[Federal Register Volume 68, Number 40 (Friday, February 28, 2003)]
[Notices]
[Pages 9673-9680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3879]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-5002-N]
RIN 0938-ZA39


Medicare Program; Demonstration: Capitated Disease Management for 
Beneficiaries With Chronic Illnesses

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

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This notice informs interested parties of an opportunity to 
apply for a cooperative agreement to participate in a Capitated Disease 
Management Demonstration. This demonstration uses disease management 
interventions and payment for services based on full capitation (with 
risk sharing options) to (1) improve the quality of services furnished 
to specific eligible beneficiaries, including dual eligibles and the 
frail elderly, and (2) manage expenditures under Parts A and B of the 
Medicare program. We are interested in testing models aimed at 
beneficiaries who have one or more chronic conditions that are related 
to high costs to the Medicare program, such as stroke, congestive heart 
failure, or diabetes. We intend to use a competitive application 
process to select organizations to participate in this demonstration.

DATES: Applications will be considered timely if we receive them on or 
before May 29, 2003.

ADDRESSES: Mail applications to: Department of Health and Human 
Services, Centers for Medicare & Medicaid Services, Office of Research 
Development and Information, Demonstration Program staff, Attn: Raymond 
Wedgeworth, Mail Stop: C4-17-27, 7500 Security Boulevard, Baltimore, 
Maryland 21244. Applications must be typed for clarity and should not 
exceed 40 double-spaced pages, exclusive of the executive summary, 
resumes, forms, and documentation supporting the cost proposal. Because 
of staffing and resource limitations, we cannot accept applications by 
facsimile (FAX) transmission. Applications postmarked after the closing 
date, or postmarked on or before the closing date but not received in 
time for panel review, will be considered late applications.

FOR FURTHER INFORMATION CONTACT: For information concerning this 
demonstration, contact Raymond Wedgeworth, CMS Project Officer, at 
(410) 786-6676, or [email protected].

SUPPLEMENTARY INFORMATION:

Eligible Organizations

    Potentially qualified applicants are provider sponsored 
organizations, academic medical centers, Medicare+Choice organizations, 
or disease management companies, who can demonstrate ability to 
effectively supply disease management services applicable to the 
Medicare population, which may include dual eligibles and frail 
elderly, specific to select chronic conditions.

Administrator Initiative

    The clearest statement of the Administration's priorities for 
Medicare is found in the White House document, ``21st Century 
Medicare,'' issued on July 12, 2001. In that document, the 
Administration made a series of proposals for modernizing Medicare 
benefits so that they would better meet the needs of its beneficiaries. 
One of the important proposals in the document is to improve the 
current limits of the program on innovative treatment. The report notes 
that ``Medicare's traditional approach to paying only for discrete 
visits and services has denied many seniors the opportunity to take 
advantage of the advances that have been pioneered by integrated health 
delivery in coordinating care for complex conditions and chronic 
diseases. These programs can lead to better health outcomes and reduce 
total medical costs by avoiding complications.''
    In line with the above goals, the Administration is undertaking a 
series of disease management demonstration projects to explore a 
variety of ways to improve beneficiary care in the traditional Medicare 
plan. These demonstrations provide beneficiaries with greater choices, 
enhance the quality of their care, and offer better

[[Page 9674]]

value for the dollars spent on health care.
    The purpose of this demonstration is to test capitated payment 
arrangements with qualified organizations for the case management of 
specific diseases. The targeted populations include Medicare 
beneficiaries with chronic illnesses and special populations, such as 
dual eligibles and frail elderly. The payment models employed are 
intended to reduce costs and improve the coordination and quality of 
care for Medicare beneficiaries with select chronic diseases. In 
addition, the models may be applied to organizations that target dual 
eligibles or the frail elderly. Specifically, we will pay predetermined 
rates for each month for which an individual chooses to receive disease 
management services under this demonstration, according to a disease-
specific risk adjustment approach currently being developed. (Disease 
specific risk adjusters are being developed as part of the model for 
M+C Risk adjustment. The legislative mandate for implementation of the 
risk adjustment model is January 1, 2004 for all plans. This risk 
adjuster, which will factor a greater number of comorbidities into the 
payment, is to be announced March 2003.)
    There will also be a risk sharing option available (that is, a 
symmetrical risk sharing on profit and losses around a Medical-Loss-
Ratio).
    In exchange for the capitation amount, the applicant would be 
required to cover all Medicare-covered services for an individual 
participating in the demonstration, in addition to the disease 
management services. The applicant would be required to make such 
services available to beneficiaries participating in the demonstration, 
either directly or through arrangements with other Medicare-certified 
providers. Medicare beneficiaries participating in this demonstration 
would be informed that it is a condition of such participation that 
they receive services through the provider of disease management that 
has received a payment on behalf of the participant. For non-M+C 
organizations, only traditional Medicare fee-for-service (FFS) 
beneficiaries are eligible to participate in the demonstration. The 
intent of the demonstration is to attract traditional Medicare FFS 
beneficiaries, however, we will consider, on a case-by-case basis, 
allowing M+C organizations to market the demonstration to their current 
M+C beneficiaries and permit participation in the demonstration by one 
M+C beneficiary for every 2 traditional Medicare FFS beneficiaries they 
get to participate. Current M+C beneficiaries would have to disenroll 
from their current M+C plan in order to participate in the 
demonstration. Organizations allowed to sign up current M+C beneficiary 
who disenrolled from an M+C plan to participate in the demonstration 
would have to agree to the monitoring of their Medical-Loss-Ratio 
(MLR).
    The capitated payment method will require the collection and 
submission of simplified encounter data. The demonstration will use the 
Group Health Plan Payment System to pay the sites.
    Under this demonstration, selected organizations would provide the 
clinical management of patients with high cost diagnoses such as 
stroke, congestive heart failure, and diabetes. (Applicants may propose 
a project that seeks to intervene with disease management services for 
Medicare eligible beneficiaries who have the potential for renal 
failure but who are not yet in dialysis. Randomization may be required 
for a proposal with this model.) The demonstration would be especially 
appropriate for provider sponsored organizations (PSOs), but is also 
open to other types of organizations such as disease management 
organizations, academic medical centers (AMCs) or M+C organizations. By 
targeting or encouraging the formation of integrated delivery systems 
and paying a single risk payment rather than reimbursing services on a 
fee-for-service basis, we hope to improve communication and 
coordination of services between patient, physician, disease management 
organizations, and other providers.

I. Background

A. Legislative Background

    Section 402(a)(1)(A) of the Social Security Amendments of 1967 
(Pub. L. 90-248), 42 U.S.C. 1395b-1(a)(1)(A), authorizes the Secretary 
to develop and engage in demonstrations ``to determine whether, and if 
so which, changes in methods of payment or reimbursement * * * for 
health care and services under health programs established by the 
Social Security Act, including a change to methods based on negotiated 
rates, would have the effect of increasing efficiency and economy of 
health services under such programs through the creation of additional 
incentives to these ends without adversely affecting the quality of 
such services. * * *''
    Under section 402(b) of the Social Security Act Amendments of 1967, 
the Secretary is authorized to waive requirements in title XVIII that 
relate to reimbursement and payment in order to carry out 
demonstrations authorized under section 402(a) of the Social Security 
Act Amendments of 1967.
    Under this demonstration, we would use the authority in section 
402(b) to waive the ``fee-for-service'' (FFS) payment rules that would 
ordinarily apply to a beneficiary who has elected the ``Original 
Medicare plan'', and would substitute the methodology discussed in this 
notice, and agreed to in the demonstration contract.

B. Problem

    Historically, a small proportion of Medicare beneficiaries has 
accounted for a major proportion of Medicare expenditures. For example, 
in 1996, 12.1 percent of all Medicare enrollees accounted for 75.5 
percent ($126.1 billion) of all Medicare FFS program payments. Many of 
these high-cost beneficiaries are chronically ill with certain common 
diagnoses, and most of the Medicare expenditures for their care are for 
repeated hospitalizations. During the next 30 years, as the population 
ages, the number of individuals and estimated cost of care for these 
individuals are expected to grow dramatically.
    In addition, dual eligibles and special populations account for a 
large proportion of Medicaid and Medicare expenditures. The 1998 
Medicare Chart Book reported that in 1995, the 6 million dually 
eligible beneficiaries accounted for 30 percent Medicare spending, 
though they only represented 16 percent of the Medicare population. 
Moreover, the dually eligible accounted for 35 percent of Medicaid 
spending, though they only made up 17 percent of the Medicaid 
population.
    When services furnished to individuals with chronic illness are 
reimbursed on a FFS basis, health care has often been fragmented and 
poorly coordinated across multiple health care providers and multiple 
sites of care. Evidence-based practice guidelines have not always been 
followed, nor have patients always been taught how best to care for 
themselves. These shortcomings are particularly true for patients 
served under reimbursement systems in which providers lack incentives 
for controlling the frequency, mix, and intensity of services, and 
where they have limited accountability for the outcomes of care.
    Many M+C organizations and private insurers have realized the 
importance of effectively coordinating the care of services for persons 
with select chronic conditions. The quality of care, as well as the 
cost of care, can be improved through better integration of the 
delivery system. In order to create incentives to maintain costs, 
encourage the coordination of services, and

[[Page 9675]]

improve the quality of care, M+C and private insurers have developed 
alternative payment systems that put the provider of disease management 
organizations at full or partial risk for the cost of care.
    Concerning dual eligibles, integration across the continuum of 
primary, acute, and long-term care services for vulnerable populations 
has gained attention in recent years as an approach that could produce 
both cost efficiencies and more appropriate decisions on the settings 
in which care is delivered.

C. Disease Management

    The level of interest in and knowledge about disease management is 
growing dramatically. The Institute of Medicine's report, entitled 
``Crossing the Quality Chasm,'' highlights the challenge of managing 
chronic conditions within a system that was designed to treat acute 
illness. Major national organizations such as the Disease Management 
Association of America (DMAA) have been formed to advance the practice 
of disease management, and the National Committee for Quality Assurance 
(NCQA) has established standards for disease management programs.
    Early efforts at disease management occurred mainly in managed care 
settings, as the plan and the providers had clear incentives to manage 
care and the patients were enrolled and ``locked into'' a delivery 
system. More recently, a variety of health care organizations including 
physician group practices, private insurers, commercial firms, and 
academic medical centers, have developed programs designed to address 
the challenges inherent in managing chronic illnesses within the 
context of a FFS system oriented around episodic care. The most obvious 
of these systems are called PSOs.
    The NDMA, NCQA, and other organizations such as the National 
Pharmaceutical Council have put forward definitions of disease 
management that contain certain common elements. These definitions view 
disease management as an approach to delivering health care to persons 
with chronic illnesses that aims to improve patient outcomes while 
containing health care costs. These programs tend to target persons 
whose primary health problem is a specific disease, although certain 
comorbid conditions are usually addressed as well. Patients with a 
similar level of severity of a disease tend to face similar problems 
and therefore receive similar treatment plans. These disease management 
interventions tend to be highly structured and emphasize the use of 
standard protocols and clinical guidelines.
    Certain common features are found in all of these definitions:
    [sbull] Identification of patients and matching the intervention 
with need.
    [sbull] Use of evidence-based practice guidelines.
    [sbull] Supporting adherence to the plan of care.
    [sbull] Supporting adherence to evidence-based medical practice 
guidelines by providing medical treatment guidelines to physicians and 
other providers, reporting on the patient's progress in compliance with 
protocols, and providing support services to assist the physician in 
monitoring the patient.
    [sbull] Services designed to enhance patient self-management and 
adherence to their treatment plan. Examples of these services are 
patient education, monitoring and reminders, and behavior modification 
programs aimed at encouraging lifestyle changes.
    [sbull] Routine reporting/feedback loop (may include communication 
with patient, physician, health plan and ancillary providers, and 
practice profiling).
    [sbull] Communication and collaboration among providers and between 
the patient and providers. Related services include team conferences, 
collaborative practice patterns, and routine reporting and feedback 
loops. In addition, care managers are often used to relay communication 
and to coordinate care across providers and between face-to-face 
encounters with chronically ill patients. Programs that address 
comorbid conditions extend their communication efforts to include all 
of the patient's providers and the entire spectrum of care.
    [sbull] Collection and analysis of process and outcomes measures.
    In addition to these standard features, programs may include use of 
information technology such as specialized software, data registries, 
automated decision support tools, and callback systems. Although 
disease management services usually do not include actual treatment of 
the patient's condition, many disease management programs augment the 
services provided in the traditional FFS system by adding such services 
as comprehensive geriatric assessment, social services, preventive 
services, transportation, including prevention services and necessary 
prescription drugs and outpatient medications. The interventions 
provided go beyond those services generally covered under the Medicare 
FFS program.
    In our recent study aimed at investigating and benchmarking case 
management and disease management efforts, the suggestion was made that 
case and disease management organizations provide services aimed at 
addressing one or more of the following goals: improving patient self-
care, improving physician prescribing and treatment practices, 
improving communication and coordination, and arranging and providing 
for services. Programs vary in their relative focus on these areas. 
Some disease management programs may emphasize improving physician use 
of recommended clinical guidelines, others may focus on providing case 
managers to support and educate the patient and enhance communication, 
and others may emphasize access to additional services.

D. CMS Demonstrations of Management of Chronic Diseases

    We have made three awards pursuant to section 121 of the Medicare, 
Medicaid, and Benefits Improvement and Protection Act (BIPA)(Pub. L. 
106-554, enacted on December 21, 2000) that directs us to conduct a 
demonstration project for the Medicare FFS population to determine the 
impact on costs and health outcomes of applying disease management 
services. Demonstration sites plan to start enrollment in the spring of 
2003. Under this BIPA demonstration, services will be supplemented with 
coverage for prescription drugs provided to beneficiaries with 
advanced-stage congestive heart failure, diabetes, or coronary heart 
disease. A key feature of the demonstration is that the selected 
organizations must guarantee either through reinsurance or some other 
means, net savings to the Medicare program.
    In the past, we have conducted several demonstrations of case 
management for chronic illnesses, including the national channeling 
demonstration and the Alzheimer's Disease demonstration. The 
evaluations of these demonstrations found that none of them showed 
sufficient savings to cover the additional costs of case management.
    There are several possible reasons for the lack of positive 
results. First, the most appropriate individuals were not always 
targeted and enrolled into the demonstration. In many cases, the sites 
enrolled patients with less severe, and therefore less costly 
conditions, making it more difficult to achieve cost savings by 
avoiding normal utilization patterns of acute or long-term medical 
care. The disease management demonstration Web site www.cms.hhs.gov/healthplans/research/DMDemo.asp contains

[[Page 9676]]

additional information about these demonstrations.
    We are currently conducting other demonstrations that test either 
case or disease management. In one demonstration, Lovelace Health 
Systems in Albuquerque, New Mexico was chosen to operate demonstrations 
of intensive case management services for high-risk patients with 
congestive heart failure and diabetes to improve the clinical outcomes, 
quality of life, and satisfaction with services. The other is a larger 
scale demonstration involving 15 sites authorized by the Balanced 
Budget Act (BBA) of 1997 (Pub. L. 105-33, enacted on August 5, 1997) to 
evaluate methods such as case management and disease management that 
improve the quality of care for beneficiaries with a chronic illness. 
The coordinated care demonstration was designed based on the findings 
of a review of best practices for coordinating care in the private 
sector. More information about the Coordinated Care Demonstration can 
be found on our Web site www.cms.hhs.gov/healthplans/research/coorcare.asp.

E. The Capitated Disease Management Demonstration

    This demonstration will provide clinical management of--
    (1) Patients with high cost diagnoses such as stroke, congestive 
heart failure, and diabetes, (2) people who receive both Medicare and 
Medicaid, or (3) frail elderly patients that would benefit from a 
greater coordination of services. The project will allow us to build on 
the experiences of existing clinical disease management organizations. 
The delivery system will be targeted to PSOs but is open to other types 
of organizations such as disease management organizations, AMCs, or M+C 
organizations. Participation by qualified beneficiaries currently in 
the traditional fee-for-service Medicare program is the intended 
objective, however, we will consider allowing M+C organizations, on a 
case-by-case basis, to accept one M+C beneficiary for participation in 
the demonstration for every 2 traditional Medicare FFS beneficiaries 
that participate. Organizations allowed to accept a current M+C 
beneficiary (who must actively disenroll in the plan first) must allow 
the monitoring of their Medical-Loss-Ratio (MLR).
    In developing this demonstration, we reviewed the work and 
recommendations of organizations such as the NDMA and NCQA, and 
examined our prior and current experience with similar demonstrations.
    This demonstration differs from its predecessors in that the focus 
is on paying a risk adjusted capitated rate with negotiated risk 
sharing arrangements to qualified organizations in order to create 
incentives to improve the quality and coordination of care. Moreover, 
we will be using the recently developed risk-adjustment payment 
methodology that will apply to all M+C organizations beginning in 2004. 
It is a selected significant disease model, which includes many chronic 
illnesses that are relevant to predicting future expenditures.
    For the purpose of this demonstration, disease management is 
defined as a systematic approach to managing health care that aims to 
improve patient care, physician treatment practices, communication and 
coordination, and access to needed services, and incorporates the 
following features:

Eligible Population

    Beneficiary participation in this demonstration is strictly 
voluntary. Each beneficiary must be fully informed about the 
demonstration and must sign an informed consent form in order to 
participate. In addition to indicating informed consent, Medicare 
beneficiaries must satisfy the following conditions in order to be able 
to participate in the demonstration project:
Eligibility Criteria
    [sbull] Must be a Medicare beneficiary enrolled in Part A and Part 
B.
    [sbull] Medicare must be primary payer.
    [sbull] Must have a chronic disease, such as stroke, congestive 
heart failure, or diabetes (except for dual eligible or frail elderly).
    Medicare beneficiaries will be excluded from eligibility if they:
    [sbull] Are currently enrolled in a M+C plan; however, we will 
consider allowing M+C organizations to allow participation in the 
demonstration by one M+C beneficiary for every 2 traditional Medicare 
FFS beneficiaries.
    [sbull] Are receiving hospice or end stage renal disease benefits.
    [sbull] Are currently participating in another CMS demonstration.
    [sbull] Are unable to participate in self-care activities due to 
severe dementia or other serious mental illness.
Payment
    A contracting provider or provider organization will be paid for 
the services it provides to demonstration participants (without regard 
to the frequency and intensity of the services received by a given 
individual) on a monthly capitation basis. In exchange for this 
payment, the contractor would be responsible for furnishing or 
arranging for all covered Medicare Part A and Part B services. A 
listing of the beneficiaries who have elected to receive disease 
management services through the demonstration will be furnished to us 
on a monthly basis, which will be submitted to the Group Health Payment 
System to process payments for the services furnished to these 
beneficiaries.
    The capitated payment rate will be based on the higher of the rate 
paid under the M+C program or 99 percent of a county-level fee-for-
service base rate that will be calculated using a method developed by 
our Office of the Actuary. The payment rate will be fully risk adjusted 
using the new risk-adjustment methodology.
    In compliance with the legislative mandate in BIPA, we have 
announced a draft risk adjustment model that includes inpatient and 
ambulatory diagnosis data, which will be implemented in January 1, 
2004. The specific payment methodology will be announced in March 2003. 
We have chosen a selected significant disease model with approximately 
61 condition groups. This model incorporates multiple chronic diseases 
into the payment system. Although the new risk adjustment payment 
methodology will not be implemented for the M+C program until January 
2004, demonstration payment amounts will be calculated using the new 
risk-adjustment payment methodology, and will be fully risk adjusted, 
rather than being phased-in as is the case in the M+C program. (M+C 
organization payments are subject to the congressionally mandated 
phase-in of risk adjustment whereby only a portion of the payment is 
risk adjusted and the other portion of the payment is calculated using 
demographic factors. Under this demonstration, the payment amount will 
be fully risk adjusted.)
    The following example is for applicants to estimate risk scores 
based on the current model of the selected significant condition model. 
This example is for illustrative purposes only.
    Our example is a female, age 76, and she is Medicaid eligible. She 
has the following conditions:
    [sbull] Chronic obstructive pulmonary disease (COPD).
    [sbull] Congestive heart failure (CHF).
    Go to illustrative table found at www.cms.hhs.gov/healthplans/encounter/RAmodels.pdf for determining estimated payments. Use the 
draft coefficient under the ``61-condition'' model column to find 
estimates.
    Payment estimate = Female, age 76 ($2,500) + Medicaid ($1,000) + 
COPD

[[Page 9677]]

($2,000) + CHF ($2,300) + CHF*COPD Interaction ($1,400) = $9,200.
    In determining the risk score, notice that all the coefficients are 
added together (demographic characteristics and risk factors). Also, 
there is additional payment in the model for the interaction between 
COPD and CHF.
    The total predicted expenditures equal $9,200, which is divided by 
$5,300 to arrive at a 1.74 risk factor estimate. The $5,300 amount is 
average cost for a Medicare beneficiary in fee-for-service.
    An actual payment estimate requires a ratebook that is not 
available until May 2003. If that rate book were available, you would 
multiply the risk factor by the rescaled county capitation amounts for 
the enrollee (Part A and Part B amounts). For more information on this 
model go to www.cms.hhs.gov/healthplans/riskadj/.
    If the applicant is proposing risk sharing, the arrangement must be 
described in detail. The applicant should include examples that 
illustrate the risk sharing arrangement. The shared risk of gain and 
loss between us and the participating organization must be symmetrical, 
and the organization must always remain at significant financial risk.
    Because we intend to implement any approved demonstrations as soon 
as possible, we do not intend to make any significant changes to the 
payment system used under the M+C program, which would be used to make 
payments under this demonstration. Thus, we will use the same risk-
adjustment method developed for M+C plans to be used beginning in 
January 2004, except the payment amount will be fully risk-adjusted. 
The reporting systems used under the M+C data will also apply. If the 
applicant believes it is necessary to modify any aspects of the payment 
process, the application should request the modification and provide a 
detailed justification for the request.
Network
    Since the key to a successful disease management product is the 
composition of the provider network employed by the applicant, and the 
effectiveness of the network providers' care management, the applicant 
should describe the structure of the proposed network it would use, and 
the structure of its existing networks, to the extent applicable. If 
possible, the applicant should illustrate with a diagram the layering 
of networks (PSO, HMO, etc.) and describe the important differences in 
contracting provisions in each network. For the proposed capitated 
disease management demonstration, the applicant should describe which 
networks would be used, how existing networks would be modified for 
Medicare users, and if necessary, how existing networks will be 
expanded.
    As noted above, beneficiaries electing to receive case management 
through this demonstration would agree, as a condition for doing so, to 
receive services through the case management provider.
Claims Processing
    The application should contain a discussion of the methods for 
processing and paying claims in the demonstration, including in-network 
and out-of-network services. The applicant should indicate whether 
existing claims processing systems used in commercial business will be 
used or whether new systems must be developed for the Medicare 
demonstration.
    If there are any interface requirements for Medicare intermediaries 
and carriers, this should be noted and discussed. Estimates of effort 
required to establish payment protocols should also be included.
Budget Neutrality
    This demonstration must be budget neutral. This means that the 
expected costs that we incur under the demonstration can be no more 
than the expected costs were the demonstration not to occur. The 
applicant must submit a budget neutrality calculation in the 
application. Using the proposed payment methodology (including any risk 
sharing arrangements), the applicant should estimate our payments with 
and without the demonstration for each year of the demonstration. 
Applicants must use both FFS and M+C expenses calculated on a county 
basis for the without-demonstration baseline for comparison to the 
with-demonstration costs. The calculation should indicate how the 
estimates were derived. If risk sharing is proposed, there should be 
three calculations of budget neutrality--optimistic or best-case 
assumptions, expected or normal assumptions, and pessimistic or worst-
case assumptions. The risk-sharing proposal must include a 2 percent 
full-risk corridor above and below a targeted Medical-Loss-Ratio. In 
addition, prior to awards, CMS will work with applicants to determine 
whether the proposed Medical-Loss-Ratio is set at a level where the 
risk-sharing arrangement is projected to be budget neutral.
    The applicant should include a revenue and expense statement 
showing calendar year 2003 estimated per member per month Medicare 
revenue and member premium; benefit expenses (hospital inpatient, 
hospital outpatient, professional, other Medicare services, and non-
Medicare services); and administrative expense. The statement should 
show any copay credits for the various services.
    If risk sharing is proposed, we will share risk only on medical 
benefit expenses. Administrative expense must be reasonable and 
consistent with prior practices. The applicant should describe a 
reconciliation process to be used to determine savings or losses. The 
administrative cost will not be guaranteed and should be recovered from 
savings. A reconciliation based on the participating organizations' 
accumulated medical claims expenses must include an independent audit, 
funded by the organization, verifying the calculations.
Medigap Issues
    Many Medicare beneficiaries have health insurance that supplement 
Medicare, such as a Medicare supplement (Medigap) policy or coverage 
through an employer-sponsored group plan. Thus, to be enrolled in the 
demonstration, beneficiaries must be informed about supplemental health 
insurance, including Medigap policies and protections. With respect to 
Medigap policies, a beneficiary who enrolls in the demonstration would 
generally have the following protections:
    [sbull] Under section 1882(s)(3)(B)(iii) of the Social Security 
Act, if an individual is enrolled in an organization operating under 
demonstration project authority and enrollment ceases under the same 
circumstances that would permit an individual to disenroll from a 
Medicare+Choice plan as set forth in 1851(e)(4), (for example, contract 
termination, moving out of the service area), the individual has a 
right to purchase certain Medigap policies (generally Plan A, B, C, or 
F) on a guaranteed issue basis.
    [sbull] Under section 1882(s)(3)(B)(v) of the Social Security Act, 
if an individual has a Medigap policy and drops the Medigap policy to 
enroll, for the first time, in a M+C plan or any similar organization 
operating under demonstration project authority (emphasis added) and 
the beneficiary disenrolls during the first 12 months of such 
enrollment, the individual has the right to buy his or her former 
Medigap policy, if it is still available from the same insurance 
company. If the former policy is not still available, the individual 
has the right to buy Plan A, B, C, or F.

[[Page 9678]]

    While a beneficiary is free to keep his or her Medigap policy, 
there may be little benefit in doing so, as these policies are designed 
to complement payments under Original FFS Medicare payment rules.
State Insurance Commission Licensure
    Depending on the design of the demonstration, programs under this 
demonstration may be considered to fall within State laws regulating 
insurance, and State licensure thus may be required before an applicant 
can participate. The applicant should discuss State-licensing issues 
for the proposed demonstration site, and indicate any potential 
problems in obtaining the appropriate license to participate in the 
capitated disease management demonstration. If potential problems 
exist, there should be a discussion of methods for their resolution. 
The applicant should also discuss any other requirements from local 
jurisdictions that could impact on the implementation of the capitated 
disease management demonstration. We will work closely with 
organizations and their respective States to ensure that all of the 
State requirements are met before the demonstration is implemented.
Other Features
    Applicants will also be expected to follow additional features that 
include--(1) Identification and assessment of patients, and 
documentation of their decision to elect to receive disease management 
through the demonstration, following the rules that apply under the M+C 
program; (2) Implementation of an appropriate treatment plan based on 
clinical guidelines; (3) Monitoring, feedback, and communication 
concerning the patient's condition; and (4) Arranging for and/or 
providing needed services, including preventive services.

I. Provisions of This Notice

    This notice solicits applications for demonstration projects that 
use disease management to improve the quality of services furnished to 
specific beneficiaries and manage expenditures under Parts A and B of 
the Medicare program. Demonstration awardees will receive a capitated 
payment for all Medicare-covered services for beneficiaries with select 
diseases electing to receive disease management through the 
demonstration. The demonstration anticipates savings from more 
efficient provision and utilization of Medicare-covered services and 
the prevention of avoidable, costly medical complications. Applicants 
may propose to manage chronic conditions in which they have 
demonstrated expertise and ability.
    Through this solicitation, project awards will be made to qualified 
organizations. PSOs, M+C organizations, AMCs, or disease management 
companies, may propose one or multiple sites for any of their targeted 
diseases or for multiple diseases. The demonstration projects will 
operate for 3 years from implementation during which time a formal 
independent evaluation will be conducted. Each awardee is expected to 
fully cooperate in all phases of the evaluation. A project officer will 
be assigned to each selected project that will serve as the point of 
contact with the demonstration project staff. Our project officer will 
provide technical consultation regarding cooperative agreement 
procedures, monitor demonstration site activities, and forward feedback 
to the demonstration project's staff.

II. Requirements for Submissions

    We are seeking innovative proposals from qualified organizations 
that can test whether capitated models for disease management using a 
newly developed disease-specific risk-adjustment model will improve 
clinical outcomes and appropriate use of Medicare-covered services for 
targeted Medicare beneficiaries, while managing Medicare expenditures 
under Parts A and B to achieve reduced aggregate Medicare expenditures.
    Models that are targeted specifically at the traditional FFS 
Medicare population and that take into account the beneficiaries' 
relative health and functional status, age, mental functioning, and 
other relevant factors, are of particular interest. Preference will be 
given to proposals that focus on beneficiaries most likely to benefit 
from disease management interventions and that take patient 
comorbidities into account in the services provided.
    Applicants must submit their applications in the standard format 
outlined in CMS's Medicare Waiver Demonstration Application in order to 
be considered for review by the technical review panel. Applications 
not received in this format will not be considered for review.
    The Medicare Waiver Demonstration Application may be accessed at 
the following Internet address: http://www.cms.hhs.gov/healthplans/research. The application outlines all application requirements 
including the format and content requirements.

III. Evaluation Process and Criteria

    A panel of experts will conduct a review of responsive proposals. 
This technical review panel will convene in the months following the 
due date for submission of proposals. The panelists' recommendations 
will contain numerical ratings based on the evaluation criteria, the 
ranking of all responsive proposals, and a written assessment of each 
applicant. In addition, we will conduct a financial analysis of the 
recommended proposals and evaluate the proposed projects to ensure that 
aggregate Medicare program expenditures are reduced.

A. Evaluation Criteria and Weights

1. Statement of the Problem (5 Points)
    The proposal describes--
    [sbull] The population;
    [sbull] Patterns of health care;
    [sbull] Incidence of disease in the geographic area to be served by 
the disease management program;
    [sbull] Enhancements planned in the disease management program; and
    [sbull] Obstacles to providing disease management services.
2. Targeting the Appropriate Population (15 Points)
    [sbull] The proposal provides details on how the applicant plans to 
identify, recruit, and obtain participation by eligible Medicare 
beneficiaries into the demonstration.
    [sbull] The strategy and plan for recruiting the required number of 
patients in the control and experimental groups appear reasonable and 
achievable.
    [sbull] The applicant describes the process by which it will ensure 
that participation in the demonstration is voluntary, and the 
beneficiary is fully informed of all aspects of the demonstration. A 
draft consent form is included in the proposal and is sufficient. If 
applicable, the form should include, but not be limited to, information 
about the randomization process, and use of the patient's medical 
records (for example, for monitoring quality of care and for evaluating 
the demonstration project).
    [sbull] Applicant explicitly states how its referral sources will 
use common or readily available information, tests, or instruments to 
properly identify appropriate candidates before soliciting 
participation in the demonstration in order to reduce the incidence of 
beneficiary rejection due to ineligibility.
    [sbull] The applicant provides sufficient information on how many 
beneficiaries it expects to treat each year at each site.

[[Page 9679]]

3. Description of Disease Management Intervention Services (20 Points)
    [sbull] The proposal provides clear and convincing evidence and 
supporting materials that proposed disease management services are 
appropriate for the targeted population, likely to improve the quality 
of care for these individuals, and likely to result in savings from 
efficiencies in the use of medical services/products.
    [sbull] There are adequate mechanisms for ensuring the medical 
necessity and reasonableness of the disease management services 
furnished under the demonstration.
    [sbull] There are adequate mechanisms for ensuring that 
beneficiaries' physicians are integrated with the project.
    [sbull] The proposal provides sufficient detail on exactly how each 
service will be provided, the type and level of staff that will be 
providing the service, the proposed level of effort required, and a 
discussion of any special equipment, such as monitoring or electronic 
input devices.
    [sbull] The data to be collected, data sources, and data analyses 
planned are specified in detail and are sufficient to ensure optimal 
medical management and efficient use of health care services.
4. Organizational Capabilities (20 Points)
    [sbull] The proposal provides evidence of the availability and 
adequacy of the following components, which are necessary to ensure 
adequate service delivery and the provision of high quality of care:
    + Facilities.
    + Equipment.
    + Trained staff.
    + Clinical protocols to guide care delivery and management.
    + Linkages to providers and services necessary to deliver care.
    + Appropriate information systems including the ability to collect 
and submit data for risk adjustment.
    + Appropriate financial systems.
    [sbull] The proposal includes a detailed implementation plan 
describing tasks, time lines, and costs associated with implementing 
the demonstration program.
    [sbull] If any modifications to the applicant's current structure 
are proposed, they have been sufficiently described and justified. 
Modifications may involve protocols, services, outreach, education 
initiatives, timelines, etc.
    [sbull] The organizational and reporting structure of personnel are 
provided.
    [sbull] The application should contain a discussion of the methods 
for processing and paying claims in the demonstration, including in-
network and out-of-network services.
    [sbull] The application provides a detailed plan of all tasks 
necessary to implement the disease management project, a schedule with 
timelines for all essential tasks, a listing of key personnel for the 
project, including an overall point of contact for the demonstration, 
and a break out of the responsibilities for persons working on the 
project.
    [sbull] The applicant expresses willingness to cooperate in an 
independent formal evaluation of the demonstration, including 
submission of cost and other program data and site visits, conducted by 
us and/or our contractor.
    [sbull] The proposal does not include targeting or treatment 
protocols that are proprietary in nature, or, if proprietary protocols 
are included, the proposal clearly indicates the applicant's agreement 
to the following statement:
    ``At any phase in the project, including at the project's 
conclusion, the awardee if so requested by the project officer, must 
deliver to CMS materials, systems, or other items applied, developed, 
refined or enhanced in the course of or under the award to be used to 
further the purpose of this demonstration project. These materials, 
systems, or other items shall not be subject to use for any other 
purpose.''
5. Effectiveness of Intervention(s) (20 Points)
    [sbull] For existing disease management programs, the applicant 
demonstrates prior experience in operating successful disease 
management programs.
    [sbull] For existing disease management programs, the applicant 
shows evidence of positive outcomes from prior and current efforts. 
Claims of prior success must include definitions of the outcomes 
measures used, as well as explanations of the length of time over which 
they were measured and how the measures were calculated. Results from 
similar projects are cited.
    [sbull] The applicant expresses a willingness to work with us, the 
evaluation contractor, and the consortium of awardee sites to determine 
the specific data to be collected across sites for each disease 
category, as well as to develop consistent measurement strategies 
between sites.
    [sbull] The proposal provides convincing evidence that the 
intervention will likely increase the appropriate utilization of 
evidence-based and guideline-recommended therapies, as well as improve 
patient outcomes.
    [sbull] Existing information systems and/or proposed new data 
collection are adequate to meet the quality of care reporting 
requirements. Applicants should list data to be collected in 
demonstration.
    [sbull] The proposal reports strong, credible likelihood of savings 
and improved patient outcomes calculated from data collected during 
implementation of similar disease management interventions by the 
applicant.
6. Payment for Disease Management Services and Reduction of Medicare 
Expenditures (20 Points)
    [sbull] The proposal provides justification and explanation for the 
proposed payment methodology.
    [sbull] The proposal provides clear, convincing evidence that, over 
the three years of the demonstration, the aggregate Medicare 
expenditures under Parts A and B (including incentives and start-up 
funding, if made) will be less than expected Medicare expenditures in 
the absence of the demonstration.

B. Final Selection

    From among the most highly qualified applicants, the final 
selection of projects for the demonstration will be made by our 
Administrator and will take into consideration a number of factors, 
including operational feasibility, geographic location, and program 
priorities (such as testing a variety of approaches for delivering 
services, targeting beneficiaries, and payment). CMS reserves the right 
to determine the scope of the project, which includes limiting the 
number of awards and beneficiaries covered under the demonstration. In 
evaluating applications, we rely on our past experience with successful 
and unsuccessful demonstrations. We expect to make the awards in 2003.

IV. Collection of Information Requirements

    In compliance with the requirement of section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995, we are publishing the following 
summary of proposed collections for public comment. Interested persons 
are invited to send comments regarding this burden estimate or any 
other aspect of this collection of information, including any of the 
following subjects: (1) The necessity and utility of the proposed 
information collection for the proper performance of the agency's 
functions; (2) the accuracy of the estimated burden; (3) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (4) the use of automated collection techniques or other 
forms of information technology to

[[Page 9680]]

minimize the information collection burden. However, the collection 
requirements associated with this notice have been approved by OMB, 
under control number 0938-0880, with a current expiration date of 3/31/
2003.

    Authority: Section 402 of the Social Security Act Amendments of 
1967 (42 U.S.C. 1395b-1)

(Catalog of Federal Domestic Assistance Program No. 93.779, Health 
Care Financing Research, Demonstrations and Evaluations)

    Dated: September 9, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
[FR Doc. 03-3879 Filed 2-24-03; 8:45 am]
BILLING CODE 4120-01-P