[Federal Register Volume 67, Number 56 (Friday, March 22, 2002)]
[Rules and Regulations]
[Pages 13278-13289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6956]


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THE DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 417 and 422

[CMS-1181-F]
RIN 0938-AK90


Medicare Program; Modifications to Managed Care Rules Based on 
Payment Provisions of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000, and Technical Corrections

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

[[Page 13279]]


ACTION: Final rule.

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SUMMARY: This final rule revises the regulations to reflect changes in 
the Social Security Act (the Act), enacted in certain sections of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA), relating to the Medicare+Choice (M+C) program. This 
final rule only makes conforming changes to the regulations that 
implement the sections of the BIPA, and do not have any substantive 
effect.
    This final rule also makes technical corrections to the M+C 
regulation published on June 29, 2000 (65 FR 40170). The remainder of 
the sections of the BIPA relating to the M+C program will be addressed 
in a subsequent proposed rule.

DATES: This final rule is effective May 21, 2002.

FOR FURTHER INFORMATION CONTACT: Al D'Alberto, (410) 786-1100.

SUPPLEMENTARY INFORMATION:

I. Background

A. Balanced Budget Act of 1997

    Section 4001 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-
33), added sections 1851 through 1859 to the Social Security Act (the 
Act) to establish a new Part C of the Medicare program, known as the 
Medicare+Choice (M+C) program. Under section 1851(a)(1) of the Act, 
every individual entitled to Medicare Part A and enrolled under Part B, 
except for individuals with end-stage renal disease, could elect to 
receive benefits either through the original Medicare fee-for-service 
program or an M+C plan, if one was offered where he or she lived.
    The primary goal of the M+C program was to provide Medicare 
beneficiaries with a wider range of health plan choices through which 
to obtain their Medicare benefits. The BBA authorized a variety of 
private health plan options for beneficiaries, including both the 
traditional managed care plans (such as those offered by health 
maintenance organizations (HMOs)) that had been offered under section 
1876 of the Act, and new options that were not previously authorized. 
Three types of M+C plans were authorized under the new Part C:
     M+C coordinated care plans, including HMO plans (with or 
without point-of-service options), provider-sponsored organization 
(PSO) plans, and preferred provider organization (PPO) plans.
     M+C medical savings account (MSA) plans (that is, 
combinations of a high-deductible M+C health insurance plan and a 
contribution to an M+C MSA).
     M+C private fee-for-service plans.
    The BBA also enacted new beneficiary protections and quality 
assurance requirements, a new methodology for paying risk contractors, 
and new enrollment rules.

B. Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999

    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA) (Pub.L. 106-113) amended the M+C provisions of the Act. 
These amendments were implemented in a final rule with comment period 
published in the Federal Register on June 29, 2000 (65 FR 40170). We 
received 5 comments in response to that final rule, which will be part 
of the future rulemaking implementing discretionary provisions of the 
BIPA.
    Section 501 of the BBRA amended section 1851(e)(4) of the Act to 
permit enrollees to receive certain rights ordinarily effective when an 
M+C plan terminates, at the time the beneficiary receives notice of the 
termination, as well as when the termination takes effect. These rights 
include an open enrollment period during which other M+C plans must be 
open, and the right to choose certain Medigap plans. It also amended 
section 1851(e)(2) to provide for continuous open enrollment for 
institutionalized individuals.
    Section 502 amended section 1851(f)(2) of the Act to provide that 
if an election or change in election to an M+C plan were made after the 
10th day of a calendar month, the election would be effective the first 
day of the second calendar month following the date the election or 
change in election was made, not the first calendar month. In section 
503, which amended section 1876(h)(5)(B) of the Act, the BBRA also 
permitted the extension or renewal of Medicare cost contracts for an 
additional 2 years, through December 31, 2004. Section 511(a) amended 
section 1853(a) of the Act by revising the original risk adjustment 
transition schedule for calendar years (CY) 2000, 2001, and 2002.
    Section 512 of the BBRA amended section 1853 of the Act by adding a 
new paragraph (i) to provide for new entry bonus payments to encourage 
M+C organizations to offer plans where there were no M+C plans serving 
the area. Section 513 amended section 1857(c)(4) of the Act to reduce 
from 5 years to 2 years the period during which an M+C organization 
that has terminated its M+C contract is barred from entering into a new 
M+C contract, and provided for a new exception to this rule in cases in 
which M+C payments are increased by statute or regulation subsequent to 
the decision to terminate.
    M+C organizations were permitted to elect to apply the premium and 
benefit provisions of section 1854 of the Act uniformly to separate 
segments of a service area by the amendment in section 515 of the BBRA. 
The annual deadline for submission of adjusted community rate proposals 
was changed from May 1 to July 1 pursuant to section 516 of the BBRA, 
which amended section 1854(a)(1) of the Act.
    The annual adjustment in the national per capita M+C growth 
percentage for 2002, found in section 1853(c)(6) of the Act, was 
revised by section 517 of the BBRA from a 0.5 percentage point 
reduction to a reduction of 0.3 percentage points. Section 518 of the 
BBRA amended section 1852(e)(4) of the Act to make changes in the 
procedures through which an M+C organization can be deemed by a private 
accreditation organization to meet certain M+C requirements, and added 
new categories of requirements that can be deemed to be met.
    Section 1852(e)(2) of the Act was amended by section 520 of the 
BBRA to provide that PPO plans are required to meet only the quality 
assurance requirements that apply to private fee-for-service plans. 
Section 522 amended section 1857(e) of the Act by basing the M+C 
portion of the user fee on the percentage of all Medicare beneficiaries 
who have enrolled in M+C plans.
    Finally, section 523 of the BBRA amended section 1859(e)(2) of the 
Act to provide that a religious fraternal benefit society could offer 
any type of M+C plan, and section 524 amended section 1877(b)(3) of the 
Act to specify that certain Medicare rules that established 
prohibitions on physician referrals did not apply for purposes of M+C 
organizations offering M+C coordinated care plans, although they would 
apply for purposes of M+C MSA plans and private fee-for-service plans.

C. Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000

    The Medicare, Medicaid, and SCHIP Benefits Improvement Act of 2000 
(BIPA) (Pub. L. 106-554), enacted December 21, 2000, amended the M+C 
provisions of the Act in sections 601 through 634. In this final rule, 
we are only making conforming changes to the regulations to reflect 
amendments made in sections 601, 602, 603, 607, 608, 613, 619, and 634 
of the BIPA. In those sections the Congress mandated that the Secretary 
take certain actions by certain

[[Page 13280]]

deadlines, leaving no discretion in implementing these mandates. In a 
subsequent rulemaking, we will address the remaining sections of the 
BIPA that amend M+C provisions of the Act.
1. Increase in Minimum Payment Amount
    Section 601 amended section 1853(c)(1)(B) of the Act by 
establishing new minimum payment amount rates (floor rates) in CY 2001 
for months after February. The new monthly minimum rates for March 
through December of 2001 are as follows:
     $525 for any payment area in a Metropolitan Statistical 
Area (MSA) within the 50 States and the District of Columbia with a 
population of more than 250,000;
     $475 for any other area within the 50 States; or
     not more than 120 percent of the minimum amount rate for 
CY 2000 for any area outside the 50 States and the District of 
Columbia.
    For January and February of 2001, the minimum amount rate is the 
minimum amount rate for the previous year increased by the national per 
capita M+C growth percentage, as described in Sec. 422.254(b), for the 
year. Minimum amount rates for January and February 2001 are based on 
the M+C rate book published in the March 1, 2000 Announcement of 
Calendar Year (CY) 2001 Medicare+Choice Payment Rates. These rates are 
published on the Centers for Medicare & Medicaid Services (CMS) web 
site at http://www.hcfa.gov/stats/hmorates/aapccpg.htm. Minimum amount 
rates established by the BIPA for March through December 2001 are 
published in the January 4, 2001 Revised Medicare+Choice (M+C) Payment 
Rates for Calendar Year (CY) 2001. These rates are published on the CMS 
web site at http://www.hcfa.gov/stats/hmorates/aapccpg/htm.
    The BIPA mandated that floor payment amounts are no longer 
established on a payment area basis. A single floor rate is now 
assigned to all payment areas (generally, a county) within MSAs of a 
certain size, and another floor rate is assigned to all other payment 
areas. If a payment area is located in an MSA with a population greater 
than 250,000, the BIPA changed the floor rate for that payment area, 
effective March 1, 2001. As a result, pre-BIPA revisions to prior 
years' growth estimates for that payment area cannot be linked to post-
BIPA revisions for that payment area. Thus, revisions to prior years' 
growth estimates for area-specific rates will differ from revisions to 
prior years' growth estimates for floor rates. We are revising 
Sec. 422.252(b) to reflect these changes.
2. Increase in Minimum Percentage Increase
    Section 602 amended section 1853(c)(1)(C) of the Act by specifying 
that for March through December 2001, the minimum percentage increase 
rate is changed to 103 percent of the annual M+C capitation rate for a 
payment area for 2000. For January and February of 2001, for 2002, and 
for each succeeding year, the minimum percentage increase rate will be 
102 percent of the prior year's annual M+C capitation rate. We have 
reflected this provision in Sec. 422.252(c).
3. Phase-In of Risk Adjustment
    Section 603 amended section 1853(a)(3)(C) of the Act by specifying 
that for CY 2002 and CY 2003, the risk adjustment method will be used 
to adjust only 10 percent of the M+C payment rate. (The BBRA provided 
that for 2002 the risk adjustment method would be used to adjust not 
more than 20 percent of the rate.) Under the BIPA, therefore, we will 
continue to apply the transition percentages applied in CYs 2000 and 
2001, which are 90 percent demographic method and 10 percent risk 
adjusted method based on inpatient data, through CY 2003. This change 
for CY 2002 was announced in the January 12, 2001 Advance Notice of 
Methodological Changes for Calendar Year (CY) 2002 Medicare+Choice 
(M+C) Payment Rates, which was published on our web site at http://www.hcfa.gov/stats/hmorates/45d2001.
    Under section 603 of the BIPA, for CY 2004, risk adjustment is to 
be based on both inpatient hospital and ambulatory data, and the 
percentage of the M+C payment rate that is risk adjusted is to increase 
to 30 percent of the capitation rate. The risk adjustment percentage is 
to increase to 50 percent in 2005, 75 percent in 2006, and 100 percent 
in 2007 and succeeding years. We are revising Sec. 422.256 to reflect 
these changes.
    Although the risk adjustment methodology will not be based on both 
inpatient hospital and ambulatory data until 2004, we have been 
collecting physician and hospital outpatient data since 2001. In a 
letter to the American Association of Health Plans, the Health 
Insurance Association of America, the Blue Cross and Blue Shield 
Association, and all M+C organizations, dated May 25, 2001, the 
Secretary suspended the required filing of physician and hospital 
outpatient department encounter data through July 1, 2002, in 
contemplation of a re-assessment of our approach to implementing 
comprehensive risk adjustment.
4. Full Implementation of Risk Adjustment for Congestive Heart Failure 
Enrollees for 2001
    Section 607 amended section 1853(a)(3)(C) of the Act to provide for 
full implementation of risk adjustment for congestive heart failure 
enrollees for 2001. Under the BBRA, the phase-in amount for risk 
adjustment was 10 percent in 2001. This section of the BIPA provides 
for 100 percent implementation of risk adjustment in 2001 for each 
enrollee who, as determined under the risk adjustment methodology, has 
a qualifying congestive heart failure inpatient hospital discharge 
diagnosis that occurred July 1, 1999 through June 30, 2000. This 
provision only applies, however, to enrollees who are enrolled in a 
coordinated care plan that was the only coordinated care plan, as of 
January 1, 2001, offered in the area where the enrollee lives. Full 
implementation of risk adjustment for congestive heart failure began 
January 1, 2001, and is not included in the computation of the M+C 
capitation rates. Payments began in the spring of 2001, retroactive to 
January 1, 2001, and will end on December 31, 2001. We will revise 
Sec. 422.256 to reflect these changes.
5. Expansion of Application of Medicare+Choice New Entry Bonus
    Section 608 of the BIPA amended section 1853(i)(1) of the Act to 
expand the application of the new entry bonus to M+C organizations that 
enter payment areas (generally counties) that have been unserved since 
January 1 2001. The BBRA established bonus payments to encourage M+C 
organizations to offer plans in areas that otherwise would not have an 
M+C plan available. The application of the new entry bonus is governed 
by three factors: the definition of unserved payment area, the date a 
plan is first offered, and the period of application of the bonus plan.
    First, the BBRA, in section 512, defined a previously unserved 
payment area as:
     A payment area in which an M+C plan has not been offered 
since 1997; or
     A payment area in which an M+C plan (or plans) had been 
offered since 1997, but in which every M+C organization offering an M+C 
plan in that payment area since then has notified CMS (no later than 
October 13, 1999) that it would no longer offer M+C plans in that 
payment area as of January 1, 2000.
    Second, under our interpretation of section 608, the date on which 
a plan is

[[Page 13281]]

considered to be first offered is the date on which our contract with 
the M+C organization becomes effective and M+C beneficiaries may enroll 
in the plan. Two or more M+C organizations may be eligible for the 
bonus in the same previously unserved payment area if their M+C plans 
are first offered on the same date.
    Third, the BBRA specified that the new entry bonus payments would 
only apply to M+C plans that are first offered during the period 
beginning January 1, 2000 and ending on December 31, 2001 (the period 
of application). This period of application is a 2-year window during 
which an M+C organization that enters a previously unserved payment 
area and offers the first M+C plan in that area will be eligible to 
begin receiving bonus payments.
    Finally, the BBRA specified that the bonus payments to an eligible 
M+C organization would be 5 percent of the total monthly payment for 
that payment area for the first 12 months in the previously unserved 
payment area, and 3 percent for the second 12 months.
    Section 608 of the BIPA extended by 1 year (to January 1, 2001) the 
time period during which an area could become an unserved payment area. 
The BIPA mandated that a payment area now will be considered a 
previously unserved payment area if:
     An M+C plan (or plans) had been offered since 1997; and
     Every M+C organization offering an M+C plan in that 
payment area since then has notified CMS (no later than October 3, 
2000) that it would no longer offer M+C plans in that payment area as 
of January 1, 2001.
    The effect of this section of the BIPA was to include additional 
payment areas in the definition of previously unserved payment area. 
The BBRA definition of a previously unserved payment area as a payment 
area in which an M+C plan has not been offered since 1997 remains 
unchanged.
    Table 1 shows a comparison of the two different time periods in 
effect for the new entry bonus. Although the BIPA changed the time 
period defining a previously unserved payment area, it did not change 
the time period during which an M+C plan must first be offered (the 
period of application). The two time periods are the same: from January 
1, 2000 through December 31, 2001.

                       Table 1.--Comparison of BBRA and BIPA Provisions on New Entry Bonus
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            Provision                               BBRA                                    BIPA
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Date a payment area becomes        By January 1, 2000....................  By January 1, 2000 or by January 1,
 previously unserved.                                                       2001.
Period of application (the window  January 1, 2000 through December 31,    January 1, 2000 through December 31,
 for M+C organizations to first     2001.                                   2001.
 offer an M+C plan in an unserved
 area).
----------------------------------------------------------------------------------------------------------------

    We discussed the BIPA amendment to the new entry bonus in the 
January 12, 2001 Advance Notice of Methodological Changes for Calendar 
Year 2002 Medicare+Choice Payment Rates, published on our website at 
http://www.hcfa.gov/stats/hmorates/cover01, and in the March 1, 2001 
Announcement of Calendar Year 2002 Medicare+Choice Payment Rates. In 
the March 1 announcement, we indicated that the 1-year extension in the 
time period defining an unserved area mandated by the BIPA also applied 
to the 2-year period of application. In effect, this would extend the 
end of the period of application window from December 31, 2001 to 
December 31, 2002. As a result, we stated that an M+C organization 
first offering a plan in a previously unserved payment area on January 
1, 2002 would be eligible for the bonus payments.
    After further analysis, we have determined that while the BIPA did 
expand the time period used to define a previously unserved payment 
area, it did not extend the period of application window during which 
an M+C organization must first offer a plan in a previously unserved 
area. The period of application remains January 1, 2000 through 
December 31, 2001. For example, an M+C organization that first offers a 
plan in a previously unserved payment area on January 1, 2002 would not 
be eligible for the new entry bonus payments. However, if the M+C 
organization first offers a plan in a previously unserved payment area 
prior to January 1, 2002, then the M+C organization would have first 
offered an M+C plan within the period of application and the 
organization would be eligible for new entry bonus payments.
    We have reflected the changes in section 608 by the addition of 
Sec. 422.250(g)(2)(iii).
6. Timely Approval of Marketing Material That Follows Model Marketing 
Language
    Section 613 of the BIPA amended section 1851(h) of the Act by 
altering the review period for marketing materials that utilize, 
without modification, proposed model language as specified by us. The 
review period for these marketing materials was reduced from 45 days to 
10 days. All other marketing materials will remain subject to the 45-
day review period. We have revised Sec. 422.80(a)(1) to reflect this 
change.
7. Restoring Effective Date of Elections and Changes of Elections of 
Medicare+Choice Plans
    Section 619 of the BIPA amended section 1851(f) of the Act to 
reestablish the original BBA effective date of elections or changes in 
elections to M+C plans during an open enrollment period. The effective 
date for these elections in the BBA provisions establishing the M+C 
program was the first day of the calendar month following the election 
or change in election during an open enrollment period. The BBRA 
changed this effective date in the case of an election or change in 
election made after the 10th of the month. Under the BBRA, an election 
or change in election made after the 10th of the month during an open 
enrolment period was effective the first day of the second calendar 
month after the election or change in election. Section 619 of the BIPA 
reestablishes the original provision making an election or change of 
election made during an open enrollment period effective the first day 
of the calendar month following the election, regardless of the day of 
the month on which the election or change of election is made. We are 
revising Sec. 422.68(c) to reflect this change, which was effective on 
June 1, 2001.
8. Service Area Expansion for Medicare Cost Contracts During Transition 
Period
    Section 634 of the BIPA amended section 1876(h)(5) of the Act by 
revising the limitation on expansion of service areas for cost 
contracts. We must now accept and approve applications to expand the 
service area of cost contracts if they are submitted on or before 
September 1, 2003 and we determine that the organization continues to 
meet

[[Page 13282]]

the requirements applicable to the organization and to cost contracts 
under section 1876 of the Act. We are revising Sec. 417.402(b) to 
reflect this change.

D. Technical Corrections

    We are making a number of technical corrections to part 422. These 
corrections are technical and editorial in nature and do not alter the 
substance of the regulations. In some sections, they represent material 
that was inadvertently changed or omitted in the final rule published 
on June 29, 2000 (65 FR 40170). In Sec. 422.100(d), in order to make 
clear that no change was intended in the final rule, we are restoring 
the words ``level of'' before ``cost-sharing'', as they appeared before 
``cost-sharing'' in the June 26, 1998 interim final rule. This also 
makes the language consistent with the reference to the ``level of 
cost-sharing'' in Sec. 422.304(b)(1).
    In Sec. 422.100(g)(2), we are restoring language that was 
inadvertently deleted in the final rule, by inserting, at the end of 
the sentence, before the word ``;and'', the words '', promote 
discrimination, discourage enrollment, steer subsets of Medicare 
beneficiaries to particular M+C plans, or inhibit access to services.'' 
While these concepts arguably are captured in the reference to 
designing benefits to ``discriminate'' against particular 
beneficiaries, we want to clarify that the deletion of this language 
(which was not discussed in the preamble to the final rule) was not 
intended to make any change in our standards of review in this area.
    In Sec. 422.506(a)(4), we are correcting the number of years an M+C 
organization must wait to enter into a new contract with us after not 
renewing a contract, which is 2 years, not 5 years, as stated in the 
current rule. We are also making the same correction to 
Sec. 422.512(e), by changing the ``5'' to a ``2'', to indicate the 
number of years an M+C organization must wait to enter into a new 
contract with us after they have terminated a contract.

II. Provisions of This Final Rule

    The provisions of this final rule are as follows:
     In Sec. 417.402, we are revising paragraph (b) to indicate 
that we must accept and approve service area expansion applications, 
provided they are submitted on or before September 1, 2003, and we 
determine that the organization continues to meet the requirements in 
section 1876 of the Act pertaining to cost contractors and the 
requirements in its cost contract.
     In Sec. 422.68(c), we are indicating that for an election, 
or change in election, made during an open enrollment period, coverage 
is effective as of the first day of the first month following the month 
in which the election, or change in election, is made.
     In Sec. 422.80, we are revising paragraph (a)(1) to 
indicate that the review period for marketing materials that utilize, 
without modification, proposed model language as specified by us, will 
be 10 days, not the 45 days required for all other marketing materials.
     In Sec. 422.250, we are revising paragraph (g)(2) to 
extend the category of previously unserved payment areas to include a 
payment area in which every M+C organization that offered an M+C plan 
in that payment area notified us by October 3, 2000 that it will no 
longer offer an M+C plan in that payment area effective January 1, 
2001. New entry bonus payments may be made to M+C organizations that 
first enter these payment areas from January 1, 2000 through December 
31, 2001.
     In Sec. 422.252, we are revising paragraph (b) to indicate 
that the minimum amount rate (floor rate) for a payment area for 1999, 
2000, and January and February of 2001 is the minimum amount rate for 
the preceding year, increased by the national per capita growth 
percentage, as described in Sec. 422.254(b), for the year. The floor 
rates for January and February 2001 are published in the March 1, 2000 
Announcement of Calendar Year 2001 Medicare+Choice Payment Rates 
(http://www.hcfa.gov/stats/hmorates/cover01). For March through 
December, 2001, the minimum amount rate for any area in an MSA within 
the 50 States and the District of Columbia with a population of more 
than 250,00 is $525; and for any other area within the 50 States, it is 
$475. For any area outside of the 50 States and the District of 
Columbia, the minimum amount rate cannot exceed 120 percent of the 
minimum amounts for those areas for CY 2000. We will also indicate in 
that section that for 2002, and each succeeding year, the minimum 
amount rate is the minimum amount for the preceding year, increased by 
the national per capita growth percentage, as described in 
Sec. 422.254(b), for the year.
    We are also revising paragraph (c) to indicate that the minimum 
percentage increase for 1999, 2000, and January and February of 2001 is 
102 percent of the annual M+C capitation rate for the preceding year. 
For March through December of 2001, the minimum percentage increase 
rate is 103 percent of the annual M+C capitation rate for 2000. For 
2002, and for each succeeding year, the minimum percentage increase is 
102 percent of the annual M+C capitation rate for the preceding year.
     In Sec. 422.256, we are revising paragraph (d) to indicate 
changes to the phase-in schedule for risk adjustment. For payments 
beginning January 1, 2000 and ending December 31, 2003, the risk factor 
will be based on the inpatient hospital data and will comprise 10 
percent of the monthly payment. For January 1, 2001 through December 
31, 2001 only, this factor comprises 100 percent of the monthly payment 
for enrollees with a qualifying inpatient diagnosis of congestive heart 
failure who are enrolled in a coordinated care plan that is the only 
coordinated care plan offered on January 1, 2001 in the enrollee's 
county. For payments beginning January 1, 2004, and for all succeeding 
years, the risk factor will include both inpatient and ambulatory data. 
The health status risk factor will be phased in according to the 
following schedule: 30 percent in 2004; 50 percent in 2005; 75 percent 
in 2006; and 100 percent in 2007 and succeeding years.
    The technical corrections in this final rule are as follows:
     In Sec. 422.100(d)(2), we are correcting an omission by 
inserting the words ``level of'' before ``cost-sharing'', so that the 
sentence reads ``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. 422.304(b)(2).''
     In Sec. 422.100(g)(2), we are correcting an omission by 
inserting a phrase at the end of the section, so that it reads ``M+C 
organizations are not designing benefits to discriminate against 
beneficiaries, promote discrimination, discourage enrollment, steer 
subsets of Medicare beneficiaries to particular M+C plans, or inhibit 
access to services; and''.
     In Sec. 422.250(g)(2)(ii), we are making a correction by 
deleting the word ``any'' and replacing it with the word ``all''.
     In Sec. 422.506(a)(4), we are correcting the number of 
years an M+C organization must wait to enter into a new contract with 
us after deciding not to renew a contract by deleting the ``5'' and 
replacing it with a ``2''.
     In Sec. 422.512(e), we are making the same correction by 
changing the ``5'' to a ``2'', to indicate the number of years an M+C 
organization must wait to enter into a new contract with us after 
terminating a contract.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60 days notice in the Federal Register and solicit public 
comment when a collection of information

[[Page 13283]]

requirement is submitted to the Office of Management and Budget (OMB) 
for review and approval. In order to fairly evaluate whether an 
information collection should be approved by OMB, section 3506(C)(2)(A) 
of the PRA requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of our estimate of the information collection 
burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

IV. Regulatory Impact

A. Overall Impact

    We have examined this final rule as required by Executive Order 
12866 (September 1993, Regulatory Planning and Review), the Unfunded 
Mandate Reform Act (UMRA, Pub. L. 104-4), the Regulatory Flexibility 
Act (RFA, Pub.L. 96-354, September 19, 1980), and the Federalism 
Executive Order 13132.
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives, and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects; distributive impacts; and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any one year).
    As a result of changes to the M+C regulations that reflect 
provisions of the BIPA specified in sections 601, 602, 603, 607, 608, 
613, 619, and 634, we have determined that this final rule is a major 
rule with economically significant effects, as defined in Title 5, 
United States Code, section 804(2), and under Executive Order 12866. 
The BIPA provisions addressed in this final rule will result in 
expenditures by the Federal government of more than $100 million 
annually. We estimate its impact will be to increase the aggregate 
payments to M+C organizations by approximately $1 billion in 2001, and 
approximately $11 billion during the 5-year period from FY 2001 through 
FY 2005.
    Table 2 shows the estimated expenditures under these provisions of 
the BIPA for this 5-year period. The estimates are rounded to the 
nearest $5 million, with estimates of less than $5 million represented 
as $0 in the table. All assumptions applied in calculating the 
estimates were consistent with the assumptions underlying the 
President's FY 2002 budget baseline. The total direct impact of 
approximately $7 billion does not include the additional impact of 
approximately $4 billion attributable to the indirect effect of 
increases in fee-for-service expenditures over the same 5-year period. 
Thus, all provisions of the BIPA addressed in this final rule are 
expected to increase aggregate payments to M+C organizations by 
approximately $11 billion over the next 5 years, beginning with $1 
billion for 2001. The new payment rates are effective March 1, 2001.

                     Table 2.--Estimated Expenditures for BIPA Provisions in This Final Rule
----------------------------------------------------------------------------------------------------------------
               BIPA section and provision                 Additional cash expenditures, 2001-2005 (in millions)
----------------------------------------------------------------------------------------------------------------
Sec. 601:
    Increase minimum payment amounts:
        Hospital Insurance (Part A)....................  $610.
        Supplementary Medical Insurance (Part B).......  $540.
Sec. 602:
    Increase minimum % pay increase for 2001...........  Included in figures for Section 601.
        Sections 601 and 602 Total.....................  $1,150.
Sec. 603:
    Phase-in of risk adjustment:
    Hospital Insurance (Part A)........................  $3,310.
    Supplementary Medical Insurance (Part B)...........  $2,430.
            Section 603 Total..........................  $5,740.
Sec. 607:
    Full risk adjustment in 2001 for Congestive Heart
     Failure enrollees:
        Hospital Insurance (Part A)....................  $50.
        Supplementary Medical Insurance (Part B).......  $40.
            Section 607 Total..........................  $90.
Sec. 608:
    Expand M+C new entry bonus.........................  Not estimable, due to unknown number of eligible M+C
                                                          organizations. Likely to be $0. (Provision is in
                                                          effect less than 5 years.)
Sec. 613:
    Timely approval of marketing materials.............  Not applicable.
Sec. 619:
    Restore effective date of elections................  Not applicable.
Sec. 634:
    Service area expansion for Medicare cost contracts.  Not applicable.
        Total, direct impact of the provisions in this   $6,980.
         rule.
        Total, indirect impact of increases in fee-for-  Approximately $4,000.
         service expenditures.
        Total, direct and indirect impacts.............  Approximately $11,000.
----------------------------------------------------------------------------------------------------------------


[[Page 13284]]

    The distribution of expenditures for the BIPA provisions included 
in this final rule varies by whether or not the payment areas served by 
the M+C organization are floor payment areas, and which type of floor 
applies. Under the M+C payment methodology prescribed in the BBA, the 
payment rate for each payment area for a year is the highest of three 
amounts:
     The minimum payment rate amount, or floor rate;
     The minimum percent increase rate, which is the payment 
amount received during the last year plus the minimum percent increase 
for the current year; or
     A blended rate, which is an amount derived from blending 
the payment area specific rate with a national rate based on historic 
spending under the original Medicare fee-for-service program.
    Generally, a payment area is the same as a county. Floor payment 
areas are payment areas that receive the minimum, or floor payment rate 
amounts. Under the provisions of the BIPA, there are now two categories 
of floor payment areas, those in MSAs with populations of 250,000 or 
more that receive the $525 minimum payment rate, and all other payment 
areas that receive the $475 minimum payment rate. The BIPA also 
specifies that from March through December 2001, all payment areas for 
which the minimum percentage rate is the highest rate (the non-floor 
payment areas) will receive 103 percent of the prior year's payment 
rate amount.
    Figure 1 shows the distribution of the three types of payment rates 
assigned to payment areas in 2001. A high proportion of payment areas 
receive the $475 floor rate. This floor rate predominates in the 
mountain states of the Western region and the west-central sections of 
the Midwest. (In CY 2001, all non-floor rates are the minimum 
percentage increase, since no payment areas receive a blended rate.)
    For most rural areas in the United States, the M+C payment rate is 
the floor rate. In the June 2001 Report to the Congress, MedPAC 
examined the differences between urban and rural areas. The report 
stated that in 2000, 94 percent of Medicare beneficiaries living in a 
Metropolitan Statistical Area (MSA) with at least 1 million people had 
at least one M+C HMO offered where they lived. In contrast, only 16 
percent of beneficiaries living adjacent to an MSA, but in an area 
without a town of at least 10,000 people had the option to enroll in an 
M+C HMO. Only 5 percent of the beneficiaries who lived in completely 
rural areas (not adjacent to any large or small MSA) had an M+C HMO 
option available where they lived.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR22MR02.009

BILLING CODE 4120-01-C
    Table 3 shows how the distribution of enrollees, payment areas, and 
payment increases varies according to the three payment categories 
mandated by the BIPA. Enrollment figures include all enrollees as of 
January 2001 and payment area figures are based on only those areas 
that have M+C enrollees.

[[Page 13285]]

Payment increases refer to the difference between pre-BIPA rates and 
the BIPA mandated 2001 rates that are effective March through December 
2001.
    Non-floor payment areas receive the smallest average payment 
increase of 1 percent above the pre-BIPA rates for CY 2001, and 75 
percent of all M+C enrollees reside in these areas. The 53 percent of 
payment areas that receive the $475 floor rate for CY 2001 have payment 
increases, on average, of 8 percent. Two percent of all M+C enrollees 
live in these payment areas. The largest average increase in payment 
rates are in payment areas that receive the new $525 floor, where 
approximately one-quarter of all M+C enrollees live. The 18 percent of 
payment areas assigned the $525 floor receive an average payment 
increase of 9.7 percent.

        Table 3.--Distribution of Enrollees and Payment Increases for 2001, by the BIPA Payment Category
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                  Percent of M+C      Percent of       Average
                        Payment category                           enrollees in    payment areas in    payment
                                                                 payment category  payment category    increase
----------------------------------------------------------------------------------------------------------------
$475 floor payment areas.......................................                 2                55          8.3
$525 floor payment areas.......................................                23                15          9.7
Non-floor payment areas........................................                75                30          1.0
----------------------------------------------------------------------------------------------------------------

    Table 4 shows M+C enrollment by payment categories and geographical 
region. The table is based on January 2001 enrollment, and includes M+C 
enrollees in coordinated care and private fee-for-service M+C plans, 
but not enrollees in cost or other non-risk plans. Within each of the 
four Census regions, the States are ordered by size of M+C enrollment 
as of January 2001.
    Although the map in Figure 1 may show that all three types of 
payment categories are present in a State, Table 4 may show that there 
are no M+C enrollees in 1 or 2 of the payment categories. For example, 
the map shows that South Dakota has at least 1 payment area that is 
assigned the non-floor rate, but Table 4 shows that there are no M+C 
enrollees in the non-floor areas.

                   Table 4.--Percent of M+C Enrollees in Each State, by BIPA Payment Category
----------------------------------------------------------------------------------------------------------------
                                                                          In percent
                                             -------------------------------------------------------------------
                                                  Percent          Percent          Percent
             Enrollee residence                 enrollees in     enrollees in     enrollees in      Total M+C
                                                 low-floor        high-floor       non-floor        enrollees,
                                               payment areas    payment areas    payment areas     January 2001
----------------------------------------------------------------------------------------------------------------
Nation......................................                2               23               75  ...............
                                             ===================================================================
Northeast:
    Connecticut.............................             None                1              100           67,051
    New Jersey..............................             None                2               98          154,100
    Pennsylvania............................                2                4               94          507,626
    Massachusetts...........................             None               14               86          220,246
    New York................................                2               26               72          393,403
    Rhode Island............................             None               72               28           57,368
    New Hampshire...........................               10               90             None             1647
    Maine...................................               80               20             None              271
    Vermont.................................              100             None             None               96
Midwest:
    Michigan................................                1                6               94           78,057
    Illinois................................                4               24               72          149,886
    Indiana.................................                2               50               48           11,428
    Ohio....................................                2               52               46          237,371
    Missouri................................                2               54               44          124,584
    Kansas..................................                1               70               28           26,133
    Iowa....................................                8               92             None            2,446
    Minnesota...............................                2               98             None           38,804
    Nebraska................................                2               98             None            8,305
    N. Dakota...............................              100             None             None               54
    S. Dakota...............................              100             None             None              585
    Wisconsin...............................               12               88             None           33,068
South:
    Alabama.................................                1                1              100           54,285
    Dist. of Columbia.......................             None             None              100            3,715
    Georgia.................................                1                1              100           38,685
    Louisiana...............................                1                1              100           92,055
    Maryland................................                1                1              100           15,220
    Delaware................................                4             None               96              799
    Florida.................................                1                8               92          667,825
    Texas...................................                2                8               92          203,968
    W. Virginia.............................               18                2               82            5,334
    Mississippi.............................               14                8               78            1,252

[[Page 13286]]

 
    Tennessee...............................                2               44               52           31,930
    Arkansas................................               34               40               26           17,722
    S. Carolina.............................               36               54               10              475
    Kentucky................................                1               94                6           18,642
    Virginia................................                2               92                6           11,196
    N. Carolina.............................               16               82                2           45,192
    Oklahoma................................                4               92                2           46,830
West:
    Alaska..................................                2             None               98              116
    California..............................                1                8               92        1,469,716
    Arizona.................................                2               22               76          235,366
    Nevada..................................                2               22               74           45,030
    Colorado................................                8               54               38          130,181
    Wyoming.................................               78             None               22               97
    Washington..............................                6               88                6          149,854
    Utah....................................               38               60                2              351
    Idaho...................................                6               94                1            5,344
    New Mexico..............................                6               94                1           27,946
    Oregon..................................               10               90                1          136,707
    Hawaii..................................               26               74             None           21,563
    Montana.................................              100             None             None              165
----------------------------------------------------------------------------------------------------------------

    Under the BIPA, M+C organizations could qualify for higher payment 
rates, and the statute mandated that the increase in payments be used 
by the M+C organizations in the following ways:
     To reduce beneficiary premiums.
     To reduce beneficiary cost-sharing.
     To enhance benefits.
     To make contributions to a benefit stabilization fund to 
reserve funds for future use to offset premium increases or benefit 
reductions.
     To stabilize or enhance the network of health care 
providers.
     A combination of the above.
    Table 5 describes how M+C organizations choose to use the higher 
payments for 2001 by showing the percentage of M+C enrollment by each 
type of fund use and within payment categories ($475 floor, $525 floor, 
and non-floor payment areas). Almost two-thirds of M+C enrollees are in 
M+C organizations that used the increased funds for 2001 to enhance 
provider networks only, and 17 percent of enrollees are in M+C 
organizations that selected multiple options. The largest payment rate 
increases went to both floor payment areas (see Table 3) and M+C 
organizations serving these payment areas were less likely to use the 
increase in funds exclusively for enhanced provider networks.

       Table 5.--Use of Increased Payments Under BIPA, by Percent of Enrollment Within Payment Categories
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                                      Percent of
                                                                                                         M+C
                                                                  Percent of M+C    Percent of M+C    enrollment
 M+C organizations uses of increased payment   Percent of total    enrollment in     enrollment in     in non-
                                                M+C enrollment      $475 floor        $525 floor        floor
                                                                   payment areas     payment areas     payment
                                                                                                        areas
----------------------------------------------------------------------------------------------------------------
Reduced premium or cost-sharing only.........                 6               8.4               8.7          5.3
Added or enhanced benefits only..............                 1               0.9                 0         0.94
Used stabilization fund only.................                11                 0               2.8         14.2
Enhanced provider network only...............                65              48.6              43.5         72.3
Used multiple options........................                17              42.1                45          7.3
----------------------------------------------------------------------------------------------------------------

    The increases in payment rates also had an impact on the premiums 
that M+C organizations offered their enrollees for 2001. After the 
increase in payment rates, the national average 2001 premium for the 
plan with the lowest premium that had the most generous benefit package 
offered by an M+C organization in a payment area decreased by about $2 
per month. Currently, we have enrollment data at the level of M+C 
organization contracts, not at the level of individual plans offered by 
M+C organizations. Thus, we assigned contract level enrollment data to 
the plan with the lowest premium that had the most generous benefit 
package offered by an M+C organization in a payment area in each 
contract. There may be several plans offered by an M+C organization in 
a payment area, some of which may have additional benefits available 
for an additional premium.
    Premiums have tended to be highest in payment areas where Medicare 
payment rates have been the lowest. Table 6 shows the impact of the 
increase in payment rates on 2001 premiums.

[[Page 13287]]



                        Table 6.--Premium Levels by Payment Category, Pre- and Post-BIPA
----------------------------------------------------------------------------------------------------------------
                                                        Pre-BIPA average    Post-BIPA average
                                                        2001 premium for    2001 premiums for
                   Payment category                    ``representative''  ``representative''    Percent change
                                                              plans               plans
----------------------------------------------------------------------------------------------------------------
All payment areas....................................              $25.44              $23.44               -7.9
$475 floor areas.....................................               51.70               48.39               -6.4
$525 floor areas.....................................               37.75               31.51              -16.5
Non-floor areas......................................               21.08               20.41               -3.2
----------------------------------------------------------------------------------------------------------------

    Prior to the increase in payment rates, 20.5 percent of enrollees 
were paying over $50 for 2001 premiums. The increase in payment rates 
decreased this share by 5 percentage points, so that only 15.6 percent 
of enrollees pay premiums over $50 in 2001. The increase in payment 
rates had no effect on the percentage of enrollees in the plan with the 
lowest premium that had the most generous benefit package offered by an 
M+C organization in a payment area with a zero dollar premium for 2001. 
That share would remain approximately 45 percent.
    Drug coverage is most common in payment areas with the highest 
payment rates. Few M+C organizations have used the increase in payment 
rates to add a drug benefit. Prior to implementation of the BIPA 
payment provisions, approximately 69 percent of M+C enrollees would 
have had drug coverage in the plan with the lowest premium that had the 
most generous benefit package offered by their M+C organization in the 
payment area in 2001. As a result of the BIPA payment increases, 70 
percent of enrollees (an additional 61,000 enrollees) would have drug 
coverage in the plan with the lowest premium that had the most generous 
benefit package offered by their M+C organization in the payment area 
in 2001. Payment areas with the $475 floor recorded the largest change 
in the percent of enrollees with drug coverage in the plan with the 
lowest premium that had the most generous benefit package offered by an 
M+C organization in a payment area as a result of the changes in the 
BIPA, increasing from 31 percent to 38 percent.
    We have not considered alternatives to lessen the impact or 
regulatory burden of this final rule because the provisions are 
mandated by the BIPA and no additional burden is imposed by us.
    The RFA also requires agencies to analyze options for regulatory 
relief of small businesses, nonprofit organizations, and governmental 
agencies. Most hospitals and most other providers and suppliers are 
small entities, either by nonprofit status or by having revenues of 
between $7.5 million and $25 million annually. Individuals and States 
are not included in the definition of small entities.
    We estimate that fewer than 5 out of 177 M+C contractors have 
annual revenues of $7.5 million or less. Approximately 35 percent of 
M+C contractors have tax-exempt status, and thus, for purposes of the 
RFA are considered to be small entities. We have examined the economic 
impact of this final rule on M+C organizations, including those that 
are tax-exempt, and thus small entities, and we find that overall the 
economic impact is significant but positive, generating an increase in 
payments. We have not considered alternatives to lessen the impact or 
regulatory burden of this final rule because the provisions are 
mandated by the BIPA and no burden is imposed.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital located outside of an MSA with fewer than 100 
beds. Almost 2 percent of M+C enrollees reside in payment areas outside 
MSAs, with floor payment rates of $475 for March through December of 
2001. M+C organizations in these payment areas will receive, on 
average, an 8.3 percent increase in payments for 2001. Assuming BIPA-
related payment increases in both original Medicare and the M+C 
program, small rural hospitals in these payment areas could be in a 
better position to renegotiate their contracts with M+C organizations. 
This could generate a positive increase in payments to some small rural 
hospitals. However, information on the payment terms of contracts 
between M+C organizations and providers is not available, therefore, we 
are unable to provide data on the level of this impact.

B. The Unfunded Mandates Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an annual expenditure by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $100 million. This final rule would have no consequential 
effect on the annual expenditures of any State, local, or tribal 
government, or the private sector. Therefore, we have determined, and 
we certify, that this final regulation would not result in an annual 
expenditure by State, local, or tribal governments, in the aggregate, 
or by the private sector, of $100 million.

C. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed or final rule that 
imposes substantial direct requirement costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. This final rule will impose no direct requirement costs 
on State and local governments, would not preempt State law, or have 
any Federalism implications.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

V. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. The notice of proposed rulemaking can be waived, 
however, if an agency finds good cause that notice and comment 
procedures are impracticable, unnecessary, or contrary to the public 
interest, and it incorporates a statement of the finding and its 
reasons in the rule issued.

[[Page 13288]]

    Publishing a proposed rule is unnecessary because this final rule 
only makes conforming changes to the regulations to implement those 
sections of the BIPA in which the Congress allowed no discretion as to 
the actions to be taken and the times in which they must be completed. 
These changes were enacted by the Congress, and would be in effect on 
the date mandated by the legislation without regard to whether they are 
reflected in conforming changes to the regulation text, since a statute 
controls over a regulation. In this final rule we merely have revised 
the regulation text to reflect these new statutory provisions. The BIPA 
provisions have been incorporated virtually verbatim, with no 
interpretation necessary. In accordance with 5 U.S.C. 808(2), we do not 
believe that publishing a notice of proposed rulemaking is necessary, 
nor would it be practicable given that a number of the provisions have 
already taken effect consistent with the effective dates established 
under the BIPA.
    Also, this final rule contains only technical corrections to a 
prior final rule with comment period published in the Federal Register 
on June 29, 2000 (65 FR 40170). These technical corrections are 
editorial in nature and do not alter the substance of the regulations.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule.

List of Subjects

42 CFR Part 417

    Administrative practice and procedure, Grant programs-health, 
Health care, Health facilities, Health insurance, Health maintenance 
organizations (HMO), Loan programs-health, Medicare, Reporting and 
recordkeeping requirements.

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health 
maintenance organizations (HMO), Medicare+Choice, Penalties, Privacy, 
Provider-sponsored organizations (PSO), Reporting and recordkeeping 
requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 417--HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL 
PLANS, AND HEALTH CARE PREPAYMENT PLANS

    1. The authority citation for part 417 continues to read as 
follows:

    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 (2 U.S.C. 300e, 300e-5, 300e-9), and 31 U.S.C. 
9701.

Subpart J--Qualifying Conditions for Medicare Contracts

    2. In Sec. 417.402, paragraph (b) is revised to read as follows:


Sec. 417.402  Effective date of initial regulations.

* * * * *
    (b) The changes made to section 1876 of the Act by section 4002 of 
the Balanced Budget Act of 1997 (BBA) are incorporated in part 422 of 
this chapter, except for changes affecting section 1876 cost contracts, 
which are incorporated in subpart L of this part. Upon enactment of the 
BBA (August 5, 1998), no new cost contracts are accepted by CMS, except 
for current Health Care Prepayment Plans that may convert to section 
1876 cost contracts. Section 1876 cost contracts may not be extended or 
renewed beyond December 31, 2004. CMS must accept and approve 
applications to modify the cost contracts in order to expand the 
service area, provided they are submitted on or before September 1, 
2003 and CMS determines that the organization continues to meet the 
regulatory requirements and the requirements in its cost contract.

PART 422--MEDICARE+CHOICE PROGRAM

    1. The authority citation for part 422 continues to read as 
follows:

    Authority: Secs. 1851 and 1855 of the Social Security Act (42 
U.S.C. 1395w-21, and 1395w-25).

Subpart B--Eligibility, Election, and Enrollment

    2. In Sec. 422.68, paragraph (c) is revised to read as follows:


Sec. 422.68  Effective dates of coverage and change of coverage.

* * * * *
    (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.
* * * * *

    3. In Sec. 422.80, paragraph (a)(1) is revised to read as follows:


Sec. 422.80  Approval of marketing materials and election forms.

    (a) * * *
    (1) At least 45 days (or 10 days if using marketing materials that 
use, without modification, proposed model language as specified by CMS) 
before the date of distribution the M+C organization has submitted the 
material or form to CMS for review under the guidelines in paragraph 
(c); and
* * * * *

Subpart C--Benefits and Beneficiary Protections

    4. In Sec. 422.100, paragraphs (d)(2) and (g)(2) are revised to 
read as follows:


Sec. 422.100  General requirements.

* * * * *
    (d) * * *
    (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. 422.304(b)(2).
* * * * *
    (g) * * *
    (2) M+C organizations are not designing benefits to discriminate 
against beneficiaries, promote discrimination, discourage enrollment, 
steer subsets of Medicare beneficiaries to particular M+C plans, or 
inhibit access to services; and
* * * * *

Subpart F--Payments to Medicare+Choice Organizations

    5. In Sec. 422.250, the following changes are made to read as set 
forth below:
    A. Paragraphs (g)(2)(i) and (g)(2)(ii) are revised.
    B. Paragraph (g)(2) (iii) is added.


Sec. 422.250  General provisions.

* * * * *
    (g) * * *
    (1) * * *
    (2) * * *
    (i) A county in which no M+C plan has been offered;
    (ii) A county in which an M+C plan or plans have been offered, but 
where all M+C organizations offering an M+C plan notified CMS by 
October 13, 1999, that they will no longer offer plans in the county as 
of January 1, 2000; or
    (iii) A county in which an M+C plan or plans have been offered, but 
where all M+C organizations offering an M+C plan notified CMS by 
October 3, 2000, that they will no longer offer plans in the county as 
of January 1, 2001.
* * * * *

    6. In Sec. 422.252, the following changes are made to read as set 
forth below:

[[Page 13289]]

    A. Paragraph (b)(2) is revised.
    B. Paragraphs (b)(3) and (b)(4) are added.
    C. Paragraph (c)(2) is revised.
    D. Paragraphs (c)(3) and (c)(4) are added.


Sec. 422.252  Annual capitation rates.

* * * * *
    (b) * * *
    (2) For 1999, 2000, and January and February of 2001, the minimum 
amount rate is the minimum amount rate for the preceding year, 
increased by the national per capita growth percentage (specified in 
Sec. 422.254(b)) for the year.
    (3) For March through December, 2001--
    (i) The minimum amount rate for any area in a metropolitan 
statistical area within the 50 States and the District of Columbia with 
a population of more than 250,000 is $525;
    (ii) For any other area within the 50 States, it is $475; or
    (iii) For any area outside the 50 States and the District of 
Columbia, it is not more than 120 percent of the minimum amount rates 
for CY 2000.
    (4) For 2002 and each succeeding year, the minimum amount rate is 
the minimum amount for the preceding year, increased by the national 
per capita percentage (specified in Sec. 422.252(b)) for the year.
    (c) * * *
    (2) For 1999, 2000, and January and February of 2001, the minimum 
percentage increase is 102 percent of the annual Medicare+Choice 
capitation rate for the preceding year.
    (3) For March through December of 2001, the minimum percentage 
increase is 103 percent of the annual Medicare+Choice capitation rate 
for 2000.
    (4) For 2002, and for each succeeding year, the minimum percentage 
increase is 102 percent of the annual Medicare+Choice capitation rate 
for the preceding year.

    7. In Sec. 422.256, paragraph (d)(2) is revised to read as follows:


Sec. 422.256  Adjustments to capitation rates and aggregate payments.

* * * * *
    (d) * * *
    (2) Implementation. CMS applies the risk adjustment factor as 
follows:
    (i) For payments beginning January 1, 2001 and ending December 31, 
2003, CMS applies a risk factor that incorporates inpatient hospital 
encounter data. The risk factor will comprise 10 percent of the monthly 
payment.
    (ii) For payments beginning January 1, 2000 and ending December 31, 
2001 only, the risk factor comprises 100 percent of the monthly payment 
for individuals with a qualifying inpatient diagnosis of congestive 
heart failure who are enrolled in a coordinated care plan that is the 
only coordinated care plan offered on January 1, 2001 in the area where 
the individual lives.
    (iii) For payments beginning January 1, 2004, and for all 
succeeding years, CMS applies a risk factor that incorporates inpatient 
hospital and ambulatory encounter data. This factor is phased in as 
follows:
    (A) 30 percent in 2004;
    (B) 50 percent in 2005;
    (C) 75 percent 2006; and
    (D) 100 percent in 2007 and succeeding years.
* * * * *

Subpart K--Contracts With Medicare+Choice Organizations


Sec. 422.505  [Corrected]

    8. In Sec. 422.506, in paragraph (a)(4), the phrase ``5 years'' is 
removed and the phrase ``2 years'' is added in its place.


Sec. 422.512  [Corrected]

    9. In Sec. 422.512, in paragraph (e), the phrase ``5 years'' is 
removed and the phrase ``2 years'' is added in its place.

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

    Dated: August 2, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: October 16, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 02-6956 Filed 3-21-02; 8:45 am]
BILLING CODE 4120-01-P