[Federal Register Volume 67, Number 72 (Monday, April 15, 2002)]
[Pages 18209-18216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9196]



Centers for Medicare & Medicaid Services

RIN 0938-ZA32

Medicare Program; Solicitation for Proposals for Medicare 
Preferred Provider Organization (PPO) Demonstrations in the 
Medicare+Choice Program

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

ACTION: Notice for solicitation of proposals.


SUMMARY: This notice informs interested parties of an opportunity to 
apply for a cooperative agreement to develop a Medicare Preferred 
Provider Organization (PPO) Demonstration. We are interested in making 
the PPO health care option, which has been successful in non-Medicare 
markets, more widely available to people with Medicare. Our objective 
is to introduce more variety into the Medicare+Choice program so that 
Medicare beneficiaries have broader choice and more options available. 
We intend to use a competitive application process to select several 
organizations to develop PPO demonstrations beginning January 1, 2003.

DATES: Applications will be considered timely if we receive them on or 
before May 30, 2002.

ADDRESSES: Applications should be mailed to the following address: 
Department of Health and Human Services, Centers for Medicare & 
Medicaid Services, Center for Beneficiary Choices, Demonstration and 
Data Analysis Group, Division of Demonstration Programs, Attn: Ron

[[Page 18210]]

Deacon, Mail Stop: C4-17-27, 7500 Security Boulevard, Baltimore, 
Maryland 21244-1850.
    Please refer to file code CMS-4042-N on the application. Because of 
staffing and resource limitations, we cannot accept applications by 
facsimile (FAX) transmission. Applications postmarked after the closing 
date, or postmarked on or before the closing date but not received in 
time for panel review, will be considered late applications.

(410) 786-6622, or [email protected]. General information regarding 
this initiative is available on CMS's web site (www.hcfa.gov/research/ppodemo.htm).


Informational Meeting

    We invite individuals from organizations interested in responding 
to this solicitation to attend an informational meeting to be held at 
CMS headquarters in Baltimore on April 24, 2002 from 1 p.m. to 4 p.m. 
e.d.t. We will answer questions and provide guidance for the 
application process. Telephone call-in will be available for 
organizations unable to attend the meeting. More information on this 
meeting will be available at our web site (http:www.hcfa.gov/research/ppodemo.htm). Please send any questions in advance to 
[email protected]. We will answer the questions at the informational 

I. Background

A. Legislative Background

    Section 402(a)(1)(A) of the Social Security Amendments of 1967 
(Pub. L. 90-248), 42 U.S.C. 1395b-1(a)(1)(A), authorizes the Secretary 
to develop and engage in demonstrations ``to determine whether, and if 
so which, changes in methods of payment or reimbursement * * * for 
health care and services under health programs established by the 
Social Security Act, including a change to methods based on negotiated 
rates, would have the effect of increasing efficiency and economy of 
health services under such programs through the creation of additional 
incentives to these ends without adversely affecting the quality of 
such services. * * *''
    Under section 402(b) of the Social Security Act Amendments of 1967, 
the Secretary is authorized to waive requirements in title XVIII that 
relate to reimbursement and payment in order to carry out 
demonstrations authorized under section 402(a) of the Social Security 
Act Amendments of 1967.

B. Problem

    Medicare currently provides a choice of alternatives to fee-for-
service health care through its Medicare+Choice (M+C) program. While 
the program has grown since its introduction in the Balanced Budget Act 
of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, plans 
representing a wide range of options have not entered the program. The 
Congress intended that the BBA give people with Medicare the 
opportunity to choose, from a variety of private health plan options, 
the health care plan that best suits their needs and preferences. The 
options anticipated were coordinated care plans, including preferred 
provider organizations (PPOs) and health maintenance organizations 
(HMOs) (including HMOs with a point-of-service (POS) option); 
unrestricted private fee-for-service plans; provider-sponsored 
organizations (PSOs); and medical savings accounts. Currently, of the 
179 M+C contracts, only 2 are PPO contracts, 1 is a PSO contract, and 2 
are private fee-for-service plan contracts; the remainder are HMO 
contracts (a relatively small number of these offer a POS option).
    Over the long term, the M+C program has the potential to reduce 
costs because of its strong emphasis on coordinated care and preventive 
health. Moreover, because of its risk-based capitation payment system, 
the program provides increased incentives over fee-for-service for 
plans to control and even decrease the rate of growth in health care 
expenditures. Several proposed Medicare reform initiatives include 
financial components that encourage competition among health care 
providers and plans to provide the best choice for Medicare 
beneficiaries and the best price to Medicare. Today, participation by 
plans nationally or locally in M+C is not sufficient to foster the 
positive effects of competition in some areas.
    People with Medicare currently have access to fewer health plan 
models or choices than consumers with commercial insurance. Often, when 
individuals become eligible for Medicare, they are unable to continue 
medical coverage in widely available commercial options that were 
available when they were employed. The cost of supplemental insurance 
for fee-for-service Medicare is often much higher and the benefits are 
fewer than with commercial insurance.
    Our challenge is to increase participation in alternatives to 
Medicare fee-for-service. Participation by plans in the M+C program is 
declining. While there are several activities occurring that may 
minimize this trend, we are placing a new emphasis on expanding options 
and choices in the M+C program for people with Medicare. We are 
conducting this demonstration initiative to facilitate this process.
    Through independent contractors, we researched specific health care 
models in the non-Medicare market, attempting to ascertain whether they 
would be effective in the Medicare program. This research has guided 
the development of this special solicitation.

C. Findings

    Our research indicates that the success of the PPO concept is not 
being replicated in the Medicare program. Several of the organizations 
interviewed reported significant success with the PPO model and high 
satisfaction from subscribers. While some M+C plans are currently 
operating with aspects of the PPO concept, they have had minor impact. 
Because there are so many variations of the PPO theme, clearly defining 
the different types of PPO models is difficult. Industry experts 
confirmed this difficulty, but also emphasized that the PPO concept 
offers the potential for innovation in benefit design and the ability 
to customize product offerings to customer needs.
    These experts also stated that PPOs encourage efficient use of 
health services through coordinated care and various types of 
incentives. PPO enrollees may use any provider either within or outside 
the PPO network, but have a financial incentive to use in-network 
providers. Some interventions, for example, disease management, 
counseling, health education, and such additional benefits as 
prescription drugs, may be conditional upon use of providers within the 
    Many organizations reported that they also offer closed panel HMOs, 
and that PPOs are designed as an intermediate option to the traditional 
HMO and traditional fee-for-service offerings. PPOs are popular with 
employers who use that model to manage and stabilize costs and to 
provide employees more flexibility and choice than in an HMO.
    Point-of-service (POS) plans combine elements of both HMO and PPO 
coverage. They maintain an integrated provider network, but also offer 
benefits for out-of-network services. Several HMOs offer a POS option 
within the HMO framework. An HMO enrollee has the option of staying in-
network or going out-of-network for care. Like PPOs, with this HMO POS 
option, an individual who elects to go out-of-network will likely 
absorb additional costs (that is, higher copayments or deductibles) and 
less coverage. HMOs

[[Page 18211]]

with a POS option frequently use a gatekeeper to control out-of-network 
use or to limit the amount of out-of-network use. Most PPOs do not use 
a gatekeeper.
    All PPOs or PPO-like models share one common characteristic--a 
network of health care providers who have agreed to provide care to 
patients subject to contractually established payment levels. Often 
these networks are not as comprehensive as HMO networks because members 
are not restricted to using in-network providers. Several organizations 
expressed reservations about introducing a PPO model in Medicare 
because of the current M+C payment system. Almost all organizations 
expressed dissatisfaction with current payment amounts. The additional 
risk associated with out-of-network service compounds the problem.
    Our research asked organizations specific questions about barriers 
to contracting with us. The organizations noted several administrative 
and regulatory barriers in addition to low payment levels and the lack 
of opportunity to share risk for higher-than-anticipated costs. Most 
plans were familiar with constraints imposed by M+C regulations. Some 
referred to barriers resulting from past policy decisions within our 
agency. In summary, most plans wanted an opportunity to be more 
innovative to use PPO concepts from their non-Medicare business. They 
requested more flexibility on qualifying conditions, monitoring 
requirements, and reporting requirements. They requested that we 
consider the unique characteristics of a PPO model and that our 
flexibility decisions be based on PPO characteristics and not reflect 
only what occurs with HMOs, the predominant type of M+C plan.

D. PPO Demonstrations

    Under this demonstration, we will be testing alternatives to the 
current rules for payment to M+C organizations in section 1853 of the 
Social Security Act (the Act). As noted above, these demonstrations 
would be conducted under the authority under section 402(a)(1)(A) of 
the Social Security Amendments of 1967, 42 U.S.C. 1395b1(a)(1)(A), to 
test ``changes in methods of payment'' for Medicare services which may 
be more efficient and cost effective without compromising the quality 
of services. We would be waiving rules that relate to payment pursuant 
to section 402(b) of the Social Security Act Amendments of 1967. These 
PPO demonstrations will be considered M+C plans, although they will not 
be subject to some of the usual M+C provisions.
    We believe that the PPO model will introduce incentives that will 
result in more efficient and cost-effective use of medical services. 
Enrollees will experience incentives to select efficient providers and 
to utilize services more effectively. Providers of care will experience 
incentives to alter the mix and intensity of services to enrollees in a 
cost-effective manner.
    Based on the information received from private sector 
organizations, we intend to use our waiver authority to overcome some 
of the recognized barriers to increased participation in Medicare by 
health care organizations. Our overall goal is to use these 
demonstrations to assess the effects of new delivery models on various 
aspects of the M+C program. We will determine how these new delivery 
models impact Medicare beneficiaries and Medicare program expenditures 
as well as administrative burden. Through a formal independent 
evaluation, we will determine whether increasing the options available 
to beneficiaries has a favorable impact.

II. Provisions of This Notice

A. Purpose

    This notice solicits applications from organizations for 
demonstration projects to offer the PPO model as an additional M+C 
choice to people with Medicare. We are encouraging experienced 
organizations to contract with us on a capitated payment basis and to 
provide PPO products that will appeal to people with Medicare, both 
those already familiar with some form of managed care and those 
familiar only with fee-for-service. We are interested in increasing the 
number of plan choices available so that more beneficiaries have 
optimal opportunity to find and select a plan that meets their needs. 
We anticipate that premium and other out-of-pocket costs for the PPO 
product will be priced between HMO and fee-for-service supplemental 
costs so that individuals will weigh these costs against the benefit 
and provider access characteristics associated with currently available 
    We encourage organizations to propose innovative PPO models with 
the appropriate payment requirements and operational processes required 
to successfully implement the models. The quality of the proposals 
received will determine the number and types of models to be tested. 
Through this solicitation, we intend to award demonstrations in up to 
12 geographic areas.
    We intend to conduct the demonstrations for up to 3 years from the 
date of implementation. For each selected demonstration, we will assign 
a project officer who will serve as the point of contact with the 
demonstration project staff and who will provide technical consultation 
regarding waiver requirements, implementation and monitoring 
activities, and also provide feedback to us on demonstration status.

B. Funding

    Under this demonstration, payments will flow to contract 
organizations as monthly capitation based on enrollment. We will use 
the M+C payment system and are requesting that applicants become 
familiar with this system. We will determine the actual payment amount 
and any reconciled adjustments based on the unique characteristics of 
each demonstration's payment terms.
    Applicants may request minimal financial assistance for initial 
implementation costs (one-time payment up to $100,000 per demonstration 
project, subject to availability). We will consider requests for 
assistance with the following initial implementation costs:
     Modification of existing network contracts.
     Adaptation of claims processing systems to incorporate 
Medicare fee-for-service amounts.
     Preparation of special education and outreach efforts 
required for PPOs.
     Development of expense reporting required for any risk 
sharing or reconciliation processes.
     Development of any special quality of care or patient 
satisfaction data collection efforts unique to the demonstration.
    A proposed project budget must illustrate the applicant's share of 
start-up costs, as well as our proposed share.

III. Requirements for Submission

    Organizations with current M+C plan contracts may submit 
applications; however, existing contractors should offer the PPO model 
as a new choice for Medicare beneficiaries in the area. We prefer that 
organizations with an existing HMO product continue to offer the HMO 
product while also making the PPO product available. Our intention is 
to increase the number and types of choices available to people with 
Medicare. In our evaluation process, we will assign higher priority to 
proposals that create ``additional'' rather than ``substitute'' 
    The required application format is specified later in this 

[[Page 18212]]

Within the application each of the following subjects must be 

A. Qualifications

    We are interested in transporting successful models to the Medicare 
program. Applicants must describe in detail their prior experience and 
success in operating a PPO product. We will use our existing M+C 
application review process, or modifications of the review process, to 
determine if that organization is qualified to operate a PPO 
demonstration. It is important that the applicant be familiar with 
existing M+C qualification criteria. If the applicant believes that a 
criterion or requirement should not apply to the demonstration, this 
must be explicitly stated and sufficient rationale included for us to 
make a decision on the request.
    The applicant should discuss State licensing procedures for the 
proposed demonstration site and indicate any potential problems in 
obtaining the appropriate license for the PPO demonstration. If 
potential problems exist, there should be a discussion of methods for 
their resolution. The applicant should also discuss any other 
requirements from local jurisdictions that could impact on the 
implementation of the Medicare PPO demonstration.

B. Networks

    Since the key to a successful PPO product is the composition of the 
applicant's provider networks and the effectiveness of the network 
providers' care management, the applicant should describe the structure 
of the networks in its existing products. If possible, the applicant 
should illustrate with a diagram the layering of networks (PPO, HMO, 
PAR (participating network), etc.) and describe the important 
differences in contracting provisions for each network. For the 
proposed PPO demonstration, the applicant should describe which 
existing networks will be used, how networks must be modified for 
Medicare users, and if necessary, how networks will be expanded.
    While PPOs in the private sector may not directly manage or 
coordinate care within preferred networks, managing or coordinating 
care within the Medicare population is likely to be productive and 
cost-effective. The application should discuss any coordinated care 
interventions planned by the PPO organization.

C. Payment Methodology/Risk Sharing

    If the applicant proposes any variation from the traditional M+C 
payment amount in the demonstration, the application must describe in 
detail its proposed payment amount. Because we are maintaining budget 
neutrality, we will not pay an amount that is higher than either 99 
percent of the fee-for-service payment amount or the M+C payment amount 
in an area. In addition, if the applicant is proposing any type of 
financial protection, such as risk sharing or reinsurance, this should 
also be described in detail. The applicant should include examples that 
illustrate the risk sharing arrangement. The shared risk of gain and 
loss between CMS and the PPO must be symmetrical and the PPO will 
always remain at significant financial risk.
    Because we intend to implement any approved demonstrations as soon 
as possible, we do not intend to make any significant changes to the 
existing M+C payment system. Thus, we will use the existing blend 
methodology of risk-adjusted and demographic-adjusted payment. The 
usual M+C reporting systems will remain in place. If the applicant 
believes it is necessary to modify any aspects of the payment process, 
the application should request the modification and provide a detailed 
justification for the request.

D. Budget Neutrality

    The PPO demonstrations awarded under this solicitation must be 
budget neutral. This means that the expected cost that we incur under 
the demonstration can be no more than the expected cost were the 
demonstration not to occur. The applicant must submit a budget 
neutrality calculation in the application. Using the proposed payment 
methodology (including any risk sharing arrangements), the applicant 
should estimate CMS payments with and without the demonstration for 
each year of the demonstration. The calculation should indicate how the 
estimates were derived. If risk sharing is proposed, there should be 
three calculations of budget neutrality: optimistic or best-case 
assumptions; expected or normal assumptions; and pessimistic or worst-
case assumptions.
    The applicant should include a revenue and expense statement 
showing CY 2003 estimated per member per month Medicare revenue and 
member premium; benefit expenses (hospital inpatient, hospital 
outpatient, professional, other Medicare services, and non-Medicare 
services); and administrative expense (administration and profit). The 
statement should show any copay credits for the various services.
    If risk sharing is proposed, we will share risk only on medical 
benefit expenses. Administrative expense must be reasonable and 
consistent with prior practices. The applicant should describe a 
reconciliation process to be used to determine savings or losses. A 
reconciliation based on the PPO's accumulated medical claims expenses 
must include an independent audit, funded by the PPO, verifying the 
    We intend to carefully review each applicant's proposed payment 
methodology. Our primary goal in this demonstration is to increase 
choices for people with Medicare while maintaining budget neutrality. 
Thus, before we make final decisions on demonstration awards, we will 
negotiate with applicants the specific terms of their payment proposals 
including our payment amount and any risk sharing arrangement, if 
proposed. We will not pay an amount that is higher than the M+C payment 
amount in an area or higher than 99 percent of the fee-for-service 
payment amount. Following are some of the aspects of payment that we 
consider important.
     Whether the model is likely to draw enrollees from fee-
for-service or existing M+C products by considering existing M+C 
enrollment penetration and the characteristics of supplemental 
insurance available.
     The potential for selection risk resulting from the 
benefits offered, including member premium and cost sharing 
     The reasonableness of revenue and expense estimates, 
particularly the administrative component.
     Any special enhancements for people with Medicare, such as 
prescription drug coverage, broad preferred networks, and commitments 
for quality improvement.

E. Provider Payments

    The applicant should discuss its policies and procedures on in-
network contracting including its credentialing and recredentialing 
process, level of payment, quality and other types of reporting 
required, and financial incentives and rewards. The applicant should 
compare these approaches to those in its commercial contracts. Any 
special challenges to obtaining a sufficient network for Medicare 
enrollees should be noted along with proposed solutions.
    The applicant should describe its method of payment for out-of-
network providers for their care of PPO enrollees. The discussion 
should include numerical examples showing dollar contributions from the 
PPO organization and from the enrollee for Part A and Part B services. 
The example

[[Page 18213]]

should include specific Medicare allowable amounts, enrollee cost 
sharing, and the total amount received by the provider.
    The applicant should also describe its method for conducting 
provider relations, including the means by which it will address 
questions, complaints, and appeals from out-of-network providers on 
payments received. In addition, the applicant should describe its 
procedures for enrollee complaints relating to any balance billing 
requests received from providers.

F. Claims Processing

    The application should contain a discussion of the methods for 
processing and paying claims in the demonstration, including in-network 
and out-of-network services. The applicant should indicate whether 
existing claims processing systems used in commercial business will be 
used or whether new systems must be developed for the Medicare 
    If there are any interface requirements for Medicare intermediaries 
and carriers, this should be noted and discussed. Estimates of effort 
required to establish required payment protocols should also be 

G. Enrollment Potential

    The applicant should state the reasons it believes that the PPO 
demonstration is a wise business decision, and in particular, the 
reasons it believes people with Medicare will enroll in the PPO 
product. If focus groups or other qualitative consumer-oriented studies 
were completed, the findings should be described. The applicant should 
also explain its method for computing enrollment projections. In 
addition, the applicant should describe and provide estimates of its 
target market including underlying enrollment trends, demographics, and 
origin of potential enrollees (that is, fee-for-service, Medigap 
supplement, Medicare managed care including M+C, employer group).
    Benefits offered and cost-sharing requirements are important 
considerations for those considering PPO enrollment. The application 
should thoroughly describe the benefit design and cost-sharing 
requirements for in- and out-of-network services. To the extent 
possible, we encourage organizations to offer some level of 
prescription drug coverage. If out-of-pocket caps are included for in- 
and out-of-network services, the application should describe the 
methods of calculation and implementation. Since the incentives to use 
network services are critical to successful performance in a PPO 
environment, the application should discuss the manner in which the 
benefit design and cost-sharing characteristics contribute to the 
desired incentives.
    The application should also contain a description of the marketing 
plan for the demonstration. We are interested in the approach that each 
applicant will take to inform people with Medicare about a new PPO 
option. Since the concept may be unknown to older Medicare 
beneficiaries, the applicant should explain how it would attempt to 
explain the unique features of the PPO, not only in the marketing plan, 
but also after enrollment, when members begin to use services.
    The application should discuss how the PPO organization will advise 
its members of providers in the preferred network and how it intends to 
update information as network changes occur.

H. Organizational Capabilities

    Applicants must demonstrate that they have the basic infrastructure 
to implement and carry out the demonstration. At a minimum, the 
applicant must have adequate physical assets, trained staff, 
information systems, and financial resources. Proposals must include a 
detailed implementation plan describing tasks, time lines, and 
resources required to implement the demonstration program. Since 
applicants must demonstrate prior experience in operating successful 
PPO or M+C programs, the implementation plan should focus on tasks and 
a time line for modifying or adapting the existing systems and networks 
to fit the Medicare demonstration program.
    One of the tasks in the implementation plan must be preparation of 
a ``Medicare Plus Choice PPO Application'' (OMB number 0938-0470) which 
is different from this application for a PPO demonstration. If the 
application for a PPO demonstration is approved, the awardee must 
submit a M+C application before implementation of the demonstration. 
Organizations with existing M+C contracts are familiar with the M+C 
application process. We are requiring this information to assess the 
organizational, health service delivery, financial, and quality aspects 
of each PPO model before it becomes operational. We may suggest a site 
visit to assist the applicant.
    We intend to simplify and streamline the existing application 
process and will require awardees only to supplement material and 
information already included in the demonstration application. As part 
of the application, applicants may request that normal M+C requirements 
be waived or modified in the PPO demonstration. If we approve an 
applicant's request, the qualification application should reflect any 
waivers or modifications. During the implementation planning process, 
the project officer and our staff will assist awardees in further 
defining the process. It is our intent to make the qualification 
process as streamlined as possible.
    The plan must also include tasks and time lines associated with 
other required implementation planning activities, such as network 
contracting, claims processing design, risk-sharing reconciliation 
process, marketing, and data reporting. The pre-implementation planning 
phase should not exceed 4 months, since we anticipate that all 
demonstrations will begin no later than January 1, 2003.

I. Waivers

    The applicant must list and discuss all waivers of M+C requirements 
that they have requested. The applicant should describe each waiver, 
give the legal reference of the M+C requirement to be waived, and 
present a rationale for the importance of the waiver to a successful 
demonstration outcome. The applicant must distinguish, if possible, 
between M+C requirements that are legally binding by statute or 
regulation and those that are current M+C policy.
    It is important to note that, while our waiver authority is limited 
to provisions that relate to payment, we believe our existing waiver 
authority will provide the opportunity to demonstrate innovative PPO 
options that offer greater flexibility to plans. For example, while we 
cannot waive quality assurance requirements, our payment-related waiver 
authority could potentially have the effect of permitting an entity to 
operate a PPO product under this demonstration without being subject to 
quality assurance requirements that would otherwise apply. Some 
potential demonstration participants may be M+C organizations that have 
an HMO license. If so, they would not be eligible for the less 
prescriptive quality assurance requirements under section 1852(e)(2)(B) 
of the Act that apply to a PPO plan, since the definition of a PPO plan 
in section 1852(e)(2)(D) of the Act requires that the plan be ``offered 
by an organization that is not licensed or organized under State law as 
a health maintenance organization.'' Private fee-for-service plans, 
however, are subject to the same less prescriptive quality requirements 
in section 1852(e)(2)(B) of the Act, and there is no restriction on an 
entity with an HMO license offering a

[[Page 18214]]

private fee-for-service plan. Absent waiver authority under a 
demonstration, however, there would be an impediment to carrying out a 
PPO demonstration under the private fee-for-service plan rules, since 
there is a requirement that all providers receive the same payment 
amount for a service, without regard to whether they have a signed 
contract with the entity offering the private fee-for-service plan. Our 
authority to waive requirements that relate to reimbursement or payment 
could allow us to waive these rules, and thus allow the organization to 
have a different payment arrangement with a preferred provider network 
than with providers outside the network. This would allow an M+C 
organization with an HMO license to carry out the demonstration without 
being subject to the quality assurance requirements that apply to HMOs, 
while still establishing a PPO-type network for enrollees.
    Other examples of M+C rules that potentially could be waived as 
relating to payment might be rules applicable to enrollee cost-sharing 
(for example, the current aggregate limit on cost-sharing under a 
particular plan), and requirements in section 1854 of the Act relating 
to the submission and approval of an ``adjusted community rate'' (ACR) 
proposal. Virtually any payment requirement in section 1853 of the Act 
could also be waived. We wish to emphasize, however, that we cannot 
waive non-payment related requirements under our authority in section 
402(b) of the Social Security Act Amendments of 1967, 42 U.S.C. 1395b-

J. Submission of Applications

    We must receive applications (original and 10 copies) as indicated 
in the DATES and ADDRESSES sections of this notice. Only proposals that 
are considered ``on time'' will be reviewed and considered for award. 
Applications must be typed for clarity and should not exceed 40 double-
spaced pages, exclusive of the cover letter, executive summary, 
resumes, forms, and documentation supporting the budget.

Application Contents Outline

    To facilitate the review process, the application should include 
the following:
    1. Cover Letter--Must include a brief description of the proposed 
demonstration, the demonstration site, a contact person, and contact 
    2. Funding Request--If the applicant is requesting financial 
assistance for start-up costs, it must include Standard Form 424--
Application for Federal Assistance (including SF-424a--``Budget 
Information'' and SF-424b--``Assurances''). The form and information 
are available at www.hcfa.gov/research/sf424.pdf, www.hcfa.gov/research/sf424a.pdf, and www.hcfa.gov/research/sf424b.pdf.
    3. Executive Summary
    4. Statement of the Problem
    5. Demonstration Design
    6. Rationale for Waivers
    7. Organizational Capabilities
    8. Budget Neutrality Calculations
    9. Implementation Plan
    10. Related Supplemental Materials

IV. Evaluation Process and Criteria

    A panel of experts will conduct a review of responsive proposals. 
This technical review panel will convene in the month following the due 
date for submission of proposals. The panelist's recommendations will 
contain numerical ratings based on the evaluation criteria, the ranking 
of all responsive proposals, and a written assessment of each 
applicant. In addition, we will conduct a financial analysis of the 
recommended proposals and assess the budget neutrality of the proposed 

A. Evaluation Criteria and Weights

1. Understanding the Problem (10 points)
    The proposal should provide the following:
     Discussion of the importance of creating additional 
choices for people with Medicare.
     Discussion of the health resource characteristics of the 
proposed demonstration site, including existing M+C options, and 
present a rationale for introduction of a PPO option.
     Documentation of existing M+C constraints preventing or 
discouraging PPO options in the proposed demonstration site.
2. Soundness of the Demonstration Design (25 points)
    The applicant should provide an additional PPO option for Medicare 
beneficiaries rather than a substitution for an existing M+C product. 
In addition, the proposal should provide the following:
     Clear and convincing evidence with supporting materials 
that the proposed PPO option will be viable and will attract people on 
     Reasons that its benefit design and in-network and out-of-
network cost sharing requirements will encourage enrollees to 
effectively utilize services and will not discourage enrollment or 
deter use of necessary services.
     Convincing evidence that the proposed payment 
arrangements, including any risk sharing provisions, will ensure 
financial stability and will be budget neutral.
     Sufficient justification for any M+C waivers that the 
applicant is requesting.
     Sufficient explanation of all on-going operational 
activities required in PPO models.
     Evidence that the PPO network will be sufficiently 
accessible and achieve the desired results.
     Assurance that all State requirements will be met before 
3. Organizational Capabilities (20 points)
    The proposal should provide the following:
     Evidence of the availability and adequacy of facilities, 
equipment, personnel, and data systems to successfully conduct the 
proposed demonstration.
     Sufficient information on the organization of personnel 
during the project, to whom they are to report, and the methods for 
using their services in implementation planning and in the operation of 
the demonstration.
4. Ability to Implement the Demonstration (25 points)
    The proposal should--
     Present a thorough and well-documented implementation plan 
projecting timely completion of required start-up activities;
     Recognize the more difficult implementation issues 
requiring resolution by both the organization and by us, presenting a 
plan for that resolution; and
     Indicate the organization's familiarity with Medicare 
requirements in its qualification process and ongoing monitoring of M+C 
5. Strength of the Financial Analyses (20 points)
    The proposal should--
     Provide a clear understanding of projected revenues and 
expenses during the demonstration;
     Provide sufficient examples and explanations of various 
financial scenarios; and
     Indicate that the applicant understands the budget 
neutrality constraints and that the estimates that the applicant uses 
in the budget neutrality calculations are sound.

B. Final Selection

    Our Administrator will make final selections for demonstration 
projects from among the most highly qualified applicants. Factors 
including operational feasibility, special area

[[Page 18215]]

characteristics, and program priorities will be considered in the final 
selection process. Applicants should be aware that proposals may be 
accepted in whole or in part. In evaluating applications, we rely on 
our past experience with successful and unsuccessful demonstrations. We 
expect to make awards during CY 2002.

V. Collection of Information Requirements

    In compliance with the requirement of section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995, the Centers for Medicare and Medicaid 
Services (CMS) (formerly known as the Health Care Financing 
Administration (HCFA)), Department of Health and Human Services, is 
publishing the following summary of proposed collections for public 
comment. Interested persons are invited to send comments regarding this 
burden estimate or any other aspect of this collection of information, 
including any of the following subjects: (1) The necessity and utility 
of the proposed information collection for the proper performance of 
the agency's functions; (2) the accuracy of the estimated burden; (3) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; and (4) the use of automated collection techniques or 
other forms of information technology to minimize the information 
collection burden.
    We are, however, requesting an emergency review of the information 
collection referenced below. In compliance with the requirement of 
section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, we have 
submitted to the Office of Management and Budget (OMB) the following 
requirements for emergency review. We are requesting an emergency 
review because the collection of this information is needed before the 
expiration of the normal time limits under OMB's regulations at 5 CFR 
part 1320. We cannot reasonably comply with the normal clearance 
procedures because these demonstrations would not be implemented in a 
timely manner resulting in the potential loss of alternative and 
flexible benefits for beneficiaries. As a result, beneficiaries may not 
be provided health care choices that will produce the most beneficial 
health care outcomes. In addition, this demonstration will provide 
beneficiaries with an alternative health care choice that may alleviate 
the need for supplemental health care coverage resulting in more cost-
efficient health care.
    We are requesting OMB review and approval of this collection within 
14 days of the date of this publication, with a 180-day approval 
period. Written comments and recommendations will be accepted from the 
public if received by the individuals designated below within 14 days 
of this publication. During this 180-day period, we will publish a 
separate Federal Register notice announcing the initiation of an 
extensive 60-day agency review and public comment period on these 
requirements. We will submit the requirements for OMB review and an 
extension of this emergency approval.
    Type of Information Collection Request: New collection; Title of 
Information Collection: PPO Demonstration Proposal Solicitation 
Package; Form No.: CMS-10063 (OMB# 0938-NEW); Use: CMS intends to use 
the collection requirements referenced in this notice to collect 
information needed to implement a high priority demonstration designed 
to strengthen the Medicare program. The collection requirements will be 
used to gather information about the characteristics of the applicant 
organizations and the services and benefits they propose to offer; 
Frequency: On Occasion; Affected Public: Business or other for profit 
and not for profit; Number of Respondents: 20; Total Annual Responses: 
20; Total Annual Hours: 400.
    In addition, if an applicant is approved, the awardee must submit a 
Medicare+Choice PPO application, approved under OMB number 0938-0470, 
with a current expiration date of 11/30/2003, before implementation of 
the demonstration. We intend to simplify and streamline the existing 
application process and will require awardees only to supplement 
material and information already included in the demonstration 
    We have submitted a copy of this notice to OMB for its review of 
these information collections. A notice will be published in the 
Federal Register when approval is obtained.
    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access CMS's 
Web Site address at http://www.hcfa.gov/regs/prdact95.htm, or E-mail 
your request, including your address, phone number, OMB number, and CMS 
document identifier, to [email protected], or call the Reports 
Clearance Office on (410) 786-1326.
    Interested persons are invited to send comments regarding the 
burden or any other aspect of these collections of information 
requirements. However, as noted above, comments on these information 
collection and recordkeeping requirements must be mailed and/or faxed 
to the designees referenced below, within 14 days of the publication of 
this notice:

Centers for Medicare and Medicaid Services, Office of Information 
Services, Security and Standards Group, Division of CMS Enterprise 
Standards, Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-
1850. Fax Number: (410) 786-0262, Attn: John Burke.
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Fax Number: (202) 395-6974 or (202) 395-5167, Attn: Allison 
Eydt, CMS Desk Officer.

VI. Regulatory Impact Statement

    We have examined the impacts of this notice as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980 Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and 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 annually). We have determined 
that this notice is not a major rule because it does not impose a 
significant economic impact to preferred provider organizations or the 
Medicare program.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. For 
purposes of the RFA, most preferred provider organizations are 
considered to be small entities, either by nonprofit status or by 
having revenues of $5 to $25 million or less annually. (For details, 
see the Small Business Administration's regulation that set forth size 
standards for health care industries (65 FR 69432).) Individuals and 
States are not included in the definition of a small entity.
    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

[[Page 18216]]

a substantial number of small rural hospitals. This analysis must 
conform to the provisions of section 604 of the RFA. For purposes of 
section 1102(b) of the Act, we define a small rural hospital as a 
hospital that is located outside of a Metropolitan Statistical Area and 
has fewer than 100 beds.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $110 million. This notice will not mandate any requirements 
for State, local, or tribal governments.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have reviewed this notice under these requirements and 
have determined that it will not impose substantial direct requirement 
costs on State or local governments.
    In accordance with Executive Order 12866, this notice was reviewed 
by the Office of Management and Budget.

    Authority: Section 402 of the Social Security Act Amendments of 
1967 (42 U.S.C. 1395b-1) (Catalog of Federal Domestic Assistance 
Program No. 93.779, Health Care Financing Research, Demonstrations 
and Evaluations)

    Dated: March 28, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
[FR Doc. 02-9196 Filed 4-12-02; 8:45 am]