[Federal Register Volume 67, Number 207 (Friday, October 25, 2002)]
[Proposed Rules]
[Pages 65672-65686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27142]



[[Page 65671]]

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Part IV





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 409, 417, and 422



Medicare Program; Modifications to Managed Care Rules; Proposed Rule

  Federal Register / Vol. 67, No. 207 / Friday, October 25, 2002 / 
Proposed Rules  

[[Page 65672]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 417, and 422

[CMS-4041-P]
RIN 0938-AK71


Medicare Program; Modifications to Managed Care Rules

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement certain provisions of the 
Social Security Act (the Act) relating to the Medicare+Choice (M+C) 
program that were enacted in the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA).
    It also proposes other changes to the M+C regulations based on 
program experience and feedback from M+C organizations.

DATES: We will consider comments if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on December 24, 2002.

ADDRESSES: In commenting, please refer to file code CMS-4041-P. 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-4041-P, P.O. Box 8013, Baltimore, MD 21244-8013.
    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: Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Room 445-G, Washington, DC 20201 or Centers for Medicare & Medicaid 
Services, Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-
1850.
    (Because access to the interior of the Hubert H. Humphrey 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 persons wishing to retain proof of filing by 
stamping 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: Tom Hutchinson, (410) 786-8953.

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, phone (410) 786-7197.

I. Background

A. Balanced Budget Act of 1997

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

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

    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA) (Pub. L. 106-113) amended the M+C provisions of the Act. 
Many of these amendments were reflected in a final rule with comment 
period published in the Federal Register on June 29, 2000 (65 FR 
40170). We received five comments in response to that final rule, which 
will be addressed in the final rule responding to comments concerning 
this proposed rule.
    Certain amendments to the new Part C made by the BBRA are relevant 
to the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), since the BIPA made changes to the BBRA 
amendments. For example, section 502 of the BBRA amended section 
1851(f)(2) of the Act by providing that if an election or change in 
election to an M+C plan was made after the 10th day of a calendar 
month, the election would be effective the first day of the second 
calendar month following the date the election or change in election 
was made, not the first calendar month, as had been the case under the 
original M+C statute. As discussed in a final rule published on March 
22, 2002 (67 FR 13278), the BIPA reversed this amendment and restored 
the original effective date.
    Section 511(a) of the BBRA amended section 1853(a) of the Act by 
providing for a risk adjustment transition schedule for calendar years 
(CY) 2000 and 2001 that differed from the one that we had provided as 
part of our risk adjustment methodology. The BIPA further revised this 
transition schedule.
    Section 512 of the BBRA amended section 1853 of the Act by adding a 
new paragraph (i) to provide for new entry bonus payments to encourage 
M+C organizations to offer plans where there were no M+C plans serving 
the area as of January 1, 2000. This BBRA provision was amended by the 
BIPA to permit M+C organizations entering counties that had been 
abandoned in 2001 to receive bonuses.
    The final rule published on March 22, 2002 revised the regulations 
to reflect the changes to the BBRA provided in sections 502, 511, and 
512 of the BIPA

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

    The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), enacted December

[[Page 65673]]

21, 2000, further amended the M+C provisions of the Act. The final rule 
published on March 22, 2002 amended the regulations to reflect changes 
made by certain provisions of the BIPA, including those discussed in 
section I.B of this preamble, that amended provisions enacted in the 
BBRA. In this proposed rule, we propose to revise the regulations to 
implement sections 605, 606, 611, 612, 615, 617, 620, 621, and 623 of 
the BIPA.
1. Revision of Payment Rates for End-Stage Renal Disease (ESRD) 
Patients Enrolled in Medicare+Choice Plans
    Section 605(a) of the BIPA amended section 1853(a)(1)(B) of the Act 
by requiring us to provide for appropriate adjustments to the M+C ESRD 
payment rates, effective January 1, 2002, to reflect the demonstration 
rate (including the risk adjustment methodology associated with the 
demonstration rate) of the social health maintenance organization ESRD 
capitation demonstration. This demonstration assessed whether it would 
be feasible to allow Medicare ESRD patients of all ages to enroll in 
M+C plans and to test risk-adjusted capitation payments for ESRD 
beneficiaries.
    Before January 1, 2002, M+C ESRD capitation payments were based on 
State level base rates that were not risk-adjusted. The base payment 
rates were based on a base year (1997) amount that represented 95 
percent of projected State average fee-for-service costs, as determined 
at the time.
    Under section 605(c) of the BIPA, we were required to publish for 
public comment a description of the adjustments we proposed to make in 
accordance with section 605(a) of the BIPA. We published a proposed 
notice on May 1, 2001 (66 FR 21770) soliciting comments on the proposed 
adjustments. Section 605(c) of the BIPA further required us to publish 
these adjustments in final form so that the amendment made by section 
605(a) would be implemented consistent with 605(b) (which provided that 
the adjustments were to become effective with payments made for January 
2002. We published this final notice in the Federal Register on October 
1, 2001 (66 FR 49958).
    The new ESRD payment methodology set forth in the final notice 
published on October 1, 2001--
    [sbull] Increased the ESRD base payment rate for 2002 by 3 percent. 
We determined in the final notice that a 3 percent increase in the base 
rate was the most appropriate proxy for 100 percent of the estimated 
per capita fee-for-service expenditures for ESRD beneficiaries, and the 
most appropriate way to reflect the demonstration rates; and
    [sbull] Adjusted State per capita rates by age and sex factors, in 
order to reflect differences in costs among ESRD patients.
    These adjustment factors and rates for CY 2002 for enrollees with 
ESRD can be found on our Web site at http:www.cms.gov/stats/hmorates/aapccpg.htm#2002rates.
    For the purpose of M+C payment, ESRD beneficiaries include all 
beneficiaries with ESRD, whether entitled to Medicare because of ESRD, 
disability, or age. Under the new M+C ESRD payment methodology 
published on October 1, 2001, rates would continue to include the costs 
of beneficiaries with Medicare as Secondary Payer (MSP) status. (Costs 
to Medicare of M+C ESRD enrollees with MSP status do not include 
payments made by other primary payers such as employer group health 
plans or other insurers.)
    We propose to revise Sec.  422.250(a)(2)(i) to reflect these 
changes to the payment methodology for ESRD enrollees set forth in the 
October 1, 2001 final notice.
2. Permitting Premium Reductions as Additional Benefits Under 
Medicare+Choice Plans
    Section 606 of the BIPA amended section 1854(f)(1) of the Act by 
allowing M+C organizations to reduce the standard Part B premiums for 
their M+C Medicare enrollees, as an additional benefit, if the M+C 
organization experiences an adjusted excess amount, as defined in Sec.  
422.312(a)(2), for that plan in a contract year, beginning in CY 2003. 
Under section 606 of the BIPA, M+C organizations could now elect to 
accept lower payments from us and apply 80 percent of the reduction to 
reduce the standard Part B premiums of M+C beneficiaries enrolled in 
that plan. The amount of the reduction in payments to the M+C 
organizations may not exceed 125 percent of the Medicare standard Part 
B premium rate set by us for that year, which is the amount that would 
result in eliminating the enrollee's liability for the Part B premium 
entirely. The reduction must be applied uniformly to all similarly 
situated enrollees of the M+C plan.
    In addition, section 606 of the BIPA required that the list of 
information made available to each enrollee electing an M+C plan must 
also include a description of any reduction in the Part B premiums.
    We would revise Sec. Sec.  422.2, 422.111(f), 422.250(a)(1), and 
422.312 to reflect these changes.
3. Payment of Additional Amounts for New Benefits Covered During a 
Contract Term
    Section 611 of the BIPA amended section 1853(c)(7) of the Act by 
limiting the financial impact on M+C organizations of new coverage 
requirements adopted by the Congress. If we project that these new 
coverage requirements would result in a significant increase in costs 
to M+C organizations, M+C organizations would not be required to cover 
them under their contracts, but the services would be instead paid for 
on a fee-for-service basis through our fiscal intermediaries or 
carriers, until the next annual M+C payment announcement is made 
following the coverage change. After that, appropriate adjustments 
would be made to the payments made to M+C organizations to reflect the 
additional costs. Before the payment rate adjustments become effective, 
the change in benefits would not be part of the M+C organizations' 
contracts with us and would not be covered under the M+C plans. After 
the payment adjustments become effective, the change in benefits would 
become part of the M+C organizations' contracts with us and would be 
covered by the M+C plans.
    We would revise Sec. Sec.  422.109 and 422.256(b) accordingly.
4. Restriction on Implementation of Significant New Regulatory 
Requirements Midyear
    Section 612 of the BIPA amended section 1856(b) of the Act to 
prohibit us from imposing significant new regulatory requirements on an 
M+C organization or plan, other than at the beginning of a calendar 
year. We propose in a new Sec.  422.521 to define significant 
regulatory requirements as those which impose a new cost or burden on 
M+C organizations, and for which a mid-year effective date is not 
required by statute.
5. Election of Uniform Local Coverage Policy for a Medicare+Choice Plan 
Covering Multiple Localities
    Section 615 of the BIPA amended section 1852(a)(2) of the Act by 
adding a section that would allow M+C organizations to achieve greater 
consistency of benefits for M+C plans covering multiple localities. In 
providing Medicare covered benefits to its enrollees, each M+C 
organization ordinarily must comply with, among other things, written 
coverage decisions of local carriers and intermediaries with 
jurisdiction for claims in the geographic area in which the services 
are covered

[[Page 65674]]

under the M+C plan. Some M+C organizations have plans that cover a 
large area, either a State or multiple counties in a State. Section 615 
of the BIPA would allow those M+C organizations that offer a plan in an 
area large enough that more than one local coverage policy is applied 
in the service area, to elect to have the local coverage policy for 
that part of the area that is the most beneficial to the M+C enrollees 
apply to all M+C enrollees in the plan. The Secretary will make the 
final determination as to which local coverage policy is most 
beneficial to the M+C enrollees.
    By electing to use this uniform coverage policy, M+C organizations 
could use economies of scale when printing and distributing marketing 
materials and descriptions of benefits for their M+C plans. This policy 
would also enable the M+C organizations to standardize coverage 
decisions and provider contracts across entire plans, rather than 
having different policies apply to different geographic areas of the 
same plan.
    We propose to revise Sec.  422.101(b)(3) to reflect the new option 
allowed by section 615 of the BIPA.
6. Medicare+Choice Program Compatibility With Employer or Union Group 
Health Plans
    Section 617 of the BIPA amended section 1857 of the Act by allowing 
us to waive or modify requirements that hinder the design of, the 
offering of, or the enrollment in M+C plans under contracts between M+C 
organizations and employers, labor organizations, or the trustees of a 
fund established to furnish benefits to an entity's employees. 
Previously, M+C organizations that contracted with an employer group or 
with a State Medicaid agency to provide benefits had to comply with all 
requirements of the regulations found at part 422.
    The authority in section 617 of the BIPA was first available for 
calendar year 2001. We accordingly informed M+C organizations that, in 
order to facilitate the offering of M+C plans under contracts with 
employers, labor organizations, or the trustees of a benefits trust 
fund, under this proposed rule we would, upon written request from an 
M+C organization, waive or modify those requirements in part 422 of the 
regulations that would hinder the design of, the offering of, or the 
enrollment in an M+C plan. We indicated that after we have approved a 
request for a waiver, the requesting M+C plan, and any other M+C 
organization, would be able to use the waiver in developing its 
Adjusted Community Rate Proposal (ACRP). Any M+C plan using the waiver 
must include that information in the cover letter of its ACRP 
submission to us. The waiver or modification would take effect once the 
ACRP has been approved.
    We informed M+C organizations that, at least initially, we would 
approve the following three types of waivers under the authority in 
section 617 of the BIPA:
    [sbull] Employer-Only Plans: We would allow M+C organizations to 
offer employer-only plans (M+C plans not available to the individual 
market). M+C organizations would not be required to market these plans 
to individuals. In addition, M+C organizations would not be required to 
have the marketing materials for employer-only plans reviewed and 
approved by us.
    [sbull] Actuarial Swaps: We would allow M+C organizations to swap 
benefits not covered by Medicare of approximately equal value when an 
employer asks for a benefit package that differs from the package 
offered by the M+C organization to the individual market.
    [sbull] Actuarial Equivalence: We would allow M+C organizations to 
raise the co-payments for certain benefits but provide a higher benefit 
level or a modification to the premium charged, as long as projected 
beneficiary liability was actuarially equivalent.
    We also indicated that we would continue to review additional areas 
for waiver or modification and would issue further guidance once we 
have completed our review. We solicit comments on these categories, and 
whether we should provide for additional categories.
    We propose to amend Sec.  422.106 by adding a new paragraph (c) to 
reflect the authority in section 617 of the BIPA.
7. Permitting End-Stage Renal Disease Beneficiaries To Enroll in 
Another Medicare+Choice Plan if the Plan in Which They Are Enrolled Is 
Terminated
    Section 620 of the BIPA amended section 1851(a)(3)(B) of the Act to 
permit beneficiaries with end-stage renal disease (ESRD) to enroll in 
another M+C plan if the plan in which they are enrolled terminates its 
contract with us or discontinues the plan in the area in which the 
beneficiary lives. Before the BIPA, beneficiaries with ESRD who were 
affected by an M+C plan termination had no Medicare options other than 
another plan offered by the same M+C organization or the original 
Medicare fee-for-service program.
    Section 620 of the BIPA allows ESRD beneficiaries to elect to 
enroll in another M+C plan if their plan terminates its contract with 
us or discontinues the plan in their area. However, this provision only 
authorizes the beneficiaries to make one election based on that 
termination. If the new M+C plan in which the ESRD beneficiary enrolls 
pursuant to section 620 of the BIPA terminates, the ESRD beneficiary 
may enroll in another M+C plan. This is true for any subsequent M+C 
plan terminations or discontinuations that result in the beneficiary's 
disenrollment. However, if the ESRD beneficiary enrolls in another M+C 
plan after his or her plan terminates its contract or discontinues the 
plan in the area in which he or she lives, then disenrolls from the new 
plan for a reason other than that the plan is terminating or 
discontinuing the plan in his or her area, he or she may not enroll in 
another new M+C plan unless the new plan is offered by the same M+C 
organization offering the M+C plan in which he or she was enrolled. If 
there is no plan meeting this criterion available, the beneficiary must 
instead return to the original Medicare fee-for-service program.
    While this provision refers to ESRD beneficiaries electing to 
continue enrollment in another M+C plan, we do not interpret this to 
mean that the enrollee must make the election immediately upon the 
termination of the M+C plan in which he or she is enrolled. This is 
because, under section 620(b)(2) of the BIPA, an individual whose plan 
was terminated or discontinued any time after December 31, 1998 is 
eligible for enrollment under this provision, and is to be treated as 
if the plan terminated as of the date of enactment of the BIPA. Since 
the BIPA was enacted in the middle of a month, and a beneficiary could 
not be expected to be informed of its provisions in time to enroll 
effective the first of the next month, we believe that the Congress 
contemplated that the opportunity to enroll in another plan provided in 
section 620 of the BIPA does not necessarily have to be exercised 
immediately upon termination of an M+C plan. In other words, we do not 
interpret ``continue enrollment'' necessarily to mean ``continue 
without interruption''.
    We propose to revise Sec.  422.50(a)(2) to reflect the provisions 
in section 620 of the BIPA.
8. Providing Choice for Skilled Nursing Facility Services Under the 
Medicare+Choice Program
    Section 621 of the BIPA amended section 1852 of the Act by adding a 
new subsection (l). This new subsection would ensure that an M+C 
organization would give a Medicare beneficiary who is a resident of a 
skilled nursing facility

[[Page 65675]]

(SNF) the option of returning to his or her ``home SNF'' for 
posthospital extended care services upon discharge from a hospital.
    The term ``home skilled nursing facility'' would mean--
    [sbull] The SNF in which the beneficiary resided at the time of 
admission to the hospital;
    [sbull] A SNF providing posthospital extended care services through 
a continuing care retirement community that provided residence to the 
beneficiary at the time of admission to the hospital; or
    [sbull] The SNF in which the spouse of the beneficiary is residing 
at the time of discharge from the hospital.
    In order for a home SNF to be offered under this section, the SNF 
to which the beneficiary would be returned must either have a contract 
with the M+C organization to provide posthospital services or agree to 
accept substantially similar payment under the same terms and 
conditions that apply to SNFs under contract with the M+C organization. 
The coverage provided must be no less favorable to the beneficiary than 
coverage of posthospital services that are otherwise covered under the 
M+C plan.
    The requirement to return the beneficiary to his or her home SNF 
would not apply if the applicable SNF is not qualified to provide 
benefits under Medicare Part A to beneficiaries not enrolled in an M+C 
plan. A SNF that is not contractually bound to do so could refuse to 
accept an M+C beneficiary or impose conditions on the acceptance of the 
beneficiary for posthospital extended care services.
    The requirements of this new subsection first became applicable 
under contracts entered into or renewed on or after December 20, 2000.
    This proposed rule would add a new Sec.  422.133 to reflect the 
requirements of section 621 of the BIPA.
    In addition to the requirements concerning returning beneficiaries 
to their home SNFs, this section also required that the Medicare 
Payment Advisory Commission (MEDPAC) conduct a study to analyze the 
effects of the new requirements. The study must examine the effects of 
the new requirements on the following:
    [sbull] The scope of additional benefits provided under the M+C 
program.
    [sbull] The administrative and other costs incurred by M+C 
organizations.
    [sbull] The contractual relationships between M+C organizations and 
SNFs.
    MEDPAC must submit a report on this study to the Congress no later 
than December 20, 2002.
9. Increased Civil Money Penalty for Medicare+Choice Organizations That 
Terminate Contracts Mid-Year
    Section 1857(g)(3) of the Act, authorizes us to impose intermediate 
sanctions, including civil money penalties, on M+C organizations for 
the same reasons that we can terminate an M+C organization's contract. 
Section 1857(c)(2) of the Act provides that we may, at any time, 
terminate an M+C organization's contract if we determine that the M+C 
organization--
    [sbull] Failed substantially to carry out the contract;
    [sbull] Is carrying out the contract in a manner inconsistent with 
the efficient and effective administration of the M+C program; or
    [sbull] No longer substantially meets the applicable conditions of 
the M+C program.
    In Sec. Sec.  422.510(a)(1) through (a)(12), we identified specific 
M+C organization behaviors that we have determined meet one of the 
grounds for termination described in section 1857(c)(2) of the Act. 
Further, in Sec. Sec.  422.752(b) and 422.756(f)(3), we described the 
basis and procedures for imposing the intermediate sanctions that 
originate from M+C contract violations that are grounds for M+C 
contract termination by us.
    Section 623 of the BIPA amended section 1857(g)(3) of the Act by 
providing us with enhanced civil money penalty authority, which we 
would implement in proposed Sec.  422.758. Under section 623 of the 
BIPA, the Congress gave us the authority to establish and levy separate 
and distinct civil money penalties when our determination that an M+C 
organization has failed to substantially carry out the terms of its 
contract is based upon the M+C organization's termination of its 
contract with us in a manner other than that provided for in the M+C 
contract and in Sec.  422.512. The new civil money penalty would apply 
to terminations occurring after December 21, 2000. The amount of this 
civil money penalty may not exceed $100,000, unless we establish a 
higher amount through further regulations.
    We believe that the Congress extended the flexibility to establish 
a potentially higher civil money penalty in recognition of the fact 
that the $100,000 specified in the Act may, in some instances, not 
provide an effective deterrent to discourage M+C organizations from 
terminating their contracts in a manner inconsistent with the 
procedures described in the regulations. In developing this civil money 
penalty amount, it is appropriate for us to consider the number of 
Medicare beneficiaries who could be adversely affected by an M+C 
organization's decision to terminate its contract with us in a manner 
that violates M+C rules.
    We propose to establish the amount of this civil money penalty as 
either $250 per Medicare member enrolled in the terminated M+C plan or 
plans at the time the M+C organization terminated its contract with us 
or $100,000, whichever is greater. We have added the ``whichever is 
greater'' provision to discourage violations of the contract 
termination provisions by M+C organizations with lower M+C plan 
enrollment. In either instance, this new civil money penalty would 
represent a substantial increase over the current civil money penalty 
of $25,000 for similar violations and would serve as an effective 
deterrent against M+C contract terminations violations that could 
potentially harm Medicare beneficiaries.
    This provision of the BIPA would create a separate category of 
civil money penalty, with a dollar amount unique to the violation, that 
we can impose on M+C organizations that fail to substantially carry out 
the terms of their contracts with us by violating the contract 
termination provisions described in Sec.  422.512. Accordingly, we 
would revise Sec.  422.758 and add a new paragraph (b) that describes 
this civil money penalty.

D. Skilled Nursing Facility Care Under Medicare+Choice

    Under section 1814(a)(2)(B) of the Act, the Medicare extended care 
skilled nursing facility (SNF) benefit covers skilled nursing care or 
other skilled rehabilitation services that are needed on a daily basis 
and only available in a SNF on an inpatient basis.
    Generally, this benefit is only covered following a hospital stay 
of not less than 3 days. Under section 1812(f) of the Act, however, we 
may authorize coverage of SNF care without a prior hospital stay if two 
conditions are met. First, the coverage of these services must not 
result in any increase in Medicare program payments, and second, the 
coverage must not alter the acute care nature of the benefit.
    We have determined that these conditions are met in the case of SNF 
services furnished by an M+C organization that covers SNF services. We 
are proposing to revise the regulations to reflect this determination, 
so that a SNF stay without a prior 3-day hospital stay can be covered 
by Medicare if the admission to the SNF occurred while the beneficiary 
was

[[Page 65676]]

enrolled in a M+C plan that covers SNF services.
    Under section 1852(a) of the Act, organizations contracting with us 
under the M+C program must provide to their Medicare enrollees at least 
those items and services for which benefits are available under the 
original Medicare fee-for-service program. These M+C organizations may 
also furnish additional coverage, including cost-sharing for Medicare 
benefits and benefits not covered under the original Medicare fee-for-
service program. One additional benefit that many M+C organizations 
have chosen to furnish is care in a SNF that does not follow a 3-day 
hospital stay.
    Because these SNF services were not Medicare covered services, the 
cost of the services were included either as an additional benefit 
funded out of the adjusted excess calculated in the Adjusted Community 
Rate (ACR), or as a supplemental benefit for which a premium was 
charged. An enrollee receiving SNF services under these circumstances 
would remain entitled to the SNF Medicare benefit, which required a 
prior 3-day hospital stay. Moreover, an enrollee in a SNF for services 
covered as an additional or supplemental benefit without a prior 3-day 
hospital stay would no longer have the SNF services covered if he or 
she disenrolled from the M+C plan (or the plan terminated) in the 
middle of the SNF stay. By exercising our authority under section 
1812(f) and allowing Medicare coverage of SNF services without the 
prior 3-day hospital stay by an M+C organization that covered them as 
an additional or supplemental benefit, the entire SNF stay would then 
be considered a Medicare covered benefit.
    Our determination that SNF services furnished by M+C organizations 
meet the two tests in section 1812(f) is based on the fact that M+C 
organizations are paid a monthly per-Medicare enrollee payment to 
provide all contracted services. Thus, Medicare costs would not be 
affected by permitting SNF services to be covered by Medicare without 
the prior 3-day hospital stay. The savings from the 3-day hospital stay 
would be applied to the SNF care for those same 3 days. This would also 
provide incentives for the M+C organizations to provide care more cost 
effectively. Some evidence indicates that M+C organizations, 
particularly coordinated care plans, can shorten hospital stays and 
shift patients to post acute or subacute settings, such as SNFs, more 
quickly than under the original Medicare program. If SNF care is the 
appropriate level of care, M+C organizations may use SNF care rather 
than more expensive hospital care for similar patients requiring post 
hospital care. For some patients and diagnoses, the M+C organization 
may bypass the hospital stay and admit the beneficiary directly to a 
SNF.
    We make a capitation payment for each enrollee using a formula set 
in section 1853 of the Act. Allowing an M+C organization to provide a 
SNF benefit that does not require a 3-day hospital stay as part of its 
basic Medicare benefit package would not affect any payments to M+C 
organizations. Since we are already paying for the transition from M+C 
organizations to the original Medicare program during a SNF stay, there 
would be no additional program costs. If those M+C enrollees had been 
in the original Medicare program, they would have had a 3-day hospital 
stay. M+C organizations that take advantage of this new benefit would 
furnish it the same way it has been used in the past, to shift care to 
the SNF setting that otherwise would have occurred in the hospital when 
the beneficiary's physician determines that a SNF stay would meet the 
level of care requirement.
    We would add a Sec.  409.20(c)(4), revise Sec. Sec.  409.30(b) and 
409.31(b), and add a new Sec.  422.101(c) to reflect these changes.

E. Disenrollment by the M+C Organization

    The interim final rule published in the Federal Register on June 
26, 1998 (63 FR 35067) provided that an M+C plan enrollee who remained 
out of the M+C plan's the service area for more than 12 months was 
considered to have moved out of the service area, and must be 
disenrolled by the M+C organization offering the plan. There were 
several comments in response to this interim final rule concerning this 
issue. Commenters were concerned about beneficiaries being out of the 
service area of a plan, but still enrolled in the plan, in which case 
they could only receive urgent and emergent care. They believed that an 
enrollee who was out of the service area for more than 6 months should 
join another M+C plan that could provide all healthcare benefits, not 
just urgent and emergent care. As a result of these comments, in the 
final rule with comment period published in the Federal Register on 
June 29, 2000 (65 FR 40270, we shortened the time in which an enrollee 
could be out of the service area and still remain enrolled in the M+C 
plan from 12 months to 6 months.
    However, this change had the consequence of limiting the 
``visitor'' or ``traveler'' type programs that many M+C plans have for 
their enrollees who leave the service area for extended periods of 
time, exceeding 6 months. These programs allow enrollees to remain 
enrolled in the M+C plan and to receive more than just urgent and 
emergent care when out of the service area. For example, enrollees may 
temporarily stay with a relative while recuperating from an illness, or 
may temporarily travel to a more temperate climate during colder 
weather, or may just travel for an extended period of time. The M+C 
organizations have expressed concerns about the impact of the current 
6-month rule on these programs. In response to these concerns, we 
propose to create an exception to the 6-month rule that would allow the 
plans to continue to offer these programs that extend the out-of-
service-area benefits from 6 to 12 months. The M+C organizations 
offering these programs would be allowed to impose restrictions on 
obtaining benefits, except for urgent, emergent, and post stabilization 
care, and renal dialysis. Enrollees in these programs would not be 
disenrolled if they are out of the service area for up to 12 months, 
but enrollees in M+C plans without this program would continue to be 
disenrolled if they are out of the service area for 6 months or more. 
We propose to revise Sec.  422.74(d)(4) to reflect this change.

F. Reporting Requirements for Physician Incentive Plans

    Section 1852(j)(4)(B)(iii) of the Act required M+C organizations to 
provide us with descriptive information regarding their physician 
incentive plans (PIP) sufficient to permit us to determine whether the 
plan is in compliance with the applicable requirements. The current 
regulations interpreted this provision to require that an M+C 
organization submit the CMS PIP Disclosure Form (OMB No. 0938-0700) to 
us with its contract application and annually thereafter. In this 
proposed rule, we would change the reporting requirement to allow M+C 
organizations to maintain the required PIP information in their files 
(or their subcontractors' files) and submit it to us upon request (such 
as during a site visit). Furthermore, we propose to delete the specific 
requirements concerning the type of information that would have to be 
maintained.
    We would retain all other requirements pertaining to physician 
incentive plans, such as the stop-loss provisions and the requirement 
that M+C organizations provide information to beneficiaries upon 
request. This change would also apply to HMOs

[[Page 65677]]

contracting with us who are also required to submit the same 
information concerning their physician incentive plans.
    When the physician incentive plan requirements were enacted, the 
Congress expressed concern that financial incentives could lead to 
physicians hesitating to provide needed referral services. Because this 
proposed rule would modify the reporting requirements, there may be 
concern that this could lead to a reduction in the quality of care 
provided to beneficiaries. However, we have taken a number of steps to 
improve the quality of care provided by M+C organizations, such as the 
collection of Health Plan Employer Data Information Sets (HEDIS) and 
the Consumer Assessment of Health Plans Survey (CAHPS), and we have 
implemented a number of other quality improvement projects. These 
improved quality assessments provide direct measures of quality and 
access that we believe make it less necessary to receive annual reports 
on PIP arrangements. In addition, this proposed approach would be 
consistent with the reporting requirements of private accrediting 
organizations, such as the National Committee for Quality Assurance 
(NCQA), which only reviews incentive plans when investigating quality 
problems.
    We propose to revise Sec. Sec.  417.479(h)(2) and 422.210(a) to 
reflect these changes.

G. M+C Appeals Process

1. Defining Who Can Request Organization Determinations
    Currently, the M+C regulations at Sec.  422.566(c) specify that any 
of the parties listed in Sec.  422.574 can request an M+C organization 
determination. It has come to our attention that in some cases the use 
of this cross-reference has been misconstrued to mean that in order to 
request an organization determination on behalf of an enrollee, an 
affiliated provider would need to be an authorized representative, and 
a non-affiliated provider would need to be an assignee. Although we 
discussed this issue in our June 29, 2000 final rule (65 FR 40,282), 
some confusion has continued.
    The intent of the regulation has always been for the provisions 
governing requests for organization determinations to be more inclusive 
than the provisions governing requests for appeals. To clarify this 
point, we are proposing to eliminate the existing cross-reference to 
Sec.  422.574 and list those who may request an M+C organization 
determination under Sec.  422.566(c). Determination requests may be 
made by--
    [sbull] The enrollee (including his or her authorized 
representative);
    [sbull] Any provider that furnishes, or intends to furnish, 
services to the enrollee; or
    [sbull] The legal representative of a deceased enrollee's estate.
    The fact that an individual or entity may request an organization 
determination does not necessarily entitle that individual or entity 
the right to request an appeal, unless the conditions for party status 
under Sec.  422.574 are met.
2. Effectuation Times When M+C Organizations File Appeals
    The current regulations at Sec. Sec.  422.618 and 422.619 establish 
effectuation times when an M+C organization's denial of coverage or 
payment is overturned, either through its own reconsideration process 
or by an independent outside entity. The M+C organization may not 
appeal the overturning of its denial of coverage or payment in either 
of these situations. Section 422.618 also requires that if the 
independent outside entity's determination is reversed (in whole or in 
part) by an administrative law judge (ALJ), or at a higher level of 
appeal, the M+C organization must pay for, authorize, or provide the 
service under dispute as expeditiously as the enrollee's health 
condition requires, but no later than 60 calendar days from the date 
the M+C organization receives notice reversing the determination. In 
these situations, the M+C organization, like an enrollee, has 60 days 
to appeal.
    The ambiguity in the current regulations, which require 
effectuation of a determination within 60 days, but also permit further 
appeal within the same time frame, results in confusion. To reconcile 
these two regulatory provisions, we are proposing that M+C 
organizations may await the outcome of a Departmental Appeals Board 
(the Board) review before effectuating a decision of an ALJ. This 
proposal would serve to balance the M+C organizations' right to appeal 
with the need to ensure that an enrollee would not be faced with a 
potentially large debt in the event that the Board overturns the ALJ 
after the service had been rendered to the enrollee. The Board's 
practice is to screen all of its cases upon arrival to identify and 
give priority to pre-service denial cases, including immediate 
assignment and resolution of cases involving imminent health risks.
    In Sec.  422.618(c), we would retain the 60-day effectuation 
requirement for reversals by an ALJ or higher level of appeal because 
we do not want to negate the M+C organizations' 60-day right to request 
an appeal to the Board or higher level. However, our expectation is 
that M+C organizations would not take the maximum 60 days to effectuate 
a decision they do not intend to appeal. We are proposing to 
redesignate the current Sec.  422.618(c) as Sec.  422.618(c)(1) and add 
a new Sec.  422.618(c)(2) to allow for an exception to the 60-day 
standard if the M+C organization decides to request a board review 
consistent with Sec.  422.608. We would allow the M+C organization to 
await the outcome of the Board review before it pays for, authorizes, 
or provides the service under dispute. Under the proposed provision, we 
would require an M+C organization that files an appeal with the Board 
concurrently to send a copy of its request and any accompanying 
documents to the enrollee. Additionally, the M+C organization would be 
required to notify the independent review entity of the requested 
appeal.
    Consistent with this proposed change, we would also revise Sec.  
422.619(c) with regard to effectuating expedited reconsidered 
determinations. As in standard appeals, we would allow an exception for 
the M+C organization to await the outcome of the Board's review before 
the M+C organization authorizes or provides the service under dispute. 
Additionally, an M+C organization that files an appeal with the Board 
would be required concurrently to send a copy of its request and any 
accompanying documents to the enrollee, as well as notify the 
independent review entity of the requested appeal.
    We considered reducing the time frame in Sec.  422.619(c) from 60 
days to 72 hours for the M+C organization to authorize or provide the 
service under dispute. This would have been consistent with our 
reasoning for other effectuation guidelines because if the M+C 
organization originally had rendered a decision favorable to the 
enrollee, it would have been required to do so within the maximum 
organization determination time frame. However, we decided to maintain 
the 60-day effectuation time frame, so that we do not limit the M+C 
organizations' 60-day window in which to appeal. If we had required M+C 
organizations to effectuate a decision within 72 hours, we would have 
forced them to decide whether to appeal within that same 72 hours. 
Thus, we would have had to require notice to the enrollee regarding 
effectuation. Moreover, the M+C organization would have to send a 
second notice to the enrollee when the M+C organization filed its 
appeal. To eliminate confusion for enrollees and a

[[Page 65678]]

cumbersome process for M+C organizations, we would maintain the 
requirement that when an expedited determination is reversed, in whole 
or in part, by an ALJ or at a higher level of appeal, the M+C 
organization must effectuate the decision within 60 days. We would 
emphasize, however, that the M+C organization would have to meet the 
medical exigency standard for providing or authorizing services as 
expeditiously as the enrollee's health condition requires regardless of 
the 60-day time frame.

H. Requiring Health Care Prepayment Plans (HCPPs) and Remaining Cost 
Plans To Follow the M+C Appeals Process

    We are soliciting comments on whether HCPPs and the remaining cost 
plans should follow the M+C appeals and grievance processes under 
subpart M of part 422. Currently, HCPPs and the remaining cost plans 
adhere to the provisions under subpart Q of part 417, which implemented 
the former managed care program for risk contracts under section 1876 
of the Act. We believe that the M+C appeals process provides enhanced 
enrollee protections, such as faster processing times and streamlined 
notice procedures. We recognize that the remaining cost plans are 
expected to be phased out by 2004, therefore we solicit comments 
concerning whether the burdens associated with complying with subpart M 
of part 422 outweigh the protections afforded to beneficiaries. 
Moreover, unlike cost plans, HCPPs do not provide in-patient hospital 
services, thus, we are not proposing that HCPPs follow Sec. Sec.  
422.620 through 422.622, which provide for immediate Peer Review 
Organization review for in-patient hospital discharges.

I. Technical Clarifications

1. Grace Period for Late Premium Payments
    We are proposing a technical change in this proposed rule to 
address concerns M+C organizations have raised concerning when the 90-
day grace period for premium payments begins running. The regulation 
currently provides, at Sec.  422.74(d)(1)(ii), that an M+C organization 
may only disenroll a Medicare enrollee when the organization has not 
received payment within 90 days after the date it has sent a written 
notice of nonpayment to the enrollee. Several M+C organizations have 
asked that the 90-day grace period begin to run on the day the premium 
payment was due, not the day the notice was sent. We believe that as 
long as the beneficiary receives notice under Sec.  422.74(d)(1)(i)(C) 
that he or she would be disenrolled if payment is not made by the end 
of the grace period, a 90-day grace period beginning at the payment due 
date is sufficient. Because the notice has to be provided within 20 
days after the payment was due, this would ensure the enrollee of 70 
days following the notice within which to make payment, and avoid 
disenrollment.
    We are accordingly proposing to revise Sec.  422.74(d)(1)(ii) to 
provide that the M+C organization may only disenroll a Medicare 
enrollee when the organization has not received payment within 90 days 
after the date the premium was due.
2. Payment for Hospice Care
    We are proposing a clarification in this proposed rule to provide 
information concerning changes in M+C payments when an individual has 
elected hospice care.
    We would revise Sec.  422.266(d) to make clear that when enrollees 
of M+C plans elect to receive hospice care under Sec.  418.24, we would 
not make any payment for the hospice care to the M+C plan beginning 
with the next month's payment after the election, except for the 
portion of the payment applicable to additional benefits, as described 
in Sec.  422.312. Currently, the regulation refers to capitation 
payments being reduced to this amount. This clarification makes the 
language of the rules regarding hospice care for M+C enrollees the same 
as the rules for HMOs and CMPs.
    We propose to revise Sec.  422.266(c) to reflect this 
clarification.

II. Provisions of This Proposed Rule

    The provisions of this proposed rule are as follows:
    [sbull] In Sec.  409.20, we would add a paragraph (c)(4) to add a 
definition of the term ``posthospital SNF care'' to include SNF care 
that does not follow a hospital stay if the beneficiary is enrolled in 
an M+C plan.
    [sbull] In Sec.  409.30, we would revise paragraph (b)(2) to add an 
exception to the preadmission requirements for enrollees of M+C 
organization plans.
    [sbull] In Sec.  409.31, we would add a new paragraph (b)(2)(iii) 
to add a condition to the level of care requirements that for an M+C 
enrollee, a physician has determined that a direct admission to a SNF 
without an inpatient hospital stay would be medically appropriate.
    [sbull] In Sec.  417.479, we would revise paragraph (h) to modify 
the reporting requirements concerning physician incentive plans.
    [sbull] In Sec.  422.2, we would revise the definition of 
additional benefits to include a reduction in the Medicare 
beneficiary's standard Part B premium.
    [sbull] In Sec.  422.50, we would revise paragraph (a)(2) to 
include in the exception to the general rule that a beneficiary with 
end-stage-renal-disease (ESRD) is not eligible to elect an M+C plan, 
that an individual with ESRD whose enrollment in an M+C plan is 
discontinued because we or the M+C organization terminated the 
organization's contract for the plan, is eligible to elect another M+C 
plan, if the original enrollment was terminated after December 31, 
1998.
    [sbull] In Sec.  422.74, we would revise paragraph (d)(1)(ii) to 
reflect that an M+C organization may only disenroll a Medicare enrollee 
when the organization has not received payment within 90 days after the 
date the premium payment was due.
    [sbull] In Sec.  422.74, we would revise paragraph (d)(4) to allow 
M+C organizations to operate ``visitor'' or ``traveler'' programs that 
provide benefits beyond urgent and emergent care to their enrollees who 
are out of the service area for more than 6 months but less than 12 
months.
    [sbull] In Sec.  422.101, we would revise paragraph (b)(3) to 
reflect the provisions in section 1852(a)(2)(C) of the Act permitting 
M+C organizations with plans that cover large areas encompassing more 
than one local coverage policy area to elect to have the local coverage 
policy for the part of the area that is the most beneficial to the M+C 
enrollees apply to all M+C enrollees in the plan. This policy allows 
M+C organizations to standardize coverage decisions and provider 
contracts across the entire plan, rather than having different policies 
apply to different geographic areas of the same plan.
    [sbull] In Sec.  422.101, we would add a paragraph (c) to include 
in the requirements relating to Medicare covered benefits the option to 
provide for coverage as a Medicare benefit of posthospital SNF care in 
the absence of a prior hospital stay.
    [sbull] In Sec.  422.106, we would add a new paragraph (c) to 
reflect the provisions in section 1857(i) of the Act permitting us to 
grant a waiver or modification of requirements in part 422 that hinder 
the design of, the offering of, or the enrollment in, M+C plans under 
contracts between M+C organizations and employers, labor organizations, 
or the trustees of benefits funds.
    [sbull] In Sec.  422.109, we would revise the definition of 
``significant cost'' to include legislative changes in benefits

[[Page 65679]]

and detail that if we project that the legislative changes in benefits 
would result in significant costs to M+C organizations, we would pay 
(through our fiscal intermediaries and carriers) the additional costs 
outside the contract until the next payment update. Subsequently, an 
adjustment would be made to payments under the contract to reflect the 
new costs.
    [sbull] In Sec.  422.111, we would add a new paragraph (f)(8)(iii) 
to add any reduction in Part B premiums to the list of information that 
must be disclosed to each enrollee electing an M+C plan.
    [sbull] We would add a new Sec.  422.133 to contain the new 
requirement that M+C organizations return residents of SNFs to their 
home SNF for posthospital extended care services after discharge from a 
hospital. This new section would contain the definition of home SNF, 
the requirements for return to the home SNF, and the exceptions to the 
general rule.
    [sbull] In Sec.  422.210, we would revise paragraph (a) to reflect 
changes to the reporting requirements concerning physician incentive 
plans.
    [sbull] In Sec.  422.250, we would revise paragraph (a)(1) to 
reflect that beginning with the initial payment for CY 2003, monthly 
payments to M+C organizations may be reduced by the amount described in 
new Sec.  422.312(d) for the reduction of the beneficiary's standard 
Part B premium.
    [sbull] In Sec.  422.250, we would also revise paragraph (a)(2) to 
redesignate paragraph (a)(2)(i)(B) as (a)(2)(i)(C) and add a new 
paragraph (a)(2)(i)(B) to reflect that when we establish ESRD rates, we 
would apply appropriate adjustments, including risk adjustment factors.
    [sbull] In Sec.  422.256, we would revise paragraph (b) to reflect 
that we would make appropriate payment adjustments for new legislative 
changes in benefits that would result in significant costs to M+C 
organizations, based on an analysis by our chief actuary of the costs 
associated with the new legislative change in benefits.
    [sbull] In Sec.  422.266, we would revise paragraph (c) to clarify 
that when enrollees of M+C plans elect to receive hospice care under 
Sec.  418.24, we would not make any payment for the hospice care to the 
M+C plan beginning with the next month's payment after the election, 
except for the portion of the payment applicable to additional 
benefits, as described in Sec.  422.312.
    [sbull] In Sec.  422.312, we would redesignate paragraph (d) as 
paragraph (e) and add a new paragraph (d) to reflect that an M+C 
organization may apply adjusted excess amounts to additional benefits 
and accept lower payments from us, which would allow a reduction of 
standard Part B premiums for its enrollees. The reduction in standard 
Part B premiums could not equal more than 80 percent of the reduction 
in payments to the M+C organization and the payment reduction could not 
exceed 125 percent of the standard Part B premium. In addition, the 
reduction in premium would have to be applied uniformly to all 
similarly situated enrollees.
    [sbull] We would add a new Sec.  422.521 to indicate that we would 
not implement, other than at the beginning of a calendar year, 
regulations that would impose new cost or burden on M+C organizations 
or plan, unless a different effective date is required by statute.
    [sbull] In Sec.  422.566, we would revise paragraph (c) to delete 
the cross-reference to Sec.  422.574 and enumerate who can request an 
organization determination.
    [sbull] In Sec.  422.618, we would revise paragraph (c) to add an 
effectuation exception when the M+C organization files an appeal with 
the Departmental Appeals Board in the case of a standard reconsidered 
determination.
    [sbull] In Sec.  422.619, we would revise paragraph (c) to add an 
effectuation exception when the M+C organization files an appeal with 
the Departmental Appeals Board in the case of an expedited reconsidered 
determination.
    [sbull] In Sec.  422.758, we would revise paragraph (b) to include 
the new maximum amount of the civil money penalty that we would impose 
on M+C organizations that terminate their contracts in a manner other 
than that described in Sec.  422.512. The new penalty amount would be 
$100,000 or $250 per Medicare enrollee from the terminated plan or 
plans, whichever is greater.

III. 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 PRA 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 417.479(h)--This section states that each HMO must provide 
to us information concerning its physician incentive plans as 
requested, and each HMO must provide information to any Medicare 
beneficiary who requests it.
    This section requires the HMOs to disclose information to us and to 
Medicare beneficiaries. While this requirement is subject to the PRA, 
the burden associated with this requirement is captured in approved 
collection 0938-0700, with an expiration date of April 30, 2004.
    Section 422.50(a)(2)--This section states that an individual who 
develops end-stage renal disease while enrolled in an M+C plan or in a 
health plan offered by an M+C organization is eligible to elect an M+C 
plan offered by that organization. Also, an individual with end-stage 
renal disease whose enrollment in an M+C plan is terminated or 
discontinued after December 31, 1998 because we or the M+C organization 
terminated the M+C organization's contract for the plan or discontinued 
the plan in the area in which the individual resides is eligible to 
elect another M+C plan. An individual who elects an M+C plan under 
paragraph (a)(2)(ii) of this section may elect another M+C plan if the 
plan elected under paragraph (a)(2)(ii) also is terminated or 
discontinued in the area in which the individual resides.
    The burden associated with this requirement is the time and effort 
for the individual to submit a new election form. While this section is 
subject to the PRA, this burden is currently captured in approved 
collection 0938-0753, due to expire October 31, 2002 (currently at OMB 
awaiting re-approval).
    Section 422.74(d)(4)(i)--This section states that unless 
continuation of enrollment is elected under Sec.  422.54, the M+C 
organization must disenroll an individual if the M+C organization 
establishes, on the basis of a written statement from the individual or 
other evidence acceptable to us, that the individual has permanently 
moved.
    This section requires that the individual must prepare and provide 
a written statement to the M+C organization that he or she has 
permanently moved. While this requirement is subject to the PRA, the

[[Page 65680]]

burden associated with this requirement is captured in approved 
collection 0938-0753.
    Section 422.106(c)(1)--M+C organizations may request, in writing, 
from us a waiver or modification of those requirements in part 422 that 
hinder the design of, the offering of, or the enrollment in, M+C plans 
under contracts between M+C organizations and employers, labor 
organizations, or the trustees of benefits funds.
    We estimate that there will be approximately 200 requests for 
waivers or modifications submitted on an annual basis and that it will 
take approximately 2 hours to prepare each request. The total annual 
burden associated with this requirement is estimated to be 400 hours.
    Section 422.106(c)(2)--This section states that approved waivers or 
modifications under this paragraph may be used by any M+C organization 
on developing its Adjusted Community Rate Proposal (ACRP). Any M+C 
organization using a waiver or modification must include that 
information in the cover letter of its ACRP submission.
    The burden associated with this requirement is the time and effort 
for the M+C organization to include the information in the cover letter 
of its ACRP submission. Although this requirement is subject to the 
PRA, the burden is minimal; therefore, the burden is captured in the 
analysis for Sec.  422.106(c)(1).
    Section 422.111(f)(8)(iii)--This section has been revised to add 
any reduction in Part B premiums to the list of information that must 
be disclosed to each enrollee electing an M+C plan.
    The burden associated with this requirement is the time and effort 
for the M+C organization to disclose information to each enrollee 
electing an M+C plan. Although this requirement is subject to the PRA, 
the burden associated with this requirement is captured in approved 
collection 0938-0778.
    Section 422.210(a)(1)--This section states that each M+C 
organization must provide to us upon request, descriptive information 
about its physician incentive plan in sufficient detail to enable us to 
determine whether that plan complies with the requirements of Sec.  
422.208.
    This section requires the M+C organization to prepare and submit, 
upon request, descriptive information to us. While this requirement is 
subject to the PRA, the burden associated with this requirement is 
captured in approved collection 0938-0700.
    Section 422.266(a)--An M+C organization that has a contract under 
subpart K of this part must inform each Medicare enrollee eligible to 
select hospice care under Sec.  418.24 of this chapter about the 
availability of hospice care (in a manner that objectively presents all 
available hospice providers, including a statement of any ownership 
interest in a hospice held by the M+C organization or a related 
entity).
    While this requirement is subject to the PRA, the burden associated 
with it is captured in approved collections 0938-0753 and 0938-0302.
    In summary, the total burden hours for this proposed rule is 
calculated to be 400 hours. The breakdown is as follows:

Section 417.479(h)--burden captured in 0938-0700
Section 422.50(a)(2)--burden captured in 0938-0753
Section 422.74(d)(4)(i)--burden captured in 0938-0753
Section 422.106(c)(1)--400 hours
Section 422.106(c)(2)--burden captured in 422.106(c)(1)
Section 422.111(f)(8)(iii)--burden captured in 0938-0788
Section 422.210(a)(1)--burden captured in 0938-0700
Section 422.266(a)--burden captured in 0938-0753 & 0302

    If you comment on these information collection and recordkeeping 
requirements, please mail one original and three copies directly to the 
following: Centers for Medicare & Medicaid Services, Office of 
Information Services, Information Technology Investment Management 
Group, Attn: Dawn Willinghan, CMS-4041-P, Room N2-14-26, 7500 Security 
Boulevard, Baltimore, MD 21244-1850, and Office of Information and 
Regulatory Affairs, Office of Management and Budget, Room 10235, New 
Executive Office Building, Washington, DC 20503, Attn: Brenda Aguilar, 
CMS Desk Officer.
    We have submitted a copy of this proposed rule to OMB for its 
review of the information collection requirements in Sec.  422.106. 
This requirement is not effective until it has been approved by OMB.

IV. 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, if we proceed with a subsequent 
document, we will respond to the major comments in the preamble to that 
document.

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review) 
and the Regulatory Flexibility Act (RFA) (September 19, 1980, Public 
Law 96-354). 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).
    As a result of the proposed changes to the M+C regulations that 
reflect the provisions of the BIPA in this proposed rule, this proposed 
rule is not a major rule with economically significant effects as 
defined in Title 5, U.S.C. section 804(2) and is not an economically 
significant rule under Executive Order 12866. This proposed rule would 
result in increases in total expenditures of less than $100 million per 
year.
    However, we are providing estimates of the budgetary impact of 
section 605 of the Act, which mandated revised ESRD payments. The 
revised rates affect those M+C organizations that enroll the 
approximately 18,000 ESRD beneficiaries in their plans. The additional 
cash expenditures for these M+C ESRD beneficiaries under this provision 
of the BIPA are estimated to be--
    [sbull] $35 million in FY 2002 (for 9 months of costs based on the 
effective date of January 2002);
    [sbull] $55 million in FY 2003;
    [sbull] $55 million in FY 2004;
    [sbull] $60 million in FY 2005; and
    [sbull] $65 million in FY 2006.
    These estimates assume continuation of the current restrictions on 
enrollment in the M+C program for ESRD beneficiaries. These estimates 
also include the impact of adjusting for age and sex and the impact of 
raising the ESRD base rates by 3 percent.
    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. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status, or by having revenues of between 
$5.0 million and $25 million or less

[[Page 65681]]

annually. (For details see the Small Business Administration 
publication that sets forth size standards for health care industries 
at 65 FR 69432.) Individuals and States are not included in the 
definition of small entities.
    For purposes of the RFA, most managed care organizations are not 
considered to be small entities. We estimate that fewer than 5 out of 
177 M+C organization contractors have annual revenues of $7.5 million 
or less. Approximately 35 percent of M+C organization contractors have 
tax-exempt status, and thus, for purposes of the RFA are considered to 
be small entities. We have examined the economic impact of this 
proposed rule on M+C organizations, including those that are tax-
exempt, and thus small entities, and we find that overall the economic 
impact is positive, due to the revised ESRD rates mandated by section 
605 of the BIPA, thus generating an increase in payments; we certify 
that this proposed rule would not have a significant impact on a 
substantial number of small businesses. The data available do not allow 
us to determine the distributional effects of this increase. We have 
not considered alternatives to lessen the impact or regulatory burden 
of this proposed rule because no burden is imposed.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a proposed rule may have a significant 
impact on the operations of a substantial number of small rural 
hospitals. This analysis must conform to the provisions of section 603 
of the RFA. For purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area (MSA) and has fewer than 100 beds. Almost 
2 percent of M+C enrollees reside in payment areas outside MSAs. 
Because information on the payment terms in contracts between M+C 
organizations and their providers is not available, data are not 
available on the level of this economic impact.

B. The Unfunded Mandates Act

    Section 202 of the Unfunded Mandates Reform Act of 1998 (UMRA) 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. We have determined, and we certify 
that this proposed rule would have no consequential effect on State, 
local, or tribal governments.

C. Federalism

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

List of Subjects

42 CFR Part 409

    Health facilities, Medicare.

42 CFR Part 417

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

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health 
Maintenance Organizations (HMO), Medicare+Choice, Penalties, Privacy, 
Provider-sponsored organizations (PSO), Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 409--HOSPITAL INSURANCE BENEFITS

    1. The authority citation for part 409 continues to read as 
follows:

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

Subpart C--Posthospital SNF Care

    2. In Sec.  409.20, the following changes are made to read as set 
forth below:
    A. Paragraph (c)(3) is revised.
    B. Paragraph (c)(4) is added.


Sec.  409.20  Coverage of services.

* * * * *
    (c) * * *
    (3) The term swing-bed hospital includes a CAH with swing-bed 
approval under subpart F of part 485 of this chapter.
    (4) The term posthospital SNF care includes SNF care that does not 
follow a hospital stay when the beneficiary is enrolled in a plan, as 
defined in Sec.  422.4 of this chapter, offered by a Medicare+Choice 
(M+C) organization, that includes the benefits described in Sec.  
422.101(c) of this chapter.

Subpart D--Requirements for Coverage of Posthospital SNF Care

    3. In Sec.  409.30, paragraph (b)(2) is revised to read as follows:


Sec.  409.30  Basic requirements.

* * * * *
    (b) * * *
    (2) The following exceptions apply--
    (i) A beneficiary for whom posthospital SNF care would not be 
medically appropriate within 30 days after discharge from the hospital 
or CAH, or a beneficiary enrolled in a Medicare+Choice (M+C) plan, may 
be admitted at the time it would be medically appropriate to begin an 
active course of treatment.
    (ii) If, upon admission to the SNF, the beneficiary was enrolled in 
an M+C plan, as defined in Sec.  422.4 of this chapter, offering the 
benefits described in Sec.  422.101(c) of this chapter, the beneficiary 
will be considered to have met the requirements described in paragraphs 
(a) and (b) of this section, and also in Sec.  409.31(b)(2), for the 
duration of the SNF stay.
    4. In Sec.  409.31 paragraph (b)(2)(ii) is revised, and a new 
paragraph (b)(2)(iii) is added to read as follows:


Sec.  409.31  Level of care requirement.

    (b) * * *
    (2) * * *
    (ii) Which arose while the beneficiary was receiving care in a SNF 
or swing-bed hospital or inpatient CAH services; or
    (iii) For which, for an M+C enrollee described in Sec.  
409.20(c)(4), a physician has determined that a direct admission to a 
SNF without an inpatient hospital or inpatient CAH stay would be 
medically appropriate.
* * * * *

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

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

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), secs. 1301, 1306, and 1310 of the Public 
Health Service Act (42 U.S.C. 300e, 300e-5, and 300e-9), and 31 
U.S.C. 9701.

[[Page 65682]]

Subpart L--Medicare Contract Requirements

    6. In Sec.  417.479, paragraph (h)(1) and the heading of paragraph 
(h)(2) are revised and paragraph (h)(2) introductory text is added to 
read as follows:


Sec.  417.479  Requirements for physician incentive plans.

* * * * *
    (h) Disclosure requirements for organizations with physician 
incentive plans. (1) Disclosure to CMS. Each HMO must provide to CMS 
information concerning its physician incentive plans as requested.
    (2) Disclosure to Medicare beneficiaries. An HMO must provide the 
following information to any Medicare beneficiary who requests it:
* * * * *

PART 422--MEDICARE+CHOICE PROGRAM

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

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

Subpart A--General Provisions

    8. In Sec.  422.2, the introductory text is republished, and the 
definition of Additional benefits is revised to read as follows:


Sec.  422.2  Definitions.

    As used in this part--
* * * * *
    Additional benefits are health care services not covered by 
Medicare, reductions in premiums or cost-sharing for Medicare covered 
services, and reductions in the Medicare beneficiary's standard Part B 
premium, funded from adjusted excess amounts as calculated in the ACR.
* * * * *

Subpart B--Eligibility, Election, and Enrollment

    9. In Sec.  422.50, paragraph (a)(2) is revised to read as follows:


Sec.  422.50  Eligibility to elect an M+C plan.

    (a) * * *
    (2) Has not been medically determined to have end-stage renal 
disease, except that--
    (i) An individual who develops end-stage renal disease while 
enrolled in an M+C plan or in a health plan offered by the M+C 
organization is eligible to elect an M+C plan offered by that 
organization; and
    (ii) An individual with end-stage renal disease whose enrollment in 
an M+C plan was terminated or discontinued after December 31, 1998, 
because CMS or the M+C organization terminated the M+C organization's 
contract for the plan or discontinued the plan in the area in which the 
individual resides, is eligible to elect another M+C plan.
    (iii) An individual who elects an M+C plan under paragraph 
(a)(2)(ii) of this section may elect another M+C plan if the plan 
elected under paragraph (a)(2)(ii) of this section also is terminated 
or discontinued in the area in which the individual resides.
* * * * *
    10. In Sec.  422.74, the following changes are made to read as set 
forth below:
    A. Paragraph (d)(1)(ii) is revised.
    B. Paragraph (d)(4) is revised.


Sec.  422.74  Disenrollment by the M+C organization.

* * * * *
    (d) * * *
    (1) * * *
    (ii) The M+C organization only disenrolls a Medicare enrollee when 
the organization has not received payment within 90 days after the date 
the premium was due.
* * * * *
    (4) Individual no longer resides in the M+C plan's service area.
    (i) Basis for disenrollment. Unless continuation of enrollment is 
elected under Sec.  422.54, the M+C organization must disenroll an 
individual if the M+C organization establishes, on the basis of a 
written statement from the individual or other evidence acceptable to 
CMS that the individual has permanently moved--
    (A) Out of the M+C plan's service area; or
    (B) From the residence in which the individual resided at the time 
of enrollment in the M+C plan to an area outside the M+C plan's service 
area, for those individuals who enrolled in the M+C plan under the 
eligibility requirements at Sec.  422.50(a)(3)(ii) or (a)(4).
    (ii) Special rule. If the individual has not moved from the M+C 
plan's service area (or residence, as described in paragraph 
(d)(4)(i)(B) of this section), but has left the service area (or 
residence) for more than 6 months, the M+C organization must disenroll 
the individual from the plan, unless the exception in paragraph 
(d)(4)(iii) of this section applies.
    (iii) Exception. If the M+C plan covers services other than 
emergent, urgent, maintenance and poststabilization, and renal dialysis 
services (as described in Sec. Sec.  422.100(b)(1)(iv) and 422.113) 
when the individual is out of the service area for a period of 
consecutive days longer than 6 months but less than 12 months, but 
within the United States (as defined in Sec.  400.200 of this chapter), 
the M+C organization may elect to offer to the individual the option of 
remaining enrolled in the M+C plan if--
    (A) The individual is disenrolled on the first day of the 13th 
month after the individual left the service area (or residence, if 
paragraph (d)(4)(i)(B) of this section applies);
    (B) The individual understands and accepts any restrictions imposed 
by the M+C plan on obtaining these services while absent from the M+C 
plan's service area for the extended period; and
    (C) The M+C organization makes this option available to all 
Medicare enrollees who are absent for an extended period from the M+C 
plan's service area. However, M+C organizations may limit this option 
to enrollees who travel to certain areas, as defined by the M+C 
organization, and who receive services from qualified providers who 
directly provide, arrange for, or pay for health care.
* * * * *

Subpart C--Benefits and Beneficiary Protections

    11. In Sec.  422.101, the following changes are made to read as 
follows:
    A. Paragraph (b)(3) is revised.
    B. Paragraph (c) is added.


Sec.  422.101  Requirements relating to basic benefits.

* * * * *
    (b) * * *
    (3) Written coverage decisions of local carriers and intermediaries 
with jurisdiction for claims in the geographic area in which services 
are covered under the M+C plan, except that M+C plans that cover areas 
encompassing more than one local coverage policy area may elect to have 
the local coverage decisions for the part of the area that is the most 
beneficial to the M+C enrollees apply with respect to all M+C enrollees 
in the plan. M+C plans that elect this option must consult with CMS 
prior to selecting the area that has local coverage policies that are 
most beneficial to M+C enrollees.
    (c) M+C organizations may elect to furnish, as part of their 
Medicare covered benefits, coverage of posthospital SNF care as 
described in subparts C and D of this part, in the absence of the prior 
qualifying hospital stay that would otherwise be required for coverage 
of this care.

[[Page 65683]]

    12. In Sec.  422.106, the following changes are made to read as 
follows:
    A. The section heading is revised.
    B. Paragraphs (a) introductory text, (a)(1) and (a)(2) are revised.
    C. Paragraph (b) introductory text is revised.
    D. A new paragraph (c) is added.


Sec.  422.106  Coordination of benefits with employer or union group 
health plans and Medicaid.

    (a) General rule. If an M+C organization contracts with an 
employer, labor organization, or the trustees of a fund established by 
one or more employers or labor organizations that cover enrollees in an 
M+C plan, or contracts with a State Medicaid agency to provide Medicaid 
benefits to individuals who are eligible for both Medicare and 
Medicaid, and who are enrolled in an M+C plan, the enrollees must be 
provided the same benefits as all other enrollees in the M+C plan, with 
the employer, labor organization, fund trustees, or Medicaid benefits 
supplementing the M+C plan benefits. Jurisdiction regulating benefits 
under these circumstances is as follows:
    (1) All requirements of this part that apply to the M+C program 
apply to the M+C plan coverage provided to enrollees eligible for 
benefits under an employer, labor organization, trustees of a fund 
established by one or more employers or labor organizations, or 
Medicaid contract.
    (2) Employer benefits that complement an M+C plan, and the 
marketing materials associated with the benefits, are not subject to 
review or approval by CMS. M+C plan benefits provided to enrollees of 
the employer, labor organization, or trustees of the fund established 
to furnish benefits, and the associated marketing materials, are 
subject to CMS review and approval.
    (3) * * *
    (b) Examples. Permissible employer, labor organization, benefit 
fund trustee, or Medicaid plan benefits include the following:
* * * * *
    (c) Waiver or modification. (1) M+C organizations may request, in 
writing, from CMS, a waiver or modification of those requirements in 
this part that hinder the design of, the offering of, or the enrollment 
in, M+C plans under contracts between M+C organizations and employers, 
labor organizations, or the trustees of funds established by one or 
more employers or labor organizations to furnish benefits to the 
entity's employees, former employees, or members or former members of 
the labor organizations.
    (2) Approved waivers or modifications under this paragraph may be 
used by any M+C organization in developing its Adjusted Community Rate 
Proposal (ACRP). Any M+C organization using a waiver or modification 
must include that information in the cover letter of its ACRP 
submission.
    13. Section 422.109 is revised to read as follows:


Sec.  422.109  Effect of national coverage determinations (NCDs) and 
legislative changes in benefits.

    (a) Definitions. The term significant cost, as it relates to a 
particular NCD or legislative change in benefits, means either of the 
following:
    (1) The average cost of furnishing a single service exceeds a cost 
threshold that--
    (i) For calendar years 1998 and 1999, is $100,000; and
    (ii) For calendar year 2000 and subsequent calendar years, is the 
preceding year's dollar threshold adjusted to reflect the national per 
capita growth percentage described in Sec.  422.254(b).
    (2) The estimated cost of all Medicare services furnished as a 
result of a particular NCD or legislative change in benefits represents 
at least 0.1 percent of the national standardized annual capitation 
rate, as described in Sec.  422.254(f), multiplied by the total number 
of Medicare beneficiaries for the applicable calendar year.
    (b) General rule. If CMS determines and announces that an NCD or 
legislative change in benefits meets the criteria for significant cost 
described in paragraph (a) of this section, an M+C organization is not 
required to assume risk for the costs of that service or benefit until 
the contract year for which payments are appropriately adjusted to take 
into account the cost of the NCD service or legislative change in 
benefits.
    (c) Before payment adjustments become effective. Before the 
contract year that payment adjustments that take into account the 
significant cost of the NCD service or legislative change in benefits 
become effective, the service or benefit is not included in the M+C 
organization's contract with CMS, and is not a covered benefit under 
the contract. The following rules apply to these services or benefits:
    (1) Medicare payment for the service or benefit is made directly by 
the fiscal intermediary and carrier to the provider furnishing the 
service or benefit in accordance with original Medicare payment rules, 
methods, and requirements.
    (2) Costs for NCD services or legislative changes in benefits for 
which CMS intermediaries and carriers will not make payment and are the 
responsibility of the M+C organization are--
    (i) Services necessary to diagnose a condition covered by the NCD 
or legislative changes in benefits;
    (ii) Most services furnished as follow-up care to the NCD service 
or legislative change in benefits;
    (iii) Any service that is already a Medicare-covered service and 
included in the annual M+C capitation rate or previously adjusted 
payments; and
    (iv) Any service, including the costs of the NCD service or 
legislative change in benefits, to the extent the M+C organization is 
already obligated to cover it as an additional benefit under Sec.  
422.312 or supplemental benefit under Sec.  422.102.
    (3) Costs for NCD services or legislative changes in benefits for 
which CMS fiscal intermediaries and carriers will make payment are--
    (i) Costs relating directly to the provision of services related to 
the NCD or legislative change in benefits that were noncovered services 
before the issuance of the NCD or legislative change in benefits; and
    (ii) A service that is not included in the M+C capitation payment 
rate.
    (4) Beneficiaries are liable for any applicable coinsurance and 
deductible amounts.
    (d) After payment adjustments become effective. For the contract 
year in which payment adjustments that take into account the 
significant cost of the NCD service or legislative change in benefits 
are in effect, the service or benefit is included in the M+C 
organization's contract with CMS, and is a covered benefit under the 
contract. Subject to all applicable rules under this part, the M+C 
organization must furnish, arrange, or pay for the NCD service or 
legislative change in benefits. M+C organizations may establish 
separate plan rules for these services and benefits, subject to CMS 
review and approval. CMS may, at its discretion, issue overriding 
instructions limiting or revising the M+C plan rules, depending on the 
specific NCD or legislative change in benefits. For these services or 
benefits, the Medicare enrollee will be responsible for M+C plan cost 
sharing, as approved by CMS or unless otherwise instructed by CMS.
    14. In Sec.  422.111, a new paragraph (f)(8)(iii) is added to read 
as follows:


Sec.  422.111  Disclosure requirements.

* * * * *
    (f) * * *

[[Page 65684]]

    (8) * * *
    (iii) The reduction in Part B premiums, if any.
* * * * *
    15. A new Sec.  422.133 is added to subpart C to read as follows:


Sec.  422.133  Return to home skilled nursing facility.

    (a) General rule. Beginning with contracts entered into or renewed 
on or after December 20, 2000, M+C plans must provide coverage of 
posthospital extended care services to Medicare enrollees through a 
home skilled nursing facility if the enrollee elects to receive the 
coverage through the home skilled nursing facility, and if the home 
skilled nursing facility either has a contract with the M+C 
organization or agrees to accept substantially similar payment under 
the same terms and conditions that apply to similar skilled nursing 
facilities that contract with the M+C organization.
    (b) Definitions. In this subpart, home skilled nursing facility 
means--
    (1) The skilled nursing facility in which the enrollee resided at 
the time of admission to the hospital preceding the receipt of 
posthospital extended care services;
    (2) A skilled nursing facility that is providing posthospital 
extended care services through a continuing care retirement community 
in which the M+C plan enrollee was a resident at the time of admission 
to the hospital. A continuing care retirement community is an 
arrangement under which housing and health-related services are 
provided (or arranged) through an organization for the enrollee under 
an agreement that is effective for the life of the enrollee or for a 
specified period; or
    (3) The skilled nursing facility in which the spouse of the 
enrollee is residing at the time of discharge from the hospital.
    (c) Coverage no less favorable. The posthospital extended care 
scope of services, cost-sharing, and access to coverage provided by the 
home skilled nursing facility must be no less favorable to the enrollee 
than posthospital extended care services coverage that would be 
provided to the enrollee by a skilled nursing facility that would be 
otherwise covered under the M+C plan.
    (d) Exceptions. The requirement to allow an M+C plan enrollee to 
elect to return to the home skilled nursing facility for posthospital 
extended care services after discharge from the hospital does not do 
the following:
    (1) Require coverage through a skilled nursing facility that is not 
otherwise qualified to provide benefits under Part A for Medicare 
beneficiaries not enrolled in the M+C plan.
    (2) Prevent a skilled nursing facility from refusing to accept, or 
imposing conditions on the acceptance of, an enrollee for the receipt 
of posthospital extended care services.

Subpart E--Relationships with Providers

    16. In Sec.  422.210 paragraph (a) and the introductory text to 
paragraph (b) are revised to read as follows:


Sec.  422.210  Disclosure of physician incentive plans.

    (a) Disclosure to CMS. Each M+C organization must provide to CMS 
information concerning its physician incentive plans as requested.
    (b) Disclosure to Medicare beneficiaries. Each M+C organization 
must provide the following information to any Medicare beneficiary who 
requests it:
* * * * *

Subpart F--Payments to Medicare+Choice Organizations

    17. In Sec.  422.250, the following changes are made to read as 
follows:
    A. Paragraph (a)(1) is revised.
    B. Paragraph (a)(2)(i)(B) is redesignated as (a)(2)(i)(C).
    C. A new paragraph (a)(2)(i)(B) is added.


Sec.  422.250  General provisions.

    (a) Monthly payments--(1) General rule.
    (i) Except as provided in paragraphs (a)(2) or (f) of this section, 
CMS makes advance monthly payments equal to \1/12\th of the annual M+C 
capitation rate for the payment area described in paragraph (c) of this 
section adjusted for such demographic risk factors as an individual's 
age, disability status, sex, institutional status, and other factors as 
it determines to be appropriate to ensure actuarial equivalence.
    (ii) Effective January 1, 2000, CMS adjusts for health status as 
provided in Sec.  422.256(c). When the new risk adjustment is 
implemented, 1/12th of the annual capitation rate for the payment area 
described in paragraph (c) of this section will be adjusted by the risk 
adjustment methodology under Sec.  422.256(d).
    (iii) Effective January 1, 2003, monthly payments may be reduced by 
the adjusted excess amount, as described in Sec.  422.312(a)(2), and 80 
percent of the reduction in monthly payments used to reduce the 
Medicare beneficiary's Part B premium, up to a total of 125 percent of 
Part B premium amount.
    (2) * * *
    (i) * * *
    (B) CMS applies appropriate adjustments when establishing the 
rates, including risk adjustment factors. CMS also establishes annual 
changes in capitation rates using the methodology described in Sec.  
422.252. For 2002, a special adjustment is made to increase ESRD rates 
to 100 percent of estimated per capita fee-for-service expenditures and 
rates are adjusted for age and sex. In subsequent years, rates are 
adjusted for age, sex, and other factors, if appropriate.
* * * * *
    18. In Sec.  422.256, paragraph (b) is revised to read as follows:


Sec.  422.256  Adjustments to capitation rates and aggregate payments.

* * * * *
    (b) Adjustment for national coverage determination (NCD) services 
and legislative changes in benefits. If CMS determines that the cost of 
furnishing an NCD service or legislative change in benefits is 
significant, as defined in Sec.  422.109, CMS adjusts capitation rates 
or makes other payment adjustments for the next calendar year to take 
account of the new service or benefit. The change in payment amounts is 
based on an analysis by the CMS chief actuary of the costs associated 
with the NCD or legislative change in benefits. CMS will pay or arrange 
for payment of these additional costs until the adjusted payments are 
in effect.
* * * * *
    19. In Sec.  422.266, the following changes are made to read as 
follows:
    A. Paragraph (a) introductory text is revised.
    B. Paragraph (c) is revised.


Sec.  422.266  Special rules for hospice care.

    (a) Information. An M+C organization that has a contract under 
subpart K of this part must inform each Medicare enrollee eligible to 
select hospice care under Sec.  418.24 of this chapter about the 
availability of hospice care (in a manner that objectively presents all 
available hospice providers, including a statement of any ownership 
interest in a hospice held by the M+C organization or a related entity) 
if--
* * * * *
    (c) Payment. (1) No payment is made to an M+C organization on 
behalf of a Medicare enrollee who has elected hospice care under Sec.  
418.24 of this chapter except for the portion of the payment applicable 
to the additional benefits described in Sec.  422.312. This no-payment 
rule is effective from the first day of the month following the month 
of election to receive hospice care, until

[[Page 65685]]

the first day of the month following the month in which the election is 
terminated.
    (2) During the time the hospice election is in effect, CMS's 
monthly capitation payment to the M+C organization is reduced to an 
amount equal to the adjusted excess amount determined under Sec.  
422.312. In addition, CMS pays through the original Medicare program 
(subject to the usual rules of payment)--
    (i) The hospice program for hospice care furnished to the Medicare 
enrollee; and
    (ii) The M+C organization, provider, or supplier for other 
Medicare-covered services to the enrollee.

Subpart G--Premiums and Cost-Sharing

    20. In Sec.  422.312, the following changes are made to read as 
follows:
    A. Paragraph (d) is redesignated as paragraph (e).
    B. A new paragraph (d) is added.


Sec.  422.312  Requirement for additional benefits.

* * * * *
    (d) Reduction in payments. Beginning January 1, 2003, as a part of 
providing additional benefits under paragraph (b) of this section, if 
there is an adjusted excess amount for the plan it offers, the M+C 
organization--
    (1) May elect to receive a reduction (not to exceed 125 percent of 
the standard Part B premium amount) in its payments under Sec.  
422.250(a)(1), 80 percent of which will be applied to reduce the Part B 
premiums of its Medicare enrollees; and
    (2) Must apply the reduction uniformly to all similarly situated 
enrollees of the M+C plan.
* * * * *

Subpart K--Contracts with Medicare+Choice Organizations

    21. A new Sec.  422.521 is added as set forth below:


Sec.  422.521  Effective date of new significant regulatory 
requirements.

    CMS will not implement, other than at the beginning of a calendar 
year, regulations under this part that impose a new significant cost or 
burden on M+C organizations or plans, unless a different effective date 
is required by statute.

Subpart M--Grievances, Organization Determinations and Appeals

    22. In Sec.  422.566, paragraph (c) is revised to read as set forth 
below:


Sec.  422.566  Organization determinations.

* * * * *
    (c) Who can request an organization determination. (1) Those 
individuals or entities who can request an organization determination 
are--
    (i) The enrollee (including his or her authorized representative);
    (ii) Any provider that furnishes, or intends to furnish, services 
to the enrollee; or
    (iii) The legal representative of a deceased enrollee's estate.
    (2) Those who can request an expedited determination are--
    (i) An enrollee (including his or her authorized representative); 
or
    (ii) A physician (regardless of whether the physician is affiliated 
with the M+C organization).
    23. In Sec.  422.618, paragraph (c) is revised to read as set forth 
below:


Sec.  422.618  How an M+C organization must effectuate standard 
reconsidered determinations or decisions.

* * * * *
    (c) Reversals other than by the M+C organization or the independent 
outside entity. (1) General rule. If the independent outside entity's 
determination is reversed in whole or in part by the ALJ, or at a 
higher level of appeal, the M+C organization must pay for, authorize, 
or provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 60 calendar days from the 
date it receives notice reversing the determination. The M+C 
organization must inform the independent outside entity that the 
organization has effectuated the decision or that it has appealed the 
decision.
    (2) Effectuation exception when the M+C organization files an 
appeal with the Departmental Appeals Board. If the M+C organization 
requests Departmental Appeals Board (the Board) review consistent with 
Sec.  422.608, the M+C organization may await the outcome of the review 
before it pays for, authorizes, or provides the service under dispute. 
An M+C organization that files an appeal with the Board must 
concurrently send a copy of its appeal request and any accompanying 
documents to the enrollee and must notify the independent outside 
entity that it has requested an appeal.
    24. In Sec.  422.619, paragraph (c) is revised to read as set forth 
below:


Sec.  422.619  How an M+C organization must effectuate expedited 
reconsidered determinations.

* * * * *
    (c) Reversals other than by the M+C organization or the independent 
outside entity. (1) General rule. If the independent outside entity's 
expedited determination is reversed in whole or in part by the ALJ, or 
at a higher level of appeal, the M+C organization must authorize or 
provide the service under dispute as expeditiously as the enrollee's 
health condition requires, but no later than 60 days from the date it 
receives notice reversing the determination. The M+C organization must 
inform the independent outside entity that the organization has 
effectuated the decision.
    (2) Effectuation exception when the M+C organization files an 
appeal with the Departmental Appeals Board. If the M+C organization 
requests Departmental Appeals Board (the Board) review consistent with 
Sec.  422.608, the M+C organization may await the outcome of the review 
before it authorizes or provides the service under dispute. An M+C 
organization that files an appeal with the Board must concurrently send 
a copy of its appeal request and any accompanying documents to the 
enrollee and must notify the independent outside entity that it has 
requested an appeal.

Subpart O--Intermediate Sanctions

    25. In Sec.  422.758, the following changes are made to read as set 
forth below:
    A. The introductory text is designated as paragraph (a).
    B. Paragraph (a) is redesignated as paragraph (a)(1).
    C. Paragraph (b) is redesignated as paragraph (a)(2).
    D. A new paragraph (b) is added.


Sec.  422.758  Maximum amount of civil money penalties imposed by CMS.

* * * * *
    (b) If CMS makes a determination under Sec. Sec.  422.752(b) and 
422.756(f)(3), based on a determination under Sec.  422.510(a)(1) that 
an M+C organization has terminated its contract with CMS in a manner 
other than described under Sec.  422.512--$250 per Medicare enrollee 
from the terminated M+C plan or plans at the time the M+C organization 
terminated its contract, or $100,000, whichever is greater.

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


[[Page 65686]]


    Dated: July 16, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.


    Dated: July 17, 2002.
Tommy G. Thompson,
Secretary.
[FR Doc. 02-27142 Filed 10-24-02; 8:45 am]
BILLING CODE 4120-01-P