[Federal Register Volume 67, Number 190 (Tuesday, October 1, 2002)]
[Rules and Regulations]
[Pages 61496-61506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24858]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 460

[CMS-1201-IFC]
RIN 0938-AL59


Medicare and Medicaid Programs; Programs of All-inclusive Care 
for the Elderly (PACE); Program Revisions

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

ACTION: Interim final rule with comment period.

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SUMMARY: This rule revises the interim final rule with comment period 
that established requirements for Program of All-inclusive Care for the 
Elderly (PACE) under the Medicare and Medicaid programs. The revisions 
in this rule will implement section 903 of the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) 
by establishing a process through which PACE organizations may request 
waiver of certain Medicare and Medicaid regulatory requirements.

DATES: Effective date: These regulations are effective on October 31, 
2002.
    Comment date: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on 
December 2, 2002.

ADDRESSES: In commenting, please refer to file code CMS-1201-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Mail written comments (one original and three copies) to the 
following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1201-IFC, P.O. 
Box 8017, Baltimore, MD 21244-8017.
    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and three copies) to one of the following 
addresses:

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for commenters wishing to retain a proof of filing by 
stamping in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Janet Samen, (410) 786-4533; or Sue 
Davison, for State technical assistance, (410) 786-5831.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: Comments 
received timely will be available for public inspection as they are 
received, generally beginning approximately 3 weeks after publication 
of a document, at the headquarters of the Centers for Medicare & 
Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, 
Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule 
an appointment to view public comments, call (410) 786-7195.

I. Background

A. Legislative History

    Section 4801 of Public Law 105-33, the Balanced Budget Act of 1997 
(BBA), authorized coverage of the Program of All-inclusive Care for the 
Elderly (PACE) under the Medicare program. It amended title XVIII of 
the Social Security Act (the Act) by adding section 1894, which 
addresses Medicare payments and coverage of benefits under PACE. 
Section 4802 of the BBA authorized the establishment of PACE as a State 
option under Medicaid. It amended title XIX of the Act by adding 
section 1934, which directly parallels the provisions of section 1894.

B. Demonstration Project History

    The BBA built on the success of the PACE demonstration program. 
Section 603(c) of the Social Security Amendments of 1983 (Pub. L. 98-
21), as extended by section 9220 of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (Pub. L. 99-272) authorized the original 
demonstration waiver for On Lok Senior Health Services in San 
Francisco. Section 9412(b) of Public Law 99-509, the Omnibus Budget 
Reconciliation Act of 1986, authorized us to conduct a demonstration 
project to determine

[[Page 61497]]

whether the model of care developed by On Lok may be replicated across 
the country. The number of sites was originally limited to 10, but the 
Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508) authorized 
an increase to 15 demonstration sites.
    The PACE demonstration program replicated a unique model of managed 
care service delivery for a group of very frail community-dwelling 
elderly, most of whom were dually eligible for Medicare and Medicaid 
benefits, and all of whom were assessed as being eligible for nursing 
home placement according to the standards established by their 
respective States. The PACE model of care includes as core services the 
provision of adult day health care and interdisciplinary team case 
management, through which access to and allocation of all health 
services is managed. Physician, therapeutic, ancillary, and social 
support services are furnished in the participant's residence or on-
site at a PACE center. Hospital, nursing home, home health, and other 
specialized services are generally furnished under contract. Financing 
of the PACE model is accomplished through prospective capitation of 
both Medicare and Medicaid payments, and under the demonstration, 
programs gradually assumed full financial risk for all care provided to 
their enrolled participants.
    The PACE demonstration program was operated under a Protocol 
published by On Lok, Inc., on April 14, 1995. A copy of the Protocol 
was included as an attachment to the interim final rule with comment 
period that was published in the Federal Register on November 24, 1999, 
to implement the PACE program (64 FR 66234.) As directed by sections 
1894(f)(2) and 1934(f)(2) of the Act, we incorporated the requirements 
under the Protocol in the PACE regulation, to the extent consistent 
with the BBA provisions described throughout sections 1894 and 1934 of 
the Act. The November 24, 1999 PACE regulation was a comprehensive rule 
that addressed eligibility, administrative requirements, application 
procedures, services, payment, participant rights, and quality 
assurance. There are currently 24 approved PACE demonstration programs 
and two programs that have been approved as permanent PACE 
organizations. In accordance with section 901 of BIPA, all PACE 
demonstration programs must transition to permanent provider status by 
November 2003.

C. Flexibility

    As noted above, the PACE demonstration program was operated 
pursuant to a Protocol developed by On Lok. The PACE Protocol provided 
authority for CMS and the State Agency to waive specific requirements 
of the Protocol, if, in their judgment, the intent of the requirements 
was met by the proposed alternative and safe and quality care would be 
provided. Written requests for waivers were required to be approved by 
CMS and the State before implementation of the proposed alternative. 
Flexibility was limited to the requirements in the section on service 
coverage and arrangement. That section includes: A requirement that the 
PACE organization provide all Medicare and Medicaid services and 
provide care 7 days per week, 365 days per year; a listing of required 
and excluded services; minimum services provided at the PACE Center; a 
requirement that each participant be assigned to a multidisciplinary 
team, as well as the composition and duties of the multidisciplinary 
team; and assessment and reassessment requirements. Flexibility was not 
authorized for other sections of the PACE Protocol, such as participant 
rights, enrollment and disenrollment, and administration.
    Sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act give the 
Secretary the authority to waive regulatory provisions as follows:

    In order to provide for reasonable flexibility in adapting the 
PACE service delivery model to the needs of particular organizations 
(such as those in rural areas or those that may determine it 
appropriate to use nonstaff physicians according to State licensing 
law requirements)* * *the Secretary (in close consultation with 
State administering agencies) may modify or waive provisions of the 
PACE protocol as long as any such modification or waiver is not 
inconsistent with and would not impair the essential elements, 
objectives, and requirements of this section* * *

    The statute also specifies the following essential elements that 
may not be waived:
    [sbull] The focus on frail elderly qualifying individuals who 
require the level of care provided in a nursing facility.
    [sbull] The delivery of comprehensive, integrated acute and long-
term care services.
    [sbull] The multidisciplinary team approach to care management and 
service delivery.
    [sbull] Capitated, integrated financing that allows the provider to 
pool payments received from public and private programs and 
individuals.
    [sbull] The assumption by the provider of full financial risk.
    In the November 24, 1999 interim final rule, we identified, as 
specific waivers that were intended to encourage development of PACE 
programs in rural and Tribal areas, waivers of the following three 
requirements:
    [sbull] A prohibition on members of the governing body and their 
family members from having a direct or indirect interest in contracts 
with the organization (see Sec.  460.68(c));
    [sbull] A requirement that members of the multidisciplinary team 
primarily serve PACE participants (see Sec.  460.102(g)); and
    [sbull] A requirement that the primary care physician must be 
employed by the PACE organization (see Sec.  460.102(g)). The 
regulation includes specific criteria for each waiver related to 
whether the PACE organization's service area is rural or Tribal, the 
unavailability of individuals who meet the three regulatory 
requirements listed above, and a requirement that the proposed 
alternative does not adversely affect the availability or quality of 
care furnished to PACE participants.
    Our rationale for this rather limited view of the flexibility 
provision was based on our belief that all PACE demonstration programs 
were in compliance with the PACE Protocol and, therefore, would need to 
make only minor changes in their operations to meet the PACE regulatory 
requirements. Our intention was to allow some flexibility to promote 
PACE in rural and Tribal areas while maintaining consistency of 
requirements for other PACE programs. We intended to expand 
opportunities for flexibility to cover more requirements and provide 
more flexibility to all PACE organizations once we had gained 
sufficient experience with PACE and had implemented the program. In 
addition, we were guided by the fact that the Protocol, and thus the 
PACE regulation, had been proven effective for new organizations as 
they built their patient census and attained financial solvency.
    We have since learned that although the early PACE demonstration 
programs initially complied with the Protocol, most of them modified 
the Protocol requirements as they expanded, using the flexibility 
provision. While many of these modifications were related to service 
coverage and arrangement provisions, many others were implemented that 
were not authorized by the flexibility clause in the Protocol. In 
addition, many of the later PACE demonstration programs exercised the 
flexibility clause in the Protocol in developing their programs, 
especially with regard to direct employment of staff. Finally, very few 
of the waivers

[[Page 61498]]

were requested in writing or approved by CMS or the State before 
implementation.

II. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, (BIPA) (Pub. L. 106-554)

A. Background

    BIPA modified the PACE program in the following three ways:
    [sbull] Section 901 extended the transition period for the current 
PACE demonstration programs to allow an additional year for these 
organizations to transition to the permanent PACE program.
    [sbull] Section 902 gave the Secretary the authority to grandfather 
in the modifications these programs had implemented as of July 1, 2000. 
This provision will allow the PACE demonstration programs to continue 
program modifications they have implemented and avoid disruptions in 
participant care where these modifications have been determined to be 
consistent with the PACE model. These sections are being implemented 
administratively.
    [sbull] Section 903 specifically addressed flexibility in 
exercising the waiver authority provided under sections 1894(f)(2)(B) 
and 1934(f)(2)(B) of the Act. It allowed the Secretary to modify or 
waive PACE regulatory provisions in a manner that responds promptly to 
the needs of PACE organizations relating to the areas of employment and 
the use of community-based primary care physicians. Section 903 of BIPA 
also established a 90-day review period for waiver requests. Since the 
flexibility language is part of the statutory section dealing with 
regulations (sections 1894(f) and 1934(f) of the Act), we believe it 
was intended that waiver requirements be incorporated into the PACE 
regulations.

B. Contracting for Multidisciplinary Team Members and Administrative 
Staff

    We note that although the PACE Protocol and the PACE regulation 
refer to a multidisciplinary team, it has become more common to regard 
the team in PACE as an interdisciplinary team to reflect the 
interactive and collaborative approach of the PACE care team. 
Therefore, we are amending the PACE regulation to replace the term 
multidisciplinary with interdisciplinary wherever it appears and will 
use that phrase in the preamble to describe the PACE team.
    Section 460.102(f) of the PACE regulation requires that the 
following PACE interdisciplinary team members be employees of the PACE 
organization: primary care physician, registered nurse, social worker, 
recreational therapist or activity coordinator, PACE Center manager, 
home care coordinator, and PACE Center personal care attendants. This 
requirement is based on part IV.B.13.a. of the PACE Protocol that 
specifies that these team members must be employees of the PACE 
provider or PACE Center. (Employment of staff by the PACE Center is 
discussed in the next section of this preamble.) In addition, Sec.  
460.60 requires the PACE organization to employ the program director 
and the medical director.
    We are no longer requiring that the PACE organization employ the 
interdisciplinary team, the program director or the medical director. 
Instead, the PACE organization may contract with these staff members, 
and we are expanding Sec.  460.70 to include additional contract 
requirements. Finally, we are removing the specific waiver in Sec.  
460.102(g) for rural or Tribal organizations to contract for the 
primary care physicians.
    The National PACE Association (NPA), an industry group representing 
the PACE demonstration programs and developing PACE programs, has 
indicated that the objectives of the Protocol with regard to employment 
are as follows:
    [sbull] To assure that the same individuals provide care to the 
same participants over time (as opposed to a contractual relationship 
in which a different staff person may provide care from one month or 
even one day to the next); and
    [sbull] To assure that the interdisciplinary team members are fully 
accountable to the PACE organization which has responsibility and is 
accountable for the entire range of PACE services.
    NPA has indicated that contractual arrangements should be utilized 
only where it is consistent with continuity of care, and efficient and 
economical delivery of services. In addition, individual team members 
must be specified by name and work schedule.
    We have become aware that most of the PACE demonstration programs 
have entered into contractual arrangements for interdisciplinary team 
members and key PACE staff such as the medical director. We have come 
to agree that there are reasonable circumstances where dedicated staff 
decide to contract rather than be employed by the PACE organization. 
For example, the medical director or primary care physicians may wish 
to maintain their employment with a hospital or academic institution 
while providing services to PACE participants. We believe that these 
arrangements may be done so as to be completely transparent to 
participants and have no impact on care coordination or service 
delivery.
    Current requirements for contracted services are found in Sec.  
460.70. We are reorganizing and amending that section to include 
additional contract requirements for interdisciplinary team members or 
PACE administrative staff. Where these staff are not employed by the 
PACE organization, the contract must stipulate that the individuals: 
(1) Agree to perform all the duties related to their position in the 
PACE organization and specified in the PACE regulation; (2) participate 
in interdisciplinary team meetings as required; and (3) be accountable 
to the PACE organization.
    Where the PACE organization contracts with another organization for 
interdisciplinary team staff, for example, with a rehabilitation agency 
that employs the physical therapist, the contract must also stipulate 
the name of the individual assigned to the PACE program and the 
schedule for attendance at the PACE Center. In this way, participants 
may be scheduled for attendance at the PACE Center to coincide with the 
schedule for the staff assigned to their care. Given the frailty of the 
population served by the PACE organization, we believe it is important 
that, where possible, services are provided to participants by the same 
core staff, whether employed directly by the PACE organization or 
provided via a contracting arrangement.
    As mentioned above, our regulations currently require that the PACE 
program director and the medical director be employees of the PACE 
organization. In order to allow for contracting of the PACE program 
director and medical director, we are amending Sec.  460.60(b) and (c) 
to require that the PACE organization employ these staff members 
directly or have contracts for these staff that meet the contracting 
requirements specified in Sec.  460.70.
    Finally, we are removing Sec.  460.102(g), which allows CMS and the 
State administering agency to waive the employment requirement for the 
primary care physician and the requirement that the interdisciplinary 
team serve primarily PACE participants. Since the PACE organization may 
contract for primary care physicians in accordance with the 
requirements specified in Sec.  460.70 as revised and other waivers are 
governed by Sec.  460.26, these specific waiver provisions are no 
longer necessary.

[[Page 61499]]

C. Contracting With Another Entity to Furnish PACE Center Services

    The PACE Protocol at section IV.B.13.a. provides that the 
interdisciplinary team may be employed by the PACE organization or the 
PACE Center. In developing the PACE regulation, we did not address this 
issue because we believed that in all cases the PACE organization and 
the PACE Center were the same organization. We have learned that this 
change was made in the PACE Protocol in 1995 to reflect an operating 
arrangement implemented by one of the PACE demonstration organizations, 
On Lok Senior Health Services. In this arrangement, On Lok entered into 
a contractual relationship with another organization to provide all 
PACE Center services under which the interdisciplinary team is employed 
and managed by the contracting organization. On Lok remains responsible 
for all care provided at the Center and remains at risk for the 
healthcare needs of the participants attending this center. In 
addition, On Lok has retained many of the administrative 
responsibilities associated with PACE, for example, marketing and 
enrollment. Through this contractual relationship, On Lok has been able 
to expand PACE services to a different part of their service area 
without disrupting the care that traditionally had been provided by the 
other organization.
    Since this approach was reflected in the PACE Protocol, we are 
amending the PACE regulation to allow PACE organizations to provide 
PACE Center services through contractual arrangements. Although we do 
not view this approach as a waiver authorized by BIPA, we are 
establishing specific waiver requirements for this approach consistent 
with the On Lok arrangement. We are more likely to allow PACE 
organizations to contract out PACE Center services when they have 
attained sufficient experience in delivering services and managing the 
risk associated with the frail elderly.
    We are adding a new Sec.  460.70(f) to identify the criteria that a 
PACE organization must meet to contract out PACE Center services. We 
are not inclined to approve a waiver for a PACE organization unless it 
is financially stable and has demonstrated competence with the PACE 
model by successful CMS and State onsite reviews and monitoring 
efforts. We specifically invite public comments on the appropriateness 
of these criteria.
    We would expect the PACE organization to retain all key 
administrative functions including marketing and enrollment, quality 
assurance and program improvement, and contracting for institutional 
providers and other key staff. We note that, consistent with Sec.  
460.70(e)(5)(iv), all subcontracting arrangements by the PACE Center 
would need to be approved in writing by the PACE organization. The PACE 
Center may employ or contract for the team and provide PACE services in 
accordance with the PACE regulation. However, the PACE organization 
receives all payment from CMS and the State and remains responsible for 
all the care provided in these Centers. In addition, we emphasize that 
contracting out PACE Center services does not change the participants' 
relationship to the PACE organization. All participants, whether 
assigned to the PACE organization-owned and operated PACE Center or 
assigned to a PACE Center that contracts with the PACE organization, 
are enrolled with the PACE organization and are afforded all benefits 
and protections offered by the PACE organization.
    On Lok is able to monitor the care provided in the contracted PACE 
Center through the sharing of electronic medical records. While we are 
not requiring electronic medical records as a condition of our 
approval, it will be necessary for a PACE organization wishing to 
pursue this type of arrangement to describe how it will monitor the 
care provided and perform all the administrative duties required by the 
PACE regulation.

D. Oversight of Direct Patient Care Services

    Given the vulnerable frail population served by the PACE program 
and the increased opportunity for a PACE organization to contract out 
participant care services, it is important to reiterate the PACE 
organization's obligation to monitor the care furnished by direct 
participant care staff. This obligation applies not only to employees 
of the PACE organization, but extends to the care provided by 
contracted staff, including employees of organizations with which the 
organization contracts (for example, a home health agency, 
rehabilitation agency, nursing facility, transportation service, or 
staffing agency). It is especially important for the PACE organization 
to monitor the care provided in all settings, including the PACE Center 
and the participant's home, as well as in offsite locations such as 
physician offices and institutional providers to ensure quality care. 
To effectively monitor care provided outside the PACE Center, the PACE 
organization must be vigilant in following up on all unusual 
occurrences and complaints. In addition, the PACE organization must 
foster an atmosphere that promotes the voicing of participant 
complaints about quality of care to assist the PACE organization in 
monitoring the care provided by contracted staff and organizations.
    Currently, Sec.  460.66 requires the PACE organization to provide 
training to maintain and improve the skills and knowledge of each staff 
member for the individual's specific duties that results in his or her 
continued ability to demonstrate the skills necessary for the 
performance of the position. We are expanding this requirement by 
creating a new Sec.  460.71 to identify PACE organization oversight 
requirements for PACE employees and contractors with direct patient 
care responsibilities. These requirements fall into two categories, 
that is, competency evaluation and staff and contractor requirements, 
and are listed as follows:
    [sbull] The PACE organization must ensure that employees and 
contracted staff providing care directly to participants demonstrate 
the skills necessary for performance of their position.
    [sbull] The PACE organization must provide each employee and all 
contracted staff with an orientation. The orientation must include at a 
minimum the organization s mission, philosophy, policies on participant 
rights, emergency plan, ethics, the PACE benefit, and policies and 
procedures relevant to each individual's job duties.
    [sbull] The PACE organization must develop a competency evaluation 
program that identifies those skills, knowledge, and abilities that 
must be demonstrated by direct participant care staff (employees and 
contractors). The program must be evidenced as completed prior to 
performing participant care and on an ongoing basis by qualified 
professionals. The PACE organization must designate a staff person to 
oversee these activities for employees and work with the PACE 
contractor liaison to ensure compliance by contracted staff.
    We note that the PACE organization may satisfy this requirement for 
contract staff through receipt of competency evaluation documentation 
from certain independent contractors where licensure requirements 
include a competency evaluation component, or from organizations or 
agencies that employ PACE staff.
    The PACE organization must develop a program to ensure that all 
staff providing direct participant care services meet the requirements 
listed below. We revised Sec.  460.70(e) to require contractors who 
furnish direct

[[Page 61500]]

participant care to meet the requirements of Sec.  460.71 as well. The 
PACE organization will verify that direct participant care staff or 
contractors meet the following requirements:
    [sbull] Comply with any State or Federal requirements for direct 
patient care staff in their respective settings;
    [sbull] Comply with the requirements of Sec.  460.68(a) regarding 
persons with criminal convictions;
    [sbull] Have verified current certifications or licenses for their 
respective positions;
    [sbull] Are free of communicable diseases; and
    [sbull] Have been oriented to the PACE program.
    [sbull] Agree to abide by the philosophy, practices, and protocols 
of the PACE organization.

E. Waiver Process

    To implement section 903 of BIPA, we considered amending the 
November 24, 1999 PACE interim final regulations to identify each 
requirement that is eligible for waiver and provide separate waiver 
criteria for each requirement. However, we were concerned that amending 
the regulation for each waiver would: (1) Create a regulatory level of 
specificity that might make it difficult to apply to future requests 
for similar but not identical waivers; and (2) cause a significant 
delay between when the need for a waiver is identified and when it may 
be implemented.
    As an alternative, we are amending the PACE regulation by adding 
Sec. Sec.  460.26 and 460.28 to establish a process for a PACE 
organization to request waiver of regulatory requirements. As noted 
previously, the PACE Protocol and the November 24, 1999 PACE regulation 
have been proven effective as PACE organizations grow and reach 
financial solvency.
    We have learned a great deal about variations in the model through 
the information we received in processing grandfathering requests under 
section 902 of BIPA and numerous discussions with the NPA, PACE 
organizations, and States. Allowing for waivers provides a unique 
opportunity for PACE organizations, the States, and CMS to experiment 
with new approaches within the structure of the PACE model. This 
process will allow for variations that achieve the intent of the 
regulatory provision while responding to the needs of PACE 
organizations to develop and expand within their States' long-term care 
delivery system. The PACE organizations will serve as an ongoing 
laboratory that over time will establish best practices that may 
ultimately replace the current regulatory requirements.
    We realize that in order to foster innovation and creativity within 
the PACE program, PACE organizations must be granted some degree of 
flexibility in their operation and service delivery. However, we must 
balance this need for flexibility with our responsibility to ensure 
quality, cost effective care for all beneficiaries.
    Based upon our experience and review of grandfathering requests 
under section 902 of BIPA, we realize we must consider two categories 
of waiver requests, that is, general waivers and conditional waivers 
subject to evaluation. They are discussed as follows:
1. General Waivers
    A general waiver may be granted to a PACE organization that has 
successfully implemented a specific operating arrangement, for example, 
an operating arrangement approved under section 902 of BIPA. General 
waivers would continue indefinitely; however, approval may be withdrawn 
for good cause if periodic monitoring of the organization's operations 
and policies indicates participant care is being jeopardized, there is 
fiscal instability, or the goals of the PACE model are not maintained.
2. Conditional Waivers
    A conditional waiver, subject to evaluation, is a provisional 
waiver we would approve for a specific period of time to a new or 
experienced organization. During the conditional period, the PACE 
organization would need to submit specific data, that we prescribed, 
that would allow us to monitor and evaluate the conditional waiver to 
determine whether the waiver may become permanent. This category of 
waiver may include the following scenarios:
    (a) A request for waiver without which a PACE organization would be 
prevented from entering the program. For example, if a prospective PACE 
organization has been unable to hire or contract with a social worker 
with a master's degree, we may consider approving a conditional waiver 
request to allow a social worker with a baccalaureate degree to operate 
in this capacity until a qualified social worker is hired. This waiver 
would only be in effect until the PACE organization could hire or 
contract for an appropriate staff member.
    (b) A request for approval of an arrangement with which a PACE 
organization does not have any experience. We want to encourage 
creative approaches to improving the PACE model and view conditional 
waivers as a responsible way to balance the need of a PACE organization 
with protection of participant health and safety. We do need to be 
cautious in approving arrangements in which the PACE organization does 
not have a proven record of success. In this case, we may limit the 
number of participants exposed to the waiver or approve the waiver for 
a limited period of time or at a specific PACE Center until we are 
assured through evaluation that (1) The intent of the regulation is 
met; and (2) the approach is not inconsistent with nor impairs the 
essential elements, objectives, and requirements of PACE. At that time, 
we may approve a general waiver so that the PACE organization may 
expand the arrangement to other PACE Centers it manages without 
jeopardizing participant care.
    Each of the conditional waivers will be subject to periodic 
monitoring. A PACE organization approved for a conditional waiver would 
need to submit the prescribed data at specified intervals. CMS intends 
to establish elements for evaluating the conditional requests. This 
evaluation would serve a dual purpose. It would allow CMS to monitor 
the impact on participant care as well as enable us to determine if any 
permanent changes to PACE should be implemented through regulations. In 
addition, we may provide technical assistance to other PACE 
organizations requesting a similar waiver.
    To obtain a waiver, a PACE organization must provide a detailed 
description of how its proposed modification differs from the 
regulatory requirement and describe how it meets the intent of the 
regulatory provision. The burden is on the PACE organization to explain 
why a waiver is needed to start up or expand their program. Where a 
PACE organization has not completed the trial period, attained 
financial solvency, and demonstrated competence with the PACE model as 
evidenced by successful CMS and State onsite reviews and monitoring 
activities, it will be necessary for the organization to explain how 
the waiver is necessary to meet those objectives. For a new 
organization, it will be necessary for the organization to explain why 
a waiver is needed for the organization to begin serving participants.
    Consistent with the process developed for initial PACE provider 
applications, all waiver requests must be submitted to the State 
administering agency for initial review. The State administering agency 
would forward the waiver request to CMS along with any concerns or 
conditions they may have

[[Page 61501]]

regarding the waiver. We will not accept waiver requests directly from 
PACE organizations. Waiver requests submitted with an initial 
application process must be prepared as a separate document. These 
requests will be reviewed simultaneously and in conjunction with the 
application. Where an existing PACE organization is requesting a 
waiver, the request must be submitted through the State to the CMS 
address for PACE applications indicated on the PACE homepage 
(www.cms.hhs.gov/PACE). We intend to process waiver requests as 
expeditiously as possible in order to be responsive to the needs of new 
organizations to develop their programs and to the needs of mature 
organizations as they expand.
    Section 903 of BIPA directs us to approve or deny a request for a 
modification or waiver no later than 90 days after the date of receipt. 
We are clarifying in Sec.  460.28(b) that the date of receipt is the 
date the request is delivered to the address designated by CMS. We note 
that there is no statutory authority to stop the 90-day clock if 
additional information is necessary to make a determination on a waiver 
request. Thus, it is in the PACE organization's best interest to 
provide all pertinent information relevant to their request. Where 
additional information is necessary, the CMS PACE manager will inform 
the PACE organization as early as possible in the review process. The 
PACE organization will then be responsible for submitting the 
additional information in a timely enough manner to allow us to 
evaluate the additional information and make a determination on the 
waiver request within the allotted 90 days. If the reply from the PACE 
organization is not received in a timely manner, we would have to deny 
the request. The PACE organization may then reapply for the waiver, 
starting a new 90-day clock.
    Consistent with sections 1894 and 1934 of the Act, we are 
specifying in Sec.  460.26(c) the following requirements that must not 
be waived:
    (1) A focus on frail elderly qualifying individuals who require the 
level of care provided in a nursing facility;
    (2) The delivery of comprehensive, integrated acute and long-term 
care services;
    (3) The interdisciplinary team approach to care management and 
service delivery;
    (4) Capitated, integrated financing that allows the provider to 
pool payments received from public and private programs and 
individuals; and
    (5) The assumption by the provider of full financial risk (we note 
that assuming full financial risk does not preclude an organization 
from utilizing reinsurance, stop-loss protection, or other mechanism to 
meet its financial obligations).
    In addition to these five provisions, the Secretary will not grant 
waivers that are inconsistent with or would impair the essential 
elements, objectives, and requirements of sections 1894 and 1934 of the 
Act.
    As noted previously, the November 24, 1999 PACE regulation was a 
comprehensive document that included many provisions that are not 
appropriate for waiver. For example, subpart B of the PACE regulation 
describes the types of entities that may submit PACE applications and 
the process for submission of applications. Since these requirements 
reflect statutory requirements and our application process, no waiver 
or modification is appropriate. Likewise, subpart C of the November 24, 
1999 PACE regulation describes the terms and content of the PACE 
program agreement. Although we agree that it would be easier to manage 
PACE program agreements without the significant detail, the content of 
the PACE program agreement is specifically required by statute. Thus, 
no waiver or modification is appropriate.
    Regarding other subparts of the PACE regulation, we view many, but 
not all, of the requirements as appropriate for waiver or modification. 
For example, while we may approve a waiver regarding the organization's 
structure or division of responsibilities amongst staff, we would not 
be inclined to waive infection control requirements that are standard 
precautions established by the Centers for Disease Control and 
Prevention.
    We note that providing services through contracts rather than 
through direct employment of staff is the type of flexibility most 
often requested by PACE organizations and the NPA and will be 
permissible without waiver.
    In addition to the statutorily excluded requirements specified in 
sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act, we believe there 
are other requirements that distinguish the PACE benefit. For example, 
health care is focused at a PACE Center; the interdisciplinary team is 
composed of certain health care professionals that manage all the 
health care provided to participants; a comprehensive assessment by the 
interdisciplinary team is conducted before admission into the PACE 
program; and reassessment occurs at least every 6 months or whenever 
there is a significant change in a participant's health status. 
Further, we believe that PACE participants are entitled to the same 
patient rights' protection available in the Medicare or Medicaid fee-
for-service or managed care programs. Therefore, we will not approve 
waiver or significant modification of these requirements.
    Two waiver issues specifically mentioned in section 903 of BIPA are 
requirements related to employment and the use of community-based 
primary care physicians. An example of this would be to allow a PACE 
organization to provide primary care through community physicians 
operating independent of the PACE program, that is, physicians who do 
not participate in interdisciplinary team meetings. This approach is 
part of our demonstration project currently underway in Wisconsin. The 
evaluation of the demonstration will not be completed until 2005. As 
this demonstration has developed, the sites have modified their use of 
community-based physicians over time. We believe that further testing 
and refinement of this approach is needed. We will follow the 
evaluation of this demonstration to determine the optimal policies and 
procedures to require for PACE organizations wishing to adopt this 
option.
    Another example is the use of satellite locations, where required 
PACE Center services (and the interdisciplinary team services) are 
provided at various locations. Although services may be provided at 
various locations currently, we are concerned that routinely dispersing 
service delivery will fundamentally change the PACE model, especially 
the focus of services at the PACE Center and care management through 
the interdisciplinary team.
    Since this rule will establish a process for submission and 
approval of waiver requests, we are removing the restrictive waiver 
provisions that were limited to rural and Tribal organizations, that 
is, Sec.  460.68(c) regarding direct or indirect interest in contracts, 
and, as noted previously, the two waivers in Sec.  460.102(g) related 
to employment of the primary care physician and the requirement that 
the interdisciplinary team primarily serve PACE participants. Although 
we are deleting the specific waivers that were intended to encourage 
development of PACE in rural or Tribal areas, we continue to recognize 
the special need for flexibility for these areas and remain committed 
to allowing waivers to promote PACE in medically underserved areas. 
Deletion of the specific waiver language is intended to provide greater 
flexibility within the overall PACE structure. We remain committed to 
working with rural and Tribal communities to help them

[[Page 61502]]

address the challenges of developing successful PACE programs. 
Organizations that seek waiver of these or any other regulatory 
requirements would follow the requirements specified in Sec.  460.26.
    We note that a PACE organization requesting a waiver of the 
prohibition on direct or indirect interest in contracts must develop 
policies and procedures for disclosure of financial interest to the 
governing body, establish recusal restrictions, and a process to record 
recusal actions for review by CMS and the State administering agency. 
The PACE organization must describe its disclosure and recusal policies 
in its waiver request.

III. Comments and Responses to the November 1999 Interim Final 
Regulation

    We received a total of 27 comments on the November 1999 interim 
final regulation (64 FR 66234), many of them concerning the waiver 
provisions published at Sec. Sec.  460.68 and 460.102.
    Comment: Most of the commenters expressed concern that the 
regulation is too prescriptive and limits flexibility and innovation 
and that the waiver provisions in Sec. Sec.  460.68 and 460.102 of the 
regulation were too restrictive. The commenters argued that 
developments during the PACE demonstration program had led to 
alternative practices (primarily associated with contracting 
flexibility) that were not reflected in the November 1999 interim final 
regulation. They urged CMS to allow alternative approaches to meeting 
the regulatory intent and specifically recommended that we broaden the 
limited waivers provided in the regulation targeted to rural and Tribal 
organizations to permit waiver of additional requirements by all PACE 
organizations. In addition, section 903 of BIPA provided us with 
additional guidance concerning both the practices of longstanding PACE 
demonstration programs (grandfathering) and new organizations which may 
apply to become PACE organizations.
    Response: This interim final regulation is a response to the 
portion of the November 1999 regulation that dealt with waivers and 
flexibility. It responds to the concerns raised in the public comments 
by establishing a process through which approved PACE organizations, as 
well as applicants, may request a waiver of regulatory requirements 
(Sec.  460.26) and allow expanded contracting opportunities (Sec.  
460.70). Through the waiver process, we hope to learn about any 
barriers the PACE requirements create in developing new organizations, 
especially those in medically underserved areas, and expanding existing 
PACE programs.
    Once we have completed the transition of PACE demonstrations to 
permanent provider status and gained sufficient experience with the 
waiver process, we intend to develop a final rule to revise the PACE 
regulation and respond to all the public comments we received on the 
November 1999 interim final regulation as well as any public comments 
submitted in response to publication of this regulation.

IV. Provisions of the Interim Final Rule

    The regulation amends part 460 by replacing the term 
``multidisciplinary'' with ``interdisciplinary'' wherever it appears to 
reflect the interactive and collaborative approach of the PACE team.

Section 460.10 Purpose

    We are amending this section to clarify that subpart B also 
establishes a process for a PACE organization to request a waiver of 
regulatory requirements in order to provide for reasonable flexibility 
in adapting the PACE service delivery model to the needs of particular 
organizations (such as those in rural areas).

Section 460.12 Application Requirements

    We are removing and reserving paragraph (a)(2) to clarify that, 
although CMS may begin review of PACE organization applications, we may 
sign a program agreement only with a PACE organization located in a 
State with an approved State plan amendment electing PACE as an 
optional benefit under its Medicaid State plan.

Section 460.26 CMS Evaluation of Waiver Requests

    In accordance with the requirements in section 903 of BIPA, we are 
adding this section to subpart B to establish a process for a PACE 
organization to request waiver of regulatory requirements and to list 
provisions that are statutorily excluded. This process is described in 
section II.E. of this preamble.

Section 460.28 Notice of CMS Determination on Waiver Requests

    As required by section 903 of BIPA, we are adding this section to 
subpart B to specify the time limit for notification to PACE 
organizations of our decisions on waiver requests and to state that we 
may withdraw approval of a waiver for good cause. This process is 
described in section II.E. of this preamble.

Section 460.30 Program Agreement Requirements

    We are revising paragraph (b) to reflect that the PACE program 
agreement is a 3-party agreement that is signed by CMS, the State 
administering agency, and the PACE organization. Also, we are adding a 
new paragraph (c) to clarify that we may sign a program agreement only 
with a PACE organization that is located in a State with an approved 
State plan amendment electing PACE as an optional benefit under its 
State plan.

Section 460.60 PACE Organizational Structure

    In order to allow for contracting of a PACE program director and 
medical director described in section II.B. of this preamble, we are 
amending paragraphs (b) and (c) to require that the PACE organization 
employ these staff members directly or have contracts for these staff 
that meet the contracting requirements specified in Sec.  460.70.

Section 460.68 Program Integrity

    As discussed in section II.E. of this preamble, we are removing 
paragraph (c) and amending paragraph (b) by removing the cross 
reference to paragraph (c).

Section 460.70 Contracted Services

    As described in section II.B. of this preamble, we are amending 
paragraph (e) to include additional contract requirements where the 
PACE organization chooses to contract for interdisciplinary team 
members or key administrative staff. In addition, we are adding a new 
paragraph (f) to include specific contract requirements where the PACE 
organization chooses to contract for PACE Center services. These 
changes are described in section II.C. of this preamble. Finally, we 
are amending paragraph (b)(1)(i) to clarify that an institutional 
contractor, such as a hospital or skilled nursing facility, must meet 
the Medicare or Medicaid participation requirements. However, where the 
PACE organization is supplementing its own staff to provide services in 
the home or at the PACE Center, certain staffing agencies that may not 
be Medicare certified providers may be used as long as the staff and 
the agency meet applicable State licensure requirements.

Section 460.71 Oversight of Direct Participant Care

    In consideration of the vulnerable population served by PACE, we 
are adding this section to identify PACE organization oversight 
requirements for PACE employees and contractors with

[[Page 61503]]

direct patient care responsibilities. These requirements are described 
in section II.D. of this preamble.

Section 460.102 Interdisciplinary Team

    We are amending paragraph (d)(2)(iii) to clarify that 
interdisciplinary team members must document changes of a participant's 
condition in a participant's medical record consistent with the PACE 
organization's documentation policies. This will ensure that only 
designated team members have access to patients records. Also, in 
consideration of the expanded contracting opportunities described in 
section II.B. of this preamble, we are removing paragraph (f) that 
requires members of the PACE interdisciplinary team to be employed by 
the PACE organization. Finally, we are removing paragraph (g) that 
allows CMS and the State administering agency to waive the employment 
requirement for the primary care physician and the requirement that the 
interdisciplinary team serve primarily PACE participants. Since the 
PACE organization may contract for primary care physicians in 
accordance with the requirements specified in Sec.  460.70 (described 
in section II.B. of this preamble) and other waivers are governed by 
Sec.  460.26 (described in section II.E. of this preamble), these 
specific waiver provisions are no longer necessary. We are amending 
paragraph (d)(3) by removing the cross reference to paragraph (g).

V. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VI. 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 substance 
of the proposed rule or a description of the subjects and issues 
involved. However, section 1894(f)(1) if the Act specifically permits 
the Secretary to issue interim final or final regulations to carry out 
sections 1894 and 1934 of the Act. Therefore, we are issuing this final 
rule on an interim basis with a 60-day comment period.

VII. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information 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 Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    [sbull] The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    [sbull] The accuracy of our estimate of the information collection 
burden.
    [sbull] The quality, utility, and clarity of the information to be 
collected.
    [sbull] Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements:

Section 460.26 CMS Evaluation of Waiver Requests

    Section 460.26(b) requires a PACE organization or prospective PACE 
organization to submit a written request to obtain CMS approval of its 
request for waiver or modification of a PACE regulatory requirement. 
Section 460.26(a) requires that the request be submitted through the 
State administering agency.
    The burden associated with this requirement is the time and effort 
to develop and submit a waiver request to CMS. We estimate that 25 
entities will apply per year and that each entity will take 3 hours to 
complete the requirements of this section for a total annual burden of 
50 hours.
    In addition, Sec.  460.26(a) requires that a waiver request must be 
submitted to the State administering agency of the State in which the 
program is located for review prior to submittal to CMS.
    The burden associated with this requirement is the time and effort 
for a State to review and submit waiver requests to CMS indicating that 
it approves the waiver requests. We estimate that 25 States will each 
take 1 hour to complete these requirements for a total annual burden of 
25 hours.

Section 460.71 Oversight of Direct Participant Care

    In summary, Sec.  460.71(a) requires a PACE organization to develop 
a competency evaluation program to ensure that direct participant care 
staff (employees and contractors) have the skills, knowledge, and 
ability to perform the duties associated with their positions.
    The burden associated with this requirement is the time and effort 
to develop and maintain a competency evaluation program, perform 
evaluations including evaluation of all current staff, and document the 
results. We estimate that each organization will spend 3 hours 
developing the program, 50 hours implementing the program for all 
current staff, and 50 hours maintaining the program and verifying the 
qualifications and competency of new staff and contractors. There will 
be approximately 54 PACE organizations with approximately 100 
contracted staff for a total annual burden of 2700 hours.

Section 460.102 Multidisciplinary Team

    Section 460.102(d)(2)(iii) requires the documention of any changes 
in a participant's condition in the participant's medical record 
consistent with documentation polices established by the medical 
director.
    We believe that the burden associated with this ICR is exempt from 
the PRA in accordance with 5 CFR 1320.3(b)(2) because the time, effort, 
and financial resources necessary to comply with these requirements 
would be incurred by persons in the normal course of their activities.
    We have submitted a copy of this interim final with comment rule to 
OMB for its review of the information collection requirements described 
above. These requirements are not effective until they have been 
approved by OMB.
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following: Centers for 
Medicare and Medicaid Services, Office of Information Services, 
Security and Standards Group, Division of CMS Enterprise Standards, 
Room C2-26-17, 7500 Security Boulevard, Baltimore, MD 21244-1850, Attn: 
John Burke, CMS-1201-IFC, and Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503, Attn: Brenda Aguilar, HCFA Desk 
Officer.

[[Page 61504]]

VIII. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 16, 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, when 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 1 year).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, non-profit organizations and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by non-profit status or by having revenues of $6 to 
$29 million or less annually. For purposes of the RFA, all PACE 
providers are considered to be small entities. Individuals and States 
are not included in the definition of a small entity.
    Section 1102(b) of the Social Security Act (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. Such an 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. This rule 
will not affect a significant number of small rural hospitals.
    This interim final rule will affect a very limited number of small 
non-profit entities that are operating, or seek to operate, a PACE 
program and request waiver of regulatory requirements for startup or 
expansion. The rule will indirectly affect Medicare beneficiaries and 
Medicaid recipients who may qualify for a PACE program and who might 
wish to enroll in one in their geographic area, because it may affect 
the availability of those programs. A typical mature PACE program 
maintains an enrollment of about 200 to 300 individuals.
    While we do not have data on which to base an estimate of overall 
costs or savings to the Medicare and Medicaid programs, we believe that 
any incremental difference would be so small as to be negligible. 
Payment rates for PACE are adjusted so that the total payment level is 
less than the projected payment that would have been made if the 
participants were not enrolled in PACE. Thus, the overall effect of the 
PACE program should be a slight savings for this small population. 
Approved PACE organizations that request waivers to support expansion 
activities or prospective organizations that request waivers to support 
start up may incur a minimal cost and burden associated with waiver 
requests.
    If this rule were not issued, PACE programs would be unable to 
implement modifications to PACE regulatory requirements, potentially 
impeding their ability to start up or expand their programs.
    We are not preparing analyses for either the RFA or section 1102(b) 
of the Act because we have determined, and we certify, that this rule 
will not have a significant economic impact on a substantial number of 
small entities or a significant impact on the operations of a 
substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies anticipate 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 interim final rule will not mandate any requirements for 
State, local, or tribal governments nor would it result in expenditures 
by the private sector of $110 million or more in any 1 year.
    Under Executive Order 13132, this regulation will not significantly 
affect the States beyond what is required and provided for under the 
BBA. It follows the intent and letter of the law and does not usurp 
State authority beyond what the BBA requires. This regulation describes 
the processes that must be undertaken by CMS, the States, and PACE 
organizations in order to implement the flexibility afforded by section 
903 of BIPA.
    As we explained in the November 1999 interim final regulation (64 
FR 66235), sections 4801 and 4802 of the BBA clearly describe a 
cooperative relationship between the Secretary and the States in the 
development, implementation, and administration of the PACE program. 
The BIPA amendments reflect this partnership between CMS and the State 
administering agency. However, section 903 of BIPA does not 
specifically provide for consultation or agreement by the States in 
making waiver determinations. Nonetheless, it is our intention to 
engage the State in discussion regarding waiver requests and to require 
the PACE organization to submit a waiver request through the State 
administering agency.
    In addition, we continue to obtain State input in the early stages 
of policy development through conference calls with State Medicaid 
Agency representatives. The calls, which began after enactment of the 
BBA, have been very productive in understanding the variety of State 
concerns inherent in implementing the PACE program. We are committed to 
continuing this dialogue with States after publication of this 
regulation to ensure this cooperative atmosphere continues as we 
complete the transition of the current PACE demonstration sites to full 
provider status and expand access to the PACE benefit.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 460

    Aged, Health facilities, Medicare, Medicaid, 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 460--PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)

    1. The authority citation for part 460 continues to read as 
follows:

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

    2. In part 460, revise all references to ``multidisciplinary'' to 
read ``interdisciplinary'.

Subpart B--PACE Organization Application and Waiver Process

    3. The heading for subpart B is revised as set forth above.

    4. Section 460.10 is revised to read as follows:


Sec.  460.10  Purpose.

    This subpart sets forth the application requirements for an entity 
that seeks approval from CMS as a PACE organization and the process by 
which a PACE organization may request waiver of certain regulatory 
requirements. The

[[Page 61505]]

purpose of the waivers is to provide for reasonable flexibility in 
adapting the PACE model to the needs of particular organizations (such 
as those in rural areas).


Sec.  460.12  [Amended]

    5. Section 460.12 is amended by removing and reserving paragraph 
(a)(2).
    6. Sections 460.26 and 460.28 are added to subpart B to read as 
follows:


Sec.  460.26  Submission and evaluation of waiver requests.

    (a) A PACE organization must submit its waiver request through the 
State administering agency for initial review. The State administering 
agency forwards waiver requests to CMS along with any concerns or 
conditions regarding the waiver.
    (b) CMS evaluates a waiver request from a PACE organization on the 
basis of the following information:
    (1) The adequacy of the description and rationale for the waiver 
provided by the PACE organization, including any additional information 
requested by CMS.
    (1) Information obtained by CMS and the State administering agency 
in on-site reviews and monitoring of the PACE organization.
    (c) Requirements related to the following principles may not be 
waived:
    (1) A focus on frail elderly qualifying individuals who require the 
level of care provided in a nursing facility.
    (2) The delivery of comprehensive, integrated acute and long-term 
care services.
    (3) An interdisciplinary team approach to care management and 
service delivery.
    (4) Capitated, integrated financing that allows the provider to 
pool payments received from public and private programs and 
individuals.
    (5) The assumption by the provider of full financial risk.


Sec.  460.28  Notice of CMS determination on waiver requests.

    (a) Time limit for notification of determination. Within 90 days 
after receipt of a waiver request, CMS takes one of the following 
actions:
    (1) Approves the request.
    (2) Denies the request and notifies the PACE organization in 
writing of the basis for the denial.
    (b) Date of receipt. For purposes of the 90-day time limit 
described in this section, the date that a waiver request is received 
by CMS from the State administering agency is the date on which the 
request is delivered to the address designated by CMS.
    (c) Waiver approval. (1) A waiver request is deemed approved if CMS 
fails to act on the request within 90 days after the date the waiver 
request is received by CMS.
    (2) CMS may withdraw approval of a waiver for good cause.

Subpart C--PACE Program Agreement

    7. Section 460.30 is amended by revising paragraph (b) and adding 
paragraph (c) to read as follows:


Sec.  460.30  Program agreement requirement.

* * * * *
    (b) The agreement must be signed by an authorized official of CMS, 
the PACE organization and the State administering agency.
    (c) CMS may only sign program agreements with PACE organizations 
that are located in States with approved State plan amendments electing 
PACE as an optional benefit under their Medicaid State plan.

Subpart E--PACE Administrative Requirements

    8. In Sec.  460.60, paragraphs (b) and (c) are revised to read as 
follows:


Sec.  460.60  PACE organizational structure.

* * * * *
    (b) Program director. The organization must employ, or contract 
with in accordance with Sec.  460.70, a program director who is 
responsible for oversight and administration of the entity.
    (c) Medical director. The organization must employ, or contract 
with in accordance with Sec.  460.70, a medical director who is 
responsible for the delivery of participant care, for clinical 
outcomes, and for the implementation, as well as oversight, of the 
quality assessment and performance improvement program.
* * * * *

    9. In Sec.  460.68 the following changes are made:
    a. Paragraph (b) is revised.
    b. Paragraph (c) is removed and reserved.
    The revision reads as follows:


Sec.  460.68  Program integrity.

* * * * *
    (b) Direct or indirect interest in contracts. No member of the PACE 
organization's governing body or any immediate family member may have a 
direct or indirect interest in any contract that supplies any 
administrative or care-related service or materials to the PACE 
organization.
* * * * *

    10. In Sec.  460.70, the following changes are made:
    a. Paragraph (b) introductory text is republished and (b)(1)(i) is 
revised.
    b. Paragraph (e) introductory text is republished and (e)(2) is 
revised.
    c. Paragraph (e)(5) introductory text is republished and paragraphs 
(e)(5)(vi) through (ix) and (f) are added.
    The revisions and additions read as follows:


Sec.  460.70  Contracted services.

* * * * *
    (b) Contract requirements. A contract between a PACE organization 
and a contractor must meet the following requirements:
    (1) * * *
    (i) An institutional contractor, such as a hospital or skilled 
nursing facility, must meet Medicare or Medicaid participation 
requirements.
* * * * *
    (e) Content of contract. Each contract must be in writing and 
include the following information:
    (1) * * *
    (2) Services furnished (including work schedule if appropriate).
* * * * *
    (5) Contractor agreement to do the following:
* * * * *
    (vi) Agree to perform all the duties related to its position as 
specified in this part.
    (vii) Participate in interdisciplinary team meeting as required.
    (viii) Agree to be accountable to the PACE organization.
    (ix) Cooperate with the competency evaluation program and direct 
participant care requirements specified in Sec.  460.71.
    (f) Contracting with another entity to furnish PACE Center 
services. (1) A PACE organization may only contract for PACE Center 
services if it is fiscally sound as defined in Sec.  460.80(a) of this 
part and has demonstrated competence with the PACE model as evidenced 
by successful monitoring by CMS and the State administering agency.
    (2) The PACE organization retains responsibility for all 
participants and may only contract for the PACE Center services 
identified in Sec.  460.98(d).
    11. Section 460.71 is added to subpart E to read as follows:


Sec.  460.71  Oversight of direct participant care.

    (a) The PACE organization must ensure that all employees and 
contracted staff furnishing care directly to participants demonstrate 
the skills necessary for performance of their position.
    (1) The PACE organization must provide each employee and all 
contracted staff with an orientation. The orientation must include at a 
minimum

[[Page 61506]]

the organization's mission, philosophy, policies on participant rights, 
emergency plan, ethics, the PACE benefit, and any policies related to 
the job duties of specific staff.
    (2) The PACE organization must develop a competency evaluation 
program that identifies those skills, knowledge, and abilities that 
must be demonstrated by direct participant care staff (employees and 
contractors).
    (3) The competency program must be evidenced as completed before 
performing participant care and on an ongoing basis by qualified 
professionals.
    (4) The PACE organization must designate a staff member to oversee 
these activities for employees and work with the PACE contractor 
liaison to ensure compliance by contracted staff.
    (b) The PACE organization must develop a program to ensure that all 
staff furnishing direct participant care services meet the following 
requirements:
    (1) Comply with any State or Federal requirements for direct 
patient care staff in their respective settings.
    (2) Comply with the requirements of Sec.  460.68(a) regarding 
persons with criminal convictions.
    (3) Have verified current certifications or licenses for their 
respective positions.
    (4) Are free of communicable diseases.
    (5) Have been oriented to the PACE program.
    (6) Agree to abide by the philosophy, practices, and protocols of 
the PACE organiztion.

Subpart F--PACE Services

    12. In Sec.  460.102, the following changes are made: a. Paragraph 
(d)(2) introductory text is republished and (d)(2)(iii) is revised.
    b. Paragraph (d)(3) is amended by removing ``Except as specified in 
paragraph (g) of this section''.
    c. Paragraphs (f) and (g) are removed.
    The revisions read as follows:


Sec.  460.102  Interdisciplinary team.

* * * * *
    (d) * * *
    (2) Each team member is responsible for the following:
* * * * *
    (iii) Documenting changes of a participant's condition in the 
participant's medical record consistent with documentation polices 
established by the medical director.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

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

    Dated: July 17, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: September 16, 2002.
Tommy G. Thompson,
Secretary.
[FR Doc. 02-24858 Filed 9-27-02; 8:45 am]
BILLING CODE 4120-01-P