicare Shared Savings Program (Shared Savings Program).
    (2) Application procedures and provisions of the participation 
agreement.
    (3) Program requirements and beneficiary protections.
    (4) The method for assigning Medicare fee-for-service beneficiaries 
to ACOs.
    (5) Quality performance standards, reporting requirements, and data 
sharing.
    (6) Payment criteria and methodologies (one-sided model and two-
sided models).
    (7) Compliance monitoring and sanctions for noncompliance.
    (8) Reconsideration review process.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32833, June 9, 2015]



Sec. 425.20  Definitions.

    As used in this part, unless otherwise indicated--
    Accountable care organization (ACO) means a legal entity that is 
recognized and authorized under applicable State, Federal, or Tribal 
law, is identified by a Taxpayer Identification Number (TIN), and is 
formed by one or more ACO participants(s) that is(are) defined at 
Sec. 425.102(a) and may also include any other ACO participants 
described at Sec. 425.102(b).
    ACO participant means an entity identified by a Medicare-enrolled 
billing TIN through which one or more ACO providers/suppliers bill 
Medicare, that alone or together with one or more other ACO participants 
compose an ACO, and that is included on the list of ACO participants 
that is required under Sec. 425.118.
    ACO participant agreement means the written agreement (as required 
at Sec. 425.116) between the ACO and ACO participant in which the ACO 
participant agrees to participate in, and comply with, the requirements 
of the Shared Savings Program.
    ACO professional means an individual who is Medicare-enrolled and 
bills for items and services furnished to Medicare fee-for-service 
beneficiaries under a Medicare billing number assigned to the TIN of an 
ACO participant in accordance with applicable Medicare regulations and 
who is either of the following:
    (1) A physician legally authorized to practice medicine and surgery 
by the State in which he or she performs such function or action.
    (2) A practitioner who is one of the following:
    (i) A physician assistant (as defined at Sec. 410.74(a)(2) of this 
chapter).
    (ii) A nurse practitioner (as defined at Sec. 410.75(b) of this 
chapter).
    (iii) A clinical nurse specialist (as defined at Sec. 410.76(b) of 
this chapter).
    ACO provider/supplier means an individual or entity that meets all 
of the following:
    (1) Is a--
    (i) Provider (as defined at Sec. 400.202 of this chapter); or
    (ii) Supplier (as defined at Sec. 400.202 of this chapter).
    (2) Is enrolled in Medicare.
    (3) Bills for items and services furnished to Medicare fee-for-
service beneficiaries during the agreement period under a Medicare 
billing number assigned to the TIN of an ACO participant in accordance 
with applicable Medicare regulations.
    (4) Is included on the list of ACO providers/suppliers that is 
required under Sec. 425.118.
    ACO's regional service area means all counties where one or more 
beneficiaries assigned to the ACO reside.
    Agreement period means the term of the participation agreement, 
which is 3 performance years unless otherwise specified in the 
participation agreement.
    Antitrust Agency means the Department of Justice or Federal Trade 
Commission.
    Assignable beneficiary means a Medicare fee-for-service beneficiary 
who receives at least one primary care service with a date of service 
during a specified 12-month assignment window from a Medicare-enrolled 
physician who is a primary care physician or who has one of the 
specialty designations included in Sec. 425.402(c).
    Assignment means the operational process by which CMS determines

[[Page 842]]

whether a beneficiary has chosen to receive a sufficient level of the 
requisite primary care services from ACO professionals so that the ACO 
may be appropriately designated as exercising basic responsibility for 
that beneficiary's care during a given benchmark or performance year.
    Assignment window means the 12-month period used to assign 
beneficiaries to an ACO.
    At-risk beneficiary means, but is not limited to, a beneficiary 
who--
    (1) Has a high risk score on the CMS-HCC risk adjustment model;
    (2) Is considered high cost due to having two or more 
hospitalizations or emergency room visits each year;
    (3) Is dually eligible for Medicare and Medicaid;
    (4) Has a high utilization pattern;
    (5) Has one or more chronic conditions.
    (6) Has had a recent diagnosis that is expected to result in 
increased cost.
    (7) Is entitled to Medicaid because of disability; or
    (8) Is diagnosed with a mental health or substance abuse disorder.
    BY stands for benchmark year.
    Continuously assigned beneficiary means a beneficiary assigned to 
the ACO in the current performance year who was either assigned to or 
received a primary care service from any of the ACO participants during 
the assignment window for the most recent prior benchmark or performance 
year.
    Covered professional services has the same meaning given these terms 
under section 1848(k)(3)(A) of the Act.
    Critical access hospital (CAH) has the same meaning given this term 
under Sec. 400.202 of this chapter.
    Eligible professional has the meanings given this term under section 
1848(k)(3)(B) of the Act.
    Federally qualified health center (FQHC) has the same meaning given 
to this term under Sec. 405.2401(b) of this chapter.
    Hospital means a hospital as defined in section 1886(d)(1)(B) of the 
Act.
    Marketing materials and activities include, but are not limited to, 
general audience materials such as brochures, advertisements, outreach 
events, letters to beneficiaries, Web pages, data sharing opt out 
letters, mailings, social media, or other activities conducted by or on 
behalf of the ACO, or by ACO participants, or ACO providers/suppliers 
participating in the ACO, when used to educate, solicit, notify, or 
contact Medicare beneficiaries or providers and suppliers regarding the 
Shared Savings Program. The following beneficiary communications are not 
marketing materials and activities: Certain informational materials 
customized or limited to a subset of beneficiaries; materials that do 
not include information about the ACO, its ACO participants, or its ACO 
providers/suppliers; materials that cover beneficiary-specific billing 
and claims issues or other specific individual health related issues; 
educational information on specific medical conditions (for example, flu 
shot reminders), written referrals for health care items and services, 
and materials or activities that do not constitute ``marketing'' under 
45 CFR 164.501 and 164.508(a)(3)(i).
    Medicare fee-for-service beneficiary means an individual who is--
    (1) Enrolled in the original Medicare fee-for-service program under 
both parts A and B; and
    (2) Not enrolled in any of the following:
    (i) A MA plan under part C.
    (ii) An eligible organization under section 1876 of the Act.
    (iii) A PACE program under section 1894 of the Act.
    Medicare Shared Savings Program (Shared Savings Program) means the 
program, established under section 1899 of the Act and implemented in 
this part.
    Newly assigned beneficiary means a beneficiary that is assigned to 
the ACO in the current performance year who was neither assigned to nor 
received a primary care service from any of the ACO participants during 
the assignment window for the most recent prior benchmark or performance 
year.
    One-sided model means a model under which the ACO may share savings 
with the Medicare program, if it meets the requirements for doing so, 
but is not liable for sharing any losses incurred under subpart G of 
this part.
    Participation agreement means the written agreement required under 
Sec. 425.208(a) between the ACO and CMS

[[Page 843]]

that, along with the regulations in this part, govern the ACO's 
participation in the Shared Savings Program.
    Performance year means the 12-month period beginning on January 1 of 
each year during the agreement period, unless otherwise noted in the 
participation agreement. For an ACO with a start date of April 1, 2012 
or July 1, 2012, the ACO's first performance year is defined as 21 
months and 18 months, respectively.
    Physician means a doctor of medicine or osteopathy (as defined in 
section 1861(r)(1) of the Act).
    Physician Quality Reporting System (PQRS) means the quality 
reporting system established under section 1848(k) of the Act.
    Primary care physician means a physician included in an attestation 
by the ACO as provided under Sec. 425.404 for services furnished in an 
FQHC or RHC, or a physician who has a primary care specialty designation 
of--
    (1) For performance years 2012 through 2015, internal medicine, 
general practice, family practice, or geriatric medicine; and
    (2) For performance year 2016 and subsequent years, internal 
medicine, general practice, family practice, geriatric medicine, or 
pediatric medicine.
    Primary care services means the set of services identified by the 
following HCPCS codes:
    (1) For performance years 2012 through 2015 as follows:
    (i) 99201 through 99215.
    (ii)(A) 99304 through 99340 and 99341 through 99350.
    (B) G0402 (the code for the Welcome to Medicare visit).
    (C) G0438 and G0439 (codes for the annual wellness visits).
    (iii) Revenue center codes 0521, 0522, 0524, and 0525 submitted by 
FQHCs (for services furnished prior to January 1, 2011), or by RHCs.
    (2) For performance year 2016 as follows:
    (i) 99201 through 99215.
    (ii)(A) 99304 through 99340 and 99341 through 99350.
    (B) G0402 (the code for the Welcome to Medicare visit).
    (C) G0438 and G0439 (codes for the annual wellness visits).
    (iii) Revenue center codes 0521, 0522, 0524, and 0525 submitted by 
FQHCs (for services furnished prior to January 1, 2011), or by RHCs.
    (iv) 99495, 99496, and 99490.
    (v) G0463 for services furnished in ETA hospitals.
    (3) Additional codes designated by CMS as primary care services for 
purposes of the Shared Savings Program, including new HCPCS/CPT and 
revenue center codes and any subsequently modified or replacement codes 
for the HCPCS/CPT and revenue center codes identified in paragraphs (1) 
through (2) of this definition.
    (4) For performance years 2017 and subsequent years as follows:
    (i) 99201 through 99215.
    (ii) 99304-99318 (excluding claims including the POS 31 modifier) 
and 99319-99340.
    (iii) 99341 through 99350.
    (iv) 99495, 99496 and 99490.
    (v) G0402 (the code for the Welcome to Medicare visit).
    (vi) G0438 and G0439 (codes for the annual wellness visits).
    (vii) Revenue center codes 0521, 0522, 0524, 0525 submitted by FQHCs 
(for services furnished prior to January 1, 2011), or by RHCs.
    (viii) G0463 for services furnished in ETA hospitals.
    Quality measures means the measures defined by the Secretary, under 
section 1899 of the Act, to assess the quality of care furnished by an 
ACO, such as measures of clinical processes and outcomes, patient and, 
where practicable, caregiver experience of care and utilization.
    Reporting period, for purposes of subpart F of this part, means the 
calendar year from January 1 to December 31.
    Rural health center (RHC) has the same meaning given to this term 
under Sec. 405.2401(b).
    Shared losses means a portion of the ACO's performance year Medicare 
fee-for-service Parts A and B expenditures, above the applicable 
benchmark, it must repay to CMS. An ACO's eligibility for shared losses 
will be determined for each performance year. For an ACO requesting 
interim payment, shared losses may result from the interim payment 
calculation.

[[Page 844]]

    Shared savings means a portion of the ACO's performance year 
Medicare fee-for-service Parts A and B expenditures, below the 
applicable benchmark, it is eligible to receive payment for from CMS. An 
ACO's eligibility for shared savings will be determined for each 
performance year. For an ACO requesting interim payment, shared savings 
may result from the interim payment system calculation.
    Taxpayer Identification Number (TIN) means a Federal taxpayer 
identification number or employer identification number as defined by 
the IRS in 26 CFR 301.6109-1.
    Two-sided model means a model under which the ACO may share savings 
with the Medicare program, if it meets the requirements for doing so, 
and is also liable for sharing any losses incurred under subpart G of 
this part.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32833, June 9, 2015; 80 
FR 71385, Nov. 16, 2015; 81 FR 38013, June 10, 2016]



        Subpart B_Shared Savings Program Eligibility Requirements



Sec. 425.100  General.

    (a) Under the Shared Savings Program, ACO participants may work 
together to manage and coordinate care for Medicare fee-for-service 
beneficiaries through an ACO that meets the criteria specified in this 
part. The ACO must become accountable for the quality, cost, and overall 
care of the Medicare fee-for-service beneficiaries assigned to the ACO.
    (b) ACOs that meet or exceed a minimum savings rate established 
under Sec. 425.604, Sec. 425.606 or Sec. 425.610, meet the minimum 
quality performance standards established under Sec. 425.500, and 
otherwise maintain their eligibility to participate in the Shared 
Savings Program under this part are eligible to receive payments for 
shared savings under subpart G.
    (c) ACOs that operate under a two-sided model and meet or exceed a 
minimum loss rate established under Sec. 425.606 or Sec. 425.610 must 
share losses with the Medicare program under subpart G of the part.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32834, June 9, 2015]



Sec. 425.102  Eligible providers and suppliers.

    (a) The following ACO participants or combinations of ACO 
participants are eligible to form an ACO that may apply to participate 
in the Shared Savings Program:
    (1) ACO professionals in group practice arrangements.
    (2) Networks of individual practices of ACO professionals.
    (3) Partnerships or joint venture arrangements between hospitals and 
ACO professionals.
    (4) Hospitals employing ACO professionals.
    (5) CAHs that bill under Method II (as described in 
Sec. 413.70(b)(3) of this chapter).
    (6) RHCs.
    (7) FQHCs.
    (8) Teaching hospitals that have elected under Sec. 415.160 of this 
subchapter to receive payment on a reasonable cost basis for the direct 
medical and surgical services of their physicians.
    (b) Other ACO participants that are not identified in paragraph (a) 
of this section are eligible to participate through an ACO formed by one 
or more of the ACO participants identified in paragraph (a) of this 
section.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 71386, Nov. 16, 2015]



Sec. 425.104  Legal entity.

    (a) An ACO must be a legal entity, formed under applicable State, 
Federal, or Tribal law, and authorized to conduct business in each State 
in which it operates for purposes of the following:
    (1) Receiving and distributing shared savings.
    (2) Repaying shared losses or other monies determined to be owed to 
CMS.
    (3) Establishing, reporting, and ensuring provider compliance with 
health care quality criteria, including quality performance standards.
    (4) Fulfilling other ACO functions identified in this part.
    (b) An ACO formed by two or more ACO participants, each of which is 
identified by a unique TIN, must be a legal entity separate from any of 
its ACO participants.

[[Page 845]]

    (c) An ACO formed by a single ACO participant may use its existing 
legal entity and governing body, provided it satisfies the other 
requirements in Secs. 425.104 and 425.106.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32834, June 9, 2015]



Sec. 425.106  Shared governance.

    (a) General rule. (1) An ACO must maintain an identifiable governing 
body with ultimate authority to execute the functions of an ACO as 
defined under this part, including but not limited to, the processes 
defined under Sec. 425.112 to promote evidence-based medicine and 
patient engagement, to report on quality and cost measures, and to 
coordinate care.
    (2) The governing body of the ACO must satisfy all of the following 
criteria:
    (i) Be the same as the governing body of the legal entity that is 
the ACO.
    (ii) Be separate and unique to the ACO and must not be the same as 
the governing body of any ACO participant, except as provided in 
Sec. 425.104(c).
    (iii) Satisfy all other requirements of this section.
    (b) Responsibilities of the governing body and its members. (1) The 
governing body must have responsibility for oversight and strategic 
direction of the ACO, holding ACO management accountable for the ACO's 
activities as described in this part.
    (2) The governing body must have a transparent governing process.
    (3) The governing body members must have a fiduciary duty to the 
ACO, including the duty of loyalty, and must act consistent with that 
fiduciary duty.
    (c) Composition and control of the governing body. (1) The ACO 
must--
    (i) Establish a mechanism for shared governance among the ACO 
participants or combinations of ACO participants (as identified in 
Sec. 425.102(a)) that formed the ACO; and
    (ii) Provide for meaningful participation in the composition and 
control of the ACO's governing body for ACO participants or their 
designated representatives.
    (2) The ACO governing body must include a Medicare beneficiary who--
    (i) Is served by the ACO;
    (ii) Is not an ACO provider/supplier;
    (iii) Does not have a conflict of interest with the ACO; and
    (iv) Does not have an immediate family member who has a conflict of 
interest with the ACO.
    (3) At least 75 percent control of the ACO's governing body must be 
held by ACO participants.
    (4) The governing body members may serve in a similar or 
complementary manner for an ACO participant.
    (5) In cases in which the composition of the ACO's governing body 
does not meet the requirements of paragraphs (c)(2) and (c)(3) of this 
section, the ACO must describe why it seeks to differ from these 
requirements and how the ACO will involve ACO participants in innovative 
ways in ACO governance or provide meaningful representation in ACO 
governance by Medicare beneficiaries.
    (d) Conflict of interest. The ACO governing body must have a 
conflict of interest policy that applies to members of the governing 
body. The conflict of interest policy must--
    (1) Require each member of the governing body to disclose relevant 
financial interests; and
    (2) Provide a procedure to determine whether a conflict of interest 
exists and set forth a process to address any conflicts that arise.
    (3) The conflict of interest policy must address remedial action for 
members of the governing body that fail to comply with the policy.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32835, June 9, 2015]



Sec. 425.108  Leadership and management.

    (a) An ACO must have a leadership and management structure that 
includes clinical and administrative systems that align with and support 
the goals of the Shared Savings Program and the aims of better care for 
individuals, better health for populations, and lower growth in 
expenditures.
    (b) The ACO's operations must be managed by an executive, officer, 
manager, general partner, or similar party whose appointment and removal 
are under the control of the ACO's governing body and whose leadership 
team

[[Page 846]]

has demonstrated the ability to influence or direct clinical practice to 
improve efficiency processes and outcomes.
    (c) Clinical management and oversight must be managed by a senior-
level medical director. The medical director must be all of the 
following:
    (1) A board-certified physician.
    (2) Licensed in a State in which the ACO operates.
    (3) Physically present on a regular basis at any clinic, office or 
other location of the ACO, an ACO participant, or an ACO provider/
supplier.
    (d) Each ACO participant and each ACO provider/supplier must 
demonstrate a meaningful commitment to the mission of the ACO to ensure 
the ACO's likely success.
    (1) Meaningful commitment may include, for example, a sufficient 
financial or human investment (for example, time and effort) in the 
ongoing operations of the ACO such that the potential loss or recoupment 
of the investment is likely to motivate the ACO participant and ACO 
provider/supplier to achieve the ACO's mission under the Shared Savings 
Program.
    (2) A meaningful commitment can be shown when an ACO participant or 
ACO provider/supplier agrees to comply with and implement the ACO's 
processes required by Sec. 425.112 and is held accountable for meeting 
the ACO's performance standards for each required process.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32835, June 9, 2015]



Sec. 425.110  Number of ACO professionals and beneficiaries.

    (a)(1) The ACO must include primary care ACO professionals that are 
sufficient for the number of Medicare fee-for-service beneficiaries 
assigned to the ACO under subpart E of this part. The ACO must have at 
least 5,000 assigned beneficiaries.
    (2) CMS deems an ACO to have initially satisfied the requirement to 
have at least 5,000 assigned beneficiaries as specified in paragraph 
(a)(1) of this section if 5,000 or more beneficiaries are historically 
assigned to the ACO participants in each of the 3 benchmark years, as 
calculated using the assignment methodology set forth in subpart E of 
this part. In the case of the third benchmark year, CMS uses the most 
recent data available to estimate the number of assigned beneficiaries.
    (b) If at any time during the performance year, an ACO's assigned 
population falls below 5,000, the ACO may be subject to the actions 
described in Secs. 425.216 and 425.218.
    (1) While under the CAP, the ACO remains eligible for shared savings 
and losses.
    (i) For ACOs with a variable MSR and MLR (if applicable), the MSR 
and MLR (if applicable) will be set at a level consistent with the 
number of assigned beneficiaries.
    (ii) For ACOs with a fixed MSR/MLR, the MSR/MLR will remain fixed at 
the level consistent with the choice of MSR and MLR that the ACO made at 
the start of the agreement period.
    (2) If the ACO's assigned population is not at least 5,000 by the 
end of the performance year specified by CMS in its request for a CAP, 
CMS terminates the participation agreement and the ACO is not eligible 
to share in savings for that performance year.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32835, June 9, 2015; 81 
FR 80559, Nov. 15, 2016]



Sec. 425.112  Required processes and patient-centeredness criteria.

    (a) General. (1) An ACO must--
    (i) Promote evidence-based medicine and beneficiary engagement, 
internally report on quality and cost metrics, and coordinate care;
    (ii) Adopt a focus on patient centeredness that is promoted by the 
governing body and integrated into practice by leadership and management 
working with the organization's health care teams; and
    (iii) Have defined processes to fulfill these requirements.
    (2) An ACO must have a qualified healthcare professional responsible 
for the ACO's quality assurance and improvement program, which must 
include the defined processes included in paragraphs (b)(1) through (4) 
of this section.
    (3) For each process specified in paragraphs (b)(1) through (4) of 
this section, the ACO must--

[[Page 847]]

    (i) Explain how it will require ACO participants and ACO providers/
suppliers to comply with and implement each process (and subelement 
thereof), including the remedial processes and penalties (including the 
potential for expulsion) applicable to ACO participants and ACO 
providers/suppliers for failure to comply with and implement the 
required process; and
    (ii) Explain how it will employ its internal assessments of cost and 
quality of care to improve continuously the ACO's care practices.
    (b) Required processes. The ACO must define, establish, implement, 
evaluate, and periodically update processes to accomplish the following:
    (1) Promote evidence-based medicine. These processes must cover 
diagnoses with significant potential for the ACO to achieve quality 
improvements taking into account the circumstances of individual 
beneficiaries.
    (2) Promote patient engagement. These processes must address the 
following areas:
    (i) Compliance with patient experience of care survey requirements 
in Sec. 425.500.
    (ii) Compliance with beneficiary representative requirements in 
Sec. 425.106.
    (iii) A process for evaluating the health needs of the ACO's 
population, including consideration of diversity in its patient 
populations, and a plan to address the needs of its population.
    (A) In its plan to address the needs of its population, the ACO must 
describe how it intends to partner with community stakeholders to 
improve the health of its population.
    (B) An ACO that has a stakeholder organization serving on its 
governing body will be deemed to have satisfied the requirement to 
partner with community stakeholders.
    (iv) Communication of clinical knowledge/evidence-based medicine to 
beneficiaries in a way that is understandable to them.
    (v) Beneficiary engagement and shared decision-making that takes 
into account the beneficiaries' unique needs, preferences, values, and 
priorities;
    (vi) Written standards in place for beneficiary access and 
communication, and a process in place for beneficiaries to access their 
medical record.
    (3) Develop an infrastructure for its ACO participants and ACO 
providers/suppliers to internally report on quality and cost metrics 
that enables the ACO to monitor, provide feedback, and evaluate its ACO 
participants and ACO provider(s)/supplier(s) performance and to use 
these results to improve care over time.
    (4) Coordinate care across and among primary care physicians, 
specialists, and acute and post-acute providers and suppliers. The ACO 
must--
    (i) Define its methods and processes established to coordinate care 
throughout an episode of care and during its transitions, such as 
discharge from a hospital or transfer of care from a primary care 
physician to a specialist (both inside and outside the ACO); and
    (ii) As part of its application, the ACO must:
    (A) Submit a description of its individualized care program, along 
with a sample individual care plan, and explain how this program is used 
to promote improved outcomes for, at a minimum, its high-risk and 
multiple chronic condition patients.
    (B) Describe additional target populations that would benefit from 
individualized care plans. Individual care plans must take into account 
the community resources available to the individual.
    (C) Describe how the ACO will encourage and promote use of enabling 
technologies for improving care coordination for beneficiaries. Enabling 
technologies may include one or more of the following:
    (1) Electronic health records and other health IT tools.
    (2) Telehealth services, including remote patient monitoring.
    (3) Electronic exchange of health information.
    (4) Other electronic tools to engage beneficiaries in their care.
    (D) Describe how the ACO intends to partner with long-term and post-
acute care providers, both inside and outside the ACO, to improve care 
coordination for their assigned beneficiaries.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32835, June 9, 2015]

[[Page 848]]



Sec. 425.114  Participation in other shared savings initiatives.

    (a) ACOs may not participate in the Shared Savings Program if they 
include an ACO participant that participates in the independence at home 
medical practice pilot program under section 1866E of the Act, a model 
tested or expanded under section 1115A of the Act that involves shared 
savings, or any other Medicare initiative that involves shared savings.
    (b) CMS will review and deny an ACO's application if any ACO 
participants are participating in another Medicare initiative that 
involves shared savings payments.
    (c) CMS will determine an appropriate method to ensure no 
duplication in payments for beneficiaries assigned to other shared 
savings programs or initiatives, including initiatives involving dually 
eligible beneficiaries, when such other shared savings programs have an 
assignment methodology that is different from the Shared Savings 
Program.



Sec. 425.116  Agreements with ACO participants and ACO providers/suppliers.

    (a) ACO participant agreements. For performance year 2017 and 
subsequent performance years, the ACO must have an ACO participant 
agreement with each ACO participant that complies with the following 
criteria:
    (1) The only parties to the agreement are the ACO and the ACO 
participant.
    (2) The agreement must be signed on behalf of the ACO and the ACO 
participant by individuals who are authorized to bind the ACO and the 
ACO participant, respectively.
    (3) The agreement must expressly require the ACO participant to 
agree, and to ensure that each ACO provider/supplier billing through the 
TIN of the ACO participant agrees, to participate in the Shared Savings 
Program and to comply with the requirements of the Shared Savings 
Program and all other applicable laws and regulations (including, but 
not limited to, those specified at Sec. 425.208(b)).
    (4) The agreement must set forth the ACO participant's rights and 
obligations in, and representation by, the ACO, including without 
limitation, the quality reporting requirements set forth in subpart F of 
this part, the beneficiary notification requirements set forth at 
Sec. 425.312, and how participation in the Shared Savings Program 
affects the ability of the ACO participant and its ACO providers/
suppliers to participate in other Medicare demonstration projects or 
programs that involve shared savings.
    (5) The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
participant to adhere to the quality assurance and improvement program 
and evidence-based medicine guidelines established by the ACO.
    (6) The agreement must require the ACO participant to update its 
enrollment information, including the addition and deletion of ACO 
professionals and ACO providers/suppliers billing through the TIN of the 
ACO participant, on a timely basis in accordance with Medicare program 
requirements and to notify the ACO of any such changes within 30 days 
after the change.
    (7) The agreement must permit the ACO to take remedial action 
against the ACO participant, and must require the ACO participant to 
take remedial action against its ACO providers/suppliers, including 
imposition of a corrective action plan, denial of incentive payments, 
and termination of the ACO participant agreement, to address 
noncompliance with the requirements of the Shared Savings Program and 
other program integrity issues, including those identified by CMS.
    (8) The agreement must be for a term of at least 1 performance year 
and must articulate potential consequences for early termination from 
the ACO.
    (9) The agreement must require completion of a close-out process 
upon termination or expiration of the agreement that requires the ACO 
participant to furnish all data necessary to complete the annual 
assessment of the ACO's quality of care and addresses other relevant 
matters.
    (b) Agreements with ACO providers/suppliers. ACOs have the option of 
contracting directly with its ACO providers/suppliers regarding items 
and services furnished to beneficiaries

[[Page 849]]

aligned to the ACO. For performance year 2017 and subsequent performance 
years, an ACO's agreement with an ACO provider/supplier regarding such 
items and services must satisfy the following criteria:
    (1) The only parties to the agreement are the ACO and the ACO 
provider/supplier.
    (2) The agreement must be signed by the ACO provider/supplier and by 
an individual who is authorized to bind the ACO.
    (3) The agreement must expressly require the ACO provider/supplier 
to agree to participate in the Shared Savings Program and to comply with 
the requirements of the Shared Savings Program and all other applicable 
laws and regulations (including, but not limited to, those specified at 
Sec. 425.208(b)).
    (4) The agreement must set forth the ACO provider's/supplier's 
rights and obligations in, and representation by, the ACO, including 
without limitation, the quality reporting requirements set forth in 
subpart F of this part, the beneficiary notification requirements set 
forth at Sec. 425.312, and how participation in the Shared Savings 
Program affects the ability of the ACO provider/supplier to participate 
in other Medicare demonstration projects or programs that involve shared 
savings.
    (5) The agreement must describe how the opportunity to receive 
shared savings or other financial arrangements will encourage the ACO 
provider/supplier to adhere to the quality assurance and improvement 
program and evidence-based medicine guidelines established by the ACO.
    (6) The agreement must require the ACO provider/supplier to--
    (i) Update its enrollment information on a timely basis in 
accordance with Medicare program requirements; and
    (ii) Notify the ACO of any such changes within 30 days after the 
change.
    (7) The agreement must permit the ACO to take remedial action 
including the following against the ACO provider/supplier to address 
noncompliance with the requirements of the Shared Savings Program and 
other program integrity issues, including those identified by CMS:
    (i) Imposition of a corrective action plan.
    (ii) Denial of incentive payments.
    (iii) Termination of the ACO participant agreement.
    (c) Submission of agreements. The ACO must submit an executed ACO 
participant agreement for each ACO participant at the time of its 
initial application, participation agreement renewal process, and when 
adding to its list of ACO participants in accordance with Sec. 425.118. 
The agreements may be submitted in the form and manner set forth in 
Sec. 425.204(c)(6) or as otherwise specified by CMS.

[80 FR 32835, June 9, 2015]



Sec. 425.118  Required reporting of ACO participants and
ACO providers/suppliers.

    (a) List requirements. (1) The ACO must maintain, update, and submit 
to CMS an accurate and complete list identifying each ACO participant 
(including its Medicare-enrolled TIN) and each ACO provider/supplier 
(including its NPI or other identifier) in accordance with this section.
    (2) Before the start of an agreement period, before each performance 
year thereafter, and at such other times as specified by CMS, the ACO 
must submit to CMS an ACO participant list and an ACO provider/supplier 
list. The ACO may request consideration of claims billed under merged 
and acquired Medicare-enrolled TINs in accordance with the process set 
forth at Sec. 425.204(g).
    (3) The ACO must certify the submitted lists in accordance with 
Sec. 425.302(a)(2).
    (4) All Medicare enrolled individuals and entities that have 
reassigned their right to receive Medicare payment to the TIN of the ACO 
participant must be included on the ACO provider/supplier list and must 
agree to participate in the ACO and comply with the requirements of the 
Shared Savings Program before the ACO submits the ACO participant list 
and the ACO provider/supplier list.
    (b) Changes to the ACO participant list--(1) Additions. (i) An ACO 
must submit to CMS a request to add an entity and its Medicare enrolled 
TIN to its ACO participant list. This request

[[Page 850]]

must be submitted at such time and in the form and manner specified by 
CMS.
    (ii) If CMS approves the request, the entity and its Medicare 
enrolled TIN is added to the ACO participant list effective January 1 of 
the following performance year.
    (iii) CMS may deny the request on the basis that the entity is not 
eligible to be an ACO participant or on the basis of the results of the 
screening performed under Sec. 425.304(b).
    (2) Deletions. (i) An ACO must notify CMS no later than 30 days 
after the termination of an ACO participant agreement. Such notice must 
be submitted in the form and manner specified by CMS and must include 
the termination date of the ACO participant agreement.
    (ii) The entity is deleted from the ACO participant list as of the 
termination date of the ACO participant agreement.
    (3) Adjustments. (i) CMS annually adjusts an ACO's assignment, 
historical benchmark, the quality reporting sample, and the obligation 
of the ACO to report on behalf of eligible professionals that bill under 
the TIN of an ACO participant for certain CMS quality initiatives to 
reflect the addition or deletion of entities from the list of ACO 
participants that is submitted to CMS before the start of a performance 
year in accordance with paragraph (a) of this section.
    (ii) Absent unusual circumstances, CMS does not make adjustments 
during the performance year to the ACO's assignment, historical 
benchmark, performance year financial calculations, the quality 
reporting sample, or the obligation of the ACO to report on behalf of 
eligible professionals that bill under the TIN of an ACO participant for 
certain CMS quality initiatives to reflect the addition or deletion of 
entities from the ACO participant list that become effective during the 
performance year. CMS has sole discretion to determine whether unusual 
circumstances exist that would warrant such adjustments.
    (c) Changes to the ACO provider/supplier list--(1) Additions. (i) An 
ACO must notify CMS within 30 days after an individual or entity becomes 
a Medicare-enrolled provider or supplier that bills for items and 
services it furnishes to Medicare fee-for-service beneficiaries under a 
billing number assigned to the TIN of an ACO participant. The notice 
must be submitted in the form and manner specified by CMS.
    (ii) If the ACO timely submits notice to CMS, the addition of an 
individual or entity to the ACO provider/supplier list is effective on 
the date specified in the notice furnished to CMS, but no earlier than 
30 days before the date of the notice. If the ACO fails to submit timely 
notice to CMS, the addition of an individual or entity to the ACO 
provider/supplier list is effective on the date of the notice.
    (2) Deletions. (i) An ACO must notify CMS no later than 30 days 
after an individual or entity ceases to be a Medicare-enrolled provider 
or supplier that bills for items and services it furnishes to Medicare 
fee-for-service beneficiaries under a billing number assigned to the TIN 
of an ACO participant. The notice must be submitted in the form and 
manner specified by CMS.
    (ii) The deletion of an ACO provider/supplier from the ACO provider/
supplier list is effective on the date the individual or entity ceased 
to be a Medicare-enrolled provider or supplier that bills for items and 
services it furnishes to Medicare fee-for-service beneficiaries under a 
billing number assigned to the TIN of an ACO participant.
    (d) Update of Medicare enrollment information. The ACO must ensure 
that all changes to enrollment information for ACO participants and ACO 
providers/suppliers, including changes to reassignment of the right to 
receive Medicare payment, are reported to CMS consistent with 
Sec. 424.516.

[80 FR 32836, June 9, 2015]



      Subpart C_Application Procedures and Participation Agreement



Sec. 425.200  Participation agreement with CMS.

    (a) General. In order to participate in the Shared Savings Program, 
an ACO must enter into a participation agreement with CMS for a period 
of not less than 3 years.

[[Page 851]]

    (b) Term of participation agreement. (1) For 2012. For applications 
that are approved to participate in the Shared Savings Program for 2012, 
the start date for the participation agreement will be one of the 
following:
    (i) April 1, 2012 (term of the participation agreement is 3 years 
and 9 months).
    (ii) July 1, 2012 (term of the participation agreement is 3 years 
and 6 months).
    (2) For 2013 and through 2016--
    (i) The start date is January 1 of that year; and
    (ii) The term of the participation agreement is 3 years.
    (3) For 2017 and all subsequent years--
    (i) The start date is January 1 of that year; and
    (ii) The term of the participation agreement is 3 years, except the 
term of an ACO's initial agreement period under Track 1 (as described 
under Sec. 425.604) may be extended, at the ACO's option, for an 
additional year for a total of 4 performance years if the conditions 
specified in paragraph (e) of this section are met.
    (c) Performance year. (1) Except as specified in paragraphs 
(b)(1)(i) and (ii) of this section, the ACO's performance year under the 
participation agreement is the 12 month period beginning on January 1 of 
each year during the term of the participation agreement unless 
otherwise noted in its participation agreement.
    (2) For an ACO with a start date of April 1, 2012 or July 1, 2012, 
the ACO's first performance year is defined as 21 months or 18 months, 
respectively.
    (d) During each calendar year of the agreement period, including the 
partial year associated with start dates specified in paragraph 
(b)(1)(i) and (ii) of this section, ACOs must submit measures in the 
form and manner required by CMS.
    (e) Optional fourth year. (1) To qualify for a fourth performance 
year as described in paragraph (b)(3)(ii) of this section, the ACO must 
meet all of the following conditions:
    (i) Is currently participating in its first agreement period under 
Track 1.
    (ii) Has requested renewal of its participation agreement in 
accordance with Sec. 425.224.
    (iii) Has selected a two-sided model (as described under 
Sec. 425.606 or Sec. 425.610 of this part) in its renewal request.
    (iv) Has requested an extension of its current agreement period and 
a 1-year deferral of the start of its second agreement period in a form 
and manner specified by CMS.
    (v) CMS approves the ACO's renewal, extension, and deferral 
requests.
    (2) An ACO that is approved for renewal, extension, and deferral 
that terminates its participation agreement before the start of the 
first performance year of the second agreement period is--
    (i) Considered to have terminated its participation agreement for 
the second agreement period under Sec. 425.220; and
    (ii) Not eligible to participate in the Shared Savings Program again 
until after the date on which the term of that second agreement period 
would have expired if the ACO had not terminated its participation, 
consistent with Sec. 425.222.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32837, June 9, 2015; 81 
FR 38013, June 10, 2016]



Sec. 425.202  Application procedures.

    (a) General rules. (1) In order to obtain a determination regarding 
whether it meets the requirements to participate in the Shared Savings 
Program, a prospective ACO must submit a complete application in the 
form and manner required by CMS by the deadline established by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the application is accurate, 
complete, and truthful.
    (3) An ACO that seeks to participate in the Shared Savings Program 
and was newly formed after March 23, 2010, as defined in the Antitrust 
Policy Statement, must agree that CMS can share a copy of their 
application with the Antitrust Agencies.
    (b) Condensed application form. (1) PGP demonstration sites applying 
to

[[Page 852]]

participate in the Shared Savings Program will have an opportunity to 
complete a condensed application form.
    (2) A Pioneer ACO may use a condensed application form to apply for 
participation in the Shared Savings Program if it satisfies all of the 
following criteria:
    (i) The applicant is the same legal entity as the Pioneer ACO.
    (ii) The applicant's ACO participant list does not contain any ACO 
participant TINs that did not appear on the ``Confirmed Annual TIN/NPI 
List'' (as defined in the Pioneer ACO Model Innovation Agreement with 
CMS) for the applicant ACO's last full performance year in the Pioneer 
ACO Model.
    (iii) The applicant is not applying to participate in the one-sided 
model.
    (c) Application review. CMS reviews applications in accordance with 
Sec. 425.206.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32837, June 9, 2015]



Sec. 425.204  Content of the application.

    (a) Accountability for beneficiaries. As part of its application and 
participation agreement, the ACO must certify that the ACO, its ACO 
participants, and its ACO providers/suppliers have agreed to become 
accountable for the quality, cost, and overall care of the Medicare fee-
for-service beneficiaries assigned to the ACO.
    (b) Disclosure of prior participation. (1) The ACO must disclose to 
CMS whether the ACO, its ACO participants, or its ACO providers/
suppliers have participated in the Medicare Shared Savings Program under 
the same or a different name, or is related to or has an affiliation 
with another Shared Savings Program ACO.
    (2) The ACO must specify whether the related participation agreement 
is currently active or has been terminated. If it has been terminated, 
the ACO must specify whether the termination was voluntary or 
involuntary.
    (3) If the ACO, ACO participant, or ACO provider/supplier was 
previously terminated from the Shared Savings Program, the ACO must 
identify the cause of termination and what safeguards are now in place 
to enable the ACO, ACO participant, or ACO provider/supplier to 
participate in the program for the full term of the participation 
agreement.
    (c) Eligibility. (1) As part of its application, and upon request 
thereafter, an ACO must submit to CMS the following supporting materials 
to demonstrate that the ACO satisfies the requirements set forth in this 
part:
    (i) Documents (for example, ACO participant agreements, agreements 
with ACO providers/suppliers, employment contracts, and operating 
policies) sufficient to describe the ACO participants' and ACO 
providers'/suppliers' rights and obligations in and representation by 
the ACO, and how the opportunity to receive shared savings or other 
financial arrangements will encourage ACO participants and ACO 
providers/suppliers to adhere to the quality assurance and improvement 
program and evidence-based clinical guidelines.
    (ii) A description, or documents sufficient to describe, how the ACO 
will implement the required processes and patient-centeredness criteria 
under Sec. 425.112, including descriptions of the remedial processes and 
penalties (including the potential for expulsion) that will apply if an 
ACO participant or an ACO provider/supplier fails to comply with and 
implement these processes.
    (iii) Materials documenting the ACO's organization and management 
structure, including an organizational chart, a list of committees 
(including names of committee members) and their structures, and job 
descriptions for senior administrative and clinical leaders specifically 
noted in Sec. 425.108 and Sec. 425.112(a)(2).
    (iv) Evidence that the governing body--
    (A) Is an identifiable body;
    (B) Represents a mechanism for shared governance for ACO 
participants;
    (C) Is composed of representatives of its ACO participants; and
    (D) Is at least 75 percent controlled by its ACO participants.
    (v) Evidence that the governing body includes a Medicare beneficiary 
representative(s) served by the ACO who does not have a conflict of 
interest with the ACO, and who has no immediate family member with 
conflict of interest with the ACO.

[[Page 853]]

    (vi) A copy of the ACO's compliance plan or documentation describing 
the plan that will be put in place at the time the participation 
agreement with CMS becomes effective.
    (2) Upon request, the ACO must provide copies of all documents 
effectuating the ACO's formation and operation, including, without 
limitation the following:
    (i) Charters.
    (ii) By-laws.
    (iii) Articles of incorporation.
    (iv) Partnership agreement.
    (v) Joint venture agreement.
    (vi) Management or asset purchase agreements.
    (vii) Financial statements and records.
    (viii) Resumes and other documentation required for leaders of the 
ACO.
    (3) If an ACO requests an exception to the governing body 
requirement in Sec. 425.106(c)(2) or (c)(3), the ACO must describe--
    (i) Why it seeks to differ from the requirement; and
    (ii) If seeking an exception to (c)(2), how the ACO will provide 
meaningful representation in ACO governance by Medicare beneficiaries.
    (iii) If seeking an exception to the requirement at (c)(3), why the 
ACO is unable to meet the requirement and how it will involve ACO 
participants in innovative ways in ACO governance.
    (4)(i) An ACO must certify that it is recognized as a legal entity 
in the State, Federal or Tribal area in which it was established and 
that it is authorized to conduct business in each State or Tribal area 
in which it operates.
    (ii) An ACO formed among two or more ACO participants must provide 
evidence in its application that it is a legal entity separate from any 
of the ACO participants.
    (5) The ACO must provide CMS with such information regarding its ACO 
participants and its ACO providers/suppliers participating in the 
program as is necessary to implement the program.
    (i) The ACO must submit a list of all ACO participants and ACO 
providers/suppliers in accordance with Sec. 425.118.
    (ii) ACOs must also submit any other specific identifying 
information as required by CMS in the application process.
    (iii) If the ACO includes an FQHC or RHC as an ACO participant, it 
must also do the following:
    (A) Indicate the TINs, organizational NPIs, and other identifying 
information for its participant FQHCs or RHCs or both, as well as NPIs 
and other identifying information for the physicians that directly 
provide primary care services in the participant FQHCs or RHCs or both.
    (B) Submit any other specific identifying information for its 
participant FQHCs or RHCs or both as required by CMS in the application 
process.
    (iv) The ACO must certify the accuracy of this information.
    (6) As part of the application process and upon request by CMS, the 
ACO must submit documents demonstrating that its ACO participants, ACO 
providers/suppliers, and other individuals or entities performing 
functions or services related to ACO activities are required to comply 
with the requirements of the Shared Savings Program. The evidence to be 
submitted must include, without limitation, sample or form agreements 
and, in the case of ACO participant agreements, the first and signature 
page(s) of each executed ACO participant agreement. CMS may request all 
pages of an executed ACO participant agreement to confirm that it 
conforms to the sample form agreement submitted by the ACO. The ACO must 
certify that all of its ACO participant agreements comply with the 
requirements of this part.
    (d) Distribution of savings. As part of its application to 
participate in the Shared Savings Program, an ACO must describe the 
following:
    (1) How it plans to use shared savings payments, including the 
criteria it plans to employ for distributing shared savings among its 
ACO participants and ACO providers/suppliers.
    (2) How the proposed plan will achieve the specific goals of the 
Shared Savings Program.
    (3) How the proposed plan will achieve the general aims of better 
care for individuals, better health for populations, and lower growth in 
expenditures.

[[Page 854]]

    (e) Selection of track and option for interim payment calculation. 
(1) As part of its application, an ACO must specify the Track for which 
it is applying (as described in Sec. 425.600).
    (2)(i) An ACO applying to participate in the program with a start 
date of April 1, 2012 or July 1, 2012, has the option of requesting an 
interim payment calculation based on the financial performance for its 
first 12 months of program participation and quality performance for CY 
2012.
    (ii) An ACO must request interim payment calculation as part of its 
application to participate in the Shared Savings Program.
    (f) Assurance of ability to repay. (1) An ACO must have the ability 
to repay all shared losses for which it may be liable under a two-sided 
model.
    (i) As part of the application or participation agreement renewal 
process, an ACO that is seeking to participate under a two-sided model 
of the Shared Savings Program must submit for CMS approval documentation 
that it is capable of repaying shared losses that it may incur during 
the agreement period.
    (ii) The documentation specified in paragraph (f)(1)(i) of this 
section must include details supporting the adequacy of the mechanism 
for repaying shared losses equal to at least 1 percent of the ACO's 
total per capita Medicare parts A and B fee-for-service expenditures for 
its assigned beneficiaries based on expenditures used to calculate the 
benchmark for the applicable agreement period, as estimated by CMS at 
the time of application or participation agreement renewal.
    (2) An ACO may demonstrate its ability to repay shared losses by 
placing funds in escrow, obtaining a surety bond, establishing a line of 
credit (as evidenced by a letter of credit that the Medicare program can 
draw upon), or establishing a combination of such repayment mechanisms, 
that will ensure its ability to repay the Medicare program.
    (3) An ACO participating under a two-sided model must demonstrate 
the adequacy of this repayment mechanism prior to the start of each 
agreement period in which it takes risk, and upon request thereafter. 
After the repayment mechanism has been used to repay any portion of 
shared losses owed to CMS, the ACO must replenish the amount of funds 
available through the repayment mechanism within 90 days.
    (4) The repayment mechanism must be in effect for a sufficient 
period of time after the conclusion of the agreement period to permit 
CMS to calculate the amount of shared losses owed and to collect this 
amount from the ACO.
    (g) Consideration of claims billed under merged and acquired 
entities' TINs. An ACO may request that CMS consider, for purposes of 
beneficiary assignment and establishing the ACO's benchmark under 
Sec. 425.602, claims billed under the TINs of entities that have been 
acquired through sale or merger by an ACO participant.
    (1) The ACO may include an acquired entity's TIN on its ACO 
participant list under the following circumstances:
    (i) The ACO participant has subsumed the acquired entity's TIN in 
its entirety, including all of the providers and suppliers that 
reassigned their right to receive Medicare payment to the acquired 
entity's TIN.
    (ii) Each provider or supplier that previously reassigned his or her 
right to receive Medicare payment to the acquired entity's TIN has 
reassigned his or her right to receive Medicare payment to the TIN of 
the acquiring ACO participant and has been added to the ACO provider/
supplier list under paragraph (c)(5) of the section.
    (iii) The acquired entity's TIN is no longer used to bill Medicare.
    (2) The ACO must submit the following supporting documentation in 
the form and manner specified by CMS.
    (i) An attestation that--
    (A) Identifies by TIN both the acquired entity and the ACO 
participant that acquired it;
    (B) Specifies that all the providers and suppliers that previously 
reassigned their right to receive Medicare payment to the acquired 
entity's TIN have reassigned such right to the TIN of the identified ACO 
participant and have been added to the ACO provider/supplier list under 
paragraph (c)(5) of this section; and

[[Page 855]]

    (C) Specifies that the acquired entity's TIN is no longer used to 
bill Medicare.
    (ii) Documentation sufficient to demonstrate that the acquired 
entity's TIN was merged with or purchased by the ACO participant.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32837, June 9, 2015; 81 
FR 80559, Nov. 15, 2016]



Sec. 425.206  Evaluation procedures for applications.

    (a) Basis for evaluation and determination. (1) CMS evaluates an 
ACO's application to determine whether an applicant satisfies the 
requirements of this part and is qualified to participate in the Shared 
Savings Program, and approves or denies applications accordingly. 
Applications are approved or denied on the basis of the following:
    (i) Information contained in and submitted with the application by 
an application deadline specified by CMS.
    (ii) Supplemental information that was submitted in response to a 
CMS request and by a deadline specified by CMS.
    (iii) Other information available to CMS.
    (2) CMS notifies an ACO applicant when supplemental information is 
required for CMS to make a determination on the ACO's application and 
provides an opportunity for the ACO to submit the information.
    (3) CMS may deny an application if an ACO applicant fails to submit 
requested information by the deadlines established by CMS.
    (b) Notice of determination. (1) CMS notifies in writing each 
applicant ACO of its determination to approve or deny the ACO's 
application to participate in the Shared Savings Program.
    (2) If CMS denies the application, the notice will indicate that the 
ACO is not qualified to participate in the Shared Savings Program, 
specify the reasons why the ACO is not so qualified, and inform the ACO 
of its right to request reconsideration review in accordance with the 
procedures specified in subpart I of this part.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32838, June 9, 2015]



Sec. 425.208  Provisions of participation agreement.

    (a) General rules. (1) Upon being notified by CMS of its approval to 
participate in the Shared Savings Program, an executive of that ACO who 
has the ability to legally bind the ACO must sign and submit to CMS a 
participation agreement.
    (2) Under the participation agreement the ACO must agree to comply 
with the provisions of this part in order to participate in the Shared 
Savings Program.
    (b) Compliance with laws. The ACO must agree, and must require its 
ACO participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to the ACO's 
activities to agree, or to comply with all applicable laws including, 
but not limited to, the following:
    (1) Federal criminal law.
    (2) The False Claims Act (31 U.S.C. 3729 et seq.).
    (3) The anti-kickback statute (42 U.S.C. 1320a-7b(b)).
    (4) The civil monetary penalties law (42 U.S.C. 1320a-7a).
    (5) The physician self-referral law (42 U.S.C. 1395nn).
    (c) Certifications. (1) The ACO must agree, as a condition of 
participating in the program and receiving any shared savings payment, 
that an individual with the authority to legally bind the ACO will 
certify the accuracy, completeness, and truthfulness of any data or 
information requested by or submitted to CMS, including, but not limited 
to, the application form, participation agreement, and any quality data 
or other information on which CMS bases its calculation of shared 
savings payments and shared losses.
    (2) Certifications must meet the requirements at Sec. 425.302.



Sec. 425.210  Application of agreement to ACO participants, ACO
providers/suppliers, and others.

    (a) The ACO must provide a copy of its participation agreement with 
CMS to all ACO participants, ACO providers/suppliers, and other 
individuals and entities involved in ACO governance.
    (b) All contracts or arrangements between or among the ACO, ACO 
participants, ACO providers/suppliers, and

[[Page 856]]

other individuals or entities performing functions or services related 
to ACO activities must require compliance with the requirements and 
conditions of this part, including, but not limited to, those specified 
in the participation agreement with CMS.



Sec. 425.212  Changes to program requirements during the agreement period.

    (a) An ACO is subject to all regulatory changes that become 
effective during the agreement period, with the exception of the 
following program areas, unless otherwise required by statute:
    (1) Eligibility requirements concerning the structure and governance 
of ACOs.
    (2) Calculation of sharing rate.
    (b) In those instances where there are changes in law or 
regulations, the ACO will be required to submit to CMS for review and 
approval, as a supplement to its original application, an explanation 
detailing how it will modify its processes to address these changes in 
law or regulations.
    (c) If an ACO does not modify its processes to address a change in 
law or regulations, it will be placed on a CAP. If the ACO fails to 
effectuate the necessary modifications while under the CAP, the ACO will 
be terminated from the Shared Savings Program using the procedures in 
Sec. 425.218.
    (d) An ACO will be permitted to terminate its agreement, in those 
instances where Shared Savings Program statutory and regulatory 
standards are established during the agreement period which the ACO 
believes will impact its ability to continue to participate in the 
Shared Savings Program.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32838, June 9, 2015]



Sec. 425.214  Managing changes to the ACO during the agreement period.

    (a)(1) An ACO must notify CMS within 30 days of any significant 
change.
    (2) An ACO's failure to notify CMS of a significant change does not 
preclude CMS from determining that the ACO has experienced a significant 
change.
    (3) A ``significant change'' occurs when an ACO is no longer able to 
meet the eligibility or program requirements of this part.
    (b) Upon becoming aware of a significant change or receiving an 
ACO's notice of a significant change described in paragraph (b) of this 
section, CMS reevaluates the ACO's eligibility to continue to 
participate in the Shared Savings Program and may request additional 
documentation. CMS may make a determination that includes one of the 
following:
    (1) The ACO may continue to operate under the new structure.
    (2) The ACO structure is so different from the initially approved 
ACO that it must terminate its participation agreement and submit a new 
application for participation.
    (3) The ACO no longer meets the eligibility criteria for the program 
and its participation agreement must be terminated.
    (4) CMS and the ACO may mutually decide to terminate the 
participation agreement.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32838, June 9, 2015]



Sec. 425.216  Actions prior to termination.

    (a) Pre-termination actions. (1) If CMS concludes that termination 
of an ACO from the Shared Savings Program is warranted, CMS may take one 
or more of the following actions prior to termination of the ACO from 
the Shared Savings Program.
    (i) Provide a warning notice to the ACO regarding noncompliance with 
one or more program requirements.
    (ii) Request a CAP from the ACO.
    (iii) Place the ACO on a special monitoring plan.
    (2) Nothing in this part, including the actions set forth in 
paragraph (a)(1) of this section, negates, diminishes, or otherwise 
alters the applicability of other laws, rules, or regulations, 
including, but not limited to, the Sherman Act (15 U.S.C. 1 et seq.), 
the Clayton Act (15 U.S.C. 12), and the Federal Trade Commission Act (15 
U.S.C. 45 et seq.).
    (b) Corrective action plans. (1) The ACO must submit a CAP for CMS 
approval by the deadline indicated on the notice of violation.
    (i) The CAP must address what actions the ACO will take to ensure 
that the ACO, ACO participants, ACO providers/suppliers or other 
individuals or

[[Page 857]]

entities performing functions or services related to the ACO's 
activities or both correct any deficiencies and comply with all 
applicable Shared Savings Program requirements.
    (ii) The ACO's performance will be monitored and evaluated during 
and after the CAP process.
    (2) CMS may terminate the participation agreement if the ACO fails 
to submit, obtain approval for, or implement a CAP, or fails to 
demonstrate improved performance upon completion of the CAP.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32839, June 9, 2015]



Sec. 425.218  Termination of the participation agreement by CMS.

    (a) General. CMS may terminate the participation agreement with an 
ACO when an ACO, the ACO participants, ACO providers/suppliers or other 
individuals or entities performing functions or services related to ACO 
activities fail to comply with any of the requirements of the Shared 
Savings Program under this part.
    (b) Grounds for termination by CMS. CMS may terminate the 
participation agreement for reasons including, but not limited to the 
following:
    (1) Non-compliance with eligibility and other requirements described 
in this part.
    (2) The imposition of sanctions or other actions taken against the 
ACO by an accrediting organization, State, Federal or local government 
agency leading to inability of the ACO to comply with the requirements 
under this part.
    (3) Violations of the physician self-referral prohibition, civil 
monetary penalties (CMP) law, Federal anti-kickback statute, antitrust 
laws, or any other applicable Medicare laws, rules, or regulations that 
are relevant to ACO operations.
    (4) Failure to comply with CMS requests for documentation or other 
information by the deadline specified by CMS.
    (5) Submitting false or fraudulent data or information.
    (c) CMS may immediately terminate a participation agreement without 
taking any of the pre-termination actions set forth in Sec. 425.216.
    (d) Notice of termination by CMS. CMS notifies an ACO in writing of 
its decision to terminate the participation agreement.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32839, June 9, 2015]



Sec. 425.220  Termination of the participation agreement by the ACO.

    (a) Notice of termination. An ACO must provide at least 60 days 
advance written notice to CMS and its ACO participants of its decision 
to terminate the participation agreement and the effective date of its 
termination.
    (b) [Reserved]

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32839, June 9, 2015]



Sec. 425.221  Close-out procedures and payment consequences of 
early termination.

    (a) Close-out procedures. (1) An ACO whose participation agreement 
has expired or is terminated by CMS under Sec. 425.218 or by the ACO 
under Sec. 425.220 must implement close-out procedures including but not 
limited to the following issues in a form and manner and by a deadline 
specified by CMS:
    (i) Notice to ACO participants of termination.
    (ii) Record retention.
    (iii) Data sharing.
    (iv) Quality reporting.
    (v) Beneficiary continuity of care.
    (2) ACOs that fail to complete close-out procedures in the form and 
manner and by the deadline specified by CMS will not be eligible to 
share in savings.
    (b) Payment consequences of early termination. (1) An ACO whose 
participation agreement is terminated by the ACO under Sec. 425.220 is 
eligible to receive shared savings for the performance year during which 
the termination becomes effective only if--
    (i) CMS designates or approves an effective date of termination of 
December 31st of such performance year;
    (ii) The ACO has completed all close-out procedures by the deadline 
specified by CMS; and
    (iii) The ACO has satisfied the criteria for sharing in savings for 
the performance year.
    (2) An ACO that terminates its participation agreement under 
Sec. 425.220 before December 31 of a performance year

[[Page 858]]

or whose participation agreement is terminated at any time by CMS under 
Sec. 425.218 is not eligible to receive shared savings for the 
performance year during which the termination becomes effective.

[80 FR 32839, June 9, 2015]



Sec. 425.222  Re-application after termination.

    (a) An ACO that has been terminated from the Shared Savings Program 
under Secs. 425.218 or 425.220 may participate in the Shared Savings 
Program again only after the date on which the term of the original 
participation agreement would have expired if the ACO had not been 
terminated.
    (b) To be eligible to participate in the Shared Savings Program 
after a previous termination, the ACO must demonstrate in its 
application that it has corrected the deficiencies that caused it to be 
terminated from the Shared Savings Program and has processes in place to 
ensure that it will remain in compliance with the terms of the new 
participation agreement.
    (c) An ACO whose participation agreement was previously terminated 
may reenter the program for a subsequent agreement period.
    (1) If the termination occurred less than half way through the 
agreement period, an ACO that was previously under a one-sided model may 
reenter the program under the one-sided model or a two-sided model. If 
the ACO reenters the program under the one-sided model, the ACO will be 
considered to be in the same agreement period under the one-sided model 
as it was at the time of termination.
    (2) If the termination occurred more than half way through the 
agreement period, an ACO that was previously in its first agreement 
period under the one-sided model may reenter the program under the one-
sided model or a two-sided model. If the ACO reenters the program under 
the one-sided model, the ACO will be considered to be in its second 
agreement period under the one-sided model. An ACO that was previously 
in its second agreement period under the one-sided model must reenter 
the program under a two-sided model.
    (3) Regardless of the date of termination, an ACO that was 
previously under a two-sided model may only reapply for participation in 
a two-sided model.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32839, June 9, 2015]



Sec. 425.224  Renewal of participation agreements.

    (a) General rules. An ACO may request renewal of its participation 
agreement for a second or subsequent agreement period.
    (1) In order to obtain a determination regarding whether it meets 
the requirements for renewal of its participation agreement, the ACO 
must submit a complete renewal request in the form and manner and by the 
deadline specified by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the renewal request is 
accurate, complete, and truthful.
    (3) An ACO that seeks renewal of its participation agreement and was 
newly formed after March 23, 2010, as defined in the Antitrust Policy 
Statement, must agree that CMS can share a copy of its renewal request 
with the Antitrust Agencies.
    (b) Review of renewal request. (1) CMS determines whether to renew a 
participation agreement based on an evaluation of all of the following 
factors:
    (i) Whether the ACO satisfies the criteria for operating under the 
selected risk track.
    (ii) The ACO's history of compliance with the requirements of the 
Shared Savings Program.
    (iii) Whether the ACO has established that it is in compliance with 
the eligibility and other requirements of the Shared Savings Program, 
including the ability to repay losses, if applicable.
    (iv) Whether the ACO met the quality performance standard during at 
least 1of the first 2 years of the previous agreement period.
    (v) For ACOs under a two-sided model, whether the ACO has repaid 
losses owed to the program that it generated during the first 2 years of 
the previous agreement period.

[[Page 859]]

    (vi) The results of a program integrity screening of the ACO, its 
ACO participants, and its ACO providers/suppliers (conducted in 
accordance with Sec. 425.304(b)).
    (2) Renewal requests are approved or denied on the basis of the 
following information:
    (i) Information contained in and submitted with the renewal request 
by a deadline specified by CMS.
    (ii) Supplemental information that was submitted by a deadline 
specified by CMS in response to a CMS request for information.
    (iii) Other information available to CMS.
    (3) CMS notifies the ACO when supplemental information is required 
for CMS to make such a determination and provides an opportunity for the 
ACO to submit the information.
    (c) Notice of determination. (1) CMS notifies the ACO in writing of 
its determination to approve or deny the ACO's renewal request.
    (2) If CMS denies the renewal request, the notice of determination--
    (i) Specifies the reasons for the denial; and
    (ii) Informs the ACO of its right to request reconsideration review 
in accordance with the procedures specified in subpart I of this part.

[80 FR 32839, June 9, 2015]



       Subpart D_Program Requirements and Beneficiary Protections



Sec. 425.300  Compliance plan.

    (a) The ACO must have a compliance plan that includes at least the 
following elements:
    (1) A designated compliance official or individual who is not legal 
counsel to the ACO and reports directly to the ACO's governing body.
    (2) Mechanisms for identifying and addressing compliance problems 
related to the ACO's operations and performance.
    (3) A method for employees or contractors of the ACO, ACO 
participants, ACO providers/suppliers, and other individuals or entities 
performing functions or services related to ACO activities to 
anonymously report suspected problems related to the ACO to the 
compliance officer.
    (4) Compliance training for the ACO, the ACO participants, and the 
ACO providers/suppliers.
    (5) A requirement for the ACO to report probable violations of law 
to an appropriate law enforcement agency.
    (b)(1) ACOs that are existing entities may use the current 
compliance officer if the compliance officer meets the requirements set 
forth in paragraph (a)(1) of this section.
    (2) An ACO's compliance plan must be in compliance with and be 
updated periodically to reflect changes in law and regulations.



Sec. 425.302  Program requirements for data submission and certifications.

    (a) Requirements for data submission and certification. (1) The ACO, 
its ACO participants, its ACO providers/suppliers or individuals or 
other entities performing functions or services related to ACO 
activities must submit all data and information, including data on 
measures designated by CMS under Sec. 425.500, in a form and manner 
specified by CMS.
    (2) Certification of data upon submission. With respect to data and 
information that are generated or submitted by the ACO, ACO 
participants, ACO providers/suppliers, or other individuals or entities 
performing functions or services related to ACO activities, an 
individual with the authority to legally bind the individual or entity 
submitting such data or information must certify the accuracy, 
completeness, and truthfulness of the data and information to the best 
of his or her knowledge information and belief.
    (3) Annual certification. At the end of each performance year, an 
individual with the legal authority to bind the ACO must certify to the 
best of his or her knowledge, information, and belief--
    (i) That the ACO, its ACO participants, its ACO providers/suppliers, 
and other individuals or entities performing functions or services 
related to ACO activities are in compliance with program requirements; 
and
    (ii) The accuracy, completeness, and truthfulness of all data and 
information that are generated or submitted

[[Page 860]]

by the ACO, ACO participants, ACO providers/suppliers, or other 
individuals or entities performing functions or services related to ACO 
activities, including any quality data or other information or data 
relied upon by CMS in determining the ACO's eligibility for, and the 
amount of a shared savings payment or the amount of shared losses or 
other monies owed to CMS.
    (b) [Reserved]



Sec. 425.304  Other program requirements.

    (a) Beneficiary inducements. (1) ACOs, ACO participants, ACO 
providers/suppliers, and other individuals or entities performing 
functions or services related to ACO activities are prohibited from 
providing gifts or other remuneration to beneficiaries as inducements 
for receiving items or services from or remaining in, an ACO or with ACO 
providers/suppliers in a particular ACO or receiving items or services 
from ACO participants or ACO providers/suppliers.
    (2) Consistent with the provisions of paragraph (a)(1) of this 
section and subject to compliance with all other applicable laws and 
regulations, ACO, ACO participants and ACO providers/suppliers, and 
other individuals or entities performing functions or services related 
to ACO activities may provide in-kind items or services to beneficiaries 
if there is a reasonable connection between the items and services and 
the medical care of the beneficiary and the items or services are 
preventive care items or services or advance a clinical goal for the 
beneficiary, including adherence to a treatment regime, adherence to a 
drug regime, adherence to a follow-up care plan, or management of a 
chronic disease or condition.
    (b) Screening of ACO applicants. (1) ACOs, ACO participants, and ACO 
providers/suppliers will be reviewed during the Shared Savings Program 
application process and periodically thereafter with regard to their 
program integrity history, including any history of Medicare program 
exclusions or other sanctions and affiliations with individuals or 
entities that have a history of program integrity issues.
    (2) ACOs, ACO participants, or ACO providers/suppliers whose 
screening reveals a history of program integrity issues or affiliations 
with individuals or entities that have a history of program integrity 
issues may be subject to denial of their Shared Savings Program 
applications or the imposition of additional safeguards or assurances 
against program integrity risks.
    (c) Prohibition on certain required referrals and cost shifting. 
ACOs, ACO participants, and ACO providers/suppliers are prohibited from:
    (1) Conditioning the participation of ACO participants, ACO 
providers/suppliers, other individuals or entities performing functions 
or services related to ACO activities in the ACO on referrals of Federal 
health care program business that the ACO, its ACO participants, or ACO 
providers/suppliers or other individuals or entities performing 
functions or services related to ACO activities know or should know is 
being (or would be) provided to beneficiaries who are not assigned to 
the ACO.
    (2) Requiring that beneficiaries be referred only to ACO 
participants or ACO providers/suppliers within the ACO or to any other 
provider or supplier, except that the prohibition does not apply to 
referrals made by employees or contractors who are operating within the 
scope of their employment or contractual arrangement to the employer or 
contracting entity, provided that the employees and contractors remain 
free to make referrals without restriction or limitation if the 
beneficiary expresses a preference for a different provider, 
practitioner, or supplier; the beneficiary's insurer determines the 
provider, practitioner, or supplier; or the referral is not in the 
beneficiary's best medical interests in the judgment of the referring 
party.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32840, June 9, 2015]



Sec. 425.306  Participant agreement and exclusivity of ACO participants.

    (a) Each ACO participant must commit to the term of the 
participation agreement and sign an ACO participant agreement that 
complies with the requirements of this part.

[[Page 861]]

    (b)(1) Except as specified in paragraph (b)(2) of this section, ACO 
participants are not required to be exclusive to one Shared Savings 
Program ACO.
    (2) Each ACO participant that submits claims for primary care 
services used to determine the ACO's assigned population under subpart E 
of this part must be exclusive to one Shared Savings Program ACO.

[80 FR 32840, June 9, 2015]



Sec. 425.308  Public reporting and transparency.

    (a) ACO public reporting Web page. Each ACO must create and maintain 
a dedicated Web page on which it publicly reports the information set 
forth in paragraph (b) of this section. The ACO must report the address 
of such Web page to CMS in a form and manner specified by CMS and must 
notify CMS of changes to the web address in the form and manner 
specified by CMS.
    (b) Information to be reported. The ACO must publicly report the 
following information in a standardized format specified by CMS:
    (1) Name and location.
    (2) Primary contact.
    (3) Organizational information, including all of the following:
    (i) Identification of ACO participants.
    (ii) Identification of participants in joint ventures between ACO 
professionals and hospitals.
    (iii) Identification of the members of its governing body.
    (iv) Identification of key clinical and administrative leadership.
    (v) Identification of associated committees and committee 
leadership.
    (vi) Identification of the types of ACO participants or combinations 
of ACO participants (as listed in Sec. 425.102(a)) that formed the ACO.
    (4) Shared savings and losses information, including the following:
    (i) Amount of any payment of shared savings received by the ACO or 
shared losses owed to CMS.
    (ii) Total proportion of shared savings invested in infrastructure, 
redesigned care processes and other resources required to support the 
three-part aim goals of better health for populations, better care for 
individuals and lower growth in expenditures, including the proportion 
distributed among ACO participants.
    (5) The ACO's performance on all quality measures.
    (6) Use of payment rule waivers under Sec. 425.612, if applicable.
    (c) Approval of public reporting information. Information reported 
on an ACO's public reporting Web page in compliance with the 
requirements of the standardized format specified by CMS is not subject 
to marketing review and approval under Sec. 425.310.
    (d) Public reporting by CMS. CMS may publicly report ACO-specific 
information, including but not limited to the ACO public reporting Web 
page address and the information required to be publicly reported under 
paragraph (b) of this section.

[80 FR 32840, June 9, 2015]



Sec. 425.310  Marketing requirements.

    (a) File and use. Marketing materials and activities, as defined in 
Sec. 425.20, may be used or conducted five business days following their 
submission to CMS if--
    (1) The ACO certifies compliance with all the marketing requirements 
under this section; and
    (2) CMS does not disapprove the marketing materials or activities.
    (b) Deemed approval. (1) Marketing materials and activities are 
deemed approved after expiration of the initial 5 day review period 
specified in paragraph (a) of this section.
    (2)(i) CMS may issue written notice of disapproval of marketing 
materials and activities at any time, including after the expiration of 
the initial 5 day review period.
    (ii) The ACO, ACO participant, ACO provider/supplier, or another 
individual or entity performing functions or services related to ACO 
activities as applicable, must discontinue use of any marketing 
materials or activities disapproved by CMS.
    (c) Marketing requirements. Marketing materials and activities must 
meet all of the following:
    (1) Use template language developed by CMS, if available.
    (2) Not be used in a discriminatory manner or for discriminatory 
purposes.

[[Page 862]]

    (3) Comply with Sec. 425.304(a) regarding beneficiary inducements.
    (4) Not be materially inaccurate or misleading.
    (d) Sanctions. Failure to comply with this section will subject the 
ACO to the penalties set forth in Sec. 425.216, termination under 
Sec. 425.218, or both.



Sec. 425.312  Notification to beneficiaries of participation in 
shared savings program.

    (a) ACO participants must notify beneficiaries at the point of care 
that their ACO providers/suppliers are participating in the Shared 
Savings Program and of the opportunity to decline claims data sharing 
under Sec. 425.708.
    (1) Notification is carried out when an ACO participant posts signs 
in its facilities and, in settings in which beneficiaries receive 
primary care services, by making standardized written notices available 
upon request.
    (2) The ACO must use template language developed by CMS for 
notifications described in paragraph (a)(1) of this section.
    (b) [Reserved]
    (c) The beneficiary notifications under this section meet the 
definition of marketing materials and activities under Sec. 425.20 and 
therefore must meet all applicable marketing requirements described in 
Sec. 425.310.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32840, June 9, 2015]



Sec. 425.314  Audits and record retention.

    (a) Right to audit. The ACO must agree, and must require its ACO 
participants, ACO providers/suppliers, and other individuals or entities 
performing functions or services related to ACO activities to agree, 
that the CMS, DHHS, the Comptroller General, the Federal Government or 
their designees have the right to audit, inspect, investigate, and 
evaluate any books, contracts, records, documents and other evidence of 
the ACO, ACO participants, and ACO providers/suppliers, and other 
individuals or entities performing functions or services related to ACO 
activities that pertain to all of the following:
    (1) The ACO's compliance with Shared Savings Program.
    (2) The quality of services performed and determination of amount 
due to or from CMS under the participation agreement.
    (3) The ability of the ACO to bear the risk of potential losses and 
to repay any losses to CMS.
    (b) Maintenance of records. An ACO must agree, and must require its 
ACO participants, ACO providers/suppliers, and other individuals or 
entities performing functions or services related to ACO activities to 
agree to the following:
    (1) To maintain and give CMS, DHHS, the Comptroller General, the 
Federal Government or their designees access to all books, contracts, 
records, documents, and other evidence (including data related to 
Medicare utilization and costs, quality performance measures, shared 
savings distributions, and other financial arrangements related to ACO 
activities) sufficient to enable the audit, evaluation, investigation, 
and inspection of the ACO's compliance with program requirements, 
quality of services performed, right to any shared savings payment, or 
obligation to repay losses, ability to bear the risk of potential 
losses, and ability to repay any losses to CMS.
    (2) To maintain such books, contracts, records, documents, and other 
evidence for a period of 10 years from the final date of the agreement 
period or from the date of completion of any audit, evaluation, or 
inspection, 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 ACO at 
least 30 days before the normal disposition date; or
    (ii) There has been a termination, dispute, or allegation of fraud 
or similar fault against the ACO, its ACO participants, its ACO 
providers/suppliers, or other individuals or entities performing 
functions or services related to ACO activities, in which case ACOs must 
retain records for an additional 6 years from the date of any resulting 
final resolution of the termination, dispute, or allegation of fraud or 
similar fault.
    (c) Responsibility of the ACO. Notwithstanding any arrangements 
between or among an ACO, ACO participants, ACO providers/suppliers, and 
other individuals or entities performing functions or

[[Page 863]]

services related to ACO activities, the ACO must have ultimate 
responsibility for adhering to and otherwise fully complying with all 
terms and conditions of its participation agreement with CMS, including 
the requirements set forth in this section.
    (d) OIG authority. None of the provisions of this part limit or 
restrict OIG's authority to audit, evaluate, investigate, or inspect the 
ACO, its ACO participants, its ACO providers/suppliers and other 
individuals or entities performing functions or services related to ACO 
activities.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32840, June 9, 2015; 81 
FR 38013, June 10, 2016]



Sec. 425.315  Reopening determinations of ACO shared savings or shared
losses to correct financial reconciliation calculations.

    (a) Reopenings. (1) If CMS determines that the amount of shared 
savings due to the ACO or the amount of shared losses owed by the ACO 
has been calculated in error, CMS may reopen the initial determination 
or a final agency determination under subpart I of this part and issue a 
revised initial determination:
    (i) At any time in the case of fraud or similar fault as defined in 
Sec. 405.902; or
    (ii) Not later than 4 years after the date of the notification to 
the ACO of the initial determination of savings or losses for the 
relevant performance year under Sec. 425.604(f), Sec. 425.606(h) or 
Sec. 425.610(h), for good cause.
    (2) Good cause may be established when--
    (i) There is new and material evidence that was not available or 
known at the time of the payment determination and may result in a 
different conclusion; or
    (ii) The evidence that was considered in making the payment 
determination clearly shows on its face that an obvious error was made 
at the time of the payment determination.
    (3) A change of legal interpretation or policy by CMS in a 
regulation, CMS ruling or CMS general instruction, whether made in 
response to judicial precedent or otherwise, is not a basis for 
reopening a payment determination under this section.
    (4) CMS has sole discretion to determine whether good cause exists 
for reopening a payment determination under this section.
    (b) [Reserved]

[81 FR 38013, June 10, 2016]



Sec. 425.316  Monitoring of ACOs.

    (a) General rule. (1) In order to ensure that the ACO continues to 
satisfy the eligibility and program requirements under this part, CMS 
monitors and assesses the performance of ACOs, their ACO participants, 
and ACO providers/suppliers.
    (2) CMS employs a range of methods to monitor and assess the 
performance of ACOs, ACO participants, and ACO providers/suppliers, 
including but not limited to any of the following, as appropriate:
    (i) Analysis of specific financial and quality measurement data 
reported by the ACO as well as aggregate annual and quarterly reports.
    (ii) Analysis of beneficiary and provider complaints.
    (iii) Audits (including, for example, analysis of claims, chart 
review (medical record), beneficiary survey reviews, coding audits, on-
site compliance reviews).
    (b) Monitoring ACO avoidance of at-risk beneficiaries. (1) CMS may 
use one or more of the methods described in paragraph (a)(2) of this 
section (as appropriate) to identify trends and patterns suggesting that 
an ACO has avoided at-risk beneficiaries. The results of these analyses 
may subsequently require further investigation and follow-up with 
beneficiaries or the ACO and its ACO participants, ACO providers/
suppliers, or other individuals or entities performing functions or 
services related to the ACO's activities, in order to substantiate cases 
of beneficiary avoidance.
    (2)(i) CMS, at its sole discretion, may take any of the pre-
termination actions set forth in Sec. 425.216(a)(1) or immediately 
terminate, if it determines that an ACO, its ACO participants, any ACO 
providers/suppliers, or other individuals or entities performing 
functions or services related to the ACO's activities avoids at-risk 
beneficiaries.
    (ii) If CMS requires the ACO to submit a CAP, the ACO will--

[[Page 864]]

    (A) Submit a CAP that addresses actions the ACO will take to ensure 
that the ACO, ACO participants, ACO providers/suppliers, or other 
individuals or entities performing functions or services related to the 
ACO's activities cease avoidance of at-risk beneficiaries.
    (B) Not receive any shared savings payments during the time it is 
under the CAP.
    (C) Not be eligible to receive shared savings for the performance 
year attributable to the time that necessitated the CAP (the time period 
during which the ACO avoided at risk beneficiaries).
    (iii) CMS will re-evaluate the ACO during and after the CAP 
implementation period to determine if the ACO has continued to avoid at-
risk beneficiaries. The ACO will be terminated if CMS determines that 
the ACO has continued to avoid at-risk beneficiaries during or after the 
CAP implementation period.
    (c) Monitoring ACO compliance with quality performance standards. To 
identify ACOs that are not meeting the quality performance standards, 
CMS will review an ACO's submission of quality measurement data under 
Sec. 425.500. CMS may request additional documentation from an ACO, ACO 
participants, or ACO providers/suppliers, as appropriate. If an ACO does 
not meet quality performance standards or fails to report on one or more 
quality measures, in addition to actions set forth at Sec. 425.216 and 
Sec. 425.218, CMS will take the following actions:
    (1) The ACO may be given a warning for the first time it fails to 
meet the minimum attainment level on at least 70 percent of the 
measures, as determined under Sec. 425.502, in one or more domains and 
may be subject to a CAP. CMS may forgo the issuance of the warning 
letter depending on the nature and severity of the noncompliance and 
instead subject the ACO to actions set forth at Sec. 425.216 or 
immediately terminate the ACO's participation agreement under 
Sec. 425.218.
    (2) The ACO's compliance with the quality performance standards will 
be re-evaluated the following year. If the ACO continues to fail to meet 
quality performance standard in the following year, the agreement will 
be terminated.
    (3) An ACO will not qualify to share in savings in any year it fails 
to report accurately, completely, and timely on the quality performance 
measures.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32840, June 9, 2015; 81 
FR 80559, Nov. 15, 2016]



                  Subpart E_Assignment of Beneficiaries



Sec. 425.400  General.

    (a)(1) General. CMS employs the assignment methodology described in 
Sec. 425.402 and Sec. 425.404 for purposes of benchmarking, preliminary 
prospective assignment (including quarterly updates), retrospective 
reconciliation, and prospective assignment.
    (i) A Medicare fee-for-service beneficiary is assigned to an ACO if 
the--
    (A) Beneficiary meets the eligibility criteria under 
Sec. 425.401(a); and
    (B) Beneficiary's utilization of primary care services meets the 
criteria established under the assignment methodology described in 
Sec. 425.402 and Sec. 425.404.
    (ii) CMS applies a step-wise process based on the beneficiary's 
utilization of primary care services provided under Title XVIII by a 
physician who is an ACO professional during each performance year for 
which shared savings are to be determined.
    (2) Assignment under Tracks 1 and 2. (i) Medicare assigns 
beneficiaries in a preliminary manner at the beginning of a performance 
year based on most recent data available.
    (ii) Assignment will be updated quarterly based on the most recent 
12 months of data.
    (iii) Final assignment is determined after the end of each 
performance year, based on data from the performance year.
    (3) Prospective assignment under Track 3. (i) Medicare fee-for-
service beneficiaries are prospectively assigned to an ACO under Track 3 
at the beginning of each benchmark or performance year based on the 
beneficiary's use of primary care services in the most recent 12 months 
for which data are

[[Page 865]]

available, using the assignment methodology described in Secs. 425.402 
and 425.404.
    (ii) Beneficiaries that are prospectively assigned to an ACO under 
paragraph (a)(3)(i) of this section will remain assigned to the ACO at 
the end of the benchmark or performance year unless they meet any of the 
exclusion criteria under Sec. 425.401(b).
    (b) Beneficiary assignment to an ACO is for purposes of determining 
the population of Medicare fee-for-service beneficiaries for whose care 
the ACO is accountable under subpart F of this part, and for determining 
whether an ACO has achieved savings under subpart G of this part, and in 
no way diminishes or restricts the rights of beneficiaries assigned to 
an ACO to exercise free choice in determining where to receive health 
care services.
    (c) Primary care services for purposes of assigning beneficiaries 
are identified by selected HCPCS codes, G codes, or revenue center codes 
as indicated in the definition of primary care services under 
Sec. 425.20.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32840, June 9, 2015]



Sec. 425.401  Criteria for a beneficiary to be assigned to an ACO.

    (a) A beneficiary may be assigned to an ACO under the assignment 
methodology in Secs. 425.402 and 425.404, for a performance or benchmark 
year, if the beneficiary meets all of the following criteria during the 
assignment window:
    (1)(i) Has at least 1 month of Part A and Part B enrollment; and
    (ii) Does not have any months of Part A only or Part B only 
enrollment.
    (2) Does not have any months of Medicare group (private) health plan 
enrollment.
    (3) Is not assigned to any other Medicare shared savings initiative.
    (4) Lives in the United States or U.S. territories and possessions, 
based on the most recent available data in our beneficiary records 
regarding the beneficiary's residence at the end of the assignment 
window.
    (b) A beneficiary will be excluded from the prospective assignment 
list of an ACO participating under Track 3 at the end of a performance 
or benchmark year and quarterly during each performance year, if the 
beneficiary meets any of the following criteria during the performance 
or benchmark year:
    (1)(i) Does not have at least 1 month of Part A and Part B 
enrollment; and
    (ii) Has any months of Part A only or Part B only enrollment.
    (2) Has any months of Medicare group (private) health plan 
enrollment.
    (3) Did not live in the United States or U.S. territories and 
possessions, based on the most recent available data in our beneficiary 
records regarding the beneficiary's residency at the end of the year.

[80 FR 32840, June 9, 2015]



Sec. 425.402  Basic assignment methodology.

    (a) For performance years 2012 through 2015, CMS employs the 
following step-wise methodology to assign Medicare beneficiaries to an 
ACO after identifying all patients that had at least one primary care 
service with a physician who is an ACO professional of that ACO:
    (1)(i) Identify all primary care services rendered by primary care 
physicians during one of the following:
    (A) The most recent 12 months (for purposes of preliminary 
prospective assignment and quarterly updates to the preliminary 
prospective assignment).
    (B) The performance year (for purposes of final assignment).
    (ii) The beneficiary is assigned to an ACO if the allowed charges 
for primary care services furnished to the beneficiary by all the 
primary care physicians who are ACO professionals in the ACO are greater 
than the allowed charges for primary care services furnished by primary 
care physicians who are--
    (A) ACO professionals in any other ACO; and
    (B) Not affiliated with any ACO and identified by a Medicare-
enrolled TIN.
    (2) The second step considers the remainder of the beneficiaries who 
have received at least one primary care service from an ACO physician, 
but who have not had a primary care service rendered by any primary care 
physician, either inside or outside the ACO. The beneficiary will be 
assigned to an ACO if the allowed charges for primary care services 
furnished to the

[[Page 866]]

beneficiary by all ACO professionals in the ACO are greater than the 
allowed charges for primary care services furnished by--
    (i) All ACO professionals in any other ACO; and
    (ii) Other physicians, nurse practitioners, physician assistants, 
clinical nurse specialists who are unaffiliated with an ACO and are 
identified by a Medicare-enrolled TIN.
    (b) For performance year 2016 and subsequent performance years, CMS 
employs the following step-wise methodology to assign Medicare fee-for-
service beneficiaries to an ACO based on available claims information:
    (1) Identify all beneficiaries that had at least one primary care 
service with a physician who is an ACO professional in the ACO and who 
is a primary care physician as defined under Sec. 425.20 or who has one 
of the primary specialty designations included in paragraph (c) of this 
section.
    (2) Identify all primary care services furnished to beneficiaries 
identified in paragraph (b)(1) of this section by ACO professionals of 
that ACO who are primary care physicians as defined under Sec. 425.20, 
non-physician ACO professionals, and physicians with specialty 
designations included in paragraph (c) of this section during the 
applicable assignment window.
    (3) Under the first step, a beneficiary identified in paragraph 
(b)(1) of this section is assigned to an ACO if the allowed charges for 
primary care services furnished to the beneficiary by primary care 
physicians who are ACO professionals and non-physician ACO professionals 
in the ACO are greater than the allowed charges for primary care 
services furnished by primary care physicians, nurse practitioners, 
physician assistants, and clinical nurse specialists who are--
    (i) ACO professionals in any other ACO; or
    (ii) Not affiliated with any ACO and identified by a Medicare-
enrolled billing TIN.
    (4) The second step considers the remainder of the beneficiaries 
identified in paragraph (b)(1) of this section who have not had a 
primary care service rendered by any primary care physician, nurse 
practitioner, physician assistant, or clinical nurse specialist, either 
inside the ACO or outside the ACO. The beneficiary will be assigned to 
an ACO if the allowed charges for primary care services furnished to the 
beneficiary by physicians who are ACO professionals with specialty 
designations as specified in paragraph (c) of this section are greater 
than the allowed charges for primary care services furnished by 
physicians with specialty designations as specified in paragraph (c) of 
this section--
    (i) Who are ACO professionals in any other ACO; or
    (ii) Who are unaffiliated with an ACO and are identified by a 
Medicare-enrolled billing TIN.
    (c) ACO professionals considered in the second step of the 
assignment methodology in paragraph (b)(4) of this section include 
physicians who have one of the following primary specialty designations:
    (1) Cardiology.
    (2) Osteopathic manipulative medicine.
    (3) Neurology.
    (4) Obstetrics/gynecology.
    (5) Sports medicine.
    (6) Physical medicine and rehabilitation.
    (7) Psychiatry.
    (8) Geriatric psychiatry.
    (9) Pulmonary disease.
    (10) Nephrology.
    (11) Endocrinology.
    (12) Multispecialty clinic or group practice.
    (13) Addiction medicine.
    (14) Hematology.
    (15) Hematology/oncology.
    (16) Preventive medicine.
    (17) Neuropsychiatry.
    (18) Medical oncology.
    (19) Gynecology/oncology.
    (d) When considering services furnished by ACO professionals in 
teaching hospitals that have elected under Sec. 415.160 of this 
subchapter to receive payment on a reasonable cost basis for the direct 
medical and surgical services of their physicians in the assignment 
methodology under paragraph (b) of this section, CMS uses an estimated 
amount based on the amounts payable under the physician fee schedule for 
similar services in the geographic location of the teaching hospital as 
a proxy

[[Page 867]]

for the amount of the allowed charges for the service.
    (e) For performance year 2018 and subsequent performance years, if a 
system is available to allow a beneficiary to designate a provider or 
supplier as responsible for coordinating their overall care and for CMS 
to process the designation electronically, CMS will supplement the 
claims-based assignment methodology described in this section with 
information provided by beneficiaries regarding the provider or supplier 
they consider responsible for coordinating their overall care. Such 
designations must be made in the form and manner and by a deadline 
determined by CMS.
    (1) Notwithstanding the assignment methodology under paragraph (b) 
of this section, beneficiaries who designate an ACO professional 
participating in an ACO as responsible for coordinating their overall 
care are prospectively assigned to that ACO, regardless of track, 
annually at the beginning of each benchmark and performance year based 
on available data at the time assignment lists are determined for the 
benchmark and performance year.
    (2) Beneficiaries will be added to the ACO's list of assigned 
beneficiaries if all of the following conditions are satisfied:
    (i) The beneficiary must have had at least one primary care service 
during the assignment window as defined under Sec. 425.20 with a 
physician who is an ACO professional in the ACO who is a primary care 
physician as defined under Sec. 425.20 or who has one of the primary 
specialty designations included in paragraph (c) of this section.
    (ii) The beneficiary meets the eligibility criteria established at 
Sec. 425.401(a) and must not be excluded by the criteria at 
Sec. 425.401(b). The exclusion criteria at Sec. 425.401(b) apply for 
purposes of determining beneficiary eligibility for alignment to ACOs 
under all tracks based on the beneficiary's designation of an ACO 
professional as responsible for coordinating their overall care under 
paragraph (e) of this section.
    (iii) The beneficiary must have designated an ACO professional who 
is a primary care physician as defined at Sec. 425.20, a physician with 
a specialty designation included at paragraph (c) of this section, or a 
nurse practitioner, physician assistant, or clinical nurse specialist as 
responsible for coordinating their overall care.
    (iv) If a beneficiary has designated a provider or supplier outside 
the ACO who is a primary care physician as defined at Sec. 425.20, a 
physician with a specialty designation included at paragraph (c) of this 
section, or a nurse practitioner, physician assistant, or clinical nurse 
specialist, as responsible for coordinating their overall care, the 
beneficiary will not be added to the ACO's list of assigned 
beneficiaries for a performance year under the assignment methodology in 
paragraph (b) of this section.
    (3) The ACO, ACO participants, ACO providers/suppliers, ACO 
professionals, and other individuals or entities performing functions 
and services related to ACO activities are prohibited from providing or 
offering gifts or other remuneration to Medicare beneficiaries as 
inducements for influencing a Medicare beneficiary's decision to 
designate or not to designate an ACO professional under paragraph (e) of 
this section. The ACO, ACO participants, ACO providers/suppliers, ACO 
professionals, and other individuals or entities performing functions 
and services related to ACO activities must not, directly or indirectly, 
commit any act or omission, nor adopt any policy that coerces or 
otherwise influences a Medicare beneficiary's decision to designate or 
not to designate an ACO professional as responsible for coordinating 
their overall care under paragraph (e) of this section, including but 
not limited to the following:
    (i) Offering anything of value to the Medicare beneficiary as an 
inducement to influence the Medicare beneficiary's decision to designate 
or not to designate an ACO professional as responsible for coordinating 
their overall care under paragraph (e) of this section. Any items or 
services provided in violation of paragraph (e)(3) will not be 
considered to have a reasonable connection to the medical care of the 
beneficiary, as required under Sec. 425.304(a)(2).

[[Page 868]]

    (ii) Withholding or threatening to withhold medical services or 
limiting or threatening to limit access to care.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32841, June 9, 2015; 80 
FR 71386, Nov. 16, 2015; 81 FR 80559, Nov. 15, 2016]



Sec. 425.404  Special assignment conditions for ACOs including FQHCs 
and RHCs.

    CMS assigns beneficiaries to ACOs based on services furnished in 
FQHCs or RHCs or both consistent with the general assignment methodology 
in Sec. 425.402, with two special conditions:
    (a) Such ACOs are required to identify, through an attestation, 
physicians who directly provide primary care services in each FQHC or 
RHC that is an ACO participant and/or ACO provider/supplier in the ACO.
    (b) Under the assignment methodology in Sec. 425.402, CMS treats a 
service reported on an FQHC/RHC claim as a primary care service --
    (1) If the claim includes a HCPCS or revenue center code that meets 
the definition of primary care services under Sec. 425.20;
    (2) Performed by a primary care physician if the NPI of a physician 
identified in the attestation provided under paragraph (a) of this 
section is reported on the claim for a primary care service (as 
described in paragraph (b)(1) of this section) as the attending 
provider; and
    (3) Performed by a non-physician ACO professional if the NPI 
reported on the claim for a primary care service (as described in 
paragraph (b)(1) of this section) as the attending provider is an ACO 
professional but is not identified in the attestation provided under 
paragraph (a) of this section.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32841, June 9, 2015]



          Subpart F_Quality Performance Standards and Reporting



Sec. 425.500  Measures to assess the quality of care furnished by an ACO.

    (a) General. CMS establishes quality performance measures to assess 
the quality of care furnished by the ACO. If the ACO demonstrates to CMS 
that it has satisfied the quality performance requirements in this 
subpart, and the ACO meets all other applicable requirements, the ACO is 
eligible for shared savings.
    (b) Selecting measures. (1) CMS selects the measures designated to 
determine an ACO's success in promoting the aims of better care for 
individuals, better health for populations, and lower growth in 
expenditures.
    (2) CMS designates the measures for use in the calculation of the 
quality performance standard.
    (3) CMS seeks to improve the quality of care furnished by ACOs over 
time by specifying higher standards, new measures, or both.
    (c) ACOs must submit data on the measures determined under paragraph 
(b) of this section according to the method of submission established by 
CMS.
    (d) Patient experience of care survey. For performance years 
beginning in 2014 and for subsequent performance years, ACOs must select 
a CMS-certified vendor to administer the survey and report the results 
accordingly.
    (e) Audit and validation of data. CMS retains the right to audit and 
validate quality data reported by an ACO.
    (1) In an audit, the ACO will provide beneficiary medical records 
data if requested by CMS.
    (2) If, at the conclusion of the audit process the overall audit 
match rate between the quality data reported and the medical records 
provided under paragraph (e)(1) of this section is less than 90 percent, 
absent unusual circumstances, CMS will adjust the ACO's overall quality 
score proportional to the ACO's audit performance.
    (3) If, at the conclusion of the audit process CMS determines there 
is an audit match rate of less than 90 percent, the ACO may be required 
to submit a CAP under Sec. 425.216 for CMS approval.
    (f) Failure to report quality measure data accurately, completely, 
and timely (or to timely correct such data) may subject the ACO to 
termination or other sanctions, as described in Secs. 425.216 and 
425.218.

[76 FR 67973, Nov. 2, 2011, as amended at 81 FR 80559, Nov. 15, 2016]

[[Page 869]]



Sec. 425.502  Calculating the ACO quality performance score.

    (a) Establishing a quality performance standard. CMS designates the 
quality performance standard in each performance year. The quality 
performance standard is the overall standard the ACO must meet in order 
to be eligible for shared savings.
    (1) For the first performance year of an ACO's first agreement 
period, CMS defines the quality performance standard at the level of 
complete and accurate reporting for all quality measures.
    (2) During subsequent performance years of the ACO's first agreement 
period, the quality performance standard will be phased in such that the 
ACO must continue to report all measures but the ACO will be assessed on 
performance based on the quality performance benchmark and minimum 
attainment level of all measures.
    (3) Under the quality performance standard for each performance year 
of an ACO's subsequent agreement period, the ACO must continue to report 
on all measures but the ACO will be assessed on performance based on the 
quality performance benchmark and minimum attainment level of all 
measures.
    (4) A newly introduced measure is set at the level of complete and 
accurate reporting for the first two reporting periods, the measure is 
required. For subsequent reporting periods, the quality performance 
standard for the measure will be assessed according to the phase-in 
schedule for the measure.
    (5) CMS reserves the right to redesignate a measure as pay for 
reporting when the measure owner determines the measure no longer aligns 
with clinical practice or causes patient harm.
    (b) Establishing a performance benchmark and minimum attainment 
level for measures. (1) CMS designates a performance benchmark and 
minimum attainment level for each measure, and establishes a point scale 
for the measures.
    (2)(i) CMS will define the quality benchmarks using fee-for-service 
Medicare data.
    (ii) CMS will set benchmarks using flat percentages when the 60th 
percentile is equal to or greater than 80.00 percent, or when the 90th 
percentile is equal to or greater than 95 percent.
    (iii) CMS reserves the right to use flat percentages for other 
measures when CMS determines that fee-for-service Medicare data are 
unavailable, inadequate, or unreliable to set the quality benchmarks.
    (3) The minimum attainment level for pay for performance measures is 
set at 30 percent or the 30th percentile of the performance benchmark. 
The minimum attainment level for pay for reporting measures is set at 
the level of complete and accurate reporting.
    (4)(i) CMS will update the quality performance benchmarks every 2 
years.
    (ii) For newly introduced measures that transition to pay for 
performance in the second year of the 2-year benchmarking cycle, the 
benchmark will be established for that year and updated along with the 
other measures at the start of the next 2-year benchmarking cycle.
    (iii) CMS will use up to three years of data, as available, to set 
the benchmark for each quality measure.
    (c) Methodology for calculating a performance score for each 
measure. (1) Performance below the minimum attainment level for a 
measure will receive zero points for that measure.
    (2) Performance equal to or greater than the minimum attainment 
level for a pay-for-performance measure will receive points on a sliding 
scale based on the level of performance.
    (3) Those measures designated as all or nothing measures will 
receive the maximum available points if all criteria are met and zero 
points if one or more of the criteria are not met.
    (4) Performance at or above 90 percent or the 90th percentile of the 
performance benchmark earns the maximum points available for the 
measure.
    (5) Performance equal to or greater than the minimum attainment 
level for pay-for-reporting measures will receive the maximum available 
points.
    (d) Establishing quality requirements for domains. (1) CMS groups 
individual measures into four domains:
    (i) Patient/care giver experience.
    (ii) Care coordination/Patient safety.
    (iii) Preventative health.
    (iv) At-risk population.
    (2) To satisfy quality requirements for a domain:

[[Page 870]]

    (i) The ACO must report all measures within a domain.
    (ii) CMS may take the compliance actions described in Sec. 425.216 
for ACOs exhibiting poor performance on a domain, as determined by CMS 
under Sec. 425.316.
    (iii)(A) If the ACO achieves the minimum attainment level for at 
least one measure in each of the four domains, and also satisfies the 
requirements for realizing shared savings under subpart G of this part, 
the ACO may receive the proportion of those shared savings for which it 
qualifies.
    (B) If an ACO fails to achieve the minimum attainment level on all 
measures in a domain, it will not be eligible to share in any savings 
generated.
    (e) Methodology for calculating the ACO's overall performance score. 
(1) CMS scores individual measures and determines the corresponding 
number of points that may be earned based on the ACO's performance.
    (2) CMS adds the points earned for the individual measures within 
the domain and divides by the total points available for the domain to 
determine the domain score.
    (3) Domains are weighted equally and scores averaged to determine 
the ACO's overall performance score and sharing rate.
    (4)(i) ACOs that demonstrate quality improvement on established 
quality measures from year to year will be eligible for up to 4 bonus 
points per domain.
    (ii) Bonus points are awarded based on an ACO's net improvement in 
measures within a domain, which is calculated by determining the total 
number of significantly improved measures and subtracting the total 
number of significantly declined measures.
    (iii) Up to four bonus points are awarded based on a comparison of 
the ACO's net improvement in performance on the measures for the domain 
to the total number of individual measures in the domain.
    (iv) When bonus points are added to points earned for the quality 
measures in the domain, the total points received for the domain may not 
exceed the maximum total points for the domain in the absence of the 
quality improvement measure.
    (v) If an ACO renews its participation agreement for a subsequent 
agreement period, quality improvement will be measured based on a 
comparison between performance in the first year of the new agreement 
period and performance in the third year of the previous agreement 
period.

[76 FR 67973, Nov. 2, 2011, as amended at 78 FR 74823, Dec. 10, 2013; 79 
FR 68008, Nov. 13, 2014; 80 FR 71386, Nov. 16, 2015; 81 FR 80560, Nov. 
15, 2016]



Sec. 425.504  Incorporating reporting requirements related to the 
Physician Quality Reporting System Incentive and Payment Adjustment.

    (a) Physician quality reporting system. (1) ACOs, on behalf of 
eligible professionals who bill under the TIN of an ACO participant, 
must submit the measures determined under Sec. 425.500 using a CMS web 
interface, to qualify on behalf of their eligible professionals for the 
Physician Quality Reporting System incentive under the Shared Savings 
Program.
    (2)(i) Eligible professionals who bill under the TIN of an ACO 
participant within an ACO may only participate under their ACO 
participant TIN as a group practice under the Physician Quality 
Reporting System Group Practice Reporting Option of the Shared Savings 
Program for purposes of receiving an incentive payment under the 
Physician Quality Reporting System.
    (ii) Under the Shared Savings Program, an ACO, on behalf of eligible 
professionals who bill under the TIN of an ACO participant must 
satisfactorily report the measures determined under Subpart F of this 
part during the reporting period according to the method of submission 
established by CMS under the Shared Savings Program in order to receive 
a Physician Quality Reporting System incentive under the Shared Savings 
Program.
    (3) If eligible professionals who bill under the TIN of an ACO 
participant within an ACO qualify for a Physician Quality Reporting 
System incentive payment, each ACO participant TIN, on behalf of its ACO 
supplier/provider

[[Page 871]]

participants who are eligible professionals, will receive an incentive, 
for those years an incentive is available, based on the allowed charges 
under the Physician Fee Schedule for that TIN.
    (4) ACO participant TINs and individual eligible professionals who 
bill under the TIN of an ACO participant cannot earn a Physician Quality 
Reporting System incentive outside of the Medicare Shared Savings 
Program.
    (5) The Physician Quality Reporting System incentive under the 
Medicare Shared Savings Program is equal to 0.5 percent of the 
Secretary's estimate of the ACO's eligible professionals' total Medicare 
Part B Physician Fee Schedule allowed charges for covered professional 
services furnished during the calendar year reporting period from 
January 1 through December 31, for years 2012 through 2014.
    (b) Physician Quality Reporting System payment adjustment for 2015. 
(1) ACOs, on behalf of eligible professionals who bill under the TIN of 
an ACO participant, must submit one of the ACO GPRO measures determined 
under Sec. 425.500 using a CMS web interface, to satisfactorily report 
on behalf of their eligible professionals for purposes of the 2015 
Physician Quality Reporting System payment adjustment under the Shared 
Savings Program.
    (2)(i) Eligible professionals who bill under the TIN of an ACO 
participant within an ACO may only participate under their ACO 
participant TIN as a group practice under the Physician Quality 
Reporting System Group Practice Reporting Option of the Shared Savings 
Program for purposes of the 2015 Physician Quality Reporting System 
payment adjustment under the Shared Savings Program.
    (ii) Under the Shared Savings Program, an ACO, on behalf of eligible 
professionals who bill under the TIN of an ACO participant, must 
satisfactorily report one of the measures determined under Subpart F of 
this part during the reporting period for a year, as defined in 
paragraph (b)(6) of this section, according to the method of submission 
established by CMS under the Shared Savings Program for purposes of the 
2015 Physician Quality Reporting System payment adjustment.
    (3) If an ACO, on behalf of eligible professionals who bill under 
the TIN of an ACO participant, does not satisfactorily report for 
purposes of a 2015 Physician Quality Reporting System payment 
adjustment, each eligible professional who bills under the TIN of an ACO 
participant, will receive a payment adjustment, as described in 
paragraph (b)(5) of this section.
    (4) ACO participant TINs and individual eligible professionals who 
bill under the TIN of an ACO participant cannot satisfactorily report 
for purposes of a 2015 Physician Quality Reporting System payment 
adjustment outside of the Medicare Shared Savings Program.
    (5) For eligible professionals subject to the 2015 Physician Quality 
Reporting System payment adjustment under the Medicare Shared Savings 
Program, the Medicare Part B Physician Fee Schedule amount for covered 
professional services furnished during the program year is equal to the 
applicable percent of the Medicare Part B Physician Fee Schedule amount 
that would otherwise apply to such services under section 1848 of the 
Act.
    (i) The applicable percent for 2015 is 98.5 percent.
    (ii) The applicable percent for 2016 and subsequent years is 98.0 
percent.
    (6) The reporting period for a year is the calendar year from 
January 1 through December 31 that occurs 2 years prior to the program 
year in which the payment adjustment is applied.
    (c) Physician Quality Reporting System payment adjustment for 2016. 
(1) ACOs, on behalf of eligible professionals who bill under the TIN of 
an ACO participant, must submit all of the ACO GPRO measures determined 
under Sec. 425.500 using a CMS web interface, to satisfactorily report 
on behalf of their eligible professionals for purposes of the Physician 
Quality Reporting System payment adjustment under the Shared Savings 
Program for 2016.
    (2) Eligible professionals who bill under the TIN of an ACO 
participant within an ACO may only participate under their ACO 
participant TIN as a group practice under the Physician Quality 
Reporting System Group Practice Reporting Option of the Shared

[[Page 872]]

Savings Program for purposes of the Physician Quality Reporting System 
payment adjustment under the Shared Savings Program for 2016 and 
subsequent years.
    (3) If an ACO, on behalf of eligible professionals who bill under 
the TIN of an ACO participant, does not satisfactorily report for 
purposes of the Physician Quality Reporting System payment adjustment 
for 2016 and subsequent years, each eligible professional who bills 
under the TIN of an ACO participant, will receive a payment adjustment, 
as described in Sec. 414.90(e) of this chapter.
    (4) For eligible professionals subject to the Physician Quality 
Reporting System payment adjustment under the Medicare Shared Savings 
Program for 2016 and subsequent years, the Medicare Part B Physician Fee 
Schedule amount for covered professional services furnished during the 
program year is equal to the applicable percent of the Medicare Part B 
Physician Fee Schedule amount that would otherwise apply to such 
services under section 1848 of the Act, as described in Sec. 414.90(e) 
of this chapter.
    (5) The reporting period for a year is the calendar year from 
January 1 through December 31 that occurs 2 years prior to the program 
year in which the payment adjustment is applied.
    (d) Physician Quality Reporting System payment adjustment for 2017 
and 2018. (1) ACOs, on behalf of eligible professionals who bill under 
the TIN of an ACO participant, must submit all of the ACO GPRO measures 
determined under Sec. 425.500 using a CMS web interface, to 
satisfactorily report on behalf of their eligible professionals for 
purposes of the Physician Quality Reporting System payment adjustment 
under the Shared Savings Program for 2017 and 2018.
    (2) Eligible professionals who bill under the TIN of an ACO 
participant within an ACO participate under their ACO participant TIN as 
a group practice under the Physician Quality Reporting System Group 
Practice Reporting Option of the Shared Savings Program for purposes of 
the Physician Quality Reporting System payment adjustment under the 
Shared Savings Program for 2017 and 2018.
    (3) If an ACO, on behalf of eligible professionals who bill under 
the TIN of an ACO participant, does not satisfactorily report for 
purposes of the Physician Quality Reporting System payment adjustment 
for 2017 or 2018, each eligible professional who bills under the TIN of 
an ACO participant will receive a payment adjustment, as described in 
Sec. 414.90(e) of this chapter, unless such eligible professionals have 
reported quality measures apart from the ACO in the form and manner 
required by the Physician Quality Reporting System.
    (4) For eligible professionals subject to the Physician Quality 
Reporting System payment adjustment under the Medicare Shared Savings 
Program for 2017 or 2018, the Medicare Part B Physician Fee Schedule 
amount for covered professional services furnished during the program 
year is equal to the applicable percent of the Medicare Part B Physician 
Fee Schedule amount that would otherwise apply to such services under 
section 1848 of the Act, as described in Sec. 414.90(e) of this chapter.
    (5) The reporting period for a year is the calendar year from 
January 1 through December 31 that occurs 2 years prior to the program 
year in which the payment adjustment is applied, unless otherwise 
specified by CMS under the Physician Quality Reporting System.

[76 FR 67973, Nov. 2, 2011, as amended at 77 FR 69372, Nov. 16, 2012; 78 
FR 74283, Dec. 10, 2013; 80 FR 71386, Nov. 16, 2015; 81 FR 80560, Nov. 
15, 2016]



Sec. 425.506  Incorporating reporting requirements related to 
adoption of certified electronic health record technology.

    (a) ACOs, ACO participants, and ACO providers/suppliers are 
encouraged to develop a robust EHR infrastructure.
    (b) As part of the quality performance score, the quality measure 
regarding EHR adoption will be measured based on a sliding scale.
    (c) Performance on this measure will be weighted twice that of any 
other measure for scoring purposes and for determining compliance with 
quality performance requirements for domains.

[[Page 873]]

    (d) Through reporting period 2016, eligible professionals 
participating in an ACO under the Shared Savings Program satisfy the CQM 
reporting component of meaningful use for the Medicare EHR Incentive 
Program when the following occurs:
    (1) The eligible professional extracts data necessary for the ACO to 
satisfy the quality reporting requirements under this subpart from 
certified EHR technology.
    (2) The ACO reports the ACO GPRO measures through a CMS web 
interface.
    (e) For 2017 and subsequent years, CMS will annually assess the 
degree of use of certified EHR technology by eligible clinicians billing 
through the TINs of ACO participants for purposes of meeting the CEHRT 
criterion necessary for Advanced Alternative Payment Models under the 
Quality Payment Program.
    (1) During years in which the measure is designated as pay for 
reporting, in order to demonstrate complete and accurate reporting, at 
least one eligible clinician billing through the TIN of an ACO 
participant must meet the reporting requirements under the Advancing 
Clinical Information category under the Quality Payment Program.
    (2) During years in which the measure is designated as pay for 
performance, the quality measure regarding EHR adoption will be measured 
based on a sliding scale.

[76 FR 67973, Nov. 2, 2011, as amended at 79 FR 68009, Nov. 13, 2014; 81 
FR 80560, Nov. 15, 2016]



Sec. 425.508  Incorporating quality reporting requirements related to 
the Quality Payment Program.

    (a) For 2017 and subsequent reporting years. ACOs, on behalf of 
eligible clinicians who bill under the TIN of an ACO participant, must 
submit all of the CMS web interface measures determined under 
Sec. 425.500 to satisfactorily report on behalf of their eligible 
clinicians for purposes of the quality performance category of the 
Quality Payment Program.
    (b) [Reserved]

[81 FR 80561, Nov. 15, 2016]



                   Subpart G_Shared Savings and Losses



Sec. 425.600  Selection of risk model.

    (a) For its initial agreement period, an ACO may elect to operate 
under one of the following tracks:
    (1) Track 1. Under Track 1, the ACO operates under the one-sided 
model (as described under Sec. 425.604 of this part) for the agreement 
period.
    (2) Track 2. Under Track 2, the ACO operates under a two-sided model 
(as described under Sec. 425.606), sharing both savings and losses with 
the Medicare program for the agreement period.
    (3) Track 3. Under Track 3, the ACO operates under a two-sided model 
(as described under Sec. 425.610), sharing both savings and losses with 
the Medicare program for the agreement period.
    (b) ACOs may operate under the one-sided model for a maximum of two 
agreement periods. An ACO may not operate under the one-sided model for 
a second agreement period unless the--
    (1) Immediately preceding agreement period was under the one-sided 
model; and
    (2) The ACO meets the criteria established for ACOs seeking to renew 
their agreements under Sec. 425.224(b).
    (c) An ACO experiencing a net loss during a previous agreement 
period may reapply to participate under the conditions in 
Sec. 425.202(a), except the ACO must also identify in its application 
the cause(s) for the net loss and specify what safeguards are in place 
to enable the ACO to potentially achieve savings in its next agreement 
period.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32841, June 9, 2015]



Sec. 425.602  Establishing, adjusting, and updating the benchmark
for an ACO's first agreement period.

    (a) Computing per capita Medicare Part A and Part B benchmark 
expenditures. In computing an ACO's fixed historical benchmark that is 
adjusted for historical growth and beneficiary characteristics, 
including health status, CMS determines the per capita Parts A and B 
fee-for-service expenditures for beneficiaries that would have been 
assigned to the ACO in any of the 3 most recent years prior to the 
agreement period

[[Page 874]]

using the ACO participants' TINs identified at the start of the 
agreement period. CMS does all of the following:
    (1) Calculates the payment amounts included in Parts A and B fee-
for-service claims using a 3-month claims run out with a completion 
factor.
    (i) This calculation excludes indirect medical education (IME) and 
disproportionate share hospital (DSH) payments.
    (ii) This calculation considers individually beneficiary 
identifiable payments made under a demonstration, pilot or time limited 
program.
    (2) Makes separate expenditure calculations for each of the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries and aged/non-dual eligible 
Medicare and Medicaid beneficiaries.
    (3) Adjusts expenditures for changes in severity and case mix using 
prospective HCC risk scores.
    (4) Truncation of expenditures:
    (i) For agreement periods beginning before 2017--
    (A) Truncates an assigned beneficiary's total annual Parts A and B 
fee-for-service per capita expenditures at the 99th percentile of 
national Medicare fee-for-service expenditures as determined for each 
benchmark year in order to minimize variation from catastrophically 
large claims; and
    (B) For the 2017 performance year and any subsequent performance 
years in agreement periods beginning in 2014, 2015 and 2016, the 
benchmark is adjusted to reflect the use of assignable beneficiaries in 
determining the 99th percentile of Medicare fee-for-service expenditures 
for purposes of truncating expenditures for assigned beneficiaries 
during each benchmark year as specified in paragraph (a)(4)(ii) of this 
section.
    (ii) For agreement periods beginning in 2017 and subsequent years, 
truncates an assigned beneficiary's total annual Parts A and B fee-for-
service per capita expenditures at the 99th percentile of national 
Medicare fee-for-service expenditures for assignable beneficiaries 
identified for the 12-month calendar year corresponding to each 
benchmark year in order to minimize variation from catastrophically 
large claims.
    (5) Trending expenditures:
    (i) For agreement periods beginning before 2017--
    (A) Using CMS Office of the Actuary national Medicare expenditure 
data for each of the years making up the historical benchmark, 
determines national growth rates and trends expenditures for each 
benchmark year (BY1 and BY2) to the third benchmark year (BY3) dollars.
    (B) To trend forward the benchmark, CMS makes separate calculations 
for expenditure categories for each of the following populations of 
beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (C) For the 2017 performance year and any subsequent performance 
years in agreement periods beginning in 2014, 2015 and 2016, the 
benchmark is adjusted to reflect the use of assignable beneficiaries to 
perform each of these calculations as specified in paragraph (a)(5)(ii) 
of this section.
    (ii) For agreement periods beginning in 2017 and subsequent years--
    (A) Using CMS Office of the Actuary national Medicare expenditure 
data for each of the years making up the historical benchmark, 
determines national growth rates for assignable beneficiaries identified 
for the 12-month calendar year corresponding to each benchmark year, and 
trends expenditures for each benchmark year (BY1 and BY2) to the third 
benchmark year (BY3) dollars.
    (B) To trend forward the benchmark, CMS makes separate calculations 
for expenditure categories for each of the following populations of 
beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (6) Restates BY1 and BY2 trended and risk adjusted expenditures in 
BY3 proportions of ESRD, disabled, aged/dual eligible Medicare and 
Medicaid beneficiaries and aged/non-dual eligible Medicare and Medicaid 
beneficiaries.

[[Page 875]]

    (7) Weights each year of the benchmark for the initial agreement 
period using the following percentages:
    (i) BY3 at 60 percent.
    (ii) BY2 at 30 percent.
    (iii) BY1 at 10 percent.
    (8) The benchmark is adjusted to take into account the expenditures 
for beneficiaries who would have been assigned to the ACO in any of the 
3 most recent years prior to the agreement period using the most recent 
certified ACO participant list for the relevant performance year.
    (9) The historical benchmark is further adjusted at the time of 
reconciliation for a performance year to account for changes in severity 
and case mix for newly and continuously assigned beneficiaries using 
prospective HCC risk scores and demographic factors as described under 
Secs. 425.604(a)(1) through (3), 425.606(a)(1) through (3), and 
425.610(a)(1) through (3).
    (b) Updating the benchmark. CMS updates the historical benchmark 
annually for each year of the agreement period based on the flat dollar 
equivalent of the projected absolute amount of growth in national per 
capita expenditures for Parts A and B services under the original 
Medicare fee-for-service program.
    (1) For performance years before 2017, CMS updates the historical 
benchmark annually for each year of the agreement period based on the 
flat dollar equivalent of the projected absolute amount of growth in 
national per capita expenditures for Parts A and B services under the 
original Medicare fee-for-service program.
    (i) CMS updates the fixed benchmark by the projected absolute amount 
of growth in national per capita expenditures for Parts A and B services 
under the original Medicare fee-for-service program using data from CMS' 
Office of the Actuary.
    (ii) To update the benchmark, CMS makes expenditure calculations for 
separate categories for each of the following populations of 
beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) For the 2017 performance year and subsequent performance years, 
CMS updates the historical benchmark annually for each year of the 
agreement period based on the flat dollar equivalent of the projected 
absolute amount of growth in national per capita expenditures for Parts 
A and B services under the original Medicare fee-for-service program for 
assignable beneficiaries identified for the 12-month calendar year 
corresponding to the year for which the update is calculated.
    (i) CMS updates the fixed benchmark by the projected absolute amount 
of growth in national per capita expenditures for Parts A and B services 
under the original Medicare fee-for-service program for assignable 
beneficiaries identified for the 12-month calendar year corresponding to 
the year for which the update is being calculated using data from CMS' 
Office of the Actuary.
    (ii) To update the benchmark, CMS makes expenditure calculations for 
separate categories for each of the following populations of 
beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32842, June 9, 2015; 81 
FR 38014, June 10, 2016]



Sec. 425.603  Resetting, adjusting, and updating the benchmark for
a subsequent agreement period.

    (a) An ACO's benchmark is reset at the start of each subsequent 
agreement period.
    (b) For second agreement periods beginning in 2016, CMS establishes, 
adjusts, and updates the rebased historical benchmark in accordance with 
Sec. 425.602(a) and (b) with the following modifications:
    (1) Rather than weighting each year of the benchmark using the 
percentages provided at Sec. 425.602(a)(7), each benchmark year is 
weighted equally.
    (2) An additional adjustment is made to account for the average per 
capita amount of savings generated during the ACO's previous agreement 
period.

[[Page 876]]

The adjustment is limited to the average number of assigned 
beneficiaries (expressed as person years) under the ACO's first 
agreement period.
    (c) For second or subsequent agreement periods beginning in 2017 and 
subsequent years, CMS establishes the rebased historical benchmark by 
determining the per capita Parts A and B fee-for-service expenditures 
for beneficiaries who would have been assigned to the ACO in any of the 
3 most recent years before the agreement period using the certified ACO 
participant list submitted before the start of the agreement period as 
required under Sec. 425.118. CMS does all of the following:
    (1) Calculates the payment amounts included in Parts A and B fee-
for-service claims using a 3-month claims run out with a completion 
factor. The calculation--
    (i) Excludes IME and DSH payments; and
    (ii) Considers individually beneficiary identifiable payments made 
under a demonstration, pilot or time limited program.
    (2) Makes separate expenditure calculations for each of the 
following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (3) Adjusts expenditures for changes in severity and case mix using 
prospective HCC risk scores.
    (4) Truncates an assigned beneficiary's total annual Parts A and B 
fee-for-service per capita expenditures at the 99th percentile of 
national Medicare fee-for-service expenditures for assignable 
beneficiaries identified for the 12-month calendar year corresponding to 
each benchmark year in order to minimize variation from catastrophically 
large claims.
    (5) Trends forward expenditures for each benchmark year (BY1 and 
BY2) to the third benchmark year (BY3) dollars using regional growth 
rates based on expenditures for the ACO's regional service area as 
determined under paragraphs (e) and (f) of this section, making separate 
expenditure calculations for each of the following populations of 
beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (6) Restates BY1 and BY2 trended and risk-adjusted expenditures in 
BY3 proportions of the following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (7) Weights each benchmark year equally.
    (8) The ACO's benchmark will be adjusted in accordance with 
Sec. 425.118(b) for the addition and removal of ACO participants or ACO 
providers/suppliers during the term of the agreement period. To adjust 
the benchmark, CMS does the following:
    (i) Takes into account the expenditures for beneficiaries who would 
have been assigned to the ACO in any of the 3 most recent years prior to 
the agreement period using the most recent certified ACO participant 
list for the relevant performance year.
    (ii) Redetermines the regional adjustment amount under paragraph 
(c)(9) of this section, according to the ACO's assigned beneficiaries 
for BY3 resulting from the most recent certified ACO participant list 
for the relevant performance year.
    (9) Adjusts the historical benchmark based on the ACO's regional 
service area expenditures, making separate calculations for the 
following populations of beneficiaries: ESRD, disabled, aged/dual 
eligible Medicare and Medicaid beneficiaries, and aged/non-dual eligible 
Medicare and Medicaid beneficiaries. CMS does all of the following:
    (i) Calculates an average per capita amount of expenditures for the 
ACO's regional service area as follows:
    (A) Determines the counties included in the ACO's regional service 
area based on the ACO's BY3 assigned beneficiary population.

[[Page 877]]

    (B) Determines the ACO's regional expenditures as specified under 
paragraphs (e) and (f) of this section for BY3.
    (C) Adjusts for differences in severity and case mix between the 
ACO's assigned beneficiary population and the assignable beneficiary 
population for the ACO's regional service area identified for the 12-
month calendar year that corresponds to BY3.
    (ii) Calculates the adjustment as follows:
    (A) Determines the difference between the average per capita amount 
of expenditures for the ACO's regional service area as specified under 
paragraph (c)(9)(i) of this section and the average per capita amount of 
the ACO's rebased historical benchmark determined under paragraphs 
(c)(1) through)(8) of this section, for each of the following 
populations of beneficiaries:
    (1) ESRD.
    (2) Disabled.
    (3) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (4) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (B) Applies a percentage, determined as follows:
    (1) The first time an ACO's benchmark is rebased using the 
methodology described under paragraph (c) of this section, CMS 
calculates the regional adjustment as follows:
    (i) Using 35 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark, 
if the ACO is determined to have lower spending than the ACO's regional 
service area;
    (ii) Using 25 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark, 
if the ACO is determined to have higher spending than the ACO's regional 
service area.
    (2) The second time that an ACO's benchmark is rebased using the 
methodology described under paragraph (c) of this section, CMS 
calculates the regional adjustment to the historical benchmark as 
follows:
    (i) Using 70 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark, 
unless the Secretary determines a lower weight should be applied, if the 
ACO is determined to have lower spending than the ACO's regional service 
area;
    (ii) Using 50 percent of the difference between the average per 
capita amount of expenditures for the ACO's regional service area and 
the average per capita amount of the ACO's rebased historical benchmark, 
if the ACO is determined to have higher spending than the ACO's regional 
service area.
    (3) The third or subsequent time that an ACO's benchmark is rebased 
using the methodology described under paragraph (c) of this section, CMS 
calculates the regional adjustment to the historical benchmark using 70 
percent of the difference between the average per capita amount of 
expenditures for the ACO's regional service area and the average per 
capita amount of the ACO's rebased historical benchmark, unless the 
Secretary determines a lower weight should be applied.
    (4) To determine if an ACO has lower or higher spending compared to 
the ACO's regional service area, CMS does the following:
    (i) Multiplies the difference between the average per capita amount 
of expenditures for the ACO's regional service area and the average per 
capita amount of the ACO's rebased historical benchmark for each 
population of beneficiaries (ESRD, Disabled, Aged/dual eligible Medicare 
and Medicaid beneficiaries, Aged/non-dual eligible Medicare and Medicaid 
beneficiaries) as calculated under paragraph (c)(9)(ii)(A) of this 
section by the applicable proportion of the ACO's assigned beneficiary 
population (ESRD, Disabled, Aged/dual eligible Medicare and Medicaid 
beneficiaries, Aged/non-dual eligible Medicare and Medicaid 
beneficiaries) for benchmark year 3 of the rebased historical benchmark.

[[Page 878]]

    (ii) Sums the amounts determined in paragraph (c)(9)(ii)(B)(4)(i) of 
this section across the populations of beneficiaries (ESRD, Disabled, 
Aged/dual eligible Medicare and Medicaid beneficiaries, Aged/non-dual 
eligible Medicare and Medicaid beneficiaries).
    (iii) If the resulting sum is a net positive value, the ACO is 
considered to have lower spending compared to the ACO's regional service 
area. If the resulting sum is a net negative value, the ACO is 
considered to have higher spending compared to the ACO's regional 
service area.
    (iv) If CMS adjusts the ACO's benchmark for the addition or removal 
of ACO participants or ACO providers/suppliers during the term of the 
agreement period as specified in paragraph (c)(8) of this section, CMS 
redetermines whether the ACO is considered to have lower spending or 
higher spending compared to the ACO's regional service area for purposes 
of determining the percentage used in calculating the adjustment in 
paragraphs (c)(9)(ii)(B)(1) and (2) of this section.
    (10) The historical benchmark is further adjusted at the time of 
reconciliation for a performance year to account for changes in severity 
and case mix for newly and continuously assigned beneficiaries using 
prospective HCC risk scores and demographic factors as described under 
Secs. 425.604(a)(1) through (3), 425.606(a)(1) through (3), and 
425.610(a)(1) through (3).
    (d) For second or subsequent agreement periods beginning in 2017 and 
subsequent years, CMS updates the rebased historical benchmark under 
paragraph (c) of this section, annually for each year of the agreement 
period by the growth in risk adjusted regional per beneficiary FFS 
spending for the ACO's regional service area by doing all of the 
following:
    (1) Determining the counties included in the ACO's regional service 
area based on the ACO's assigned beneficiary population used to 
determine financial reconciliation for the relevant performance year.
    (2) Determining growth rates based on expenditures for counties in 
the ACO's regional service area calculated under paragraphs (e) and (f) 
of this section, for the performance year compared to BY3 for each of 
the following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (3) Updating the benchmark by making separate calculations for each 
of the following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (e) For second or subsequent agreement periods beginning in 2017 and 
subsequent years, CMS does all of the following to determine risk 
adjusted county fee-for-service expenditures for use in calculating the 
ACO's regional fee-for-service expenditures:
    (1)(i) Determines average county fee-for-service expenditures based 
on expenditures for the assignable population of beneficiaries in each 
county, where assignable beneficiaries are identified for the 12-month 
calendar year corresponding to the relevant benchmark or performance 
year.
    (ii) Makes separate expenditure calculations for each of the 
following populations of beneficiaries:
    (A) ESRD.
    (B) Disabled.
    (C) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (D) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) Calculates assignable beneficiary expenditures using the payment 
amounts included in Parts A and B fee-for-service claims with dates of 
service in the 12-month calendar year for the relevant benchmark or 
performance year, using a 3-month claims run out with a completion 
factor. The calculation--
    (i) Excludes IME and DSH payments; and
    (ii) Considers individually beneficiary identifiable payments made 
under a demonstration, pilot or time limited program.
    (3) Truncates a beneficiary's total annual Parts A and B fee-for-
service per

[[Page 879]]

capita expenditures at the 99th percentile of national Medicare fee-for-
service expenditures for assignable beneficiaries identified for the 12-
month calendar year that corresponds to the relevant benchmark or 
performance year, in order to minimize variation from catastrophically 
large claims.
    (4) Adjusts fee-for-service expenditures for severity and case mix 
of assignable beneficiaries in the county using prospective CMS-HCC risk 
scores. The calculation is made according to the following populations 
of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (f) For second or subsequent agreement periods beginning in 2017 and 
subsequent years, CMS calculates an ACO's risk adjusted regional 
expenditures by--
    (1) Weighting the risk-adjusted county-level fee-for-service 
expenditures determined under paragraph (e) of this section according to 
the ACO's proportion of assigned beneficiaries in the county, determined 
by the number of the ACO's assigned beneficiaries in the applicable 
population (according to Medicare enrollment type) residing in the 
county in relation to the ACO's total number of assigned beneficiaries 
in the applicable population (according to Medicare enrollment type) for 
the relevant benchmark or performance year for each of the following 
populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (2) Aggregating the values determined under paragraph (f)(1) of this 
section for each population of beneficiaries (according to Medicare 
enrollment type) across all counties within the ACO's regional service 
area; and
    (3) Weighting the aggregate expenditure values determined for each 
population of beneficiaries (according to Medicare enrollment type) 
under paragraph (f)(2) of this section by a weight reflecting the 
proportion of the ACO's overall beneficiary population in the applicable 
Medicare enrollment type for the relevant benchmark or performance year.

[81 FR 38014, June 10, 2016]



Sec. 425.604  Calculation of savings under the one-sided model.

    (a) Savings determination. For each performance year, CMS determines 
whether the estimated average per capita Medicare expenditures under the 
ACO for Medicare fee-for-service beneficiaries for Parts A and B 
services are below the applicable updated benchmark determined under 
Sec. 425.602.
    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust the benchmark for changes in severity and case mix 
in this population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust the benchmark for changes in the continuously assigned 
population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS will adjust the benchmark for changes in 
severity and case mix in this population using this lower prospective 
HCC risk score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in 
Sec. 425.602(a). In adjusting the benchmark for health status and 
demographic changes CMS makes adjustments for separate categories for 
each of the following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4)(i) For performance years before 2017 to minimize variation from 
catastrophically large claims, CMS truncates an assigned beneficiary's 
total annual Parts A and B fee-for-service per capita expenditures at 
the 99th percentile of national Medicare fee-for-service expenditures as 
determined for each performance year.
    (ii) For the 2017 performance year and subsequent performance years, 
to

[[Page 880]]

minimize variation from catastrophically large claims, CMS truncates an 
assigned beneficiary's total annual Parts A and B fee-for-service per 
capita expenditures at the 99th percentile of national Medicare fee-for-
service expenditures as determined for the applicable performance year 
for assignable beneficiaries identified for the 12-month calendar year 
corresponding to the performance year.
    (5) CMS uses a 3 month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education (IME) 
and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) In order to qualify for a shared savings payment, the ACO's 
average per capita Medicare expenditures for the performance year must 
be below the applicable updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.
    (b) Minimum savings rate (MSR). CMS uses a sliding scale, based on 
the number of beneficiaries assigned to the ACO under subpart E of this 
part, to establish the MSR for an ACO participating under the one-sided 
model. The MSR under the one-sided model for an ACO based on the number 
of assigned beneficiaries is as follows:

------------------------------------------------------------------------
                                           MSR (low end    MSR (high end
                                            of assigned     of assigned
        Number of  beneficiaries          beneficiaries)  beneficiaries)
                                             (percent)       (percent)
------------------------------------------------------------------------
5,000-5,999.............................             3.9             3.6
6,000-6,999.............................             3.6             3.4
7,000-7,999.............................             3.4             3.2
8,000-8,999.............................             3.2             3.1
9,000-9,999.............................             3.1             3.0
10,000-14,999...........................             3.0             2.7
15,000-19,999...........................             2.7             2.5
20,000-49,999...........................             2.5             2.2
50,000-59,999...........................             2.2             2.0
                                         -------------------------------
60,000 +................................                2.0
------------------------------------------------------------------------

    (c) Qualification for shared savings payment. In order to qualify 
for shared savings, an ACO must meet or exceed its minimum savings rate 
determined under paragraph (b) of this section, meet the minimum quality 
performance standards established under Sec. 425.502, and otherwise 
maintain its eligibility to participate in the Shared Savings Program 
under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under the one-sided model will receive 
a shared savings payment of up to 50 percent of all savings under the 
updated benchmark, as determined on the basis of its quality performance 
under Sec. 425.502 of this part (up to the performance payment limit 
described in paragraph (e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under the 
one-sided model may not exceed 10 percent of its updated benchmark.
    (f) Notification of savings. CMS notifies an ACO in writing 
regarding whether the ACO qualifies for a shared savings payment, and if 
so, the amount of the payment due.

[76 FR 67973, Nov. 2, 2011, as amended at 81 FR 38016, June 10, 2016]



Sec. 425.606  Calculation of shared savings and losses under Track 2.

    (a) General rule. For each performance year, CMS determines whether 
the estimated average per capita Medicare expenditures under the ACO for 
Medicare fee-for-service beneficiaries for Parts A and B services are 
above or below the updated benchmark determined under Sec. 425.602. In 
order to qualify for a shared savings payment under Track 2, or to be 
responsible for sharing losses with CMS, an ACO's average per capita 
Medicare expenditures under the ACO for Medicare fee-for-service 
beneficiaries for Parts A and B services for the performance year must 
be below or above the updated benchmark, respectively, by at least the 
minimum savings or loss rate under paragraph (b) of this section.

[[Page 881]]

    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust the benchmark for changes in severity and case mix 
in this population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust the benchmark for changes in the continuously assigned 
beneficiary population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS will adjust the benchmark for changes in 
severity and case mix for this population using this lower prospective 
HCC risk score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in 
Sec. 425.602(a). In adjusting the benchmark for health status and 
demographic changes CMS makes separate adjustments for each of the 
following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.
    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4)(i) For performance years before 2017 to minimize variation from 
catastrophically large claims, CMS truncates an assigned beneficiary's 
total annual Parts A and B fee-for-service per capita expenditures at 
the 99th percentile of national Medicare fee-for-service expenditures as 
determined for each performance year.
    (ii) For the 2017 performance year and subsequent performance years, 
to minimize variation from catastrophically large claims, CMS truncates 
an assigned beneficiary's total annual Parts A and B fee-for-service per 
capita expenditures at the 99th percentile of national Medicare fee-for-
service expenditures as determined for the applicable performance year 
for assignable beneficiaries identified for the 12-month calendar year 
corresponding to the performance year.
    (5) CMS uses a 3 month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education (IME) 
and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) In order to qualify for a shared savings payment, the ACO's 
average per capita Medicare expenditures for the performance year must 
be below the applicable updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.
    (b) Minimum savings or loss rate. (1)(i) For agreement periods 
beginning in 2012 through 2015, the ACO's MSR and MLR are set at 2 
percent.
    (ii) For agreement periods beginning in 2016 and subsequent years, 
as part of the ACO's application for, or renewal of, program 
participation, the ACO must choose from the following options for 
establishing the MSR/MLR for the duration of the agreement period:
    (A) Zero percent MSR/MLR.
    (B) Symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 
percent.
    (C) Symmetrical MSR/MLR that varies, based on the number of 
beneficiaries assigned to the ACO under subpart E of this part. The MSR 
for an ACO under Track 2 is the same as the MSR that would apply in the 
one-sided model under Sec. 425.604(b) and is based on the number of 
assigned beneficiaries. The MLR under Track 2 is equal to the negative 
MSR.
    (2) To qualify for shared savings under Track 2, an ACO's average 
per capita Medicare expenditures for the performance year must be below 
its updated benchmark costs for the year by at least the MSR established 
for the ACO.
    (3) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare expenditures for the performance 
year must be above its updated benchmark costs for the year by at least 
the MLR established for the ACO.

[[Page 882]]

    (c) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec. 425.502 of this 
part, and otherwise maintain its eligibility to participate in the 
Shared Savings Program under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under Track 2 will receive a shared 
savings payment of up to 60 percent of all the savings under the updated 
benchmark, as determined on the basis of its quality performance under 
Sec. 425.502 of this part (up to the performance payment limit described 
in paragraph (e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under 
Track 2 may not exceed 15 percent of its updated benchmark.
    (f) Shared loss rate. The shared loss rate--
    (1) For an ACO that is required to share losses with the Medicare 
program for expenditures over the updated benchmark, the amount of 
shared losses is determined based on the inverse of its final sharing 
rate described in Sec. 425.606(d) (that is, 1 minus the final shared 
savings rate determined under Sec. 425.606(d) of this part); and
    (2) May not exceed 60 percent.
    (g) Loss recoupment limit. The amount of shared losses for which an 
eligible ACO is liable may not exceed the following percentages of its 
updated benchmark as determined under Sec. 425.602:
    (1) 5 percent in the first performance year of participation in 
Track 2 under the Shared Savings Program.
    (2) 7.5 percent in the second performance year.
    (3) 10 percent in the third and any subsequent performance year.
    (h) Notification of savings and losses. (1) CMS notifies an ACO in 
writing regarding whether the ACO qualifies for a shared savings 
payment, and if so, the amount of the payment due.
    (2) CMS provides written notification to an ACO of the amount of 
shared losses, if any, that it must repay to the program.
    (3) If an ACO has shared losses, the ACO must make payment in full 
to CMS within 90 days of receipt of notification.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32842, June 9, 2015; 81 
FR 38017, June 10, 2016]



Sec. 425.608  Determining first year performance for ACOs beginning 
April 1 or July 1, 2012.

    (a) For April 1 and July 1, 2012 starters, first year (defined as 21 
and 18 months respectively) performance will be based on an optional 
interim payment calculation (based on the ACO's first 12 months of 
participation) and a final reconciliation at the end of the ACO's first 
performance year. Unless stated otherwise, for purposes of the interim 
payment calculation and first year reconciliation, the methodology under 
subpart E of this part for assigning beneficiaries and the methodology 
described in Sec. 425.602 through Sec. 425.606 for calculating shared 
savings and losses will apply, and quality performance will be assessed 
as described in subpart F of this part.
    (b) In the interim payment calculation, based on the ACO's first 12 
months of performance--
    (1) CMS compares the first 12 months of per capita beneficiary 
expenditures to a historical benchmark updated for the period which 
includes the ACO's first 12 months of participation, taking into account 
changes in health status and demographics; and
    (2) Quality performance is based on GPRO quality data reported for 
CY 2012.
    (c)(1) The interim payment calculation is reconciled with the ACO's 
performance for its complete first performance year, defined as 21 
months for April 1, 2012 starters and 18 months for July 1, 2012 
starters.
    (2) The first year reconciliation takes into account expenditures 
spanning the entire 21 or 18 months of the first performance year.

[[Page 883]]

    (3) First performance year expenditures are summed over 
beneficiaries assigned in two overlapping 12 month assignment windows.
    (i) The first window will be the first 12 months used for interim 
payment calculation.
    (ii) The second window will be CY2013.
    (4) Expenditures for the first performance year are the sum of 
aggregate expenditure dollars accounting for the ACO's first 6 or 9 
months of performance within CY 2012 for beneficiaries assigned for the 
interim payment calculation and aggregate dollars calculated for CY2013 
for beneficiaries assigned for CY 2013.
    (5) Adjustments for health status and demographic changes are 
performed as described in Sec. 425.604 through Sec. 425.606 with the 
following exceptions:
    (i) Beneficiaries from the CY2013 assignment window are identified 
as continuously assigned or newly assigned relative to the previous 
calendar year.
    (ii) The adjustment factor identified for purposes of the interim 
payment calculation is applied to the 6 months or 9 months of the ACO's 
first performance year that lie within CY2012.
    (6) The updated benchmark, stated in aggregate dollars, is the sum 
of the interim updated benchmark for the average fraction of 
expenditures incurred in the latter 6 or 9 months of CY 2012 and an 
updated aggregate benchmark representing CY 2013.
    (7) A savings percentage (based on a comparison of summed 
expenditures to summed updated benchmark dollars) for the ACO's 18 or 21 
month performance year is compared to the ACO's MSR or MLR. The 
reconciled amount of the shared savings or losses owed to or by the ACO 
for the performance year is net of any interim payments of shared 
savings or losses.
    (8) Quality performance for the first year reconciliation is based 
on complete and accurate reporting, of all required quality measures, 
for CYs 2012 and 2013.
    (d) An ACO with a start date of April 1, 2012 or July 1, 2012 has 
the option to request an interim payment calculation based on quality 
and financial performance for its first 12 months of program 
participation. As required under Sec. 425.204(f), the ACO requesting an 
interim payment calculation must have a mechanism in place to pay back 
the interim payment if final reconciliation determines an overpayment.
    (e) Unless otherwise stated, program requirements which apply in the 
course of a performance year apply to the interim payment calculation 
and first year reconciliation.



Sec. 425.610  Calculation of shared savings and losses under Track 3.

    (a) General rule. For each performance year, CMS determines whether 
the estimated average per capita Medicare expenditures under the ACO for 
Medicare fee-for-service beneficiaries for Parts A and B services are 
above or below the updated benchmark determined under Sec. 425.602. In 
order to qualify for a shared savings payment under Track 3, or to be 
responsible for sharing losses with CMS, an ACO's average per capita 
Medicare expenditures under the ACO for Medicare fee-for-service 
beneficiaries for Parts A and B services for the performance year must 
be below or above the updated benchmark, respectively, by at least the 
minimum savings or loss rate under paragraph (b) of this section.
    (1) Newly assigned beneficiaries. CMS uses an ACO's HCC prospective 
risk score to adjust the benchmark for changes in severity and case mix 
in this population.
    (2) Continuously assigned beneficiaries. (i) CMS uses demographic 
factors to adjust the benchmark for changes in the continuously assigned 
beneficiary population.
    (ii) If the prospective HCC risk score is lower in the performance 
year for this population, CMS adjusts for changes in severity and case 
mix for this population using this lower prospective HCC risk score.
    (3) Assigned beneficiary changes in demographics and health status 
are used to adjust benchmark expenditures as described in 
Sec. 425.602(a). In adjusting the benchmark for health status and 
demographic changes CMS makes separate adjustments for each of the 
following populations of beneficiaries:
    (i) ESRD.
    (ii) Disabled.

[[Page 884]]

    (iii) Aged/dual eligible Medicare and Medicaid beneficiaries.
    (iv) Aged/non-dual eligible Medicare and Medicaid beneficiaries.
    (4)(i) For performance years before 2017 to minimize variation from 
catastrophically large claims, CMS truncates an assigned beneficiary's 
total annual Parts A and B fee-for-service per capita expenditures at 
the 99th percentile of national Medicare fee-for-service expenditures as 
determined for each performance year.
    (ii) For the 2017 performance year and subsequent performance years, 
to minimize variation from catastrophically large claims, CMS truncates 
an assigned beneficiary's total annual Parts A and B fee-for-service per 
capita expenditures at the 99th percentile of national Medicare fee-for-
service expenditures as determined for the applicable performance year 
for assignable beneficiaries identified for the 12-month calendar year 
corresponding to the performance year.
    (5) CMS uses a 3-month claims run out with a completion factor to 
calculate an ACO's per capita expenditures for each performance year.
    (6) Calculations of the ACO's expenditures will include the payment 
amounts included in Part A and B fee-for-service claims.
    (i) These calculations will exclude indirect medical education (IME) 
and disproportionate share hospital (DSH) payments.
    (ii) These calculations will take into consideration individually 
beneficiary identifiable payments made under a demonstration, pilot or 
time limited program.
    (7) In order to qualify for a shared savings payment, the ACO's 
average per capita Medicare expenditures for the performance year must 
be below the applicable updated benchmark by at least the minimum 
savings rate established for the ACO under paragraph (b) of this 
section.
    (b) Minimum savings or loss rate. (1) As part of the ACO's 
application for, or renewal of, program participation, the ACO must 
choose from the following options for establishing the MSR/MLR for the 
duration of the agreement period:
    (i) Zero percent MSR/MLR
    (ii) Symmetrical MSR/MLR in a 0.5 percent increment between 0.5-2.0 
percent.
    (iii) Symmetrical MSR/MLR that varies, based on the number of 
beneficiaries assigned to the ACO under subpart E of this part. The MSR 
for an ACO under Track 3 is the same as the MSR that would apply in the 
one-sided model under Sec. 425.604(b) and is based on the number of 
assigned beneficiaries. The MLR under Track 3 is equal to the negative 
MSR.
    (2) To qualify for shared savings under Track 3, an ACO's average 
per capita Medicare expenditures for the performance year must be below 
its updated benchmark costs for the year by at least the MSR established 
for the ACO.
    (3) To be responsible for sharing losses with the Medicare program, 
an ACO's average per capita Medicare expenditures for the performance 
year must be above its updated benchmark costs for the year by at least 
the MLR established for the ACO.
    (c) Qualification for shared savings payment. To qualify for shared 
savings, an ACO must meet the minimum savings rate requirement 
established under paragraph (b) of this section, meet the minimum 
quality performance standards established under Sec. 425.502, and 
otherwise maintain its eligibility to participate in the Shared Savings 
Program under this part.
    (d) Final sharing rate. An ACO that meets all the requirements for 
receiving shared savings payments under Track 3 will receive a shared 
savings payment of up to 75 percent of all the savings under the updated 
benchmark, as determined on the basis of its quality performance under 
Sec. 425.502 (up to the performance payment limit described in paragraph 
(e)(2) of this section).
    (e) Performance payment. (1) If an ACO qualifies for savings by 
meeting or exceeding the MSR, the final sharing rate will apply to an 
ACO's savings on a first dollar basis.
    (2) The amount of shared savings an eligible ACO receives under 
Track 3 may not exceed 20 percent of its updated benchmark.
    (f) Shared loss rate. The shared loss rate--

[[Page 885]]

    (1) For an ACO that is required to share losses with the Medicare 
program for expenditures over the updated benchmark, the amount of 
shared losses is determined based on the inverse of its final sharing 
rate described in Sec. 425.610(d) (that is, 1 minus the final shared 
savings rate determined under Sec. 425.610(d));
    (2) May not exceed 75 percent; and
    (3) May not be less than 40 percent.
    (g) Loss recoupment limit. The amount of shared losses for which an 
eligible ACO is liable may not exceed 15 percent of its updated 
benchmark as determined under Sec. 425.602.
    (h) Notification of savings and losses. (1) CMS notifies an ACO in 
writing regarding whether the ACO qualifies for a shared savings 
payment, and if so, the amount of the payment due.
    (2) CMS provides written notification to an ACO of the amount of 
shared losses, if any, that it must repay to the program.
    (3) If an ACO has shared losses, the ACO must make payment in full 
to CMS within 90 days of receipt of notification.

[80 FR 32842, June 9, 2015, as amended at 81 FR 38017, June 10, 2016]

    Editorial Note: At 81 FR 38017, June 10, 2016, in Sec. 425.610, 
paragraph (a)(2)(ii), the phrase ``adjust for changes'' was removed, and 
in its place the phrase ``adjust the benchmark for changes'' was added, 
however, the phrase ``adjust for changes'' does not appear in this 
paragraph, so the amendment could not be incorporated.



Sec. 425.612  Waivers of payment rules or other Medicare requirements.

    (a) General. CMS may waive certain payment rules or other Medicare 
requirements as determined necessary to carry out the Shared Savings 
Program under this part.
    (1) SNF 3-day rule. For performance year 2017 and subsequent 
performance years, CMS waives the requirement in section 1861(i) of the 
Act for a 3-day inpatient hospital stay prior to a Medicare-covered 
post-hospital extended care service for eligible beneficiaries 
prospectively assigned to ACOs participating in Track 3, and as provided 
in paragraph (a)(1)(iv) of this section during a grace period for 
beneficiaries excluded from prospective assignment to a Track 3 ACO, who 
receive otherwise covered post-hospital extended care services furnished 
by an eligible SNF that has entered into a written agreement to partner 
with the ACO for purposes of this waiver. All other provisions of the 
statute and regulations regarding Medicare Part A post-hospital extended 
care services continue to apply.
    (i) ACOs must submit to CMS supplemental application information 
sufficient to demonstrate the ACO has the capacity to identify and 
manage beneficiaries who would be either directly admitted to a SNF or 
admitted to a SNF after an inpatient hospitalization of fewer than 3-
days in the form and manner specified by CMS. Application materials 
include but are not limited to, the following:
    (A) Narratives describing how the ACO plans to implement the waiver. 
Narratives must include the following:
    (1) The communication plan between the ACO and its SNF affiliates.
    (2) A care management plan for beneficiaries admitted to a SNF 
affiliate.
    (3) A beneficiary evaluation and admission plan approved by the ACO 
medical director and the healthcare professional responsible for the 
ACO's quality improvement and assurance processes under Sec. 425.112.
    (4) Any financial relationships between the ACO, SNF, and acute care 
hospitals.
    (B) A list of SNFs with whom the ACO will partner along with 
executed written SNF affiliate agreements between the ACO and each 
listed SNF.
    (C) Documentation demonstrating that each SNF included on the list 
provided under paragraph (a)(1)(i)(B) of this section has an overall 
rating of 3 or higher under the CMS 5-star Quality Rating System.
    (ii) In order to be eligible to receive covered SNF services under 
the waiver, a beneficiary must meet the following requirements:
    (A) Is prospectively assigned to the ACO for the performance year in 
which they are admitted to the eligible SNF.
    (B) Does not reside in a SNF or other long-term care setting.
    (C) Is medically stable.

[[Page 886]]

    (D) Does not require inpatient or further inpatient hospital 
evaluation or treatment.
    (E) Have certain and confirmed diagnoses.
    (F) Have an identified skilled nursing or rehabilitation need that 
cannot be provided as an outpatient.
    (G) Have been evaluated and approved for admission to the SNF within 
3 days prior to the SNF admission by an ACO provider/supplier who is a 
physician, consistent with the ACO's beneficiary evaluation and 
admission plan.
    (iii) SNFs eligible to partner and enter into written agreements 
with ACOs for purposes of this waiver must do the following:
    (A) Have and maintain an overall rating of 3 or higher under the CMS 
5-star Quality Rating System.
    (B) Sign a SNF affiliate agreement with the ACO that includes 
elements determined by CMS including but not limited to the following:
    (1) Agreement to comply with the requirements and conditions of this 
part, including but not limited to those specified in the participation 
agreement with CMS.
    (2) Effective dates of the SNF affiliate agreement.
    (3) Agreement to implement and comply with the ACO's beneficiary 
evaluation and admission plan and the care management plan.
    (4) Agreement to validate the eligibility of a beneficiary to 
receive covered SNF services in accordance with the waiver prior to 
admission.
    (5) Remedial processes and penalties that will apply for non-
compliance.
    (iv) For a beneficiary who was included on the prospective 
assignment list under Sec. 425.400(a)(3) for a performance year for a 
Track 3 ACO for which a waiver of the SNF 3-day rule has been approved 
under paragraph (a)(1) of this section, but who was subsequently 
excluded from the ACO's prospective assignment list, CMS makes payment 
for SNF services furnished to the beneficiary by a SNF affiliate if the 
following conditions are met:
    (A) The beneficiary was prospectively assigned to the ACO at the 
beginning of the applicable performance year but was excluded in the 
most recent quarterly update to the prospective assignment list under 
Sec. 425.401(b).
    (B) The SNF services are furnished to a beneficiary who was admitted 
to a SNF affiliate within 90 days following the date that CMS delivers 
the quarterly exclusion list to the ACO.
    (C) But for the beneficiary's exclusion from the ACO's prospective 
assignment list, CMS would have made payment to the SNF affiliate for 
such services under the waiver under paragraph (a)(1) of this section.
    (v) The following beneficiary protections apply when a beneficiary 
receives SNF services without a prior 3-day inpatient hospital stay from 
a SNF affiliate that intended to provide services pursuant to a SNF 3-
day rule waiver under paragraph (a)(1) of this section, but the 
beneficiary was not prospectively assigned to the ACO and was not in the 
90 day grace period under paragraph (a)(1)(iv) of this section. The SNF 
affiliate services must be non-covered only because the SNF affiliate 
stay was not preceded by a qualifying hospital stay under section 
1861(i) of the Act.
    (A) A SNF is presumed to intend to provide services pursuant to the 
SNF 3-day rule waiver under paragraph (a)(1) of this section if the SNF 
submitting the claim is a SNF affiliate of an ACO for which such a 
waiver has been approved.
    (B) CMS makes no payments for SNF services to a SNF affiliate of an 
ACO for which a waiver of the SNF 3-day rule has been approved when the 
SNF affiliate admits a FFS beneficiary who was never prospectively 
assigned to the ACO or was prospectively assigned but was later excluded 
and the 90 day grace period under paragraph (a)(1)(iv) of this section 
has lapsed.
    (C) In the event that CMS makes no payment for SNF services 
furnished by a SNF affiliate as a result of paragraph (a)(1)(v)(B) of 
this section and the only reason the claim was non-covered is due to the 
lack of a qualifying inpatient stay, the following beneficiary 
protections will apply:
    (1) The SNF must not charge the beneficiary for the expenses 
incurred for such services; and

[[Page 887]]

    (2) The SNF must return to the beneficiary any monies collected for 
such services; and
    (3) The ACO may be required to submit a corrective action plan under 
Sec. 425.216(b) for CMS approval. If after being given an opportunity to 
act upon the corrective action plan the ACO fails to come into 
compliance with the requirements of paragraph (a)(1), approval for the 
SNF 3-day rule waiver under this section will be terminated as provided 
under paragraph (d) of this section.
    (2) [Reserved]
    (b) Review and determination of request to use waivers. (1) In order 
to obtain a determination regarding whether the ACO may use waivers 
under this section, an ACO must submit a waiver request to CMS in the 
form and manner and by a deadline specified by CMS.
    (2) An ACO executive who has the authority to legally bind the ACO 
must certify to the best of his or her knowledge, information, and 
belief that the information contained in the waiver request submitted 
under paragraph (b)(1) of this section is accurate, complete, and 
truthful.
    (3) CMS evaluates an ACO's waiver request to determine whether it 
satisfies the requirements of this part and approves or denies waiver 
requests accordingly. Waiver requests are approved or denied on the 
basis of the following:
    (i) Information contained in and submitted with the waiver request 
by a deadline specified by CMS.
    (ii) Supplemental information submitted by a deadline specified by 
CMS in response to a CMS request for information.
    (iii) Screening of the ACO, ACO participants, ACO providers/
suppliers, and other individuals or entities providing services to 
Medicare beneficiaries in accordance with the terms of the waiver.
    (iv) Other information available to CMS.
    (4) CMS may deny a waiver request if an ACO fails to submit 
requested information by the deadlines established by CMS.
    (c) Effective and termination date of waivers. (1) Waivers are 
effective upon CMS notification of approval for the waiver or the start 
date of the participation agreement, whichever is later.
    (2) Waivers do not extend beyond the end of the participation 
agreement.
    (3) If CMS terminates the participation agreement under 
Sec. 425.218, the waiver ends on the date specified by CMS in the 
termination notice.
    (4) If the ACO terminates the participation agreement, the waiver 
ends on the effective date of termination as specified in the written 
notification required under Sec. 425.220.
    (d) Monitoring and termination of waivers. (1) ACOs with approved 
waivers are required to post their use of the waiver as part of public 
reporting under Sec. 425.308.
    (2) CMS monitors and audits the use of such waivers in accordance 
with Sec. 425.316.
    (3) CMS reserves the right to deny or revoke a waiver if an ACO, its 
ACO participants, ACO providers/suppliers or other individuals or 
entities providing services to Medicare beneficiaries are not in 
compliance with the requirements of this part or if any of the following 
occur:
    (i) The waiver is not used as described in the ACO's waiver request 
under paragraph (b)(1) of this section.
    (ii) The ACO does not successfully meet the quality reporting 
standard under subpart F of this part.
    (iii) CMS identifies a program integrity issue affecting the ACO's 
use of the waiver.
    (4) CMS reserves the right to take compliance action, including 
termination, against an ACO for noncompliance with program rules, 
including misuse of a waiver under this section, as specified at 
Secs. 425.216 and 425.218.
    (e) Other rules governing use of waivers. (1) Waivers under this 
section do not protect financial or other arrangements between or among 
ACOs, ACO participants, ACO providers/suppliers, or other individual or 
entities providing services to Medicare beneficiaries from liability 
under the fraud and abuse laws or any other applicable laws.
    (2) Waivers under this section do not protect any person or entity 
from liability for any violation of law or regulation for any conduct 
other than the

[[Page 888]]

conduct permitted by a waiver under paragraph (a) of this section.
    (3) ACOs must ensure compliance with all claims submission 
requirements, except those expressly waived under paragraph (a) of this 
section.

[80 FR 32843, June 9, 2015, as amended at 81 FR 80561, Nov. 15, 2016]



                    Subpart H_Data Sharing With ACOs



Sec. 425.700  General rules.

    (a) CMS shares aggregate reports with the ACO.
    (b) CMS shares beneficiary identifiable data with ACOs on the 
condition that the ACO, its ACO participants, ACO providers/suppliers, 
and other individuals or entities performing functions or services 
related to the ACO's activities observe all relevant statutory and 
regulatory provisions regarding the appropriate use of data and the 
confidentiality and privacy of individually identifiable health 
information and comply with the terms of the data use agreement 
described in this subpart.
    (c) The ACO must not limit or restrict appropriate sharing of 
medical record data with providers and suppliers both within and outside 
the ACO in accordance with applicable law.



Sec. 425.702  Aggregate reports.

    CMS shares aggregate reports with ACOs as follows:
    (a) Aggregate reports are shared at the start of the agreement 
period based on beneficiary claims data used to calculate the benchmark, 
and each quarter thereafter during the agreement period.
    (b) These aggregate reports include, when available, the following 
information, deidentified in accordance with 45 CFR 164.514(b):
    (1) Aggregated metrics on the assigned beneficiary population.
    (2) Utilization and expenditure data at the start of the agreement 
period based on historical beneficiaries used to calculate the 
benchmark.
    (c)(1)(i) For performance years 2012 through 2015, at the beginning 
of the agreement period, during each quarter (and in conjunction with 
the annual reconciliation), and at the beginning of each performance 
year, CMS, upon the ACO's request for the data for purposes of 
population-based activities relating to improving health or reducing 
growth in health care costs, process development, case management, and 
care coordination, will provide the ACO with information regarding 
preliminarily prospectively assigned beneficiaries whose data was used 
to generate the aggregate data reports under paragraphs (a) and (b) of 
this section. The information includes the following:
    (A) Beneficiary name.
    (B) Date of birth.
    (C) HICN.
    (D) Sex.
    (ii) For performance year 2016 and subsequent performance years, at 
the beginning of the agreement period, during each quarter (and in 
conjunction with the annual reconciliation), and at the beginning of 
each performance year, CMS, upon the ACO's request for the data for 
purposes of population-based activities relating to improving health or 
reducing growth in health care costs, process development, case 
management, and care coordination, provides the ACO with information 
about its fee-for-service population.
    (A) Under Tracks 1 and 2, the following information is made 
available regarding preliminarily prospectively assigned beneficiaries 
and beneficiaries that received a primary care service during the 
previous 12 months from one of the ACO participants that submits claims 
for primary care services used to determine the ACO's assigned 
population under subpart E of this part:
    (1) Beneficiary name.
    (2) Date of birth.
    (3) Health Insurance Claim Number (HICN).
    (4) Sex.
    (B) Under Tracks 1 and 2, information in the following categories, 
which represents the minimum data necessary for ACOs to conduct health 
care operations work is made available regarding preliminarily 
prospectively assigned beneficiaries:
    (1) Demographic data such as enrollment status.

[[Page 889]]

    (2) Health status information such as risk profile and chronic 
condition subgroup.
    (3) Utilization rates of Medicare services such as the use of 
evaluation and management, hospital, emergency, and post-acute services, 
including the dates and place of service.
    (4) Expenditure information related to utilization of services.
    (C) The information under paragraphs (c)(1)(ii)(A) and (c)(1)(ii)(B) 
of this section will be made available to ACOs in Track 3, but will be 
limited to the ACO's prospectively assigned beneficiaries.
    (2) In its request for these data, the ACO must certify that it is 
seeking the following information:
    (i) As a HIPAA-covered entity, and the request reflects the minimum 
data necessary for the ACO to conduct its own health care operations 
work that falls within the first or second paragraph of the definition 
of health care operations at 45 CFR 164.501.
    (ii) As the business associate of its ACO participants and ACO 
providers/suppliers, who are HIPAA-covered entities, and the request 
reflects the minimum data necessary for the ACO to conduct health care 
operations work that falls within the first or second paragraph of the 
definition of health care operations at 45 CFR 164.501 on behalf of 
those participants.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32844, June 9, 2015]



Sec. 425.704  Beneficiary-identifiable claims data.

    Subject to providing the beneficiary with the opportunity to decline 
data sharing as described in this Sec. 425.708, and subject to having a 
valid DUA in place, CMS, upon the ACO's request for the data for 
purposes of evaluating the performance of its ACO participants or its 
ACO providers/suppliers, conducting quality assessment and improvement 
activities, and conducting population-based activities relating to 
improved health, will provide the ACO with beneficiary identifiable 
claims data for preliminarily prospectively and prospectively assigned 
beneficiaries and other beneficiaries who receive primary care services 
from an ACO participant that submits claims for primary care services 
used to determine the ACO's assigned population under subpart E of this 
part during the performance year.
    (a) If an ACO wishes to receive beneficiary identifiable claims 
data, it must sign a DUA and it must submit a formal request for data. 
ACOs may access requested data as often as once per month.
    (b) The ACO must certify that it is requesting claims data about 
either of the following:
    (1) Its own patients, as a HIPAA-covered entity, and the request 
reflects the minimum data necessary for the ACO to conduct its own 
health care operations work that falls within the first or second 
paragraph of the definition of health care operations at 45 CFR 164.501.
    (2) The patients of its HIPAA-covered entity ACO participants or its 
ACO providers/suppliers as the business associate of these HIPAA covered 
entities, and the request reflects the minimum data necessary for the 
ACO to conduct health care operations work that falls within the first 
or second paragraph of the definition of health care operations at 45 
CFR 164.501 on behalf of those participants.
    (c) The use of identifiers and claims data will be limited to 
developing processes and engaging in appropriate activities related to 
coordinating care and improving the quality and efficiency of care that 
are applied uniformly to all Medicare beneficiaries with primary care 
services at the ACO, and that these data will not be used to reduce, 
limit or restrict care for specific beneficiaries.
    (d) To ensure that beneficiaries have a meaningful opportunity to 
decline having their claims data shared with the ACO, the ACO may only 
request claims data about a beneficiary if--
    (1) For an ACO participating--
    (i) In Track 1 or 2, the beneficiary's name appears on the 
preliminary prospective assignment list provided to the ACO at the 
beginning of the performance year, during each quarter (and in 
conjunction with the annual reconciliation) or the beneficiary has 
received a primary care service from an ACO participant upon whom 
assignment is based (under subpart E of this

[[Page 890]]

part) during the most recent 12-month period.
    (ii) In Track 3, the beneficiary's name appears on the prospective 
assignment list provided to the ACO at the beginning of the performance 
year.
    (2) The beneficiary has been notified in compliance with 
Sec. 425.708 that the ACO has requested access to beneficiary 
identifiable claims data in order to improve the quality of care that is 
furnished to the beneficiary and, where applicable, coordinate care 
offered to the beneficiary; and
    (3) The beneficiary did not exercise the opportunity to decline 
having his/her claims data shared with the ACO as provided in 
Sec. 425.708.
    (e) At the ACO's request, CMS continues to provide ACOs with updates 
to the requested beneficiary identifiable claims data, subject to 
beneficiary's opportunity to decline data sharing under Sec. 425.708.
    (f) If an ACO requests beneficiary identifiable information, 
compliance with the terms of the data use agreement described in 
Sec. 425.710 is a condition of an ACO's participation in the Shared 
Savings Program.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32844, June 9, 2015]



Sec. 425.706  Minimum necessary data.

    (a) ACOs must limit their identifiable data requests to the minimum 
necessary to accomplish a permitted use of the data. The minimum 
necessary Parts A and B data elements may include but are not limited to 
the following data elements:
    (1) Beneficiary ID.
    (2) Procedure code.
    (3) Gender.
    (4) Diagnosis code.
    (5) Claim ID.
    (6) The from and through dates of service.
    (7) The provider or supplier ID.
    (8) The claim payment type.
    (9) Date of birth and death, if applicable.
    (10) TIN.
    (11) NPI.
    (b) The minimum necessary Part D data elements may include but are 
not limited to the following data elements:
    (1) Beneficiary ID.
    (2) Prescriber ID.
    (3) Drug service date.
    (4) Drug product service ID.
    (5) Quantity dispensed.
    (6) Days supplied.
    (7) Brand name.
    (8) Generic name.
    (9) Drug strength.
    (10) TIN.
    (11) NPI.
    (12) Indication if on formulary.
    (13) Gross drug cost.



Sec. 425.708  Beneficiaries may decline claims data sharing.

    (a) Beneficiaries must receive notification about the Shared Savings 
Program and the opportunity to decline claims data sharing and 
instructions on how to inform CMS directly of their preference.
    (1) FFS beneficiaries are notified about the opportunity to decline 
claims data sharing through CMS materials such as the Medicare & You 
Handbook and through the notifications required under Sec. 425.312.
    (2) The notifications provided under Sec. 425.312 must state that 
the ACO may have requested beneficiary identifiable claims data about 
the beneficiary for purposes of its care coordination and quality 
improvement work, and inform the beneficiary how to decline having his 
or her claims information shared with the ACO in the form and manner 
specified by CMS.
    (3) Beneficiary requests to decline claims data sharing will remain 
in effect unless and until a beneficiary subsequently contacts CMS to 
amend that request to permit claims data sharing with ACOs.
    (b) The opportunity to decline having claims data shared with an ACO 
under paragraph (a) of this section does not apply to the information 
that CMS provides to ACOs under Sec. 425.702(c).
    (c) In accordance with 42 U.S.C. 290dd-2 and the implementing 
regulations at 42 CFR part 2, CMS does not share beneficiary 
identifiable claims data relating to the diagnosis and treatment of 
alcohol and substance abuse without the explicit written consent of the 
beneficiary.
    (d) The provisions of this section relate only to the sharing of 
Medicare claims data between the Medicare program and the ACO under the 
Shared

[[Page 891]]

Savings Program and are in no way intended to impede existing or future 
data sharing under other authorities.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32840, June 9, 2015]



Sec. 425.710  Data use agreement.

    (a)(1) Before receiving any beneficiary identifiable data, ACOs must 
enter into a DUA with CMS. Under the DUA, the ACO must comply with the 
limitations on use and disclosure that are imposed by HIPAA, the 
applicable DUA, and the statutory and regulatory requirements of the 
Shared Savings Program.
    (2) If the ACO misuses or discloses data in a manner that violates 
any applicable statutory or regulatory requirements or that is otherwise 
non-compliant with the provisions of the DUA, it will no longer be 
eligible to receive data under subpart H of this part, may be terminated 
from the Shared Savings Program under Sec. 425.218, and may be subject 
to additional sanctions and penalties available under the law.
    (b) [Reserved]



                Subpart I_Reconsideration Review Process



Sec. 425.800  Preclusion of administrative and judicial review.

    (a) There is no reconsideration, appeal, or other administrative or 
judicial review of the following determinations under this part:
    (1) The specification of quality and performance standards under 
Sec. 425.500 and Sec. 425.502.
    (2) The assessment of the quality of care furnished by an ACO under 
the performance standards established in Sec. 425.502.
    (3) The assignment of Medicare fee-for-service beneficiaries under 
Subpart E of this part.
    (4) The initial determination or revised initial determination of 
whether an ACO is eligible for shared savings, and the amount of such 
shared savings, including the initial determination or revised initial 
determination of the estimated average per capita Medicare expenditures 
under the ACO for Medicare fee-for-service beneficiaries assigned to the 
ACO and the average benchmark for the ACO under Secs. 425.602, 425.604, 
425.606, and 425.610.
    (5) The percent of shared savings specified by the Secretary and the 
limit on the total amount of shared savings established under 
Secs. 425.604, 425.606, and 425.610.
    (6) The termination of an ACO for failure to meet the quality 
performance standards established under Sec. 425.502.
    (b) [Reserved]

[76 FR 67973, Nov. 2, 2011, as amended at 81 FR 38017, June 10, 2016]



Sec. 425.802  Request for review.

    (a) An ACO may appeal an initial determination that is not 
prohibited from administrative or judicial review under Sec. 425.800 by 
requesting a reconsideration review by a CMS reconsideration official.
    (1) An ACO that wants to request reconsideration review by a CMS 
reconsideration official must submit a written request by an authorized 
official for receipt by CMS within 15 days of the notice of the initial 
determination.
    (i) If the 15th day is a weekend or a Federal holiday, then the 
timeframe is extended until the end of the next business day.
    (ii) Failure to submit a request for reconsideration within 15 days 
will result in denial of the request for reconsideration.
    (2) The reconsideration review must be held on the record (review of 
submitted documentation).
    (b) An ACO that requests a reconsideration review for termination 
will remain operational throughout the review process.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32845, June 9, 2015]



Sec. 425.804  Reconsideration review process.

    (a) Acknowledgement of reconsideration review request. The 
reconsideration official sends an acknowledgement of the reconsideration 
review request to the ACO and CMS that includes the following:
    (1) Review procedures.
    (2) Procedures for submission of evidence including format and 
timelines.
    (3) A briefing schedule that permits each party to submit only one 
written

[[Page 892]]

brief, including any evidence, for consideration by the reconsideration 
official in support of the party's position. The submission of any 
additional briefs or supplemental evidence will be at the sole 
discretion of the reconsideration official.
    (b) Burden of proof, standard of proof, and standards of review. The 
burden of proof is on the ACO to demonstrate to the reconsideration 
official with convincing evidence that the initial determination is not 
consistent with the requirements of this part or applicable statutory 
authority.
    (c) Reconsideration official. The reconsideration official is an 
independent CMS official who did not participate in the initial 
determination that is being reviewed.
    (d) Evidence. (1) The reconsideration official's review will be 
based only on evidence submitted by the reconsideration official's 
requested deadline, unless otherwise requested by the reconsideration 
official.
    (2) Documentation submitted for the record as evidence cannot be 
documentation that was not previously submitted to CMS by the applicable 
deadline and in the requested format.
    (3) All evidence submitted by the ACO and CMS, in preparation for 
the reconsideration review will be shared with the other party to the 
hearing.
    (e) The reconsideration official will notify CMS and the ACO of his 
or her recommendation.

[76 FR 67973, Nov. 2, 2011, as amended at 80 FR 32845, June 9, 2015]



Sec. 425.806  On-the-record review of reconsideration official's 
recommendation by independent CMS official.

    (a)(1) If CMS or the ACO disagrees with the recommendation of the 
reconsideration official, it may request an on the record review of the 
initial determination and recommendation by an independent CMS official 
who was not involved in the initial determination or the reconsideration 
review process.
    (2) In order to request an on-the-record review, CMS or the ACO must 
submit an explanation of why it disagrees with the recommendation by the 
timeframe and in the format indicated in the reconsideration official's 
recommendation letter.
    (b) The on-the-record review process is based only on evidence 
presented during the reconsideration review.
    (c) The independent CMS official considers the recommendation of the 
reconsideration official and makes a final agency determination.



Sec. 425.808  Effect of independent CMS official's decision.

    (a) The decision of the independent CMS official is final and 
binding.
    (b) The reconsideration review process under this subpart must not 
be construed to negate, diminish, or otherwise alter the applicability 
of existing laws, rules, and regulations or determinations made by other 
government agencies.



Sec. 425.810  Effective date of decision.

    (a) If the initial determination denying an ACO's application to 
participate in the Shared Savings Program is upheld, the application 
will remain denied based on the effective date of the original notice of 
denial.
    (b) If the initial determination to terminate an agreement with an 
ACO is upheld, the decision to terminate the agreement is effective as 
of the date indicated in the initial notice of termination.
    (c) If the initial determination to terminate an ACO is reversed, 
the ACO is reinstated into the Shared Savings Program, retroactively 
back to the original date of termination.



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.

[[Page 893]]

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.
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.

[[Page 894]]



                      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 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.

[[Page 895]]

    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 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.

[[Page 896]]



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.
    (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:

[[Page 897]]

    (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 
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.

[[Page 898]]

    (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.
    (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

[[Page 899]]

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).
    (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.

[[Page 900]]

    (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, 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--

[[Page 901]]

    (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. 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

[[Page 902]]

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 Secs. 426.432 and 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.
    (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.

[[Page 903]]

    (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.
    (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

[[Page 904]]

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.



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

[[Page 905]]

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 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

[[Page 906]]

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).
    (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

[[Page 907]]

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.



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.

[[Page 908]]

    (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.
    (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

[[Page 909]]

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).



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

[[Page 910]]

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 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.

[[Page 911]]

    (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.
    (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.

[[Page 912]]



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 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.

[[Page 913]]

    (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
    (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 Secs. 426.510(f)(3) and 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.

[[Page 914]]

    (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.
    (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

[[Page 915]]

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 
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

[[Page 916]]

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.



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

[[Page 917]]

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.
    (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.

[[Page 918]]



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, 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.

[[Page 919]]

    (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 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.

                        PARTS 427	429 [RESERVED]

[[Page 921]]



                              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.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 923]]



                    Table of CFR Titles and Chapters




                     (Revised as of October 1, 2017)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    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 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 924]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   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)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         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 (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)

[[Page 925]]

    XXVIII  Department of Justice (Parts 3800--3899)
      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 (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 926]]

     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         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)

[[Page 927]]

         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)
     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)
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      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  National Institute of Food and 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)

[[Page 928]]

                    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)

                           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 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      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)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)

[[Page 929]]

      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      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 (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    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--1199)
         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)

[[Page 930]]

        XI  National Technical Information Service, 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) [Reserved]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             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  U.S. 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  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)

[[Page 931]]

       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  Office of Workers' Compensation Programs, 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 Service, 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)

                      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 (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)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       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)

[[Page 932]]

        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)
        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)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)

[[Page 933]]

      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       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--899)
         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 (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        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)

[[Page 934]]

                            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)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 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)

[[Page 935]]

        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 Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      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)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     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)
    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, Department 
                of Defense (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)

[[Page 936]]

        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 Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       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)
        VI  [Reserved]
       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 (Parts 1500--
                1599)
       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  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 937]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory 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)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            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)
   62--100  [Reserved]
            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)
  103--104  [Reserved]
       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)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]

[[Page 938]]

            Subtitle E--Federal Information Resources Management 
                Regulations System [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)
   ii--III  [Reserved]
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   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 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             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)

                       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)

[[Page 939]]

       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)
        IX  Denali Commission (Parts 900--999)
         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  Administration for Children and Families, 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 of 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)
        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)

[[Page 940]]

        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           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  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  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)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]

[[Page 941]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        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 (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [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)
        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)

[[Page 942]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 943]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of October 1, 2017)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  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
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 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
  National Institute of Food and Agriculture      7, XXXIV
  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

[[Page 944]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
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
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
Career, Technical and Adult Education, Office of  34, IV
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  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; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
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 Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I

[[Page 945]]

  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  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                 2, XI; 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
Denali Commission                                 45, IX
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical and Adult Education, Office   34, IV
       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
  Career, Technical, and Adult Education, Office  34, IV
       of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
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                             2, IX; 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                   2, XV; 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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2

[[Page 946]]

  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 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                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
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 Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
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
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
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

[[Page 947]]

  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  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
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 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, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 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
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
   Secretary
[[Page 948]]

Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
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
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  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
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  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 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
Investment Security, Office of                    31, VIII
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                                2, XXVIII; 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
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  2, XXIX; 5, XLII
  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
[[Page 949]]

  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
  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, VII
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 Royalty Board                         37, III
  U.S. Copyright Office                           37, II
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, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
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
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 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   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV, VI
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    5, C; 34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
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                       2, XXV; 5, XLIII; 45, VI

[[Page 950]]

  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, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
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                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  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 Regulatory 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
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
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
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
Safety and Environmental Enforcement, Bureau of   30, II
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

[[Page 951]]

Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 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                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
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                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  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; 47, IV; 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
  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                               2, X;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                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, 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
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 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
Wage and Hour Division                            29, V
Water Resources Council                           18, VI

[[Page 952]]

Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 953]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2012 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, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2012

42 CFR
                                                                   77 FR
                                                                    Page
Chapter IV
414  Technical correction............................................227
414.65  (a)(1) revised.............................................69363
414.90  (b) amended; (e) through (j) redesignated as (f), (g) and 
        (i) through (l); new (e) and (h) added; (c), (d), new (f), 
        new (g), new (i) and new (j) revised.......................69364
414.92  (c)(2)(ii)(A)(5) and (6) revised; (g) redesignated as (h); 
        (f)(2)(i)(A) and new (g) added.............................69368
414.610  (c)(1)(ii), (5)(ii) and (h) revised.......................69368
414.904  (d)(3)(ii), (iii) and (iv) revised........................69368
414.1200--414.1285 (Subpart N)  Added..............................69368
415  Technical correction............................................227
415.130  (d)(1) and (2) amended....................................69371
416  Technical correction.....................................227, 24409
416.44  (a)(3) removed; (c) revised................................29030
416.160  (a)(1) revised............................................68558
416.171  (b) introductory text correctly revised.....................227
    (a)(2)(iii) redesignated as (a)(2)(iv) and revised; new 
(a)(2)(iii) added..................................................68558
416.195  (a)(2) and (4) introductory text revised..................68558
417.422  (d) revised...............................................22166
417.427  Added.....................................................22166
417.432  (d) revised...............................................22166
417.460  (c)(3) and (4) added......................................22166
417.492  (a)(1)(i) and (ii) amended; (a)(1)(iii) and (b)(1)(iii) 
        removed....................................................22166
417.801  (d)(1)(ii) revised........................................22166
417.536  (f)(1) revised............................................67531
419  Technical correction.....................................227, 24409
419.2  (b) introductory text revised...............................68558
419.31  (a)(1), (b) and (c)(2) revised.............................68558
419.32  (b)(1)(iv)(A) revised; (b)(1)(iv)(B)(4) added..............68559
419.70  (d)(2) introductory text revised; (d)(7) added.............68559
421.500--421.505 (Subpart F)  Removed..............................69371
422.60  (c)(1) amended.............................................22166
422.100  (l) added.................................................22166
422.101  (d)(1) revised............................................22167
422.102  (e) added.................................................22167
422.111  (i) added.................................................22167
422.216  (d)(1) revised............................................22167
422.500  (a) revised...............................................22167
422.501  (a) and (e) revised; (c)(1)(i) amended; (c)(1)(iii) added
                                                                   22167
422.502  (a)(1), (b)(1) and (c) introductory text amended; (b)(3) 
        and (4) added; (c)(2) and (3)(i) revised...................22167

[[Page 954]]

422.504  (a)(17) and (18) added; (i)(3)(iii), (4)(i), (ii), (iii), 
        (iv) introductory text and (5) revised.....................22168
422.510  (a)(14) added.............................................22168
422.641  (d) added.................................................22168
422.660  (a)(5) and (b)(5) added...................................22168
422.2274  (a)(1)(i) and (iii) revised; (a)(1)(ii) removed; (f) 
        added......................................................22168
423.160  (a)(3)(iv), (b)(1)(i) and (ii) revised; (b)(1)(iii) and 
        (2)(iii) added.............................................69371
423.56  (a) and (f)(3) revised.....................................22168
423.100  Amended...................................................22169
    Correctly amended..............................................32407
423.104  (h) and (i) added.........................................22169
423.120  (c)(5) added..............................................22169
423.153  (b) introductory text, (1) and (2) amended; (b)(4) added; 
        (d)(1)(vii)(B) revised.....................................22169
423.160  (b)(3)(i), (ii), (c)(1)(iii) and (2)(i) revised...........29030
423.454  Amended....................................................1882
423.458  (c)(1) revised; (c)(2) redesignated as (c)(3); new (c)(2) 
        added.......................................................1882
    (c)(4) added...................................................22170
423.501  Amended...................................................22170
423.503  (b)(1) amended; (b)(3) and (4) added......................22170
423.505  (b)(24), (25) and (26) added; (i)(3) introductory text, 
        (iii), (v) and (4)(i) through (iv) added...................22170
423.509  (a)(13) added.............................................22170
423.514  (d) through (g) redesignated as (g) through (j); new (d), 
        (e) and (f) added..........................................22171
423.600  (a), (b) and (c) revised..................................22171
423.602  (a) revised...............................................22171
423.882  Amended....................................................1883
423.1000  (a)(3) added.............................................22171
423.1002  Amended..................................................22171
423.2274  (a)(1)(i) and (iii) revised; (a)(1)(ii) removed; (f) 
        added......................................................22171
423.2300--423.2345 (Subpart W)  Added..............................22172
424  Technical correction...................................60315, 65495
424.22  (a)(1)(v)(A) through (D) redesignated as (a)(1)(v)(C) 
        through (F); (a)(1)(v) introductory text and new (C) and 
        (F) revised; new (a)(1)(v)(A) and (B) added................67163
424.30  Revised....................................................53682
424.57  (a) and (c)(30)(ii)(B) amended; (c)(1)(ii), (7)(i)(A) and 
        (11) revised; (c)(1)(iii) removed..........................14994
424.506  Regulation at 75 FR 24448 confirmed; (b) and (c)(1) 
        revised....................................................25317
424.507  Regulation at 75 FR 24448 confirmed; revised..............25317
424.510  (a) revised...............................................29030
424.516  Regulation at 75 FR 24449 confirmed.......................25317
    (f)(1) and (2) revised.........................................25318
424.535  Regulation at 75 FR 24449 confirmed.......................25317
    (a)(10)(i) amended.............................................25318
    (c) revised....................................................29030
424.540  (a) introductory text and (2) revised; (a)(3) added.......29030
425.308  (e) revised...............................................69372
425.504  (b) added.................................................69372

                                  2014

42 CFR
                                                                   79 FR
                                                                    Page
Chapter IV
414  Technical correction.............................1741, 15030, 78716
414.24  Heading, (a) and (b) revised; (c) redesignated as (d); new 
        (c) added..................................................68003
414.90  (b), (h)(4)(v), (5)(i)(B), (v), (j)(4)(vi), (5)(i)(B) and 
        (v) amended; (j)(4) and (5) redesignated as (j)(5) and 
        (6); new (j)(4), (7), (k)(4) and (m)(3) added; (m)(1) 
        revised....................................................68003
414.105  Added.....................................................66262
414.200--414.232 (Subpart D)  Heading revised......................66262
414.202  Amended...................................................66262
414.210  (a) revised; (g) added....................................66262
414.408  (l) added.................................................66264
414.409  Added.....................................................66264
414.412  (b)(2) revised; (b)(3), (4) and (5) added.................66264
414.414  (f) revised...............................................66264
414.422  (d) revised...............................................66264
414.423  (b)(2)(vi), (l) introductory text, (2) introductory text 
        and (i) revised............................................66265
414.511  Removed...................................................68005
414.610  (c)(1)(ii) introductory text and (5)(ii) revised..........68005
414.1200  (a) and (b)(5) revised...................................68005
414.1205  Amended..................................................68005

[[Page 955]]

414.1210  (a)(3), (4), (b)(2), (3) and (4) added; (c) revised......68005
414.1220  Amended..................................................68006
414.1225  Revised..................................................68006
414.1230  Heading and introductory text revised....................68007
414.1235  (a) introductory text amended............................68007
414.1240  Revised..................................................68007
414.1245  Introductory text amended................................68007
414.1250  Revised..................................................68007
414.1255  (b) and (c) revised......................................68007
414.1265  Introductory text and (a) revised........................68007
414.1270  (b)(4) revised; (c) added................................68007
414.1275  (a) revised; (d) introductory text, (1) and (2) 
        redesignated as (d)(1) introductory text, (i) and (ii); 
        (c)(3) and new (d)(2) added................................68008
414.1285  Amended..................................................68008
415  Technical correction..........................................59675
415.70  (b) revised................................................50358
416.42  (b)(2) revised.............................................27153
416.49  (b) revised................................................27153
416.164  (a)(11) and (b)(5) revised................................67030
416.171  (b)(1), (2) and (d) introductory text revised.............67030
417.1  Amended.....................................................29955
417.460  (b)(2)(i) revised; (f)(1)(i)(A), (B) and (C) added........29955
418.3  Amended.....................................................50509
418.24  (a) and (b)(1) revised; (f) added..........................50509
418.26  (e) added..................................................50509
418.28  (d) added..................................................50509
418.306  (b)(6) added..............................................50509
418.308  (c) revised...............................................50509
418.312  Added.....................................................50510
419  Technical correction....................................1741, 15030
419.2  (b)(7) and (16) revised.....................................67031
419.22  (j) revised................................................67031
419.32  (b)(1)(iv)(B)(6) added.....................................67031
419.46  (c)(1), (d) introductory text, (1), (2) and (e) 
        introductory text amended..................................67031
419.64  (a)(4)(iv) revised.........................................67031
419.66  (b)(3) revised; (b)(4)(iii) removed........................67031
422  Technical correction..........................................59675
422.2  Amended.....................................................29955
422.74  (d)(4)(i)(A) revised; (d)(4)(v) added......................29955
422.134  Added.....................................................29956
422.300  Amended...................................................29956
    Revised........................................................50358
422.310  (g)(2) revised; (g)(3) added..............................29956
    (f) revised....................................................50358
422.311  (a) and (b)(2) amended; (b)(3) removed; (c) revised.......29956
422.326  Added.....................................................29958
422.330  Added.....................................................67031
422.503  (b)(4)(vi)(C)(3) added; (b)(4)(vi)(G)(5) revised..........29958
422.504  (i)(2)(i) revised; (i)(2)(ii) redesignated as (i)(2)(iv); 
        new (i)(2)(ii), (iii) and (l)(5) added.....................29959
422.510  (a)(4) through (15) redesignated as (a)(4)(i) through 
        (xii); new (a)(4) introductory text added; new (a)(4)(ii) 
        through (x), (b)(2)(i)(C) and (c)(2)(iii) amended; new 
        (a)(4)(xii), (b)(1)(i), (ii), (iii) and (2) heading 
        revised....................................................29959
422.752  (a)(9) through (12) added; (c)(1) and (2)(ii) revised.....29959
422.756  (a)(2), (b)(4) and (c)(3)(ii) introductory text amended; 
        (c)(3)(ii)(C) added; (d) revised...........................29959
422.760  (a)(3) and (b) heading revised; (c) added.................29960
422.1016  (b)(1) amended...........................................29960
422.1020  (a)(2) revised...........................................29960
422.2274  (a) through (f) redesignated as (b) through (g); new (a) 
        and (h) added; introductory text and new (b) revised.......29960
422.2600--422.2615 (Subpart Z)  Added..............................29961
423.1  (a)(1) amended..............................................29962
423.44  (d)(5)(iii) and (iv) added.................................29962
423.100  Amended; eff. in part 1-1-16..............................29962
423.120  (b)(2)(v) revised; (b)(3)(vi), (c)(5) introductory text 
        and (6) added..............................................29962
423.352  Added.....................................................67032
423.360  Added.....................................................29963
423.464  (f)(2)(i) introductory text and (A) amended...............29963
423.501  Amended; eff. 1-1-16......................................29963
423.503  (a)(3) added..............................................29963
423.504  (b)(4)(vi)(C)(4), (b)(8) and (9) added....................29964

[[Page 956]]

423.505  (i)(3)(iv) removed; (i)(2)(ii) and (3)(v) through (viii) 
        redesignated as (i)(2)(iv) and new (3)(iv) through (vii); 
        (f)(3)(v), (vi) and (i)(2)(i) amended; (f)(3)(viii), new 
        (i)(2)(ii), (iii), (k)(7) and (m) heading added; (b)(21), 
        (i)(3)(vii), (m)(1)(iii) and (3) revised; eff. in part 1-
        1-16.......................................................29964
423.509  (a)(4) through (7), (8) introductory text, (i), (ii) and 
        (9) through (14) redesignated as (a)(4)(i) through (iv), 
        (v) introductory text, (A), (B) and (vi) through (xi); 
        (a)(4) introductory text added; new (a)(4)(ii), (iii), 
        (iv), (v) introductory text, (vi) through (ix), 
        (b)(2)(ii), (c)(2)(iii) and (d) amended; new (a)(4)(x), 
        (xi), (b)(1)(i) through (iv) and (2)(i)(C) revised.........29965
423.642  (c)(1) amended............................................29965
423.752  (a)(7) through (10) added; (c)(1) revised; (c)(2)(i) 
        amended....................................................29965
423.756  (a)(2), (b)(4) and (c)(3)(ii) introductory text amended; 
        (c)(3)(ii)(C) added; (d) revised...........................29965
423.760  (a) introductory text, (1), (2), (4) and (5) amended; 
        (a)(3) revised; (c) added..................................29966
423.1016  (b)(1) amended...........................................29966
423.1020  (a)(2) revised...........................................29966
423.2274  (a) through (f) redesignated as (b) through (g); new (a) 
        and (h) added; introductory text and new (b) revised.......29966
423.2600--423.2615 (Subpart Z)  Added..............................29967
424  Technical correction............63, 1741, 1742, 15030, 15032, 59675
    Policy statement.........................................6475, 44702
424.11  (d)(5) revised.............................................50359
424.13  (a)(1) removed; (a)(2), (3) and (4) redesignated as new 
        (a)(1), (2) and (3); (a) introductory text, new (1)(i) and 
        (b) revised................................................67033
424.15  (b) revised................................................50359
424.22  (a) and (b) revised; (c) added; (d)(2) amended.............66117
424.57  (a) amended; (d) and (e) revised; (g) added................69773
424.502  Amended...................................................72531
424.505  Amended...................................................72531
424.510  (a) revised...............................................72531
424.515  Introductory text and (d)(3) amended......................69775
424.520  (d) revised...............................................72531
424.521  Revised...................................................72531
424.530  (a)(11) added.............................................29968
    (a)(1), (3) introductory text, (i), (5) and (6) revised........72531
424.535  Heading revised; (a)(13) and (14) added...................29968
    (a)(1) introductory text, (3), (5), (8), (c) and (h) revised 
                                                                   72532
425  Technical correction..........................................78716
425.308  (e) revised...............................................68008
425.502  (a)(1) and (b)(2)(ii) amended; (a)(2) revised; (a)(3), 
        (4), (b)(4) and (e)(4) added...............................68009
425.506  Heading revised; (d) added................................68009

                                  2015

42 CFR
                                                                   80 FR
                                                                    Page
Chapter IV
414  Technical correction..........................................13251
414.60  (a)(1) corrected; CFR correction...........................51474
414.90  (l)(4) and (5) redesignated as (k)(4) and (l)(4); (j)(8), 
        (9) and (k)(5) added; (k) introductory text and (2) 
        revised....................................................71379
414.94  Added......................................................71380
414.234  Added.....................................................81706
414.605  Amended...................................................71382
414.610  (c)(1)(ii) introductory text and (5)(ii) amended..........71382
414.904  (j) revised...............................................71382
414.1205  Amended..................................................71382
414.1210  (a)(4), (b)(2)(i)(B), (C), (D), (3), (4) and (c) 
        revised; (b)(2)(i)(E) and (F) added........................71382
414.1215  (d) added................................................71383
414.1230  (c) revised..............................................71383
414.1235  (c)(4) and (5) added.....................................71383
414.1250  (a) revised..............................................71384
414.1255  (b) revised; (c) removed.................................71384
414.1265  (a)(2) added; (a)(1) and (b) revised.....................71384
414.1270  (b)(5) and (c)(5) removed; (c)(1)(i) revised; (d) added 
                                                                   71384
414.1275  (c)(4) and (d)(3) added..................................71385
416  Technical correction...........................................9629
416.164  (b)(3) revised............................................70604
416.172  (f) revised...............................................70604

[[Page 957]]

416.195  (a)(1) revised............................................70604
416.300--416.330 (Subpart H)  Added................................70604
417.2  (b) revised..................................................7958
417.420  (a) amended................................................7958
417.422  Introductory text and (a) through (f) amended; (h) added 
                                                                    7958
417.460  (b)(2)(i), (iii), (3) and (c)(4) amended; (b)(2)(iv) 
        redesignated as (b)(2)(v); new (b)(2)(iv) added; (c)(3) 
        revised; (j) added..........................................7958
418  Technical correction..........................................24222
418.302  (b)(1)(i) and (ii) added; (d)(1), (2), (e) introductory 
        text, (f)(2) and (5)(ii) amended; (e)(1) revised...........47206
418.306  Heading, (a), (b) and (c) revised.........................47207
418.308  (c) amended...............................................47207
418.309  Introductory text and (a) revised.........................47207
419  Technical correction...........................................9629
419.2  (c)(8) revised..............................................70606
419.32  (b)(1)(iv)(B)(7) added.....................................70606
419.44  (b) revised................................................70606
419.46  (b), (d), (e) and (f)(1) revised...........................70606
419.66  (b)(1) revised.............................................70607
422  Technical correction...........................................9629
422.1  (a) revised..................................................7958
422.50  (a) introductory text, (1), (4) and (5) amended; (a)(7) 
        added.......................................................7958
422.74  (b)(2)(v) and (d)(8) added; (d)(1)(v) revised...............7959
422.100  (m) added..................................................7959
422.111  (d)(1) revised.............................................7959
422.112  (b)(7) added...............................................7959
422.113  (b)(1)(iii) introductory text revised......................7959
422.152  (a) introductory text, (c), (g) introductory text and (h) 
        revised; (a)(1), (2) and (3) redesignated as (a)(2), (3) 
        and (4); new (a)(1) added; new (a)(2) and (3) amended.......7959
422.310  (g)(2)(ii) revised.........................................7960
422.502  (b)(3) amended.............................................7960
422.503  (d)(2)(iv) added...........................................7960
422.504  (o) added..................................................7960
422.506  (a)(4) revised.............................................7961
422.508  (c) revised................................................7961
422.512  (e)(1) revised.............................................7961
422.568  (b) revised................................................7961
422.572  (b) revised................................................7961
422.590  (a)(1) revised; (d)(1) amended; (d)(2) removed; (d)(3), 
        (4), (5), (e), (f) and (g) redesignated as new (d)(2), 
        (3), (4), (f), (g) and (h); new (e) added...................7961
422.618  (a)(1) amended.............................................7962
422.619  (a) amended................................................7962
422.641  (b) and (c) revised........................................7962
422.644  (a), (b)(1) and (c)(1) revised.............................7962
422.660  (a)(2), (3) and (b)(4) revised.............................7962
422.2262  (a)(2) added..............................................7962
422.2266  Removed...................................................7962
422.2274  (c) and (d) revised.......................................7962
423  Technical correction...........................................9629
423.1  (a)(3) added.................................................7962
423.30  (a)(1) introductory text and (i) amended; (a)(1)(iii) 
        added.......................................................7962
423.44  (b)(2)(vi) and (d)(8) added; (d)(1)(vi) revised.............7962
423.100  Amended....................................................7963
    Amended; interim...............................................25966
423.104  (d)(2)(iii) added..........................................7963
423.120  (b)(1)(iv) through (x) redesignated as (b)(1)(v) through 
        (xi); new (b)(1)(iv) added..................................7963
423.128  (g) added..................................................7963
423.153  (b)(4) revised.............................................7963
423.154  (e) removed; (a)(2) and (f) redesignated as (a)(4) and 
        new (e); new (a)(2) and (3) added; new (a)(4) and (c) 
        revised; eff. 1-1-16........................................7963
423.322  (b) revised................................................7963
423.329  (d)(1) amended.............................................7964
423.346  (a) introductory text amended..............................7964
423.350  (a)(1)(iii) and (iv) amended; (a)(1)(v) and (b)(1)(iv) 
        added; (a)(2) revised.......................................7964
423.464  (f)(2)(i)(B) redesignated as (f)(2)(i)(C); new 
        (f)(2)(i)(B) added..........................................7964
423.466  Heading revised; (b) amended...............................7964
423.503  (a)(1) revised; (c)(4) and (d) added.......................7964
423.504  (b)(10) and (d)(2)(iv) added...............................7964
423.505  (b)(27) and (p) added......................................7964
423.509  (a)(4)(xii) added; (b)(2)(i)(C) revised....................7965
423.562  (a)(3) amended.............................................7965

[[Page 958]]

423.650  (a)(2) and (4) amended.....................................7965
423.2262  (a)(2) added..............................................7965
423.2266  Removed...................................................7965
423.2274  (c) and (d) revised.......................................7965
423.2320  (c) added.................................................7965
423.2325  (h) added.................................................7966
424  Technical correction...........................................9629
424.22  (a)(1)(v)(B)(1) redesignated as (a)(2); (a)(1)(v)(B)(2) 
        removed....................................................68717
425.10  (a) and (b)(6) amended.....................................32833
425.20  Amended.............................................32833, 71385
425.100  (b) and (c) amended.......................................32834
425.102  (a)(8) added; (b) amended.................................71386
425.104  (b) amended; (c) added....................................32834
425.106  (a), (b)(3), (c)(1) and (2) revised; (b)(4) and (5) 
        removed....................................................32835
425.108  (c) revised; (e) removed..................................32835
425.110  (a)(2) and (b) revised....................................32835
425.112  (b)(4)(ii)(C) and (D) added...............................32835
425.116  Added.....................................................32835
425.118  Added.....................................................32836
425.200  Heading revised; (a), (b) introductory text, (1) 
        introductory text, (i), (ii), (2)(ii) and (c)(1) amended 
                                                                   32837
425.202  (b) and (c) revised.......................................32837
425.204  (b)(2), (3), (c)(1)(vi), (4)(ii) and (e)(1) amended; 
        (c)(1) introductory text, (i), (iii), (iv), (3), (5)(i) 
        and (f) revised; (c)(6) and (g) added......................32837
425.206  (a) revised...............................................32838
425.212  Heading and (a) revised...................................32838
425.214  (a) removed; (b) and (c) redesignated as new (a) and (b); 
        Heading and new (a) revised; new (b) introductory text, 
        (2) and (4) amended........................................32838
425.216  (b)(2) amended............................................32839
425.218  Heading revised; (b)(4) and (5) added.....................32839
425.220  Heading revised; (b) removed..............................32839
425.221  Added.....................................................32839
425.222  (c) revised...............................................32839
425.224  Added.....................................................32839
425.304  (d) removed...............................................32840
425.306  Revised...................................................32840
425.308  Revised...................................................32840
425.312  (a) revised; (b) removed; eff. 11-1-15....................32840
425.314  (c) amended...............................................32840
425.316  (c)(3) and (4) removed; (c)(5) redesignated as new 
        (c)(3); new (c)(3) amended.................................32840
425.400  (a)(1) introductory text, (2) heading and (3) added; 
        (a)(1)(i) revised; (a)(1)(ii) amended......................32840
425.401  Added.....................................................32840
425.402  (a) introductory text revised; (a)(1)(ii) introductory 
        text, (A), (2) introductory text and (i) amended; (b) and 
        (c) added..................................................32841
    (d) added......................................................71386
425.404  (b) revised...............................................32841
425.502  (a)(5) added; (d)(2)(ii) amended..........................71386
425.504  (a)(1), (2)(i), (ii), (3), (4), (b)(1), (2)(i), (ii), 
        (3), (4), (c)(1), (2) and (3) amended......................71386
425.600  (a)(2) and (c) amended; (a)(3) added; (b) revised.........32841
425.602  Heading and (c) revised; (a)(7) introductory text and (8) 
        amended....................................................32842
425.606  Heading and (b) revised; (a) introductory text, (d), 
        (e)(2) and (g)(1) amended..................................32842
425.610  Added.....................................................32842
425.612  Added.....................................................32843
425.702  (c)(1) introductory text and (i) through (iv) 
        redesignated as (c)(1)(i) introductory text and (A) 
        through (D); new (c)(1)(i) introductory text amended; 
        (c)(1)(ii) added...........................................32844
425.704  Heading revised; introductory text, (a) and (d)(2) 
        amended; (d)(1) revised; eff. 1-1-16.......................32844
425.708  (b) and (c) removed; (d), (e) and (f) redesignated as new 
        (b), (c) and (d); heading, (a) and new (b) and (c) 
        revised; eff. 11-1-15......................................32845
425.802  (a)(2) revised............................................32845
425.804  (a)(3) revised; (d) removed; (e) and (f) redesignated as 
        new (d) and (e)............................................32845

                                  2016

42 CFR
                                                                   81 FR
                                                                    Page
414  Policy statement..............................................93636
    Technical correction....................................94268, 95890
414.1  Amended.....................................................41098
414.22  (b)(5)(ii) removed.........................................79879

[[Page 959]]

    (b)(5) introductory text, (i)(A) and (B) revised...............80553
414.32  Removed....................................................80554
414.90  (k)(5)(i) correctly revised................................34913
    (e) introductory text and (1)(ii) amended......................77537
    (j)(1)(ii), (4)(v), (7)(viii) and (k)(4)(ii) added.............80554
414.94  (b) amended; (e)(5), (g), (h) and (i) added................80554
414.210  (g)(6) revised............................................77965
414.402  Amended...................................................77966
414.412  (b)(2) and (d) revised; (h) added.........................77966
414.414  (b)(3) revised............................................77967
414.416  (b)(3) added..............................................77967
414.422  (g) revised...............................................77967
414.423  Revised...................................................77967
414.500--414.522 (Subpart G)  Heading revised......................41097
414.500  Revised...................................................41098
414.502  Amended...................................................41098
414.504  Added.....................................................41099
414.506  Introductory text and (d)(1) revised; (d)(3), (4) and (e) 
        added......................................................41099
414.507  Added.....................................................41099
414.508  Revised...................................................41100
414.509  Introductory text and (b)(2)(i) through (v) revised.......41100
414.522  Added.....................................................41100
414.1210  (b)(2)(i)(B), (C), (D) and (F) revised...................80555
414.1300--414.1465 (Subpart O)  Added..............................77537
416.41  (c) removed; eff. 11-15-16.................................64022
416.44  (b)(4) removed; (b)(5), (c) and (d) redesignated as new 
        (b)(4), (d) and (e); (b)(1), (2) and new (4) revised; new 
        (b)(5), (6), (c) and (f) added.............................26896
    (b)(1) corrected...............................................42548
416.54  Added; eff. 11-15-16.......................................64022
416.171  (b)(2) revised............................................79879
416.310  (c)(1)(ii) and (d)(1) revised; (e) added..................79879
417  Technical correction..........................................95890
417.478  (e) added.................................................80556
417.484  (b)(3) added..............................................80556
417.911  Amended; interim...........................................3011
418  Policy statement..............................................52144
418.108  (a)(2) and (b)(1)(ii) amended.............................26897
418.110  (d)(1)(i), (ii), (2) and (4) revised; (e) through (o) 
        redesignated as (f) through (p); (d)(5), (6), new (e) and 
        (q) added; new (g)(4) introductory text, new (n)(9) and 
        (13) amended...............................................26897
    (c)(1)(i) designation and (ii) removed; eff. 11-15-16..........64024
418.113  Added; eff. 11-15-16......................................64024
419.22  (v) added..................................................79879
419.32  (b)(1)(iv)(B)(8) added.....................................79879
419.43  (d)(7) added...............................................79879
419.44  (b)(2) revised.............................................79879
419.46  (g) added..................................................79879
419.48  Added......................................................79880
419.66  (g) revised................................................79880
422  Technical correction..........................................95890
422.1  (a)(1)(i) through (x) redesignated as (a)(1)(ii) through 
        (xi); new (a)(1)(i) added..................................80556
422.204  (b)(5) added..............................................80556
422.222  Added.....................................................80556
422.224  Added.....................................................80556
422.250  Revised...................................................80556
422.272  Added.....................................................80556
422.501  (c)(1)(iv) added; (c)(2) revised..........................80557
422.504  (a)(6) and (n) revised; (i)(2)(v) added...................80557
422.510  (a)(4)(xiii) added........................................80557
422.752  (a)(13) added.............................................80557
422.760  (b)(1) through (4), (c)(1), (2) and (4) amended...........61562
422.2400  Revised..................................................80557
422.2490  Added....................................................80557
423  Technical correction..........................................95890
423.505  (o) revised...............................................80557
423.760  (b)(1) through (4), (c)(1), (2) and (4) amended...........61562
423.2400  Revised..................................................80558
423.2490  Added....................................................80558
424  Policy statement.......................................51116, 51120
    Technical correction...........................................95890
424.59  Added......................................................80558
    (a)(1), (5), (b)(4)(i) and (e)(2)(i) correctly revised.........81698
425  Authority citation revised....................................38013
425  Technical correction..........................................95890
425.20  Amended....................................................38013
425.110  (b)(1) revised............................................80559
425.200  (b)(2) introductory text amended; (b)(3) and (e) added....38013
425.204  (g) heading, introductory text, (1) introductory text, 
        (i) and (A) amended........................................80559
425.314  (a)(4) removed............................................38013

[[Page 960]]

425.315  Added.....................................................38013
425.316  (c)(1) and (2) amended....................................80559
425.402  (b) introductory text amended; (e) added..................80559
425.500  (e)(2) and (3) revised....................................80559
425.502  (a) introductory text, (b)(3) and (d)(2)(ii) revised; 
        (a)(1) through (4), (b)(2)(ii), (c)(2), (d) heading, (1) 
        introductory text and (2) introductory text amended; 
        (c)(5) added...............................................80560
425.504  (c) amended; (d) redesignated as (c)(5); new (d) added....80560
425.506  Heading revised; (d) introductory text amended; (e) added
                                                                   80560
425.508  Added.....................................................80561
425.602  Heading, (a)(4), (5), (8), (b)(1) and (2) revised; (a)(9) 
        added; (c) removed.........................................38014
425.603  Added.....................................................38014
425.604  (a)(4) redesignated as (a)(4)(i); (a)(1), (2)(i), (ii), 
        (3) introductory text and new (4)(i) amended; (a)(4)(ii) 
        added......................................................38016
425.606  (a)(4) redesignated as (a)(4)(i); (a)(1), (2)(i), (ii), 
        (3) introductory text and new (4)(i) amended; (a)(4)(ii) 
        added......................................................38017
425.610  (a)(4) redesignated as (a)(4)(i); (a)(1), (2)(i), (ii), 
        (3) introductory text and new (4)(i) amended; (a)(4)(ii) 
        added......................................................38017
425.612  (a)(1) introductory text amended; (a)(1)(iv), (v) and 
        (d)(4) added...............................................80561
425.800  (a)(4) and (5) amended....................................38017

                                  2017

  (Regulations published from January 1, 2017, through October 1, 2017)

42 CFR
                                                                   82 FR
                                                                    Page
Chapter IV
414  Technical correction..........................................14639
416  Authority citation revised; eff. 10-1-17......................38515
416.35  (d) introductory text revised; eff. 10-1-17................38515
417  Technical correction..........................................14639
418  Policy statement..............................................36638
418.76  (f)(1) and (2) amended......................................4578
    Regulation at 82 FR 4578 eff. date delayed to 1-13-18..........31729
419.22  Corrected; comment period extended............................35
419.48  (b) corrected; comment period extended........................36
422  Technical correction..........................................14639
422.561  Amended....................................................5124
422.562  (b)(4)(v) amended; (c)(1) and (d) revised..................5124
422.594  (b)(2) revised.............................................5125
422.602  (b) revised................................................5125
422.608  Revised....................................................5125
422.612  (a) heading, introductory text, (1) and (b) amended........5125
422.616  (a) amended................................................5125
422.618  (c)(1) and (2) amended.....................................5125
422.619  (c)(1) and (2) amended.....................................5125
422.622  (g)(2) amended.............................................5125
422.626  (g)(3) amended.............................................5125
423  Technical correction..........................................14639
423.558  (b) revised................................................5125
423.560  Amended....................................................5125
423.562  (b)(4)(v) and (vi) revised.................................5125
423.1968  Revised...................................................5125
423.1968--423.2140 (Subpart U)  Heading revised.....................5125
423.1970  (c)(1)(ii), (iii), (2)(ii) and (iii) revised..............5126
423.1972  (a), (b) and (c)(1) revised...............................5126
423.1974  Revised...................................................5126
423.1976  (a) heading, introductory text, (1) and (b) amended.......5126
423.1978  (a) amended...............................................5126
423.1980  Heading, (a)(1)(iii), (iv), (2), (4), (d) heading, (2), 
        (3), (e) heading, (2) and (3) revised.......................5126
423.1982  (a)(1), (2), (b)(1) and (2) amended.......................5126
423.1984  (d) and (e) revised.......................................5127
423.1990  (a)(2), (b)(1) introductory text, (i), (ii), (4), 
        (c)(3), (4), (5), (d)(2)(i) and (ii) amended; (d)(1) and 
        (h) revised.................................................5127
423.2000  Heading, (a) through (e) and (g) revised..................5127
423.2002  (a) introductory text, (c) and (e) amended................5127
423.2004  Heading, (a) introductory text, (1), (4), (b) and (c) 
        revised; (d) added..........................................5127
423.2008  Revised...................................................5127
423.2010  Revised...................................................5127
423.2014  Revised...................................................5128
423.2016  Revised...................................................5129
423.2018  Revised...................................................5130

[[Page 961]]

423.2020  (b), (c), (d), (e)(3), (4), (h), (i) heading, (1), (2), 
        (4) and (5) revised; (g)(3)(vii), (viii) and (j) added......5130
423.2022  Revised...................................................5131
423.2024  (a) amended; (c) revised..................................5132
423.2026  Revised...................................................5132
423.2030  Revised...................................................5132
423.2032  Revised...................................................5132
423.2034  Revised...................................................5133
423.2036  (b)(1) introductory text, (ii), (f)(2), (3) introductory 
        text, (i), (ii) and (iii) amended; (d) removed; (g) 
        redesignated as new (d).....................................5133
423.2038  Revised...................................................5133
423.2040  Revised...................................................5133
423.2042  Revised...................................................5134
423.2044  Revised...................................................5134
423.2046  Revised...................................................5134
423.2048  Revised...................................................5135
423.2050  Amended...................................................5135
423.2052  Revised...................................................5135
423.2054  Revised...................................................5136
423.2056  Added.....................................................5136
423.2058  Added.....................................................5137
423.2062  Heading, (a) and (b) amended..............................5137
423.2063  Revised...................................................5137
423.2100  Revised...................................................5137
423.2102  Revised...................................................5137
423.2106  Amended...................................................5137
423.2108  Heading, (a), (b), (c), (d)(1), (2) introductory text, 
        (iii), (3) introductory text and (ii) amended...............5137
423.2110  Revised...................................................5137
423.2112  (a)(1), (3), (b) and (c) amended..........................5138
423.2114  Introductory text and (b) amended.........................5138
423.2116  Amended...................................................5138
423.2118  Amended...................................................5138
423.2120  Amended...................................................5138
423.2122  Heading, (a) heading, (1), (2), (3), (b) introductory 
        text, (1), (2) and (c)(1) through (4) amended...............5138
423.2124  Amended...................................................5138
423.2126  Heading, (a) heading, (1), (2), (3), (4) heading, (i), 
        (ii), (5) heading, (i), (ii) and (b) amended................5138
423.2128  Heading, (a), (b) and (c) amended.........................5139
423.2130  Amended...................................................5139
423.2134  (b)(3) and (c) amended....................................5139
423.2136  (a), (c)(2) and (3) amended...............................5139
423.2138  Amended...................................................5139
423.2140  Heading, (a)(1), (2), (3), (b) heading, (1), (2) 
        introductory text, (i), (ii), (3), (4), (c) heading, (1), 
        (3), (4) and (d) amended....................................5139
424  Technical correction..........................................14639
    Policy statement...............................................35122
424.20  (a)(1)(ii) and (e)(2)(ii)(B)(2) amended....................36635
425  Technical correction..........................................14639


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