[Federal Register Volume 68, Number 163 (Friday, August 22, 2003)]
[Rules and Regulations]
[Pages 50840-50859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20995]



[[Page 50839]]

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Part II





Department of Health and Human Services





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Centers for Medicare and Medicaid Services



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42 CFR Parts 409, 417, and 422



Medicare Pragram; Modifications to Managed Care Rules; Final Rule

  Federal Register / Vol. 68, No. 163 / Friday, August 22, 2003 / Rules 
and Regulations  

[[Page 50840]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 409, 417, and 422

[CMS-4041-F]
RIN 0938-AK71


Medicare Program; Modifications to Managed Care Rules

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

ACTION: Final rule.

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SUMMARY: This final rule responds to comments that we received on a 
proposed rule that was published in the Federal Register on October 25, 
2002. It implements certain provisions relating to the Medicare+Choice 
(M+C) program that were enacted in the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection (BIPA) Act of 2000. It also 
addresses comments on, and makes revisions to, regulations that were 
discussed in the October 2002 proposed rule that were based on M+C 
program experience and feedback from M+C organizations.

EFFECTIVE DATES: This final rule is effective on September 22, 2003.

FOR FURTHER INFORMATION CONTACT: Tony Hausner, (410) 786-1093.

SUPPLEMENTARY INFORMATION:

I. Background

A. Balanced Budget Act of 1997

    Section 4001 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-
33), added sections 1851 through 1859 to the Social Security Act (the 
Act) 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 original Medicare fee-for-service 
program or a 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. In 
a final rule that we published in the Federal Register on June 29, 2000 
(65 FR 40170), we invited comments on many of the BBRA amendments. We 
noted in the October 25, 2002, proposed rule that we would respond to 
the comments relating to these BBRA provisions in this final rule.
    We received comments from five organizations. Most of the comments 
were supportive of the changes brought about by the BBRA amendments and 
do not require our response. Most of the other comments addressed 
provisions other than the BBRA amendments. Rather they focused on the 
provisions of the final rules dealing with the BBA published on June 
29, 2000. The following discussion responds to the comments made on 
BBRA.
    Comment: Two major organizations commented on risk adjustment. One 
organization expressed concern that the collection of encounter data 
from physicians would be burdensome to physicians. A second 
organization indicated that they did not want to see a delay in 
implementation of the risk adjustment schedule as contained in BBRA.
    Response: Legislation has determined the specifics of the schedules 
that CMS has implemented as to risk adjustment and the collection of 
encounter data. 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 schedule 
was again modified in the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA). Other BBRA provisions 
were also changed by the BIPA.
    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 (the BIPA) (Pub. L. 106-554), enacted December 
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. We published a proposed rule in the Federal Register on October 
25, 2002 (67 FR 65672) that would revise M+C regulations to implement 
sections 605, 606, 611, 612, 615, 617, 620, 621, and 623 of the BIPA. 
In the October 2002 proposed rule, we also proposed modifying certain 
M+C regulatory provisions in response to program experience and 
feedback from M+C organizations.

D. Organization of the Preamble

    The discussion of various policy issues in this final rule 
corresponds with the discussion of regulatory revisions that were 
presented in the October 2002 proposed rule. For the convenience of the 
reader, the analysis of comments and our responses are integrated with 
the discussion of each issue.
    To accommodate the preamble's organization, we modified the 
numbering scheme accordingly. For example, roman numeral II is now 
Analysis of and Responses to Public Comments (instead of Provisions of 
this Proposed Rule), roman numeral III is Provisions of this Final 
Rule, and so forth.
    We have also included a new section (II-A-10) discussing the fact 
that this final rule makes revisions to the regulations text to reflect 
changes to the statute made by section 616, which focuses on 
eliminating health disparities in the M+C program. We have provided a 
good cause statement for the inclusion of these revisions in this final 
rule to waive the requirement for notice and comment. As in the case of 
the revisions to the regulations made in the final rule published on 
March 22, 2002, notice and comment are not necessary since these 
revisions have no legal effect. Rather, they simply amend the text of 
the regulations to reflect statutory provisions whose applicability is

[[Page 50841]]

unaffected by these changes in regulation text. Although we are still 
sorting through implementation issues associated with this provision, 
we wanted to ensure that Congressional intent on this issue is 
reflected in M+C regulations.
    In addition, we have made some minor revisions to Subpart O in an 
attempt to clarify information concerning our sanction authority. These 
changes do not add any new requirements, but serve to improve the 
regulatory language to more clearly affect the intent of the existing 
regulations (and statutory intent). We discuss these changes in the 
preamble and have modified the regulations accordingly.

II. Analysis of and Responses to Public Comments

    In addition to the Response to Comments made above in reference to 
the BBRA, we received 10 letters containing over 100 specific comments. 
Comment letters were received from trade associations that represent 
providers and consumers, managed care organizations, and one 
individual. Below is a list of the areas that generated the most 
concern.
    [sbull] Part 422 Subpart M--Grievances, Organization 
Determinations, and Appeals
    [sbull] Part 422 Subpart C--Benefits and Beneficiary Protections
    [sbull] Part 422 Subpart B--Eligibility, Election, and Enrollment
    [sbull] Part 417 Subpart L--Medicare Contract Requirements.

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

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 that 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) of the BIPA would be implemented consistent with section 605(b) 
of the BIPA (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 
foregoing process was separate from this rulemaking. In the October 
2002 proposed rule, however, we proposed revisions to Sec.  
422.250(a)(2)(i)(B) to reflect our approach to implementing the 
requirements of section 605(a) of the BIPA.
    The new ESRD payment methodology set forth in the final notice 
published on October 1, 2001--
    [sbull] Increased the ESRD base payment rate for CY 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.)
    Several organizations commented on the revision of Sec.  
422.250(a)(2)(i).
    Comment: Several commenters believe that the proposed revision to 
ESRD rates at Sec.  422.250(a)(2)(i) should include payments made by 
primary payers other than Medicare, such as employer group health plans 
or other insurers. Since the M+C ESRD rates include the costs of 
beneficiaries with Medicare as Secondary Payer (MSP) status but exclude 
payments made by other primary payers such as employer group health 
plans or other insurers, the M+C ESRD rates are artificially low and do 
not reflect the actual health care costs. Two commenters also contended 
that the proposed payment methodology appears to be contrary to the 
provisions set forth in section 605(a) of the BIPA, which requires us 
to ``provide for appropriate adjustments to the M+C ESRD payment rates 
* * * to reflect the demonstration rate of the social health 
maintenance organization ESRD capitation demonstration.'' These 
commenters refer to a statement in the proposed Notice that the 
Demonstration rates were about 20 percent over rates paid outside the 
Demonstration because beneficiaries with MSP were not allowed to enroll 
in the Demonstration. The commenters conclude that the revisions to the 
ESRD payment methodology will significantly decrease the payment rates 
for M+C ESRD enrollees.
    Response: As we stated in the October 1, 2001 final notice, we 
recognize that MSP for M+C ESRD enrollees is an issue. We noted that we 
would explore options within our payment system for addressing MSP 
status while proceeding to implement in CY 2002 the 3 percent base rate 
increase and the age and sex adjusters.
    The ESRD Demonstration did not allow ESRD beneficiaries with MSP to 
enroll, and thus these beneficiaries were excluded from calculation of 
Demonstration payment rates. We are unable to exclude from the M+C 
program any beneficiaries with MSP who develop ESRD. Thus, we had to 
find a way to adapt the ESRD demonstration methodology to this 
different population. The provision for ``adjustments'' to ``reflect'' 
the demonstration rates and methodology does not mean that we must 
necessarily pay the same amount where the applicable circumstances, in 
this case the presence of beneficiaries with MSP, are different.
    To assess whether the proposed M+C ESRD payment rates would 
increase or decrease payments to M+C organizations, the appropriate 
comparison would be M+C ESRD rates in effect prior to 2002, not the 
rates paid the ESRD Demonstration sites. The M+C

[[Page 50842]]

ESRD rates in effect prior to CY 2002 included the costs of 
beneficiaries with MSP, and we continued this approach. Two commenters 
are not correct in stating that the proposed M+C ESRD payment rates 
will significantly decrease payments to M+C organizations. In fact, the 
base rates were increased 3 percent under the method effective CY 2002. 
As we stated in the final notice, given current enrollment 
restrictions, we estimate that the age- and sex-adjusted average ESRD 
payment per beneficiary will result in a significant increase in 
payments to M+C organizations for their ESRD enrollees.
    Accordingly, we are retaining the language we proposed which 
reflects the methodology we adopted through the 2001 notice process.
2. Permitting Premium Reductions as Additional Benefits Under 
Medicare+Choice Plans
    Section 606 of the BIPA amended section 1854(f)(1) of the Act to 
permit M+C organizations to elect to reduce or eliminate standard Part 
B premiums for their M+C Medicare enrollees, as an additional benefit, 
if the M+C organization has 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 can 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 average 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 
proposed revising Sec.  422.2, Sec.  422.111(f), Sec.  422.250(a)(1), 
and Sec.  422.312 to reflect these provisions in the regulations. We 
received one comment in support of these regulations and are finalizing 
them as proposed.
3. Payment of Additional Amounts for New Benefits Covered During a 
Contract Term
    Section 611 of the BIPA amended sections 1852(a)(5) and 1853(c)(7) 
of the Act with the intent of limiting the financial impact on M+C 
organizations of new coverage requirements adopted by the Congress. 
Before the enactment of the BIPA, section 1852(a)(5) provided that if a 
national coverage determination (NCD) of the Secretary which took 
effect after M+C payment rates were announced for a particular year, 
and that NCD would result in ``a significant change in the costs to a 
Medicare+Choice organization,'' M+C organizations were not required to 
cover them under their contracts, but the services were 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. Under the pre-BIPA version of section 
1853(c)(7) of the Act, if an NCD resulted in ``significant'' costs, we 
were required to ``adjust appropriately'' capitation payments to 
reflect the new costs.
    Section 611 of BIPA extended these provisions to changes in 
coverage resulting from legislation, in addition to those resulting 
from NCDs. We proposed revisions to Sec.  422.109 to reflect these 
amendments. We received several comments on our proposed revised 
regulations.
    Comment: Several commenters expressed concern that people enrolled 
in M+C organizations may not understand that new benefits or services 
available as a result of a national coverage determination (NCD) or 
legislative change in benefits may be paid in a different manner than 
other covered benefits when we determine that the costs of NCDs or 
legislative changes in benefits are ``significant.'' The commenters 
suggested that we publicize when new coverage is available, require M+C 
organizations to notify their members of the availability of the new 
benefits or services, and require M+C organizations to notify their 
members about the manner in which Medicare coverage and payment would 
take place. It was recommended that the notification should include a 
clear explanation of whether, and how much, the beneficiary might have 
to pay for the benefit or service until it is included in the M+C 
organization's capitation payment.
    Response: We will continue to require M+C organizations to notify 
plan members when there is an NCD. If the NCD meets the ``significant 
cost'' threshold when the coverage is not included in the services, M+C 
organizations must cover the NCD under their contract in exchange for a 
monthly capitation payment. The M+C organization must notify plan 
members that original Medicare fee-for-service cost-sharing rules 
apply. M+C organizations are required to include an explanation of new 
NCDs in their next regularly scheduled beneficiary communication. If 
the new NCD or legislative change in benefits meets the ``significant 
cost'' threshold per Sec.  422.109(a), the written explanation to 
beneficiaries about the new coverage will include the fact that the 
service will be paid in accordance with original Medicare payment rules 
and will include information on financial liability enrollees will 
have.
    Comment: One commenter suggested that the final rule require M+C 
organizations to provide a statement in their Summary of Benefits that 
new Medicare benefits will be paid under traditional Medicare. It was 
also suggested that an explanation of the method by which enrollees in 
an M+C plan can access new benefits and services be included in the 
model Evidence of Coverage.
    Response: It would be misleading to state that any new Medicare 
benefits would be paid under traditional Medicare rules. Unless new 
benefits meet the ``significant'' cost threshold, the M+C organization 
is required to cover them under its contract in exchange for its 
capitation payment. As stated above, M+C organizations are already held 
responsible for notifying enrollees of new coverage and of any cost 
sharing liability related to a new service, if the new service meets 
the ``significant cost'' threshold. Therefore, we do not believe it is 
feasible or even necessary to include the notification with respect to 
specific NCDs in the standardized Summary of Benefits or the annual 
Evidence of Coverage, because NCDs can be effective at any time during 
the year. We believe our current policy of having M+C organizations 
inform enrollees of NCDs when they occur both protects beneficiaries 
and prevents confusion.
    Comment: One commenter suggested that we explain, in our program 
memoranda on new benefits, the procedures for direct reimbursement by 
the fiscal intermediary and the carrier in cases that meet the 
``significant cost'' threshold and therefore are not covered by the M+C 
organization.
    Response: We will make every effort to provide the suggested 
explanation in program memoranda on new benefits, if direct 
reimbursement by fiscal intermediaries and carriers is required because 
the new coverage meets the ``significant cost'' threshold. However, 
because program memoranda about new benefits are sometimes released 
independent of, and prior to, a determination that the new benefits 
meet the ``significant cost'' threshold described in Sec.  422.109(a), 
it is not always possible to include such an

[[Page 50843]]

explanation in these program memoranda.
    Comment: One commenter requested that we clarify that enrollees in 
an M+C plan are entitled to receive a new benefit if it is medically 
necessary, and that the M+C organization is responsible for ensuring 
access to, but not necessarily payment for, all new benefits.
    Response: In accordance with section 1852 of the Act and 
regulations at Sec.  422.101, M+C organizations must provide coverage 
of all Medicare-covered benefits that are available to beneficiaries 
residing in the plan's service area by furnishing, arranging for, or 
making payment for the services.
    If an NCD or legislative change in benefits does not meet the 
``significant cost'' threshold described in Sec.  422.109(a), the M+C 
organization is required to provide coverage of the NCD or legislative 
change in benefits by furnishing, arranging for, or making payment for 
the services as of the effective date stated in the NCD or specified in 
the legislation. The M+C organization must also assume risk for the 
costs of that service or benefit as of the effective date stated in the 
NCD or specified in the legislation.
    If an NCD or legislative change in benefits does meet the 
``significant cost'' threshold described in Sec.  422.109(a), the M+C 
organization must provide coverage of the NCD or legislative change in 
benefits by furnishing or arranging for the NCD service or legislative 
change in benefits. However, the M+C organization is not required to 
pay or assume risk for the costs of that service or benefit until the 
contract year for which payments are adjusted to take into account the 
cost of the NCD service or legislative change in benefits. Medicare 
fee-for-service payment for the service is in addition to the 
capitation payment to the M+C organization and made directly by the 
fiscal intermediary and carrier to the M+C organization (or its 
designee, which may be the provider) in accordance with original 
Medicare payment rules, methods, and requirements.
    Comment: One commenter recommended that we include the total costs 
resulting from all NCDs and legislative changes in benefits when making 
the ``significant cost'' determination. The commenter suggested that, 
if there is insufficient data for us to develop a reasonably reliable 
cost estimate for any NCD or legislatively mandated coverage, we should 
conclude that the costs for that new coverage have not been included in 
current M+C rates and that Medicare fee-for-service payment should be 
available for such coverage.
    Response: We agree with the commenter's first point that several 
NCDs or legislative changes in benefits that do not individually 
trigger the existing regulatory definition of ``significant'' could 
potentially impose a greater burden than a single change that meets 
this definition. It would not be practical, however, to attempt to 
aggregate the costs of NCDs or statutory coverage changes during the 
``transition'' year governed by section 1852(a)(5) of the Act, before 
capitation payments are ``adjust[ed] appropriately'' by us in the next 
payment announcement as required under section 1853(c)(7) of the Act. 
In part, this is because it would not be clear whether any aggregate 
test has been met until the last NCD or legislative change in benefits 
to be aggregated is issued. By that time, it would be too late to make 
any adjustment with respect to the M+C organization's obligation to 
cover earlier NCDs.
    More importantly, the period prior to an adjustment in capitation 
rates is by definition ``temporary'' and limited to a period of less 
than 12 months. We believe that costs that may not be ``significant'' 
when the M+C organization knows they are being incurred for a temporary 
period of a few months would become ``significant'' if left unaccounted 
for in future payments indefinitely. Accordingly, we believe that it is 
reasonable to adopt a different interpretation of ``significant'' for 
purposes of deciding under section 1852(a)(5) of the Act whether to 
make temporary fee-for-service payments than for purposes of deciding 
whether, under section 1853(c)(7), to permanently ``adjust 
appropriately'' capitation payments. Given the temporary nature of 
partial year costs, we believe that the existing definition of 
significant costs in Sec.  422.109(c) is appropriate for purposes of 
deciding whether to pay for services on a fee-for-service basis until 
an adjustment can be made to capitation payments. We believe that an 
M+C organization could bear the cost of any individual NCD or 
legislative change that does not meet this definition for the limited 
period of time involved prior to an appropriate adjustment being made 
to capitation rates.
    However we believe that costs of NCDs and legislative changes that 
may not be significant when only in place for a few months could, when 
considered in the aggregate, be quite significant if left unaccounted 
for indefinitely in future capitation payments. Thus, in response to 
the commenters suggestion that the costs of NCDs and legislative 
changes be aggregated, we are providing for a different definition of 
``significant'' costs to be used for purposes of the determination as 
to whether to make an adjustment under section 1853(c)(7) than applies 
for purposes of whether to pay on a fee-for-service basis under section 
1852(a)(5) of the Act. We have revised the definition of significant 
cost (which was in Sec.  422.109(c), but is now in Sec.  422.109(a)) to 
provide that, for purposes of determining whether to make an adjustment 
under Sec.  422.256, the tests in the definition of ``significant 
cost'' are applied to the aggregate costs of all NCDs and legislative 
changes in benefits made in the contract year. Under this test, the 
``average cost'' of every NCD and legislative change in benefits would 
be added together. If the sum of all these average amounts exceeds the 
threshold under Sec.  422.109(a)(1), then an adjustment to payment will 
be made under Sec.  422.256 to reflect these costs. Alternatively, if 
the costs of the NCDs and legislative changes in benefits, in the 
aggregate, exceed the level set forth in Sec.  422.109(a)(2), an 
adjustment to payment will be made under Sec.  422.256.
    We note that even when the ``significant cost'' threshold has been 
met under the existing definition, the current methodology for making 
the adjustment required under section 1853(c)(7) of the Act does not 
result in any adjustment in counties paid based on the minimum update 
rate (the so-called ``2 percent minimum update'' counties). The annual 
growth rate used to update M+C rates each year includes estimates of 
expenditures for new mid-year benefits. However, according to section 
1853(c) of the Act, our Office of the Actuary uses the annual growth 
rate to update only the floor and blended rates, so the minimum 2 
percent update rate does not reflect the costs of new benefits 
effective in the middle of the previous payment year. The impact is 
substantial because 64 percent of the 100 counties with the highest M+C 
enrollment in 2002 received the minimum update rate in the last three 
years, 2001 through 2003. The result is that M+C organizations have 
paid for almost all new benefits out of capitation payments that do not 
include payment for these new benefits.
    We believe the Congress intended, in enacting section 1853(c)(7) of 
the Act, that payments to M+C organizations be adjusted to reflect the 
costs of new benefits when they are added through an NCD or legislative 
change. Since this does not occur under the current approach in the 
case of 2 percent counties, we are changing our method of making 
adjustments under section

[[Page 50844]]

1853(c)(7) of the Act. When the costs of NCDs and statutory coverage 
changes in a given year are determined to be ``significant'' under the 
new definition described above, these costs will be included in an 
``NCD adjustment factor'' that will be added to the county rates in 
counties that will receive a 2 percent update. In other words, the 2 
percent update will be applied to the newly adjusted rates. (The 
assumption is that the floor and blended rates are appropriately 
adjusted for new benefits because they are increased by the M+C growth 
rate that includes NCD and legislative changes in benefits estimates.) 
The ``NCD adjustment factor'' will be applied prospectively to the rate 
calculation for the year following the year after the NCDs and 
legislative benefit changes are effective. For example, NCDs and 
legislative changes determined to be significant in 2003 will be 
aggregated, and the ``NCD adjustment factor'' computed will be used to 
adjust payments for 2005. We have modified Sec.  422.256(b) to codify 
in regulation this additional NCD adjustment factor adjustment to the 
M+C capitation rates.
    Comment: One commenter supported the proposed rule and also asked 
whether the term ``significant'' would be defined as currently provided 
for in M+C regulations with a defined cost threshold.
    Response: As discussed above, the proposed language at Sec.  
422.109(a) defining ``significant cost'' as it relates to the decision 
whether to make fee-for-service payment pursuant to section 1852(a)(5) 
of the Act is being retained.
    As discussed above we are revising Sec.  422.109 to provide that 
this definition will be applied to NCDs and legislative changes in 
benefits in the aggregate for purposes of the adjustments under Sec.  
422.256
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. Comments on this issue and our responses follow.
    Comment: One commenter asked that we use the term ``requirements'' 
instead of ``regulations'' in Sec.  422.521. The commenter's reasoning 
for suggesting the use of ``requirements'' was that most documents from 
our agency that impose significant new cost or burdens are not in the 
form of regulations but are in the form of memoranda, guidance, manual 
chapters and the like.
    Response: We agree with the commenter that requirements are often 
imposed through vehicles other than regulations. Therefore, in response 
to this comment, we are revising Sec.  422.521 to extend the 
prohibition in section 612 of the BIPA to all requirements, not just 
those imposed in regulations. We note that we had previously made this 
commitment administratively.
    Comment: One commenter requested that we define significant cost or 
burden as it is used in Sec.  422.521. The commenter also suggested 
that we base the definition on cost or operational assessments 
conducted by us and by M+C organizations.
    Response: We generally agree with the commenter and will explore 
methods to better define the meaning of ``cost and burden'' as those 
terms are used in Sec.  422.521. However, we are leaving the text of 
Sec.  422.521 unchanged.
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 allows 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 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 allows M+C organizations that offer a plan in a 
geographic area to which more than one local coverage policy applies, 
to uniformly apply the local coverage policy that is most advantageous 
to M+C enrollees in the plan. We will make the final determination as 
to which local coverage policy is most beneficial to M+C enrollees.
    By electing to use this uniform coverage policy, M+C organizations 
can benefit from economies of scale when printing and distributing 
marketing materials and descriptions of benefits for their M+C plans. 
This policy will also enable M+C organizations to standardize coverage 
decisions and provider contracts across entire plans, rather than 
having different policies apply in different geographic areas of the 
same plan. We received three comments on our proposed revision.
    Comment: Two commenters suggested that we apply the newly allowed 
uniform coverage policy rule across all M+C plans offered by an M+C 
organization and/or its subsidiaries. One commenter argued that such an 
expansion of the rule would serve both consistency and uniformity, as 
well as provide for significant cost-savings for multi-state M+C 
organizations.
    Response: Section 615 of the BIPA is clear in restricting our 
authority to permit an M+C organization's election of a uniform local 
coverage policy to a specific plan offered by an M+C organization. The 
statute does not permit application of the uniform local coverage 
policy across different plans offered by a single M+C organization and/
or its subsidiaries.
    Comment: One commenter requested further guidance on the criteria 
that we will use to determine the local coverage policy that is most 
beneficial to M+C enrollees in a plan whose service area encompasses 
more than one local coverage policy area. The commenter also suggested 
allowing the M+C organization to identify the local coverage policy 
that it believes would be most beneficial to its enrollees. The M+C 
organization would notify us, providing justification for the local 
medical review policy selected as the most beneficial to its enrollees. 
If we did not disagree within 60 days of receipt of notice, the M+C 
organization's proposal would be deemed approved.
    Response: We agree that clarification is needed for both the 
criteria that we will use in evaluating the local coverage policies 
that are most beneficial to M+C enrollees and the time frame within 
which that evaluation will occur. Since the benefits covered by a plan 
are essential to preparation of the adjusted community rate (ACR) 
proposal related to that plan (see Sec.  422.306), an M+C organization 
proposing to adopt a uniform coverage policy for a plan must notify us 
60 days prior to the date the ACR proposal for that plan is due. We 
believe that a 60-day window will permit us sufficient time to fully 
evaluate the proposed uniform coverage policy election related to a 
plan, and to notify the M+C organization of our decision, while still 
allowing sufficient time for the M+C organization to prepare and submit 
its ACR proposal in a timely manner. Therefore, we have added a new 
section Sec.  422.101(b)(3)(i) which explains the time frame within 
which an M+C organization must notify us of its intent to adopt a 
uniform local coverage policy for a plan. In addition, we have added 
Sec.  422.101(b)(3)(ii) which establishes the factors we will consider 
to evaluate the local coverage policy that is most beneficial to M+C 
enrollees. We, in turn, will notify the M+C

[[Page 50845]]

organization of our determination as to the most advantageous local 
coverage policy. The statute is clear in requiring us ``to identify'' 
the most advantageous local coverage policy; we therefore do not 
believe we could take the passive role of deeming approval through a 
non-response. Additionally, a positive response from us ensures that 
there can be no ambiguity as to which of the competing local coverage 
policies actually applies to all enrollees of the plan.
6. Medicare+Choice Program Compatibility With Employer or Union Group 
Health Plans
    Section 617 of the BIPA amended section 1857 of the Act by adding a 
new subsection (i), which provides us broad authority 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 in part 422. The 
authority in section 617 of the BIPA was first available for CY 2001. 
We 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, upon receiving a written request 
from an M+C organization, we have the option to 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. As 
indicated in the proposed rule, after we have approved a request for a 
waiver, the requesting M+C plan, and any other M+C organization, will 
be able to use the waiver in developing their ACR proposal. Any M+C 
plan using the waiver must include that information in the cover letter 
of its ACR proposal submission to us. The waiver or modification will 
take effect once the ACR proposal has been approved.
    To date, we have approved the following three types of waivers 
under the authority granted us in section 617 of the BIPA:
    [sbull] Employer-Only Plans: We are allowing M+C organizations to 
offer employer-only plans (that is, M+C plans not available to the 
individual market). M+C organizations are not required to market these 
plans to individuals. In addition, M+C organizations will not be 
required to submit the marketing materials for employer-only plans for 
our pre-review and approval.
    [sbull] Actuarial Swaps: We are allowing 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 are allowing M+C organizations to 
raise the co-payments for certain benefits but to provide a higher 
benefit level or a modification to the premium charged, as long as 
projected beneficiary liability was actuarially equivalent.
    We received two substantive comments on the employer group waiver 
provisions.
    Comment: A commenter asked that we confirm whether our waiver 
authority can be used in areas such as ACR proposals, and enrollment 
and disenrollment processes (for example, the use of electronic 
enrollment and disenrollment for employer group members). The commenter 
also suggested that we revise the regulation to ensure that it is 
flexible enough to accommodate such waivers, including clarification 
that requests to use approved waivers that are not related to benefit 
and rate proposals may be submitted at any time during the year.
    Response: As noted above, Section 617 of the BIPA provides broad 
authority for 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 or unions. Accordingly, under 
this authority, we have broad discretion to approve employer group 
waivers in all areas of the M+C program, including both enrollment and 
disenrollment and benefit and rate proposals. We do not believe that 
any change to the regulatory language implementing the waiver authority 
is necessary. The regulatory language implementing this waiver 
authority is consistent with the statutory language in section 1857(i) 
of the Act, which provides us wide latitude to approve appropriate 
waivers. In reviewing proposed waivers, we will balance the objective 
of promoting M+C enrollment by employer group members with the need to 
ensure that adequate protections are in place to ensure that employer 
group members enrolled in M+C plans have access to the Medicare covered 
benefits consistent with Medicare standards. Waiver requests by M+C 
organizations may be submitted at any time of the year.
    Comment: Another commenter asked for clarification of Sec.  
422.106(a)(2) which states that employer group benefits that 
``complement'' an M+C plan and the marketing materials associated with 
those benefits are not subject to our approval. The commenter was not 
clear as to what ``complement'' means in this context. The commenter 
further notes that paragraph (a)(2) continues, ``M+C plan benefits 
provided to enrollees of the employer * * * and the associated 
marketing materials, are subject to CMS review and approval.'' 
According to the commenter, these two sentences within paragraph (a)(2) 
are internally inconsistent and confusing, and the commenter suggested 
that the benefit package of an employer-only M+C plan was subject to 
our review and approval. The commenter also requested that we clarify 
that employer group benefits or marketing materials will not be subject 
to prior review as long as the M+C organization certifies, in its ACR, 
that an employer-only M+C plan benefit package contains all Medicare-
covered items and services. The commenter also suggested that M+C 
organizations should not be required to send copies of employer group-
marketing materials to us after printing.
    Response: We agree that Sec.  422.106 (a)(1) and (a)(2) need to be 
clarified. The purpose of Sec.  422.106(a)(2) is to highlight the fact 
that the M+C regulations apply to those benefits that are included 
under our approved M+C benefit package and that the regulations do not 
apply to what are referred to in the regulation as ``complementary'' 
benefits. Complementary benefits are employer-sponsored benefits, which 
are outside of the ACR proposal and are independently arranged by an 
employer on behalf of its employer group members for the purpose of 
enhancing the M+C benefit package. Therefore, we have modified Sec.  
422.106(a)(2) to clarify that we do not regulate or approve employer-
sponsored benefits.
    Employer group plans are required to provide an ACR proposal that 
includes all Medicare Part A and Part B services. There are no 
additional ``prior review'' requirements for approving the M+C benefit 
package for employer group members. We have already approved a waiver 
related to prior review of marketing material of employer-only plans. 
However, all M+C organizations will continue to be required to send 
informational copies of the employer-only plan's marketing materials to 
our Regional Office that is the ``lead region.'' The employer group 
waivers are posted at our website at the following web address: http://www.cms.hhs.gov/healthplans/employers/.

[[Page 50846]]

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 
any other available M+C plan if the plan in which they are enrolled is 
terminated or the M+C organization 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 were only able to elect 
another plan offered by the same M+C organization or return to the 
original Medicare fee-for-service program.
    Under this provision, if the beneficiary enrolls in another M+C 
plan, and that plan is subsequently terminated, he or she is able to 
elect another M+C plan (offered by the same M+C organization or a 
different organization) based upon that termination. This would be true 
for any subsequent M+C plan terminations or discontinuations that 
result in the enrollee's disenrollment. Thus, if the enrollee's plan is 
subsequently terminated or discontinued, the individual would have 
another opportunity to elect another M+C plan. The individual may use 
this election immediately, or may do so during a subsequent election 
period. Once the individual has made such an election, he or she may 
not join another M+C plan offered by another M+C organization unless 
his or her plan is terminated or discontinued. Thus, if the beneficiary 
exhausts his or her one election, and then later seeks to disenroll 
from the plan for reasons other than its termination, he or she may 
only enroll in another M+C plan offered by the same M+C organization, 
or return to original fee-for-service Medicare. If the beneficiary 
returns to original Medicare, he or she will not be able to later 
enroll in an M+C plan.
    Comment: One commenter expressed concern that the preamble to the 
proposed rule could be misconstrued to mean that a beneficiary who is 
enrolled in an M+C plan and subsequently disenrolls from the plan for 
reasons other than the plan's termination or discontinuation can return 
to the original fee-for-service Medicare program and at some future 
date reenroll in a different plan offered by the same M+C organization.
    Response: As explained above, we are clarifying that a beneficiary 
who elects another M+C plan as provided for under section 620 of the 
BIPA and later decides to disenroll from the plan for reasons other 
than its termination or discontinuation, may only elect another M+C 
plan offered by the same M+C organization at the time he or she is 
enrolled with that organization under some health plan it offers. In 
the commenters example, the beneficiary has spent time in original fee-
for-service Medicare while not an enrollee with the organizations under 
any option. Under this circumstance, the enrollee would not be eligible 
to enroll in any M+C plan, including one offered by the M+C 
organization with which he or she was formerly enrolled.
    Comment: Several commenters requested clarification as to whether 
or not the beneficiary had to elect a new M+C plan within a certain 
time frame. One commenter supported the establishment of a time limit, 
while others opposed any such time limit.
    Response: In the preamble to the proposed rule, we indicated that 
we do not interpret section 1851(a)(3)(B) of the Act to require an 
enrollee to elect a new M+C plan immediately upon the termination or 
discontinuation of the M+C plan in which he or she is enrolled. This is 
based on section 620(b)(2) of the BIPA, which specifically extends this 
provision to individuals who had been enrolled in terminating or 
discontinued plans any time after December 31, 1998. In accordance with 
this section, and section 620(a) of the BIPA, these individuals are 
treated as M+C eligible individuals for purposes of electing to 
continue enrollment in another M+C plan. Because the statute clearly 
contemplates enrollment by individuals not currently enrolled in an M+C 
plan, we believe that the phrase ``continue enrollment'' in section 
620(a) of the BIPA does not necessarily mean ``continue without 
interruption'' and, therefore, should not be time-limited. As stated 
above, the beneficiary may use his or her election immediately upon the 
plan's termination, or may use this election during a subsequent 
election period.
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 ensures that an M+C 
organization will give a Medicare beneficiary who is a resident of a 
skilled nursing facility (SNF) the option of returning to his or her 
``home SNF'' for post-hospital extended care services upon discharge 
from a hospital when certain conditions are met.
    The term ``home skilled nursing facility'' is defined as--
    [sbull] The SNF in which the beneficiary resided at the time of 
admission to the hospital;
    [sbull] A SNF providing post-hospital 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 will be returned must either have a contract 
with the M+C organization to provide post-hospital services or must 
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 post-hospital 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 post-hospital extended care services.
    The requirements of this new subsection (l) first became applicable 
under contracts entered into or renewed on or after December 20, 2000.
    We received one comment relating to this provision.
    Comment: The commenter expressed concern regarding potential 
quality issues when a plan member uses the ``return home'' benefit to 
enter a non-plan SNF. In addition, the commenter believes that this 
provision ``binds'' the internal operations of an M+C organization and 
could set a precedent for other areas of care in the future.
    Response: We agree that an M+C organization does not have the same 
ability to verify the quality of non-contract SNFs as it does contract 
SNFs. For this reason, we will allow an M+C organization to advise 
members who are obtaining services in a non-contract SNF under the 
``return home'' benefit that the M+C plan cannot guarantee the quality 
of care that members will receive in the non-contract SNF. However, we 
also note that an M+C organization can only refer members to Medicare 
certified SNFs. The ``return home'' SNF benefit was established

[[Page 50847]]

legislatively and, thus, does not set a precedent for other benefits of 
this type unless the Congress extends the benefit to other benefits by 
similar legislation.
9. Increased Civil Money Penalty for Medicare+Choice Organizations That 
Terminate Contracts Mid-Year
    Section 1857(g)(3) of the Act provides us with the authority to 
impose intermediate sanctions, including civil money penalties, on M+C 
organizations for the same reasons for which 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.
    Section 623 of the BIPA amended section 1857(g)(3) of the Act by 
providing us the authority to establish and levy separate and distinct 
civil money penalties when we determine that an M+C organization has 
failed to substantially carry out the terms of its contract based upon 
the M+C organization's termination of its contract with us in a manner 
other than that provided in the M+C contract and in Sec.  422.512.
    Under section 1857(g)(3)(D) of the Act, in such cases, we may 
impose a civil money penalty of ``$100,000 or such higher amount as the 
Secretary may establish by regulation.'' We believe that the Congress 
provided us with the authority to provide for a higher civil money 
penalty amount than $100,000 in recognition of the fact that the 
$100,000 specified in the Act may not provide an effective deterrent in 
some instances to discourage M+C organizations from terminating their 
contracts in a manner inconsistent with the procedures described in the 
regulations. In developing regulations providing for a potentially 
higher 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.
    Thus, we proposed 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 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 
represents a substantial increase over the current civil money penalty 
of $25,000 for similar violations, and serves as an effective deterrent 
against M+C contract terminations violations that could potentially 
harm Medicare beneficiaries.
    We received one comment on this change in civil money penalties.
    Comment: The commenter seeks affirmation that we will not impose 
civil money penalties when the mid-year termination is caused by an 
event that is not within the control of the M+C organization (for 
example, substantial loss of network capability).
    Response: We will not create an exception to waive the civil money 
penalties at Sec.  422.758(b) because an M+C organization is 
experiencing network problems. If an M+C organization loses network 
capacity during the year, we expect that the M+C organization will 
establish new provider contracts or pay for services on a fee-for-
service basis. There may be situations that require us to terminate a 
contract mid-year. For example, we have used our immediate termination 
authority at Sec.  422.510(a)(5) to protect beneficiary access to 
health care when an M+C organization experiences financial difficulties 
so severe that access to health care is endangered. Section 623 of the 
BIPA was not written to permit us to levy a civil money penalty if we, 
not the M+C organization, take the termination action. The law was 
designed to prohibit M+C organizations from inappropriately ending 
their contractual commitments without our consent.
10. Eliminating Health Disparities in Medicare+Choice Program
    Section 616 of the BIPA amended section 1852(e) of the Act by 
requiring that an M+C organization's Quality Assurance Program have a 
separate focus on racial and ethnic minorities. This provision was not 
included in the October 2002 proposed rule because we had not developed 
any policies to propose. Although we are still evaluating 
implementation issues, we are adding a new paragraph (4) to Sec.  
422.152(f) to reflect this BIPA provision. Prior notice and comment is 
not necessary in the case of this change, because merely adding the 
statutory requirements to the regulations text has no legal effect. We 
have included a good cause statement below for waiving prior notice and 
comment with respect to this change.

B. 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 the beneficiary requires on 
a daily basis and that are only available in a SNF on an inpatient 
basis.
    Generally, we will only cover this benefit 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. 
Accordingly, we proposed changes in the regulations to reflect this 
determination, specifically, adding a new Sec.  409.20(c)(4), revising 
Sec.  409.30(b) and Sec.  409.31(b), and adding a new Sec.  422.101(c).
    Several organizations, representing both providers and consumers, 
stated that they agreed with our proposed changes.
    Comment: One commenter recommended that we clarify that after 
voluntarily disenrolling from the M+C program, the beneficiary may 
receive Part A SNF care if he or she meets the skilled level of care 
requirement.
    Response: The commenter is correct that under this final rule, Part 
A SNF care would be covered for an individual who meets the skilled 
level of care requirement if he or she voluntarily disenrolls from a 
M+C program that was covering the care without a prior 3-day hospital 
stay. We believe that Sec.  409.30(b)(2)(ii) makes this sufficiently 
clear that no further clarification is needed.
    Comment: A major organization recommended that we clarify that when 
a beneficiary converts from a M+C stay in a SNF to a fee-for-service 
stay, a new 100 day period begins, unless the prior days under M+C were 
skilled care.
    Response: We agree with this recommendation. If skilled care is 
provided to the beneficiary while he or she is enrolled in the M+C 
organization, then this time period counts towards the 100 days. If it 
is unknown whether or not skilled care is provided or the care

[[Page 50848]]

is unskilled, then the 100 days starts when the fee-for-service stay 
begins. We will clarify this provision in the Intermediary Manual.
    Comment: Two commenters proposed that the waiver of the 3-day 
hospital requirement for SNF care also be applied to cost contractors 
(health maintenance organizations and competitive medical plans) under 
section 1876 of the Act. One commenter argued ``* * * that expanding 
the provision to cost contractors will result in a substantial 
reduction in Medicare costs for inpatient hospitalization. These 
savings will more than counterbalance any increases in SNF costs. We 
believe that inpatient admissions may occur when perhaps the more 
appropriate level of care is in a skilled nursing facility. We believe 
that allowing an exception to the three-day prior hospitalization 
requirement will result in net savings to the Medicare program.''
    Another commenter noted that, ``Organizations participating in the 
Medicare program as cost plans are structured in the same manner as M+C 
organizations and have the same inherent incentives for the provision 
of quality care in the most appropriate setting. Since this structure 
promotes similar patterns of practice regardless of the type of 
Medicare contract, we believe that the criteria described above would 
be met if this policy were applied to cost plans.''
    Response: M+C organizations are paid on a capitated basis, so they 
have an incentive to contain costs. However, cost contractors under 
section 1876 of the Act do not have such an incentive. We have no 
evidence to indicate that they would reduce hospital admissions if we 
were to waive the 3-day prior hospital stay requirement. Therefore, we 
have decided not to accept this recommendation at this time.

C. Disenrollment by the M+C Organization

    Section 422.74(d)(4) provides that, except where continuation of 
enrollment under Sec.  422.54 applies, an individual must be 
disenrolled from an M+C plan if he or she is out of the service area 
for over 6 months. The proposed rule included a revision to Sec.  
422.74(d)(4) creating an exception to this 6-month rule for ``visitor'' 
or ``traveler'' type programs. Under the proposed exception, M+C 
organizations could continue to offer extended ``visitor'' or 
``traveler'' programs to members who have been out of the service area 
for up to 12 months, provided that the plan included the full range of 
services available to other members. M+C organizations offering these 
programs may limit their availability to certain areas and may impose 
restrictions on obtaining benefits, except for urgent, emergent, and 
post-stabilization care, and renal dialysis. These organizations do not 
have to disenroll members in these extended programs who remain out of 
the service area for up to 12 months. However, those M+C organizations 
without this program must continue to disenroll members once they have 
been out of the service area for more than 6 months. We received one 
comment supporting this change, and are adopting it as proposed.

D. Reporting Requirements for Physician Incentive Plans

    Section 1852(j)(4)(A)(iii) of the Act requires 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. We are 
changing the reporting requirement to allow M+C organizations to 
maintain the required PIP information in their files and submit that 
information to us upon request. Several commenters agreed with this 
change.
    Comment: A commenter requested that we provide clear guidance on 
what information managed care organizations should maintain in their 
files.
    Response: Section 417.479(h)(3) and Sec.  422.210(b) provide 
details on the information that should be maintained in either the 
contractor or subcontractor files for purposes of responding to 
inquiries from beneficiaries. Since there will no longer be routine 
reporting of PIP information to us, the cost-contracting health 
maintenance organizations/competitive medical plans and M+C 
organizations should simply maintain sufficient information ``...to 
permit CMS to determine whether the plan is in compliance with the 
applicable requirements,'' should we request it.
    Comment: A commenter requested that, under the cost program, two 
types of entities, health maintenance organizations and competitive 
medical plans, are eligible for contracting. The proposal omits a 
reference to competitive medical plans.
    Response: We will revise the regulation to cover competitive 
medical plans.
    Comment: A commenter suggested that the instructions for amending 
Sec.  417.479(h) appear incorrect. The disclosure to beneficiaries 
provision is in paragraph (h)(3), not (h)(2). Thus, we should replace 
paragraph (h)(1) and (h)(2) with the new (h)(1). Then paragraph (h)(3) 
would be designated (h)(2).
    Response: The commenter is correct in noting an inconsistency in 
our proposed revision. Therefore, Sec.  417.479(h)(1) will remain as 
written in the proposed regulation, with the addition of a reference to 
competitive medical plans, as noted above. Section 417.479(h)(2) will 
be revised to include only the rules on pooling of patients. Finally, 
Sec.  417.479(h)(3), related to disclosure to Medicare beneficiaries, 
will remain as part of the regulation with a minor, editorial change.

E. 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 40282), some confusion has continued.
    We have always intended for requests for organization 
determinations to be more inclusive than requests for appeals. To 
clarify this point, we have eliminated the existing cross-reference to 
Sec.  422.574 and we are listing 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 furnished, 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.
    Comment: We received two comments regarding who can request an

[[Page 50849]]

organization determination under Sec.  422.566(c). One commenter 
supported the elimination of the cross-reference with the provision 
that only treating or attending providers involved with the enrollee's 
health care should be allowed to request organization determinations.
    Another commenter believed that in an effort to discourage 
inappropriate use of the process, providers should only be allowed to 
make requests for organization determinations with the full knowledge 
and agreement of the enrollee. The commenter recommended that we 
establish this distinction in the preamble or regulation, and, if an 
enrollee indicates that a requested organization determination is 
inconsistent with his or her wishes, then the M+C organization should 
be able to cease action on the request.
    Response: We believe that the text, ``any provider that furnishes, 
or intends to furnish, services to the enrollee,'' already addresses 
the commenter's concern that the provider requesting an organization 
determination be involved with the enrollee's health care. Because 
enrollees in some M+C plans are free to seek care from providers within 
or outside of the M+C organization's network and all enrollees may go 
out of network for emergency and certain other services, we believe it 
is appropriate to use the all-inclusive term ``any,'' instead of 
``treating,'' to describe the providers furnishing, or intending to 
furnish, services to enrollees.
    We agree with the second commenter that providers should request 
organization determinations only with the full knowledge and agreement 
of enrollees. This is particularly important for unaffiliated providers 
that might seek payment for services already furnished to enrollees. In 
addition, an M+C organization may cease action on a provider's request 
for an organization determination that is inconsistent with an 
enrollee's wishes.
2. Effectuation Times When M+C Organizations File Appeals
    The current regulations at Sec.  422.618 and Sec.  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. Effectuate 
means to authorize, pay for, or provide coverage. The M+C organization 
may not appeal the independent outside entity's decision. 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 proposed to revise the rules so 
that M+C organizations may await the outcome of a Departmental Appeals 
Board (the Board) review before effectuating a decision of an ALJ. This 
change would serve to balance the M+C organization's 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 has been furnished to the enrollee.
    In Sec.  422.618(c), we proposed to retain, as the general rule, 
the 60-day effectuation requirement for reversals by an ALJ or higher 
level of appeal. This is because we did not want to effectively negate 
the M+C organization's 60-day right to request an appeal to the Board 
or higher level. However, our expectation was that M+C organizations 
would not take the maximum 60 days to effectuate a decision they do not 
intend to appeal. We proposed to redesignate the current Sec.  
422.618(c), as Sec.  422.618(c)(1) and provide that the 60-day deadline 
for effectuation was the ``general rule.'' We then proposed to add a 
new Sec.  422.618(c)(2) which would allow for an exception to the 60-
day standard if the M+C organization decided to request a Board review 
consistent with Sec.  422.608. We proposed to 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 
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, in the proposed 
rule, the M+C organization was required to notify the independent 
review entity of the requested appeal.
    Consistent with this change, we also proposed to revise Sec.  
422.619(c) with regard to effectuating expedited reconsidered 
determinations. As in standard appeals, we proposed to 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 
notifying the independent review entity of the requested appeal.
    Comment: Some commenters believe that the 60-day time frame for an 
M+C organization to decide whether to appeal (and ultimately pay for or 
provide a service) is too long. One commenter suggested that the time 
frame to allow an M+C organization to appeal to the Departmental 
Appeals Board (DAB) should be reduced to 30 days. Another commenter 
believes that M+C organizations generally know well before 60 days 
whether they intend to appeal an administrative law judge's (ALJ's) 
decision. Instead, an M+C organization more likely would need a 60-day 
time frame to gather evidence in support of an appeal. The commenter 
argued that, since enrollees already wait a long time for ALJ 
decisions, enrollees should not be made to wait another 60 days to 
receive care.
    Other commenters supported our attempt to reconcile the provisions 
that, on the one hand, allow an M+C organization the right to appeal an 
ALJ's decision, but, on the other hand, require the M+C organization to 
effectuate the decision before a final DAB decision. One commenter 
supported a 60-day, rather than a 72-hour, effectuation time frame for 
expedited reviews.
    Response: Currently, Sec.  422.618(c)(1) and Sec.  422.619(c)(1) 
require an M+C organization to 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 
that the M+C organization receives a decision reversing a 
determination. Section 422.608 also provides for an appeal by the M+C 
organization within the same 60-day time period that effectuation must 
occur. While we appreciate the commenters' concerns that 60 days seems 
like a long time for M+C organizations to appeal, we believe that we 
should allow M+C organizations the same 60-day time frame afforded to 
other parties when they file appeals. Thus, we will maintain the 
current 60-day standard at Sec.  422.608 for all parties seeking review 
by the DAB.
    We recognize that an enrollee may encounter a delay in obtaining a 
service if an M+C organization appeals; however, both the DAB and the 
ALJ hearing offices have procedures to screen cases and to give 
priority to pre-service denial cases, including immediate assignment 
and resolution of

[[Page 50850]]

cases involving imminent health risks. Thus, as proposed, we are adding 
Sec.  422.618(c)(2) and Sec.  422.619(c)(2) to allow for an exception 
to the 60-day effectuation standard when an M+C organization requests 
DAB review. An M+C organization may await the outcome of the DAB's 
review before it pays for, authorizes or provides the service under 
dispute.
    Comment: One commenter was concerned with our statement 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.'' The commenter interpreted this statement to mean that a M+C 
organization that intends to appeal an ALJ decision would still have to 
apply the medical exigency standard, and provide services if warranted 
under this standard notwithstanding the filing of a DAB appeal. The 
commenter thought that this would undercut the exception to the 
effectuation time frames and undermine a M+C organization's right under 
both the appeals process and, though it is not clear to us why, the 
Administrative Procedure Act (APA). Instead, the commenter recommends 
that we permit the exception to the effectuation rule under all 
circumstances, and promulgate an expedited review process for the DAB 
to follow in medically exigent cases. Another commenter urged us to 
monitor whether M+C organizations take the maximum 60 days to implement 
a decision that they do not intend to appeal.
    Response: The section of the proposed rule that the commenter 
references is a discussion about our reason for maintaining a 60-day 
effectuation requirement for expedited appeals, as opposed to 72 hours. 
We wanted to make clear that, despite our intention to maintain the 60-
day requirement, M+C organizations still would be held to the medical 
exigency standard if they did not intend to pursue an appeal of an ALJ 
decision. In other words, just because we had retained the 60-day time-
frame for appealing, this did not mean that an M+C organization could 
take 60 days to effectuate if it was not pursuing an appeal. Rather, in 
this instance, it must 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.
    We agree with the commenter, however, that when a M+C organization 
is appealing the ALJ decision, it should not be required to effectuate 
the ALJ decision, and would not apply the medical exigency standard 
until it was time to effectuate a decision from the DAB. We also agree 
with the commenter that the DAB should expedite cases in which there is 
a medical exigency, and inform the commenter that the DAB has 
procedures in place to do so. Finally, with respect to monitoring, we 
agree that M+C organizations should be monitored to see whether they 
are delaying effectuation 60 days in cases in which they are not 
appealing the ALJ decision.
    Comment: Some commenters were pleased with our proposal that M+C 
organizations notify enrollees and the independent review entity (IRE) 
in the event of an appeal to the DAB. They believed that such 
notification would enable enrollees to file evidence, arguments or 
legal memoranda to the DAB in support of an ALJ decision.
    Response: We agree with the commenters and are retaining this 
proposal which requires a M+C organization to concurrently send a copy 
of its appeal request and the accompanying documents to the enrollee 
and the IRE at Sec.  422.618(c)(2) and Sec.  422.619(c)(2) in this 
final rule.
    Comment: One commenter recommended that we apply an exception to 
the effectuation provision for cases in which the M+C organization 
intends to dispute determinations made by the IRE.
    Response: The regulations only provide for appeals by M+C 
organizations at the ALJ level or higher. The only way for an M+C 
organization to ``challenge'' the IRE's decision is to request a 
reopening in accordance with Sec.  422.616. A reopening is an 
administrative action outside of the realm of the appeals process and 
we do not believe that delaying effectuation under these circumstances 
is warranted.

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

    In the proposed rule, we solicited comments on whether HCPPs and 
the remaining cost plans should follow the M+C appeals and grievance 
processes under subpart M of part 422. We have not included these 
provisions in this final regulation, because we need more time to 
analyze the comments and evaluate implementation issues.

G. Technical Clarifications

1. Grace Period for Late Premium Payments
    We are making a technical change to address concerns that M+C 
organizations have raised concerning the starting date for the 90-day 
grace period for late premium payments. Section 422.74(d)(1)(ii) 
provides that an M+C organization may disenroll a Medicare beneficiary 
when the organization has not received payment within 90 days after it 
has sent a written notice of nonpayment to the individual. Several M+C 
organizations requested that the 90-day grace period start on the day 
the premium payment was due, rather than the day the notice was sent. 
Since the notice has to be provided within 20 days of the premium due 
date, starting the grace period on the premium due date would ensure 
that the beneficiary has at least 70 days following receipt of the 
notice to pay the premium and avoid disenrollment. We believe that this 
constitutes an appropriate grace period and proposed to change the 
regulation accordingly. We received one comment supporting this change 
and are adopting it as proposed.
2. Payment for Hospice Care
    In the proposed rule, we proposed to clarify information concerning 
changes in M+C payments when an individual has elected hospice care.
    Specifically, we proposed to 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 will 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 which 
produces the same result. However, this language was changed from the 
language that applies to health maintenance organizations and 
competitive medical plans, and we believe the latter language makes the 
policy clearer.
    We received no comments on this change and have revised Sec.  
422.266(c) to reflect this clarification.
3. Clarification of Subpart O to Effectuate Statutory Intent
    We are making minor changes to Subpart O in an attempt to clarify 
information regarding our sanction authority. These changes do not add 
any new requirements. They serve to improve the wording of certain 
areas to more clearly reflect statutory intent.
    Section 1857(g)(1) of the Act contemplates violations that are 
generally considered ``fraud and abuse.'' This section further states, 
``* * * the Secretary may provide, in addition to

[[Page 50851]]

any other remedies authorized by law, for any of the remedies described 
in paragraph (2) * * * .'' Because the OIG has the traditional 
authority to investigate fraud complaints, the regulation should ensure 
that it is understood that the OIG stands in the place of ``the 
Secretary'' when civil money penalties are imposed for such violations. 
We (CMS) would have authority for other intermediate sanctions under 
M+C. Currently, Sec.  422.752(a) states, ``For the violations listed 
below, CMS may impose any of the sanctions specified in Sec.  422.750 * 
* *.'' Any of the sanctions presupposes that we may freeze marketing, 
enrollment, payment and impose civil money penalties. This stands in 
contrast to the statutory intent and it clearly contrasts with Sec.  
422.756(f)(2) where, in discussing civil money penalties, the 
regulation currently reads, ``In the case of a violation described in 
Sec.  422.752(a) * * * in accordance with 42 CFR parts 1003 and 1005, 
the OIG may impose CMPs on M+C organizations * * *'' We are changing 
Sec.  422.752(a) to clarify when the OIG has the sole authority to 
impose civil money penalties.
    Section 422.756(f)(3) references the OIG's regulations at parts 
1003 and 1005. This cross-reference creates confusion without further 
clarification. The civil money penalty provisions included in the OIG's 
regulations at parts 1003 and 1005 implement section 1876 of the Act, 
not the M+C program under the BBA. We are proposing a regulatory change 
to eliminate any reference to part 1003 for information about which 
level of civil money penalty might apply.
    Section 422.758 states that civil money penalties can be $25,000 or 
$10,000 per each determination. According to the statute at section 
1857(g) of the Act, the actual amount could be lower. For example, 
section 1857(g)(3)(A) of the Act states that we may impose civil money 
penalties ``of not more than $25,000.'' The same applies to Sec.  
422.758(b), which references ``up to $10,000'' not ``$10,000.'' Section 
422.750 states that the OIG can impose civil money penalties ranging 
from $10,000 to $100,000. Section 1128A of the Act continually uses the 
``up to'' language. We are revising the regulatory language to clarify 
statutory intent.
4. Correcting a Cross-Reference in Subpart E (Relationships With 
Providers)
    In Sec.  422.202(a)(4), a change is needed to correct a cross-
reference. Specifically, the text ``must conform to the rules in Sec.  
422.204(c)'' is being revised to read ``must conform to the rules in 
Sec.  422.202(d).'' (Sec.  422.204(c) does not exist.)

III. Provisions of This Final Rule

    The provisions of this final rule are as follows:
    [sbull] In Sec.  409.20, we added paragraph (c)(4) to define the 
term ``post-hospital 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 revised paragraph (b)(2) to add an 
exception to the preadmission requirements for enrollees of M+C 
organization plans.
    [sbull] In Sec.  409.31, we added paragraph (b)(2)(iii) to add a 
condition to the level of care requirements which states 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 revised paragraph (h) to modify the 
reporting requirements concerning physician incentive plans.
    [sbull] In Sec.  422.2, we revised the definition of additional 
benefits to include a reduction in the Medicare beneficiary's standard 
Part B premium.
    [sbull] In Sec.  422.50, we revised paragraph (a)(2) to include a 
new condition in the exception that a beneficiary with ESRD is not 
eligible to elect an M+C plan. 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 now eligible to 
elect another M+C plan, if the original enrollment was terminated after 
December 31, 1998.
    [sbull] In Sec.  422.74, we revised 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 revised 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 revised paragraph (b)(3) to reflect 
the provisions in section 1852(a)(2)(C) of the Act that permit 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. his 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 added paragraph (c) to include in the 
requirements relating to Medicare covered benefits the option to 
provide for coverage as a Medicare benefit post-hospital SNF care in 
the absence of a prior hospital stay.
    [sbull] In Sec.  422.106, we added new paragraph (c) to reflect the 
provisions in section 1857(i) of the Act that permits 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 revised the definition of 
``significant cost'' (which was in Sec.  422.109(c), but is now in 
Sec.  422.109(a)) to provide that, for purposes of determining whether 
to make an adjustment under Sec.  422.256, the tests in definition of 
``significant cost'' are applied to the aggregate costs of all NCDs and 
legislative changes in benefits made in the contract year. Under this 
test, the ``average cost'' of every NCD and legislative change in 
benefits would be added together. If the sum of all these average 
amounts exceeds the threshold under Sec.  422.109(a)(1), then an 
adjustment to payment will be made under Sec.  422.256 to reflect these 
costs. Alternatively, if the costs of the NCDs and legislative changes 
in benefits, in the aggregate, exceed the level set forth in Sec.  
422.109(a)(2), an adjustment to payment will be made under Sec.  
422.526. We also added language to explain that an NCD or legislative 
change in benefits that does not meet the ``significant cost'' 
threshold must be provided, and paid for, by the M+C organization as of 
the effective date of the NCD or legislative change in benefits.
    [sbull] In Sec.  422.111, we added 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 added Sec.  422.133 to contain the new requirement that 
M+C organizations return residents of SNFs to their home SNF for post-
hospital extended care services after discharge from a hospital. This 
new section contains the definition of home SNF, the requirements for 
return to the home SNF, and the exceptions to the general rule.
    [sbull] In Sec.  422.152(f), we added section (4) to reflect the 
requirement that M+C organizations' Quality Assurance Programs have a 
separate focus on racial and ethnic minorities.

[[Page 50852]]

    [sbull] In Sec.  422.202(a)(4), we corrected a cross-reference.
    [sbull] In Sec.  422.210, we revised paragraph (a) to reflect 
changes to the reporting requirements concerning physician incentive 
plans.
    [sbull] In Sec.  422.250, we revised 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 also revised paragraph (a)(2) to 
redesignate paragraph (a)(2)(i)(B) as (a)(2)(i)(C) and to add new 
paragraph (a)(2)(i)(B) to reflect that, when we establish ESRD rates, 
we will apply appropriate adjustments, including risk adjustment 
factors.
    [sbull] In Sec.  422.256, we revised paragraph (b) to reflect that 
we will make appropriate payment adjustments for new benefits covered 
during a contract term due to NCDs and legislative changes in benefits 
that result in a significant increase in costs to M+C organizations, 
based on an analysis by our chief actuary. We also revised this section 
to reflect that we will apply a ``NCD adjustment factor'' in 
calculating rates for counties receiving the two percent minimum 
update. This factor will represent the percent of total Medicare cost 
attributed to the aggregate costs of all NCDs and legislative changes 
in benefits in the previous year.
    [sbull] In Sec.  422.266, we revised paragraph (c) to clarify that 
when enrollees of M+C plans elect to receive hospice care under Sec.  
418.24, we will 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 redesignated paragraph (d) as 
paragraph (e) and added 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 added new Sec.  422.521 to indicate that we will not 
implement, other than at the beginning of a calendar year, requirements 
that would impose new cost or burden on M+C organizations or plans, 
unless a different effective date is required by statute.
    [sbull] In Sec.  422.566, we revised paragraph (c) to delete the 
cross-reference to Sec.  422.574 and to delineate who can request an 
organization determination.
    [sbull] In Sec.  422.618, we revised paragraph (c) to add an 
effectuation exception when the M+C organization files an appeal with 
the DAB in the case of a standard reconsidered determination.
    [sbull] In Sec.  422.619, we revised paragraph (c) to add an 
effectuation exception when the M+C organization files an appeal with 
the DAB in the case of an expedited reconsidered determination.
    [sbull] In Sec.  422.758, we revised paragraph (b) to include the 
new maximum amount of the civil money penalties 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 will be 
$100,000 or $250 per Medicare enrollee from the terminated plan or 
plans, whichever is greater.

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on revisions to regulations. 
The notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. We followed this procedure with respect to all but one 
of the regulatory revisions made in this final rule. As noted above, 
the proposed rule did not include the revision to Sec.  422.152(f) that 
we are making in this final rule that adds a new paragraph (4) 
reflecting the provisions of section 616 of the BIPA. The requirement 
that we issue regulations in proposed form for public comment can be 
waived, however, if an agency finds good cause that notice and comment 
procedures are impracticable, unnecessary, or contrary to the public 
interest, and it incorporates a statement of the finding and its 
reasons in the rule issued.
    We find that publishing the new paragraph (4) in Sec.  422.152(f) 
in proposed form is unnecessary, because this provision only revises 
the regulations text to reflect the provisions of section 616 of the 
BIPA, and has no legal effect. These provisions were enacted by the 
Congress, and took effect on the date mandated by the legislation 
without regard to whether they are reflected in conforming changes to 
the regulation text. In the new Sec.  422.152(f)(4), we merely have 
revised the regulation text to reflect section 616. Therefore, we do 
not believe that publishing a notice of proposed rulemaking is 
necessary and we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 30-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.
    Section 417.479(h)--Physician Incentive Plans. In this final rule, 
we require HMOs to provide us, upon request, information concerning its 
physician incentive plans. HMOs are also required to provide this 
information to any Medicare beneficiary who requests it. While this 
requirement is subject to the PRA, the burden associated with this 
requirement is captured in approved collection 0938-0700.
    Section 422.50(a)(2)--In this final rule, 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.

[[Page 50853]]

    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.
    Section 422.74(d)(4)(i)--In the final rule, 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 
burden associated with this requirement is captured in approved 
collection 0938-0753.
    Section 422.106(c)(1)--M+C organizations may request, in writing, 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 believe that the burden associated with this requirement is 
minimal. We anticipate approximately 100 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 200 hours.
    Section 422.106(c)(2)--In this final rule, this section states that 
approved waivers or modifications under this paragraph may be used by 
any M+C organization on developing its ACR proposal. Any M+C 
organization using a waiver or modification must include that 
information in the cover letter of its ACR proposal 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 ACR proposal 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)--In this final rule, 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 422.152(f)(4)--We have added this section to reflect the 
statutory provision of requiring M+C organizations' quality assurance 
programs to have a separate focus on racial and ethnic minorities. We 
estimate that it will take each M+C organization approximately 2 hours 
to add a separate focus on racial and ethnic minorities to its quality 
assurance program. Since there are approximately 150 M+C organizations, 
we estimate the annual burden associated with this requirement to be 
approximately 300 hours.
    Section 422.210(a)(1)--In the final rule, 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)--In this final rule, 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 collection 0938-0753.
    In summary, the total burden hours for this proposed rule is 
calculated to be 500 hours. The breakdown is as follows:

Sec.  417.479(h)--burden captured in 0938-0700
Sec.  422.50(a)(2)--burden captured in 0938-0753
Sec.  422.74(d)(4)(i)--burden captured in 0938-0753
Sec.  422.106(c)(1)--200 hours
Sec.  422.106(c)(2)--burden captured in 422.106(c)(1)
Sec.  422.111(f)(8)(iii)--burden captured in 0938-0753
Sec.  422.152(f)(4)--300 hours
Sec.  422.210(a)(1)--burden captured in 0938-0700
Sec.  422.266(a)--burden captured in 0938-0753
0938-0700 is approved for 450 hours and expires on April 30, 2004 and 
0938-0753 is approved for 2,120,006 hours and expires on October 31, 
2005.

VI. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review) 
and the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 
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).
    This final rule, which changes M+C regulations in accordance with 
provisions set forth in the BIPA, 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 
final rule will result in increases in total expenditures of less than 
$100 million per year.
    The budgetary impact of section 605 of the BIPA, which mandated 
revised ESRD payments, was estimated to be $270 million over the 5 
years between FY 2002 to FY 2006, based on the FY 2002 President's 
budget. These payments are in the current baseline and have no impact 
on the budget. In addition, these provisions have already been 
implemented through our 2002 annual payment notice. The additional cash 
expenditures for these M+C ESRD beneficiaries under this provision of 
the BIPA affected those M+C organizations that enrolled the 
approximately 18,000 ESRD beneficiaries in their plans. Additional 
expenditures for this provision have been incorporated into the M+C 
payment rates from CY 2002 forward.
    This estimate assumed continuation of the current restrictions on 
enrollment in the M+C program for ESRD beneficiaries. This estimate 
also included the impact of adjusting for age and sex and the impact of 
raising the ESRD base rates by 3 percent. We estimate that the change 
in policy for

[[Page 50854]]

NCDs in this rule adds approximately $48 million per year to the 
Federal budget.
    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 
$6 million and $29 million or less 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 final 
rule on M+C organizations, including those that are tax-exempt, and, 
therefore, small entities. We find that overall the economic impact is 
positive, due to the revised ESRD rates mandated by section 605 of the 
BIPA, which are generating an increase in payments; the increase in 
payments due to the revised policy on NCDs, and the reductions in 
regulatory burden due to the premium reductions in section 606, the 
waivers of M+C rules specified in section 606 for employers and related 
organizations, the waiver of the 3 day hospital stay for SNF 
admissions, and the reduction of the physician incentive reporting 
requirements. Therefore, we certify that this final rule will 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 
economic impact or regulatory burden of this final rule because the 
regulatory burden is reduced and payment to the plans is increased by 
this rule. The major change between the proposed and final rule is the 
method for computing a significant national coverage determination. 
This change will have a net benefit to M+C organizations. We certify 
that this final rule will not have a significant impact on a 
substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a final rule has a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area (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 final rule has 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 final rule will impose no direct requirement costs 
on State and local government, will 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.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 409--HOSPITAL INSURANCE BENEFITS

0
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

0
2. In Sec.  409.20, the following amendments are made as set forth 
below:
0
a. Paragraph (c)(3) is revised.
0
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 post-hospital 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

0
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.

0
4. In Sec.  409.31 paragraph (b)(2)(ii) is revised, and a new paragraph 
(b)(2)(iii) is added to read as follows:

[[Page 50855]]

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

0
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.

Subpart L--Medicare Contract Requirements


Sec.  417.479  [Amended]

0
6. In Sec.  417.479, the following amendments are made as follows:
0
a. In paragraph (g)(2)(ii), the reference in the second sentence to 
``(h)(1)(v)'' is removed and ``(h)(2)'' is inserted in its place.
0
b. The heading for paragraph (h) is revised.
0
c. Paragraph (h)(1) is revised.
0
d. Paragraph (h)(2) is revised.
0
e. The introductory text to paragraph (h)(3) is revised.


Sec.  417.479  Requirements for physician incentive plans.

* * * * *
    (h) Disclosure and other requirements for organizations with 
physician incentive plans. (1) Disclosure to CMS. Each health 
maintenance organization or competitive medical plan must provide to 
CMS information concerning its physician incentive plans as requested.
    (2) Pooling of patients. Pooling of patients is permitted only if--
(i) It is otherwise consistent with the relevant contracts governing 
the compensation arrangements for the physician or physician group;
    (ii) The physician or physician group is at risk for referral 
services with respect to each of the categories of patients being 
pooled;
    (iii) The terms of the compensation arrangements permit the 
physician or physician group to spread the risk across the categories 
of patients being pooled;
    (iv) The distribution of payments to physicians from the risk pool 
is not calculated separately by patient category; and
    (v) The terms of the risk borne by the physicians or physician 
group are comparable for all categories of patients being pooled.
    (3) Disclosure to Medicare beneficiaries. Each health maintenance 
organization or competitive medical plan must provide the following 
information to any Medicare beneficiary who requests it:
* * * * *

PART 422--MEDICARE+CHOICE PROGRAM

0
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

0
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

0
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. If the plan 
so elected is later terminated or discontinued in the area in which the 
individual resides, he or she may elect another M+C plan.
* * * * *

0
10. In Sec.  422.74, the following amendments are made as set forth 
below:
0
a. Paragraph (d)(1)(ii) is revised.
0
b. Paragraph (d)(4) is revised.


Sec.  422.74  Disenrollment by the M+C organization.

* * * * *
    (d) * * *
    (1) * * *
    (ii) The M+C organization has not received payment within 90 days 
after the date the premium was due.
* * * * *
    (d) * * *
    (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.  422.100(b)(1)(iv) and Sec.  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

[[Page 50856]]

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.
    (iv) Notice of disenrollment. The M+C organization must give the 
individual a written notice of the disenrollment that meets the 
requirements set forth in paragraph (c) of this section.
* * * * *

Subpart C--Benefits and Beneficiary Protections

0
11. In Sec.  422.101, the following amendments are made as follows:
0
a. Paragraph (b)(3) is revised.
0
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 organization. If an M+C organization covers 
geographic areas encompassing more than one local coverage policy area, 
the M+C organization may elect to uniformly apply to plan enrollees in 
all areas the coverage policy that is the most beneficial to M+C 
enrollees. M+C organizations that elect this option must notify CMS 
before selecting the area that has local coverage policies that are 
most beneficial to M+C enrollees as follows:
    (i) An M+C organization electing to adopt a uniform local coverage 
policy for a plan or plans must notify CMS at least 60 days before the 
date specified in Sec.  422.306(a), which is 60 days before the date 
adjusted community rate proposals are due for the subsequent year. Such 
notice must identify the plan or plans and service area or services 
areas to which the uniform local coverage policy or policies will 
apply, the competing local coverage policies involved, and a 
justification explaining why the selected local coverage policy or 
policies are most beneficial to M+C enrollees.
    (ii) CMS will review notices provided under paragraph (b)(3)(i) of 
this section, evaluate the selected local coverage policy or policies 
based on such factors as cost, access, geographic distribution of 
enrollees, and health status of enrollees, and notify the M+C 
organization of its approval or denial of the selected uniform local 
coverage policy or policies.
    (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.

0
12. In Sec.  422.106, the following amendments are made as follows:
0
a. The section heading is revised.
0
b. Paragraphs (a) introductory text, (a)(1), and (a)(2) are revised.
0
c. Paragraph (b) introductory text is revised.
0
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 and benefits 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, which are not 
part of the M+C plan, are not subject to review or approval by CMS.
* * * * *
    (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 
(ACR) proposal. Any M+C organization using a waiver or modification 
must include that information in the cover letter of its ACR proposal 
submission.

0
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. For 
purposes of Sec.  422.256 only, this test is applied to all NCDs or 
legislative changes in benefits, in the aggregate, for a given year. If 
the sum of the average cost of each NCD or legislative change in 
benefits exceeds the amount in paragraph (a)(1) of this section, or the 
aggregate costs of all NCDs and legislative changes for a year exceeds 
the percentage in paragraph (a)(2) of this section, the costs are 
considered ``significant.''
    (b) General rule. If CMS determines and announces that an 
individual NCD or legislative change in benefits meets the criteria for 
significant cost described

[[Page 50857]]

in paragraph (a) of this section, a 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. If CMS 
determines that an NCD or legislative change in benefits does not meet 
the ``significant cost'' threshold described in Sec.  422.109(a), the 
M+C organization is required to provide coverage for the NCD or 
legislative change in benefits and assume risk for the costs of that 
service or benefit as of the effective date stated in the NCD or 
specified in the legislation.
    (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 significant cost 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 
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.

0
14. In Sec.  422.111, a new paragraph (f)(8)(iii) is added to read as 
follows:


Sec.  422.111  Disclosure requirements.

* * * * *
    (f) * * *
    (8) * * *
    (iii) The reduction in Part B premiums, if any.
* * * * *

0
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. 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 D--Quality Assurance

0
16. In Sec.  422.152, a new paragraph (f)(4) is added to read as 
follows:


Sec.  422.152  Quality assessment and performance improvement program.

* * * * *
    (f) * * *
    (4) Focus on racial and ethnic minorities. The M+C organization's 
Quality Assurance program must include a separate focus on racial and 
ethnic minorities.

Subpart E--Relationships With Providers

0
17. In Sec.  422.202, paragraph (a)(4) is revised to read as follows:


Sec.  422.202  Participation procedures.

    (a) * * *
    (4) A process for appealing adverse participation procedures, 
including the right of physicians to present information and their 
views on the decision. In the case of termination or suspension of a 
provider contract by the

[[Page 50858]]

M+C organization, this process must conform to the rules in Sec.  
422.202(d).

0
18. 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

0
19. In Sec.  422.250, the following amendments are made as follows:
0
a. Paragraph (a)(1) is revised.
0
b. Paragraph (a)(2)(i)(B) is redesignated as (a)(2)(i)(C).
0
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 1/12th 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. Effective 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.
* * * * *

0
20. 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 will adjust capitation 
rates or make other payment adjustments, to account for the cost of the 
service or legislative change in benefits. Until the new capitation 
rates are in effect, the M+C organization will be paid for the 
significant cost NCD service or legislative change in benefits on a 
fee-for-service basis as provided under Sec.  422.109(b). The Office of 
the Actuary in CMS will apply a new NCD adjustment factor each year 
that reflects significant costs of NCDs and legislative changes in 
benefits for coverage effective in the second prior year. The new NCD 
adjustment factor will be applied to the 2 percent minimum update rate 
described in Sec.  422.252(c).
* * * * *

0
21. In Sec.  422.266, the following amendments are made as follows:
0
a. Paragraph (a) introductory text is revised.
0
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 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

0
22. In Sec.  422.312, the following amendments are made as follows:
0
a. Paragraph (d) is redesignated as paragraph (e).
0
b. A new paragraph (d) is added.


Sec.  422.312  Requirement for additional benefits.

* * * * *
    (d) Reduction in payments. As of 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

0
23. 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, requirements 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

0
24. In Sec.  422.566, paragraph (c) is revised to read as set forth 
below:

[[Page 50859]]

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).

0
25. 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. 
A 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.

0
26. In Sec.  422.619, paragraph (c) is revised to read as set forth 
below:


Sec.  422.619  How a 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. A 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

0
27. In Sec.  422.756, the following amendments are made as set forth 
below:
0
a. Paragraph (f)(2) is revised.
0
b. Paragraph (f)(3) is revised.


Sec.  422.756  Procedures for imposing sanctions.

* * * * *
    (f) * * *
    (2) In the case of a violation described in paragraph (a) of Sec.  
422.752, or a determination under paragraph (b) of Sec.  422.752 based 
upon a violation under Sec.  422.510(a)(4) (involving fraudulent or 
abusive activities), in accordance with the provisions of part 1005 of 
this title, the OIG may impose civil money penalties on the M+C 
organization in accordance with part 1005 of this title in addition to, 
or in place of, the sanctions that CMS may impose under paragraph (c) 
of this section.
    (3) In the case of a determination under paragraph (b) of Sec.  
422.752 other than a determination based upon a violation under Sec.  
422.510(a)(4), in accordance with the provisions of part 1005 of this 
title, CMS may impose civil money penalties on the M+C organization in 
the amounts specified in Sec.  422.758 in addition to, or in place of, 
the sanctions that CMS may impose under paragraph (c) of this section.

0
28. In Sec.  422.758, the following amendments are made as set forth 
below:
0
a. The introductory text is designated as paragraph (a) introductory 
text.
0
b. Paragraph (a) is redesignated as paragraph (a)(1) and is revised.
0
c. Paragraph (b) is redesignated as paragraph (a)(2) and is revised.
0
d. A new paragraph (b) is added.


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

    (a) * * *
    (1) For the violations listed below, CMS may impose the sanctions 
specified in Sec.  422.750(a)(2), (a)(3), or (a)(4) on any M+C 
organization that has a contract in effect. The M+C organization may 
also be subject to other applicable remedies available under law.
    (2) For each week that a deficiency remains uncorrected after the 
week in which the M+C organization receives CMS's notice of the 
determination--up to $10,000.
    (b) If CMS makes a determination under Sec.  422.752(b) and Sec.  
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)

    Dated: April 3, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 3, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-20995 Filed 8-13-03; 3:19 pm]
BILLING CODE 4120-01-P