[Federal Register Volume 62, Number 184 (Tuesday, September 23, 1997)]
[Proposed Rules]
[Pages 49649-49654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25343]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Chapter IV

[OMC-029-N]
RIN 0938-AI25


Medicare Program; Solvency Standards for Provider-Sponsored 
Organizations; Intent To Form Negotiated Rulemaking Committee

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Intent to form negotiated rulemaking committee and notice of 
meetings.

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[[Page 49650]]

SUMMARY: The Balanced Budget Act of 1997 requires the Secretary to 
establish a Negotiated Rulemaking Committee under the Federal Advisory 
Committee Act (FACA). The Committee's purpose will be to negotiate the 
solvency standards for provider-sponsored organizations under part C of 
the Medicare program. The Committee will consist of representatives of 
interests that are likely to be significantly affected by the solvency 
rule. The Committee will be assisted by a neutral facilitator.
    We request public comment on whether--We have identified the key 
solvency issues to be negotiated by the Committee; We have identified 
the interests that will be affected by key issues listed below; The 
party we are proposing to serve as the neutral facilitator is 
acceptable. Additionally, comments are sought on several key 
definitions related to the negotiated rulemaking and the forthcoming 
rulemaking for Medicare+Choice organizations.

DATES: Comments will be considered if we receive them at the 
appropriate address provided below, no later than 5 p. m. on October 8, 
1997. Comments on the definitions for the terms described in section 
VII of this notice will be accepted separately until October 20, 1997.
    The first meeting will be held at 9:00 a.m. on October 20, 21, and 
22, 1997.

ADDRESSES: Mail written comments (1 original and 3 copies) to the 
following address: Health Care Financing Administration, Department of 
Health and Human Services, Attention: PSO NOTICE, P.O. Box 7517, 
Baltimore, MD 21244-0517.
    If you prefer, you may deliver your written comments (1 original 
and 3 copies) to one of the following addresses: Room 309-G, Hubert H. 
Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201, 
or Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code OMC-029-N. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in room 309-G of 
the Department's offices at 200 Independence Avenue, SW, Washington, 
DC, on Monday through Friday of each week from 8:30 a. m. to 5 p. m. 
(Phone: (202) 690-7890).
    The October meeting will be held at the Sheraton National Hotel, 
900 South Orme Street, Arlington, VA; (703) 521-1900.

FOR FURTHER INFORMATION CONTACT: Maureen Miller, (410) 786-1097, for 
general issues related to standards for provider-sponsored 
organizations. Philip Doerr, (410) 786-1059, for technical issues 
related to solvency standards. Judy Ballard, (202) 690-7419, or Celia 
Ford, (202) 690-8020, Conveners.

SUPPLEMENTARY INFORMATION:

I. Negotiated Rulemaking Process

    The Negotiated Rulemaking Act (Pub. L. 101-648, 5 U.S.C. 561-570) 
establishes a framework for the conduct of negotiated rulemaking and 
encourages agencies to use negotiated rulemaking to enhance the 
informal rulemaking process. Under the Act, the head of an agency must 
consider whether--
     There is a need for a rule;
     There are a limited number of identifiable interests that 
will be significantly affected by the rule;
     There is a reasonable likelihood that a committee can be 
convened with a balanced representation of persons who--
     Can adequately represent the interests identified; and
     Are willing to negotiate in good faith to reach a 
consensus on the proposed rule;
     There is a reasonable likelihood that a committee will 
reach a consensus on the proposed rule within a fixed period of time;
     The negotiated rulemaking procedure will not unreasonably 
delay the notice of proposed rulemaking and the issuance of a final 
rule;
     The agency has adequate resources and is willing to commit 
such resources, including technical assistance, to the Committee; and
     The agency, to the maximum extent possible, consistent 
with the legal obligations of the agency, will use the consensus of the 
Committee with respect to the proposed rule as the basis for the rule 
proposed by the agency for notice and comment.
    Negotiations are conducted by a Committee chartered under the 
Federal Advisory Committee Act (FACA) (5 U.S.C. App. 2). The Committee 
includes an agency representative and is assisted by a neutral 
facilitator. The goal of the Committee is to reach consensus on the 
language or issues involved in a rule. If consensus is reached, it is 
used as the basis of the agency's proposal. The process does not affect 
otherwise applicable procedural requirements of the FACA, the 
Administrative Procedure Act, and other statutes.

II. Subject and Scope of the Rule

A. Need for the Rule

    The Balanced Budget Act of 1997, Pub. L. 105-33, establishes a new 
Medicare+Choice program under part C of title XVIII of the Social 
Security Act (the Act). Under this program, an eligible individual may 
elect to receive Medicare benefits through enrollment in a 
Medicare+Choice plan that has a contract with us, which may include a 
health plan offered by a provider-sponsored organization (PSO). We may 
contract only with organizations that we have certified as meeting 
program requirements.
    A PSO is defined as a public or private entity--
     That is established or organized, and operated, by a 
health care provider, or group of affiliated health care providers;
     That provides a substantial proportion of the health care 
items and services directly through the provider or affiliated group of 
providers; and
     With respect to which the affiliated providers share, 
directly or indirectly, substantial financial risk for the provision of 
such items and services and have at least a majority financial interest 
in the entity (section 1855(d) of the Act).
    Generally, a Medicare+Choice organization must 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 Medicare+Choice plan.'' (section 1855(a)(1) of the Act).
    Section 1855(a)(2) of the Act provides, however, that the Secretary 
may waive the licensing requirement for a PSO that has filed a waiver 
application by November 1, 2002, if the Secretary determines that the 
State failed to complete action on a licensing application within 90 
days, denied the licensing application based on discriminatory 
treatment, or denied the licensing application based (in whole or in 
part) on the organization's failure to meet applicable solvency 
requirements and--
     Such requirements are not the same as the solvency 
standards established by negotiated rulemaking as authorized under 
section 1856(a) of the Act; or
     The State conditioned approval on ``documentation or 
information requirements relating to solvency or other material 
requirements, procedures, or standards relating to solvency that are 
different from the requirements, procedures, and standards applied by 
the Secretary'' under section 1855(d)(2) of the Act

[[Page 49651]]

regarding the use of the term ``substantial proportion.''
    A waiver is effective only with respect to that State, only for a 
nonrenewable 36-month period, supersedes any State licensing provision 
that would prohibit the organization from participating in a 
Medicare+Choice contract, and is conditioned upon the organization's 
compliance with State consumer protection and quality standards as 
provided for in section 1855(a)(2)(E) and (G) of the Act. PSOs that 
have a waiver application approved must meet program requirements 
including standards for financial solvency and capital adequacy of the 
organization.

B. Modified Negotiated Rulemaking Committee

    Section 4001 of the BBA mandates an expedited and modified 
negotiated rulemaking process for establishing solvency standards for 
PSOs under a new Medicare Part C. The standards must be published as an 
interim final rule, subject to comment, by April 1, 1998. In order to 
meet this deadline, the BBA mandated that this notice be published 
within 45 days after enactment, shortened the notice's comment period 
to 15 days, and shortened the time period for appointment of Committee 
members as well as the facilitator. The Committee is required to report 
its proposed standards to the Secretary by March 1, 1998. Further, the 
Committee is required to report to the Secretary by January 1, 1998 
regarding its progress and whether it is likely to achieve consensus. 
If the Committee reports that it has failed to make significant 
progress or that consensus is unlikely within the assigned time frame, 
the Committee will be terminated and publication of a rule will proceed 
using other rulemaking procedures.

C. Issues and Questions to be Resolved

    The issues we anticipate include fundamental questions about 
solvency standards, definitions, threshold questions, overarching 
policy issues, and finally specific matters identified by the Congress 
for consideration. We invite public comment on these and on other 
issues, which are believed to be in the scope of the rule.
     What are solvency standards? What is the purpose of these 
standards? We expect the Committee to address the purpose and scope of 
solvency standards, particularly with regard to the operation of a 
fiscally sound organization and needed protections in the event of 
insolvency, including financial viability at application (that is, 
initial capitalization) and on an ongoing basis, as well as liquidity 
and cash flow. These discussions may extend to alternative models for 
approaching solvency standards, such as focusing on the nature of the 
health products being offered and the actual risk being assumed, in 
addition to the nature, assets, or other resources of the entity 
providing the benefits.
     Should solvency standards for PSOs be equivalent or 
substantially similar to those for other risk-bearing organizations? We 
expect to discuss the concept, or goal, of a ``level playing field'' 
between PSOs (which may or may not be Medicare-only health plans) and 
other health plans that enroll members from the general population and, 
possibly, Medicaid recipients; the impact of the organizational 
structure and nature of PSOs, and the characteristics of their 
enrollment, on decreasing or increasing factors that affect the 
financial stability of risk-bearing health plans; and the patterns and 
trends in State solvency requirements that are relevant to Medicare-
contracting PSOs.
     How should the solvency rule take into account the 
delivery system assets of the PSO and its ability to provide services 
directly to enrollees through affiliated providers? This is a key 
issue, and one which the BBA directs the Committee to consider. We 
expect discussion of various PSO assets, such as property, plant, 
equipment, or other non-fiscal assets; how to value these assets, 
giving consideration to market forces that may affect or cause 
fluctuation of value; the ability to increase services to meet 
increased demand, and the potential, if any, of higher efficiency of an 
integrated network; the relevancy of Medicare enrollment size and 
potential use of services in comparison to PSO assets and obligations; 
and financial reserves.
     How should the rule take into account alternative means of 
protecting against insolvency? There are a number of ``tools'' or 
mechanisms that are used, or have been proposed for use, to assure that 
a health plan remains fiscally sound and to protect enrollees in the 
event of insolvency. The statute lists the following alternative means 
as included in factors to be considered: reinsurance, unrestricted 
surplus, letters-of-credit, guarantees (third party guarantees), 
organizational insurance coverage (including stop-loss and insolvency 
insurance), partnerships with other licensed entities, and valuation 
attributable to the ability of the PSO to meet its service obligations 
through direct delivery of care (discussed previously). Other 
mechanisms, or factors, will be discussed including the possibility of 
guarantee associations and state-held reserves where PSOs are state-
licensed. The Committee will discuss the merits of these factors, their 
interrelatedness and will report to the Secretary on specific 
requirements for their use in a solvency standard.
     How should the rule take into account any standards 
established by the National Association of Insurance Commissioners 
(NAIC) for risk-based health care delivery organizations? This is the 
third area in which the BBA directs the Committee to work. The National 
Association of Insurance Commissioners invested significant time and 
resources to develop and improve State solvency standards for risk-
bearing health care delivery organizations, specifically focusing on 
what is called ``risk-based capital (RBC).'' However, given that the 
RBC formula is in a transitional phase between development and 
implementation, its inclusion as part of the Medicare PSO solvency 
standards requires careful consideration. We believe the Committee 
should become knowledgeable about the RBC formula and its role relative 
to solvency standards. In addition, we believe the Committee should 
discuss the applicability of the current National Association of 
Insurance Commissioners' RBC formula to PSOs with Medicare-only 
enrollment as well as those with enrollments other than the Medicare 
population. We may ask the Committee to advise us on how to proceed 
toward utilizing a RBC formula, including further developmental work, 
and how to proceed with implementation given voluntary adoption by 
States and where PSOs may or may not be licensed by the State.
     What provisions are necessary to prevent enrollees from 
being held liable to any person or entity for the Medicare+Choice 
organization's debts in the event of the PSO's insolvency? There 
appears to be agreement that the provider contracts of Medicare+Choice 
organizations should include contractual language that prohibits 
providers from billing enrollees and requires continuation of care 
through the period for which premiums have been paid. We anticipate 
that the Committee may wish to discuss the period of time for which 
these contractual agreements are in effect, as well as difficulties in 
ensuring that providers continue to provide services, problems ensuring 
that insolvency insurance is in place, and the difficulties of getting 
affected patients appropriate coverage.
     What factors not specifically listed in the statute should 
be considered? We

[[Page 49652]]

believe the Committee should consider the need for more stringent 
solvency standards if the Secretary exercises the option to waive the 
minimum enrollment requirement and grants a waiver to the PSO. We 
believe the Committee should consider adopting certain requirements 
related to the fiscal soundness for health maintenance organizations, 
especially those requirements commonly considered good business 
practices, such as having insurance policies against losses stemming 
from fire, theft, and fraud. There may be other factors, such as 
actuarial opinions and cash reserves, that the Committee should 
consider. In addition, on the matter of cash reserves, we expect the 
Committee will discuss how to handle the cash reserve requirement with 
multi-State PSOs.
     What reporting requirements will we impose? The Committee 
will discuss the nature and frequency of reporting requirements. 
Currently, we require Medicare contracting health plans to report using 
the National Association of Insurance Commissioners' ``Orange Blank,'' 
but some modification of this requirement may be necessary to account 
for the organizational nature of PSOs and differences between PSOs and 
other Medicare+Choice plans. We anticipate that such differences will 
have to be limited to ensure efficient use of State and Federal 
monitoring resources.
     How will definitions and policies that the Secretary will 
develop affect the negotiations? The statute contains definitions and 
terms to be defined by the Secretary that are relevant to the 
development of solvency standards. We anticipate that the Committee 
will need to have guidance on the definition of the terms ``substantial 
proportion'' (including potential variations in the definition of this 
term), ``substantial financial risk,'' ``affiliated health care 
providers,'' ``providers,'' and ``partnerships'' as they relate to the 
financial stability of PSOs. We will provide preliminary definitions 
and use of these terms. However, because these definitions and policies 
will be part of a separate regulation to be published by June 1, 1998, 
the information provided to the Committee will not be final definitions 
at the time of negotiated rulemaking.

D. Issues and Questions Not Open to Negotiation

    With regard to parameters outside the scope of this rule, we will 
not discuss or consider issues not directly related to PSO solvency 
standards. Thus, we will not discuss the PSO waiver process, the PSO 
application process, monitoring, compliance actions, or matters that 
will be the subject of the June 1, 1998, interim final rule. Further, 
issues such as who can qualify as a PSO or those that are definitional 
(and thereby subject of the June 1, 1998 interim final rule) will be 
discussed only to the extent that solvency standards may be contingent 
on establishing some parameters.

III. Affected Interests and Potential Participants

    In addition to our participation on the committee, the Convener has 
proposed and we agree to accept the following as negotiation 
participants, some of which are coalitions of two or more groups:

American Association of Health Plans
American Association of Homes and Services for the Aging/American 
Health Care Association/Home Health Services and Staffing Asssociation/
National Association for Home Care
American Association of Retired Persons
American Hospital Association
American Medical Association
American Medical Group Association
Blue Cross/Blue Shield Association
Catholic Health Association / Premier
Consortium on Citizens with Disabilities
Federation of American Health Systems
National Association of Insurance Commissioners
National Independent Practice Association (IPA) Coalition/The IPA 
Association of America
National Rural Health Association

    Individuals representing the proposed organizations and health 
industry sectors should have ``real world'' experience, be respected in 
their particular community, have the ability to engage in negotiations 
that lead to consensus, and be able to fully represent the views of the 
interests they represent. We reserve the right to refuse 
representatives that do not possess these characteristics. Given the 
limited time frame for the development of this rule, it is expected 
that the negotiations will be time consuming and intensive. 
Representatives must be prepared and committed to fully participating 
in the negotiations. The names of the Committee members will be 
announced before the first meeting and Committee members will be 
notified. We are establishing an Internet site on our Managed Care home 
page, which will carry this information as well as other meeting 
information. We invite public comment on this list of negotiation 
participants.
    The intent in establishing the negotiating committee is that all 
interests are represented, not necessarily all parties. We believe this 
proposed list of participants represents all interests associated with 
adoption of solvency standards for provider-sponsored organizations. In 
determining whether a party had a significant interest and was 
represented, we considered groups who have and will continue to 
actively represent the main provider groups who will form PSOs, groups 
that represent providers experienced in bearing risk and managed care, 
groups that represent entities similar in nature to PSOs, groups 
representing affiliated providers and the continuum of care, 
beneficiary groups, and state regulators. In addition, we sought to 
achieve balance between providers seeking to enter the Medicare market 
and those (including existing Medicare contractors) who advocate for 
strong solvency standards. We believe a complex balance has been 
achieved due to the diversity within the groups named or within the 
health systems that are their members. Lastly, while we are obligated 
to assure that all interests that are significantly affected are 
adequately represented, it is critical to the Committee's success that 
it be kept to a manageable size. Committee size is a consideration 
because of the short time frame in which the Committee must complete 
its task.
    Groups or individuals who wish to apply for a seat on the Committee 
should respond to this notice, and provide detailed information as to 
how they would be affected by the solvency standards rule (rather than 
the new legislation generally) and why their interest could not be 
adequately represented by the proposed committee.

IV. Schedule for the Negotiations

    The BBA requires that the Committee submit its final report to the 
Secretary by March 1, 1998. The BBA further directs that the activities 
of the Committee be terminated if the Committee does not report, no 
later than January 1, 1998, that it has made significant progress and 
is likely to reach consensus within the time line established by the 
statute. The first meeting is scheduled for October 20, 21, and 22, 
1997, at a meeting facility in the Greater Washington, D.C. area 
beginning at 9:00 a.m. on the first day. The purpose of this meeting 
will be to discuss in detail how the negotiations will proceed and how 
the Committee will function. The Committee will agree to ground rules 
for committee operation, will determine how best to address the 
principal issues, and, if time permits, will begin hearing 
presentations and to address those issues.
    A second meeting is scheduled for November 12, 13, and 14, 1997. We

[[Page 49653]]

expect that by this meeting the Committee can complete action on any 
procedural matters remaining from the organizational meeting and either 
begin or continue to address the issues. The third meeting is scheduled 
for December 3, 4, and 5, 1997 for continued discussion of the issues. 
Three subsequent meetings will be held in January and February of 1998. 
Times and locations of the meetings in the Greater Washington DC area 
will be published in the Federal Register and announced and placed on 
our Internet Managed Care Home Page.

V. Formation of the Negotiating Committee

A. Procedure for Establishing an Advisory Committee

    As a general rule, an agency of the Federal government is required 
to comply with the requirements of FACA when it establishes or uses a 
group that includes non-Federal members as a source of advice. Under 
FACA, an advisory committee begins negotiations only after it is 
chartered. This process is underway.

B. Participants

    The number of participants in the group is estimated to be 14 and 
should not exceed 16 participants. A number larger than this could make 
it difficult to conduct effective negotiations. One purpose of this 
notice is to help determine whether the proposed rule would 
significantly affect interests not adequately represented by the 
proposed participants. We do not believe that each potentially affected 
organization or individual must necessarily have its own 
representative. However, each interest must be adequately represented. 
Moreover, we must be satisfied that the group as a whole reflects a 
proper balance and mix of interests.

C. Requests for Representation

    If, in response to this notice, an additional individual or 
representative of an interest requests membership or representation on 
the Committee, we will determine, in consultation with the convener, 
whether that individual or representative should be added to the 
Committee. We will make that decision based on whether the individual 
or interest--
     Would be significantly affected by the rule, and
     Is already adequately represented in the negotiating 
group.

D. Establishing the Committee

    After reviewing any comments on this notice and any requests for 
representation, we will take the final steps to form the committee 
unless the comments and other relevant considerations convince us that 
such action is inappropriate or our charter request is disapproved.

VI. Negotiation Procedures

    If a committee is formed, the following procedures and guidelines 
will apply, unless they are modified as a result of comments received 
on this notice or during the negotiating process.

A. Facilitator

    We will use a neutral facilitator. The facilitator will not be 
involved with the substantive development or enforcement of the 
regulation. The facilitator's role will be to--
     Chair negotiating sessions;
     Help the negotiation process run smoothly; and
     Help participants define and reach consensus.
    We propose to use the Department's Appeals Board as the 
facilitator.

B. Good Faith Negotiations

    Participants must be willing to negotiate in good faith and be 
authorized to do so. We believe this may best be accomplished by 
selection of senior officials as participants. We believe senior 
officials are best suited to represent the interests and viewpoints of 
their organizations. This applies to us as well, and we are designating 
Kathleen Buto, Deputy Director of our Center for Health Plans and 
Providers to represent us.

C. Administrative Support

    We will supply logistical, administrative, and management support. 
If it is deemed necessary and appropriate, we will provide technical 
support to the committee in gathering and analyzing additional data or 
information.

D. Meetings

    Meetings will be held in the Baltimore/Washington area (or in 
another location). We will announce committee meetings and agendas in 
the Federal Register. Unless announced otherwise, meetings are open to 
the public.

E. Committee Procedures

    Under the general guidance and direction of the facilitator, and 
subject to any applicable legal requirements, the members will 
establish the detailed procedures for committee meetings that they 
consider most appropriate.

F. Defining Consensus

    The goal of the negotiating process is consensus. Under the 
Negotiated Rulemaking Act, consensus generally means that each interest 
concurs in the result unless the term is defined otherwise by the 
Committee. We expect the participants to fashion their working 
definition of this term.

G. Failure of Advisory Committee To Reach Consensus

    If the Committee is unable to reach consensus, we will proceed to 
develop an interim final rule. Parties to the negotiating may withdraw 
at that time. If this happens, we and the remaining Committee members 
will evaluate whether the Committee should continue.

H. Record of Meetings

    In accordance with FACA's requirements, minutes of all committee 
meetings will be kept. The minutes will be placed in the public 
rulemaking record and Internet site on our Managed Care home page.

I. Other Information

    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.

VII. Special Solicitation of Public Comment

    Given the abbreviated time lines and absence of proposed rulemaking 
(as directed by the BBA) for this negotiated rulemaking and the 
forthcoming rules for Medicare Part C, we are taking this opportunity 
to solicit views on the definitions and use of the terms (as directed 
by BBA): substantial proportion, substantial financial risk, affiliated 
provider, provider of health services, partnerships, organized and 
licensed under State law as a risk-bearing entity. Because this 
solicitation will assist us in developing policy and providing guidance 
to the Committee, comments should be submitted no later than October 
20, 1997, to the following addresses: Health Care Financing 
Administration, ATTN: Ms. Maureen Miller, Room S3-21-17, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    Final definitions of these terms will appear in the June 1, 1998 
final rule.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance)


[[Page 49654]]


    Dated: September 16, 1997.
Nancy-Ann Min DeParle,
Deputy Administrator, Health Care Financing Administration.

    Approved: September 18, 1997.
Donna E. Shalala,
Secretary.
[FR Doc. 97-25343 Filed 9-19-97; 2:27 pm]
BILLING CODE 4120-01-P