[Federal Register Volume 71, Number 236 (Friday, December 8, 2006)]
[Rules and Regulations]
[Pages 71244-71337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20544]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 460, 462, 466, 473, and 476



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

  Federal Register / Vol. 71, No. 236 / Friday, December 8, 2006 / 
Rules and Regulations  

[[Page 71244]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 460, 462, 466, 473, and 476

[CMS-1201-F]
RIN 0938-AN83


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

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

ACTION: Final rule.

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SUMMARY: This rule finalizes the interim final rule with comment period 
published in the Federal Register November 24, 1999 (64 FR 66234) and 
the interim final rule with comment period published in the Federal 
Register on October 1, 2002 (67 FR 61496). The November 1999 interim 
final rule implemented sections 4801 through 4803 of the Balanced 
Budget Act of 1997 (Pub. L. 105-33) and established requirements for 
Programs of All-inclusive Care for the Elderly (PACE) under the 
Medicare and Medicaid programs. The interim final rule with comment 
period published on October 1, 2002 (67 FR 61496) implemented section 
903 of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) (Pub. L. 106-554).

DATES: Effective Date: These regulations are effective on January 8, 
2007.

FOR FURTHER INFORMATION CONTACT: Jana Petze, (410) 786-4533, or Carrie 
Smith, for State technical assistance, (410) 786-4485.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Program Description
    B. Legislative History
    1. Demonstration Project
    2. Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33)
    a. Use of the PACE Protocol
    b. Consultation With States
    c. Consultation With State Agency on Aging
    d. State Medicaid Plan Requirement
    e. Interaction with Medicare + Choice (Now Medicare Advantage)
    f. Flexibility Under the BBA
    3. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA)
    a. Background
    b. Contracting for IDT Members and Administrative Staff
    c. Contracting With Another Entity to Furnish PACE Center 
Services
    d. Oversight of Direct Patient Care Services
    e. Waiver Process
    4. Medicare Prescription Drug Improvement and Modernization Act 
of 2003, (MMA)
II. Analysis of Public Comments
    A. Summary of Comments on the 1999 Interim Final Rule
    B. Summary of Comments on the 2002 Interim Final Rule
III. Provisions of the 1999 Interim Final Rule With Comment and the 
2002 Interim Final Rule With Comment, Analysis of and Response to 
Public Comments and Final Rule Actions
IV. Provisions of the Final Rule
V. Collection of Information Requirements
VI. Regulatory Impact Statement
Regulation Text
Addendum--PACE Protocol (1999)

ACRONYMS for the PACE Final Rule

ADLs Activities of Daily Living
BBA Balanced Budget Act of 1997
BIPA Medicare, Medicaid and SCHIP Benefits Improvement and Protection 
Act of 2000
CAP Corrective Action Plan
CBRR Consumer Bill of Rights and Responsibilities
CMS Centers for Medicare & Medicaid Services
COBRA Consolidated Omnibus Budget Reconciliation Act of 1985
COP Condition of Participation
CHSPR Center for Health Services and Policy Research
CMS-HCC CMS Hierarchical Conditions Category
ESRD End-Stage Renal Disease
FFP Federal Financial Participation
HOS Health Outcomes Survey
HPMS Health Plan Management System
IDT Interdisciplinary Team
IRE Independent Review Entity
LCS Life Safety Code
MA Medicare Advantage (formerly Medicare + Choice(M + C))
MA-PDP Medicare Advantage--Prescription Drug Plan
M + C Medicare + Choice (now Medicare Advantage (MA))
MMA Medicare Prescription DrugImprovement 
andModernization Act of 2003
NF Nursing Facility
NPA National PACE Association
OBCQI Outcome-Based Continuous Quality Improvement
PACE Programs of All-inclusive Care for the Elderly
PCA Personal Care Attendant
PCP Primary Care Physician
PHS PACE Health Survey
PO PACE Organization
QAPI Quality Assessment and Performance Improvement
RAI Request for Additional Information
SAA State Administering Agency
SFH State Fair Hearing
SPA State Plan Amendment
SSA Social Security Administration

Requirements for Issuance of Regulations

    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173 enacted on December 8, 
2003, amended section 1871(a) of the Social Security Act (the Act)) 
requires the Secretary, in consultation with the Director of the Office 
of Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
902 of the MMA states that the timelines for these regulations may vary 
among different regulations but shall not exceed 3 years after 
publication of the preceding proposed or interim final regulation 
except under exceptional circumstances. Section 902 also directs the 
Secretary to establish an appropriate period for finalizing those 
interim final regulations that were published before the enactment of 
MMA on December 8, 2003. Pursuant to this requirement, we published a 
notice in the Federal Register (69 FR 78442) establishing a publication 
deadline of 3 years from MMA enactment, that is December 8, 2006, for 
finalizing interim final rules published prior to MMA enactment.
    This final rule finalizes provisions set forth in the November 24, 
1999 and October 1, 2002 interim final rules with comment. These 
interim final regulations will be finalized within the 3-year period 
after MMA enactment that was established under section of the MMA 902. 
Therefore, we believe that this final rule is in accordance with the 
Congress' intent to ensure timely publication of final regulations.

I. Background

A. Program Description

    The Program of All-inclusive Care for the Elderly (PACE) program is 
a unique model of managed care service delivery for the frail 
community-dwelling elderly, most of whom are dually eligible for 
Medicare and Medicaid benefits, and all of whom are assessed as being 
eligible for nursing home placement according to the standards 
established by their respective States.

B. Legislative History

1. Demonstration Project
    Section 603(c) of the Social Security Amendments of 1983 (Pub. L. 
98-21), as extended by section 9220 of the Consolidated Omnibus Budget

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Reconciliation Act of 1985 (COBRA) (Pub. L. 99-272) authorized the 
original demonstration PACE program for On Lok Senior Health Services 
(On Lok) in San Francisco. Section 9412(b) of Pub. L. 99-509, the 
Omnibus Budget Reconciliation Act of 1986 (OBRA, 1986), authorized us 
to conduct a PACE demonstration program to determine whether the model 
of care developed by On Lok could be replicated across the country. The 
number of sites was originally limited to 10, but the Omnibus Budget 
Reconciliation Act of l990 (Pub. L. 101-508) authorized an increase to 
15 PACE demonstration programs.
    The PACE model of care includes as core services the provision of 
adult day health care and interdisciplinary team (IDT) care management, 
through which access to and allocation of all health services is 
managed. Physician, therapeutic, ancillary, and social support services 
are furnished in the participant's residence or on-site at a PACE 
center. Hospital, nursing home, home health, and other specialized 
services are generally furnished under contract. Financing of the PACE 
demonstration model was accomplished through prospective capitation of 
both Medicare and Medicaid. PACE demonstration programs had been 
permitted by section 4118(g) of Pub. L. 100-203 (OBRA 1987) to assume 
full financial risk progressively over the initial three years. As such 
authority was removed by section 4803(b)(1)(B) of the Balanced Budget 
Act of 1997 (BBA) (Pub. L. 105-33), PACE demonstration programs 
approved after August 5, 1997 had to assume full financial risk at 
start-up.
    The PACE demonstration program was operated under a Protocol 
established and published by On Lok, Inc. on April 4, 1995.
2. Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33)
    The BBA built on the success of the PACE demonstration program. 
Section 4801 of the BBA, authorized coverage of PACE under the Medicare 
program. It amended title XVIII of the Act by adding section 1894, 
which addresses Medicare payments and coverage of benefits under PACE. 
Section 4802 of the BBA authorized the establishment of PACE as a State 
option under Medicaid. It amended title XIX of the Act by adding 
section 1934, which directly parallels the provisions of section 1894. 
Section 4803 of the BBA addresses implementation of PACE under both 
Medicare and Medicaid, the effective date, timely issuance of 
regulations, priority and special consideration in processing 
applications, and transition from PACE demonstration program status.
    As directed by section 4803 of BBA, we published an interim final 
rule on November 24, 1999, permitting entities to establish and operate 
PACE programs under section 1894 and 1934 of the Act (64 FR 66234).
    The 1999 interim final rule was a comprehensive rule that addressed 
eligibility, administrative requirements, application procedures, 
services, payment, participant rights, and quality assurance.
a. Use of the PACE Protocol
    Throughout the 1999 interim final rule, when we referred to ``the 
Protocol'' we meant the PACE Protocol, as published by On Lok, Inc., 
the parent company of On Lok Senior Health Services. A copy of the 
Protocol was included as an attachment to the 1999 interim final rule 
with comment period.
    We were directed by sections 1894(f)(2) and 1934(f)(2) of the Act 
to incorporate into regulation the requirements applied to PACE 
demonstration programs under the Protocol, to the extent consistent 
with the provisions of sections 1894 and 1934 of the Act. We also were 
authorized to modify or waive certain provisions of the Protocol in the 
development of the regulation, if the modification or waiver were not 
inconsistent with and would not impair the essential elements, 
objectives, and requirements of sections 1894 and 1934 of the Act.
b. Consultation With States
    Sections 4801 and 4802 of Pub. L. 105-33 clearly dictate a 
cooperative relationship between the Secretary and the States in the 
development, implementation and administration of the PACE program. In 
order to fulfill these requirements, we utilized the American Public 
Human Services (formerly, the American Public Welfare Association) as 
the conduit to solicit States for volunteers to consult with CMS staff. 
The participating State staff members represented States with a range 
of PACE experience. Each State staff volunteer selected a specific 
target area to provide information.
    In order to efficiently and effectively obtain a large amount of 
feedback in a short period of time, CMS staff arranged a series of 
conference calls to discuss a wide range of issues pertaining to PACE 
including requirements on the application process, enrollment, and 
payment and related financial data collection. Each subject area 
discussion included CMS staff and two to three State representatives. 
The feedback obtained during these meetings was an invaluable source of 
information in understanding State operational concerns and in 
constructing the regulation. We believed that this approach would 
minimize operational barriers that are frequently inherent when new 
programs are initiated. For this reason, CMS continues to regularly 
consult and receive feedback from States regarding PACE policy by means 
of teleconferences and forums.
c. Consultation With State Agency on Aging
    Under the Older Americans Act, State Agencies on Aging were charged 
with the responsibility of promoting comprehensive and coordinated 
service systems for older persons in their States. Consistent with this 
responsibility, State Agencies on Aging oversee important programs for 
home and community-based services which are funded through title III of 
the Older Americans Act, State revenues, and the Medicaid home and 
community-based waiver program.
    The State agencies also implement and oversee important planning, 
referral, case management, and quality assurance functions. In 
addition, State agencies are responsible for administering the State 
Long Term Care Ombudsman Program through which service quality in 
nursing homes and board and care homes are monitored in every State.
    Each State agency that administers the PACE program should 
regularly consult with their respective State Agency on Aging in order 
to avoid service duplication in the PACE service areas and to assure 
the delivery and quality of services to PACE participants. In our 1999 
interim final rule, we indicated we were considering the extent to 
which the State Long Term Care Ombudsman Program would be useful in 
promoting the rights of PACE participants and in monitoring the quality 
of care provided by PACE organizations (POs). We received a number of 
comments on this issue that we discuss in Subpart G ``Participant 
Rights'' of this final rule.
d. State Medicaid Plan Requirement
    The State Medicaid plan is a comprehensive written statement 
submitted by the State and approved by CMS describing the nature and 
scope of the Medicaid program and giving assurance that the Medicaid 
program will be administered according to Federal law and policy. The 
State plan preprint sets forth the scope of the Medicaid program, 
including groups covered, services furnished, and

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payment policy. When a State completes a new State plan preprint page 
because of changes in its Medicaid program (called a ``State plan 
amendment (SPA)''), the preprint page must be approved by CMS in order 
for the State to receive Federal matching funds.
    Section 1905(a)(26) of the Act, as added by section 4802(a)(1) of 
the BBA, provided authority for States to elect PACE as an optional 
Medicaid benefit. The State plan electing the optional PACE program 
must be approved before CMS and the State enter into a program 
agreement with a PO. To aid States in modifying their State plans, the 
CMS Center for Medicaid and State Operations developed an interim State 
plan preprint for PACE. A State Medicaid letter dated March 23, 1998, 
provided information and guidance to State Medicaid agencies on how to 
satisfy the State plan amendment requirement. Additional directions for 
completing the State plan amendment were provided in a State Medicaid 
Director letter that was issued November 9, 2000. The most current 
version of the State Plan preprint is available on the CMS PACE 
homepage, http://www.cms.hhs.gov/PACE/04_InformationforStateAgencies.asp.
e. Interaction With Medicare+Choice (Now Medicare Advantage)
    The BBA also established the Medicare+Choice (M+C) program, which 
expanded the health care options available to Medicare beneficiaries. 
Under the M+C program, beneficiaries could elect to receive Medicare 
benefits through enrollment in one of several private health plan 
choices beyond the original (fee-for-service) Medicare program or 
choose a plan previously available through managed care organizations 
under section 1876 of the Act.
    The BBA set forth the requirements for M+C organizations in a new 
Part C of title XVIII of the Act. The interim final rule that 
implemented the M+C program was published June 26, 1998 (63 FR 34968). 
The final regulation addressing comments was published on February 17, 
1999 (64 FR 7968).
    Significant changes were made to the M+C program by the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
(Pub. L. 108-173, enacted on December 8, 2003). The two final 
regulations that implemented the MMA were published January 28, 2005 
(70 FR 4194 and 4588). The first regulation established the Medicare 
Prescription Drug Benefit or Medicare Part D and the second regulation 
established the Medicare Advantage (MA) program which replaced the M+C 
program.
    In this final rule, we are finalizing our regulations that 
implement the PACE provisions of the BBA and BIPA statutes. We are 
limiting our discussion of the effects of MMA provisions to those 
issues that have been addressed in other MMA rulemaking. We think our 
regulations on Part D and MA provide sufficient and appropriate 
guidance to all affected entities, including POs. However, we believe 
it is essential to highlight the impact of MMA, particularly with 
respect to how Medicare Part D relates to a PO. Specifically, the MMA 
provides that POs electing to provide Part D coverage to their 
enrollees shall be treated in a manner similar to Medicare Advantage 
Prescription Drug Plans (MA-PDPs). A more detailed discussion of the 
relevant MMA provisions is provided later in this section.
    Although the PACE program has certain fundamental similarities to 
M+C (now MA), PACE is not a M+C plan. The BBA established separate and 
distinct requirements for the PACE program. PACE is similar to some M+C 
options in these ways: it is capitated; it is risk-based; it provides 
managed care; and it is an elective option. However, PACE differs 
significantly from M+C plans in other ways such as: it is not available 
nationwide (only in a limited number of sites); statutory waivers 
expand the scope of Medicare covered services; it is not available to 
all beneficiaries (only to a defined subset of frail elderly); and it 
is a joint Medicare/Medicaid program. However, the BBA directed us to 
consider some of the requirements established for the M+C program as we 
developed regulations for POs in certain areas common to both programs, 
for example, beneficiary protections, payment rates, and sanctions.
f. Flexibility Under the BBA
    As noted above, the PACE demonstration program was operated 
pursuant to a Protocol developed by On Lok, Inc. The Protocol provided 
authority for CMS and the State Administering Agency (SAA) (that is, 
the State Agency designated to administer the PACE program) to waive 
specific requirements of the Protocol, if, in their judgment, the 
following criteria were met:
     The intent of the requirements was met by the proposed 
alternative and
     Safe and quality care would be provided.

In addition, written requests for waivers were required to be approved 
by CMS and the SAA before implementation of the proposed alternative.
    Flexibility was limited to the requirements in the section on 
service coverage and arrangement. That section includes the following 
requirements:
     POs must provide all Medicare and Medicaid services and 
provide care 7 days per week, 365 days per year;
     A listing of required and excluded services and minimum 
services;
     Each participant be assigned to an IDT;
     The composition and duties of the IDT;
     The assessment and reassessment requirements.
    Flexibility was not authorized for other sections of the Protocol, 
such as participant rights, enrollment and disenrollment, and 
administration.
    Sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act give the 
Secretary the authority to waive regulatory provisions as follows:

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

    The statute also specifies the following essential elements that 
may not be waived:
     The focus on frail elderly qualifying individuals who 
require the level of care provided in a nursing facility.
     The delivery of comprehensive, integrated acute and long-
term care services.
     The multidisciplinary team approach to care management and 
service delivery.
     Capitated, integrated financing that allows the provider 
to pool payments received from public and private programs and 
individuals.
     The assumption by the provider of full financial risk.
    To implement sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act, 
in the 1999 interim final rule, we identified specific waivers that 
were intended to encourage the development of PACE programs in rural 
and Tribal areas. The waivers included the following three 
requirements:
     A prohibition on members of the governing body and their 
family members from having a direct or indirect interest in contracts 
with the organization (see Sec.  460.68(c));

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     A requirement that members of the IDT primarily serve PACE 
participants (see Sec.  460.102(g)); and
     A requirement that the primary care physician (PCP) must 
be employed by the PO (see Sec.  460.102(g)).
    The regulation included specific criteria for each waiver related 
to whether the PO's service area is rural or Tribal, the accessibility 
of individuals who meet the three regulatory requirements listed above, 
and a requirement that the proposed alternative does not adversely 
affect the availability or quality of care furnished to PACE 
participants.
    Our rationale for this initial, limited view of the flexibility 
provision was based on our belief that all PACE demonstration programs 
were in compliance with the Protocol, necessitating only minor changes 
in their operations to meet the PACE regulatory requirements. Our 
intention was to allow some flexibility to promote PACE in rural and 
Tribal areas while maintaining consistency of the requirements for 
other PACE programs. We intended to provide more flexibility to all POs 
once we had gained sufficient experience in administering the PACE 
program.
    However, after publication of the 1999 interim final rule, we 
learned that although the early PACE demonstration programs initially 
complied with the Protocol, most of them modified the Protocol 
requirements as they expanded, using the flexibility authorized in the 
Protocol. While many of these modifications were related to the 
allowable areas of service coverage and arrangement provisions, many 
others were not authorized by the flexibility clause in the Protocol. 
Furthermore, many of the later PACE demonstration programs also 
inappropriately exercised the flexibility clause in the Protocol, 
especially with regard to direct employment of staff. Finally, very few 
of the waivers were requested in writing or approved by CMS or the SAA 
before implementation.
    We subsequently revised our regulations on the waiver process in 
response to comments on the 1999 interim final rule and in accordance 
with the requirements of section 903 of the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 
106-554, enacted on December 21, 2000), as discussed below. A detailed 
discussion of waivers and the waiver process is located in section III, 
subpart B of this final rule.
3. The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA)
a. Background
    BIPA modified the PACE program in the following three ways:
     Section 901 extended the transition period for the PACE 
demonstration programs to allow an additional year for these 
organizations to transition to the permanent PACE program.
     Section 902 gave the Secretary the authority to 
grandfather in the modifications these programs had implemented as of 
July 1, 2000. This provision allowed the PACE demonstration programs to 
continue program modifications they had implemented and avoid 
disruptions in participant care where these modifications were 
determined to be consistent with the PACE model. These sections were 
implemented administratively.
     Section 903 specifically addressed flexibility in 
exercising the waiver authority provided under sections 1894(f)(2)(B) 
and 1934(f)(2)(B) of the Act. It authorized CMS to modify or waive PACE 
regulatory provisions in a manner that responds promptly to the needs 
of POs relating to the areas of employment and the use of community-
based PCPs. Section 903 of BIPA also established a 90-day review period 
for waiver requests. As the flexibility language is part of the 
statutory section dealing with regulations (sections 1894(f) and 
1934(f) of the Act), we believed it was intended that waiver 
requirements be incorporated into the PACE regulations. In order to 
implement section 903 of BIPA, we published the 2002 PACE interim final 
rule.
b. Contracting for IDT Members and Administrative Staff
    In the 2002 interim final rule, we amended the PACE regulations to 
replace the term ``multidisciplinary'' with ``interdisciplinary'' to 
more accurately reflect the interactive and collaborative approach of 
the PACE care team.
    In the 2002 interim final rule, we responded to public comments 
regarding flexibility, including comments on Sec.  460.102(f) of the 
1999 interim final rule, which required that the PACE IDT members be 
employees of the PO or PACE center. In the 2002 interim final rule, we 
deleted Sec.  460.102(f) and revised Sec.  460.60 to allow the PO to 
employ or contract with the program director and the medical director. 
We also added requirements at Sec.  460.70 that must be met when the PO 
is contracting for services.
    A more detailed discussion of Sec.  460.60 and Sec.  460.70 is 
located in section III, subpart E of this final rule.
c. Contracting With Another Entity To Furnish PACE Center Services
    After publication of the 1999 interim final rule, we learned that 
in 1995, On Lok, Inc. had changed the Protocol to reflect a contractual 
arrangement they entered into with another organization to provide all 
PACE center services. Under this arrangement, the IDT was employed and 
managed by the contracting organization but On Lok retained 
responsibility for all care provided to and all risk entailed in 
meeting the healthcare needs of the participants attending the center. 
Through this contractual relationship, On Lok was able to expand PACE 
services within their service area. As this approach was reflected in 
the PACE Protocol, we amended the PACE regulations in the 2002 interim 
final rule to allow POs to provide PACE center services through 
contractual arrangements. We also revised Sec.  460.70 to identify the 
criteria that a PO must meet to contract out PACE center services. A 
more detailed discussion of Sec.  460.70 is located in section at IV.B. 
of this final rule.
d. Oversight of Direct Patient Care Services
    As discussed above, in the 2002 interim final rule, we revised the 
requirements of the 1999 interim final rule to allow for the 
contracting of IDT members, program director, medical director, and all 
PACE center services. For this reason, we believed it was essential to 
establish oversight criteria that POs must implement for all employees 
and contracted staff who furnish direct patient care. This was 
accomplished with the addition of Sec.  460.71. A more detailed 
description of Sec.  460.71 is located in section IV, subpart E of this 
final rule.
e. Waiver Process
    To implement section 903 of BIPA, we established a process for 
submission and approval of waiver requests. The 2002 interim final rule 
amended the 1999 interim final rule by adding Sec.  460.26, which 
specifies the requirements for submission and evaluation of waiver 
requests and Sec.  460.28, which addresses requirements related to CMS 
review of waiver requests. In the 2002 interim final rule, we also 
removed the restrictive waiver provisions for rural and Tribal

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organizations that were included in the 1999 interim final rule.
    A more detailed description of Sec.  460.26 and Sec.  460.28 is 
located in section III, subpart B of this final rule.
4. Medicare Prescription Drug Improvement and Modernization Act of 2003 
(MMA)
    On December 8, 2003, the Congress enacted the MMA of 2003 (Pub. L. 
108-173). Several sections of the MMA impact POs. Most notably, section 
101 of the MMA affected the way in which POs are paid for providing 
certain outpatient prescription drugs to any Part D eligible 
participant. As specified in sections 1894 and 1934 of the Act, POs 
shall provide all medically necessary services including prescription 
drugs, without any limitation or condition as to amount, duration, or 
scope and without application of deductibles, co-payments, coinsurance, 
or other cost sharing that would otherwise apply under Medicare or 
Medicaid. Up until January 1, 2006, payment for drugs covered under 
Medicare parts A and B was included in the monthly Medicare capitation 
rate paid to POs for Medicare beneficiaries, while payment for 
outpatient prescription drugs was included in the monthly Medicaid 
capitation rate paid to POs for Medicaid recipients, or as a portion of 
the amount equal to the Medicaid premium paid by non-Medicaid 
recipients.
    Consequently, in order for POs to continue to meet the statutory 
requirement of providing prescription drug coverage to their enrollees, 
and to ensure that they receive adequate payment for the provision of 
Part D drugs, beginning January 1, 2006, POs could begin to offer 
qualified prescription drug coverage to their enrollees who are Part D 
eligible individuals. The MMA did not impact the manner in which POs 
are paid for the provision of outpatient prescription drugs to non-part 
D eligible PACE participants.
    Section 1860D-21(f) of the Act, added by section 101 of the MMA, 
provides that POs may elect to provide qualified prescription drug 
coverage to enrollees who are Part D eligible individuals.
    This section also provides that in the case of a PACE program that 
elects to provide qualified Part D prescription drug coverage, the 
requirements under Part D apply to the provision of such coverage in a 
manner that is similar to the manner in which those requirements apply 
to the provision of such coverage under an MA-PD local plan. However, 
because we did not believe that Congress intended for the MMA to alter 
the way in which PACE services, including outpatient prescription drugs 
are provided to PACE enrollees, we indicated in the final rule that 
implements Part D (70 FR 4194) that POs would not be deemed to be MA-PD 
local plans, but rather, would be treated in a manner similar to an MA-
PD local plan for purposes of payment under Part D. We stated that this 
approach is consistent with section 1894(d)(1) of the Act, which 
provides that payments will be made to POs ``in the same manner and 
from the same sources'' as payments are made to a MA organization.
    The MMA allows CMS the flexibility to deem POs as MA-PD plans or to 
treat POs that elect to provide qualified drug coverage in a manner 
similar to MA-PD plans. Due to inconsistencies in the PACE and MMA 
statutes, we chose to treat POs in a similar manner as MA-PD plans 
avoiding conflicting requirements. The requirements that apply to POs 
that elect to provide qualified prescription drug coverage to Part D 
eligible enrollees are set forth in subpart T of the preamble to the 
Part D final rule (70 FR 4194). To the extent that we need to address 
additional issues regarding Part D as it applies to POs, we will do so 
in a future rulemaking.
    In addition, section 236 of the MMA amended the Act to extend to 
POs the existing statutory Medicare and Medicaid balance billing 
protections that had previously applied to POs under PACE demonstration 
program authority. Specifically, provisions of the Act that limit 
balance billing against MA organizations by non-contract physicians, 
providers of service, and other entities with respect to services 
covered under title XVIII now include PACE providers. Similarly, 
Medicaid billing limitations specified in the Act now apply to 
providers participating under the State plan under title XIX that do 
not have a contract or other agreement with a PACE provider. Both MMA 
provisions apply to services furnished on or after January 1, 2004.
    Section 301 of the MMA amends the Medicare Secondary Payer (MSP) 
provisions in section 1862(b) of the Act. These amendments clarify the 
obligations of primary plans and primary payers, the nature of the 
insurance arrangements subject to the MSP rules, the circumstances 
under which Medicare may make conditional payments, and the obligations 
of primary payers to reimburse Medicare. To implement section 301 of 
the MMA, we issued an interim final rule with comment period (71 FR 
9466), published on February 24, 2006, revising our MSP regulations at 
part 411. Our PACE regulations at Sec.  460.180(d) specify that 
Medicare does not pay for PACE services to the extent that Medicare is 
not the primary payer under part 411. The MSP interim final rule 
establishes our current policies regarding the obligations of other 
payers. If there are any provisions specific to PACE organizations that 
result from issuance of the final MSP rule, we will address those 
provisions in a future PACE rulemaking.
    Finally, as discussed above, under the rulemaking requirements of 
section 902 of the MMA and our notice in the Federal Register on 
December 30, 2004 (69 FR 78442), interim final regulations issued 
before enactment of MMA on December 8, 2003 must be finalized within 3 
years of the date of enactment or the regulations shall not continue in 
effect. This rule finalizes both the PACE interim final rule with 
comment period published in the Federal Register November 24, 1999 (64 
FR 66234) and the PACE interim final rule with comment period published 
in the Federal Register on October 1, 2002 (67 FR 61496).

II. Analysis of and Response to Public Comments

    This final rule responds to public comments received on both the 
November 24, 1999 interim final rule with comment (64 FR 66234) and the 
October 1, 2002 interim final rule with comment (67 FR 61496).

A. Summary of Comments on the 1999 Interim Final Rule

    We received 34 items of correspondence containing more than 500 
specific comments on the 1999 interim final rule. In this document, we 
will refer to this regulation as the 1999 interim final rule. 
Commenters included representatives of professional associations, State 
and county governments, PACE demonstration programs, potential PACE 
programs, various health care providers, and advocacy organizations.
    Consistent with the scope of the 1999 interim final rule, most of 
the commenters addressed multiple issues, often in great detail. Some 
commenters expressed concerns about Medicare and Medicaid issues that 
do not pertain to the PACE program.
    Numerous commenters disapproved of the limited flexibility provided 
in the regulation, stating that the regulation restricts programs from 
developing innovatively and responsively to participant preferences, 
community needs, and the healthcare marketplace. They asked for 
operational and service delivery flexibility, while permitting

[[Page 71249]]

liberal exceptions for established programs that have proven success in 
furnishing the PACE benefit. Commenters also noted the regulatory 
language was too prescriptive in several key areas (personnel 
qualifications) and too vague in others (Medicare rate-setting), saying 
that prescriptive language also reduces flexibility in organizational 
design and limits innovative strategies for service delivery.
    Commenters indicated that the application of M+C requirements was 
often made without considering the differences between the PACE program 
and M+C plans and that the differences between PACE and nursing 
facilities should be recognized in the final requirements.
    In addition, commenters indicated that the numerous written notices 
required by the 1999 interim final rule were unduly burdensome.
    Comments also indicated that in some instances requirements from 
other programs (for example, the Outcome Assessment Information Set 
(OASIS) for home health agencies) have been applied to PACE, thereby 
disregarding the differences between the programs and adding the burden 
of information collection.
    Finally, commenters opposed the prescriptive language that they 
thought limited State discretion and usurped traditional State 
regulatory activities rather than optimizing the opportunity to 
encourage cooperation with the States. We respond to the particular 
comments as they relate to specific provisions discussed in section III 
of this final rule.
    Listed below are the six areas of the 1999 interim final rule that 
generated the most concern:
    Subpart D: Sanctions, Enforcement Actions and Termination including 
civil money penalties;
    Subpart E: PACE Administrative Requirements including 
organizational structure, personnel qualifications, contracted services 
and marketing;
    Subpart F: PACE Services including the interdisciplinary team and 
participant assessment;
    Subpart G: Participant Rights including the appeals process;
    Subpart I: Participant Enrollment and Disenrollment which includes 
eligibility to enroll, enrollment process, continuation of enrollment, 
and involuntary disenrollment;
    Subpart J: Payment including Medicare payment.

B. Summary of Comments on the 2002 Interim Final Rule

    We received 4 letters of public comment on the October 1, 2002 
interim final rule (67 FR 61496) containing more than 17 specific 
comments. Commenters included representatives of professional 
associations, a State government, and an advocacy organization. In this 
document, we will refer to this regulation as the 2002 interim final 
rule.
    Commenters expressed opposing opinions on the flexibility permitted 
in the 2002 interim final rule. In general, commenters expressed 
concerns about flexibility related to all aspects of the program, 
including waivers and the waiver process, contracted services including 
staff and contractors, and oversight of direct participant care. Listed 
below are the three areas that generated the most concern:
    Subpart B: PO Application and Waiver Process;
    Subpart D: Sanctions, Enforcement Actions and Termination;
    Subpart E: Administrative Requirements.

III. Provisions of the 1999 Interim Final Rule With Comment and the 
2002 Interim Final Rule With Comment, Analysis of and Responses to 
Comments and Final Rule Actions

    The purpose of this final rule is to respond to public comments and 
finalize the regulations established in the 1999 and 2002 interim final 
rules. Below we will list each PACE regulation, note any comments and 
responses, and then note our final action.

Subpart A--Basis, Scope, and Purpose

    This subpart provides the basis for this regulation, the scope and 
purpose, and defines terms specific to the PACE benefit.

Section 460.2 Basis

    As stated in the 1999 interim final rule, the regulations set forth 
in 42 CFR part 460 are based on Sections 1894, 1905(a), and 1934 of the 
Act. Section 1894 of the Act authorizes Medicare payments to and 
coverage of benefits under PACE. Sections 1905(a) and 1934 of the Act 
authorize the establishment of PACE as an option under the State 
Medicaid plan to provide for Medicaid coverage of services furnished by 
the PACE program.
    No comments were received on this section.
    Final rule actions:
    This final rule will finalize Sec.  460.2 as published in the 1999 
interim final rule.

Section 460.4 Scope and Purpose

    We stated in the 1999 interim final rule that the purpose of the 
regulation was to set forth the requirements that an entity must meet 
in order to be approved as a PO under Medicare and Medicaid. It also 
sets forth how individuals may qualify to enroll in PACE, how Medicare 
and Medicaid payment will be made for PACE services, provisions for 
Federal and State monitoring of PACE programs, and procedures for 
sanctions and termination.
    We stated the purpose of a PACE program is to provide pre-paid, 
capitated, comprehensive health care services that are designed to:
     Enhance the quality of life and autonomy for frail, older 
adults;
     Maximize dignity of and respect for older adults;
     Enable frail, older adults to live in their homes and in 
the community as long as medically and socially feasible; and
     Preserve and support the older adult's family unit.
    This philosophy is based on Part I, section A, of the Protocol. 
Adopting a mission or philosophy statement that includes these elements 
indicates that an entity is guided by a set of values that influence 
its structure, planning, and day-to-day operations that is consistent 
with the purpose of PACE.
    No comments were received on this section.
    Final rule actions:
    This final rule will finalize Sec.  460.4 as published in the 1999 
interim final rule.

Section 460.6 Definitions

    This section of the 1999 interim final rule included the following 
definitions based on those in sections 1894(a) and 1934(a) of the Act 
and other terms determined necessary by CMS.
    Contract year means the term of a PACE program agreement, which is 
a calendar year, except that a PO's initial contract year may be from 
12 to 23 months, as determined by CMS.
    Medicare beneficiary means an individual who is entitled to 
Medicare Part A benefits or enrolled under Medicare Part B, or both.
    Medicaid participant means an individual determined eligible for 
Medicaid who is enrolled in a PACE program.
    Medicare participant means a Medicare beneficiary who is enrolled 
in a PACE program.
    PACE stands for Programs of All-inclusive Care for the Elderly.
    PACE center means a facility operated by a PO where primary care is 
furnished to participants.

[[Page 71250]]

    PACE organization (PO) means an entity that has in effect a PACE 
program agreement to operate a PACE program under this part.
    PACE program agreement means an agreement between a PO, CMS, and 
the State administering agency for the operation of a PACE program.
    Participant means an individual who is enrolled in a PACE program.
    Services include both items and services.
    State administering agency means the State agency responsible for 
administering the PACE program agreement.
    Trial period means the first 3 contract years in which a PO 
operates under a PACE program agreement, including any contract year 
during which the entity operated under a PACE demonstration program.
    In developing the definition of PACE organization, we explained in 
the 1999 interim final rule that sections 1894(a)(3) and 1934(a)(3) of 
the Act defined a ``PACE provider.'' We changed that term to ``PACE 
organization'' (PO) because we believed that the term ``PACE provider'' 
would be confusing. Medicare regulations (at 42 CFR 400.202) and 
Medicaid regulations (at 42 CFR 400.203) define the word ``provider,'' 
but the definitions are different and neither applies to entities that 
operate PACE programs. Those definitions denote individual providers of 
individual services under conventional fee-for-service systems. We 
selected the alternative term, PO, since ``organization'' is a term 
used in both titles XVIII and XIX when referring to managed care 
organizations, which are more similar to entities under PACE. In the 
few places where we use the term ``provider'' in this regulation, we 
are using it in the broad generic sense to refer to an individual or an 
entity that furnishes health care services. Our use of the term is not 
limited to the narrower Medicare definition in Sec.  400.202.
    Also, in defining contract year, we explained that a PO's initial 
(start-up) contract year may be from 12 to 23 months, as determined by 
CMS, to enable us to adjust the length of the initial (start-up) 
contract year so that subsequent years are on a standard annual 
calendar year cycle.
    Comment: One commenter suggested that we clarify the term 
``center'' by replacing it with the term ``PACE center.''
    Response: We agree and have replaced the term ``center'' with 
``PACE center'' throughout the regulation.
    Comment: We received several comments requesting that we clearly 
define PACE, what constitutes a PO, and what constitutes a PACE center 
including clarification that a PACE provider is considered a PACE 
program and may have more than one center.
    It was also recommended that we adopt the definition of PACE center 
as contained in the Protocol, which explicitly addresses the full range 
of services and benefits available at the PACE center.
    Response: In response to these comments, in this final rule, we are 
redefining ``PACE center'' to be more consistent with the definition 
provided in the Protocol and the statute by defining it as a facility 
which includes a primary care clinic, areas for therapeutic recreation, 
restorative therapies, socialization, personal care, and dining, and 
which serves as the focal point for coordination and provision of most 
PACE services.
    In addition, as noted below we are adding a definition of ``PACE 
program''. However, we disagree with the commenter who requested that 
we adopt the definition of ``PACE center'' as contained in the Protocol 
which explicitly identifies the full range of services and benefits 
available at the PACE center. We believe that our modification is more 
appropriate and less cumbersome than including every required service 
in the definition. We also believe that by expanding the definition of 
``PACE center'' that was published in the 1999 interim final rule, we 
are clarifying that a PACE center is a facility where most PACE 
services are provided, not just primary care.
    As noted earlier in this section, in the 1999 interim final rule, 
we defined PACE center as ``a facility operated by a PO where primary 
care is furnished to participants.'' This definition was based on 
section IV. B. 2 of the Protocol, which states: ``The PACE center is 
the focal point for coordination and provision of most PACE services. 
The PACE center is a facility which includes a primary care clinic, and 
areas for therapeutic recreation, restorative therapies, socialization, 
personal care and dining.'' The Protocol identified other requirements 
for a PACE center, which were included in other sections of the 1999 
interim final rule. Those requirements are included in the following 
sections: The list of required services is at Sec.  460.98; the 
requirement that POs operate at least one PACE center is in Sec.  
460.98(d)(1); the requirement that the frequency of attendance is 
determined by the IDT based on each participant's needs is at Sec.  
460.98(e); and the requirement that the PACE center is designed, 
equipped, and maintained to provide for the physical safety of 
participants, personnel, or visitors and to ensure a safe and sanitary 
environment is at Sec.  460.72.
    We believe the list of explicit services and benefits belongs in 
Sec.  460.98 which relates to ``Service delivery,'' and in Sec.  
460.72, which relates to ``Physical environment.''
    Comment: A commenter requested that we add a definition of a ``PACE 
program'' and use the following language ``all centers and service 
provision by an approved PACE provider in an approved service area.''
    Response: ``PACE program'' is defined in the Act at sections 
1894(a)(2) and 1934(a)(2) as an entity that meets the statutory 
requirements to be a PACE provider and provides comprehensive health 
care services to PACE program eligible individuals in accordance with 
the PACE program agreement and regulations. We have not included a 
definition for ``PACE program'' in our regulations at Sec.  460.6. 
However, we agree with the commenter that doing so would help to 
clarify and standardize PACE terminology. As noted above, we changed 
the term ``PACE provider'' to ``PACE organization'' and defined that 
term in the 1999 interim final rule.
    Based on sections 1894(a)(2) and 1934(a)(2) of the Act, we are 
defining a PACE program as a program of all-inclusive care for the 
elderly that is operated by an approved PACE organization and that 
provides comprehensive health care services to PACE enrollees in 
accordance with a PACE program agreement. As noted above, we are 
defining a PACE center as a facility which includes a primary care 
clinic, areas for therapeutic recreation, restorative therapies, 
socialization, personal care, and dining, and which serves as the focal 
point for coordination and provision of most PACE services. We do not 
think the commenter's language would be needed to ensure that PACE 
centers are included within the definition of a PACE program.
    Final rule actions:
    In this final rule we are:
     Replacing the term ``center'' with the term ``PACE 
center'' throughout the regulation.
     Redefining the term ``PACE center'' as ``a facility which 
includes a primary care clinic, areas for therapeutic recreation, 
restorative therapies, socialization, personal care, and dining, and 
which serves as the focal point for coordination and provision of most 
PACE services.''
     Defining ``PACE program'' to mean a program of all-
inclusive care for the elderly that is operated by an approved PACE 
organization and that provides

[[Page 71251]]

comprehensive health care services to PACE enrollees in accordance with 
a PACE program agreement.

Subpart B--PO Application and Waiver Process

Section 460.10 Purpose

    We established in the 1999 interim final rule, that this subpart 
sets forth application requirements for an entity that seeks approval 
from CMS as a PO. In the 2002 interim final rule, we amended Sec.  
460.10 to clarify that subpart B also establishes a process by which a 
PO may request a waiver of certain regulatory requirements in order to 
provide for reasonable flexibility in adapting the PACE service 
delivery model to the needs of particular organizations (such as those 
in rural areas).
PACE Under Both Medicare and Medicaid
    We require that each PO must enter into a program agreement under 
both sections 1894 and 1934 of the Act, that is, that each organization 
participate in both Medicare and Medicaid. Most of the text in those 
two sections is identical and our analysis indicates that key language 
contemplates entities acting as POs under both programs.
    Sections 1894(f)(2) and 1934(f)(2) of the Act require that we 
incorporate in our regulations the requirements applied to PACE 
demonstration programs under the PACE Protocol, to the extent 
consistent with the provisions of sections 1894 and 1934 of the Act. 
Under the Protocol, PACE demonstration programs operated under both 
Medicare and Medicaid. We believe that the directive to incorporate the 
requirements in the Protocol reflected an expectation by the Congress 
that all POs would participate in both Medicare and Medicaid. This view 
is reinforced by paragraph (f)(2)(B) of these sections, which permits 
us to modify or waive provisions of the PACE Protocol ``so long as such 
modification or waiver is not inconsistent with and would not impair 
the essential elements, objectives, and requirements'' of sections 1894 
and 1934 of the Act, but which forbids modifying or waiving, among 
others, the following provisions:
     Capitated, integrated financing that allows the 
organization to pool payments received from public and private programs 
and individuals; and
     The assumption by the organization of full financial risk.
    We concluded that both of these provisions preclude the possibility 
of a Medicare-only or Medicaid-only PACE program. For example, if a 
program could collect capitation payments from Medicare but bill fee-
for-service under Medicaid, not all financing would be capitated, nor 
would financing be integrated, nor would the organization assume full 
financial risk.
    However, the law does not require that States offer the PACE 
benefit under Medicaid. As indicated by its title, section 4802 of BBA 
provides for the ``Establishment of PACE Program as Medicaid State 
Option.'' If an entity attempted to become a PO under Medicare in a 
State which has not included PACE program services as an option under 
its Medicaid program, it would not be possible for that entity to be 
both a Medicare and a Medicaid PO. While this would curtail the 
availability of PACE programs in those States, we have concluded that 
this result was intended because a Medicare-only program could not meet 
the fundamental concept of an all-inclusive, integrated, capitated, 
full-risk program.
    Moreover, both sections 1894 and 1934 of the Act contemplate the 
active collaboration of Federal and State governments in the 
administration of PACE. Each State must have a SAA that is responsible 
for administering PACE program agreements in their State under sections 
1894 and 1934 of the Act. The SAA closely cooperates with CMS in 
establishing procedures for entering into, extending, and terminating 
PACE program agreements. The SAA cooperates with CMS and the PO in the 
development of participant health status and quality of life outcome 
measures. The SAA also cooperates with us in conducting oversight 
reviews of PACE programs and has the authority to terminate a PACE 
program agreement for cause. If Medicare-only programs had been 
contemplated in a State that does not elect the PACE option, there 
would have been no reason to assign such a significant role to an SAA. 
We believe that a State which has not chosen PACE as an optional 
service would be ill-prepared or unable to perform this role.
    As mentioned earlier, most of the text of section 1894 of the Act 
is identical to text in section 1934 of the Act. Portions of both text 
reflect the concept of entities acting as POs under both programs. The 
scope of Medicare PACE program benefits includes ``all items and 
services covered under this title (for individuals enrolled under this 
section [section 1894]) and all items and services covered under title 
XIX.'' Similarly, section 1934 of the Act, defines the Medicaid benefit 
package as ``all items and services covered under title XVIII (for 
individuals enrolled under section 1894) and all items and services 
covered under this title.'' In addition, to be eligible for PACE, an 
individual must require the nursing facility (NF) level of care covered 
under the State Medicaid plan.
    Section 1894(e) of the Act provides that ``CMS, in close 
cooperation with the SAA'' will establish program agreements for 
``entities that meet the requirements for a PO under this section, 
section 1934, and regulations.'' A corresponding provision is found at 
section 1934(e) of the Act, referring to ``entities that meet the 
requirements for a PO under this section, section 1894, and 
regulations.'' We believe that the use of the correlative ``and'' 
indicates that PACE entities would have to meet all three sets of 
requirements.
    A parallel provision provides for termination of PACE program 
agreements (see paragraphs (e)(5) of sections 1894 and 1934 of the 
Act). Termination of an agreement under both sections 1894 and 1934 of 
the Act may be accomplished by either ``CMS or a SAA.''
    Nonetheless, it is highly unlikely that any entity could be a 
viable PO without approval under both Medicare and Medicaid. The 
majority of potential participants are Medicare beneficiaries who also 
are eligible for Medicaid. Those who are not currently Medicaid-
eligible may eventually exhaust their financial resources and become 
eligible. Medicare participants who are not enrolled in PACE under 
Medicaid must pay premiums equal to the Medicaid capitation rate. Aside 
from the technicality that there would not be an established Medicaid 
capitation rate in a State that does not elect the PACE option, most of 
these participants would lack the ability to pay these significant 
premiums.
    As the above citations illustrate, some provisions of the law are 
conflicting and thus ambiguous. We therefore interpreted them to give 
effect to many of the provisions and policy objectives that they 
advance. Furthermore, in keeping with the congressional intent that the 
Protocol guide our implementation of the PACE program, we determined 
that POs must be approved under both Medicare and Medicaid.
    Based on this interpretation, if a State should choose not to amend 
its State Medicaid plan to adopt PACE as an optional Medicaid service, 
we would not accept PACE applications from entities in that State. 
Also, if a State has elected the optional benefit but declines to 
recommend a particular entity as a PO, we would not accept an 
application from that entity.

[[Page 71252]]

    We stated in the 2002 interim final rule that to implement section 
903 of BIPA, we amended the PACE regulation by adding Sec.  460.26 and 
Sec.  460.28 to establish a process for a PO to request waiver of 
regulatory requirements. This process allows for variations while 
achieving the intent of the regulatory provision and responding to the 
needs of POs to develop and expand within their States' long-term care 
delivery system.
    Waivers will be discussed in detail under Sec.  460.26 and Sec.  
460.28.
    Comment: Another commenter recommended that social support services 
and participant care be more clearly defined so beneficiaries and 
caregivers may make informed decisions about the type and level of care 
to be provided.
    Response: In response to the comment regarding a more defined 
regulation where social services and participant care is concerned, we 
disagree with this commenter, as required services are participant 
specific. After the IDT determines a participant requires a service and 
it is included in their plan of care, those services become required 
for that participant for that specific need. Therefore, it would not 
truly represent the PACE model to constrain the benefit by defining it 
in regulatory language.
    Final rule actions:
    This final rule will finalize Sec.  460.10, as published in the 
2002 interim final rule.

Section 460.12 Application Requirements

    We established Sec.  460.12 to set forth the application 
requirements for the PACE program. In order for CMS to determine 
whether an entity qualifies as a PO, an individual authorized to act 
for the entity must submit an application that describes thoroughly how 
the entity meets all the requirements specified in this regulation. In 
recognition of the 90-day review timeframe specified in the statute and 
described below and the numerical limit on the number of PACE program 
agreements, we will review and take action to approve, deny, or request 
additional information only on complete applications; those 
applications that address all elements of the PACE program agreement. 
We will send a letter to each applicant indicating whether or not the 
application is complete and specifying when the 90-day review period 
ends.
    We require in Sec.  460.12(b) that applications for PO status be 
accompanied by an assurance from the SAA indicating that it considers 
the entity to be qualified to be a PO and that the State is willing to 
enter into a PACE program agreement with the entity. We will not accept 
applications from entities that have not obtained these assurances.
    To enable a SAA to make these assurances, an entity would have 
established to the satisfaction of the State that it is committed to 
the PACE model of care, that there is sufficient funding for program 
development and facilities, that there is adequate demand for PACE 
services as shown by demographic analysis.
    Entities that are interested in developing a PACE program agreement 
should contact their SAA to determine whether the State has submitted 
or plans to submit a SPA to elect PACE as an optional benefit under its 
State Medicaid plan and if the State has established additional 
requirements for POs. Section 1905(a)(26) of the Act provides authority 
for States to elect PACE as an optional Medicaid benefit. The State 
plan electing the optional PACE program must be approved before we can 
approve an application for a PO in that State. We received three 
comments related to application requirements.
    Comment: Commenters questioned the requirement that POs must be 
approved by their SAA. Further, they requested that we specify an 
absolute role for SAA, and revise the regulatory language to reflect 
the SAAs' responsibility to submit the program application and the 
States' role in the application process.
    Response: As we explained in the 1999 interim final rule, States 
have played a significant role in the development of the PACE 
demonstration program as well as other community-based alternatives to 
institutionalization. Most States have implemented home and community 
based programs that provide comprehensive coordinated services to 
various groups of Medicaid recipients. As a result, States have gained 
extensive experience in demographic analysis and contracting with 
entities that are capable of delivering a specified range of services.
    Although the PACE statute does not specify the States' role in the 
application approval process, many aspects of implementing PACE in 
Medicare and Medicaid will necessitate extensive involvement of the 
SAAs and the State Medicaid Agencies. The State must elect to provide 
PACE services as an option under the Medicaid State plan and PACE 
applications must be accompanied by an assurance from the SAA that the 
State considers the entity to be qualified to be a PO and is willing to 
enter into a program agreement with them.
    With regard to applications, we continue to believe the States are 
in the best position to work with potential organizations to develop 
programs that meet our requirements and are integrated into the States' 
overall long-term care delivery system.
    Comment: One commenter asked us to clarify the regulatory provision 
related to the hiring requirements of non-operational programs before 
submission of their program application. The commenter stated that it 
is unreasonable to expect the applicant would have hired core staff 
before application submission.
    Response: Although hiring requirements for non-operational PACE 
programs do not appear in our regulations at Sec.  460.12, we addressed 
these requirements in the preamble of the 1999 interim final rule (64 
FR 66238). We stated, ``To enable a State to make such assurances, an 
entity would have established to the satisfaction of the State that it 
is committed to the PACE model of care, that there is sufficient 
funding for program development and facilities, that there is adequate 
demand for PACE services as shown by demographic analysis, and that the 
entity has hired core PACE staff and has developed contracts for 
referral arrangements and other program services that the site will not 
furnish directly.''
    When the 1999 interim final rule was developed, there were several 
PACE demonstration programs that needed to transition to permanent 
provider status. As they were operational and had key staff members in 
place before submitting their PACE provider applications, this 
requirement was not an issue.
    However, as all PACE demonstration programs have transitioned to 
permanent provider status, applications will now be primarily from non-
operational providers. We acknowledge that start-up costs are extensive 
and paying salaries for top management staff without a revenue stream 
is unrealistic. We do not believe that it is appropriate to hold non-
operational applicants to the same standard as POs that had been fully 
operational under the PACE demonstration program. Therefore, we are not 
requiring that core staff be hired before application approval. 
However, at the time of an organization's Readiness Review, we do 
expect documentation that core staff have been chosen and accepted 
those specific key positions. Language related to staff contracts of 
non-operational organizations has been included on page ix of the 
Provider Application, which

[[Page 71253]]

can be found on the PACE Web site under Provider Application and 
Appendices at www.cms.hhs.gov/pace/. This signed certification 
guarantees us, among other things, that the SAA will verify that the PO 
has qualified staff employed or under contract before furnishing 
services. This document must be signed by the SAA and included as part 
the PACE provider application.
    In the 2002 interim final rule, we revised Sec.  460.12 by removing 
and reserving paragraph (a)(2) to clarify that although we may begin 
review of PO applications, we may sign a program agreement only with a 
PO located in a State with an approved SPA electing PACE as an optional 
benefit under its Medicaid State plan. We are finalizing this provision 
by deleting Sec.  460.12(a)(2) entirely. For the sake of continuity we 
are redesignating Sec.  460.12(a)(3) as Sec.  460.12(a)(2).
    Final rule actions:
    In this final rule we are redesignating Sec.  460.12(a)(3) to Sec.  
460.12(a)(2).

Section 460.14 Priority Consideration

    Section 4803(c) of the BBA directed us to give priority in 
processing applications, during the 3-year period following enactment 
of the BBA on August 5, 1997, to PACE demonstration programs and then 
to entities which had applied to operate a PACE demonstration program 
as of May 1, 1997.
    In the 1999 interim final rule, we established Sec.  460.14 to 
address priority applications and stated that to give priority in 
processing applications from entities that met the criteria, we would 
accept applications only from those entities beginning on the effective 
date of the 1999 interim final rule and continuing for 45 days. 
Applications from other entities would not be accepted during this 
period. Moreover, during the subsequent 45 days, extending to 90 days 
after the effective date of that regulation, we stated we would 
continue to accept applications from entities that met the priority 
processing criteria and we would also accept applications from entities 
that qualify for special consideration as described in the following 
section.
    We did not receive any requests for priority consideration.
    Comments related to Sec.  460.14 also address Sec.  460.16 and will 
be addressed at the end of Sec.  460.16.

Section 460.16 Special Consideration

    Section 4803(c) of the BBA required that we give special 
consideration in the processing of applications during the 3 years 
following enactment, to any entity that, as of May 1, 1997, had 
indicated specific intent to become a PO through formal activities such 
as entering into contracts for feasibility studies.
    In Sec.  460.16, we established a process for special consideration 
of a PACE application. Similar to the process for priority 
consideration, to give special consideration in processing applications 
from entities that meet the criteria in the 1999 interim final rule, we 
indicated we would accept applications from these entities beginning 45 
days after the effective date of the 1999 interim final regulation. We 
further noted that during the 45-day period that extends from 45 days 
after the effective date to 90 days after the effective date, we would 
accept applications only from entities that met the priority processing 
criteria or entities that qualified for special consideration. 
Applications from other entities would not be accepted during this 
period.
    Applications from entities that believed they were entitled to 
special consideration were to include information regarding the formal 
activities they were engaged in towards becoming a PO. If we agreed 
that special consideration was appropriate for applications submitted 
after the special 45-day window, we would identify those applicants and 
factor in the entity's special status in the event that we had a 
greater number of applications under review than available capacity for 
PACE program agreements.
    We did not receive any requests for special consideration.
    Comment: Six commenters requested clarification regarding the 
criteria and process applied to applications under the BBA mandate 
providing priority and special consideration in processing PACE 
applications.
    Response: We believe the 2002 interim final rule provided 
sufficient information as to the criteria and process needed for 
priority and special consideration for PACE applications. More 
importantly, however, we note that as the authority to provide these 
considerations expired on August 5, 2000, it is no longer necessary to 
retain these regulations.
    Final rule actions:
    In this final rule we are deleting Sec.  460.14 and Sec.  460.16.

Section 460.18 CMS Evaluation of Applications

    We established the information used to evaluate a PO application in 
the 1999 interim final rule. We approve entities based upon a review of 
the materials submitted as part of the application, as well as 
information obtained from the SAA or through onsite visits.
    No comments were received on Sec.  460.18.
    Final rule actions:
    This final rule will finalize Sec.  460.18 as published in the 1999 
interim final rule.

Section 460.20 Notice of CMS Determination

    Sections 1894(e)(8) and 1934(e)(8) of the Act require us to approve 
or deny an application for PO status within 90 days after the date of 
the submission of the application unless additional information is 
requested. Applications are deemed approved unless we deny PO status in 
writing or request additional information within the 90-day timeframe. 
In the 1999 interim final rule, we established procedures for 
implementing these requirements at Sec.  460.20. We clarified that, for 
purposes of the 90-day time limit described in this section, the date 
that an application is considered to be submitted to CMS is the date on 
which the application is delivered to the address designated by CMS.
    These statutory sections also provide that we may request in 
writing additional information as may be required in order to make a 
final determination regarding the application and, after the date we 
receive that information, the application shall be deemed approved 
unless, within 90 days of that date, we deny the request.
    Based on this authority, we may take up to 90 days to request 
additional information and, once the information is received, may take 
an additional 90 days to complete processing of the application. It is 
important to note that there is no corresponding requirement that the 
SAA or the PO respond to our request for additional information (RAI) 
within a specified timeframe.
    If the additional information proves insufficient to approve the 
application, the application will be denied. We will notify each 
applicant of our determination and the basis for the determination in 
writing. If the application is denied, we will provide the basis for 
the denial and the process for requesting reconsideration of the 
application.
    No comments were received on Sec.  460.20.
    Final rule actions:
    This final rule will finalize Sec.  460.20 as published in the 1999 
interim final rule.

Section 460.22 Service Area Designation

    Sections 1894(e)(2(B) and 1934(e)(2)(B) of the Act permit the 
Secretary, in consultation with the SAA, to exclude from a service area 
designation an area that is already

[[Page 71254]]

covered under another PACE program agreement. In the 1999 interim final 
rule, we specified in Sec.  460.22 that each applicant must designate 
the service area of the program. We stated that CMS (in consultation 
with the SAA) may exclude from the proposed service area designation 
any area that is already covered under another PACE program agreement. 
Consistent with the statute, we believe this was required to avoid 
unnecessary duplication of services and impairing the financial and 
service viability of an existing PO.
    No comments were received on Sec.  460.22.
    Final rule actions:
    This final rule will finalize Sec.  460.22 as published in the 1999 
interim final rule.

Section 460.24 Limit on Number of PACE Program Agreements

    This provision implements sections 1894(e)(1)(B) and 1934(e)(1)(B) 
of the Act establishing a limit on the number of PACE program 
agreements that may be in effect on August 5 of each year, that is, the 
anniversary of the enactment of the PACE statute. Those sections state 
that we shall not permit the number of POs with which agreements are in 
effect under those sections or PACE demonstration programs under 
section 9412(b) of the OBRA of 1986 to exceed--
     Forty as of August 5, 1997, the date of the enactment of 
the PACE statute, or
     As of each succeeding anniversary of that date, the 
numerical limitation for the preceding year plus 20. The annual 
increase in the number of PACE program agreements is not tied to the 
actual number of agreements in effect as of a previous anniversary 
date.
    Based on this statutory language, we may enter into up to 80 PACE 
program agreements as of August 5, 1999, and the limit on the number of 
PACE program agreements increases by 20 each year thereafter.
    No comments were received on Sec.  460.24.
    Final rule actions:
    This final rule will finalize Sec.  460.24 as published in the 1999 
interim final rule.

Section 460.26 Submission and Evaluation of Waiver Requests

Section 460.28 Notice of CMS Determination on Waiver Requests

    These sections were established in the 2002 interim final rule to 
implement section 903 of BIPA. As we explained in that rule, we 
considered amending the 1999 interim final rule to identify each 
requirement that is eligible for waiver and provide separate waiver 
criteria for each requirement. However, we were concerned that amending 
the regulation for each waiver would: (1) Create a regulatory level of 
specificity that might make it difficult to apply to future requests 
for similar but not identical waivers; and (2) cause a significant 
delay between when the need for a waiver is identified and when it may 
be implemented.
    As an alternative, we amended the PACE regulation by adding Sec.  
460.26 and Sec.  460.28 to establish a process for a PO to request 
waiver of regulatory requirements.
    As noted previously, the PACE Protocol and the 1999 interim final 
rule have been proven effective as POs grow and reach financial 
solvency. We have learned a great deal about variations in the model 
through the information we received in processing grandfathering 
requests under section 902 of BIPA and numerous discussions with the 
National PACE Association (NPA), POs, and States. Allowing for waivers 
provides a unique opportunity for POs, the States, and CMS to 
experiment with new approaches within the structure of the PACE model. 
This process allows for variations while achieving the intent of the 
regulatory provision and responding to the needs of POs to develop and 
expand their States' long term care delivery system. The POs will serve 
as an ongoing laboratory that over time will establish best practices 
that may ultimately replace the current regulatory requirements.
    We realize that in order to foster innovation and creativity within 
the PACE program, POs must be granted some degree of flexibility in 
their operation and service delivery. However, we must balance this 
need for flexibility with our responsibility to ensure quality, cost 
effective care for all beneficiaries.
    Based upon our experience and review of grandfathering requests 
under section 902 of BIPA, we established two types of waivers in the 
2002 interim final rule, that is, general waivers and conditional 
waivers subject to evaluation. We discuss the waiver types below:
1. General Waivers
    A general waiver may be granted to a PO that has successfully 
implemented a specific operating arrangement, for example, an operating 
arrangement approved under section 902 of BIPA. General waivers 
continue indefinitely; however, approval may be withdrawn for good 
cause if periodic monitoring of the organization's operations and 
policies indicates participant care is being jeopardized, there is 
fiscal instability, or the goals of the PACE model are not maintained.
2. Conditional Waivers
    A conditional waiver, subject to evaluation, is a provisional 
waiver we would approve for a specific period of time to a new or 
experienced organization. During the conditional period, the PO would 
need to submit specific data, that we prescribed, that would allow us 
to monitor and evaluate the conditional waiver to determine whether the 
waiver may become permanent. This category of waiver may include the 
following scenarios:
    (a) A request for waiver without which a PO would be prevented from 
entering the program. For example, if a prospective PO has been unable 
to hire or contract with a social worker with a Master's degree, we may 
consider approving a conditional waiver request to allow a social 
worker with a baccalaureate degree to operate in this capacity until a 
qualified social worker is hired. This waiver would only be in effect 
until the PO could hire or contract for an appropriate staff member.
    (b) A request for approval of an arrangement with which a PO does 
not have any experience. We want to encourage creative approaches to 
improving the PACE model and view conditional waivers as a responsible 
way to balance the need of a PO with protection of participant health 
and safety. We need to be cautious in approving arrangements in which 
the PO does not have a proven record of success. In approving a 
conditional waiver request, we may limit the number of participants 
exposed to the waiver or approve the waiver for a limited period of 
time or at a specific PACE center until we are assured through 
evaluation that (1) the intent of the regulation is met; and (2) the 
approach is not inconsistent with nor impairs the essential elements, 
objectives, and requirements of PACE. At that time, we may approve a 
general waiver so that the PO may expand the arrangement to other PACE 
centers it manages without jeopardizing participant care.
    Each of the conditional waivers is subject to periodic monitoring. 
A PO approved for a conditional waiver must submit any prescribed data 
at specified intervals. We have learned that, in most cases, conducting 
a detailed review of a waiver request allows us to implement waiver 
approvals without having to require data submission. This evaluation 
serves a dual purpose. It allows us to monitor the impact on 
participant care as well as enable us to determine if any permanent 
changes to

[[Page 71255]]

PACE should be implemented through regulations. In addition, it allows 
us to provide technical assistance to other POs requesting a similar 
waiver.
    In the 2002 interim final rule, we discussed the process necessary 
to obtain any waiver. To obtain either a conditional or general waiver, 
a PO must provide a detailed description of how its proposed 
modification differs from the regulatory requirement and how it meets 
the intent of the regulatory provision. The burden is on the PO to 
explain why a waiver is needed to start up or expand their program. 
Where a PO has not completed the trial period, attained financial 
solvency, and demonstrated competence with the PACE model as evidenced 
by successful CMS and State onsite reviews and monitoring activities, 
it will be necessary for the organization to explain how the waiver is 
necessary to meet those objectives. For a new organization, it will be 
necessary for the organization to explain why a waiver is needed for 
the organization to begin serving participants.
    Consistent with the process developed for initial PACE provider 
applications, all waiver requests must be submitted to the SAA for 
initial review. The SAA forwards the waiver request to CMS along with 
any concerns or conditions they may have regarding the waiver. We will 
not accept waiver requests directly from POs. Waiver requests submitted 
with an initial application process must be prepared as a separate 
document. These requests are reviewed simultaneously and in conjunction 
with the application. Where an existing PO is requesting a waiver, the 
request must be submitted through the State to the CMS address for BIPA 
903 waiver requests indicated on the PACE home page (http://www.cms.hhs.gov/PACE). We intend to process waiver requests as 
expeditiously as possible in order to be responsive to the needs of new 
organizations to develop their programs and to the needs of mature 
organizations as they expand.
    Section 903 of BIPA directs us to approve or deny a request for a 
modification or waiver no later than 90 days after the date of receipt. 
We clarified in Sec.  460.28(b) that the date of receipt is the date 
the request is delivered to the address designated by CMS. We note that 
there is no statutory authority to stop the 90-day clock if additional 
information is necessary to make a determination on a waiver request. 
Thus, it is in the PO's best interest to provide all pertinent 
information relevant to their request. Where additional information is 
necessary, the CMS PACE Team Leader will inform the PO as early as 
possible in the review process. The PO will then be responsible for 
submitting the additional information in a timely enough manner to 
allow us to evaluate the additional information and make a 
determination on the waiver request within the allotted 90 days. If the 
reply from the PO is not received in a timely manner, we would have to 
deny the request. The PO may then reapply for the waiver, starting a 
new 90-day clock.
    Consistent with sections 1894(f)(2)(B) and 1934(f)(2)(B) of the 
Act, we specified in Sec.  460.26(c) the following requirements that 
would not be waived:
    (1) A focus on frail elderly qualifying individuals who require the 
level of care provided in a nursing facility;
    (2) The delivery of comprehensive, integrated acute and long-term 
care services;
    (3) The IDT approach to care management and service delivery;
    (4) Capitated, integrated financing that allows the provider to 
pool payments received from public and private programs and 
individuals; and
    (5) The assumption by the provider of full financial risk (we note 
that assuming full financial risk does not preclude an organization 
from utilizing reinsurance, stop-loss protection, or other mechanism to 
meet its financial obligations).
    In addition to these five provisions, we will not grant waivers 
that we believe are inconsistent with or would impair the essential 
elements, objectives, and requirements of sections 1894 and 1934 of the 
Act.
    In addition to the requirements specified in sections 1894(f)(2)(B) 
and 1934(f)(2)(B) of the Act, we believe there are other requirements 
that must not be waived. For example, health care is focused at a PACE 
center; the IDT is composed of certain health care professionals that 
manage all of the health care provided to participants; a comprehensive 
assessment by the IDT is conducted before admission into the PACE 
program; and reassessment occurs at least every 6 months or whenever 
there is a significant change in a participant's health status. 
Further, we believe that PACE participants are entitled to the same 
patient rights' protection available in the Medicare or Medicaid fee-
for-service or managed care programs. Therefore, we will not approve 
waiver or significant modification of these requirements.
    Two waiver issues specifically mentioned in section 903 of BIPA are 
requirements related to employment and the use of community-based 
primary care physicians (PCP). In this approach, the PCPs work out of 
their offices rather than from the PACE center and do not primarily 
serve PACE participants.
    The 2002 interim final rule removed the restrictive waiver 
provisions at Sec.  460.68(c) regarding direct or indirect interest in 
contracts, which was limited to rural and Tribal organizations. In 
addition, the 2002 interim final rule also removed the two waivers in 
Sec.  460.102(g) related to employment of the PCP and the requirement 
that the IDT primarily serve PACE participants. These waivers were 
available if CMS and the SAA determined that there was ``insufficient 
availability in the PO's service area of individuals who meet the 
requirement, or State licensing laws make it inappropriate for the 
organization to employ physicians.'' Although we deleted the specific 
waivers that were intended to encourage development of PACE in rural or 
Tribal or other medically underserved areas, we continue to recognize 
the special need for flexibility in these areas and remain committed to 
allowing waivers to promote PACE in medically underserved areas. 
Deletion of the specific waiver language was intended to provide 
greater flexibility within the overall PACE regulatory structure. We 
remain committed to working with rural and Tribal communities to help 
them address the challenges of developing successful PACE programs. 
Organizations that seek waiver of these or any other regulatory 
requirements must follow the requirements specified in Sec.  460.26.
    We note that a PO requesting a waiver of the prohibition on direct 
or indirect interest in contracts must develop policies and procedures 
for disclosure of financial interest to the governing body, establish 
recusal restrictions, and a process to record recusal actions for 
review by CMS and the SAA in its waiver request.
    Comment: We received two comments expressing concern about 
compromising the integrity of the PACE model by providing expanded 
flexibility.
    One commenter offered assistance in evaluating PACE policy, 
program, and practice on a continuing basis. The second commenter was 
concerned that the PACE regulations lack sufficient safeguards to 
preserve the model as established by the Protocol. The commenter 
indicated that maintaining the PACE center as the focal point for 
delivery of services and retaining the central role of the IDT in 
managing the health care and other services provided to PACE 
participants were critical to the PACE model. The commenter also 
emphasized the important role of the PCP in the Protocol, stating, 
``the

[[Page 71256]]

ultimate responsibility for managing participant medical care rests 
with the PCP; therefore, if this team member is not present during team 
meetings the ability to fulfill this obligation will be compromised.''
    Response: We share the commenter's concerns regarding the integrity 
of the PACE model, and thank the commenter who offered assistance in 
evaluating the PACE program. We believe the flexibility permitted by 
the 2002 interim final rule has sufficient safeguards to ensure the 
integrity of the model. We instituted contracting and oversight 
requirements we believe will ensure quality of care for PACE 
participants. During the development of the 2002 interim final rule, we 
made a concerted effort to develop a waiver process that would allow 
modification of the model without excessive controls, while at the same 
time not being too burdensome for POs. We believe we achieved that 
balance.
    The PACE model has been proven successful when the PACE center is 
the focal point for delivery of services and when the IDT's central 
role of managing the health care and other services provided to PACE 
participants is retained. Therefore, we believe there are few 
circumstances when it would be appropriate to waive these elements of 
the PACE model without substantial justification by a PO or potential 
PO, for example, the entity being a rural or Tribal organization. 
However, according to sections 1894(f)(2)(B) and 1934(f)(2)(B) of the 
Act, we do not have the authority to waive the provision requiring the 
IDT's central role managing the health care and other services provided 
to PACE participants, since it is statutorily mandated.
    Although we have permitted the use of community-based PCPs, we 
require that effective and consistent communication be maintained. 
Whenever we have received a request for waiver pertaining to use of 
community-based PCPs, the PO has had to provide in-depth justification 
and meet our conditions for waiver. Among other conditions for waiver 
approval, the community-based PCP must perform all the requirements of 
the staff PCP including but not limited to participation in IDT 
meetings related to their participants' participation in Quality 
Assurance and Performance Improvement (QAPI) activities and agree to PO 
oversight by the medical director.
    Comment: One commenter submitted comments related to the submission 
and evaluation of waiver requests. This commenter supported reasonable 
waiver requests for community-based PCPs for flexibility and innovation 
within PACE which will allow the program to grow. The commenter also 
supported conditional waivers, which would allow CMS to monitor the 
performance of organizations utilizing community-based PCPs as well as 
participant outcomes. The commenter recommended that we focus on 
processes for integrating care while utilizing community-based PCPs.
    Response: In general, we are not inclined to approve waiver 
requests allowing POs to utilize community-based PCPs without 
identifying a substantial need. However, we believe there are 
circumstances when the use of community-based PCPs may be appropriate. 
For example, it is important for a participant to have a physician that 
speaks their language and understands their culture's mores and 
traditions, which can improve participant compliance with their plans 
of care and, therefore, their health outcomes. We have approved a 
limited number of waiver requests allowing community-based PCPs 
contingent on their compliance with specific requirements. We plan to 
monitor and review the impact of the interactions between the 
community-based PCPs and the IDT and participant care before we alter 
the conditions currently applied to these waiver requests.
    Comment: Commenters asked whether PACE programs which are operating 
under grandfathering arrangements would be required to request a waiver 
in order to continue operations. They believe having to request waiver 
of operational arrangements grandfathered under BIPA 902 will be 
administratively burdensome, and they recommend POs be allowed to 
expand grandfathering arrangements ``organization wide'' provided the 
expansion is ``* * * reasonably consistent with the objectives of the 
PACE program.'' They suggested the PO could file a notice with CMS 
describing the expansion arrangement and how it is consistent with 
program objectives.
    Response: PACE demonstration program sites were granted BIPA 902 
``grandfathering'' of certain operational arrangements that did not 
meet the 1999 interim final rule, if the identified practice was in 
place before July 1, 2000. As the approved ``grandfathering'' was 
effective, only to the extent it existed on July 1, 2000, we believe it 
was not intended to cover a new or expanded site. As a result, POs need 
to submit BIPA 903 waiver requests of grandfathered practices for 
expansion sites.
    Based on our experience with the waiver process, we believe there 
is value in CMS and SAA review and approval of waivers. The 
consultations involved in the waiver process allows CMS and the SAA to 
discuss the PO's ability to implement the requested waiver, any 
concerns either agency has regarding the waiver request, request 
further information or clarification of the PO's operations, and 
determine any requirements or conditions that will be included in the 
waiver approval. CMS and the SAA collaborate in the review and approval 
of waivers. We have found that the SAA generally has a better knowledge 
and understanding of the PO and its operations and relevant State laws 
and requirements.
    Comment: One commenter indicated that the regulatory language fails 
to address entities that are not already a PO, saying that prospective 
POs (as well as established POs) should be eligible for waivers of 
regulatory requirements. The commenter requested clarification 
regarding whether PACE demonstration programs transitioning to 
permanent provider status, pre-PACE programs, and previously ``non-
operational'' entities are eligible to request waivers of regulatory 
requirements.
    Response: Any entity submitting a PACE provider application may 
submit a request for waiver. The PO demonstration programs had been 
operating in some cases for years and the implementation of the 1999 
interim final rule could have disrupted operations and care to the 
participants as the demonstration programs transitioned to permanent 
provider status and were required to be in compliance with the 1999 
interim final rule. BIPA provided flexibility for those transitioning 
demonstration programs to continue their existing operational 
arrangements and a waiver process for those organizations that did not 
meet the grandfathering criteria but were unable to comply with the 
1999 interim final rule. We believe the intent of the waiver provision 
in BIPA was to assist organizations to participate in the Medicare and 
Medicaid PACE benefit program.
    We believe that there may be circumstances when applicants are not 
able to comply with the regulations. The BIPA section 903 waiver 
process allows developing organizations to work with CMS and the SAA to 
develop an appropriate alternative rather than abandon their efforts to 
become a PACE program when they discover they can not meet the 
regulatory requirements. Therefore, we have allowed these entities to 
submit waiver requests. A waiver request must be submitted as a

[[Page 71257]]

separate document from the provider application and must contain 
substantial justification for the request. Pre-PACE organizations are 
Medicaid pre-paid health plans that provide Medicare services under 
Medicare fee-for-service rules and certain Medicaid services paid by 
Medicaid on a capitated basis. These organizations may submit a waiver 
request and their PACE provider application simultaneously but as 
separate documents.
    We will accept waiver requests from non-operational entities and 
pre-PACE applicants, in an attempt to assist new organizations that 
would otherwise be unable to meet regulatory requirements. All waiver 
requests must be submitted through the SAA, who will review and forward 
to CMS. Regardless of the prior status of the entity, a request for a 
waiver is reviewed on a case-by-case basis.
    Comment: Commenters also requested that we make information 
regarding approved waiver requests available to current and potential 
POs.
    Response: At this time, we do not agree that making information on 
particular PACE programs available is warranted. We believe it would be 
more beneficial for each PO to develop their own unique waiver request 
and rationale. Each PO is a unique operational entity that has specific 
circumstances and experience that influence the appropriateness for 
approving a waiver. Therefore, approving all similar requests for a 
waiver of a specific requirement is inappropriate. Our intention is 
that all POs comply with the PACE regulations.
    Final rule actions:
    In this final rule, we are expanding the regulatory requirements of 
Sec.  460.26 to permit POs and entities applying to become POs to 
submit waiver requests.

Section 460.28 Notice of CMS Determination on Waiver Requests

    Comment: One commenter requested clarification as to whether an 
entity submitting a PACE application is permitted to submit a waiver 
request separate from the provider application, as prompt CMS 
determination will be important to the organization's ability to move 
forward with PACE development. The commenter also asked whether the CMS 
timeframe for responding to waiver requests is affected by the status 
of the request, or whether the applicant is an operational or a 
prospective PO.
    Response: Waiver requests may accompany an application, but must be 
prepared and submitted as a separate document. Requests will be 
reviewed simultaneously and in conjunction with the application. 
Alternatively, waiver requests can be submitted independently of the 
application by POs that are currently operational.
    The timeframe for our response to a waiver request is the same 
regardless of the operational status of the requestor. We have a 
statutory 90-day timeframe to approve or deny waiver requests. As a 
result, when we request additional information, regarding a waiver 
request, it is incumbent upon the organization to respond as 
expeditiously as possible to provide CMS and the SAA time to review 
their responses. We provide a written approval or denial letter to the 
PO or PACE applicant with the determination and any additional 
conditions.
    Final rule actions:
    In this final rule, we are amending paragraph (a)(2) by adding ``or 
PACE applicant,'' thereby requiring CMS to notify the PO or PACE 
applicant in writing of the decision to deny the submitted waiver 
request.

Subpart C--PACE Program Agreement

    The purpose of subpart C is to establish requirements for the PACE 
program agreement establishing the entity as a provider of PACE 
benefits under Medicare and the Medicaid State plan.

Section 460.30 Program Agreement Requirements

    In accordance with sections 1894(a)(4) and 1934(a)(4) of the Act, 
we established Sec.  460.30 to require that each PO have an agreement 
with CMS and the SAA for the operation of a PACE program by the 
organization under Medicare and Medicaid. This three-party agreement 
must be signed by an authorized official of the organization, as well 
as by an authorized CMS official and an authorized State official.
    We received no public comments on Sec.  460.30 of the 1999 interim 
final rule.
    In the 2002 interim final rule, we revised the regulatory language 
to reflect that the PACE program agreement is a three-party agreement 
that is signed by CMS, the SAA, and the PO. Also, we added regulatory 
language to clarify that CMS may sign a program agreement only with a 
PO that is located in a State with an approved SPA electing PACE as an 
optional benefit under its Medicaid State plan.
    We received no comments on this section of the 2002 interim final 
rule.
    Final rule actions:
    This final rule will finalize Sec.  460.30 as published in the 1999 
and 2002 interim final rules.

Section 460.32 Content and Terms of PACE Program Agreement

    In Sec.  460.32(a), we stipulate the required content of a PACE 
program agreement.
    We require that each PACE program agreement designate the service 
area of the program, specifically identifying the area by county, zip 
code, street boundaries, census tract, block, or tribal jurisdictional 
area, to the extent that those identifiers are appropriate. Any changes 
in the designated service area would require advance approval by CMS 
and the SAA. This requirement implements the provisions of sections 
1894(e)(2)(A)(i) and 1934(e)(2)(A)(i) of the Act and reflects Part I, 
section D of the Protocol.
    Each PO must agree to meet all applicable requirements under 
Federal, State, and local laws and regulations, including provisions of 
the Civil Rights Act, the Age Discrimination Act, and the Americans 
with Disabilities Act. These requirements include, but are not limited 
to, all requirements contained in the regulations implementing those 
Acts. This requirement implements in part the provisions of sections 
1894(e)(2)(A)(iv) and 1934(e)(2)(A)(iv) of the Act.
    We require that the program agreement indicate the effective date 
and term of the agreement as well as information related to: 
Organizational structure of the PO; participant rights; processes for 
grievances and appeals; eligibility; enrollment and disenrollment 
policies; service description; QAPI; capitation rates; names and 
numbers of administrative contacts in the organization; and program 
agreement termination procedures. These requirements are based on 
sections 1894(b)(2) and 1934(b)(2) of the Act and on Part X, section A 
of the Protocol.
    Each PACE program agreement includes a statement of the levels of 
performance that we require the organization to achieve on standard 
quality measures and the data and information on participant care that 
CMS and the State require the organization to collect. A detailed 
discussion of the levels of performance and the standard quality 
measures are contained in the preamble discussions for Sec.  460.134 
and Sec.  460.202(b) in the 1999 interim final rule.
    In Sec.  460.32(b), we specify that a PACE program agreement may 
provide additional requirements for individuals to qualify as PACE 
program eligible individuals. This provision implements sections 
1894(e)(2)(A)(ii) and 1934(e)(2)(A)(ii) of the Act. However,

[[Page 71258]]

the eligibility criteria in Sec.  460.150(b)(1)-(3) cannot be modified. 
In addition, a PACE program agreement may contain additional terms and 
conditions as the parties agree to, if the terms and conditions are 
consistent with sections 1894 and 1934 of the Act and with these 
regulations. This provision implements sections 1894(e)(2)(A)(v) and 
1934(e)(2)(A)(v) of the Act.
    We received five comments on the 1999 interim final rule related to 
the program agreement, which are listed below.
    Comment: One commenter requested that we clarify whether the 
program agreement content is meant as a substitute for all provisions 
or only some of the provisions of the State Medicaid contract 
requirements in 42 CFR part 434. The commenter also asked whether 
additional terms and conditions could be included in the PACE program 
agreement to meet specific State law requirements.
    Response: The PACE program agreement is a three-way contract 
between the PO, the SAA and CMS, and contains the PACE requirements 
from the Federal statute and regulations. If the SAA has requirements 
beyond those in the three-way PACE program agreement, those 
requirements should be addressed in a separate contract between the 
State and the PO. The PACE three-way program agreement can be an 
attachment to the State-PO contract. As we stated above, each PO must 
agree to meet all applicable requirements under Federal, State, and 
local laws and regulations.
    States may implement additional or more stringent requirements if 
they are consistent with sections 1894 and 1934 of the Act and with 
Federal laws and regulations. However, if there is a conflict between 
the State and Federal requirements, the Federal requirements would 
generally take precedence.
    Comment: We were asked to describe the mechanism for revising a 
signed program agreement.
    Response: We will provide the PO and the SAA with written 
notification of any revisions and include updated pages of the program 
agreement. The PO and the SAA have 30 days to send written notification 
to us of any disagreement with the revisions. We have provided 
information on the program agreement on the PACE home page, in the PACE 
Fact Sheet, which is located at http://www.cms.hhs.gov/PACE/Downloads/PACEFactSheet.pdf.
    Comment: One commenter asked that we define the procedure for 
expanding a service area.
    Response: The procedure for expanding a service area differs 
depending on whether a new PACE center is also being opened. The 
abbreviated PACE expansion application and additional information 
regarding the procedures for expanding a service area on the PACE home 
page, in the PACE Fact Sheet, which is located at http://www.cms.hhs.gov/PACE/Downloads/PACEFactSheet.pdf.
    Comment: Two commenters asked when we would provide the 
requirements on standard quality measures, the requirements for 
participant care data and information and asked whether the 
requirements are the same for all PACE programs. A number of commenters 
inquired when the data would be collected and what the specific 
measures would be.
    Response: The program agreement identifies the data elements for 
monitoring that must be submitted quarterly by all POs. A further 
discussion on standard quality measures, Outcome-Based Continuous 
Quality Improvement (OBCQI), and COCOA-B is in section III subpart H of 
this final rule.
    Comment: Commenters asked when CMS would provide the Medicare 
capitation rates.
    Response: Section 1894(d) of the Act directs the Secretary to make 
prospective monthly payments of a capitation amount for each PACE 
program eligible individual enrolled under the agreement under this 
section in the same manner and from the same sources as payments are 
made to the Medicare+Choice (formerly M+C, now MA) organizations and to 
specify the capitation amount in the PACE program agreement. Therefore, 
in the 1999 interim final rule, we required that the Medicare 
capitation rates be included in the program agreement. The Balanced 
Budget Act of 1997(BBA) mandated that a risk adjustment payment 
methodology incorporating information on beneficiaries' health status 
be implemented in the M+C program. The resulting PACE payment 
methodology that began in 2004 includes a risk adjusted methodology 
that results in a unique payment for each participant. As a result, it 
is not possible to include the Medicare capitation rates in the program 
agreement. Therefore, we are amending our regulation to remove the 
requirement that the program agreement include the Medicare capitation 
amount and to require, instead, that the program agreement must include 
the Medicare payment methodology. This requirement is included in 
Appendix ``M'' of the program agreement, which can be found at http://www.cms.hhs.gov/pace/Downloads/programagreement.pdf. Medicare rates are 
annually updated, published, and posted on the CMS Web site. Current 
Medicare payment rates can be found at http://www.cms.hhs.gov/healthplans/rates/default.asp.
    Final rule actions:
    This final rule will amend Sec.  460.32 to indicate that the 
program agreement must include the ``Medicare payment methodology'' 
which replaces the ``Medicare capitation rate.''

Section 460.34 Duration of PACE Program Agreement

    In Sec.  460.34, we specify that each program agreement will be 
effective for a contract year, but may be extended for additional 
contract years in the absence of a notice by a party to terminate, in 
accordance with the requirements of sections 1894(e)(2)(A)(iii) and 
1934(e)(2)(A)(iii) of the Act.
    Comment: It was recommended that we extend the program agreement's 
designated 1-year contract period to a longer period of time with an 
automatic extender.
    Response: As noted above, the statute specifies a 1-year 
contracting period. We provided for a flexible initial contract year 
that could be as long as 23 months to allow us to adjust the length of 
the initial or start-up contract year so that subsequent years are on a 
standard calendar year cycle.
    PACE program agreements are considered to be ``evergreen'' meaning 
they will be automatically renewed without having to be re-signed. We 
believe the term of the program agreement is appropriate and consistent 
with overall Medicare policy, as well as in compliance with the 
requirements of the Act.
    Final rule actions:
    This final rule will finalize Sec.  460.34 as published in the 1999 
interim final rule.

Subpart D--Sanctions, Enforcement Actions and Termination

    In subpart D of the 1999 interim final rule, we specified the 
violations identified in sections 1857(g)(1) and 1903(m)(5)(A) of the 
Act that could result in the imposition of sanctions under sections 
1894(e)(6) and 1934(e)(6) of the Act. We also specified in accordance 
with paragraph (e)(5) of section 1894 and 1934 of the Act, that CMS or 
the SAA may terminate the PACE program agreement at any time for cause 
and that a PO may terminate an agreement after appropriate notice to 
CMS, the SAA, and participants. We also specified, in accordance with 
paragraphs (e)(5)(C) of sections 1894 and 1934(e)(5)(C) of the Act, 
Part IX of the Protocol, the transition procedures that must be 
followed by an entity

[[Page 71259]]

whose PACE program agreement is in the process of being terminated. 
Those procedures can be found in Sec.  460.50.

Section 460.40 Violations for Which CMS May Impose Sanctions

    In Sec.  460.40 we specified, based on paragraph (e)(6)(B) of 
sections 1894 and 1934 of the Act, that we can impose, in addition to 
any other remedies authorized by law, any of three types of sanctions 
if we determine that a PO has committed any of nine listed violations. 
The following PO violations specified in this section are based on 
provisions of sections 1857(g)(1) and 1903(m)(5)(A) of the Act:
     Fails substantially to furnish to a participant medically 
necessary items and services that are covered PACE services, if the 
failure has adversely affected (or has substantial likelihood of 
adversely affecting) the participant.
     Involuntarily disenrolls a participant in violation of 
Sec.  460.164.
     Discriminates in enrollment or disenrollment among 
Medicare beneficiaries or Medicaid recipients, or both, who are 
eligible to enroll in a PACE program, on the basis of an individual's 
health status or need for health care services.
     Engages in any practice that would reasonably be expected 
to have the effect of denying or discouraging enrollment, except as 
permitted by Sec.  460.150, by Medicare beneficiaries or Medicaid 
recipients whose medical condition or history indicates a need for 
substantial future medical services.
     Imposes charges on participants enrolled under Medicare or 
Medicaid for premiums in excess of the premiums permitted.
     Misrepresents or falsifies information that is furnished 
to CMS or the State under this part; or, to an individual or any other 
entity under this part.
     Prohibits or otherwise restricts a covered health care 
professional from advising a participant who is a patient of the 
professional about the participant's health status, medical care, or 
treatment for the participant's condition or disease, regardless of 
whether the PACE program provides benefits for that care or treatment, 
if the professional is acting within his or her lawful scope of 
practice.
     Operates a physician incentive plan that does not meet the 
requirements of section 1876(i)(8) of the Act.
     Employs or contracts with any individual who is excluded 
from participation in Medicare or Medicaid under section 1128 or 1128A 
of the Act (or with any entity that employs or contracts with such an 
individual) for the provision of health care, utilization review, 
medical social work, or administrative services.
    We received the following comments on Sec.  460.40.
    Comment: A commenter stated that the 1999 interim final rule did 
not include sanctions or enforcement actions that would apply if a 
program fails to comply with the data collection, record maintenance 
and reporting requirements in subpart L. The commenter asked what is 
the authority to require the POs to comply with these requirements.
    Response: Under the terms of the program agreement (Sec.  
460.32(a)(2)) the PO is committed to meet all applicable requirements 
under Federal, State and local laws and regulations, which would 
include the requirements under subpart L. The reporting requirements in 
subpart L impact our ability to calculate Medicare capitation payments. 
Lacking the necessary data to compute an appropriate payment, the PO 
might receive an inaccurate payment or possibly no payment at all for 
the corresponding month(s).
    Moreover, failure to submit required reports could be interpreted 
as a failure by the PO to comply substantially with conditions for a PO 
under this part (Sec.  460.50(b)(1)(ii)) or to comply with the terms of 
its PACE program agreement. Therefore, CMS and the SAA have the option 
of terminating the PACE program agreement due to uncorrected 
deficiencies.
    We believe that Sec.  460.40 as published in the 1999 interim final 
rule sufficiently addresses the availability of sanctions for 
violations of subpart L requirements.
    Comment: A commenter indicated it was not clear how CMS intended to 
monitor performance in an identified deficient area nor how CMS and the 
SAA would cooperate on investigations, agree on findings, and impose 
sanctions, enforcement, and termination.
    Response: In a cooperative effort, CMS and the SAA jointly perform 
onsite monitoring reviews on a regular basis to ensure quality of 
participant care as well as to verify clinical and administrative 
compliance with the PACE regulations. Both CMS and the SAAs engage in a 
collaborative relationship to sustain oversight of the PO. We stress 
communications to ensure that each party has the information necessary 
to take appropriate actions.
    Comment: A commenter also requested we clarify the violation 
incorporated into Sec.  460.40(d), which concerns practices that would 
have the effect of denying or discouraging enrollment.
    Response: Under Sec.  460.40(d), CMS may impose a sanction if the 
PO engages in any practice that would deny or discourage a participant 
from enrolling in PACE whose medical condition or history indicates a 
need for substantial medical service. The exception to this sanction is 
if the applicant is otherwise ineligible under Sec.  460.150 (that is, 
they are under 55 years of the age, they do not live in the PO's 
service area, they do not meet the level of care indicated in the 
State's Medicaid plan, living in the community would jeopardize their 
health or safety under the criteria as specified in the program 
agreement, or any additional eligibility requirements approved by CMS 
and included in the PACE provider agreement).
    Final rule actions:
    This final rule will finalize Sec.  460.40 as published in the 1999 
interim final rule.

Section 460.42 Suspension of Enrollment or Payment by CMS

    We described the two types of sanctions that we may impose in Sec.  
460.42 and Sec.  460.46 (civil money penalties). Each of the sanctions, 
or remedies, that are specified in these sections for specific 
violations are based on provisions of sections 1857(g)(2), 1857(g)(4), 
and 1903(m)(5)(B) of the Act. With respect to suspension of enrollment 
in PACE, we may suspend enrollment of Medicare beneficiaries after the 
date we notify the organization of the violation. Suspending enrollment 
of Medicaid recipients is an action taken by the SAA rather than CMS. 
With respect to suspension of payment, we may suspend Medicare payment 
to the PO and deny payment to the State of Federal financial 
participation (FFP) for medical assistance services furnished under the 
PACE program agreement.
    Comment: One commenter recommended that a decision to suspend 
enrollment should be a collaborative agreement by CMS and the SAA or 
the SAA should have the ability to do so on its own. Therefore, the 
commenter recommended establishing an expectation of collaboration 
between CMS and the SAA, at a minimum.
    The commenter also recommended that we revise Sec.  460.42(b)(2) to 
prospectively notify the State that FFP will be discontinued 60 days 
from receipt of the notice.
    Response: In the event of any violation or imposition of sanctions, 
we work closely with the SAA of the State in which the PO is located. 
The interaction between CMS and the SAA is by nature a collaborative 
one and any action decided upon is the result of this

[[Page 71260]]

collaborative effort. We do not believe that adding regulatory language 
will enhance the inherent collaborative working relationship between 
CMS and the SAAs.
    Moreover, should we exercise the sanction option at Sec.  
460.42(b)(2), we will use existing procedures and timeframes for the 
disallowance of FFP claims. These provisions can be found at 42 CFR 
430.42.
    Final rule actions:
    This final rule will finalize Sec.  460.42 as published in the 1999 
interim final rule.

Section 460.46 Civil Money Penalties

    In addition to suspension of enrollment, CMS may impose civil money 
penalties as specified in Sec.  460.46. These include penalties of 
$100,000 plus $15,000 for each individual not enrolled as a result of 
the PO's discrimination in enrollment or disenrollment or practice that 
would deny or discourage enrollment; $25,000 plus double the excess 
amount above the permitted premium charged a participant by the PO; 
$100,000 for each misrepresentation or falsification of information; 
and $25,000 for any violation specified in Sec.  460.40.
    Comment: One commenter requested clarification of CMS' authority to 
assess financial penalties for violations to dual eligible individuals 
(Medicare beneficiaries that are also Medicaid eligible individuals) as 
well as Medicare-only beneficiaries.
    Response: Authority to assess monetary penalties is provided in 
sections 1894(e)(6) (Medicare provisions) and 1934(e)(6)(Medicaid 
provisions) of the Act. If it is determined that a provider has failed 
to comply with the requirements of those sections of the Act and the 
regulations, CMS has the authority to impose monetary penalties for 
violations impacting either dual eligible or Medicare-only 
participants.
    Comment: Several commenters expressed concern that the civil 
monetary penalties for POs are the same or greater than those of 
Medicaid managed care and MA organizations. The commenters pointed out 
that significant size and revenue differences between MA and POs 
warrant lower penalties for POs. In addition POs have a smaller pool of 
potential participants than managed care organizations, which must 
enroll all individuals regardless of need.
    Response: We believe the current requirement as published is 
appropriate in that it allows for imposition of a range of penalty 
amount from one dollar up to and including the amounts identified in 
Sec.  460.48. It is not CMS' intent to close any PACE program. We 
believe the imposition of the maximum financial penalty is an option 
that would only be used in cases of egregious violations. We believe it 
is appropriate to maintain the current regulatory requirements, which 
provide CMS the ability to impose a broad range of penalty amounts 
including the maximum sanction should the situation warrant.
    Comment: Six commenters indicated that the level of penalties is 
too severe and recommend the penalties be proportionate to the size of 
the PACE program. One commenter recommended penalties be left to the 
discretion of the State, while several others indicated that an 
appropriate amount would be one-quarter of the amount required for 
Medicaid managed care and M+C plans.
    Response: As noted in the previous response, the rule permits a 
range of amounts to be imposed and provides CMS with the necessary 
flexibility to impose an appropriate amount depending upon the nature 
of the violation. In addition, we note that statute requires CMS to 
make the determination (after consultation with the SAA) to impose any 
sanctions.
    Comment: One commenter relayed the regulation did not indicate to 
whom the fines should be paid. They recommended the fines be shared 
equally between the Federal government and the SAA.
    Response: Should CMS impose a fine, the PO will be informed in 
writing and directed where to send the penalty. The PACE statute and 
regulations at Sec.  460.46(b) specify that section 1128A of the Act 
governs disposition of civil money penalties. It is not the purpose of 
this rule to further address disposition of amounts recovered.
    Final rule actions:
    This final rule will finalize Sec.  460.46 as published in the 1999 
interim final rule.

Section 460.48 Additional Actions by CMS or the State

    In Sec.  460.48 we specified, based on paragraph (e)(6)(A) of 
sections 1894 and 1934 of the Act, that if CMS, after consultation with 
the SAA, determines that a PO is not in substantial compliance with 
requirements in these regulations, CMS or the SAA can take one or more 
of the following actions: Condition the continuation of the PACE 
program agreement upon timely execution of a corrective action plan; 
withhold some or all payments under the PACE program agreement until 
the organization corrects the deficiency; or terminate the program 
agreement.
    Comment: One commenter questioned whether CMS and the SAA could 
independently take action against a PO for violations providing there 
was prior consultation.
    Response: The statute allows CMS to take an enforcement action but 
only after CMS has consulted with the SAA, and determines that the PACE 
provider has failed substantially to comply with the PACE requirements. 
While the SAA may take action based on its own regulations, we believe, 
that in light of the collaborative relationship between CMS and the 
SAA, the SAA would consult with CMS before taking any independent 
action.
    Final rule actions:
    This final rule will finalize Sec.  460.48 as published in the 1999 
interim final rule.

Section 460.50 Termination of PACE Program Agreement

    In Sec.  460.50 we specified, in accordance with paragraph 
(e)(5)(A) of sections 1894 and 1934 of the Act, that CMS or a SAA may 
terminate at any time a PACE program agreement for cause and that a PO 
may terminate an agreement after appropriate notice to CMS, the SAA, 
and its participants. In accordance with paragraph (e)(5)(B) of 
sections 1894 and 1934 of the Act, we specified that CMS or a SAA may 
terminate a PACE program agreement with a PO if CMS or the SAA 
determines that:
     Either there are significant deficiencies in the quality 
of care furnished to participants, or the PO has failed to comply 
substantially with conditions under these regulations or with the terms 
of its PACE program agreement; and
     The PO has failed to develop and successfully initiate, 
within 30 days of the date of the receipt of written notice, a plan to 
correct the deficiencies, or has failed to continue implementation of 
such a plan.
    Based on the Protocol, Part IX, section A.1, we also provided for 
termination if CMS or the SAA determines that the PO cannot ensure the 
health and safety of its participants. This determination may result 
from the identification of deficiencies, which CMS or the SAA 
determines cannot be corrected. Based on the Protocol, Part IX, section 
A.2, we also required that if the organization terminates the 
agreement, a minimum of 90 days' notice must be given to CMS and the 
SAA regarding the organization's intent and that participants must be 
given a minimum of 60 days notice.
    Comment: Termination of the PACE program and transitional care 
during transition were topics of several comments and recommendations 
we received. Recommendations included

[[Page 71261]]

adding regulatory language requiring CMS and the SAA to agree and 
coordinate their actions related to termination of a PACE program 
agreement. Another recommendation was to require that CMS and the State 
consider the likelihood of institutionalization of community 
participants in determining whether termination should be imposed.
    Response: Neither CMS nor the State considers termination lightly, 
and our primary concern is protecting the health and safety of the 
participants. All possible ramifications of terminating a program 
agreement, including the likelihood of participants becoming 
institutionalized, will be considered before taking such a severe 
action. However, we disagree with the commenters and do not believe 
revisions to the regulations are warranted. As stated in response to 
previous commenters, we believe the cooperative nature of the 
relationships between CMS and the SAAs will lead to agreement on a 
decision to terminate a program agreement. We note however, the statute 
and regulations specify that CMS or the SAA may independently terminate 
a PACE program agreement.
    Comment: A commenter suggested that the regulations include the 
appointment of a temporary manager to supervise the operation of the 
PACE program as an alternative to termination of the program agreement.
    Response: To date our experience with the POs does not indicate the 
necessity of including this remedy in regulation. We will continue to 
assess the performance of POs and we may consider this sanction in the 
future. We note that Sec.  460.48(a) states that CMS or the SAA may 
condition continuation of the PACE program agreement upon timely 
execution of a corrective action plan (CAP). The appointment of a 
``temporary manager'' could be included within the provisions of a CAP. 
As such, it would be unnecessary to specify specific remedies 
(including a temporary manager) that CMS might include in the CAP for a 
particular PO.
    Final rule actions:
    This final rule will finalize Sec.  460.50 as published in the 1999 
interim final rule.

Section 460.52 Transitional Care During Termination

    Based on the Protocol, Part IX, section B, we require that the PO 
develop a detailed written plan for phase-down in the event of 
termination which includes the following: The process for informing 
participants, the community, CMS and the SAA in writing about 
termination and transition procedures; and steps that will be taken to 
help assist participants to obtain reinstatement of conventional 
Medicare and Medicaid benefits, transition their care to other 
providers, and terminate marketing and enrollment activities. This 
information can be located at http://www.cms.hhs.gov/pace/, Chapter 1, 
section 3. Also, in accordance with paragraphs (a)(2)(C) and (e)(5)(C) 
of sections 1894 and 1934 of the Act, we specified in Sec.  460.52 that 
an entity whose PACE program agreement is in the process of being 
terminated must provide assistance to each participant in obtaining 
necessary transitional care through appropriate referrals and making 
the participant's medical records available to new providers.
    Comment: We were asked what constitutes ``community'' in Sec.  
460.52(a)(1).
    Response: In the context of the Sec.  460.52(a)(1) of the 1999 
interim final rule, the term ``community'' refers to the general 
public. Notification to the community would include publishing 
information regarding the termination in one or more of the generally 
circulated newspapers in each community or county located in the PO's 
service area.
    Comment: A commenter asked when the transition plan is due (upon 
notification of termination, or at an earlier point such as at the 
readiness review or in the context of the program agreement).
    Response: A written plan for transition in the event of termination 
is a component of the PACE provider application and is due at the time 
the POs application is submitted.
    Comment: A commenter was concerned that the regulation needed to 
provide additional participant protection against loss of services in 
the event of PO termination. More specifically, the commenter 
recommended that except where there is an immediate threat of health 
and safety of the participants, the PO should be required to continue 
services until such time as a participant is receiving alternative 
services under Medicare and/or Medicaid, or both, as appropriate, in 
accordance with the plan of care.
    Response: In the event a PACE program agreement is terminated, we 
believe the regulation provides for sufficient participant safeguards. 
These safeguards are applicable regardless of who initiates the 
termination; the PO, CMS, or the SAA. Section 460.52(b) provides that a 
PO must have a written plan for phase-down in the event of termination 
which describes how the organization plans to provide assistance to 
each participant in obtaining necessary transitional care through 
appropriate referrals.
    If the PO initiates the termination, it must provide CMS 90 days' 
notice, which should provide sufficient time to transition participants 
to alternative care. If a participant is eligible for Medicaid, the 
State should provide assistance in arranging for alternative care.
    For Medicare beneficiaries, disenrollment from PACE permits 
reinstatement into original Medicare fee-for-service or enrollment into 
an MA plan through a special election period.
    Final rule actions:
    This final rule will finalize Sec.  460.52 as published in the 1999 
interim final rule.

Section 460.54 Termination Procedures

    In Sec.  460.54, we specified termination procedures based on 
paragraph (e)(7) of sections 1894 and 1934 of the Act, which provide 
that:
     The provisions of section 1857(h) of the Act apply to 
termination of a PACE program agreement in the same manner as they 
apply to a termination of a contract with a M+C organization under Part 
C of title XVIII of the Act.
     The provisions of section 1857 of the Act authorize 
termination of an agreement with an organization based on the 
following:
     CMS provides the organization with the reasonable 
opportunity to develop and implement a corrective action plan to 
correct the deficiencies that were the basis of the determination that 
cause exists for termination; and
     CMS provides the organization with reasonable notice and 
opportunity for hearing (including the right to appeal an initial 
decision) before terminating the agreement.
    However, termination is authorized by section 1857(h)(2) of the Act 
without invoking these procedures if we determine that a delay in 
termination, would pose an imminent and serious risk to the health of 
participants enrolled with the organization.
    Comment: A commenter asked what is meant by ``reasonable 
opportunity'' in relation to the development and implementation of a 
CAP and ``reasonable notice'' for a hearing before terminating the 
program agreement.
    Response: Under normal circumstances, the PO is allowed 30 days 
from the time they receive the written report following a monitoring 
review to submit a written response with the CAP to CMS and the SAA. If 
the PO is unable to submit a CAP within the 30 day period, they may 
request an extension. The determination to permit

[[Page 71262]]

the extension is made based on the particular circumstances at issue.
    If participant health and safety is in jeopardy, the monitoring 
team will inform the PO before their departure that a quicker response 
is required.
    Implementation of the CAP is dependent on the intensity and 
complexity of the deficiencies identified. Initiation of the CAP should 
be as immediate as possible. In the event the deficiency relates to the 
health and safety of participants, implementation of the CAP must be 
immediate. On the other hand, should the deficiency be related to the 
physical facility itself, (for example, an electrical or plumbing 
issue) it may take time to retain the appropriate experts to receive a 
quote for required construction or repair, prepare and sign a contract 
to perform the services, arrange for permits, materials, staff required 
and then to have the construction/repair performed.
    Comment: A commenter asked how CMS expects to become aware of any 
imminent and serious risks to participants, as described in Sec.  
460.54(b).
    Response: In addition to our usual monitoring procedures, there are 
a number of mechanisms in place that could provide CMS and the SAA with 
information indicating imminent and serious risk to participants. The 
participant's family or caregiver is actively involved in the plan of 
care and the PO is required to have a robust grievance and appeals 
process. In this manner, we could be directly notified on any concerns 
about quality of care. In addition, there may be an ombudsman program 
in the State, which could be accessed if there were concerns about 
quality of care. POs are also required to report quarterly data 
elements for monitoring and financial reports. CMS and the SAA 
routinely review the reports, which would provide indications that 
there could be issues with patient care.
    For example, there is an unexpected shortfall in revenues reported 
and a sudden increase in the number of falls. In this case, CMS or the 
SAA would follow up with the PO to inquire about the changes in their 
patterns, and ensure that participants are receiving adequate care.
    As noted above, CMS may terminate an agreement without invoking the 
procedures described in Sec.  460.54(a), if CMS determines that a delay 
in termination, resulting from compliance with these procedures before 
termination, would pose an imminent and serious risk to the health of 
participants enrolled with the organization.
    POs are also required to inform CMS and the State by e-mail within 
24 hours of the occurrence of a ``sentinel event'' (or as soon as a 
determination is made that the occurrence may be a sentinel event).
    We have defined a sentinel event as an unexpected occurrence that 
caused a participant death or serious physical or psychological injury 
that included permanent loss of function. We included in this 
definition any medical equipment failures that could have caused a 
death and all attempted suicides.
    The sentinel event policy for PACE can be found at http://www.cms.hhs.gov/PACE/Downloads/sereporting.pdf.
    The purpose of the sentinel event reporting policy is to provide 
guidance to the PO regarding their responsibility should a sentinel 
event occur. CMS views these events as opportunities to conduct 
analyses of the underlying root causes, which will reduce the risk of 
recurrence of a similar event. We also note that generally when a 
concern or complaint other than a sentinel event is brought to the 
attention of CMS or the SAA, fact finding activities are initiated, 
which can include but are not limited to a desk review of 
documentation, conference calls, or an onsite review, depending upon 
the case-specific circumstances.
    Lastly, POs can request to have quarterly conference calls with CMS 
and the SAA to discuss policy or operational issues. We believe 
quarterly calls between the PO, the SAA and CMS are of great benefit in 
facilitating more open communications. Quarterly calls foster a good 
working relationship that is helpful when CMS or the SAA need to 
investigate a concern or complaint they have received.
    Final rule actions:
    This final rule will finalize Sec.  460.54 as published in the 1999 
interim final rule.

Subpart E--PACE Administrative Requirements

    The purpose of subpart E is to establish the administrative 
requirements for entities applying for participation in the PACE 
benefit. In this subpart, we established requirements relating to 
organizational structure, the governing body, and program integrity of 
the entity, as well as relationships between entities. In addition, we 
specified personnel qualifications and on-going training that must be 
implemented by the PO for employed and contracted staff, requirements 
for contracting services, and oversight of employed and contracted 
staff requirements. This section also established requirements related 
to physical environment, infection control, transportation services, 
dietary services, fiscal soundness, and marketing.

Section 460.60 PACE Organizational Structure

    We established Sec.  460.60 to specify the structural requirements 
for a PO. As we explained in the preamble to the 1999 interim final 
rule, we believe that the requirements specified in Sec.  460.60 are 
essential to the PO's ability to ensure the health and safety of the 
participants. The performance of certain basic organizational functions 
is a minimum condition for an environment in which appropriate care can 
occur. We based the organizational structure requirements on Part I of 
the Protocol.
    We require that the PO have a current organizational chart showing 
officials in the PO. The chart for a corporate entity must indicate the 
PO's relationship to the corporate board and to any parent, affiliate, 
or subsidiary corporate entities. In the 1999 interim final rule, we 
required a PO that is planning a change in organizational structure to 
notify CMS, the SAA, and its participants, in writing, at least 60 days 
before the change takes effect. Further, we required changes in 
organizational structure to be approved by CMS and the SAA, and after 
approval, to be forwarded to the PO's consumer advisory committee 
(described later in this preamble). Finally, in the event of a change 
of ownership, we would apply the general provisions described in 42 CFR 
422.550.
    The Protocol requires that a PO have a project director. In the 
1999 interim final rule, we included this requirement, but changed the 
term to ``program director'' and further defined the role of this 
individual. The PO must have a program director who is responsible for 
the oversight and administration of the entity. The program director is 
responsible for the effective planning, organization, administration, 
and evaluation of the organization's operations. The program director 
would also ensure that decisions about medical, social, and supportive 
services are not unduly influenced by fiscal managers. The program 
director is responsible for ensuring that appropriate personnel perform 
their functions within the organization. The program director would 
inform employees and contract providers of all organization policies 
and procedures. If the PO is part of a larger health system, the 
program director would clearly define and inform PO staff (employees 
and contractors) of the policies applicable to the PO.

[[Page 71263]]

    In the 1999 interim final rule, we also maintained the Protocol's 
requirement for a medical director, but we further delineated the 
responsibilities of this position. The PO must have a medical director 
who is responsible for the delivery of participant care, clinical 
outcomes, and the implementation and oversight of the QAPI program. 
Thus, the medical director is responsible for achieving the best 
possible clinical outcomes for all participants. Under this 
requirement, we would expect the medical director to use the 
organization's data to demonstrate internal improvements in outcomes 
over time.
    The 1999 interim final rule established Sec.  460.60 that required 
that the PACE program director and the medical director be employees of 
the PO. In order to allow for contracting of the PACE program director 
and medical director, in the 2002 interim final rule, we amended Sec.  
460.60(b) and (c) to require that the PO employ these staff members 
directly or have contracts for these staff that meet the contracting 
requirements specified in Sec.  460.70.
    Comment: We received several comments related to the possibility of 
PACE being operated as a for-profit entity. Commenters provided 
examples of organizations that are unable to participate in PACE due to 
the requirement that POs maintain non-profit status.
    Response: We note that sections 1894(a)(3)(B) and 1934(a)(3)(B) of 
the Act allow private, for-profit entities to participate in PACE, 
subject to a demonstration waiver described in section 1894(h) of the 
Act. Should for-profit entities wish to participate in PACE, they 
should apply for a demonstration waiver under section 1894(h) of the 
Act. While participating in the PACE for-profit demonstration, they 
must meet all requirements set forth in PACE regulations. We explicitly 
stated that we would expect the PO to retain all key administrative 
functions including marketing and enrollment, quality assurance and 
program improvement, and contracting for institutional providers and 
other key staff.
    Comment: We received conflicting opinions regarding whether to 
allow flexibility in contracting for various members of the IDT, the 
program director, the medical director, as well as PACE center 
services. The majority of commenters advocated for flexibility in order 
to be responsive to the needs of individual POs. However, some 
commenters expressed concern that by allowing the PO to contract for 
the medical director and program director, the PACE model would lose 
dedicated management. This concern was submitted in response to both 
the 1999 interim final rule and the amended 2002 interim final rule.
    Response: We note that in the 1999 interim final rule, we retained 
the Protocol's requirement that the program director and medical 
director be employees of the PO.
    However, in response to the large number of public comments 
received on Sec.  460.60 of the 1999 interim final rule, we revised the 
regulatory requirements in the 2002 interim final rule to allow POs the 
flexibility to contract for all members of the IDT, the program 
director, and medical director as well as all PACE center services. We 
also expanded Sec.  460.70 to include additional contract requirements.
    In response to the comment about losing dedicated management 
because of contracting for the program director and medical director, 
we do not believe that a personal commitment to the PACE model is 
related to employment status. We continue to believe that anyone, 
contractor or employee, PCA, or director can believe in the PACE 
philosophy and wish to provide care through this model. Therefore, we 
are not amending this requirement in this final rule.
    Comment: Several commenters stated that, as currently written, the 
regulatory requirement assigns responsibility for QAPI to both the 
governing body and the medical director. They requested confirmation 
that the governing body's responsibility is to affect a program-wide 
approach to quality, ensuring alignment of unit activities with overall 
objectives, whereas the responsibilities of the medical director would 
be more narrowly focused on clinical aspects of care.
    Response: The commenters are correct. Although QAPI activities and 
objectives affect every staff member and contractor, the governing body 
has overall responsibility for the QAPI program and the medical 
director has overall clinical responsibility.
    Comment: In response to our solicitation for comment regarding the 
extent to which changes in organizational structure are important to 
participants, we received a number of suggestions that we revise the 
requirement to notify CMS, or CMS and the SAA, of changes in 
organizational structure. Commenters were consistent in their 
recommendations that notification should only be required for a change 
in ownership, governing board, or delivery system, focusing on those 
changes that significantly impact service delivery.
    All commenters recommended deleting the requirement to report 
changes in staffing. Several commenters requested that we clarify which 
changes in organizational structure require notifying CMS and the SAA 
because it appeared that any change of job title or the creation of a 
position or unit within the PO would warrant prior approval by CMS and 
the SAA. It was also noted that various staffing changes and shifts in 
reporting relationships can be implemented seamlessly with no 
disruption in service to the participants.
    Approval of organizational changes was another topic that elicited 
comments. Some commenters suggested that the requirements regarding 
approval by CMS and the SAA of changes in organizational structure be 
deleted because micromanagement could impede a PO's ability to 
proactively adjust its structure to meet prevailing concerns as well as 
to respond to the needs of enrollees. Other commenters thought that 
advance approval by the SAA should be sufficient.
    There were also a number of recommendations of timeframes for 
submitting advance notification. Suggestions ranged from not informing 
CMS at all to 60 days, which would include time for CMS and the SAA to 
review and approve the proposed organizational change. If CMS and the 
SAA did not respond within the 60-day period, the PO's organizational 
changes would be deemed approved. Some commenters suggested we follow 
the State Medicaid regulations of some States, which require 
notification at least 14 calendar days before the effective date of the 
change. Another commenter suggested that we require prior notification 
and approval of changes in ownership and only require notification of 
other changes in clinical or administrative structure.
    One commenter recommended the regulatory language specify that the 
PO is responsible for forwarding information relating to changes in 
organizational structure to the consumer advisory committee.
    Several commenters agreed that changes that impact the day-to-day 
experience of the participants or alter their normal patterns of 
interaction with the PACE program should be communicated to 
participants in sufficient time for them to adjust to the changes, and 
that this notification should be the responsibility of the PO.
    Response: Comments on this section address three separate 
requirements, the requirement for CMS and the SAA to be notified in 
writing at least 60 days before a change in organizational

[[Page 71264]]

structure, the requirement that CMS and the SAA approve changes in 
organizational structure, and the requirement that changes in 
organizational structure approved by CMS and the SAA be forwarded to 
the consumer advisory committee.
    We established this section in the 1999 interim final rule to 
require disclosure of organizational changes that affect the 
philosophy, mission, and operations of the PO and impact care delivery 
to participants. At that time, we believed that any change in 
ownership, relationships to another corporate board and to any parent, 
affiliate, or subsidiary corporate entities, the PACE governing body, 
its officials, program director, and medical director could result in a 
substantial impact on the participants and their care. However, it was 
not our intent to require the PO to notify CMS and the SAA in writing 
every time there was a change in personnel or a change in the line of 
reporting of direct participant care staff.
    The 1999 interim final rule required that POs planning to change 
their organizational structure must notify CMS and the SAA, in writing, 
at least 60 days before the change takes place. This timeframe was to 
allow sufficient time for CMS and the SAA to approve or deny the 
proposed change. We agree with the commenters that notification of 60 
days before implementing a change in organizational structure is 
unnecessary.
    Therefore, in response to the numerous comments relating to the 
disclosure of changes in organizational structure, in this final rule 
we are amending this section to require any PO who is planning a change 
in organizational structure to notify CMS and the SAA, in writing, 14 
days before the change takes place. We believe that 14 days advance 
notice provides an adequate timeframe for CMS and the SAA to review the 
changes, and is consistent with some States Medicaid notification 
requirements.
    We are also deleting the requirement that changes in organizational 
structure must be approved in advance by CMS and the SAA. We agree with 
the commenters that POs have the ability to make such business 
decisions based on their individual circumstances. However, as CMS and 
the SAA are responsible for the health care provided to participants, 
requiring notification will allow CMS and the SAA to monitor whether 
the change is having a substantial impact on the participants or their 
care.
    In the 1999 interim final rule, the PO was required to forward the 
CMS and SAA approval of their organizational changes to the consumer 
advisory committee. As changes will no longer need to be approved by 
CMS and the SAA we believe the requirement to forward the CMS and SAA 
approvals to the consumer advisory committee is now unnecessary and 
should also be removed.
    We reiterate that in the event of a change of ownership, CMS would 
apply the general provisions described in Sec.  422.550 (Effect of 
change of ownership or leasing of facilities during term of contract.)
    Comment: Another commenter questioned whether two organizations 
wishing to develop PACE as a cooperative venture must establish a 
separate and distinct entity to comply with all requirements and 
provisions of the regulations. The commenter believed this approach 
would impede PACE development by restricting opportunities for entities 
to jointly approach PACE development. This commenter also requested 
clarification of the regulations to clearly permit flexibility within 
the provider community, including the ability for the PO to contract 
for the PACE center services.
    Response: We view this comment as addressing two different issues. 
First, in response to whether a separate and distinct entity would need 
to be established if two organizations developed a cooperative venture, 
the organizations involved would need to establish a separate and 
distinct entity to be the PO that is responsible for complying with all 
requirements and provisions of the regulations. Because the PO signs a 
three-way program agreement and is the entity responsible for the 
management of the organization, we believe that this needs to be a 
single entity. The PO is the responsible entity for assuming full 
financial risk, administration activities, and comprehensive 
coordinated participant care. We do not believe these responsibilities 
can be split up and still maintained under a single entity. In our 
experience, this requirement has not unduly restricted organizations 
from developing a PO through a cooperative agreement.
    The second issue is whether the cooperative venture arrangement 
would be precluded from using subcontractors. As long as the 
arrangements designated a PO, as noted above, the 2002 interim final 
rule provided flexibility to allow for contracting out all required 
PACE services as well as the PACE center services, providing that the 
PO retains all key administrative functions including marketing, 
enrollment, QAPI, and contracting for institutional providers and other 
key staff, as well as retaining ultimate responsibility for oversight 
of all direct participant care.
    Final rule actions:
    In this final rule, we are changing the requirements related to 
changes in organizational structure by:
     Requiring 14-days notice before making organizational 
changes;
     No longer requiring CMS and SAA approval; and
     No longer requiring the PO to forward the CMS approval to 
the consumer advisory committee.

Section 460.62 Governing Body

    In the 1999 interim final rule, we established the requirements and 
responsibilities of the governing body that is legally and fiscally 
responsible for the administration of the PO. We left the specific 
approach to administration of the PO to the discretion of the governing 
body, reflecting our goal of promoting the effective management of the 
organization without limiting flexibility in determining how to achieve 
that goal.
    The governing body must create and foster an environment that 
provides quality care that is consistent with participant needs and the 
program mission. To that end, the primary requirement is that an 
identifiable governing body, or designated person(s) so functioning, 
have full legal authority and responsibility for the governance and 
operation of the organization, the development of policies consistent 
with the mission, the management and provision of all services 
(including the management of contractors), fiscal operations, and the 
development of policies on participant health and safety. Also, the 
governing body will establish personnel policies and contract 
provisions with respect to employees or contractors with patient care 
responsibilities giving adequate notice before leaving the PO's 
network. These provisions would be intended to avoid disruptions in 
care and permit orderly transition of responsibilities.
    We included a requirement that the governing body be responsible 
for the QAPI program. The purpose of this requirement is to link the 
development, implementation, and coordination of the ongoing QAPI 
program with all aspects of the PACE program. We believe this 
requirement will stimulate an aggressive effort by the organization to 
identify and use the best available practices for all participants. As 
discussed in the section on the QAPI program, the PO has the 
flexibility to design its own quality improvement program.
    Consistent with the Protocol, we also included a requirement that 
the PO

[[Page 71265]]

must ensure community representation on issues related to participant 
care. This may be achieved by having a community representative on the 
governing body. In addition, the PO must establish a consumer advisory 
committee to provide advice to the governing body on matters of concern 
to participants. As we indicated in the 1999 interim final rule, 
consumer participation through advisory committees is a well-accepted 
community organization vehicle to maximize the involvement of 
participants in a program designed to serve them. With the use of such 
a committee, the governing body will have the benefit of participant 
input, including information on quality of care issues. Participants 
also are likely to feel a greater stake in the operation of the 
program. In order to ensure appropriate representation, participants 
and representatives of participants must constitute a majority of the 
membership of this committee. One specific duty of the participant 
advisory committee is to receive information from the governing body to 
be disseminated to participants.
    Comment: We received several comments regarding community 
representation on the governing body. Commenters noted that a single 
consumer representative did not have a sufficient impact on health 
programs when the governing body is made up almost entirely of provider 
representatives. The commenters requested that the regulations be 
changed to require at least one-third of the governing body to be 
community representatives who are Medicare or Medicaid beneficiaries or 
are designated by organizations that advocate for these persons. In 
addition, they recommended that the governing body should include at 
least one PACE program participant and one family member of a 
participant. They also requested that we include a requirement that the 
PO provide information to CMS and the SAA to ensure compliance with 
community representation on the governing body.
    One commenter stated that because POs are small programs, they may 
find it difficult to comply with the requirement of a consumer advisory 
committee in that it may be difficult to get enough consumers or their 
representatives to serve on an ongoing committee. They suggested 
instead that POs be allowed to request a waiver of this requirement, 
where they can demonstrate that sufficient opportunities exist for 
obtaining input from consumers and their representatives on matters of 
concern to participants.
    Response: In response to these commenters, we are revising the 
regulation by changing the names and focus of the ``consumer advisory 
committee'' to the ``participant advisory committee'' and the 
``community representative'' to the ``participant representative.'' We 
are also adding a definition of ``participant representative,'' which 
defines the responsibilities of this individual. We disagree with the 
commenters who indicated that the governing body needs to have a 
greater number of consumer representatives. By changing the names and 
objectives of the consumer committee and community representative, we 
anticipate participants and their representatives becoming more 
involved in topics that impact their care. We believe that the more 
participants feel they are stakeholders, the more involved they will be 
in their PO.
    The interactive nature of the PACE model is such that participants 
are encouraged to be involved and voice their opinions. Therefore, we 
expect the governing body to be more receptive to participant input 
presented by the participant representative. This collaborative 
relationship is expected to achieve higher quality of care and higher 
participant satisfaction. Therefore, we would not be inclined to waive 
this requirement without significant justification on the part of the 
PO.
    We do not specify how large the participant advisory committee must 
be, but we expect it to be representative of the size and population of 
the PO's participants.
    We also understand that there may be topics or times when the 
governing body would believe that it is inappropriate for participants 
to attend the entire governing body meeting. When this occurs, we would 
expect the meeting agenda to be arranged such that the participant 
representative could attend a portion of the meeting to present 
participant issues.
    We also disagree with the commenter that requested we require POs 
to submit information to ensure compliance with community 
representation on the governing body. Minutes and other official 
documents pertaining to governing body meetings must be available for 
review by CMS and the SAA during onsite visits and at the request of 
either agency.
    Final rule action:
    In this final rule we are:
     Changing the names and responsibilities of the consumer 
advisory committee, community representative to the participant 
advisory committee, and participant representative; and
     Rearranging the order of the requirements.

Section 460.64 Personnel Qualifications for Staff With Direct 
Participant Care Contact

    We indicated in the 1999 interim final rule that although the 
Protocol does not specify personnel requirements for the various staff 
employed by or under contract with the PO, we believe that certain 
minimum standards must be met in order to ensure quality of care for 
the frail elderly population being served. To this end, we established 
Sec.  460.64.
    Our approach to personnel qualifications in the 1999 interim final 
rule followed principles described in a March 10, 1997 Federal Register 
publication proposing changes to the COPs for home health agencies (62 
FR 11022). This is a flexible approach, which relies on State 
requirements as much as possible.
    The personnel qualifications fall into three categories: (1) 
Personnel for whom there are statutory qualifications; (2) personnel 
for whom all States have licensure, certification, or registration 
requirements; and (3) personnel for whom we have specified requirements 
if the State does not have licensure, certification, or registration 
requirements.
    Category 1: This category consists of personnel for whom the Act 
contains qualifications, which in Sec.  460.64(b) pertains specifically 
to physicians. Section 1861(r) of the Act defines a physician as a 
doctor of medicine or osteopathy, legally authorized to practice 
medicine and surgery by the State in which that function or action is 
performed, or certain other practitioners for limited purposes. We 
adopted the definition as reflected in regulations at 42 CFR 410.20.
    In addition, to reflect the key role of the PCP in the PACE model, 
we required the PCP to have a minimum of 1 year's experience in working 
with a frail or elderly population.
    Category 2: For this category of personnel qualifications, we 
deferred to State law. We specified that all staff (employee or 
contractor) of the PO must meet applicable State requirements. That is, 
they must be legally authorized (currently licensed or, if applicable, 
certified or registered) to practice in the State in which they perform 
the function or action and must act within the scope of their authority 
to practice. For example, to practice nursing, every registered nurse 
in the State must be licensed and practice within their State's scope 
of practice authority.

[[Page 71266]]

    Category 3: This category of personnel qualifications includes 
certain professions for which not all States had licensure, 
certification, or registration requirements. Our intention was that if 
a State has licensure, certification, or registration requirements for 
a professional listed in this section, then the State qualifications 
would apply. The following requirements would only apply to those 
personnel in Category 3 when the State they practice in does not have 
licensure, certification, or registration requirements.
    After reviewing the personnel requirements of other Medicare and 
Medicaid providers that serve populations similar to PACE participants 
(for example, home health agencies, nursing facilities), in the 1999 
interim final rule, we established personnel requirements for POs that 
were as consistent as possible with those applicable to other Medicare 
providers. If a State does not have licensure, certification, or 
registration requirements applicable to the following professions, then 
the qualifications specified below apply.
    We required that the registered nurse be a graduate of a school of 
professional nursing and have a minimum of 1 year's experience working 
with a frail or elderly population.
    We required that the social worker (1) have a Master's degree in 
social work from an accredited school of social work; and (2) have a 
minimum of 1 year's experience working with a frail or elderly 
population.
    We required that the physical therapist (1) be a graduate of a 
physical therapy curriculum approved by the American Physical Therapy 
Association, the Committee on Allied Health Education and Accreditation 
of the American Medical Association, or the Council on Medical 
Education of the American Medical Association and the American Physical 
Therapy Association or other equivalent organizations approved by CMS; 
and (2) have a minimum of 1 year's experience working with a frail or 
elderly population.
    We required that the occupational therapist (1) be a graduate of an 
occupational therapy curriculum accredited jointly by the Committee on 
Allied Health Education and Accreditation of the American Medical 
Association and the American Occupational Therapy Association; (2) be 
eligible for the National Registration Examination of the American 
Occupational Therapy Association; (3) have 2 years of appropriate 
experience as an occupational therapist and have achieved a 
satisfactory grade on a proficiency examination conducted, approved, or 
sponsored by the U.S. Public Health Service, except that this 
determination of proficiency does not apply with respect to persons 
initially licensed by a State or seeking initial qualification as an 
occupational therapist after December 31, 1977; and (4) have a minimum 
of 1 year's experience working with a frail or elderly population.
    We required that the recreation therapist or activities coordinator 
have 2 years experience in a social or recreational program providing 
and coordinating services for a frail or elderly population within the 
last 5 years, one of which was full-time in a patient activities 
program in a health care setting.
    We required that the dietitian (1) have a baccalaureate or advanced 
degree from an accredited college with major studies in food and 
nutrition or dietetics; and (2) have a minimum of 1 year's experience 
working with a frail or elderly population.
    We required that all PACE center drivers (1) have a valid driver's 
license to operate a van or bus in the State of operation; and (2) be 
capable of and experienced in transporting individuals with special 
mobility needs.
    We did not define personnel requirements for the PACE center 
manager or the home care coordinator. We gave POs the flexibility to 
determine who is best suited to fill these positions as each PACE 
center may have different needs. Because the home care coordinator is 
responsible for acting as the liaison between the IDT and the home care 
providers, she or he should possess good leadership and communication 
skills. In addition, the home care coordinator should be able to 
identify and understand participants' medical and social needs in order 
to evaluate the home care needs of participants. As a result, we 
indicated that a registered nurse or social worker would be a good 
candidate to fill this position. However, it was not our intention to 
deter the PO from considering another candidate with appropriate 
qualifications because they were neither a registered nurse nor a 
social worker.
    We did not impose personnel requirements for personal care 
attendants (PCAs) as these individuals will primarily be providing non-
skilled, personal care services (such as bathing, toileting, and 
transferring). In the 1999 interim final rule, we solicited comments on 
whether to include specific personnel requirements for PCAs. It is 
important that PCAs possess certain basic skills necessary to provide 
quality care to PACE participants. Thus, we required POs to implement a 
training program for each PCA to ensure that they exhibit competency in 
basic skills in personal care services. Although we did not define the 
parameters of the training program, we indicated the training program 
should include maintenance of a clean, safe, and healthy environment; 
appropriate and safe techniques in personal hygiene and grooming; safe 
transfer techniques and ambulation; reading and recording temperature, 
pulse, and respiration; and observation, reporting, and documentation 
of patient status and the care or service furnished. In addition, the 
training program developed for each PCA must include other elements 
consistent with their assigned duties for specific participants.
    Finally, we acknowledged that PCAs in the home environment may 
furnish not only personal care services, but also home care services. 
Therefore, when the participant needs home care services, the PO must 
ensure that it has qualified staff (either employees or contractors) 
that meet the competency requirements established by the PO and 
approved by CMS for home care aides to furnish these services.
    We received a large number of comments regarding personnel 
requirements.
    Comment: Numerous commenters were concerned that the 1999 interim 
final rule did not appropriately emphasize that State licensure laws, 
certification, and registration requirements take precedence over the 
requirements specified in the 1999 interim final rule which may lead to 
creating unnecessary and unintended conflicts between the PACE 
regulation and State requirements.
    Commenters believe establishment of provider qualifications is 
traditionally a State function. The commenters indicated it would be 
sufficient for the regulation to specify that individuals providing 
PACE services meet applicable State requirements. It was suggested that 
States be permitted to define a combination of education and experience 
qualifications and that CMS grant a waiver of these educational and 
experience requirements if there are staff development procedures in 
place for those waived individuals, and where the PO's decision to hire 
staff without the required qualifications will not adversely impact the 
quality of care. Commenters also recommended that services that do not 
require State licensure or certification not be subject to additional 
requirements in Federal regulations.

[[Page 71267]]

    There was also concern that the requirements set forth in the 1999 
interim final rule would be adopted as minimum Federal requirements, 
regardless of whether State licensure, certification, or other 
registration exists. If this adoption takes place, the PO's burden of 
locating adequate numbers of staff will be magnified. Recommendations 
ranged from removing personnel qualification requirements to allowing 
health professionals to be permitted to minimally meet State 
requirements for medical professional practice.
    Response: In establishing personnel qualifications, we did not 
intend to usurp the State's authority. Throughout the regulation, we 
have indicated that POs must meet all Federal, State, and local 
regulations and laws. We believe that the present qualifications 
established for PACE set forth the necessary qualifications to ensure 
the health and safety of this frail elderly population. Should State 
regulations be more stringent than those of this regulation, then the 
PO must meet the State requirements as well.
    We believe there was considerable confusion and misunderstanding of 
the personnel qualification requirements published in the 1999 interim 
final rule. In that rule, we based personnel qualifications on whether 
the State had licensure, certification, or registration requirements 
for a profession. In States where there was no State licensure, 
certification, or registration, we required minimum educational 
qualifications for each profession.
    In response to the comments and to reduce the confusion over 
personnel qualifications, we are amending the title of Sec.  460.64 and 
the personnel qualifications to clarify that the qualifications apply 
to all PACE staff with direct participant contact, to ensure the health 
and safety of the participants. We are accomplishing this by 
consolidating and clarifying requirements in Sec.  460.64(a) that were 
previously located in other sections of the PACE regulations and by 
deleting paragraph Sec.  460.64(c).
    We are amending the title of Sec.  460.64 and the personnel 
qualifications to clarify that the qualifications apply to all PACE 
staff with direct participant contact and decrease the burden in hiring 
and contracting for adequate numbers of staff members. We are removing 
the educational requirements and other qualifications at Sec.  
460.64(c) that we established where no States required licensure, 
certification or registration.
    We believe that it is essential that all professionals be legally 
authorized (licensed, certified or registered) to practice in the State 
in which they practice if the State has established requirements. All 
States have licensed, certified or registered requirements for 
physicians, registered nurses, social workers, physical therapists, 
occupational therapists, and dietitians. All other direct care 
providers, must meet the State requirements that authorize them to 
practice in their State. We believe that all professions must act 
within the scope of their authorized practice guidelines. Each 
profession has established guidelines that define the services that may 
be performed within the scope of the minimum level of knowledge and 
training for each professional level. For example, the scope of 
practice is different for licensed practical nurses, registered nurses, 
clinical nurse specialist and nurse practitioners. Regardless, each 
nurse is expected to practice within his or her respective level.
    In the 1999 interim final rule, each profession listed in Sec.  
460.64 (b) and (c) was required to have one year of experience working 
with the frail or elderly population (except for the Recreational 
Therapist/Activity Coordinator who was required to have two-years 
experience). The PACE population is comprised of the frail elderly who 
need to be cared for by staff that has the specific training and 
experience to understand the complexities and differences in geriatric 
patients. It is essential for staff to have the knowledge of geriatric 
practices and skill to work with these individuals. Experienced staff 
will be conscious that when dealing with the frail or elderly they need 
to be gentler, more patient and observant than with a healthy younger 
person. For example, a frail elderly person's skin is more likely to 
tear, a bone is more likely to break, a joint more likely to be stiff 
and painful, and medications are more likely to affect them differently 
with a potentially wider variety of adverse reactions. Therefore, we 
believe that all personnel having direct participant contact must have 
a minimum of one year of experience working with a frail or elderly 
population and are adding this requirement to the general requirements 
in paragraph (a)(3).
    In the 2002 interim final rule, we established requirements for the 
oversight of direct participant care (Sec.  460.71), which included 
requiring the PO to ensure all employees and contracted staff 
furnishing direct care to participants demonstrated the skills 
necessary for performance of their position. We also required the PO to 
establish a competency evaluation program, which has to be evidenced as 
completed before an individual may perform participant care. We believe 
that demonstrating competency prior to performing direct participant 
care is essential to ensure the delivery of safe care. Therefore, we 
are adding competency as paragraph (a)(4) to the general personnel 
qualification requirements for staff performing direct participant 
care.
    Section 460.71, Oversight of direct participant care required the 
PO to develop a program to ensure all staff furnishing direct 
participant care was free of communicable disease. We believe this is 
even more important with a frail elderly population considering their 
complex medical conditions and increased susceptibility. It is standard 
practice in the health care industry that an individual must be cleared 
as free of communicable disease prior to employment. We are therefore 
amending Sec.  460.64 to require that all PACE staff with direct 
participant contact be medically cleared of communicable disease and 
have all immunizations up-to-date before engaging in direct contact 
with participants.
    For those professions where not all States have licensure laws, 
State certification or registration requirements, specifically 
Recreation therapist/Activity coordinator and drivers, we believe that 
all States have minimum requirements to ensure that services are 
provided safely. For example, States require a special class of 
driver's license to transport people for money. In addition to the 
general personnel qualifications, we expect that any such State 
qualification requirements be met.
    Comment: A large number of commenters opposed the Federally-defined 
qualifications for the physician which were not included in the 
Protocol.
    Response: As stated above, section 1861(r) of the Act generally 
defines a physician and is reflected in 42 CFR 410.20, which defines 
physician, physician services and the limitations on services under the 
Medicare program. As all physicians participating in the Medicare 
program must meet Sec.  410.20, we require that all physicians 
participating in the PACE program meet the qualifications of Sec.  
410.20, and also meet the general qualification requirements as stated 
in Sec.  460.64(a).
    To emphasize the key role of the PCP in the PACE model, we require 
the PACE PCPs to have one-year's experience working with a frail or 
elderly population to ensure their knowledge and skill with geriatric

[[Page 71268]]

patients. We require they demonstrate their competency prior to 
employment or contract. The PO must ascertain the competency of 
prospective physicians through the PO's established competency program. 
We also require the PCPs be cleared of communicable diseases to ensure 
that infectious diseases are not passed by the close physical proximity 
necessary to treat participants.
    Comment: We received numerous comments related to specific staffing 
requirements. A large number of commenters opposed the detailed 
personnel requirements in the 1999 interim final rule, stating that 
they unnecessarily limited flexibility in the development and 
implementation of PACE programs.
    The commenters recommended we require all POs establish an adequate 
staff development process to ensure that all staff members understand 
the unique needs of the PACE population. However, commenters wanted the 
States to have the option to waive these requirements. They also 
recommended we require that the PO also consider factors such as 
languages spoken and cultural sensitivity.
    Response: To the extent the State has licensure, certification, or 
registration requirements, these apply and not the requirements in 
Sec.  460.64(c)(1).
    These qualification requirements, as noted in the 1999 interim 
final rule, were to be the regulatory foundation of PACE as a new 
Medicare benefit and State plan option. We believe that in clarifying 
the 1999 interim final rule in the 2002 interim final rule, permitting 
contracting of personnel and providing a waiver process to assist POs 
where they are unable to comply with regulations, we have addressed and 
resolved commenters concerns related to limited flexibility and 
personnel qualifications when no State licensure, certification, or 
registration laws exist.
    We believe we addressed the recommendation regarding the 
establishment of an adequate staff development process to ensure all 
staff members understand the unique needs of the PACE population in the 
2002 interim final rule, which required that all POs develop a 
competency evaluation program that identify those skills, knowledge and 
abilities that must be demonstrated by direct participant staff.
     In response to the recommendation that we require that the 
PO also consider factors such as languages spoken and cultural 
sensitivity, we believe that each PO understands the cultural diversity 
of their particular population. To be in compliance with the 
requirements of participant rights they must provide for language and 
cultural diversity, we expect that POs will take these important areas 
into consideration when hiring staff. As a result, we do not believe 
that it is necessary to repeat the requirement in this section of the 
regulation.
    Final rule actions:
    In this final rule we are making revisions to Sec.  460.64, 
including:
     Amending the title to ``Personnel qualifications for staff 
with direct participant contact,'' to clarify that the qualifications 
apply to all PACE staff with direct participant contact.
     Amending paragraph (a) by adding (1) one year of 
experience working with a frail or elderly population, (2) meeting 
standardized competencies prior to providing participant care, and (3) 
being medically cleared of communicable diseases and have all 
immunizations up-to-date before engaging in direct participant contact.
     Deleting paragraph (c).

Section 460.66 Training

    In Sec.  460.66, we require the PO to provide ongoing training to 
maintain and improve the skills and knowledge of each staff member with 
respect to their specific duties. The training should result in the 
staff's continued ability to demonstrate the skills necessary for the 
performance of their specific positions or job duties. The ability of 
the PO to ensure patient safety and to achieve patient-specific 
performance measures necessitates competent staff. We believe there is 
a direct relationship between the quality of an organization's staff 
and patient well-being. The training requirement is intended to ensure 
that all staff are able to adapt to new or changing job demands. The PO 
is responsible for ensuring that individuals are educated and trained 
for their specific jobs. The individuals would continue to be 
responsible for their own professional education and for any continuing 
education needed to maintain licensure or professional certification 
unless the organization chooses to assume this responsibility. In 
addition, we included a specific training requirement for PCAs as 
described in Sec.  460.66(b).
    Comment: Commenters' opinions regarding the training requirements 
varied, with recommendations that the SAA should be authorized to 
establish a minimum training curriculum, and criticisms that the PO 
should be permitted to utilize training from other sources available in 
the community.
    We were also asked to clarify whether PCAs, who have demonstrated 
competency in furnishing personal care services through certification 
as nursing assistants or home health aides, are required to receive 
redundant or additional training unless it is deemed necessary by the 
PO.
    Response: We are retaining the requirement that POs provide ongoing 
training to maintain and improve the skills and knowledge of each staff 
member with respect to their specific duties in order to ensure that 
PACE participants receive the highest quality care possible. We believe 
POs have the ultimate responsibility for all care provided to their 
participants and, therefore, it is in the best interest of PACE 
participants and the PO that they provide training specific to their 
participant population. Ongoing in-service training for all staff will 
ensure that skills remain current and any detrimental practices are 
caught and rectified as early as possible.
    In this final rule, we wish to clarify Sec.  460.66(b), which 
requires the PO to develop a training program for each PCA in order to 
establish the individual's baseline competency in furnishing personal 
care services, including specialized skills associated with the 
specific care needs of individual participants. We intend that the PO 
evaluate the skills of each newly hired PCA and develop a training 
program specific to the competencies or deficiencies that they 
demonstrate. This training must be performed by qualified 
professionals. Again, the intent of this training requirement is to 
identify and resolve any knowledge or skill deficits of each person and 
educate them to a level where they can demonstrate competency in all 
basic skills required to provide personal care services. This 
clarification is intended to prevent redundant training of skills 
already displayed by PCAs and to reduce the burden on PO resources.
    Final rule actions:
    In this final rule, we are clarifying the requirement in Sec.  
460.66(b) that POs develop a training program for PCAs where there are 
competency deficits and that personal care attendants must exhibit 
competency before performing personal care services independent of 
supervision.

Section 460.68 Program Integrity

    We established Sec.  460.68, based on Part I, section E of the 
Protocol to guard against potential conflicts of interest or other 
program integrity problems for POs. An organization must not have any 
staff (employees or contractors) who have been convicted of a criminal 
offense related to their involvement in Medicaid, Medicare, other 
health insurance or health care programs, or

[[Page 71269]]

any social service program under Title XX of the Act. We expanded this 
provision from the Protocol in order to prevent an organization from 
employing any staff who have been excluded from participation in 
Medicare or Medicaid, or employing staff, in any capacity, where the 
employee's contact with participants would pose a potential risk 
because the individual had been convicted of physical, sexual, drug, or 
alcohol abuse. In addition, members of the PO's governing body, and 
their family members, are prohibited from having a direct or indirect 
interest in contracts with the PO. Examples of indirect interests are 
holdings in the name of a spouse, dependent child, or other relative 
who resides with the member of the governing body. These requirements 
are intended to protect participants by preventing fraud under Medicare 
and Medicaid by members of the governing body with conflicts of 
interest from inappropriately influencing PO decisions.
    We recognize that in rural, Tribal, or urban Indian communities 
there may be limited availability of individuals willing to and capable 
of performing key functions for the PO. Therefore, the 1999 interim 
final rule provided for CMS and the SAA to grant a waiver of the 
conflict of interest requirement for POs in rural or tribal areas to 
allow individuals who have a direct or indirect interest in a contract 
or the provision of services to the PO to recuse themselves from 
decisions directly or indirectly affecting those interests, rather than 
barring them entirely from serving on the PO's governing body or 
serving as directors, officers, partners, employees, or consultants of 
the PO.
    We also included a requirement that the PO must have a process to 
gather information on program integrity issues and respond to any 
request from CMS within a reasonable amount of time.
    As discussed previously, in the 2002 interim final rule, we 
established a process for submission and approval of waiver requests 
and deleted Sec.  460.68(c) that limited waivers to direct or indirect 
interest in contracts of rural and Tribal organizations. Although we 
deleted Sec.  460.68(c), we continue to recognize the special need for 
flexibility in rural and Tribal areas, and remain committed to allowing 
waivers to promote PACE in medically underserved areas. We also remain 
committed to working with rural and Tribal communities to help them 
address the challenges of developing successful PACE programs. 
Organizations that seek waiver of these or any other regulatory 
requirements would follow the requirements specified in Sec.  460.26.
    Comment: We received several comments regarding program integrity. 
Commenters requested that we permit the PO the discretion to determine 
whether an individual's past convictions (which vary greatly in type 
and severity) would pose a serious threat to PACE participants and 
suggested modifications to Sec.  460.68(a)(3).
    Response: We believe our current policy is consistent with Medicare 
policy related to other provider types and do not agree that the threat 
posed by an individual's past convictions should be left to the 
discretion of the PO. PACE participants are the most frail and 
vulnerable members of the community, and it is their right to expect 
care that is free from the risk of harm by their caregivers. Therefore, 
it is the responsibility of Medicare, Medicaid, and the PO to ensure 
that every individual hired to provide care to PACE participants poses 
the least risk possible. We believe that facilitating contact with 
individuals who have a prior conviction for physical, sexual, drug or 
alcohol abuse increases the potential risk to the PACE participants.
    Comment: One commenter recommended that conflict of interest 
disclosure regulations apply to the program director, medical director, 
and the contractor liaison. This commenter also recommended requiring 
disclosure of conflicts of interest to the SAA. Another commenter 
recommended the disclosure requirement also apply to the SAA.
    Response: We discuss the SAA's role with regard to conflict of 
interest in this section. However, as the program director, medical 
director, contractor liaison, and the SAA are not on the governing body 
and have no voting responsibility, we do not think they are in a 
position to unduly influence PO decisions. Therefore, we do not believe 
it is necessary to amend the program integrity requirements to include 
them. We note that Sec.  460.68 does not preclude a PO from developing 
disclosure requirements for other staff.
    Comment: Two commenters requested we clarify whether the regulatory 
intent of Sec.  460.68(b) is to limit contracting with related 
organizations or just related individuals, as many providers establish 
related corporations which provide services to participants and which 
were not prohibited in the PACE demonstration program.
    Response: The intent of this requirement was to limit an unfair 
advantage that might be gained by any member of the governing body, or 
their family member, who would have a direct or indirect interest in an 
entity contracting with the PO for items or services.
    We acknowledge that it is quite common for a PO to be part of or 
have a relationship with a larger entity. Consistent with Sec.  
460.60(d) and Chapter 1, Section VII of the PACE provider application, 
the POs' relationship to the corporate board and to any parent, 
affiliate, or subsidiary corporate entity must be described in the 
provider application under the requirements for organizational 
structure. In this type arrangement it would be customary to contract 
for services with other entities within the system. As these are 
entity-to-entity arrangements and no individual would personally 
benefit, these kinds of common business practices do not give rise to 
the type of conflict of interest contemplated under Sec.  460.68(b).
    Since implementation of the 2002 interim final rule, we have also 
received numerous requests for waiver of this section of the rule. 
These waivers have been approved as general organization-wide waivers 
contingent upon the PO developing policies and procedures for: (1) Full 
disclosure to the governing body of the direct or indirect conflict or 
potential conflict of interest of the member or an immediate family 
member related to the conflict; (2) recusal of voting, discussions, 
negotiations or any activity that would directly or indirectly affect 
the interest of the PO; and (3) inclusion of the disclosure and recusal 
actions in official records and that are readily accessible to CMS and 
the SAA.
    In response to commenters' requests, and based on our experience 
with reviewing waiver requests relating to conflicts of interest 
procedures, we are amending Sec.  460.68(b) to clarify our requirements 
for managing conflicts of interest that may involve members of the 
governing body or any immediate family members. We are requiring that 
POs establish policies and procedures for handling such conflicts of 
interest, that members of the governing body must disclose any such 
conflicts, and that members must recuse themselves from discussing, 
negotiating, or voting on any matter that involves an inappropriate 
conflict of interest.
    To illustrate, we believe the following is a conflict of interest 
of an immediate family member: The wife of a board member owns a supply 
company which is the only one in the area that provides institutional 
laundry services, so the PO has no option but to contract with this 
company. The governing body member must make full disclosure of the 
situation to the body, and recuse themselves when the contract

[[Page 71270]]

negotiations are in progress as well as when voting on the contract 
occurs.
    In response to the comments related to the SAA, we do not believe 
it is appropriate for CMS to impose conflict of interest restrictions 
on the SAA as they are not on the PO's governing body. Our concern is 
that decisions made by the governing body could be made specifically 
for the financial benefit of certain members of the governing body or 
their immediate family members.
    All disclosure and recusal information must be recorded in the 
governing body's official records, which must be available for CMS and 
SAA review. CMS and SAA are both authorized to review this information, 
which can be accomplished during on-site monitoring and survey 
activities, or by requesting the information from the PO. Additionally, 
if a conflict exists at the time a provider submits their PACE provider 
application, we expect the PO to disclose the conflict as part of the 
application.
    Comment: One commenter asked if the conflict of interest 
requirements may be waived in rural, Tribal and urban Indian 
communities. The commenter also asked if those areas have been 
designated eligible for conflict of interest waivers, and if so, they 
requested that the information be shared with the States.
    Response: The 1999 interim final rule provided for a waiver of 
conflict of interest in rural, Tribal, and urban Indian communities. As 
a result of expanding waiver flexibility to all POs in accordance with 
section 903 of BIPA, that specific waiver authority, located in Sec.  
460.68(c), was deleted in the 2002 interim final rule. We established 
Sec.  460.26 to implement the expanded waiver process. As previously 
noted, POs will now be required to have written policies and procedures 
in the event of a conflict of interest, and, therefore, waiver of 
conflict of interest will not be necessary.
    Comment: Two commenters addressed conflict of interest disclosure 
related to the SAA. One commenter asked whether States have the 
responsibility to ensure the disclosure requirement is met.
    Response: The SAA is not delegated the responsibility of ensuring 
that conflicts of interests are disclosed. The regulation does not 
require full disclosure to CMS or the SAA, but the PO must be able to 
provide documentation should CMS or the SAA request it.
    Final rule actions:
    In this final rule, we are providing for disclosure and recusal in 
the event of a conflict of interest of a member of the PO's governing 
body or their immediate family member(s).

Section 460.70 Contracted Services

    Under the scope of benefits described in sections 1894(b)(1) and 
1934(b)(1) of the Act, a PO may enter into written contracts with each 
outside entity to furnish services to participants. Consequently, we 
require in Sec.  460.70 that all services, except for emergency 
services as described in Sec.  460.100, not furnished directly by a PO 
must be obtained through contracts, which meet the requirements 
specified in regulations. In the 1999 interim final rule, we adopted 
the contracting provisions in Part VII, section A of the Protocol.
    We specified in Sec.  460.70(b) that a PO may only contract with 
entities that meet all applicable Federal and State requirements, and 
provided some examples of the types of requirements that contractors 
would be expected to meet. For example, institutional contractors 
(hospital and nursing home) must meet Medicare and Medicaid 
participation requirements. To avoid breakdowns in communication or in 
the provision of care, we required that POs designate an official 
liaison to coordinate activities between contractors and the 
organization. Effective coordination of services is necessary to avoid 
duplicative or conflicting services. Designating an individual as 
liaison provides a conduit for sharing information. The liaison would 
inform contractors of PO policies, changes in participants' plans of 
care, information from team meetings, and quality improvement 
activities and goals. Contractor staff would inform the PO, through the 
liaison, of updates and changes in a participant's status, personnel 
changes in the contractor, and any other information necessary for the 
continuity of participant care. All care must be evaluated by the PO, 
with particular attention to care provided by contracted personnel. 
This requirement provides a mechanism to ensure that contracted 
personnel are adhering to organization policies and procedures. It also 
affords the organization an opportunity to identify any education or 
training needs of contracted personnel.
    We specified in paragraph (c) that the PO is required to maintain a 
current list of contractors at the PACE center and provide a copy to 
anyone upon request and in paragraph (d) that copies of signed 
contracts for inpatient care must be furnished to CMS and the SAA.
    Under the specific contract content requirements listed in 
paragraph (e), we require each contract to be in writing and contain 
the following information:
     Name of contractor.
     Services furnished.
     Payment rate and method.
     Terms of the contract, including the beginning and ending 
dates, as well as methods of extension, renegotiation, and termination.
     Contractor agreement to: Furnish only those services 
authorized by the PACE IDT; accept payment from the PO as payment in 
full and not to bill participants, CMS, the State Medicaid agency or 
private insurers; hold harmless CMS, the State and PACE participants if 
the PO cannot or will not pay for services performed by the contractor 
under the contract; not assign or delegate duties under the contract 
unless prior written approval is obtained from the PO; and submit 
reports as required by the PO.
    We did not establish a specific notice requirement for termination 
of contracts. We believe that POs will contract with individuals and 
entities that understand and embrace the organization's mission and 
commitment to participants. As discussed previously, we required in 
Sec.  460.62 that the governing body establish personnel policies that 
address adequate notice of termination by contractors and employees 
with direct patient care responsibilities to permit an orderly 
transition and avoid disruptions in care.
    In the 2002 interim final rule, we amended Sec.  460.70(e) to 
include additional contract requirements where the PO chooses to 
contract for IDT members or key administrative staff. In amended 
paragraph (e), we required that contractors: (1) Agree to perform all 
the duties of their position; (2) participate in IDT meetings; (3) 
agree to be accountable to the PO; and (4) cooperate with the 
competency evaluation program and direct participant care requirements 
in Sec.  460.71.
    The PACE Protocol at section IV.B.13.a. provided that the IDT may 
be employed by the PO or the PACE center. In developing the 1999 
interim final rule, we did not address this issue because we believed 
that in all cases the PO and the PACE center were the same 
organization. After publication of the 1999 interim final rule, we 
learned that in 1995, changes were made to the Protocol to permit 
contractual arrangements for all PACE center services, which reflected 
an operating arrangement engaged in by one of the PACE demonstration 
programs, On Lok Senior Health Service. Through this contractual 
arrangement, On Lok, Inc. had been able to expand PACE services to a 
different part of their service area without disrupting the care that

[[Page 71271]]

traditionally had been provided by the other organization.
    As described above in the 2002 interim final rule, we amended the 
1999 interim final rule to allow POs to provide PACE center services 
through contractual arrangements. As we explained in the 2002 interim 
final rule, we did not view this approach as a waiver authorized by 
BIPA. Rather, we established specific requirements for this approach 
consistent with the On Lok, Inc. arrangement (67 FR 61499). We added a 
new paragraph (f) to Sec.  460.70 to identify the criteria that a PO 
must meet to contract out PACE center services. We explained in the 
2002 interim final rule that we are not inclined to approve this 
arrangement for a PO unless it is financially stable and has 
demonstrated competence with the PACE model by successful CMS and State 
onsite reviews and monitoring efforts.
    We expect the PO to retain all key administrative functions 
including marketing and enrollment, QAPI, and contracting for 
institutional providers and other key staff. We noted that, consistent 
with Sec.  460.70(e)(5)(iv), any subcontracting arrangements by the 
PACE center would need to be approved in writing by the PO. The PACE 
center may employ or contract for the team and provide PACE services in 
accordance with the PACE regulation. However, the PO receives all 
payment from CMS and the State and remains responsible for all the care 
provided in these centers. In addition, we emphasized that contracting 
out PACE center services does not change the participants' relationship 
to the PO. All participants, whether assigned to the PO-operated PACE 
center or assigned to a PACE center that contracts with the PO, are 
enrolled with the PO and are afforded all benefits and protections 
offered by the PO.
    On Lok, Inc. is able to monitor the care provided in the contracted 
PACE center through the sharing of electronic medical records. While we 
did not require electronic medical records as a condition of approval, 
we believe it is necessary for a PO wishing to pursue this type of 
arrangement to describe how it will monitor the care provided and 
perform all the administrative duties required by the PACE regulation.
    In the 2002 interim final rule, we also discussed the obligation of 
the PO to monitor the care provided by contracted entities providing 
PACE center services now allowed by the amended requirements in that 
final rule. Given the vulnerable frail population served by the PACE 
program and the increased opportunity for a PO to contract out 
participant care services, it is important to reiterate the PO's 
obligation to monitor the care furnished by direct participant care 
staff. This obligation applies not only to employees of the PO, but 
extends to the care provided by contracted staff, including employees 
of organizations with which the organization contracts (for example, a 
home health agency, rehabilitation agency, nursing facility, 
transportation service, or staffing agency). It is especially important 
for the PO to monitor the care provided in all settings, including the 
PACE center and the participant's home, as well as in offsite locations 
such as physician offices and institutional providers to ensure quality 
care. To effectively monitor care provided outside the PACE center, the 
PO must be vigilant in following up on all unusual occurrences and 
complaints. In addition, the PO must foster an atmosphere that promotes 
the voicing of participant complaints about quality of care to assist 
the PO in monitoring the care provided by contracted staff and 
organizations.
    In the 1999 interim final rule, Sec.  460.66 required the PO to 
provide training to maintain and improve the skills and knowledge of 
each staff member that results in his or her continued ability to 
demonstrate the skills necessary for the performance of the position. 
In conjunction with the decision to allow POs to contract for key 
staff, in the 2002 interim final rule, we created a new Sec.  460.71 to 
identify PO oversight requirements for PACE employees and contractors 
with direct patient care responsibilities. We address these 
requirements later in greater detail and respond to specific comments 
on this issue. We revised Sec.  460.70(e) to require contractors who 
furnish direct participant care to cooperate with the requirements of 
Sec.  460.71 as well.
    We received the following questions and requests for clarification 
regarding contracted services.
    Comment: One commenter requested we explain why a contractor must 
be prohibited from accepting private insurance payments directly.
    Response: PACE is a capitated program at full financial risk for 
all services required by their participants. PACE participants sign an 
enrollment agreement, which states they must get all services (directly 
or indirectly) from the PO. To ensure coordination of care directed by 
the IDT, the PO needs to be aware of all services provided.
    If a contractor receives payment directly from a private insurer, 
the contractor would have been paid twice, once by the PO and once by 
the private insurer. Therefore, we included Sec.  460.70(e)(5)(ii) to 
require contractors to accept payment from the PO as payment in full 
and agree not to charge CMS, the State, the participant, or private 
insurers for services to PACE participants.
    Comment: One commenter asked which entities are considered 
``organizational contractors'' that must meet the COPs.
    Response: The term ``organizational contractors'' was replaced with 
``institutional contractors'' in the 2002 interim final rule. 
Institutional providers include but are not limited to acute care 
hospitals, rehabilitation hospitals and distinct part rehabilitation 
units of acute care hospitals, psychiatric hospitals and distinct part 
psychiatric units of acute care hospitals, and critical access 
hospitals, nursing facilities and skilled nursing facilities. The PO 
must contract only with institutional entities that meet all applicable 
Federal and State requirements. There are provider-specific COPs for 
institutions that participate in the Medicare program. Therefore, all 
institutional contractors must be in compliance with their respective 
COPs.
    Comment: One commenter requested the rationale for singling out 
inpatient services contracts for submission while contracts with other 
entities need only be on file.
    Response: We agree with the commenter and do not believe the 
requirement is necessary. For this reason, we are revising Sec.  460.70 
to delete paragraph (d). Our experience has indicated that having 
inpatient service contracts on file, provides sufficient accessibility. 
CMS and the SAA will review these contracts during routine monitoring 
surveys.
    Comment: One commenter requested clarification of the role CMS 
expects the SAA to play in ensuring contracts are appropriate.
    Response: We expect the SAA to ensure that the PO's contracts meet 
applicable State and local laws and requirements.
    Comment: Commenters asked whether it is acceptable for an entity to 
submit a prepared but unsigned contract with the initial application 
and, following a readiness review, submit the signed contract with 
language specifying that the contract is not effective until the PO's 
program agreement is signed.
    Response: We have determined that it is inappropriate for entities 
that are not operational to submit signed and dated contracts when they 
submit their PACE application. Rather, it is acceptable for entities to 
submit contract templates

[[Page 71272]]

with their initial applications. As part of the State readiness review, 
the SAA determines that all contracts are signed and dated. However, 
the contracts may not become effective until a program agreement with 
the entity is signed.
    Comment: One commenter indicated that it is unnecessary to 
designate one official liaison to coordinate contracted services and 
urged us to leave the coordination of contracted services to the 
discretion of each PO. The commenter requested that we require the POs 
to establish a mechanism for the coordination of contracted services, 
but not specify the means by which to effect this objective.
    Response: We do not agree with the commenter that the means of 
coordinating contracting services should be left up to the discretion 
of each PO. To ensure the health and safety of the participants, we 
require a contract liaison to ensure that there is a designated 
individual with the responsibility and authority to facilitate 
communication and coordinate activities, to track delivery and follow-
up of services related to contractor provided care, and to act as a 
conduit for contractor issues whether raised by the contractor, the PO, 
or a participant.
    Comment: In the 1999 interim final rule, we requested comments on 
whether to include a notification timeframe for termination of 
contractor or employee contracts. Three commenters supported a 
requirement for prior notification to terminate a subcontract, but each 
with a different timeframe. One commenter suggested a minimum of 60 
days notice, one suggested 90 days, and the last suggested a timeframe 
that is consistent with M+C (now MA) and Medicaid managed care 
requirements.
    Two commenters did not support a prior notification requirement. 
One commenter indicated a termination notice can be difficult and may 
even be contrary to the needs of the participants while the other 
commenter believed this was a subject best left to the POs and 
individual contractors. Finally, one commenter indicated that the 
regulations are sufficiently flexible to allow the POs to structure 
their employee/contractor agreements in a way that maximizes benefits 
to the organization and participant.
    Response: We agree with the commenter who pointed out that the 
current regulations are flexible enough to allow the POs to take into 
account the needs of the organization and the participants. The 1999 
interim final rule established the requirement in Sec.  460.70 that the 
terms of a contract include a specified method of termination. The 
intent of advanced notice of termination is to provide the participants 
sufficient time to adjust to a change in providers. We believe the 
current regulation makes adequate provision for establishing any 
notification timeframe for termination and are retaining the language 
in the 1999 interim final rule.
    Comment: One commenter indicated that the wording of the 2002 
interim final rule may lead to unintended legal implications for 
contractors and POs. Specifically, the commenter believes that terms 
``agree'' and ``accountable'' may be construed as evidence of an 
employment relationship between the PO and the contractor. The 
commenter recommended deletion of the accountability provision. In 
place of the provision, they suggested a written agreement with the 
contractor which sets forth the contractor's duties and 
responsibilities.
    One commenter responded to our request for comments related to the 
criteria for contracting out PACE center services by recommending that 
we should exempt applicants in rural areas from the requirement to have 
demonstrated competence with the PACE model before they contract out 
for PACE center services. This commenter also expressed concern 
regarding contracting for IDT members. The commenter was concerned that 
contracted IDT members might be unavailable in person, participating in 
IDT meetings via telephone which would distance them from care 
planning.
    Response: We require POs to have formal written contracts with all 
service providers, and that these contracts specifically identify the 
services to be provided and the responsibilities of both parties. The 
use of the terms questioned by the commenter does not imply an 
employment relationship. The PO has the ultimate responsibility for all 
care and services provided to participants including those provided 
under contract. The PO is also responsible for oversight of participant 
care. We are, therefore, retaining the requirement for PACE contractors 
to be accountable to the PO for their performance.
    As we indicated in the 2002 interim final rule, we are more likely 
to allow POs to contract out PACE center services when they have 
attained experience in delivering services and managing the risk 
associated with the frail elderly. We continue to believe that an 
experienced organization will be better equipped to adequately monitor 
this arrangement and ensure that participants assigned to contracted 
PACE centers are afforded all benefits and protections offered by the 
PO.
    We are not inclined to exempt all POs in rural areas, as we believe 
a PO needs experience in operating a PACE center and providing the 
range of services to understand exactly what they will be ultimately 
responsible for when they contract for services. The waiver process 
established in the 2002 interim final rule provides new POs the 
opportunity to indicate in detail the specific barriers to meeting 
requirements that would be resolved by contracting for services.
    In response to the concern regarding the contracted IDT members 
being unavailable for care planning, we believe that as the PO has 
oversight responsibility of all care provided to participants, they 
will ensure that care planning is performed appropriately by all IDT 
members.
    Comment: We received one comment suggesting that when services are 
contracted, funds should be allocated to permit contractual staff to 
participate in all clinical and administrative activities with the PACE 
program.
    Response: Although we agree with the commenter that this could be a 
beneficial arrangement, we believe CMS should not dictate how POs 
allocate or spend their resources; thus, making this a regulatory 
requirement would be inappropriate. However, staff refers to both 
employed and contracted staff, with no distinction in job duties or 
responsibilities. Contracted staff are required to perform all the 
duties of a PACE employee related to their position including, but not 
limited to, being oriented to the PACE model's philosophy, mission, 
policies on participant right, emergency plan, ethics, and the PACE 
benefit, and policies related to job duties; participate in IDT 
meetings; meet competency requirements; and be accountable to the PO. 
Therefore, we expect contractual staff to participate in all clinical 
and administrative activities with the PACE program.
    Final rule actions:
    In this final rule, we are:
     Deleting Sec.  460.70(d),
     Redesignating paragraph (e) as paragraph (d), and
     Redesignating paragraph (f) as paragraph (e).

Section 460.71 Oversight of Direct Participant Care

    We intend that personnel requirements apply to both staff and 
contractors. In this section, we intend to clarify the requirements for 
the oversight of direct participant care.
    As noted previously, in the 2002 interim final rule, we created a 
new

[[Page 71273]]

Sec.  460.71 to identify PO oversight requirements for PACE employees 
and contractors with direct patient care responsibilities. These 
requirements fall into two categories, that is, (1) competency 
evaluation and (2) staff and contractor requirements.
     The PO must ensure that employees and contracted staff 
providing care directly to participants demonstrate the skills 
necessary for performance of their positions.
     The PO must provide each employee and all contracted staff 
with an orientation. The orientation must include at a minimum the 
organization's mission, philosophy, policies on participant rights, 
emergency plan, ethics, the PACE benefit, and policies and procedures 
relevant to each individual's job duties.
    The PO must develop a competency evaluation program that identifies 
those skills, knowledge, and abilities that must be demonstrated by 
direct participant care staff (employees and contractors). The program 
must be evidenced as completed before performing participant care and 
on an ongoing basis by qualified professionals. The PO must designate a 
staff person to oversee these activities for employees and work with 
the PACE contractor liaison to ensure compliance by contracted staff.
    We note that the PO may satisfy this requirement for contract staff 
through receipt of competency evaluation documentation from certain 
independent contractors where licensure requirements include a 
competency evaluation component, or from organizations or agencies that 
employ these individuals and contract with the PO.
    The PO must develop a program to ensure that all staff providing 
direct participant care services meet the requirements listed below. 
The PO will verify that direct participant care staff or contractors 
meet the following requirements:
     Comply with any State or Federal requirements for direct 
patient care staff in their respective settings;
     Comply with the requirements of Sec.  460.68(a) regarding 
persons with criminal convictions;
     Have verified current certifications or licenses for their 
respective positions;
     Are free of communicable diseases;
     Have been oriented to the PACE program; and
     Agree to abide by the philosophy, practices, and protocols 
of the PO.
    Comment: One commenter indicated that the requirements pertaining 
to contracted staff are administratively burdensome and may compromise 
the PO's ability to contract with high quality providers.
    Response: We believe the requirements pertaining to contractual 
staff are essential for appropriate participation in the PACE benefit. 
All staff (employees and contractors) need to understand what the PACE 
service delivery model is and how it differs from other models. With 
regard to the competency evaluation requirements, we believe they are 
consistent with PACE, Medicare, and health care industry standards.
    Comment: One commenter asked that we clarify the relationship 
between Sec.  460.71(a) and (b) because they seem to cover similar 
points (staff and orientation).
    Response: We believe Sec.  460.71(a) is a requirement directed 
towards the education of staff of the PACE model; specifically, Sec.  
460.71(a) requires that all staff and contractors receive an 
orientation to the PACE model, what it is and how it works, and 
demonstrate clinical competency before performing direct participant 
care. Section 460.71(b) pertains more to the quality of the staff, as 
well as ensuring that the PO verify that staff and contractors have 
certification or licensure, pass a criminal background check, have been 
determined free from communicable diseases, and are up-to-date with 
immunizations. As discussed previously in Sec.  460.64, staff 
furnishing direct participant care must be free of communicable 
diseases and are up-to-date with immunizations. Thus, we are applying 
this provision to both contractors and staff, amending Sec.  
460.71(b)(4) to clarify that direct participant care staff or 
contractors must be determined to be free from communicable diseases 
and are up-to-date with immunizations before performing patient care.
    Comment: A commenter requested clarification regarding who is 
considered a contractor.
    Response: A contractor is an entity with a legally binding written 
agreement to deliver items or services for the PO in return for payment 
and is not considered an employee of the PO. All contractors must meet 
PACE competency requirements except for staff in inpatient and nursing 
facilities that must meet provider-specific COPs.
    Comment: One commenter asked that we clarify if references to staff 
include contracted staff.
    Response: In Sec.  460.71(a), we state that the PO must ensure that 
all employees and contracted staff furnishing care directly to 
participants demonstrate the skills necessary for performance of their 
position. In most other provisions of Sec.  460.71, we similarly 
specify that oversight requirements related to direct participant care 
apply to all employees and contracted staff. For purposes of this 
regulation, references to staff are intended to include contracted 
staff. Their orientation to the PACE model, specifying their direct 
care responsibilities, the days and hours they provide services for the 
PO to PACE participants, and their demonstration of clinical competency 
must be accomplished in the same manner as employed staff. We also 
assume that the PO is aware of the work schedule availability of the 
staff, both employed and contracted.
    Comment: One commenter asked if individual provider competency is 
required and if mechanisms such as contracting requirements established 
by the PO for contract providers, credentialing of staff and 
contractors, State licensing requirements, and Medicare certification 
requirements would be sufficient for ensuring compliance with Sec.  
460.71(b).
    The commenter also indicated that requiring orientation of the 
employees of contracted provider entities (for example, hospitals, 
nursing homes, home care agencies, transportation providers) will not 
have any impact on the quality of care provided. The commenter stated 
that the PO's scarce resources would be better spent in focusing on the 
quality of communication between the PO and its contractors to ensure 
participant services are provided appropriately. Communication is 
viewed as more important than provider knowledge about the PACE 
program. They requested that POs be granted the discretion to orient 
contract providers to the program as they deem appropriate.
    This commenter also views the requirement that competency 
evaluation must be completed before performing participant care as 
problematic. The commenter pointed out that emergency situations may 
exist where fulfilling this requirement may not be possible (for 
example, when temporary staff must be called upon to fill in during 
unanticipated absences).
    Response: In response to this comment, we want to clarify that 
individual provider competencies are required and that contractual 
agreements, credentialing for physician staff and contractors, State 
licensure, and Medicare certification are not in themselves proof of 
competency. The PO must follow-up to validate individuals' competency.
    We continue to believe that all direct care providers need to 
understand the philosophy of the PACE service delivery

[[Page 71274]]

model and recognize its unique features that have been proven effective 
in managing the health care needs of the frail elderly. We expect that 
during the orientation, the importance of communication will be 
emphasized as a pivotal aspect of the PACE model. Therefore, we are 
retaining the current requirement for orienting contractual providers.
    Competent staff is of paramount importance when dealing with this 
frail population. Although we understand that emergency staffing needs 
may arise, we expect the PO to contract with providers that have 
provided information and competency evaluation documentation before 
assigning temporary staff.
    Final rule actions:
    In this final rule, we are amending Sec.  460.71(b)(4) to clarify 
direct participant care staff or contractors must be determined to be 
free from communicable diseases and are up-to-date with immunizations 
before performing patient care in order to be consistent with the 
general requirements of Sec.  460.64(a).

Section 460.72 Physical Environment

    As we explained in the 1999 interim final rule, we established 
Sec.  460.72 to ensure that the PACE center and home are free of 
hazards that may cause harm to the participants, staff, or visitors. 
Because issues of adequate space, infection control, fire prevention, 
dietary services, and the safety of transportation services are 
important to ensure quality care, we added requirements for each in the 
regulation.
    We maintained the following requirements from the PACE Protocol, 
with the modifications noted below:
     The PACE center must be designed, constructed, equipped, 
and maintained to provide for the physical safety of participants, 
personnel, and visitors;
     The PACE center must ensure a safe, sanitary, functional, 
accessible, and comfortable environment for the delivery of services, 
that protects the dignity and privacy of the participant; and
     The PACE center must include sufficient suitable space and 
equipment to provide primary medical care and suitable space for team 
meetings, treatment, therapeutic recreation, restorative therapies, 
socialization, personal care, and dining. (We believe that a PO should 
furnish primary care services in the PACE center, but this provision 
allows flexibility to avoid duplicating an entire primary care clinic 
if that is not necessary.)
    The PO must establish, implement, and maintain a written plan to 
ensure that all equipment is maintained in accordance with the 
manufacturer's recommendations to keep all equipment (mechanical, 
electrical, and patient care) free of defect. Based on the 
manufacturer's experience with the equipment, we believe it has the 
most knowledge about routine maintenance and recommended repair 
schedules necessary to keep the equipment in good operating condition.
    With respect to protecting participants from fire and fire-related 
events, we incorporated by reference in our regulation at Sec.  460.72, 
the Life Safety Code (LSC). The LSC was developed by the National Fire 
Protection Association and adopted by the Department of Health and 
Human Services as the standard which ensures reasonably fire-safe 
facilities. The LSC specifies requirements for building construction 
features such as walls and doors, exits and exit access, and fire 
protection devices such as sprinklers, smoke detectors, and fire 
extinguishers.
    In the 1999 interim final rule, we adopted the 1997 edition of the 
LSC, which was divided into occupancy chapters, including Business, 
Education, and Health Care Occupancies. Business occupancies include 
clinics and offices, and educational occupancies cover schools and day 
care centers. Health care occupancies include facilities where the 
patients are rendered incapable of self-preservation and where they 
remain overnight. Unfortunately, the LSC does not designate a specific 
category for comprehensive outpatient services provided to nursing home 
eligible individuals, so we chose to stipulate that the PACE center 
must meet the occupancy provisions of the 1997 edition of the LSC for 
the type of setting in which it is located (for example, hospital, 
office building, etc.).
    Each type of LSC occupancy requires a fire alarm system. A fire 
alarm system must provide three functions: (1) Initiation--a method of 
initiating the alarm, such as a pullbox; (2) Notification--a method of 
notifying the occupants, such as a loud bell, horn, chimes, or flashing 
lights for those patients who are deaf; and (3) Control--a method of 
controlling other fire protection functions and features, such as air 
conditioning shutdown, automatic release (closing) of fire doors, etc.
    We require a PACE center to meet the requirements for a fire alarm 
system in accordance with the occupancy section of the LSC that applies 
to the building in which it is located. Each occupancy section also 
requires evacuation plans, fire exit drills, and fire procedures. The 
purpose of the drills is to test the efficiency, knowledge, and 
response of the staff and to ensure that safe care will be provided to 
participants during an emergency.
    The statute and implementing regulations governing some Medicare 
providers (nursing facilities, hospitals, and hospices) authorize us to 
accept a State code in lieu of the LSC if it adequately protects 
patients. Likewise, under these regulations the LSC will not apply in a 
State where CMS finds that a fire and safety code imposed by State law 
adequately protects PACE participants and staff.
    We recognize that it could be burdensome to require strict 
adherence to all of the requirements of the LSC. PACE centers may be 
established in a variety of building types (for example, hospitals or 
office buildings), which must be considered in requiring adherence to 
the LSC. We also recognize that some PACE centers may have alternative 
features that provide an equivalent level of protection to that 
required by the specific requirements of the LSC. In some buildings it 
may be impractical or impossible to provide a specific feature due to 
the construction of the building. Therefore, we specified that CMS may 
waive specific provisions of the LSC which, if rigidly applied, would 
result in unreasonable hardship on the organization. Specific 
provisions may be waived only if the waiver does not adversely affect 
the health and safety of the participants and staff.
    We established four requirements that we believe are fundamental 
for a PO to effectively prepare for emergency situations. The PO must 
establish, implement, and maintain documented procedures to manage 
medical and nonmedical emergencies or disasters that are likely to 
threaten the health or safety of participants, staff, or the public 
including, but not limited to, fire, equipment, water or power 
failures, care-related emergencies, and natural disasters likely to 
affect their geographic location. We also stated that we do not expect 
organizations to develop emergency plans for natural disasters that 
typically do not affect their geographic area. For example, 
organizations in the Southeast would not typically need to develop 
emergency procedures for earthquakes.
    POs must train each staff member (employee and contractor) on the 
actions necessary to address different medical and nonmedical 
emergencies. This requirement is designed to ensure the safety and 
security of both the participants and the staff. In addition, the 
participants must be appropriately trained on the organization's 
emergency procedures since they may need to take

[[Page 71275]]

steps to protect themselves during an emergency. PACE participants need 
to be informed of what to do, where to go, and whom to contact if a 
PACE center emergency occurs.
    Appropriate medical practice dictates that the organization must 
have trained personnel, drugs, and emergency equipment immediately 
available at every PACE center at all times to adequately support 
participants until an Emergency Medical System (EMS) responds to the 
PACE center. We defined the minimum emergency equipment that must be on 
the premises and immediately available as easily portable oxygen, 
airways, suction, and emergency drugs. In addition, the PACE center 
must have a documented plan to obtain EMS services from sources outside 
the PACE center when needed.
    At least annually, a PO must test, evaluate, and document the 
effectiveness of its emergency and disaster plans to ensure and 
maintain appropriate responses to the situations and needs that may 
arise from both medical and nonmedical emergencies. Drills and 
emergency episodes often reveal a weakness or flaw in the design of the 
emergency plan. An annual review will allow flaws or potential problems 
to be identified and corrected.
    In the January 10, 2003 Federal Register, we published a final 
rule, ``Fire Safety Requirements for Certain Health Care Facilities'' 
(68 FR 1374), which among other changes, amended Sec.  460.72(b) to 
adopt the 2000 edition of the LSC for Medicare and Medicaid health care 
facilities. It is important to note that the 2000 LSC prohibits the use 
of roll latches on corridor doors in buildings not fully protected by 
an approved sprinkler system and requires replacement with positive 
latching devices in both existing sprinklered and unsprinklered 
buildings. It also requires that, effective March 13, 2006, emergency 
lighting must provide illumination for at least a 90-minute duration.
    Section 460.72(b) was further amended by the March 25, 2005 (70 FR 
15229) publication of the interim final rule, ``Fire Safety 
Requirements for Certain Heath Care Facilities; Amendment,'' which 
allows certain health care facilities, including PACE facilities, to 
place alcohol-based hand rub dispensers in egress corridors under 
specified conditions.
    Comment: One commenter stated they believe that identification and 
enforcement of physical plant standards for PACE centers are 
responsibilities of the State. The commenter indicated that the 
provisions allowing CMS to waive the LSC effectively permits an 
organization to disregard State requirements.
    Response: Current regulations require that PACE centers meet the 
LSC with the following limited exceptions: (1) The LSC provisions do 
not apply in a State in which CMS determines that a life and safety 
code imposed by State law adequately protects participants; and (2) CMS 
may waive specific provisions of the LSC that, if rigidly applied, 
would result in unreasonable hardship on the PACE center, but only if 
the waiver does not adversely affect the health and safety of 
participants and staff.
    Although there is specific waiver authority under Sec.  460.26 and 
Sec.  460.28, it does not apply to the approval of LSC waivers. CMS 
staff responsible for LSC compliance would approve LSC waivers. 
However, we note that PACE centers are often licensed as adult day 
health centers or clinics, which are not among the types of Medicare 
providers that we typically survey for compliance with the LSC. As a 
result, in these cases, we will accept State licensure requirements for 
fire and safety as meeting the LSC.
    Comment: Three commenters indicated that a PO's responsibility 
related to safety in the home should be limited.
    One commenter indicated the regulation only mentions POs being 
responsible for safety of the physical environment of the PACE center 
and the primary care clinic, while the background description states 
that this section's purpose is ``to ensure that the PACE center and 
home are free of hazards.'' The commenter continued by stating the 
regulation does not address the PO's responsibility for ensuring that 
an enrollee's home is free of hazards. The enrollee is living at home 
and not in a licensed health care facility subject to Federal and State 
oversight. However, the local fire marshal, health department, Adult 
Protective Service, and building inspectors have specific 
responsibilities to ensure a safe living environment. Therefore, the 
commenter recommended that we limit PO responsibilities by requiring 
that the initial comprehensive assessment includes an assessment of the 
home environment and that the participants must be determined as able 
to live in a community setting without jeopardizing their health or 
safety.
    Response: We disagree with the commenters. POs are at risk for all 
health care services the participant receives, and, therefore, we 
expect that POs will be involved in assuring the health and safety of 
participants at all times, including when they are at home.
    However, PACE staff will not have the ultimate authority regarding 
potential hazards. PACE staff performing the initial assessment should 
identify all potential hazards and make all reasonable attempts to 
explain them to the participant and caregiver. Should staff be unable 
to rectify the potential hazard before enrollment, they should document 
the hazard, their attempts to have the hazard rectified, and all other 
pertinent information. Should the participant and caregiver agree to a 
resolution of the hazard, that information should be included in the 
participant's care plan. If the participant and caregiver do not agree 
to rectify the hazard potential, the PO staff are expected to document 
the hazard, their suggestions to resolve the hazardous issue, and all 
other pertinent information.
    Comment: One commenter recommended that the regulations require 
that accessibility requirements be met in accordance with the Americans 
with Disabilities Act and section 504 of the Rehabilitation Act.
    Response: Both the 1999 and 2002 interim final rules state 
repeatedly that POs must meet all applicable Federal, State, and local 
laws and regulations, which include the Americans with Disabilities Act 
and section 504 of the Rehabilitation Act. We note the Americans with 
Disabilities Act is specifically addressed in Sec.  460.32.
    Comment: Another commenter recommended that this section of the 
regulation include suggestions for addressing the common visual 
deficits of the PACE population and provided the following as examples 
of potential safety concerns: High gloss floors and surfaces which 
provide high contrast in floors, steps, and walls and installing low 
glare but sufficient lighting.
    Response: We expect each PO to assess their participants and to 
implement all appropriate safety precautions. We do not believe it is 
necessary to establish regulatory requirements specific to individual 
health issues. We believe the addition of specific common deficits to 
the regulation would be unreasonably burdensome. Therefore, we are not 
including specific requirements regarding visual deficits or other 
individual health deficits. We will continue to assess LSC and State 
licensure developments to ensure participants receive services in a 
safe manner.
    Comment: Two commenters requested clarification of the emergency 
equipment requirement, which states that staff be on the premises of 
the PACE center at all times. The

[[Page 71276]]

commenter indicated that it would be helpful to clarify what emergency 
drugs are required to be available at the PACE center.
    One of the commenters requested that we clarify that the 
requirement that the POs are required to establish, implement, and 
maintain a written plan to ensure maintenance in accordance with 
manufacturer's recommendations refers only to equipment deemed to be 
life-sustaining and biomedical equipment.
    Response: The intent of the staffing requirement is that we believe 
POs should have staff qualified to operate emergency equipment on the 
premises whenever the PACE center is open.
    For purposes of this regulation, emergency drugs are those 
pharmaceuticals that would be used in an emergency that follow current 
emergency practice guidelines/protocol.
    We agree with the commenter asking for clarification on the 
equipment maintenance requirement, and we are clarifying that in 
addition to written policies, the PO is responsible for implementing 
the manufacturer's recommendations for emergency and biomedical 
equipment maintenance.
    Final rule actions:
    In this final rule, we are clarifying that POs must perform the 
manufacturer's recommended maintenance on all equipment as indicated in 
their written plan.

Section 460.74 Infection Control

    Infection control is vital to the health and safety of 
participants, so we require in Sec.  460.74 that the PO adhere to 
accepted policies and standard procedures, including the standard 
precautions developed by and available from the Centers for Disease 
Control and Prevention (CDC). These guidelines have been developed by 
the CDC in collaboration with industry representatives and have proven 
effective as a means of diminishing the spread of blood-borne pathogens 
and other infectious agents. The PO must establish, implement, and 
maintain a documented infection control plan that will ensure a safe 
and sanitary environment and prevent and control the transmission of 
disease and infection. At a minimum, the infection control plan must 
include the following:
    (1) Procedures to identify, investigate, control, and prevent 
infections in every PACE center and in a participant's place of 
residence;
    (2) Procedures to record any incidents of infection; and
    (3) Procedures to analyze the incidents of infection, to identify 
trends, and develop corrective actions related to the reduction of 
future incidents.
    Comment: We received several comments regarding infection control. 
One commenter did not find the requirements overly onerous, while 
another commenter was concerned this provision preempts State's 
regulatory authority regarding infection control practices.
    Another commenter requested we clarify that the intent of this 
section is to hold POs responsible for universal precautions. Five 
commenters requested we distinguish between what can be required in a 
PACE center and what can be expected in a participant's home.
    Response: It is not our intent to usurp the State's authority in 
this area. Should State requirements be more stringent than those of 
CMS, we would expect States to enforce their more strict requirements. 
We believe these regulations to be the minimum acceptable requirements 
for infection control.
    In response to the question on universal precautions, the intent of 
these regulations is to require the POs to practice universal 
precautions. Universal precautions are CDC guidelines accepted as 
routine practice by the health care industries at large.
    Moreover, POs are expected to observe infection control practices 
in all settings including the participant's residence and teach and 
reinforce infection control practices to participants and their 
caregivers. This would include reinforcing the simple practices such as 
handwashing after using the restroom or blowing one's nose, and 
refrigerating foods appropriately. It is in the PO's interest to work 
with participants and caregivers to minimize the risk of infections.
    Final rule actions:
    This final rule will finalize Sec.  460.74 as published in the 1999 
interim final rule.

Section 460.76 Transportation Services

    Transportation services are a critical component of PACE service 
delivery, so it is crucial that the PO take appropriate steps to ensure 
that participants can be safely transported from their homes to the 
PACE center and to appointments. We established Sec.  460.76 to require 
that the PO's transportation services must be safe, accessible, and 
equipped to meet the needs of each participant. In addition, we require 
that the organization's transportation program include procedures on at 
least the following: (1) Maintaining of transportation vehicles 
according to the manufacturer's recommendations; (2) equipping 
transportation vehicles to communicate with the PACE center; (3) 
training transportation personnel on the special needs of participants 
and appropriate emergency response; and (4) as part of the IDT process, 
communicating relevant information about the participants' to 
transportation personnel or other PACE staff in accordance with the 
PO's policies and procedures.
    Comment: We received two comments that addressed concerns regarding 
transportation. The first commenter emphasized that transportation must 
meet the special needs of persons with disabilities while the second 
commenter indicated that there are situations in which routine 
transportation services can not be safely provided to participants. The 
commenter believes this point needs to be a consideration when 
determining if a participant can be cared for appropriately in PACE.
    Response: We agree with the commenter, that transportation services 
that meet the special needs of disabled participants are crucial 
especially for frail elderly PACE participants. The requirements 
established in the 1999 interim final rule were intended to ensure that 
safe and appropriate transportation practices are used with this frail 
participant population.
    We also agree that when the PACE staff performs their initial 
assessment, it is the PO's responsibility to determine if they can 
adequately address the transportation needs of the individual, and that 
this should be a consideration in determining whether or not a 
prospective enrollee can be cared for safely in their community. 
However, we believe that transportation considerations alone would 
rarely, if ever, be the reason to deny enrollment.
    Final rule actions:
    This final rule will finalize Sec.  460.76 as published in the 1999 
interim final rule.

Section 460.78 Dietary Services

    In the 1999 interim final rule, we established that it is important 
that each PACE center provide participants with nourishing, palatable, 
well-balanced meals that meet the daily nutritional and special dietary 
needs of each participant. We required that each meal must meet 
specific requirements, including preparation by methods that conserve 
nutritive value, flavor, and appearance; preparation in a form designed 
to meet individual needs; and preparation and service at the proper 
temperature. The PACE center must provide substitute foods or 
nutritional supplements that meet the daily nutritional and special 
dietary needs of any participant who refuses the food served, cannot 
tolerate the food served,

[[Page 71277]]

or who does not eat adequate amounts. In addition, the PO must provide 
nutritional support (that is, tube feedings, total parenteral 
nutrition, or peripheral parenteral nutrition) to meet the daily 
nutritional needs of a participant if indicated by his or her medical 
condition or diagnosis.
    It is vital to the health and safety of participants that the food 
provided meets acceptable safety standards. Therefore, we require the 
PO to:
    (1) Procure foods (including nutritional supplements and items to 
meet special nutrition needs) from sources approved or considered 
satisfactory by Federal, State, Tribal, or local authorities that have 
jurisdiction over the service area of the organization;
    (2) Store, prepare, distribute, and serve foods (including 
nutritional supplements and items to meet special nutrition needs) 
under sanitary conditions; and
    (3) Dispose of garbage and refuse properly.
    Comment: We received several comments regarding dietary services, 
with several proposed language changes. One commenter reiterated these 
are areas under State responsibility. Dietary and food service 
sanitation practices in a variety of establishments, including those 
under which PACE would operate, are regulated by the State. This 
commenter recommended that the regulation simply state that the PACE 
center will provide the enrollee a meal when necessary.
    Response: In response to the comment regarding State requirements, 
we want to clarify that we believe the requirements in our regulation 
to be the minimum acceptable requirements for dietary services. If 
State requirements are more stringent than those under this regulation, 
we expect the State to enforce its more stringent requirements.
    In response to the suggestion that we amend the requirement as 
recommended, we believe that as a participant protection, the PACE 
dietary services requirement must be more specific. Again, due to the 
frailty of the targeted population, a greater effort must be made to 
ensure that the appropriate nutrition is received by the most 
appropriate method in a safe and sanitary manner.
    Comment: One commenter provided two technical suggestions. First, 
to ensure that dietary needs are provided in accordance with the 
participant's treatment plan, the commenter recommended inserting the 
phrase ``In accordance with each participant's plan of care'' at the 
beginning of Sec.  460.78(a)(1), Sec.  460.78(a)(2), and Sec.  
460.78(a)(3).
    The second suggestion was to replace the phrase ``provide each 
participant'' with ``offer each participant'' ensuring participant 
choice with respect to meals.
    Another commenter disagreed with the requested language change of 
``offer each participant'' stating there is a high proportion of PACE 
participants with some form of dementia who may require supervision or 
assistance with eating. The commenter requested the language be 
modified to read ``Except as specified in paragraphs (a)(2) or (a)(3) 
of this section, the PO shall ensure, through the assessment and care 
planning process, that each participant receives nourishing, well-
balanced meals that meet the participant's daily nutritional and 
special dietary needs.''
    Another commenter requested that we clarify that the requirement is 
meant to apply when PACE participants are institutionalized or to limit 
the requirement to individuals when the provision of meals is specified 
in the plan of care. Alternatively, they recommended that the 
regulations could specify that the PO must ``assure that each 
participant has access to meals to meet the daily nutritional 
requirement,'' which would enable the PACE provider to document the 
provision of meals by family or others, as appropriate.
    Response: In response to comments on provision of meals, we want to 
clarify that meals are a required service in the PACE program. Dietary 
services are to be provided when a participant is attending the PACE 
center, when he or she is institutionalized, and when he or she is in 
the home as indicated in the participant's plan of care. The PO must 
assess each participant's individual situation when determining the 
most appropriate method of assuring that each participant's daily 
nutritional needs are met in the most appropriate manner. The POs must 
ensure that each participant is receiving adequate nutrition by the 
required modality, as prescribed in the participant's plan of care. We 
agree with this commenter and recognize that in the geriatric 
population, for a number of medical and psychosocial reasons, eating is 
not a high priority for many individuals. Thus, we do not believe that 
language such as ``offering'' or ``has access to'' is sufficient to 
ensure participants receive adequate and appropriate nutrition. 
Therefore, in this final rule we are revising the first sentence of 
Sec.  460.78(a)(1) by adding the requirement that the ``PO must ensure, 
through the assessment and care planning process,'' that each 
participant receives nourishing, palatable, well-balanced meals that 
meet the participant's daily nutritional and special dietary needs.
    Comment: One commenter indicated that the regulation fails to 
mention the special needs of those with swallowing problems.
    Response: In response to this comment, we believe that although 
choking is a serious issue, particularly in this population, and has 
been known to lead to death, this problem should be assessed by the 
appropriate professional, as part of the participant assessment. This 
comment provides a good example of where it would be appropriate for an 
additional discipline (for example, a speech therapist) to be included 
in the initial comprehensive assessment and periodic reassessments.
    Final rule actions:
    In this final rule, we are amending the regulatory language of 
Sec.  460.78(a) by revising the first sentence to read as follows: 
``Except as specified in paragraphs (a)(2) or (a)(3) of this section, 
the PO must ensure, through the assessment and care planning process, 
that each participant receives nourishing, palatable, well-balanced 
meals that meet the participant's daily nutritional and special dietary 
needs.''

Section 460.80 Fiscal Soundness

    Part I, section F of the Protocol addresses fiscal soundness and 
paragraph (e)(4)(A)(ii) of section 1894 and section 1934 of the Act 
requires that, during the trial period, we conduct a comprehensive 
assessment of a PO's fiscal soundness. We established Sec.  460.80 to 
address requirements for fiscal soundness.
    As we indicated in the 1999 interim final rule, each PO must have a 
fiscally sound operation as demonstrated by total assets being greater 
than total unsubordinated liabilities, sufficient cash flow and 
adequate liquidity to meet obligations as they become due, and a net 
operating surplus or a plan for maintaining solvency.
    Each organization must have a documented insolvency plan approved 
by CMS and the SAA which, in the event of insolvency, provides for the 
continuation of benefits for the duration of the period for which 
capitation payment has been made; the continuation of benefits to 
participants who are confined in a hospital on the date of insolvency 
until their discharge; and protection of participants from liability 
for payment of any fees which are the legal obligation of the PO.
    Each organization must have adequate arrangements to cover expenses 
if it becomes insolvent. To this end, we specified requirements in this 
section that are consistent with the Protocol.

[[Page 71278]]

    We received comments from five commenters regarding fiscal 
soundness.
    Comment: Two commenters indicated that this section of the 
regulation made no reference to meeting applicable State requirements, 
which in some situations may be inconsistent with these requirements.
    Response: As with any type of regulatory requirement, States may 
establish or impose more restrictive requirements applicable to the PO 
regarding fiscal soundness as long as they do not conflict with the 
Federal PACE regulations. We recognize that some States have specific 
fiscal requirements applicable to the POs, particularly based on State 
licensure programs for POs. We also acknowledge the State's role in 
relation to fiscal soundness; however, we do not believe the 
regulations would need to reflect the States' role in this case.
    Comment: Two commenters recommended that CMS specify that POs must 
have requirements to cover expenses of $250,000.
    Response: We appreciate that a minimum amount of capital is 
critical to ensure that the organization can adequately cover the costs 
of meeting the needs of a frail elderly population. However, we are not 
inclined to impose specific dollar amounts because we assess each 
organization's financial situation individually. In addition, an amount 
set at a particular point in time may not be adequate over an extended 
period due to inflationary and economic factors.
    Comment: Two commenters agreed with the fiscal soundness 
requirements, but pointed out that the measure of fiscal soundness is 
different for a new PACE program than for an established program. One 
commenter questioned whether fiscal soundness should apply during the 
trial period because it could inhibit the start-up of new programs. The 
commenters recommended that POs be permitted to utilize a variety of 
arrangements to cover expenses in case of insolvency.
    The other commenter indicated that the requirements are based on a 
shared-risk model of an established PACE program that enrolls the 
certain number of participants and spreads its risk among all its 
enrollees. The commenter believes that the measures are too stringent 
for a program just starting operations. The commenter recommended that 
CMS consider the measure for fiscal soundness and differentiate the 
measure for new PACE programs and established programs. The commenter 
suggested that for an established program, the minimum of 1 month of 
cash available be liquid financial assets and not merely line-of-
credit. However, for new POs, cash in the form of line-of-credit would 
be appropriate.
    Response: We assess each PO's fiscal soundness individually taking 
into account whether it is an established or newly operational 
organization. However, we believe that it is critical for the 
organization to meet the established requirements upon start-up to 
ensure that the organization can adequately cover the costs to meet the 
needs of a frail elderly population. As each situation is different, we 
do not dictate the means for providing arrangements to cover expenses. 
Organizations have flexibility to meet the requirements, and the 
regulation offers potential options such as letters of credit or other 
guarantees.
    Final rule actions:
    This final rule will finalize Sec.  460.80 as published in the 1999 
interim final rule.

Section 460.82 Marketing

    Based on Part III, section B of the Protocol, we established Sec.  
460.82 to address marketing activities of PACE programs. POs must 
conduct marketing activities that inform the general public about their 
programs.
    As we indicated in the 1999 interim final rule, all marketing 
material must be approved by CMS and the SAA. Initial marketing 
material is reviewed as part of the application process. After an 
organization is under a PACE program agreement, any new or revised 
marketing materials must be submitted for review by CMS and the SAA. We 
will complete our review within 45 days after we receive the 
information from the organization or the material will be deemed 
approved. We included the requirement for review and approval of 
revised marketing materials as revisions could potentially introduce 
false or misleading information. Although the Protocol includes a 30-
day review and approval timeframe, we adopted a 45-day period to be 
consistent with the process used by CMS for review of changes to M+C 
organization (now MA) marketing materials.
    Printed marketing materials must meet participants' special 
language requirements. Marketing materials must also provide complete 
and clear information regarding the requirement that all services 
(other than emergency services), including primary care and specialist 
physician services, be furnished by or authorized by the PO and that 
participants may be fully and personally liable for the costs of 
unauthorized or out-of-PACE program agreement services.
    POs must ensure that their employees or agents do not conduct 
prohibited marketing activities such as discrimination of any kind 
among individuals who meet PACE eligibility standards; activities that 
could mislead or confuse potential participants or misrepresent the PO, 
CMS, or the SAA; activities that involve gifts or payments to induce 
enrollment; contracting outreach efforts to individuals or 
organizations whose sole responsibility involves direct contact with 
the elderly to solicit enrollment; or unsolicited door-to-door 
marketing.
    Each PO must establish, implement, and maintain a documented 
marketing plan with measurable enrollment objectives and a system for 
tracking its effectiveness.
    We received numerous comments regarding the marketing section.
    Comment: Three commenters believed that to ensure that all PACE 
participants are fully informed of the services they will receive, the 
PO's marketing materials should specify not only the covered benefits 
and services, but also the benefits and services excluded from the 
program both before and at enrollment, with one commenter providing 
proposed regulatory language.
    Response: We disagree with the commenter because of the dynamic 
nature of PACE, its reliance on the IDT's determination of a specific 
participant's need to determine the covered and excluded services and 
its interaction with the participant. We do not believe identifying 
excluded services appropriately expresses the flexibility of services 
provided by the PACE model.
    Comment: Several commenters requested clarification of the process 
for review of marketing materials, with some commenters addressing the 
State's role in the review of marketing materials. One commenter 
questioned the intent regarding SAA approval of marketing materials 
noting that as the initial program application must be submitted with 
SAA approval, marketing materials would have been approved by the SAA 
before CMS review.
    Another commenter suggested that CMS delegate the approval of any 
revised or updated educational and marketing materials to the SAAs in 
order to prevent unnecessary delay in approvals and to avoid 
discouraging POs from revising their materials.
    Response: We believe the process for review is fairly noted in the 
regulations but remind the public that as a partner in the three-way 
program agreement, the SAA has the right to review and approve all 
educational and marketing materials the PO intends to distribute.

[[Page 71279]]

Accordingly, all materials must go through the SAA for approval before 
the SAA forwarding the materials to CMS. This review of marketing and 
educational materials by CMS is to ensure that marketing materials meet 
CMS requirements.
    Although a PO's initial educational and marketing materials are 
approved by CMS and the SAA during the application process, revised and 
updated materials must be approved to ensure that no erroneous 
information is disseminated. The requirement to have educational and 
marketing materials reviewed is consistent with MA requirements.
    Comment: This commenter suggested the regulations differentiate 
between educational and marketing components of the PACE program, as 
the desired outcomes of marketing activities are fundamentally 
different from those of educational activities and materials.
    Response: We view marketing materials as those materials used to 
promote the PACE program before an individual enrolls in PACE. 
Educational materials, on the other hand, are those materials provided 
to PACE participants and family or their authorized representatives, 
that provide information about the PACE program. The regulation 
addresses review of the marketing materials as it is essential that 
accurate and complete information be disseminated to potential PACE 
participants. We believe that the educational component of PACE is 
covered by annual notices, newsletters, and other materials presented 
to participants, and their families or authorized representatives, 
after they have enrolled in PACE. We believe the differentiation 
between marketing and educational materials is an operational issue and 
not appropriate for regulation.
    Comment: A commenter indicated that marketing plans should be a 
submission requirement in support of program oversight and monitoring.
    Response: We agree with the commenter, and the regulation reflects 
this requirement. The PO is required to establish, implement, and 
maintain a documented marketing plan with measurable enrollment 
objectives and a system for tracking effectiveness. Marketing plans are 
submitted by the PO and reviewed by the SAA and CMS as part of the 
provider application and when there is a significant revision to the 
marketing plan. These materials are also reviewed during onsite 
monitoring visits.
    Comment: A commenter indicated that PACE marketing requirements 
should be the same as the Medicare and Medicaid managed care 
requirements, particularly the prohibited practices. The regulation 
prohibits door-to-door solicitation but does not mention other forms of 
unsolicited marketing such as telephone calls, e-mails, or targeted 
mailings.
    Response: The commenter is correct. The only prohibited marketing 
practice included in the 1999 interim final rule was unsolicited door-
to-door marketing. We are not aware of marketing abuses by POs. We 
believe that any change in marketing policy should be presented in a 
proposed rule and allow for public comment. We will continue to monitor 
marketing practices by POs and will propose additional safeguards as 
appropriate.
    Comment: A commenter recommended that the information supplied to 
prospective participants should include a review of the responsibility 
to share in the cost of services by way of post-eligibility treatment 
of income, which is not expressly included in the rule.
    Response: We agree that participants should be made aware that the 
share of cost requirements continues to apply after PACE enrollment; 
however, this requirement is not a PACE eligibility requirement. We 
would expect that the participant be informed at the time of his or her 
enrollment that their Medicaid eligibility requirements continue to 
apply as required in Sec.  460.152(a)(1).
    Comment: Since the regulations state that approval of an entity's 
provider application includes approval of marketing materials, one 
commenter asked whether the application process would permit use of the 
marketing materials in attracting enrollees.
    Response: A prospective PO is not permitted to market PACE services 
until they have an approved application. Prospective applicants are 
informed in writing when their application has been approved. In this 
way, marketing activities may begin before the effective date of the 
program agreement.
    Comment: One commenter indicated that the marketing materials must 
state that enrollees may be fully liable for unauthorized or out-of-
plan services, and asked what would be the financial responsibility of 
a Medicaid recipient in this situation.
    Response: The 1999 interim final rule established in Sec.  
460.82(d)(2) that all marketing materials must clearly state that PACE 
participants may be fully and personally liable for unauthorized or 
out-of-network services. Thus, a Medicaid recipient would be 
financially responsible for any unauthorized out-of-network services.
    Comment: One commenter asked what constitutes a principal language 
of the community, whether there is a percentage threshold, and whether 
we intended that the reference to principal languages of the community 
applies to the community as a whole or the target population PACE 
intends to enroll.
    Another commenter urged CMS to consider providing programs serving 
multilingual populations with some financial assistance to cover 
translation expenses.
    Response: The determination of the principal languages of a PO's 
service area is a State determination. Therefore, we recommend that 
interested parties contact their State for specific information.
    In response to the request that we consider providing financial 
assistance for translation services, we have no mechanism to provide 
financial assistance for entities serving multilingual populations.
    Comment: One commenter asked whether, like M+C organizations, the 
prohibition against gifts and payments to induce enrollment does not 
include items of nominal value.
    Response: We have adopted the MA policy regarding nominal gifts. In 
response to inquiries regarding nominal gifts, we consulted Sec.  
422.80(e) of the MA rule. For further guidance related to promotional 
activities, we reviewed Sec.  50.1 of the Medicare Managed Care Manual, 
which was originally developed for M+C plans and is currently being 
revised for MA plans.
    Offering gifts to potential enrollees that attend a marketing 
presentation is permitted as long as these gifts are of a nominal 
amount and are provided whether or not the individual enrolls in the 
PACE program. The gift cannot be a cash gift or be readily converted 
into cash regardless of the amount.
    Final rule actions:
    The final rule will finalize Sec.  460.82 as published in the 1999 
interim final rule.

Subpart F--PACE Services

    The purpose of subpart F is to establish the service requirements 
for POs. In this subpart we specify the limitations and conditions 
relating to Medicare and Medicaid benefits. We stipulate that 
participants must receive all services from the PO, the required 
services that must be provided by the PO and those that may be 
excluded, emergency services, and the requirements for delivery of 
required services at the PACE center and other settings. In addition, 
we establish the requirements for composition of the IDT and its 
responsibilities, and

[[Page 71280]]

requirements for participant assessments and the plan of care.
    The scope of this subpart led to a large number of comments related 
to the IDT, required services and their delivery. Included among the 
comments were requests for clarification, re-evaluation of various 
service related policies, and proposed changes to regulatory language.

Section 460.90 PACE Benefits Under Medicare and Medicaid

    Under sections 1894(a)(2)(B) and (b)(1) and 1934(a)(2)(B) and 
(b)(1) of the Act, we established Sec.  460.90 to specify that Medicare 
and Medicaid benefit limitations and conditions relating to amount, 
duration, scope of services, deductibles, copayments, coinsurance, or 
other cost sharing that are generally applicable under the Medicare and 
Medicaid programs do not apply to PACE benefits. In addition, we 
specified that, in accordance with sections 1894(a)(1)(B)(i) and 
1934(a)(1)(A) of the Act, the PACE participant shall receive Medicare 
and Medicaid benefits solely through the PO.
    Comment: We received one comment requesting clarification that the 
amount, duration, and scope of services are not subject to the limits 
of traditional Medicare and Medicaid services but also are not required 
to exceed those amounts unless the IDT determines it to be necessary 
and appropriate.
    Response: The limits on amount, duration, and scope of services 
that apply to either the traditional Medicare or Medicaid benefit 
packages do not apply to PACE. The amount, duration or scope of 
services provided to PACE participants are participant-specific; 
therefore the amount, duration, or scope of services for each 
participant are indicated in his or her plan of care based on the IDT 
assessment. If an assessment indicates need for a particular service, 
the PO must provide the service without regard to whether the service 
would otherwise be covered for a Medicare beneficiary or a Medicaid 
recipient not enrolled in a PO.
    Final rule actions:
    This final rule will finalize Sec.  460.90 as published in the 1999 
interim final rule.

Section 460.92 Required Services

    Based on the provisions of sections 1894(b)(1)(A) and 1934(b)(1)(A) 
of the Act, we require in Sec.  460.92 that each PACE benefit package 
include for all participants, regardless of payment source, all 
Medicare services and all Medicaid covered services as specified in the 
State plan, a variety of services specified in the Protocol, and other 
services determined necessary by the IDT to meet the participant's 
needs (for example, respite care). Based on the Protocol, we included 
the following required services in Sec.  460.92 of the 1999 interim 
final rule:
    (a) All Medicaid-covered services, as specified in the State's 
approved Medicaid plan.
    (b) Multidisciplinary assessment and treatment planning.
    (c) Primary care, including physician and nursing services.
    (d) Social work services.
    (e) Restorative therapies, including physical therapy, occupational 
therapy, and speech-language pathology services.
    (f) Personal care and supportive services.
    (g) Nutritional counseling.
    (h) Recreational therapy.
    (i) Transportation.
    (j) Meals.
    (k) Medical specialty services including, but not limited to the 
following:
    (1) Anesthesiology.
    (2) Audiology.
    (3) Cardiology.
    (4) Dentistry.
    (5) Dermatology.
    (6) Gastroenterology.
    (7) Gynecology.
    (8) Internal medicine.
    (9) Nephrology.
    (10) Neurosurgery.
    (11) Oncology.
    (12) Ophthalmology.
    (13) Oral surgery.
    (14) Orthopedic surgery.
    (15) Otorhinolaryngology.
    (16) Plastic surgery.
    (17) Pharmacy consulting services.
    (18) Podiatry.
    (19) Psychiatry.
    (20) Pulmonary disease.
    (21) Radiology.
    (22) Rheumatology.
    (23) General surgery.
    (24) Thoracic and vascular surgery.
    (25) Urology.
    (l) Laboratory tests, x-rays and other diagnostic procedures
    (m) Drugs and biologicals.
    (n) Prosthetics, orthotics, durable medical equipment, corrective 
vision devices, such as eyeglasses and lenses, hearing aids, dentures, 
and repair and maintenance of these items.
    (o) Acute inpatient care, including the following:
    (1) Ambulance.
    (2) Emergency room care and treatment room services.
    (3) Semi-private room and board.
    (4) General medical and nursing services.
    (5) Medical surgical/intensive care/coronary care unit.
    (6) Laboratory tests, x-rays, and other diagnostic procedures.
    (7) Drugs and biologicals.
    (8) Blood and blood derivatives.
    (9) Surgical care, including the use of anesthesia.
    (10) Use of oxygen.
    (11) Physical, occupational, respiratory therapies, and speech-
language pathology services.
    (12) Social services.
    (p) Nursing facility care.
    (1) Semi-private room and board.
    (2) Physician and skilled nursing services.
    (3) Custodial care.
    (4) Personal care and assistance.
    (5) Drugs and biologicals.
    (6) Physical, occupational, recreational therapies, and speech-
language pathology, if necessary.
    (7) Social services.
    (8) Medical supplies and appliances.
    (q) Other services determined necessary by the IDT to improve and 
maintain the participant's overall health status.
    Comment: We received several comments related to the list of 
required services. One commenter stated that the list of services is 
extensive and considerably longer than the list for nursing facilities, 
presenting a dilemma to States to establish the cost effectiveness of 
PACE compared to nursing facility cost.
    Another commenter requested we re-evaluate the required services 
and ensure they are in fact the minimum requirements necessary to 
protect the health, safety, welfare, and rights of consumers in the 
PACE program.
    Response: In accordance with sections 1894(b)(1)(A) and 
1934(b)(1)(A) of the Act, the scope of benefits for PACE is all items 
and services covered under title XVIII and all items and services 
covered under title XIX without regard to an individual participant's 
source of payment and without any limitation or condition as to amount, 
duration, or scope and without application of deductibles, copayments, 
coinsurance, or other cost sharing that would otherwise apply. In 
addition, the PACE scope of benefits includes all additional items and 
services specified in regulations, based upon those required under the 
Protocol. Based on this authority, we established Sec.  460.92 in an 
attempt to list the items and services covered under titles XVIII and 
XIX of the Act and the Protocol, to clarify that the scope of benefits 
under title XIX is the services specified in the State's approved 
Medicaid plan, and to clarify that the scope of benefits under PACE 
includes any other item or service determined necessary by the IDT to 
improve and maintain the participant's overall health status.

[[Page 71281]]

    We have examined our approach to setting forth required PACE 
services and have determined that it is not possible to provide a 
complete list of all inpatient, outpatient, physician specialty, care 
planning, and social support services that must be furnished to 
participants if ordered by the IDT. As the scope of benefits under PACE 
is so broad, we are revising this section to summarize Medicare and 
Medicaid covered items and services and to highlight the services that 
are unique to the PACE model, instead of the current listing of 
services required. Under this final rule, the required services under 
PACE are all Medicare-covered items and services (including outpatient 
prescription drug coverage), all Medicaid-covered items and services 
identified in the State Medicaid plan, and other services determined 
necessary by the IDT to improve and maintain the participants' overall 
health status.
    In response to the commenter's concern that the PACE benefit 
package is broader than the services furnished in nursing facilities, 
which complicates cost comparison, we note that currently most States 
establish capitation rates based on a blend of the cost of nursing home 
and community-based care for the frail elderly.
    Comment: We received several comments related to the respiratory 
therapy and the respiratory therapist (RT). Several commenters 
recommended that the IDT be expanded to include RTs and that 
respiratory therapy be added to the list of required services provided 
not just in an acute care setting but also in nursing facilities and in 
community settings. We were also asked to clarify our expectations for 
coverage of respiratory therapy in these additional settings.
    Response: The IDT is responsible for determining whether additional 
disciplines are required to assess specific health concerns. If a 
participant requires the services of specialists, whether or not the 
specialist is on the IDT, then the services become required for that 
participant. Unlike traditional Medicare and Medicaid, the site of 
service is not an issue in PACE. The participant may receive services 
wherever the IDT determines appropriate. Therefore, respiratory therapy 
services may or may not be furnished in an inpatient setting, based on 
the particular participant's needs. We believe the regulation as 
revised will provide the flexibility needed for providing Recreational 
Therapy (RT) in a PO if needed. Upon review, we believe the RT is a 
valuable adjunct position but not an essential position for every IDT. 
Therefore, we are not requiring the addition of this discipline to the 
IDT at this time.
    Comment: One commenter asked that we clarify the description of the 
benefit package as ``all State plan services'' because this 
characterization includes services not applicable to and not expected 
to be accessed by the PACE population, as well as being mutually 
exclusive services.
    Response: In accordance with section 1934(b) of the Act, PACE is 
required to provide all items and services covered under title XIX. The 
services that are actually provided are those determined by the IDT to 
be required for a particular PACE participant. For example, neonatal 
intensive care unit services will probably not be needed by a PACE 
participant; however, these services are required services under 
Medicaid and must be furnished by the PO if the IDT were to determine 
they are necessary for a particular PACE participant.
    Comment: We were also asked to clarify our expectations regarding 
mental health services, other than psychiatric services, for alcohol 
and substance abuse.
    Response: We expect participants to be assessed, diagnosed, and 
treated for all types of health issues or conditions, including mental 
health issues or substance abuse.
    Comment: Two commenters objected to POs being responsible for 
providing three meals per day, recommending we either omit meals from 
the benefit package or, alternatively, clarify that POs are required to 
provide meals on a limited basis.
    Response: The intent of this rule is to ensure all PACE 
participants' nutritional needs are met. PACE is responsible for a 
participant's health and safety including his or her nutritional needs 
24 hours a day/7 days a week. That responsibility includes providing 
nourishing, palatable, well-balanced meals that meet the daily 
nutritional requirements and the special dietary needs of each 
participant. The IDT must assess the participant's needs as well as his 
or her access to adequate nutrition. The participant's nutritional 
requirements and dietary needs should be included in the participant's 
plan of care, whether it is providing tube feedings, arranging for 
Meals on Wheels, sending meals home with the participant after his or 
her visit to the PACE center or documenting that appropriate meals are 
provided by the family/caregiver.
    Comment: One commenter recommended that durable medical equipment 
(DME) requirements should not be unnecessarily restrictive as 
technology is continually changing and as more options become 
available, these options should not be excluded for PACE participants. 
Therefore, we should relax the regulatory requirement by adding ``other 
assistive devices'' and ``magnification devices'' to Sec.  460.92(n).
    Response: We do not believe there needs to be a change in the 
regulatory language as the PO is required to provide anything the IDT 
determines necessary to assist the participant to remain living safely 
in the community. When determined necessary by the IDT, POs must 
provide participants with assistive devices that may not be provided 
under traditional Medicare.
    In order to clarify the services provided by the PACE program and 
to emphasize what makes a program uniquely PACE, in this final rule we 
are revising Sec.  460.92 by removing the enumerated list of required 
services and replacing the list with a requirement that the PACE 
program must provide all Medicare services, all Medicaid-covered 
services specified in the State's approved Medicaid plan, and other 
services determined necessary by the IDT to improve and maintain the 
participant's overall health status.
    Final rule actions:
    In this final rule, we are revising Sec.  460.92 by replacing the 
current list of required services with the following:
    (a) All Medicare-covered items and services;
    (b) All Medicaid-covered items and services, specified in the 
State's approved Medicaid plan;
    (c) Other services determined necessary by the IDT to improve and 
maintain the participant's overall health status.

Section 460.94 Required Services for Medicare Participants

    In accordance with paragraph (b)(1)(A)(i) of sections 1894 and 1934 
of the Act, we specified in the 1999 interim final rule that the PACE 
benefit package for Medicare participants must include, in addition to 
the services required by Sec.  460.92, the scope of hospital insurance 
benefits described in 42 CFR part 409 and the scope of supplemental 
medical insurance benefits described in 42 CFR part 410.
    We also specified the following requirements of title XVIII of the 
Act (and regulations relating to such requirements) that are waived and 
do not apply to services under the PACE program:
     The provisions of subpart F of part 409 of 42 CFR that 
limit coverage of institutional services;
     The provisions of subparts G and H of 42 CFR part 409 and 
parts 412

[[Page 71282]]

through 414 that relate to rules for payment for benefits;
     The provisions of subparts D and E of 42 CFR part 409 that 
limit coverage of extended care services or home health services;
     The provisions of subpart D of 42 CFR part 409 that impose 
a 3-day prior hospitalization requirement for coverage of extended care 
services; and
     The provisions of 42 CFR 411.15(g) and (k) that may 
prevent payment for PACE program services to individuals enrolled in 
the PACE program.
    Comment: We were asked to clarify whether the reference in Sec.  
460.94(b)(5) to ``payment for PACE program services to PACE 
participants'' means payment ``on behalf of'' participants. If not, 
commenters asked whether the regulatory language was meant to permit 
PACE centers to implement direct payment/cash benefits to enable 
consumers to hire personal care attendants directly. The commenters 
stated that this would be a positive innovation in the PACE model.
    Response: Section 411.15 specifies items and services excluded from 
traditional Medicare. Section 411.15(g) pertains to requirements 
related to custodial care, and Sec.  411.15(k) pertains to requirements 
related to services that are not reasonable and necessary. Section 
460.94 waives Medicare exclusion of these services for POs. Therefore, 
it allows payment for PACE services that are provided to PACE 
participants, including custodial services and services that would be 
considered not reasonable and necessary under traditional Medicare when 
furnished by a PO to a participant. This section in no way implies that 
the PO can implement direct payment or cash benefits to be paid to PACE 
participants. We are amending Sec.  460.94(b)(5) to waive those 
specified sections that may prevent payments for PACE program services 
``that are provided to'' PACE participants to clarify this issue.
    Final rule actions:
    In this final rule, we are amending Sec.  460.94(b)(5) to clarify 
that payment is for PACE program services ``that are provided to'' PACE 
participants.

Section 460.96 Excluded Services

    In this section, we provide a list of excluded services based on 
Part IV, section A.6 of the Protocol. The services that are excluded 
from coverage under the PACE program are as follows:
     Any service that is not authorized by the IDT, even if it 
is listed as a required service, unless it is an emergency service.
     For services in inpatient facilities, private room and 
private duty nursing services, unless medically necessary and non-
medical items for personal convenience such as telephone, radio or 
television rental, unless specifically authorized by the IDT as part of 
a participant's plan of care.
     Cosmetic surgery does not include surgery required for 
improved functioning of a malformed part of the body resulting from an 
accidental injury or for reconstruction following mastectomy.
     Experimental medical, surgical, or other health 
procedures.
     Services furnished outside the United States, except as 
may be permitted in accordance with 42 CFR 424.122 and 424.124 or as 
may be permitted under the State's approved Medicaid Plan. While the 
Protocol did not recognize any exceptions, the required inclusion of 
Medicare and Medicaid covered services results in certain limited 
exceptions being possible. For example, a State that borders another 
country might include some Medicaid coverage across the border, and 
Medicare covers some emergency hospital, ambulance, and physician 
services outside the United States. (As defined in 42 CFR 400.200, the 
United States includes the Commonwealth of Puerto Rico, the Virgin 
Islands, Guam, American Samoa, and the Northern Mariana Islands.)
    In the 1999 interim final rule, there was a technical inconsistency 
between the Sec.  460.96(e) preamble language and regulatory language 
regarding services furnished outside the United States. In the 
preamble, we referenced Sec.  424.122 and Sec.  424.124; in the 
regulatory language, we referenced Sec.  424.122 through Sec.  424.124. 
To rectify this technical inconsistency, we are revising the regulatory 
language in Sec.  460.96(e)(1) to conform the regulatory language to 
the preamble language. The regulatory language in Sec.  460.96 will now 
read: (e) Services furnished outside of the United States, except as 
follows: (1) In accordance with Sec.  424.122 and Sec.  424.124 of this 
chapter.
    Comment: Two commenters requested clarification regarding excluded 
services. One commenter questioned whether the PACE center is 
prohibited from covering services such as a private room, experimental 
medical, surgical, or other health procedures. The commenter questioned 
why under a capitated payment, a PO would be prohibited from covering 
procedures they deemed beneficial if they have the resources to do so.
    The second commenter stated that he believed that some Medicaid 
programs cover a procedure deemed experimental and CMS may choose to 
cover such a procedure under Medicare. Thus, the regulation should 
clarify that such a procedure is not prohibited but at the discretion 
of the PACE program.
    Response: In response to the comments relating to services that are 
generally excluded services under the PACE program, the list of 
services excluded from coverage under PACE is based on the Protocol. 
Therefore, the Medicare and Medicaid capitation rates are not based on 
these excluded services. As with all items and services provided by 
PACE, it is the IDT and each participant's plan of care that establish 
whether or not a service is covered as a required PACE service.
    To further clarify, should the IDT determine that an experimental 
surgery or procedures would be appropriate for a participant and 
complications arise, the PO would remain at full risk and would not be 
able to disenroll the participant for changes in health status 
resulting from the experimental surgery or procedure.
    Final rule actions:
    In this final rule, we are making a technical correction by 
revising Sec.  460.96(e)(1) by replacing the word ``through'' with the 
word ``and'' so that paragraph (e) reads ``Services furnished outside 
of the United States, except as follows: (1) In accordance with Sec.  
424.122 and Sec.  424.124 of this chapter.''

Section 460.98 Service Delivery

    We require in Sec.  460.98 that the PO must establish and implement 
a written plan for providing care to each individual participant that 
meets that individual's needs across all care settings on a 24-hour 
basis, each day of the year. The PO must furnish comprehensive medical, 
health, and social services that integrate acute and long-term care. At 
a minimum, these services must be furnished in the PACE center, the 
participant's home, and inpatient facilities. The PO must not 
discriminate against any participant based on race, ethnicity, national 
origin, religion, sex, age, mental or physical disability, or source of 
payment.
    The requirements in this section implement provisions in Part IV, 
section B of the Protocol and ensure the availability of and access to 
services as a PO grows. The following requirements are based on the 
Protocol:
     At least the following services must be furnished at every 
PACE center: primary care (including physician and nursing services); 
social services; restorative therapies (including physical and 
occupational therapy); personal care and supportive services; 
nutritional

[[Page 71283]]

counseling; recreational therapy; and meals.
     The PO must operate at least one PACE center either in or 
contiguous to its designated service area, with sufficient capacity for 
routine attendance by its participants.
     The PO must ensure accessible and adequate services to 
meet the needs of all its participants. When necessary, the 
organization must increase the number of PACE centers, staff, and other 
PACE services.
     The frequency of a participant's attendance at the PACE 
center is determined by the IDT based on the needs and desires of each 
participant.
    Finally, if the PO operates more than one PACE center, each PACE 
center must offer the full range of services and have sufficient staff 
to meet the needs of participants.
    Comment: We received numerous comments relating to the minimum 
range of services required to be furnished at the PACE center. One 
commenter recommended we delete the requirement that each PACE center 
offer the full range of services, if the organization operates more 
than one PACE center in a defined service area, as long as all required 
services are readily available to all participants.
    Two commenters believe the focal point of PACE service delivery is 
the IDT rather than the PACE center and requested that we explicitly 
recognize the provision of services at alternative sites. One commenter 
indicated that this approach would avoid potentially adverse situations 
in which all alternative delivery sites are subject to PACE center 
regulatory requirements and survey criteria, in addition to any State 
certification or licensure requirements applicable to such facilities. 
One of the commenters proposed that services be allowed in alternative 
locations provided they meet applicable State licensure and 
certification requirements.
    One commenter emphasized that there is a critical distinction that 
should be made between a participant being assigned to a team 
``operating from'' a PACE center and PACE center attendance. As 
published in the rule, Sec.  460.98(e) states that ``the frequency of a 
participant's attendance at a PACE center is determined by the IDT, 
based on the needs and preferences of each participant.''
    Commenters indicated the regulation should afford flexibility to 
enable programs to offer services either on or off site in order to 
best meet the needs and preferences of participants and maximize 
efficient use of organizational resources.
    Another commenter suggested that satellite PACE centers that 
furnish a core set of services (but not full range of services) and are 
within a reasonable distance of a full-service PACE center should be 
allowed.
    Response: We disagree with these commenters. We believe that 
omitting the requirement that each PACE center provide the full range 
of services would fragment the care the PACE program was established to 
coordinate.
    In addition, we believe that the PO has the flexibility to provide 
services in settings other than the PACE center. However, every 
participant must have a PACE center home that is capable of furnishing 
all PACE required services. For POs that are sufficiently large to 
require multiple PACE centers, each center would need to have a 
sufficient number of IDTs to provide the full range of services to meet 
the needs of all participants assigned to that PACE center.
    We believe the success of the PACE delivery model is due to the 
combination of the IDT assessment and care planning and the PACE 
center. Independent of each other, neither would produce the remarkable 
participant care successes they do together. The PACE center provides a 
point of service where the primary care clinic is located, where 
services are provided, and socialization occurs with staff that is 
consistent and familiar. The IDT not only works from the PACE center, 
they provide the majority of services to participants at the PACE 
center, where most participants come on a regular basis to receive the 
majority of their care. We also believe the attendance at the center is 
an important aspect of the PACE model, which helps to differentiate it 
from home health care or institutional care. Therefore, we will 
continue to require that the full range of PACE services be offered at 
the PACE center and will encourage development of PACE centers in rural 
and Tribal areas, wherever possible.
    We allow alternative care settings (ACS) where a limited number of 
services may be provided. Should participants choose to attend an ACS 
to receive certain services, they would attend the PACE center for the 
services not offered at the ACS. We do not believe that an ACS should 
replace the PACE center. We believe that every participant must be 
assigned to and have the option to receive PACE services at a PACE 
center.
    Comment: Another commenter endorsed flexibility in staffing for POs 
that operate more than one PACE center.
    Response: Each PACE center must have at least one complete IDT and 
enough support staff to ensure all participants receive the services 
and attention they require. We believe the flexibility the commenter 
requested was provided in the 2002 interim final rule, which permits 
POs to contract for IDT staff and as well as for PACE center services.
    Comment: Another commenter added that flexibility would increase 
access to PACE services in rural areas and in the development of 
specialized POs, that is, programs designed and staffed for treatment 
of the mentally ill or Alzheimer's patients.
    Response: We believe that every PACE center must provide for every 
participant that meets the eligibility requirements and wishes to 
enroll in PACE. We are aware that some POs have specialized staff and 
accommodations specifically for Alzheimer's/Dementia patients. As the 
regulation reads currently, a PO choosing to limit enrollment to a 
targeted population would be viewed as discriminatory. We are not 
inclined to permit POs to limit enrollment to certain target 
populations at this time. Should we consider such a change, we would 
include it in future rulemaking and permit the public to comment.
    Comment: Two commenters requested we broaden the list of categories 
under which the PO cannot discriminate to include sexual orientation.
    Response: In response to this request, we are amending the language 
of Sec.  460.98(b)(3) to include sexual orientation.
    Comment: We also received a request for an explanation of the 
procedures a PO needs to follow in order to establish additional PACE 
centers.
    Response: We have provided a number of scenarios to explain our 
policy regarding expansions on our CMS PACE home page at http://www.cms.hhs.gov/pace/. A separate application for the sole purpose of 
expansion is also provided on the CMS PACE homepage. This expansion 
application is abbreviated to take into account only processes or 
practices that would be different due to the expansion.
    Final rule actions:
    In this final rule, we are amending Sec.  460.98, paragraph (b)(3), 
to add sexual orientation.

Section 460.100 Emergency Care

    We note that as sections 1894 and 1934 of the Act do not contain 
specific requirements regarding emergency care, in the 1999 interim 
final rule we relied on the Protocol and regulations governing 
emergency care under Medicare and Medicaid managed care to develop the 
requirements for emergency

[[Page 71284]]

care under PACE. We expanded on and clarified the provisions in Part 
IV, section A of the Protocol to ensure access to necessary services 
and to adopt a beneficiary-centered approach.
    Section 460.100 requires a PO to establish and maintain a written 
plan for handling emergency health care needs. The organization must 
ensure that the participants and their caregiver know when and how to 
access emergency services and ensure that CMS, the State, and PACE 
participants are held harmless for emergency services.
    As we explained in the 1999 interim final rule, emergency care is 
appropriate when services are needed immediately because of an injury 
or sudden illness and the time required to reach the PO or a network 
provider would cause the risk of permanent damage to the participant's 
health. Thus, emergency care services include inpatient and outpatient 
services, furnished by a qualified emergency services provider (other 
than the PO or one of its contract providers) either in or out of the 
PO's service area, that are needed to evaluate or stabilize an 
emergency medical condition.
    An emergency medical condition means a condition manifesting itself 
by acute symptoms of sufficient severity (including severe pain) such 
that a prudent layperson, with an average knowledge of health and 
medicine, could reasonably expect the absence of immediate medical 
attention to result in: Serious jeopardy to the health of the 
participant; serious impairment to bodily functions; or serious 
dysfunction of any bodily organ or part.
    Emergency services that fall within this description do not require 
prior authorization by the PO. We believe that relying on the prudent 
layperson standard in establishing a participant's need for emergency 
services is more clear than the definition of emergency care in the 
Protocol. We adopted the prudent layperson standard from the Consumer's 
Bill of Rights and Responsibilities (CBRR) (discussed in the section on 
participant rights). The same standard is used in the M+C (now MA) 
definition of emergency medical condition. This standard encompasses a 
slightly broader range of circumstances than does the Protocol 
language, by including some situations that could fit under the 
Protocol description of urgent care or urgently needed services. We 
think this clarification is helpful because the Protocol wording does 
not clearly distinguish between emergency and urgent care.
    Services a participant may need while temporarily absent from the 
PO's service area that are not emergency services but cannot be delayed 
until the participant returns would need prior authorization. The fact 
that these services may be urgently needed means that the PO would be 
expected to authorize a participant to obtain them from a non-contract 
provider outside of the service area, but it does not exempt them from 
the requirement for prior authorization. This approach differs from 
that applied to MA organizations, where prior authorization for 
urgently needed services is not required. We believe that the 
differences in the population served by POs warrant the different 
treatment of urgent, though not emergency, care needs. Due to the 
relative frailty, more limited mobility, and more complex health status 
of PACE participants, we believe the need to maintain the coordination 
of care by the IDT justifies contact with and authorization by the PO 
before receipt of non-emergency care outside the PACE network.
    The emergency services plan must also provide for the availability 
of appropriate on-call providers. We expanded this requirement from the 
Protocol to provide a safety net for unanticipated health incidents, so 
participants do not encounter difficulty in obtaining care when they 
are away from the PACE center, when they are away from the PO's service 
area and require services that cannot be delayed until they return, or 
when they require post-stabilization care services following emergency 
services. An on-call provider must be available 24 hours per day to 
address any participant questions about accessing emergency services 
and respond to requests for authorization of urgently needed out-of-
network services or post-stabilization care services following 
emergency services.
    We believe that POs must be responsive to all participant care 
needs, including the need for urgently needed or post-stabilization 
services. In order to ensure that unforeseen circumstances do not 
result in delays in needed care, we clarified that the PO must cover 
urgently needed out-of-network or post-stabilization care services if 
it does not respond to a request for approval within 1 hour after being 
contacted or cannot be contacted for approval.
    Comment: We received several comments regarding emergency care. One 
commenter requested clarification about when the PO would not be 
responsible for the cost of emergency services, and asked whether the 
PO would always be obliged to provide for emergency care if the prudent 
layperson test is met.
    Response: The PO is obligated to pay for all emergency care if the 
prudent layperson standard as specified in Sec.  460.100(c) is met and 
the participant believes he or she is in a critical health emergency 
or, in other words, if the participant fears for his or her life or 
well-being.
    Comment: One commenter recommended that the requirement that POs 
explain policies regarding emergency care be modified to include a 
clarification that no prior approval is required for emergency 
services.
    Response: We agree with this commenter and are modifying paragraph 
(d) in this final rule to require the PO to explain that no prior 
authorization is required for emergency care.
    Comment: One commenter requested a definition of the term 
``caregiver'' in our requirement at Sec.  460.100(d) that the PO must 
explain policies regarding emergency care.
    Response: We believe that the nature of PACE and the living 
arrangements experienced by PACE participants covers a wide range of 
diverse circumstances making a definition of ``caregiver'' 
inappropriate. A PACE participant could be living alone, with family 
members, in a residential facility or be in another type of living 
arrangement. They could have a caregiver or many different caregivers. 
The caregiver could be a family member, attendant, friend, neighbor, 
member of a church or other organization, or anyone who attending to 
participant's needs and which constitutes a caregiving relationship. 
Therefore, for purposes of PACE, we consider a caregiver anyone who 
attends to the participant's needs and we use the terms ``family 
member'' and ``caregiver'' interchangeably.
    Comment: One commenter asked that we clarify if on-call providers 
can be accessed via an answering service, beeper, or other device and 
if the on-call provider must be a member of the IDT.
    Response: There is no prohibition on providers using an answering 
service, beeper or other device, but we expect that on-call providers 
respond to all participant calls as soon as possible and at a minimum 
within the 1 hour allotted for response to calls for prior 
authorization. There is no requirement that the on-call provider must 
be an IDT member.
    Comment: Three commenters requested we define urgently needed care, 
and distinguish between emergency, urgently needed care, and post-
stabilization services.

[[Page 71285]]

    Response: In response to these requests, we are establishing the 
following definitions in this final rule:
    As defined in the 1999 interim final rule, an Emergency Medical 
Condition is a condition manifesting itself by acute symptoms of 
sufficient severity (including severe pain) such that a prudent 
layperson, who possess an average knowledge of health and medicine, 
could reasonably expect the absence of immediate medical attention to 
result in placing the health of the individual in serious jeopardy, 
serious impairment to bodily functions, or serious dysfunction of any 
bodily organ or part.
    As also defined in the 1999 interim final rule, Emergency care is 
appropriate when services are needed immediately because of injury or 
sudden illness and the time required to reach the PO or one of its 
contact providers, would cause risk of permanent damage to the 
participants health. Emergency services include inpatient and 
outpatient services that are furnished by a qualified emergency 
services provider, other than the PO or one of its contract providers, 
either in or out of the PO's service area and are needed to evaluate or 
stabilize an emergency medical condition. In addition, in accordance 
with Sec.  460.112(d), we are clarifying in this final rule that we are 
amending paragraph (d) of this section to require POs to explain to 
PACE participants that emergency care services that are provided for 
medical conditions that fall within this description must be covered by 
the PO and do not require prior approval.
    Urgent care means the care provided to a PACE participant who is 
out of the PACE services area, and who believes their illness or injury 
is too severe to postpone treatment until they return to the service 
area, but their life or functioning is not in severe jeopardy.
    We note that participants are expected to seek prior approval from 
the PO in order to be covered for urgent care.
    Post-stabilization care means services provided subsequent to an 
emergency that a treating physician views as medically necessary after 
an emergency medical condition has been stabilized. They are not 
emergency services, which POs are obligated to cover. Rather, they are 
non-emergency services that the PO should approve before they are 
provided outside of the service area.
    Prior approval of these services is intended to ensure efficient 
and timely coordination of appropriate post emergency care by the IDT.
    To further clarify, an example of urgent care might be a severe 
cough without other symptoms. The participant does not believe his or 
her life is in jeopardy, so he or she must call the PO. The PO 
physician advises the participant not to go to the ER, take a certain 
over-the-counter medication, and see the physician when the participant 
returns tomorrow.
    While post-stabilization care services are the follow-up care 
required after an emergency condition that has stabilized, also while 
the participant is outside the PO service area. For example, the 
participant is hospitalized due to bacterial pneumonia. It was treated 
and resolved enough for discharge but some residual symptoms remain. 
The treating physician knows the participant will not be returning home 
for 2 weeks, which he believes is too long a period of time before 
having a follow-up x-ray ordered by her physician. Therefore, the 
treating physician must contact the PO for approval to order a follow-
up x-ray. The x-ray is not emergency care but is necessary and 
customary to ensure the improving condition of the lungs.
    Comment: One commenter requested that we lengthen the time the PO 
may take to respond to a request for approval of non-emergent care 
services from 1 hour to 24 hours.
    Response: We believe that the PO's responses to urgent and post-
stabilization care services requests need to be completed as 
expeditiously as possible in order to prevent any misunderstanding 
between the PO, the participant, and the non-network physician. We seek 
to avoid a situation that might result in failure to provide essential 
care or result in providing non-covered services because of the length 
of the PO's response time. Therefore, we are retaining the 1-hour 
response time for urgent care and post-stabilization care requests.
    Final rule actions:
    In this final rule, we are:
     Adding language to paragraph (d) to require the PO to 
explain to the participant that no prior authorization is required for 
emergency care; and
     Revising Sec.  460.100 to include definitions for urgent 
and post-stabilization care.

Section 460.102 Interdisciplinary Team

    This section is based on provisions in Part IV, section B of the 
Protocol. In the 1999 interim final rule, we included a requirement 
that the PO must establish an IDT at each PACE center to 
comprehensively assess and meet the individual needs of each 
participant. In Sec.  460.102(a)(1), we require that the PO assign each 
participant to an IDT based at the PACE center the participant attends.
    As we explained in the 1999 interim final rule, we believe that a 
well-functioning IDT is critical to the success of the PACE program, as 
the team is instrumental in controlling the delivery, quality, and 
continuity of care. Members of the IDT should be knowledgeable about 
the overall needs of the participants, not just the needs that relate 
to their individual disciplines. In order to meet all of the health, 
psychosocial, and functional needs of the participant, team members 
must view the participant in a holistic manner and focus on a 
comprehensive care approach.
    Based on the Protocol, in paragraph (b) we require that the IDT be 
composed of at least the following members:
    a. Primary care physician (PCP)--We considered expanding this to 
include nurse practitioners but decided to retain the requirement in 
the Protocol. While it would be acceptable for a PO to include a nurse 
practitioner on the IDT, we believe that this should be in addition to 
rather than instead of the PCP, at this time. This approach is 
consistent with other Medicare regulations. We believe such a change 
should be included in a proposed rule in order to allow for public 
comment on this issue. In the meantime, we are continuing to assess the 
appropriateness of allowing nurse practitioners to assume the role of 
the PCP consistent with State licensure for nurse practitioners.
    b. Registered nurse (RN)--The Protocol requires the inclusion of a 
``nurse.'' In paragraph (b)(2), we specified that this team member be 
an RN. The nurse represented on the IDT must exhibit leadership and 
management skills that are more consistent with the training received 
by RNs, as opposed to licensed practical nurses. In addition, we 
believe that an RN would be better able to determine and respond to the 
health care needs of the frail population, particularly for home care 
services.
    c. Social worker;
    d. Physical therapist (PT);
    e. Occupational therapist (OT);
    f. Recreational therapist or Activity Coordinator;
    g. Dietitian;
    h. PACE center manager--We changed the Protocol terminology from 
``PACE Center Supervisor'' to ``PACE Center Manager.'' The PACE center 
manager is responsible for overall operation of the PACE center and 
ensuring service delivery. The individual who holds this position 
should be a good facilitator and should possess good communication 
skills. In many POs, the PACE center manager

[[Page 71286]]

leads IDT meetings. We are permitting the PO and the IDT the 
flexibility to decide who should lead the team and facilitate the 
discussions.
    i. Home care coordinator--Since PACE services may be furnished in 
the home, the coordination of in-home services with PACE center and 
primary care services is critical to effective service delivery. This 
coordination is especially important if the PO has contractors 
providing the home care services. The PO must designate a home care 
coordinator to supervise and coordinate home care services, whether 
these services are furnished by a PACE employee or through a 
contractor. We changed the Protocol's term ``home care liaison'' to 
``home care coordinator,'' because ``home care liaison'' has another 
meaning in Medicare, and we wanted to avoid confusion.
    j. Personal care attendants (PCAs) or their representatives--We 
changed the Protocol term ``health care worker/aide'' to ``personal 
care attendant,'' as we believe this term more accurately describes 
this position. We believe that ``health care worker'' is too general 
and could apply to other members of the team.
    k. Drivers or their representatives--This requirement remains 
unchanged from the Protocol.
    Due to the age of most PACE participants, a geriatrician could be a 
valuable member of the IDT. As one option, the PCP could be a 
geriatrician. However, physicians who specialize in geriatrics are 
relatively rare, and availability might be a serious problem. We have 
not required the involvement of a geriatrician but in the 1999 interim 
final rule, we invited comments about whether such a requirement would 
be desirable and, if so, whether the geriatrician should be employed by 
the PO and should primarily serve PACE participants.
    Consistent with the Protocol, we require in paragraph (c) that 
primary medical care for all participants be furnished by the PCP(s). 
The PCP must serve as the gatekeeper to the participant's use of 
medical specialists and inpatient care, and he or she must be an 
integral member of the IDT. Ultimate responsibility for management of 
medical situations must rest with the PCP.
    The IDT is responsible for the initial assessment, periodic 
reassessments, the plan of care, and coordinating 24-hour care 
delivery. A critical element of the success of the IDT is the degree to 
which team members share information and communicate with one another. 
The Protocol requires the physician to keep the IDT informed of the 
medical condition of each participant and to remain alert to pertinent 
input from other team members. We believe this should be the 
responsibility of each member of the team rather than just the 
physician, as it is critical to timely intervention to address 
potential problems. To reflect this position, we require in paragraph 
(d) that each member of the team must regularly inform the IDT of the 
medical, functional, and psychosocial condition of each participant and 
remain alert to pertinent input from other team members, participants, 
and caregivers. This communication can take place through formal 
measures such as team meetings and written documentation in 
participants' medical records, but should not be limited to formal 
mechanisms. Informal communication between team members (for example, 
CARDEX systems, informal updates during shift changes) should be 
encouraged as well. It is critical that personal care attendants be 
involved in the communication process. As they often have the first 
contact with the participant, it is important that they regularly share 
information, for example, on the participant's mood, activities, and 
daily habits. In the 1999 interim final rule, we required that each 
team member must document all changes in the participant's condition in 
the participant's medical record.
    In paragraph (d)(3), we require that members of the IDT must serve 
primarily PACE participants, unless a waiver is granted. After 
considering this issue, we concluded that in order to effectively serve 
a frail elderly population, such as is served by the PACE program, it 
is important to support and retain measures that promote quality and 
continuity of care. If team members serve primarily PACE participants, 
they are able to develop a rapport with participants and are better 
able to plan for and provide their care. We recognize that team members 
may have other clients, but this must not interfere with the provision 
of services for PACE participants.
    In paragraph (g), we included conditions for waiver of the 
employment requirement for IDT members. CMS and the SAA were authorized 
to grant a waiver of this requirement if they determined that--
     There are not enough individuals available in the PO's 
service area who meet the PACE requirement or State licensing laws make 
it inappropriate for organizations to employ physicians; and
     The proposed alternative does not adversely affect the 
availability of care or the quality of care that is provided to 
participants.
    In response to public comment on the 1999 interim final rule, and 
to implement section 903 of BIPA, we made the following changes in 
Sec.  460.102 in the 2002 interim final rule.
    We amended paragraph (d)(2)(iii) to clarify that IDT members must 
document changes in a participant's condition in the participant's 
medical record consistent with the documentation policies established 
by the medical director of the PO. This ensures that only designated 
team members have access to patient records.
    Also, in consideration of the expanded contracting opportunities in 
the 2002 interim final rule, we removed paragraph (f) that required 
members of the PACE IDT to be employed by the PO. Finally, we removed 
paragraph (g) that allowed CMS and the SAA to waive the employment 
requirement for the PCP and the requirement that the IDT serve 
primarily PACE participants. Since the PO may contract for PCPs in 
accordance with the requirements specified in Sec.  460.70 (described 
in the section I.B.3.b. of this preamble) and other waivers are 
governed by Sec.  460.26 (described in section I.B.f. of this 
preamble), these specific waiver provisions are no longer necessary. We 
amended paragraph (d)(3) by removing the cross reference to paragraph 
(g).
    Comment: There were numerous recommendations on variations of IDT 
composition, the roles of the IDT members, services the IDT members 
provide and the locations where the IDT members may provide services. 
One commenter recommended we grant greater flexibility by specifying in 
the regulation the teams ``operate from'' the PACE center, regardless 
of where the services are furnished. This commenter also recommended we 
omit the requirement relating to physical location of the IDT. 
Commenters also recommended that we provide greater flexibility in 
composition of the IDT including when POs operate multiple PACE 
centers.
    One commenter recommended we omit the positions of dietitian, PACE 
center manager, home care coordinator, PCA, and driver from mandatory 
membership on the IDT and add a requirement that the core team 
coordinate and supervise services provided by other staff.
    Response: There are other delivery models with an interdisciplinary 
team approach but none revolve around a PACE center. We believe the 
cohesive interaction between the IDT and the PACE center is one of the 
elements that makes PACE not only different but also successful.

[[Page 71287]]

    The 2002 interim final rule expanded the flexibility available to 
POs by permitting contracting of individual IDT members or contracting 
for the entire PACE center and services. One of the essential elements 
of the IDT is the consistency with which services are provided to 
participants. Each PACE center is required to have at least one IDT or 
more if necessary to ensure that each participant is assigned to an IDT 
at the PACE center the participant attends. As a result, we are not 
inclined to delink the physical location of the IDT service to the PACE 
center.
    After reviewing the recommendations made by commenters for members 
of the IDT, we continue to believe that the required membership of the 
IDT specified in paragraph (b) has been an essential element in the 
PACE program's proven success in managing the complex health conditions 
of the frail elderly. Nutritional status has an immense impact on 
health especially on the frail and the elderly; thus, we believe a 
dietitian is an essential member of the IDT. The home care coordinator 
is another position that has a vital impact on the health and safety of 
participants while they are living at home in the community. The PCAs 
often have the first and closest interaction of the day with the 
participants and the driver has contact with the participants both in 
the early morning and in their home environment. Input from these IDT 
members or their representatives can be instrumental in the detection 
of the first signs of impending illness or environmental issues. 
Therefore, we are retaining the required membership composition of the 
IDT as published in the 1999 interim final rule in Sec.  460.102(b).
    Comment: We received one comment regarding the 2002 interim final 
rule modifications to the IDT. This commenter requested we retain 
paragraph (f), which was deleted from the 2002 interim final rule. The 
commenter also suggested that paragraph (g) be replaced with language 
the commenter proposed related to contracted PCPs.
    Response: The changes to the 2002 interim final rule were made in 
response to numerous comments requesting flexibility to contract for 
all members of the IDT. As we stated in the preamble to the 2002 
interim final rule, we removed paragraph (f)(requiring members of the 
IDT to be employed by the PO) and paragraph (g)(allowing waiver of 
specified requirements) in consideration of the expanded contracting 
opportunities that were added in the 2002 interim final rule. As the PO 
may contract for PCPs in accordance with the requirements specified in 
Sec.  460.70 and other waivers are governed by Sec.  460.26, we 
determined that this provision was no longer needed.
    The commenter's proposed language would have permitted contracting 
of services for most IDT positions, but dictated when and where 
services could be provided. We continue to believe that the amendments 
made in the 2002 rule provide the flexibility requested in comments we 
received on the 1999 interim final rule. Therefore, we are retaining 
the changes implemented in the 2002 interim final rule.
    Comment: One commenter recommended the IDT include the 
participant's personal representative.
    Response: The intent of Sec.  460.102 was to establish the staff 
responsibilities for the disciplines that constitute the IDT team of 
care providers. Although the participant (or his or her representative) 
is not specifically identified as a member of the IDT under Sec.  
460.102, Sec.  460.106(e) requires the team to develop, review, and 
reevaluate the plan of care in collaboration with the participant or 
caregiver, or both to ensure there is agreement with the plan of care 
and the participant's concerns are addressed. Although the participant 
or his or her representative contributes to the decision-making 
process, we do not believe that it is appropriate to include the 
participant or their representative as an IDT member.
    The following are comments and recommendations related to specific 
IDT members.
    Comment: In response to our request for comments related to 
requiring that the PO employ a geriatrician on the IDT, a number of 
commenters indicated that it is desirable but not feasible to require 
POs to employ a geriatrician at each PACE center.
    Response: We agree with these commenters and are not requiring a 
geriatrician on each IDT.
    Comment: One commenter requested we delete the requirement that 
PCPs must serve primarily PACE participants.
    Response: We are retaining the ``primarily serve'' requirement for 
all IDT members because this requirement was established to ensure the 
participants receive the unique benefits offered by the PACE program 
model.
    Comment: A very large number of comments were related to physician 
adjunct positions, specifically nurse practitioners (NPs) and physician 
assistants (PAs). One commenter recommended that we include NPs and PAs 
in IDT requirements because the role of the NP to include primary care 
and team leadership under a collaborative agreement with an actively 
involved and fully accessible physician.
    Another commenter requested we permit more flexibility in the 
delivery of primary care through the acknowledgement of the role of NPs 
and PAs and modify both regulatory sections by adding the phrase ``or a 
nurse practitioner/physician assistant working in collaboration with a 
PCP, as reasonable, appropriate, and allowable under State law and 
regulation.''
    Response: In accordance with the PACE Protocol, the regulation 
requires participation of a physician. Physician is defined in the 
Medicare program to mean a doctor of medicine or osteopathy as 
recognized in section 1101(a)(7) of the Act. As a result, there must a 
PCP on the IDT. The regulation does not prevent the participation on 
the IDT of NPs or PAs acting in collaboration with the physician and 
within their scope of practice. However, NPs and PAs may participate on 
the IDT in addition to the PCP, but may not replace the PCP.
    We acknowledge the dedicated service and quality care provided by 
NPs and PAs to PACE participants, but we do not believe that addition 
of a specific role description for NPs or PAs in the regulatory 
language in Sec.  460.102 would provide any additional flexibility to 
the POs in establishing their IDTs.
    Comment: We received three comments related to the requirement for 
an RN on the IDT. One commenter supported the regulation requiring an 
RN as opposed to a nurse on the IDT. Another commenter supported 
flexibility depending on the composition of the team. Another commenter 
requested the roles of the NP and the clinical nurse specialist (CNS) 
be consistent with established CMS rules and regulations.
    Response: We believe the term ``registered nurse'' is a more clear 
and definitive title than ``nurse'' and have therefore specified that 
the IDT must include a registered nurse. We believe that the IDT 
membership should include an RN, but that does not imply that the PO 
cannot utilize licensed practical nurses, NPs, or CNSs in other direct 
care positions acting in collaboration with the physician and within 
their scope of practice. This approach is consistent with established 
CMS rules and regulations.
    Comment: Several commenters requested that the requirements for the 
social worker be consistent with those contained in the nursing home 
regulations with the additional requirement that each PO employ or

[[Page 71288]]

contract with at least one Master's level social worker (MSW).
    One commenter recommended an alternative to a Master's degree in 
social work. They recommended that social workers hold a Baccalaureate 
degree in social work or in a human services field and 1 year of 
supervised social work experience in a health setting working directly 
with individuals.
    Response: We agree with the commenter and note that a Baccalaureate 
degree in social work does not include the training in social 
counseling that is required for a Master's in social worker. Therefore, 
to clarify the position and responsibilities of the social worker on 
the IDT, we are amending Sec.  460.102(b)(3) to require a MSW be part 
of the IDT, rather than a ``social worker.'' In the 1999 interim final 
rule, Sec.  460.64(c)(2) listed the personnel qualification for a 
social worker, which included having a Master's degree in social work 
from an accredited school of social work. In this final rule, we have 
removed Sec.  460.64(c)(2). We are requiring a MSW on each IDT to 
establish the social work plan of care and to provide counseling 
services. The MSW may participate on several teams, perform 
assessments, reassessments, care planning, and counseling consistent 
with their education and training. For consistency we are also 
reviewing Sec.  460.104(a)(2)(iii) and Sec.  460.104(c)(1)(iii), to 
refer to a Master's-level social worker to perform assessments and 
reassessments.
    Therefore, in Sec.  460.64, we are deleting the specific 
educational and experience qualifications for social workers as all 
States require licensure, certification, or registration of social 
workers as well as qualifications for MSWs. The PO may contract with 
other MSWs to augment their staffing levels to ensure all participants 
receive the counseling services provided by MSWs. The PO may employ or 
contract with Baccalaureate social workers to provide services within 
their scope of practice.
    Comment: A commenter requested that we clarify the terms ``Personal 
care attendant or his or her representative'' and ``Driver or his or 
her representative'' in relation to composition of the IDT.
    Response: We expect the driver and PCA to be members of the team 
but understand that a representative may attend morning meetings. Most 
POs conduct morning IDT meetings during the time when PCAs are actively 
engaged in morning caring at the PACE center or participants' 
residences and drivers are engaged in the transporting participants to 
the PACE center. Therefore, neither the PCA nor the driver are 
available to attend these IDT meetings. However, we believe these staff 
are often in a position to provide important details about the 
participants' physical and emotional condition and changes in their 
home environment. Information from these IDT members can be relayed 
through a representative, such as the PACE center manager, home care 
coordinator, transportation coordinator, RN, social worker, a 
supervisor, designated colleague, or other IDT member. Therefore, we 
included representatives of PCAs and drivers in Sec.  460.102(b).
    Comment: We received several requests to modify the rule to include 
the following positions on the IDT: qualified occupational therapy 
assistants (OTAs), Licensed Practical Nurses (LPNs), certified 
occupational therapy assistants (COTAs), and Baccalaureate-level social 
workers (BSWs).
    Response: We believe LPNs, OTAs COTAs, and BSWs, provide dedicated 
quality care to PACE participants and are essential to the operation of 
POs. However, as we noted above, our current regulations provide ample 
opportunity for the POs to involve personnel with these educational 
qualifications in providing the best possible PACE services, without 
necessarily including them as part of the IDT. We do not think revising 
our regulation is necessary.
    Comment: One commenter recommended that we include an RT on the 
IDT, stating the statute provides flexibility for the PO to include 
additional services.
    Response: Composition of the IDT was based on the Protocol, which 
did not include respiratory therapy. However, our regulations do not 
prevent the inclusion of these professionals. The extent to which POs 
routinely include respiratory therapists on their IDT will be based on 
their participants' medical conditions. The IDT is required to involve 
any discipline necessary to treat the participant's individual needs, 
which includes assessment, collaboration during the development of the 
plan of care, and providing treatment.
    Final rule actions:
    In this final rule we are changing the term ``social worker'' to 
``Master's-level social worker'' consistent with our changes to Sec.  
460.64.

Section 460.104 Participant Assessment

    The information obtained through the participant assessment is the 
basis for the plan of care developed by the IDT. As such, it is 
important that the assessment be as comprehensive as possible in order 
to capture all of the information necessary for the IDT to develop a 
plan of care that will adequately address all of the participant's 
functional, psychosocial, and health care needs.
    The assessment process begins before enrollment, as set forth in 
Sec.  460.152, when the PO evaluates whether a potential participant 
can be cared for appropriately in the program. Often, POs present a 
proposed plan of care to the potential participant as part of the 
enrollment process. The initial comprehensive assessment must be 
completed promptly following enrollment, but individual team members' 
in-person assessment of the participant should be scheduled at 
appropriate intervals based on the participant's level of health. 
Because the initial assessments are thorough, this will ensure that the 
participant is not overwhelmed with several team members conducting 
assessments at one time. However, the initial comprehensive assessment 
must be completed quickly so that the plan of care can be completed and 
implemented without delay. This often is accomplished by the effective 
date of enrollment and should never be delayed more than a few days 
beyond that date. With the team concept, the goal is to obtain input 
from each discipline, as well as from the participant, through 
comprehensive assessment that identifies the services necessary to 
address the participant's needs and care preferences.
    Section 460.104(a) requires that as part of the initial 
comprehensive assessment, each of the following members of the IDT must 
individually evaluate the participant in person and develop a 
discipline-specific assessment of the participant's health and social 
status:
     Primary care physician;
     Registered nurse;
     Social worker;
     Physical therapist or occupational therapist, or both;
     Recreational therapist or activity coordinator;
     Dietitian; and
     Home care coordinator.
    We believe the specified IDT members represent the core disciplines 
needed to determine the specific treatment and psychosocial development 
needs of the participants. At the recommendation of individual team 
members, other professional disciplines (for example, speech-language 
pathologists, dentists, or audiologists) may participate in the initial 
comprehensive assessment if the participant's needs warrant their 
inclusion.

[[Page 71289]]

    In the 1999 interim final rule, we stated that we were in the 
preliminary stages of developing a standardized core assessment 
instrument, the COCOA-B, to be used by POs for outcome-based continuous 
quality improvement. Until such time as this instrument was completed, 
we specified in Sec.  460.104(a)(4) that the participant's assessment 
must include, at a minimum, the following information:
     Physical and cognitive function and ability;
     Medication use;
     Participant and caregiver preferences for treatment;
     Socialization and availability of family support;
     Current health status and treatment needs;
     Nutritional status;
     Home environment, including home access and egress;
     Participant behavior;
     Psychosocial status;
     Medical and dental status; and
     Participant language.
    We believed that this information would provide a basic framework 
from which a comprehensive plan of care could be developed, would be 
appropriate for every participant, and would ensure that the plan of 
care focused on the participant's medical, psychosocial, and functional 
needs. However, this list represented the minimum information to be 
included in the comprehensive assessment, and the PO was encouraged to 
include other assessment items as necessary.
    Although a core assessment instrument has been developed, since the 
publication of the 1999 interim final rule, our experience with the 
PACE program has led us to having some misgivings about its long term 
application. Given the need for flexibility for POs, we are concerned 
that specifically mandated measures may compromise the discretion of 
POs to use other assessment tools that may be more appropriate for 
their settings.
    Therefore, we are not inclined to replace the information 
requirements contained in Sec.  460.104(a)(4) with a specific 
standardized core assessment instrument. In time, we expect that POs 
will become more familiar with using the quality assessment and 
performance indicators that are contained in Sec.  460.134 
(physiological well being, functional status, cognitive ability, 
social/behavioral functioning, and quality of life) as a framework for 
participant assessments. At this time, we are finalizing the 
information listed in Sec.  460.104(a)(4) as the required information 
POs must obtain as part of a comprehensive assessment.
    The Protocol requires that the discipline-specific plans be 
consolidated into a single plan of care for the participant. The 
development of the plan of care must occur through discussion and 
consensus of the entire IDT. We established this requirement in Sec.  
460.104(b) by stating that the discussion must take place during team 
meetings, in order to facilitate group discussion of the plan of care 
and ensure that all members of the team are actively involved in the 
decision-making process, and that the plan of care must be completed 
promptly.
    In developing the plan of care, the PACE IDT is also required by 
Sec.  460.104(b) to inform female participants that they are entitled 
to choose a women's health specialist from the network of PACE 
providers. We have included this requirement to ensure compliance with 
the Consumer's Bill of Rights and Responsibilities (CBRR), as explained 
in detail in the preamble of the 1999 interim final rule.
    Reassessments are necessary to provide information to adjust 
participants' plans of care. Periodic reassessments ensure the 
continued accuracy and effectiveness of the participant's plan of care. 
Consistent with the Protocol, we require in paragraph (c) that the 
following members of the IDT conduct an in-person reassessment on at 
least a semi-annual basis:
     Primary care physician;
     Registered nurse;
     Social worker;
     Recreational therapist or activity coordinator; and
     Other team members actively involved in the development or 
implementation of the participant's plan of care, for example, home 
care coordinator, physical therapist, occupational therapist, or 
dietitian.
    The primary care physician, registered nurse, social worker, and 
recreational therapist/activity coordinator are required to perform 
assessments at least semiannually as they are the most critical in 
terms of defining outcomes of care. Other team members actively 
involved in the participant's plan of care must also reassess 
semiannually, as they have an impact on the care the participant is 
receiving. However, if the participant is not receiving certain 
services (such as home care, physical therapy, occupational therapy, 
dietitian services), these members of the team would not be required to 
conduct a semi-annual assessment for that participant.
    Consistent with the Protocol, we require the following members of 
the IDT to conduct an in-person reassessment on at least an annual 
basis:
     Physical therapist and/or occupational therapist;
     Dietitian; and
     Home care coordinator.
    It is important for the IDT to monitor and respond to any changes 
in a participant's condition or family situation or any concerns raised 
by the participant or his or her designated representative. The 
Protocol requires that the participant be reassessed by the team or by 
selected members of the team to develop a new plan of care when the 
health status or psychosocial situation of a participant changes. We 
believe that all members of the IDT that are required to perform the 
initial comprehensive assessment should reassess the participant 
because if fewer members participate in this reassessment, a critical 
component of a participant's care might be overlooked.
    In addition, paragraph (c)(3) requires that if a participant's 
health or psychosocial status has changed or if a participant (or his 
or her designated representative) believes that a particular service 
needs to be initiated, continued, or eliminated, the appropriate IDT 
members must reassess the participant. The purpose of this reassessment 
is to evaluate whether it is necessary to increase, continue, reduce, 
or terminate particular services and whether a different course of 
treatment is needed. A complete reassessment should ensure that the 
participant is receiving a continuing program of care that meets his or 
her current needs. Requiring a reassessment based on the concerns of 
the participant emphasizes the active role the participant plays in the 
assessment process and development of his or her plan of care. The 
participant's adherence to the plan is critical to the successful 
delivery of services. Therefore, permitting the participant (or 
designated representative) to trigger a reassessment gives participants 
the opportunity to express any dissatisfaction with the manner in which 
care or services are furnished.
    We believe the requirements in Sec.  460.104(c)(3) are appropriate, 
but in this final rule, we wish to clarify that not all changes in 
health or psychosocial status require reassessment by the entire IDT. 
We are allowing the PO the flexibility to determine the appropriate 
staff to reassess changes that are not significant. We continue to 
believe that significant changes in health or psychosocial status 
require the in-person reassessment by the IDT members identified in 
Sec.  460.104(a)(2).

[[Page 71290]]

    Section 460.104(c)(3) also requires the PO to have explicit 
procedures for timely resolution of requests from participants (or 
their authorized representatives) to initiate, continue, or terminate a 
particular service. Unless an extension is granted, the IDT must notify 
the participant (or designated representative) of its decision to 
approve or deny the request as expeditiously as the participant's 
condition requires, but no later than 72 hours after the IDT receives 
the request. We considered establishing both a standard process and an 
expedited process for responding to participant requests; however, 
because of the frailty of this population, we concluded that every 
request is urgent and requires a quick response. We want to ensure that 
a participant's health is not adversely affected due to a delay in 
reassessing the participant's condition. The goal of the program is to 
maximize the participant's functioning, and a quick response is meant 
to ensure that all factors are evaluated, all necessary services are 
being furnished, and participant health is not compromised. A timely 
notification also allows participants adequate time to consider appeal 
rights, if necessary, without compromising their health.
    The IDT may extend the 72-hour timeframe by no more than 5 
additional days if the participant or designated representative 
requests the extension, or if the team documents its need for 
additional information and how the delay is in the interest of the 
participant. An extension may be warranted because not all of the 
appropriate members of the IDT may always be able to meet with the 
participant, conduct a discipline-specific reassessment, discuss the 
results of the reassessment with the entire IDT, and develop a response 
to the request within 72 hours. The PO retains the flexibility to 
determine the most appropriate manner in which to provide notification 
to the participant (or designated representative).
    If, based on the reassessment, the IDT decides to deny the 
participant's request, the denial must be explained to the participant 
(or designated representative) orally and in writing. The PO must 
provide the specific reasons for the denial in understandable language.
    If the participant (or designated representative) is dissatisfied 
with the outcome of the reassessment, the participant may appeal the 
decision in accordance with. Sec.  460.122. Specifically, the PO must: 
(1) Inform the participant or designated representative of his or her 
right to appeal the decision; (2) describe both the standard and 
expedited appeals processes, including the right to and conditions for 
obtaining an expedited appeal of a denial of services; and (3) describe 
the right to and conditions for continuation of contested services 
through the period of the appeal.
    If the IDT fails to provide the participant with timely notice of 
the resolution of the request for reassessment or does not furnish the 
services required by the revised plan of care, this failure constitutes 
an adverse decision, and the participant's request must be 
automatically processed as an appeal by the PO in accordance with Sec.  
460.122.
    Team members who reassess a participant must reevaluate the plan of 
care. Any changes in the plan of care must be discussed and approved by 
the IDT and the participant (or designated representative). The plan of 
care reflects the team's and participant's goals for the participant's 
care. Obtaining the participant's approval of the proposed plan of care 
is important to the successful delivery of services and the 
participant's adherence to the plan.
    In addition, we also require that any services included in the 
revised plan of care as a result of a reassessment must be furnished to 
the participant as expeditiously as the participant's health condition 
requires. It is critical that care not be delayed and that the 
participant receive comprehensive care that maintains his or her 
functional status. Because we recognize that some changes in the 
participant's plan of care (for example, installing a wheelchair ramp 
at the participant's home) may require more time to accomplish, we 
chose not to specify a timeframe for delivering services. However, we 
solicited comments on the necessity of requiring a specific timeframe. 
Whenever a participant assessment or reassessment occurs, the 
information must be documented in the participant's medical record.
    Comment: Two commenters requested confirmation that the 
requirements for the initial comprehensive assessment in Sec.  
460.104(a) were not intended to govern the practice of assessment 
before enrollment or to prescribe which IDT members must conduct 
assessments before enrollment for purposes of determining whether the 
individual's needs can safely be met through the PACE program. One 
commenter requested clarification that the regulation requires that a 
complete assessment by the full team take place after enrollment. This 
commenter also asked which members of the team must have conducted 
assessments before enrollment.
    Response: The assessment process begins before enrollment when the 
PO evaluates a potential participant to determine if they can be cared 
for appropriately in the community by the PACE program. We do not 
dictate the disciplines that must perform this assessment; we leave 
that to the discretion of the PO. The remainder of the initial 
comprehensive assessment can be performed before the enrollment 
agreement is signed or the PO can decide to wait until after the 
enrollment agreement is signed. The only requirement is that the 
assessment be completed as soon as possible after enrollment so the 
plan of care can be implemented after the effective date of enrollment 
with as little delay as possible.
    As specified in Sec.  460.104(a)(2), the initial comprehensive 
assessment must be performed by the following disciplines:
     Primary care physician.
     Registered nurse.
     Social worker.
     Physical therapist.
     Occupational therapist.
     Recreational therapist or activity coordinator.
     Dietitian.
     Home care coordinator, and any other professional 
discipline the IDT recommends be included in the comprehensive 
assessment process.
    We believe these requirements reflect the current intake, 
assessment, and enrollment practices of POs. In the discussion 
regarding 460.102, we clarified that a MSW is a required discipline on 
the IDT. In order to be consistent with 460.102, we are amending 
460.104(a)(2)(iii) and 460.104(c)(1)(iii) to clarify that a MSW 
performs assessments and reassessments.
    Comment: One commenter supported the assessment and reassessment 
requirements but proposed a modification to Sec.  460.104(a)(2)(i) and 
Sec.  460.104(c)(1)(i) by adding ``or a nurse practitioner/physician 
assistant working in collaboration with a PACE PCP, as reasonable, 
appropriate, and allowable under State law and regulation.''
    Response: We believe that the physician should perform the initial 
comprehensive assessment and semiannual reassessments, because these 
assessments are the foundation of the participant's plan of care. The 
NP role is an adjunct position, supportive of the physician when 
conducted within the NP's scope of practice and as allowable under 
State law. Therefore,

[[Page 71291]]

we are not modifying the regulatory language.
    Comment: One commenter requested the requirements in Sec.  
460.104(a)(2)(iv) and Sec.  460.104(c)(2)(i) which state, ``Physical 
therapist or occupational therapist or both,'' be changed to designate 
these disciplines into separate sections. The commenter pointed out 
that these disciplines are not interchangeable and both OTs and PTs 
should be required to participate in the initial comprehensive 
assessment and annual re-assessment.
    Response: After reviewing the comments, we agree that PTs and OTs 
both needed to participate in the initial assessment and annual 
reassessments. Therefore, we are revising Sec.  460.104(a)(2)(iv) and 
Sec.  460.104(c)(2)(i) to require a PT and an OT to perform initial 
comprehensive assessments and the annual reassessments.
    Comment: Two commenters requested clarification on the delivery of 
gynecological (GYN) services. One commenter asked whether the PO could 
limit GYN services to providers in their network and, if so, whether 
there was an assumption that the PO must have more than one GYN 
specialist under contract.
    The other commenter requested clarification of which health 
professionals would meet our definition of ``qualified specialist for 
women's health services.'' They questioned whether PCPs would be 
acceptable due to the time commitment required by the geriatric and 
cognitive deficits of many participants. The commenter questioned 
whether adequate GYN services would be available to PACE participants 
with contracted specialists and recommended the elimination of the 
regulatory requirement.
    Response: We first want to clarify that the PO must provide access 
to all specialties within its network and participants are required to 
receive all services through the PO. The CBRR guarantees participants 
the choice of providers as well as the right of female participants to 
choose a qualified specialist in woman's health. Therefore, we expect 
that when possible the PO will contract with more than one provider of 
gynecological services.
    In response to whether the PCP is a qualified specialist for 
women's health services, a PCP is qualified to perform primary care 
including basic GYN services, but the PCP is not a ``qualified 
specialist for women's health services.'' Although female participants 
may choose their PCP for basic GYN services, if a participant requests 
a GYN specialist or the participant requires more complex GYN services, 
the participant must be provided a GYN specialist and, when possible, 
be provided a choice of GYN specialists.
    Accordingly, we are retaining the requirement to provide 
participants a choice to use a woman's health specialist, consistent 
with the CBRR protections we adopted in the 1999 interim final rule.
    Comment: The majority of commenters on this section disagreed with 
the regulatory language related to how to accomplish, when to perform, 
and who must conduct the periodic reassessments required by Sec.  
460.104(c). Recommendations ranged from deleting various requirements 
to requests to provide POs the flexibility over the timing and scope of 
reassessments. Commenters also provided proposed language changes, 
including some that are consistent with the Protocol.
    Several commenters requested clarification of whether all team 
members must perform reassessments or whether only relevant team 
members may perform reassessments.
    Response: In response to the numerous comments related to the 
reassessment requirements, we want to confirm that we believe that the 
disciplines designated in the 1999 interim final rule at Sec.  
460.104(c) are the minimum disciplines required to perform 
reassessments. We also expect that, should the results of the 
reassessments raise further issues related to other disciplines, 
reassessments by additional disciplines must be conducted and included 
in the development of the comprehensive plan of care.
    In contrast, the initial comprehensive assessment must be conducted 
by those disciplines listed in Sec.  460.104(a)(2), and any other 
professional disciplines recommended by the IDT. The results of the 
discipline specific assessments must be consolidated into a single 
comprehensive plan of care.
    Again as specified in our regulation, periodic reassessments must 
be conducted as follows;
     At least semi-annually, and more frequently if the 
participant's condition dictates, by the PCP, RN, MSW, recreational 
therapist or activity coordinator, and other appropriate members of the 
IDT that are actively engaged in the development or implementation of 
the participant's plan of care.
     At least annually the PT, OT, dietitian, and home care 
coordinator must conduct in-person reassessments.
    Comment: Numerous commenters remarked on the provision requiring 
reassessment based on change in participant status or at the request of 
the participant or his or her designated representative. Several 
commenters suggested the reassessments initiated by the PO based on 
changes in health status be differentiated from those requested by the 
participant.
    Many commenters suggested that the requirement that a formal 
reassessment be conducted based on a change in participant health 
status be limited to a ``significant change.'' These commenters also 
suggested including a definition more consistent with the definition 
contained in nursing home regulations where ``a ``significant change'' 
means ``a major decline or improvement in the participant's status that 
will not normally resolve itself without further intervention by staff 
or by implementing standard disease related clinical interventions, 
that has an impact on more than one area of the participant's health 
status, and requires an IDT review or revision of the care plan or 
both.'' Another commenter recommended that we provide POs the same 
discretion as the nursing home regulations afford nursing homes, to 
determine whether and to what extent a reassessment or a change in the 
plan of care, or both, are necessary. Other commenters recommended that 
if a non-significant change occurs, the reassessment may be conducted 
by the discipline impacted.
    One commenter recommended that this requirement be eliminated, 
particularly when there is agreement between the IDT and the 
participant or his or her designated representative.
    One commenter suggested that we require the PO to have a defined 
process for responding to participant requests, which includes 
assigning appropriate team members to the reassessment.
    Response: Due to the fragility of the PACE population, we do not 
believe it would be prudent to restrict the requirement at Sec.  
460.104(c)(3) by limiting reassessments to significant changes in 
participant health status. The philosophy of PACE requires the staff to 
be cognizant of any and all changes in participant health status so 
that they can take a proactive approach to the care of this frail and 
vulnerable population and prevent development of a major problem. We 
believe the suggested changes would compromise the integrity of the 
PACE philosophy.
    Moreover, individuals that do not participate in the PACE program 
and reside in a NF will generally be less independent and mobile. In 
addition, as they reside in a more restricted environment under 
constant observation by staff, residents of NFs need less formally 
defined IDT reassessment requirements. These individuals do not require 
evaluation of home health or

[[Page 71292]]

transportation issues and generally receive more limited PT and OT 
services than community dwelling PACE participants. For these reasons, 
we believe that the requests for consistency with NF requirements is 
inappropriate.
    PACE is based on the collaborative relationship between the 
participant and the PO. We believe it is in the best interest of both 
the participant and the PO to conduct a reassessment when there is a 
request for a specific service regardless of whether or not the 
participant and the PO agree. The reassessment might uncover other 
issues not previously detected.
    In response to comments, we are revising Sec.  460.104(c)(3) by 
renaming paragraph (c)(3) as paragraph (d) Unscheduled reassessments. 
We are separating the requirements for reassessments based on a change 
in participant status in paragraph (d)(1) from those performed at the 
request of the participant or designated representative in paragraph 
(d)(2). We are amending the requirements to require the IDT members 
listed in paragraph (a)(2) to perform in-person reassessments for 
change in participant status while permitting the IDT the flexibility 
to determine the appropriate IDT members when the assessment is 
performed at the request of a participant or his or her representative.
    Comment: There was strong disagreement by one commenter regarding 
the PO's responsibility to inform participants about the appeal process 
if they are dissatisfied with a determination. The commenter stated the 
PO should provide appeal information with all written denials, 
reductions, and terminations of services or changes in the plan of 
care.
    Response: The requirement for written notification of the PO's 
appeal process is discussed in Sec.  460.122 under Subpart G, 
Participant rights. This section states, among other things, that 
participants are provided with written materials on the appeal process 
upon enrollment and annually thereafter and whenever there is a denial 
of a request for services. Denial of services includes denial, 
continuation, or termination of a requested service. The provisions for 
reassessment at the request of a participant was intended to serve as 
the first stage of the appeals process.
    Comment: In the 1999 interim final rule, we solicited comments on 
whether to impose a timeframe under which POs must initiate changes in 
services after a revision to a participant's plan of care. Comments 
varied and included the following, while some commenters agreed with 
the existing requirement that services be furnished to the participant 
as expeditiously as the participant's health condition requires; others 
indicated that the timeframe should be left to the discretion of the 
PO. Those commenters stated that specifying a timeframe for service 
delivery merely adds a layer of regulation and oversight that in all 
likelihood will not be necessary. Of the comments supporting a specific 
timeframe, some commenters urged us to set a maximum timeframe of no 
more than 5 days for initiating service delivery following an approved 
change in the plan of care plan and permit the timeframe to be waived 
in specific situations. Other commenters recommended that any 
individualized timeframes be specified in the participant's plan of 
care.
    Response: In response to the varied and different comments received 
in response to our solicitation for comment on timeframes for 
delivering services, we believe further consideration of this issue is 
needed before adopting a specific timeframe. Accordingly, we are 
retaining the requirement as published in the 1999 interim final rule 
which requires the PO to implement changes in a participant's plan of 
care expeditiously as the participant's health condition requires.
    Final rule actions:
    In this final rule, we are:
     Amending Sec.  460.104(a)(2)(iv) and Sec.  
460.104(c)(2)(i) to require that both the PT and OT perform the initial 
comprehensive assessment and annual reassessments.
     Amending Sec.  460.104(a)(2)(iii) and 460.104(c)(1)(iii) 
changing social worker to Master's-level social worker.
     Redesignating paragraph (c)(3) as paragraph (d) titled 
``Unscheduled reassessments'' to permit the IDT the discretion to 
determine the disciplines necessary to perform reassessments that are 
requested by a participant or his or her representative.

Section 460.106 Plan of Care

    Based on Part IV, section B of the Protocol, we developed 
requirements for the participant's plan of care. In Sec.  460.106(a), 
we require that the IDT promptly develop a comprehensive plan of care 
that specifies all care needed to meet the participant's medical, 
physical, emotional, and social needs, as identified in the initial 
comprehensive assessment. As required by paragraph (b), the plan of 
care must identify measurable outcomes to be achieved and must be 
developed in collaboration with the participant and his or her 
caregiver. The specified outcomes need not be discipline-specific. 
Instead, these are team goals for the participant's care. Involving the 
participant in the plan of care is important to the successful delivery 
of services and the participant's adherence to the plan.
    In paragraph (c), we require the team to implement, coordinate, and 
monitor the plan of care by providing services directly and by 
supervising the delivery of services furnished by contract providers. 
The participant's health and psychosocial status, as well as the 
effectiveness of the plan of care, must be monitored continuously 
throughout the provision of services, informal observation, input from 
participants and caregivers, and communications among members of the 
IDT and other providers.
    In paragraph (d), we require that, on at least a semiannual basis, 
the IDT must reevaluate the participant's plan of care, including the 
defined outcomes, and make changes as necessary.
    Semiannual review of the participant's plan of care ensures that 
the needs of the participant are being met. It allows the team to 
determine whether the participant's level of health has changed enough 
to warrant a change in the level of services or even the setting in 
which care is provided.
    In paragraph (e), we require that participant plans of care be 
developed, reviewed, and reevaluated in collaboration with the 
participants or caregivers. The purpose of participant/caregiver 
involvement is to assure that they approve of the care plan and that 
participant concerns are addressed. We give POs the flexibility to 
determine how often care plans should be reviewed with the participant.
    In paragraph (f), we require that the participant's plan of care 
and any changes in the plan must be documented in the participant's 
medical record.
    Comment: We received several comments related to participant 
involvement in their plan of care. One commenter stated that the 
participant should always be included in the development of the plan of 
care to the extent possible and desired, but that use of the term 
``or'' in ``participant or caregiver'' suggests that the team may elect 
not to involve the participant in the development of his or her plan of 
care.
    Another commenter suggested we include a provision to provide for a 
more negotiated plan of care process incorporating discussion with the 
participant as part of the process.
    Two respondents suggested that the participant and/or his or her 
representative be given the opportunity to review the plan of care at 
the time of the official review (semiannually), when

[[Page 71293]]

the plan requires significant revision and upon a request of the 
participant.
    Response: It is our expectation that the IDT will include the 
participant in the plan of care development when possible and include 
the participant's representative when it is not appropriate to include 
the participant or at the instruction of the participant.
    We believe that the current requirements in Sec.  460.106 provide 
sufficiently for the inclusion of the participant, or the participant's 
representative, in the plan of care development.
    Comment: One commenter requested we provide some samples of what 
CMS considers measurable outcomes that could be included in the plan of 
care.
    Response: Some examples of measurable outcome measures that would 
be specific to an individual plan of care include the following:
     Participant will receive yearly flu shot.
     Participant will gain and maintain 1 pound each 2 week 
period until weight achieves 100 pounds.
     Participant will be instructed in blood sugar testing. 
Within 1 week, the participant will able to explain and demonstrate the 
use of the glucometer and recording of the results.
    Final rule actions:
    This final rule will finalize Sec.  460.106 as published in the 
1999 interim final rule.

Subpart G--Participant Rights

    The purpose of subpart G is to establish requirements for patient 
rights and protections that POs must include in their program 
agreements and provide to PACE participants.
    In accordance with sections 1894(b)(2)(B) and 1934(b)(2)(B) of the 
Act, the PACE program agreement requires the PO to have in effect, 
``written safeguards of the rights of enrolled participants (including 
a patient bill of rights and procedures for grievances and appeals) in 
accordance with regulations and with other requirements of this title 
and Federal and State law that are designed for the protection of 
patients.'' In addition, sections 1894(f)(3) and 1934(f)(3) of the Act 
allow CMS the discretion to apply the requirements of Part C of title 
XVIII and sections 1903(m) of the Act and 1932 of the Act relating to 
the protection of beneficiaries and program integrity as would apply to 
M+C (now MA) organizations under Part C and to Medicaid managed care 
organizations under prepaid capitation agreements under section 1903(m) 
of the Act. Moreover, sections 1894(f)(2) and 1934(f)(2) of the Act 
require us to incorporate the requirements in the Protocol which 
includes a patient bill of rights.
    In addition, we made every effort to assure that the rights and 
protections established in the PACE program agreement are in 
substantial compliance with the Presidential Advisory Commission's (The 
Commission) Consumer Bill of Rights and Responsibilities (CBRR), which 
appeared as an addendum to The Commission's Final Report to the 
President, entitled ``Quality First: Better Health Care for All 
Americans'' (March 1998). The President issued an Executive Memorandum 
to the Secretary of the Department of Health and Human Services dated 
February 20, 1998, which required that, by December 31, 1999, Medicare 
and Medicaid health care programs be brought into substantial 
compliance with the CBRR. The PACE program is included within that 
framework.
    As we explained in the 1999 interim final rule, in considering how 
to apply these patient protections, the statute requires that we take 
into account the differences between the populations served and 
benefits provided under PACE, MA, and Medicaid managed care. We believe 
that the PACE program is unique in its approach to meeting the needs of 
the frail elderly. Unlike most managed care organizations which are 
responsible for meeting health care needs alone, the PACE program is an 
integrated partnership between the individual, the community, and the 
PO, which is dedicated to providing all-inclusive care to meet all 
medical and social needs to enable the participant to remain in the 
community.
    We believe it is important to establish participant rights that 
reflect the differences in the PACE delivery approach from that of 
other managed care systems. For example, since PACE participants 
receive services most days of the week, either at the PACE center or 
through home visits, POs are able to monitor changes in a participant's 
medical condition and social service needs on a daily basis. When PACE 
participants are referred to contracted specialists, in most cases, the 
PO makes the appointment, provides transportation, and often provides 
an aide or other staff member to accompany the participant. While 
managed care organizations may provide this level of care management to 
some enrollees, POs do so routinely for their entire participant 
census. Also, while managed care organizations furnish a selected array 
of medical services, they do not furnish all-inclusive care, including 
social and recreational services intended to enhance participants' 
quality of life.
    To reiterate the philosophy set forth in the Protocol, the PO 
furnishes comprehensive services designed to: (1) Enhance the quality 
of life and autonomy for frail, older adults; (2) maximize dignity and 
respect of older adults; (3) enable frail, older adults to live in 
their homes and in the community as long as medically and socially 
feasible; and (4) preserve and support the older adult's family unit. 
The bill of rights for PACE participants must complement and maintain 
this philosophy. In the 1999 interim final rule, we relied on the 
Protocol and incorporated the basic rights that it identifies. However, 
we were also guided by the M+C regulations in effect at that time and 
by the CBRR.
    The statute also directs us to consider State law. We interpreted 
this to mean that a PO's participant bill of rights may include 
additional rights and protections as required by State or local laws 
and regulations or ethical considerations of particular concern, but 
only if these additions or modifications provide stronger rights and 
protections than those established in the 1999 interim final rule. 
Consistent with the Protocol and the CBRR, we included a provision 
allowing participants to choose to be represented by family members, 
caregivers, or other representatives. We intend that a participant may 
designate a representative to exercise any or all of the rights to 
which the participant is entitled.
    In addition, we require, as did the Protocol, the PO to provide 
encouragement and assistance to participants in understanding and 
exercising their rights and in recommending changes in PACE policies 
and services.
    In the discussion on consultations with the State Administration on 
Aging in section I.B.2.c. of this final rule, we referred to the State 
Long Term Care Ombudsman Programs. These State programs promote and 
monitor the quality of care in nursing homes, including identifying and 
resolving complaints, making regular visits to nursing homes, and 
generally, improving the quality of care and quality of life of nursing 
home residents. The role of the ombudsman is to engage in a variety of 
activities designed to encompass both active advocacy and 
representation of residents' interests. In the 1999 interim final rule, 
we specifically requested public comment on whether the ombudsman 
program could play a role in consumer assistance to potential PACE 
participants, as well

[[Page 71294]]

as to those who have disenrolled and need assistance in organizing 
their care. With regard to PACE participants, we were also interested 
in receiving public input as to whether an ombudsman could provide one-
on-one consumer assistance to PACE participants and their caregivers to 
exercise their rights and work effectively with the IDT.
    We received a very large number of comments related to participant 
rights.
    Comment: We received 10 comments responding to our request for 
input regarding whether to require the use of the State Ombudsman 
Programs as advocates for PACE participants, prospective participants, 
and disenrolled PACE participants, and to monitor the quality of care 
provided to PACE participants. The comments related to this request 
varied. Some commenters recommended that the State Ombudsman Program be 
extended to cover PACE participants as a natural and appropriate 
expansion of the ombudsman program. However, the majority of commenters 
recommended leaving the option to State discretion rather than 
mandating it in regulation. The primary concern was the limited 
resources available to State's ombudsman programs. Commenters 
recommended that should the ombudsman role be expanded to include PACE, 
CMS should provide the appropriate funding. Other commenters indicated 
concerns related to funding for training and funding for pilot programs 
to test the efficacy of the ombudsman program in relation to PACE.
    Response: We agree with the majority of commenters who recommended 
that CMS not mandate the use of the State Ombudsman Program for PACE. 
We acknowledge the limited resources available to the ombudsman program 
and agree that utilization of these resources is best left to the 
States' discretion. Additionally, our experience with the program to 
date indicates that the PACE grievance and appeal processes are working 
effectively to resolve participant concerns. We, therefore, are not 
revising our regulations at subpart G to mandate the use of the State 
Ombudsman Program for PACE.

Section 460.110 Bill of Rights

    In Sec.  460.110, we require a PO to have a written participant 
bill of rights that is designed to protect and promote the rights of 
each participant. The organization is required to inform participants 
upon enrollment, in writing, of their rights and responsibilities, and 
all rules and regulations governing participation in PACE. In addition, 
the organization must protect participants' rights and provide for the 
exercise of those rights.
    Comment: Numerous commenters supported the requirement for a 
written participant bill of rights, and rights published in the 1999 
interim final rule.
    Response: We appreciate the commenters' support of the participant 
bill of rights, as we believe in the importance of participant rights 
and the protection they provide participants.
    Final rule actions:
    This final rule will finalize Sec.  460.110 as published in the 
1999 interim final rule.

Section 460.112 Specific Rights to Which a Participant Is Entitled

Section 460.112(a) Respect and Nondiscrimination
Right 1--
    Each participant has the right to considerate, respectful care from 
all PACE employees and contractors at all times and under all 
circumstances. Each participant has the right not to be discriminated 
against in the delivery of required PACE services based on race, 
ethnicity, national origin, religion, sex, age, mental or physical 
disability, or source of payment.
    The individual's right to respect and nondiscrimination is embedded 
in the basic philosophy of the PACE program. In keeping with the PACE 
model, we recognize the participant's right to receive comprehensive 
care in a safe and clean environment and in an accessible manner. The 
Protocol states that a PACE participant must receive treatment and 
rehabilitative services. We expanded this requirement to state that the 
participant has a right to receive comprehensive health care.
    The Protocol stipulates that the participant has the right to have 
dignity, privacy, and humane care. We require the PO to treat the 
participant with dignity and respect, to afford the participant privacy 
and confidentiality in all aspects of care, and to provide humane care. 
The PO must assure that a participant's dignity and privacy are 
respected not only in its own facilities but also in affiliated or 
contract providers. Staff should be instructed that any discussions 
with participants regarding treatment, the participant care plan, and 
medical conditions should be held in private and kept confidential. 
While recognizing the participant's right to privacy and 
confidentiality, we do not advocate physical barriers because 
participants should be in the view of the staff at all times to ensure 
safety. However, in situations where there is participant body exposure 
during treatment, the staff should be instructed to provide temporary 
screens or curtains.
    We adopted from the Protocol the right to be free from harm, 
including physical or mental abuse, neglect, corporal punishment, 
involuntary seclusion, excessive medication, and any physical or 
chemical restraints imposed for purposes of discipline or convenience 
and not required to treat the participant's medical symptoms. The use 
of restraints must be based on the assessed needs of the patient, be 
monitored and reassessed appropriately, and be ordered for a defined 
and limited period of time. The least restrictive and most effective 
method available must be utilized and it must conform to the patient's 
plan of care. Restraints may only be used as a last resort and must be 
removed or ended at the earliest possible time. We do not believe that 
restraints of any kind should ever be used as a preferred approach to 
care and we expect PACE organizations to ensure that their programs are 
``restraint free'' to the greatest extent possible. Specific 
requirements regarding the use of restraint are established in Sec.  
460.114.
    We adopted the rights established in the Protocol to encourage and 
assist the participant to exercise his or her rights, including the 
Medicare and Medicaid appeals processes as well as civil and legal 
rights. Participants are encouraged and assisted in recommending 
changes to PO policies and services. We also maintained the right to 
have reasonable access to a telephone. However, we altered the right 
established in the Protocol not to be required to perform services for 
the organization unless the services are included for therapeutic 
purposes in the plan of care. As we explained in the 1999 interim final 
rule, we do not believe that a therapeutic program should be tied to 
performing services for the PO.
    The CBRR specifies that organizations should not discriminate on 
the basis of race, ethnicity, national origin, religion, sex, age, 
mental or physical disability, or source of payment. POs are required 
to comply with all Federal, State, and local laws, including 
discrimination statutes with regard to marketing, enrollment, and 
provision of services. However, we recognize that, with regard to 
health status considerations, POs are required as part of the intake 
process to assess whether a potential participant is appropriate for 
PACE, that is, meets the State's nursing facility eligibility standard 
and can be safely cared for in the community. Meeting required 
certification standards within the PACE context is not deemed a 
violation of antidiscrimination laws. However, in

[[Page 71295]]

order to ensure that the qualification decision is free from other, 
illegal forms of discrimination, we require POs to retain information 
on individuals who are assessed but, for whatever reason, are not 
enrolled.
    Comment: One commenter requested that we broaden the list of 
demographic categories under which the PO cannot discriminate against a 
PACE participant to specifically include sexual orientation.
    Response: We agree with the commenter that the list of demographic 
categories under which the PO cannot discriminate against a PACE 
participant should be broadened to specifically include sexual 
orientation. As discussed in Sec.  460.98(b)(3), we do not believe 
anyone should be denied enrollment in PACE because of discrimination of 
any kind. Therefore, in this final rule we are amending the 
antidiscrimination requirement in Sec.  460.112(a) to include sexual 
orientation.
    Comment: Several commenters asked to what extent the PO is 
responsible for meeting the following assurances for an enrollee at 
home:
     Receiving health care in a safe and clean environment and 
in an accessible manner; and
     To be afforded privacy; to be free from harm, including 
physical or mental abuse, neglect, punishment, involuntary seclusion, 
excessive medication, and any physical or chemical restraints imposed 
for purposes of discipline or convenience and not required to treat the 
participant's medical symptoms.
    Response: In accordance with section 1894(f)(2)(B)(v) of the Act, 
we may not grant a waiver of the requirement that the PO is at full 
financial risk and is responsible for the health and safety of the 
enrolled participants. In accordance with Sec.  460.180(b), the monthly 
capitation amount is payment in full regardless of a change in health 
status, and a PO must not seek additional payment except for the 
limited exceptions specified in Sec.  460.180(b)(7). We expect that 
locations which furnish medical care to maintain a standard of 
cleanliness and safety (for example, no bodily fluids on the floors, no 
broken plumbing, no exposed wires or broken windows). This requirement 
was specifically aimed at the facilities providing PACE services. 
However, should the IDT determine and include in the participant's plan 
of care that assistance is required in the home, then home care would 
become a required service, subject to the safety and cleanliness 
requirements of Sec.  460.112. With regard to privacy, consistent with 
standards of practice, we expect that PO staff and contractors to 
furnish services in the home in a manner that respects the 
participant's privacy.
    The requirement to be free from harm relates primarily to the 
behavior of and treatment by the PACE staff and contractors to the 
participant. However, if PACE staff or contractors identify that the 
participant is being abused or harmed by a family member or other 
caregiver, they are obligated to report this abuse to the appropriate 
authorities, and if acceptable to the participant, may assist the 
participant in acquiring new living accommodations, or otherwise 
resolving the abusive situation.
    Comment: Another commenter asked if the right to reasonable access 
to a telephone means the PO is financially responsible for a 
participant's personal telephone bills.
    Response: This requirement was not intended to make the PO 
financially responsible for the participant's personal telephone bill. 
Should the IDT determine a telephone is necessary for the health and 
safety of a participant and includes it in the participant's plan of 
care, then a telephone would become a required service and the PO would 
be financially responsible. In this situation, we recommend the PO 
investigate special telephone plans available in its area that provide 
only emergency service for those individuals with medical conditions 
that require the person to have telephone access. In addition, 
participants should have reasonable access to a telephone at the PACE 
center that can be used for local calls.
Section 460.112(b) Information Disclosure
Right 2--
    Each PACE participant has the right to receive accurate, easily 
understood information and to receive assistance in making informed 
health care decisions.
    As we explained in the 1999 interim final rule, in order for 
consumers to make rational decisions, they need accurate, reliable 
information that will allow them to comprehensively assess differences 
in their health care options, including information critical to their 
initial decision to enroll in PACE and whether to remain in PACE. The 
CBRR provides for comprehensive information to be provided to consumers 
in three basic categories: health plan information; health professional 
information; and health care facilities. Topics addressed include 
benefits, cost-sharing, dispute resolution, consumer satisfaction and 
plan performance information, network characteristics, care management 
information, corporate organization, etc. The CBRR indicates that 
certain information should be provided routinely with the remaining 
information available upon request.
    Information that is provided to potential enrollees is addressed in 
more detail in the sections on marketing (Sec.  460.82) and enrollment 
(Sec.  460.154). With regard to participant rights, we linked the right 
to information disclosure to the information that is included in the 
enrollment agreement. The PO must explain the enrollment agreement in a 
manner that the participant is capable of understanding in order to 
ensure that all participants fully comprehend their rights and 
responsibilities from the beginning of their relationship with the PO.
    Among the items in the enrollment agreement are an acknowledgment 
that the participant understands that the PO is the participant's sole 
service provider; a description of PACE services available and how 
services are obtained from the PO; the procedures for obtaining 
emergency and urgently needed out-of-network services; information on 
the grievance and appeals processes; conditions for disenrollment; 
description of participant premiums, if any, and procedures for payment 
of premiums.
    The enrollment agreement also indicates that the PACE organization 
has a program agreement with CMS and the SAA that is subject to renewal 
on a periodic basis. In order to provide participants with information 
on the status of their organization's program agreement, in paragraph 
(b)(3), PACE participants have the right to examine the results of the 
most recent review of the PO conducted by CMS and the SAA and any 
corrective action plan in effect.
    Comment: Several commenters requested that we eliminate the 
requirement for disclosure of all PACE services available, including 
all services delivered by providers under contract.
    Response: The 2002 interim final rule provides flexibility by 
allowing POs to contract for all IDT members and all required PACE 
services. Therefore, we believe it is even more important for POs to 
disclose to participants which services are furnished by PACE staff and 
which are provided under contract with another individual or entity. 
Knowing who will be furnishing services is an essential component of 
the participant's right to make informed choices. Therefore, we are not 
adopting the commenter's suggestion to eliminate this requirement.
    We have learned that there is confusion over the meaning of Sec.  
460.112(b)(1)(iii). That provision requires POs to notify participants 
when there is a change in services. Our

[[Page 71296]]

intention was that participants be provided information regarding a 
PO's contracted providers at the time a participant's needs change and 
a referral to a contracted provider may be necessary. This allows the 
participant to make an informed choice and to be able to choose from 
the list of the organization's contracted providers, if multiple 
contractors are available, and be provided the information to make an 
informed choice. To clarify this point, we are revising Sec.  
460.112(b)(1)(iii) to require disclosure of all PO services and 
services delivered by contracted providers at the time a participant's 
needs necessitate the disclosure and delivery of such information in 
order to allow the participant to make an informed choice.
Section 460.112(c) Choice of Providers
Right 3--
    Each participant has the right to a choice of health care providers 
within the PO's network which must be sufficient to ensure access to 
appropriate high-quality health care. Specifically, each participant 
has the right:
    (1) To choose his or her primary care physician (PCP) and 
specialists within the PACE network.
    (2) To request that a qualified specialist for women's health 
services provide routine or preventive women's health services.
    (3) To disenroll from the program at any time.
    The right to access specialists must be seen in the context of the 
PACE model. Active involvement by participants in their care planning 
in conjunction with an IDT approach to care management and service 
delivery are fundamental aspects of the PACE model of care. In fact, 
although sections 1894(f)(2)(B) and 1934(f)(2)(B) of the Act provide 
for waiver of certain provisions of the Protocol, the use of an IDT 
approach may not be waived.
    As we explained in the 1999 interim final rule, development of a 
participant's plan of care begins with a comprehensive assessment. 
Participant preferences for care are identified components of the 
assessment. Moreover, the team is required to develop, review, and 
reevaluate the plan of care in collaboration with the participant in 
order to ensure there is agreement with the plan of care and that 
participant's concerns are addressed. These provisions complement the 
participant's rights to participate in treatment decisions, to be fully 
informed of his or her functional status by the IDT, to participate in 
the development and implementation of the plan of care, and to make 
health care decisions, including the right to refuse treatment and to 
be informed of the consequences of such decisions.
    It is in this context that the determination with regard to the 
need for specialty care is made by the IDT and the participant. If 
there is disagreement, then the participant has the right to engage the 
dispute resolution process. The IDT is expected to give ample 
consideration to a participant's request to see a specialist and to 
objectively determine whether such visits are necessary to meet the 
needs described in the plan of care.
    We believe that access to qualified specialists for women's health 
services is extremely important. Therefore, we identified such a 
request as one of the participant preferences that must be considered 
in developing the plan of care.
    In addition, the CBRR asserts that consumers with complex or 
serious medical conditions who require frequent specialty care should 
have direct access to a qualified specialist of their choice within a 
plan's network of providers. Authorizations, when required, should be 
for an adequate number of direct access visits under an approved 
treatment plan. We believe that central to the PACE model is the 
organization's interest in ensuring that participants obtain the care 
they need, including specialty care, in the easiest and most efficient 
manner possible. A participant who needs a course of therapy with a 
specialist will have that need reflected in his or her plan of care and 
would receive that care for the duration and number of visits specified 
in the plan. In light of the requirements elsewhere in this rule 
concerning the development and management of the plan of care, we 
believe it would be redundant to include an explicit requirement that 
would mirror this CBRR provision, and have, therefore, not included 
such a requirement.
    In addition, CBRR provides the right to transitional care for 
patients who are undergoing an extensive course of treatment for a 
chronic or disabling condition.
    With regard to having a participant's choice of PCP and 
specialists, the PO is required to maintain sufficient staff and 
contractors to meet participant needs. Given the initial participant 
census of POs, it is likely that choice will be limited. POs may start 
out with one of each type of specialist and perhaps only one PCP. 
Although the CBRR includes the right to choose among physicians in the 
provider's network, it was aimed at managed care organizations with 
thousands of enrollees and numerous providers. This is not always the 
case with the PACE model. Potential participants must weigh the limited 
network of POs with the benefits of a comprehensive, all-inclusive 
delivery system when choosing to enroll. As we discuss in more detail 
in the enrollment section, potential participants must be advised that 
the PO is the participant's sole source provider and that although the 
organization guarantees access to services, it does not guarantee 
access to a specific provider.
    Comment: We received numerous and varied comments on this 
provision. One commenter pointed out that there is no requirement in 
the regulation that POs must have more than one PCP or specialist. Two 
commenters stated the bill of rights should clearly require disclosure 
when a PO has only one PCP.
    One commenter requests that CMS qualify Sec.  460.112(c)(1) as 
follows: ``[T]o choose his or her primary care physician and 
specialists from within the PACE network, as accessible and feasible * 
* *''
    Other commenters recommended that POs be required to contract with 
several of the more frequently required specialists to provide choice 
to participants.
    Response: We expect POs to have contractual arrangements with PCPs 
and specialists to meet the needs of their participants. CMS and the 
SAA determine compliance with the requirement as part of the 
application process and through ongoing monitoring to ensure that all 
participants have access to specialist services to meet their needs.
    We note that there are many geographic areas that have a limited 
number of specialists available and providing a choice of specialists 
may not be possible. In addition, many PACE programs begin operations 
with a few participants and gradually gain participant census over 
time. In these cases, it would be unnecessary for the PO to employ or 
contract with more than one PCP or specialist in order to ensure 
appropriate access to specialist services. For this reason, we are not 
adopting the change in this final rule.
    We believe that POs will have an adequate number of primary care 
providers and commonly-needed specialists to care for their participant 
population. The POs are financially responsible for all their 
participants' health care needs. Delays in the provision of primary 
care services or referrals for specialist services may have significant 
impact on the PO's overall financial viability. Likewise, early 
identification of emerging health care

[[Page 71297]]

problems has helped POs manage the risk associated with programs for 
the frail elderly. Failure to furnish timely primary care services may 
lead to more expensive care including the need for 
institutionalization.
    In order to ensure that participants and potential enrollees are 
aware of the PO's network, Sec.  460.112(b) requires that POs disclose 
all PO services and services furnished by contractors before 
enrollment, at enrollment, and when a change in a participant's needs 
necessitates the disclosure in order to allow the participant to make 
an informed choice. The lists will provide information about the number 
of PCPs and providers within each specialty and allow participants or 
prospective enrollees to make an informed decision about enrollment or 
continued enrollment in the PO.
    Finally, we believe changing the regulatory language as the 
commenter suggested could be read as allowing a participant to choose 
from outside the PO's network if a PCP or specialist within the PO's 
network was not considered ``accessible and feasible.'' We are unsure 
what the commenter meant, but we do not agree that participants should 
have access to non-network providers. Before enrollment, when 
participants sign the enrollment agreement, they are informed that the 
PACE program is their sole health care provider. In addition, each PACE 
program has a network that is sufficient to ensure access to 
appropriate high quality care. As a result, we do not believe it would 
be necessary to allow access to non-network providers. This requirement 
is intended to ensure all-inclusive and coordinated care. Therefore, we 
are not amending the regulatory language.
    Comment: Commenters also requested clarification as to a 
participant's right to request services from a qualified specialist 
whether or not the IDT has determined that specialist care is medically 
necessary.
    Response: It is a participant's right to request a service they 
believe is necessary, which includes a request to see a specialist. If 
the IDT disagrees that specialist services are necessary, the 
participants may request a reassessment under Sec.  460.104(d) and 
access the appeals process to ensure appropriate consideration is given 
to their request for coverage of specialist services.
    Comment: One commenter recommended that we eliminate the 
requirement concerning women's health services and instead, allow an 
appropriately trained PACE PCP to serve as a qualified specialist for 
women's health services.
    Response: As discussed in Sec.  460.104, in developing the plan of 
care, female participants must be informed that they are entitled to 
choose a specialist in women's health services from the PO's network of 
providers.
    Although we believe that a PCP trained in women's health care is 
capable of providing adequate care, we included this right to be 
consistent with the CBRR and Medicare managed care regulations. To 
further clarify the importance of access to a woman's health care 
specialist, we included these requests as one of the participant 
preferences that must be considered in developing the plan of care 
under Sec.  460.104(b). We recommend that POs contract with a 
sufficient number of woman's health care specialists to respond to 
participant requests.
Section 460.112(d) Access to Emergency Services
Right 4--
    Each participant has the right to access emergency health care 
services when and where the need arises without prior authorization by 
the PACE IDT.
    We establish a participant's right to emergency services without 
prior authorization, and define emergency care, emergency medical 
condition, urgently needed services and post-stabilization care 
services in Sec.  460.100 as these terms relate to obtaining emergency 
care.
    Comment: One commenter requested that we define prior authorization 
to mean any requirement or request imposed on the participant to call 
or notify the PO before or during the emergency.
    Response: We do not believe the term ``prior authorization'' needs 
to be defined as it is a well understood concept as used in the health 
care arena. In addition, while we generally agree with the commenter's 
definition, we do not believe it is needed in this context. In 
emergency situations, as described in Sec.  460.100, prior 
authorization under any possible interpretation could delay a 
participant from receiving life saving critical care. Therefore, we are 
not revising the regulation as requested.
    We note, however, that prior authorization is appropriate for 
urgent care outside of the service area and for post stabilization care 
services. The PO needs to educate its participants in the difference 
between emergency care (where prior authorization is not required), and 
urgent care (where prior authorization is appropriate). Participants 
need to understand when to request prior authorization and when to 
request urgent care. In addition, in accordance with Sec.  460.100(e), 
participants must be informed that they are required to wait 1 hour 
after requesting prior authorization for urgent care before pursuing 
this care. POs need to understand their responsibility to respond to 
these requests within one hour or the PO relinquishes its opportunity 
for prior authorization for the services and will be responsible for 
payment of the services obtained by the participant. Section 460.100, 
as discussed above, further describes the concepts of urgent, 
emergency, and post stabilization care.
Section 460.112(e) Participation in Treatment Decisions
Right 5--
    Each participant has the right to fully participate in all 
decisions related to his or her care. A participant who is unable to 
fully participate in treatment decisions has the right to designate a 
representative. Specifically, each participant has the right:
    (1) To have all treatment options explained in a culturally 
competent manner, and to make health care decisions, including the 
right to refuse treatment, and be informed of the consequences of the 
decisions.
    (2) To have the PO explain advance directives and to establish 
them, if the participant so desires, in accordance with Sec.  489.100 
and Sec.  489.102 of this chapter.
    (3) To be fully informed of his or her health and functional status 
by the IDT.
    (4) To participate in the development and implementation of the 
plan of care.
    (5) To request a reassessment by the IDT.
    (6) To be given reasonable advance notice, in writing, of any 
transfer to another treatment setting and the justification for the 
transfer (due to medical reasons or for the participant's welfare or 
that of other participants). The PO must document the justification in 
the participant's medical record.
    Active involvement by participants and their designated 
representatives in care planning is fundamental to the PACE model of 
care. As a result, we included the rights from the Protocol related to 
participant involvement in the development and implementation of the 
plan of care. We included the participant's right to be fully informed 
by the IDT of his or her health and functional status. In support of 
this right, the participant must have, upon written request, access to 
all records pertaining to herself or himself. Moreover, the team must 
provide care information in a manner that is responsive to the 
culturally diverse

[[Page 71298]]

populations whom they serve. The PO may need to develop strategies for 
enhancing cultural competence in its staff such as increased use of 
interpreters, incorporating in-house training programs, recruiting 
culturally diverse staff or contractors, or establishing relationships 
with organizations that provide technical assistance regarding cultural 
aspects of health care.
    The Protocol states that a participant has the right to refuse 
treatment and be informed of the consequences of such refusal and that 
PACE participants may establish advance directives and make health care 
decisions. We restructured these two requirements in order to place 
greater emphasis on the participant's right to make health care 
decisions and to clarify that to refuse treatment is a type of health 
care decision. We maintained the participant's right to make advance 
directives, we clarified that within this right, the PO is required to 
fully explain advance directives to participants (in accordance with 
Sec.  489.100 and Sec.  489.102 of this chapter).
    We maintained the requirement that POs provide reasonable advance 
notice, in writing, of any transfer to another treatment setting. In 
the 1999 interim final rule, we solicited comment on the necessity of 
specifying a timeframe for participant notification. Given the frailty 
of the PACE population, while some participants may require additional 
time to prepare for a transition to another setting, others may be able 
to transfer without delay.
    In addition to these specific rights, there are other processes 
embodied in the PACE model that promote participant involvement in care 
planning and implementation. For example, the comprehensive assessment 
that serves as the basis for the plan of care includes participant and 
caregiver preferences for care. This input from participant and 
caregivers is used by the IDT to monitor the effectiveness of the plan 
of care. Finally, the team is specifically required to develop, review, 
and reevaluate the plan of care in collaboration with the participant 
or caregiver, to ensure that there is agreement with the plan of care 
and that participant concerns are addressed.
    In support of effective involvement in care planning and 
communication between participants and providers, we note that the 
statute provides a specific sanction if we determine that the PO 
imposes a physician incentive plan that does not meet statutory 
requirements (see Sec.  460.40(h)) or prohibits or otherwise restricts 
a health care practitioner from discussing treatment options with the 
participant or caregiver (see Sec.  460.40(g)).
    Comment: In response to our request for comment relating to 
specifying a timeframe for notification to participants of transfers to 
other treatment settings, we received several comments which provided 
general consensus that the regulation should not impose a timeframe on 
notification for transfers. Most commenters supported permitting the PO 
the flexibility to distinguish between the different types of 
situations and to determine whether a written notification and/or 
verbal advanced notice would be most appropriate based on emergency and 
non-emergency situations.
    One commenter suggested that the term ``reasonable'' is sufficient, 
with the understanding that the timeframe must be justified by the 
documentation in the medical record.
    Another commenter stated the PACE program is designed around its 
collaborative nature, but the ``right to be given reasonable advanced 
notice in writing of transfer to another treatment setting with 
justification'' sounded like a unilateral decision by the PO. The 
commenter believes that transfer decisions should also be collaborative 
and agreed upon by the participant.
    Several other commenters supported advanced written notice for a 
planned transfer, while some identified situations when immediate 
transfers would preclude the appropriateness of an advanced written 
notice (for example, a heart attack).
    Another commenter recommended that CMS incorporate the requirement 
of timely notice, by both written notice and verbal explanation, of at 
least 30 days. This notification timeframe would permit participants to 
file a grievance or appeal, as appropriate.
    Response: We agree with the majority of the commenters who pointed 
out the difference between planned and emergent transfers, and the need 
for PO flexibility in determining an appropriate timeframe to notify 
the participant based on the individual situation. We also note that 
while generally a transfer may be collaborative depending on the 
participant's need for the transfer, the PO may need to make the 
decision and should be afforded the flexibility to do so without undue 
time restrictions. We also expect full documentation for the transfer 
to be reflected in the participant's medical record. Therefore, we are 
maintaining the current language, requiring ``reasonable advanced 
notice'' for transfers to any treatment setting. We urge POs to provide 
as much advance notice as possible for non-emergent transfers.
Section 460.112(f) Confidentiality of Health Information
Right 6--
    Each participant has the right to communicate with health care 
providers in confidence and to have the confidentiality of his or her 
individually identifiable health care and other information protected, 
including information contained in an automated data bank (see Sec.  
460.200). Each participant also has the right to review and copy his or 
her own medical records and request amendments to those records.
    Consistent with the CBRR and MA and Medicaid managed care 
organization requirements, participants have the right to communicate 
with any member of the IDT and contract providers in confidence and to 
have the confidentiality of their individually identifiable health care 
information protected.
    In addition, the section on maintenance of records and reporting of 
data specifically addresses confidentiality and the safeguarding of 
health, financial, and other information (see Sec.  460.200). It 
requires POs to establish written policies and implement procedures to 
safeguard the privacy of participant information and ensure appropriate 
use and release of participant information. POs are also required to 
comply with the HHS privacy standards as required by the Health 
Insurance Portability & Accountability Act (HIPAA) of 1996, Pub. L. 
104-191, and its implementing regulations codified at 45 CFR parts 16 
and 164.
    Comment: We were asked to clarify that a participant's right to 
communicate with health care providers in confidence and to have the 
confidentiality of his or her individually identifiable health care 
information protected does not preclude IDT members and other care 
providers from sharing such information with each other.
    Response: Members of the IDT and other care providers are permitted 
to discuss a participant's confidential individually identifiable 
health care information for treatment, payment, and health care 
operations, provided that such use or disclosure is consistent with 
other applicable requirements of the HIPAA Privacy Rule (45 CFR parts 
160 and 164). Confidentiality requirements are intended to protect the 
participant's health information from being disclosed to individuals 
who are not involved with the participant's health care needs. This 
requirement does not prevent members of the IDT, contracted

[[Page 71299]]

providers, and caregivers from discussing a participant's health 
information, which may be essential in ensuring appropriate care.
Section 460.112(g) Complaints and Appeals
Right 7--
    Each participant has the right to a fair and efficient process for 
resolving differences with the PO, including a rigorous system for 
internal review by the organization and an independent system of 
external review. Specifically, each participant has the right:
    (1) To be encouraged and assisted to voice complaints to PACE staff 
and outside representatives of his or her choice, free of any 
restraint, interference, coercion, discrimination, or reprisal by the 
PACE staff.
    (2) To appeal any treatment decision of the PO, its employees, or 
contractors through the process described in Sec.  460.122.
    We received no comment on this section. We note that comments 
regarding grievance and appeals procedures are addressed in Sec.  
460.120 through Sec.  460.124.
    Final rule actions:
    In this final rule, we are revising Sec.  460.112 by:
     Expanding paragraph (a) to include sexual orientation; and
     Revising paragraph (b)(1)(iii) to require the disclosure 
of all PO services and services delivered by contracted providers at 
the time a participant's needs necessitate the disclosure and delivery 
of such information in order to allow the participant to make an 
informed choice.

Section 460.114 Restraints

    We revised the wording used in the Protocol regarding the use of 
restraints in order to emphasize that the use of restraints must be 
limited to those situations with adequate, appropriate clinical 
justification. The PO must limit use of restraints to the least 
restrictive and most effective method available. If the use of a 
restraint is needed to ensure the participant's physical safety or the 
safety of others, the use must be in accordance with certain 
conditions. First, restraints may only be used for a defined and 
limited period of time based on the assessed needs of the patient; 
second, such use must be imposed using safe and appropriate restraining 
techniques; third, such use may only be imposed when other less 
restrictive measures have been found to be ineffective to protect the 
participant or others from harm; and finally, such restraints must be 
removed or ended at the earliest possible time. As noted above, the use 
of restraints must be based on the assessed needs of the patient, and 
be continually assessed, monitored, and reevaluated.
    We do not believe that restraints of any kind should ever be used 
as a preferred approach to care, and we expect POs to ensure that their 
programs are ``restraint free'' to the greatest extent possible. 
Specific requirements regarding the use of restraints are established 
in Sec.  460.114.
    We have re-examined our seclusion and restraint policy for all CMS-
covered providers and have begun amending our restraint and seclusion 
policies. We call your attention to the discussion of the use of 
seclusion and restraints in the CMS interim final rule concerning the 
conditions of participation for hospitals (CMS-3018-IFC, published July 
2, 1999, 64 FR 36070). In that regulation, we established explicit 
standards for the use of seclusion and restraints both in medical/
surgical care and for behavior management (see Sec.  482.13(e) and 
(f)). While the standards are not identical to those we included in 
Sec.  460.114, they share the common principle that patients have the 
right to be free from restraints of any form that are not medically or 
psychiatrically necessary or are used as means of coercion, discipline, 
convenience, or retaliation by staff. In the preamble to the interim 
final rule for the hospital conditions of participation, we indicated 
our intent to examine the applicability of the hospital restraint and 
seclusion standards to other providers. In our 1999 PACE interim final 
rule, we asked for comments about how best to extend the protections 
established for hospital patients to participants in the PACE program.
    We received no public comments on Sec.  460.114.
    Final rule actions:
    This final rule will finalize Sec.  460.114 as published in the 
1999 interim final rule.

Section 460.116 Explanation of Rights

    Section 460.116 requires the PO to have written policies and 
implement procedures to ensure that the staff, the participant, and his 
or her representative understand the participant's rights. The 
regulations also require that, at the time of enrollment, staff review 
participant rights with the participant and his or her representative, 
if any, in a manner which he or she understands. The PO is expected to 
assure that information is provided to the physically and mentally 
disabled, that translator services are available as needed for non-
English speaking participants, and that interpreter services and other 
accommodations (such as TTY connections) are made available to the 
hearing-impaired.
    We also incorporated the requirement that participant rights be 
posted in a prominent place in the PACE center in English and any other 
principal language of the community. This allows participants, PACE 
center staff, and other concerned persons to review the participant 
rights at any time. For those participants who speak or read in only a 
``non-predominant'' language, the participants should have their rights 
explained to them in a manner they understand.
    Comment: We received three comments related to multilingual issues. 
One commenter recommended that we specify that written information 
should be in a language easy to understand by the participant and 
should be given out at enrollment. Commenters also recommended that the 
participant bill of rights be displayed in English and other principal 
languages in the PO's service area. One commenter recommended that we 
consider providing programs serving multilingual populations with 
financial assistance to cover translation expenses.
    Response: Our intent is that all marketing materials including the 
enrollment agreement be provided in a language the participant is able 
to understand. The regulation requires participant rights to be 
provided in writing, in English, and in other principal languages of 
the community, and to be explained in a manner the participant and his 
or her representative understands. In addition, Sec.  460.116(c) 
requires that the PO display the participant rights in a prominent 
place in the PACE center. The State establishes the criteria POs use 
for determining a principal language of the community. We do not 
provide financial compensation for translation expenses, as we believe 
this is a cost of doing business for all entities in geographic areas 
where there are multilingual populations.
    Final rule actions:
    This final rule will finalize Sec.  460.116 as published in the 
1999 interim final rule.

Section 460.118 Violation of Rights

    Section 460.118 requires the PO to have and implement documented, 
established procedures to respond to and rectify a violation of a 
participant right. This requirement is intended to ensure that the PO 
will address all violations of participant rights and not allow 
problems to continue.

[[Page 71300]]

    We received no public comments on Sec.  460.118.
    Final rule actions:
    This final rule will finalize Sec.  460.118 as published in the 
1999 interim final rule.

Section 460.120 Grievance Process

    In accordance with sections 1894(b)(2)(B) and (f)(3) and 
1934(b)(2)(B) and (f)(3) of the Act, we have established requirements 
at Sec.  460.120 through Sec.  460.124 requiring PACE organizations to 
establish procedures for grievances and appeals. We have adapted these 
requirements from Part II, section B of the Protocol. Rather than 
follow the Protocol's interchangeable use of the terms ``complaint,'' 
``grievance,'' and ``appeal,'' we have distinguished between grievances 
and appeals. Our intent was to delineate between (1) a participant's 
grievance regarding dissatisfaction with service delivery or the 
quality of a service furnished and (2) a participant's action with 
respect to noncoverage of or nonpayment for a service. We believe that 
such a distinction is needed to clearly establish both a process to 
address a participant's dissatisfaction with service delivery or 
quality of care furnished and a process to address the PACE 
organization's refusal to furnish or pay for a particular service. The 
grievance process and the appeals process are similar, since both are 
based on the Protocol, with some minor differences due to the nature of 
the complaint.
    A grievance is defined as a complaint, either written or oral, 
expressing dissatisfaction with service delivery or the quality of care 
furnished.
    The PO must have a formal written process to evaluate and resolve 
grievances, whether medical or non-medical in nature, by PACE 
participants, their family members, or representatives. Having a formal 
written process to evaluate and resolve grievances is essential since 
all personnel (employees and contractors) who have contact with 
participants should be aware of and understand the basic procedures for 
receiving and documenting grievances in order to initiate the 
appropriate process for resolving participant concerns.
    We retained the requirement from the Protocol that all participants 
must be informed of the grievance process in writing. This information 
must be provided to participants upon enrollment into the PACE program 
and at least annually thereafter. We believe it is critical that 
participants are fully and promptly informed of this process and 
periodically reminded of their rights, so they may exercise these 
rights from the beginning of their relationship with the PO.
    The grievance process, at a minimum, must include procedures for:
    (1) Filing a participant's grievance;
    (2) Documenting the participant's grievance;
    (3) Responding to and resolving the participant's grievance in a 
timely manner; and
    (4) Maintaining confidentiality of the participant's grievance.
    The PO's internal procedures should assure that every grievance is 
handled in a uniform manner and that there is communication among 
different individuals who are responsible for reviewing or resolving 
grievances. In addition, the PO must maintain appropriate 
documentation, so the information can be utilized in the organization's 
QAPI program. Requiring that grievances be responded to and resolved in 
a timely manner provides a protection to the participants. This action 
is intended to ensure that the PO addresses all participant concerns 
and does not allow the problem in service delivery to be unresolved. 
Finally, at all times, an organization must have procedures governing 
confidentiality to protect against unauthorized or inadvertent 
disclosure of information. Participant confidentiality is also intended 
to prevent reprisal against the participant.
    It is critical that the PO continue to provide care to the 
participant during the grievance process because once enrolled, in 
accordance with Sec.  460.154(p), participants must receive care solely 
through the PO. Continuing care also encourages participants to 
continue to voice concerns about service delivery without fear of 
reprisal.
    The PO must discuss and provide to the participant in writing the 
steps, including timeframes for response, that will be taken to resolve 
the participant's grievance both at the time of the participant's 
enrollment and when a grievance is filed. This requirement assures the 
participant that there will be resolution of the issue. In addition, 
the organization acknowledges the participant's concern, tries to 
address the problem, and makes any necessary adjustments in service 
delivery. We recognize there will be occasions when a grievance may not 
be resolved to the satisfaction of the participant, but believe the PO 
should nonetheless set forth its best efforts. The PO must maintain, 
aggregate, and analyze information on grievance proceedings. This 
requirement is an integral part of fostering an environment of 
continuous improvement, and complements the QAPI requirements. We 
expect that once an organization has a quality improvement system in 
place, participant grievances will be analyzed and evaluated as 
grievances may be the first clue that a problem exists. By analyzing 
the number and types of grievances, a PO will be able to develop 
activities to monitor and improve the grievance resolution process, as 
well as identify and make improvements or modifications in the care.
    Comment: One commenter was concerned that the definition of 
grievance found in Sec.  460.120 could lead to confusion as to whether 
minor problems that present in day-to-day staff-participant contact 
during the provision of services would be interpreted as grievances and 
reported as such.
    Response: The commenter has interpreted the requirement correctly. 
A grievance could identify a minor problem where someone is 
dissatisfied with the service provided. We would expect grievances to 
occur in day-to-day interactions and we expect to see a number of 
grievances simply because people have different opinions and 
expectations. Therefore, we are more concerned when grievances over 
such things as food or the choice of music are not recorded. We expect 
these grievances to be tracked, evaluated, and included in the QAPI 
process. For example, if there is a pattern of complaints about cold 
food, the issue should be addressed and if every time a particular dish 
is served many participants complain, then a change in the menu should 
be considered.
    Comment: Two commenters expressed concern with the requirement to 
``continue to furnish all required services.'' One commenter requested 
the regulatory language be revised to define ``required services,'' and 
the other commenter requested modifying the requirements regarding the 
PO's responsibility to continue to provide services during the 
grievance process. Both commenters recommended that we clarify that the 
PO must continue to furnish to participants all services required by 
their current treatment plan. If a change in health status necessitates 
a change in treatment plan, the PO must furnish to the participant all 
services required by the revised treatment plan.
    Response: It appears that commenters may have confused grievances 
which related to quality of services with appeals that relate to 
coverage of services. ``Required services'' are those services 
indicated in the participant's plan of care. This requirement is a 
participant protection intended to avoid potential reprisal. We 
continue to

[[Page 71301]]

believe that it is appropriate for the PO to continue to provide all 
required services in the plan of care during the grievance process. 
Thus, we do not believe the clarification requested is necessary.
    Comment: One commenter indicated the requirement did not specify a 
timeframes for the resolution of a grievance. The regulations require 
that the PO only has to provide written notice that includes the 
timeframes for response. The commenter recommended that all grievances 
be resolved within 30 days.
    Response: Grievances cover a wide range of issues which may be 
resolved in minutes or may take much longer to resolve. Therefore, 
while we require the PO to have a written process to evaluate and 
resolve medical and non-medical grievances, we have not established a 
specific timeframe for resolution of grievances. The PO must 
acknowledge receipt of the grievance in writing and provide to the 
participant information as to the expected timeframe for response based 
on the specific situation. We expect that POs will make every effort to 
resolve grievances as expeditiously as possible accounting for the 
complexity of the particular grievance filed. Accordingly, we have not 
revised the regulation to set forth timeframes for resolutions.
    Comment: One commenter asked whether we intended that service 
delivery encompass administrative complaints, such as failure to 
replace a lost handbook on a timely basis, failure to return phone 
calls related to requests for information, or breaches of 
confidentiality.
    Response: We expect POs to acknowledge grievances in writing, to 
record, and to resolve any issue about which a participant expresses 
dissatisfaction (medical or non-medical), including administrative 
complaints. These grievances should be reviewed, analyzed, and included 
in the PO's QAPI plan.
    Comment: One commenter recommended that PO actions on grievances be 
subject to monitoring at any time.
    Response: In accordance with Sec.  460.200, the PO must allow CMS 
and the SAA access to its data and records. In addition, POs report 
data for monitoring that includes grievance information. Thus, CMS and 
the SAA have access to and routinely review grievance information.
    Final rule actions:
    This final rule will finalize Sec.  460.120 as published in the 
1999 interim final rule.

Section 460.122 PO's Appeals Process

    An appeal is defined as ``a participant's action taken with respect 
to a noncoverage of, or nonpayment for a service.'' The PO must have a 
formal written appeals process, with specified timeframes for response. 
We included the requirement from the Protocol that all participants 
must be informed of the appeals process in writing. This information 
must be provided to participants upon enrollment into the PACE program, 
at least annually thereafter, and whenever the IDT denies a request for 
services or payment. The appeals process, at a minimum, must include 
written procedures for:
    (1) Timely preparation and processing of written denials of 
coverage or payment in accordance with Sec.  460.104(c)(3);
    (2) Filing a participant's appeal;
    (3) Documenting the participant's appeal;
    (4) Appointing an appropriately credentialed and impartial third 
party who was not involved in the original decision and who does not 
have a stake in the outcome of the appeal to review the participant's 
appeal;
    (5) Responding to and resolving the participant's appeals as 
expeditiously as the participant's health condition requires, but no 
later than 30 calendar days after the PO receives an appeal; and
    (6) Maintaining confidentiality of participant appeals.
    The appeals process is similar to the grievance process. However, 
we included the requirement that an objective third party be appointed 
to review all appeals. In this way, information is reviewed by an 
individual or group that has no financial stake in the decision. This 
helps to prevent bias in the decision. In addition, we specified that 
the PO must respond to participant appeals within 30 calendar days of 
receipt of an appeal and established a shorter timeframe for expedited 
appeals. We did not include a provision for a 14-day extension of this 
30-day timeframe (as allowed under the MA regulations at Sec.  
422.590(a)) in recognition of the frailty of the PACE population. We 
solicited comments on both the appropriateness of the 30-day timeframe 
and on the necessity of requiring a specific timeframe.
    In Sec.  460.122(d)(2), we adopted the Protocol requirement that 
the PO must give the parties involved in the appeal a reasonable 
opportunity to present evidence related to the dispute in person as 
well as in writing.
    It is critical that the PO continue to furnish care to the 
participant during the appeal process because, in accordance with Sec.  
460.154(p), participants must receive care solely through the PO. In 
addition, we incorporated the Medicaid continuation of benefits 
provision for all Medicaid participants. Under the Medicaid 
continuation of benefits provision in Sec.  460.122(e)(1), the PO may 
not terminate or reduce disputed services while an appeal is pending if 
the Medicaid participant requests that they be continued, with the 
understanding that the participant may be liable for the cost of those 
services if the appeal is not resolved in his or her favor. It is 
critical that all other care continue in order to maintain the 
participant's functional status. The goal of the program is to furnish 
comprehensive care to the participant and this cannot be accomplished 
if there is a breakdown in the provision of services.
    The PO must have an expedited appeals process for situations in 
which the participant believes that if the service is not furnished, 
his or her life, health, or ability to regain maximum function would be 
seriously jeopardized. This process provides for prompt consideration 
of requests for services if the participant's health might be adversely 
affected if he or she had to wait for the standard appeals process to 
resolve the issue. As noted above, the goal of the PACE program is to 
maximize the participant's functioning, and the expedited appeals 
process ensures that all factors are evaluated so that all necessary 
services are being furnished and participant health is not compromised.
    We included a provision at Sec.  460.122(f)(2) pertaining to the 
expedited appeals process requirement that the PO must respond to the 
appeal as expeditiously as the participant's health condition requires, 
but no later than 72 hours after it receives the appeal. The 72-hour 
timeframe may be extended by up to 14 calendar days if the participant 
requests the extension or if the PO justifies to the SAA the need for 
additional information and how the delay is in the interest of the 
participant. The timeframes for responding to requests for expedited 
appeals are consistent with the requirements for MA expedited appeals 
in Sec.  422.590(d). The PO must take appropriate action to furnish the 
disputed service as expeditiously as the health condition of the 
participant requires if, on appeal, a determination is made in favor of 
the participant. There may be situations in which the PO has made an 
incorrect or inaccurate assessment of the participant's needs or 
condition and has denied a service. In

[[Page 71302]]

these situations, it is critical that ongoing care not be delayed until 
the appeal is resolved, and that the participant continue to receive 
comprehensive care that maintains her or his functional status.
    We maintained the Protocol requirement that all determinations that 
are wholly or partially adverse to the participant must be forwarded to 
CMS and the SAA. We require that the PO notify CMS, the SAA, and the 
participant of its actions at the time the decision is made.
    We solicited comment regarding the appropriateness of a 30-day 
timeframe without extension, within which the PACE provider must 
respond to a participants' appeal, and on the necessity of requiring a 
specific timeframe for implementing the change in the participant's 
plan of care resulting from resolution of the appeal.
    Comment: Several commenters supported the timeframes as published. 
One commenter supported the emphasis on participant rights, believed 
appeals would be rare and thus supported the 30-day timeframe with a 
shorter period for expedited appeals.
    Several commenters suggested timeframes for the various components 
of the appeal process. Three commenters supported the 30-day timeframe 
in which the PO must respond to the participant's appeal. Two 
commenters requested the regulation specify a timeframe in which the PO 
must inform the participant of the determination on the appeal, while 
another commenter suggested that the regulation specify that services 
should be provided no later than 10 days after a favorable 
determination or immediately in the case of the expedited appeal. One 
commenter requested that we clarify the PO's right to implement its 
determination in connection with its internal appeal process.
    Response: We are retaining the timeframes as required in the 1999 
interim final rule. The timeframes are consistent with MA requirements 
in Sec.  422.568 through Sec.  422.570. As PACE utilizes the same 
timeframes as the MA requirements, we believe it is important to 
maintain this consistency.
    Comment: One commenter stated that informing the participant of the 
external appeal process when the PO's internal appeal process 
determination is not wholly in the participant's favor was sufficient. 
Other commenters requested the regulation provide more detail in the 
denial notice provided to the participant when a request for services 
is denied. The commenter recommended that the notice include a 
description of the process used when a participant requests an item or 
service, the reason for the denial, the right to submit additional 
evidence, and information about the appeal process.
    Response: Section 460.104(c)(3) requires an in-person reassessment 
when the participant or his or her representative believes a 
participant needs to initiate, eliminate, or continue a particular 
service. In addition, in accordance with Sec.  460.122(b), the PO is 
required to have processes for timely resolution of participant 
requests and appeals and to provide written information on the appeals 
process to participants on enrollment, annually thereafter, and any 
time the IDT denies a request for services. We believe that the current 
regulation provides adequate notification requirements for the appeals 
process and additional changes at this time are not necessary.
    Comment: We received comments requesting that we clarify what is 
meant by ``appropriately credentialed'' and ``impartial third party,'' 
as provided in Sec.  460.122(c)(4). It was recommended that the 
regulatory requirement be modified to specify that the appointment be 
of an impartial third party credentialed in a field that is appropriate 
for the service at issue. Commenters questioned whether a PO's 
employees or contractors could serve in this capacity.
    Response: An appropriately credentialed and impartial third party 
is an individual who was not involved in the original action and who 
does not have a stake in the outcome of the appeal. For example, this 
individual may be an outside physician or practitioner in a related 
field who will review the documentation related to the appeal.
    To the extent that POs allow employees and contractors to review 
the IDT denials, it is in the context of a review committee. An 
employee or contractor may participate on these review committees so 
long as they have no connection to the original denial decision and 
their expertise is in the appropriate field. For example, it would not 
be appropriate for a social worker to review an appeal related to a 
physical therapy denial, or a gynecologist to review a denial of 
services regarding coronary surgery.
    We recommend that the PO ensure that the credentialed and impartial 
third party reviewer make his or her determinations in a similar manner 
to determinations made under section 1862(a)(1)(A) of the Act. The 
determination is based on the participant's medical need and not on 
other reasons such as the cost of the disputed care, who is paying the 
third party reviewer's salary or fee, an individual's reputation, or 
other factors.
    Comment: Two commenters disagreed with the regulation requirement 
in Sec.  460.122(h) that CMS and the SAA be informed of every adverse 
determination and recommended that this requirement be deleted.
    Response: We view the reporting of adverse determinations to CMS 
and the SAA as a participant protection. Routine reporting will enable 
us to track trends in coverage of services to participants and to 
monitor the extent to which appeals are addressed in the PO's quality 
improvement activities. It also alerts us to the potential for a 
request for an external appeal.
    Comment: Several comments were submitted regarding services 
furnished during appeals. While one commenter recommended that we 
delete the requirement, other commenters indicated we should extend the 
protection to Medicare participants. One commenter pointed out that MA 
providers must continue to provide disputed services during an appeal. 
One commenter recommended that we require POs to continue to furnish to 
the participant all other services required by his or her current 
treatment plan. The commenter believes that in the event a change in 
health status necessitates a change in the treatment plan, the PO must 
furnish to the participant all services required by the revised 
treatment plan. Another commenter indicated that without the continuity 
of Medicare and Medicaid services, PACE participants would be subject 
to discrimination based on payment source.
    Response: We adopted the requirement that POs continue to furnish 
disputed services during the appeal process to Medicaid-eligible 
participants in order to be consistent with the Medicaid State fair 
hearing (SFH) regulation at Sec.  431.230. We did not adopt a similar 
requirement in the 1999 interim final rule for Medicare-eligible 
participants because there is no corresponding requirement for 
continuation of services during appeal in the Medicare Independent 
Review Entity (IRE) review process. For this reason, we believe it is 
appropriate to retain the 1999 interim final requirement at this time. 
We note, it is critical however, that the PO continue to furnish the 
non-disputed services to the participant during the appeal process, 
because section 1894(a)(1)(B)(1) of the Act requires that participants 
receive services solely through the PO and as explained in Sec.  
460.98, the required services for a participant are those services 
identified in their plan of care.

[[Page 71303]]

    Comment: Commenters suggested that the appeals section apply to 
reductions and terminations of services in addition to denials of 
services.
    Response: We agree with the commenters and have revised the 
introductory text of Sec.  460.122 accordingly.
    Comment: Commenters suggested that the expedited appeals process 
described in Sec.  460.122(f) be revised. Currently, Sec.  460.122(f) 
requires that POs have an expedited appeals process for situations in 
which the participant believes that his or her life, health, or ability 
to regain maximum function would be seriously jeopardized absent 
provision of the service in dispute. The commenters suggested that an 
expedited appeal process apply where a participant believes that his or 
her life, health, or ability to regain or maintain maximum function 
could be seriously jeopardized absent provision of the service in 
question.
    Response: We agree with the commenters and have revised Sec.  
460.122(f) accordingly.
    Final rule actions:
    In this final rule, we are:
     Amending the regulatory language of the introductory 
paragraph of Sec.  460.122 to clarify that for purposes of this 
section, a denial of services could include a denial, reduction, or 
termination of services.
     Revising Sec.  460.122(f)(1) to require that a PACE 
organization must have an expedited appeals process for situations in 
which the participant believes that his or her life, health, or ability 
to regain or maintain maximum function could be seriously jeopardized, 
absent provision of the service in dispute.

Section 460.124 Additional Appeal Rights Under Medicare or Medicaid

    As we explained in the 1999 interim final rule, the PO must inform 
participants in writing of their additional appeal rights under 
Medicaid or Medicare, assist participants in choosing which appeal 
process to pursue if both are applicable, and then forward the appeal 
to the appropriate external entity. Participants who are dually 
eligible for Medicare and Medicaid may utilize either the Medicare or 
the Medicaid managed care appeal process. In those cases where 
participants are covered only under one program (Medicare or Medicaid), 
only the applicable appeals process would apply.
    Comment: We received several comments related to the additional 
appeal rights under Medicare and Medicaid. Several commenters indicated 
that the preamble description in the 1999 interim final rule does not 
reflect CMS's intent to allow dually eligible participants to access 
only one appeal route, either Medicare or Medicaid. The language does 
not clearly state that participants must choose one route of appeal and 
that the route chosen is final.
    Commenters indicated that the bifurcated external appeal process 
was confusing, administratively burdensome, and ambiguous and that a 
single appeals system should be developed. These commenters also stated 
that the regulation should specify a timeframe for the completion of 
the entire appeal process suggesting a 90-day timeframe which is 
consistent with Medicaid requirements.
    We also received comments recommending a single system of 
grievance, appeals, and hearings, or adapting the essentials elements 
of the Medicaid managed care regulations that were published in the 
Federal Register on September 29, 1998 (63 FR 52022) to the PACE 
program since most PACE participants are Medicaid eligible.
    One commenter requested clarification on the relationship between 
the PO's appeal process and the external Medicare/Medicaid processes. 
Another commenter requested that we define ``appropriate external 
entity for Medicare and Medicaid,'' and respond to the following 
questions: First, how will the PO and participant know which appeal 
route is appropriate, and second, how to handle disparate decisions 
when a participant chooses both appeals routes.
    One commenter pointed out that the reference in the regulations to 
the Medicare appeals process was confusing. The commenter questioned 
whether we intended that denials of Part A services be referred to the 
Part A fiscal intermediary and denials of Part B services be referred 
to the Part B carrier.
    Lastly, other commenters indicated the reporting requirements were 
burdensome as all adverse determinations are to be forwarded to both 
CMS and the State without any guidelines or criteria to assess whether 
such determinations were appropriately made.
    Response: Review of the comments indicated that many of the 
commenters misunderstood the PACE appeals process and in response to 
the comments, we believe a reiteration of the process would address the 
concerns raised. As noted previously, sections 1894(f)(3)(A) and 
1934(f)(3)(A) of the Act, require that in applying certain additional 
beneficiary protections, we should apply Medicare and Medicaid managed 
care requirements while taking into consideration the differences 
between the population served and benefits provided under this section 
and under Medicare and Medicaid managed care programs. Because of this 
requirement, we did not intend that the PACE external appeals process 
involve the Medicare fee-for-service Part A intermediary or Part B 
carrier appeals processes. Rather, we followed the Medicare managed 
care process using the IRE contractor for the PACE external appeals 
process.
    The external appeals process provides participants with an 
appropriate external review depending on their Medicare and Medicaid 
status. Medicare beneficiaries have access to the Medicare external 
appeals route through the IRE that contracts with CMS to resolve MA 
appeals, while Medicaid eligible individuals have access to the SFH 
process. PACE participants who are dually eligible for both Medicare 
and Medicaid have the choice of either process, the Medicare IRE or the 
Medicaid SFH process. Allowing dually eligible participants to choose 
to pursue an appeal through either the Medicare's IRE or Medicaid's SFH 
processes eliminates the possibility of conflicting determinations. 
Therefore, all PACE participants have one route by which to exercise 
their external appeal rights.
    It is the PO's responsibility to assist the participants in 
understanding which external route is appropriate for them based on the 
participant's Medicare and Medicaid status. For dually eligible 
participants, the PO must explain the external processes of each option 
and assist them in initiating their choices. This is primarily a matter 
of personal preference as both external appeals processes are equally 
valid options.
    Information on the Medicare IRE process is available online at 
http://www.medicareappeal.com and information on the SFH process can be 
obtained from the SAA. Should the participant need help with the 
Medicare IRE process, then in accordance with Sec.  460.124, the PO 
will provide that assistance. Although Medicare does not have an 
external appeals process to permit challenges of disenrollment 
determinations, all participants may use their State's external appeals 
processes. As we noted in the discussion on Sec.  460.164 (Involuntary 
disenrollment), the State must provide a process for Medicare-only 
participants for an involuntary disenrollment appeal.
    Comment: Commenters asked what would happen if the PO directs the 
participant to the wrong entity and would the appeal rights of the 
participant be lost if the correct filing is not made in the required 
time. In

[[Page 71304]]

addition, one commenter stated that implementation of the 1999 interim 
final rule regarding appeals would be problematic for them due to a 
class-action litigation settlement agreement which applies a time limit 
on initiating appeals through the State Medicaid appeals process.
    Response: CMS staff has worked closely with the POs, the SAAs, and 
the IRE staff responsible for PACE in order to ensure that appeals are 
directed to the appropriate entity. However, if an appeal should be 
misrouted, corrections can be accommodated.
    As noted previously, dual eligible participants are allowed to 
choose to use either the Medicare or Medicaid external appeal processes 
and POs play a significant role in assisting participants in choosing 
the appropriate external review entity and filing the appropriate 
documentation. Where State law establishes a timeframe for initiating 
an SFH, the PO must be sensitive to those time constraints in order to 
ensure that the participant's rights to access the SFH is not negated 
by a failure to meet the State timeframes.
    Comment: Another commenter recommended that Medicare participants 
be provided the same right as Medicare beneficiaries enrolled in an M+C 
plan and be allowed to go directly to an Administrative Law Judge (ALJ) 
hearing upon completing the internal appeals process, and not have to 
go through carrier or fiscal intermediary review. Another commenter 
indicated that the participant should not have to exhaust the internal 
PACE appeal process before initiating the external appeal process.
    Response: According to Sec.  422.600, beneficiaries are not 
permitted to circumvent the appeals process with their MA organization. 
Under Sec.  422.600, beneficiaries may only be heard before an ALJ 
after reconsideration with their MA organization.
    Comment: One commenter expressed concern that the regulation places 
the responsibility entirely with the PO to advise dually-eligible 
participants of the appropriate route of appeal without supplying 
guidance as to which route would best benefit the participant in 
different situations. This commenter believes it is essential that 
guidelines be established to decrease the possibility of litigation 
against the State or the PO and to prevent participants from accessing 
a second appeal route by saying they were wrongfully advised in 
selecting a particular route of appeal.
    Response: We believe that both processes are valid options and we 
do not agree that a wrong choice can be made. In addition, we note that 
since the 1999 interim final rule was implemented, no IRE appeals and 
only a few SFH appeals have been filed. We will continue to monitor 
appeals under PACE and will propose changes in the appeals process if 
warranted. We have worked extensively with POs to educate them on the 
Medicare IRE process so that they are able to fully explain the system 
to participants.
    Final rule action:
    This final rule will finalize Sec.  460.124 as published in the 
1999 interim final rule.

Subpart H: Quality Assessment and Performance Improvement

    Sections 1894(e)(3) and 1934(e)(3) of the Act require that, under a 
PACE program agreement, the PO, CMS, and the SAA shall jointly 
cooperate in the development and implementation of health status and 
quality of life outcome measures with respect to PACE participants. In 
1999, we were considering putting into place a PACE participant 
assessment tool, and outcome measures that would be clinically 
meaningful to PACE participants and empirically valid for purposes of 
quality monitoring and improvement. Thus, CMS took a leadership role in 
developing outcome measures to be integrated into clinical and 
administrative practices at PACE sites.
    In the 1999 interim final rule, we adopted quality QAPI 
requirements that are consistent with the provisions from part V of the 
Protocol. As noted below and as discussed in that rule (64 FR 66259), 
we added further requirements to prepare POs to participate in the 
OBCQI system that was under development pursuant to a CMS contract with 
the Center for Health Services and Policy Research (CHSPR) at the 
University of Colorado.
    At the time the 1999 interim final rule was published, CHSPR was 
developing a core data set that was to provide the foundation for a 
standardized OBCQI system for PACE programs. In developing the data set 
for PACE, CHSPR examined existing CMS data instruments such as the 
Minimum Data Set (MDS) (a part of the nursing home assessment 
instrument), the Outcome Assessment Information Set (OASIS), (required 
under the home health agency conditions of participation), DataPACE 
(developed by On Lok, Inc., and used by the PACE demonstration 
programs), and the Functional Independence Measure (FIM) (an assessment 
data set used in rehabilitation hospitals), for data items that could 
be pertinent for PACE quality improvement purposes.
    Since the publication of the 1999 interim final rule, the health 
care industry has moved beyond the problem-oriented, ``after-the-fact'' 
corrective approach of quality assurance to a proactive approach that 
focuses on continuously addressing QAPI. Consequently, many health care 
QAPI programs are patient-driven rather than process-driven. Given that 
changes in health care delivery systems are rapid and continuous, many 
providers requested flexibility to design QAPI programs that meet the 
needs of their health care settings, rather than try to comply with a 
``one-size-fits-all'' program. We agree that a QAPI program should 
blend flexibility with appropriate accountability and in the past few 
years, we have been striving to balance both in a patient-centered 
approach. With an effective QAPI program, we believe that providers 
will be able to determine how its performance has affected patient 
experiences and outcomes. We expect a provider to focus on performance 
outcomes and to prioritize areas needing improvement.
    While we recognize the utility of the OBCQI core outcome and 
comprehensive assessment data set(COCOA-B) system as a useful 
assessment tool for PACE participants, we have misgivings about its 
long-term application. Given the need for flexibility for PACE sites, 
we are also concerned that specifically mandated measures may 
compromise the discretion of POs to use other assessment tools that may 
be more appropriate for their settings. We decided not to impose the 
OBCQI requirements for POs. Therefore, POs should not expect to see the 
publication of specific outcome measures as was implied in the 1999 
interim final rule. We are not foreclosing the possibility of requiring 
specific outcome measures in the future, but at this time we believe 
PACE organizations and their participants will benefit from a wide 
degree of flexibility in the QAPI approach we have chosen to present.

Section 460.130 General Rule

    We require the PO to develop, implement, maintain, and evaluate an 
effective data-driven QAPI program. It is important that the QAPI 
program take into consideration the wide range of services furnished by 
PACE. Additionally, the program should use data to identify and improve 
areas of poor performance. The PO must take actions that result in 
improvements in its performance in all types of care.
    Comment: One commenter requested that we clarify whether the 
requirement

[[Page 71305]]

to take action to improve the performance in ``all types of care'' 
means that the organization does not have flexibility to identify its 
critical processes and to prioritize and select areas of concentration 
in which to apply resources for improvement efforts.
    Response: The requirement in Sec.  460.130(c) states that a PO must 
take actions that result in improvements in its performance in all 
types of care. Our expectation is that POs will operate a continuous 
QAPI program that does not limit activity to only selected kinds of 
services or types of patients. We expect POs to exercise as much 
flexibility as is necessary in order to fully meet obligations to its 
participants' care. As we do not require the use of a common quality 
assessment tool or a set of specific outcome measures beyond the data 
elements for monitoring included in the program agreement, POs have the 
flexibility to develop the program that best meets their needs. The 
desired outcome of the QAPI requirement is that data-driven quality 
assessment serves as the engine that drives and prioritizes continuous 
improvements for all the PO's services.
    Final rule actions:
    This final rule will finalize Sec.  460.130 as published in the 
1999 interim final rule.

Section 460.132 QAPI Plan

    The PO must have a written QAPI plan. Consistent with the Protocol, 
we require POs to have their QAPI plan annually reviewed by the PACE 
governing body and, if necessary, revised. Further, in this section we 
establish that a written plan must, at a minimum, specify how the PO 
proposes to (1) identify areas in which to improve or maintain the 
delivery of services and patient care; (2) develop and implement plans 
of action to improve or maintain quality of care; and (3) document and 
disseminate the results of the QAPI activities to the PACE staff and 
contractors.
    We received a number of comments and questions regarding the QAPI 
plan.
    Comment: Several commenters requested information regarding CMS' 
intention regarding prior approval and monitoring of the QAPI plan.
    Response: POs are required to present their QAPI plan to their 
governing body for annual approval. CMS and the SAA must approve the 
QAPI plan prior to its inclusion in the program agreement and review 
the plan during monitoring visits.
    Comment: One commenter indicated that the regulations do not 
establish an oversight responsibility for review of the plan by either 
the Federal or State government.
    Response: The program agreement contains a description of the QAPI 
plan and CMS and the SAA review plan during monitoring visits.
    Final rule actions:
    This final rule will finalize Sec.  460.132 as published in the 
1999 interim final rule.

Section 460.134 Minimum Requirements for Quality Assessment and 
Performance Improvement Program

    The requirements contained in Sec.  460.134 are consistent with the 
Protocol, but provide more explicit information about the types of 
outcomes that must be used to monitor quality. We provided the 
following guidance regarding QAPI in the 1999 interim final rule. The 
PO's QAPI program must include, but need not be limited to, the use of 
objective measures to demonstrate improved performance with regard to 
the following:
    (1) Service utilization. PACE demonstration programs collected 
utilization data such as hospitalizations and emergency room visits. 
This information can be used to evaluate fiscal well-being, as well as 
evaluate quality of care. It can also be used to target reviews of PACE 
centers whose utilization data suggest, for example, that participants 
may be receiving fewer services than necessary to achieve expected 
outcomes. The purpose of including utilization data in the PO's QAPI 
program is to help the PO ensure that participants receive the 
appropriate level of care through their PACE center. Additionally, 
using information regarding utilization of and reasons for emergency 
care and hospital and nursing home admissions, the PO can identify 
areas for improvement.
    (2) Caregiver and participant satisfaction. Caregiver and 
participant satisfaction with services is an important element of a 
QAPI program. A PO must survey, on an ongoing basis, participants and 
their caregivers to determine satisfaction with the services furnished 
and the outcomes achieved. Given the large number of PACE participants 
who are cognitively impaired and the critical role caregivers play in 
keeping PACE participants in the community, it is important to survey 
caregivers about their satisfaction with the program. We expect the PO 
to use this information to identify opportunities to improve services 
and caregiver and participant satisfaction. We do not intend, at this 
point, to prescribe the specific tools for measuring participant and 
family satisfaction. It is the responsibility of the PO to survey the 
participants and family, but we are not specifying the survey tool they 
must use. The PO will be expected to demonstrate its satisfaction 
measurement system and how it is used as part of the overall internal 
QAPI system.
    (3) Outcome measures derived from participant assessment data. 
These measures can be used to determine if individual and organization-
level measurable outcomes are achieved compared to a specified previous 
time period. These measures should encompass the various areas needed 
to monitor care for PACE participants, including physiologic, 
functional, cognitive, mental health, social/behavioral, and quality of 
life outcomes. For example, POs should focus their quality improvement 
activities on outcomes such as stabilization in ability to bathe, from 
a baseline period to each follow-up period; improvement in dyspnea from 
admission into PACE to a follow-up period; improvement in 
transportation services over a specific time period; and improvement in 
caregiver stress from participant admission into PACE to a follow-up 
time period.
    (4) Effectiveness and safety of staff-provided and contracted 
services, including the competency of clinical staff, promptness of 
service delivery, and achievement of treatment goals and measurable 
outcomes. For participants to experience the outcomes that the PACE 
benefit is intended to achieve, staff must demonstrate skills and 
competencies necessary to facilitate those desired outcomes. The PO is 
expected to include data-based, criterion-referenced performance 
measures of staff skills, to utilize these data to ensure that staff 
maintain skills, and to provide training as new techniques and 
technologies are introduced and as new staff are hired. Each PO will be 
expected to demonstrate that it has a system of appropriate complexity 
for keeping track of the skills and competencies of the staff and for 
effectively identifying and addressing staff training needs. These data 
should be an integral part of the PO's internal QAPI program that 
provides continuous feedback on staff performance.
    (5) Non-clinical areas. The types of outcomes in this area include 
outcomes related to participants grievances, transportation services, 
and meals. For example, if a PO finds a high rate of grievances not 
resolved, the PO might target its activities to improve the grievance 
process.
    We expect POs to use the most current clinical practice guidelines 
and

[[Page 71306]]

professional standards in the development of outcome measures 
applicable to the care of PACE participants. Continuous improvement is 
only possible through the identification and use of current 
information, techniques, and practices. While we are not imposing any 
specific standards of practice, this requirement establishes the 
expectation that the PO will utilize the current clinical and 
professional standards as a routine part of its daily operations.
    In addition, we included a requirement that the PO must meet 
minimum levels of performance on standardized quality measures that 
will be established by CMS and the SAA and which are specified in the 
PACE program agreement. For example, we require all POs to achieve at 
least 80 percent flu immunization rate for their PACE participants. If 
a PO fails substantially to meet these specified requirements, the 
continuation of the PACE program agreement may be conditional on the 
execution of a CAP, or alternatively, some or all further payments for 
PACE program services may be withheld until the deficiencies have been 
corrected. We are not establishing minimum performance standards in 
this regulation. Rather, we will establish minimum performance 
standards in the program agreement based on analysis of available data 
sets that are applicable to PACE participants.
    We also added a requirement that the PO take actions to ensure the 
accuracy and completeness of all data used for outcome monitoring. A 
data-driven QAPI program must be based on accurate data. The 
regulations require that POs set up mechanisms to check for the 
accuracy, timely collection, and completeness of all data.
    Comment: One commenter described the efforts of the Performance 
Measure Workgroup lead by the NPA in 1999, which reviewed draft 
performance measures previously developed as a part of the NPA 
accreditation project. The final core set of 15 measures were accepted 
by the POs and States as measures valuable to track. This commenter 
recommended that CMS adopt these 15 measures or allow the States to 
negotiate quality measures with POs and CMS as part of the PACE program 
agreement.
    Response: We believe that the decision to use outcome measures in 
addition to the five noted in Sec.  460.134 is one that that a PO is in 
the best position to make. If a PO believes that tracking a specific 
outcome measure will benefit its participants and improve the level of 
service or the delivery of service, we would expect the organization to 
identify and collect information that will support its use.
    Comment: One commenter asked when it will be known how the quality 
data, referred to in the 1999 interim final rule, will be collected by 
CMS and what the specific quality measures will be. The commenter also 
questioned how POs can be expected to comply with the PACE regulation 
prior to implementation of the OBCQI program minimum requirements for 
QAPI program.
    Response: In 2001, we established requirements for submission of 
Data Elements for Monitoring, which is included in the PACE program 
agreement under Appendix L. The program agreement can be located at 
http://www.cms.hhs.gov/PACE. As discussed in more detail in Subpart L 
of this final rule, POs are required to submit the Data Elements for 
Monitoring quarterly via the Health Plan Management System (HPMS). POs 
are expected to collect, analyze, and track data from the five outcomes 
measures required in Sec.  460.134, the Data Elements for Monitoring, 
and any other outcome measure where an identified improved performance 
will benefit their participants.
    Comment: A commenter questioned whether levels of performance will 
vary by program based on such factors as the program's age, its 
enrollees' characteristics, its specific service model, and unique 
characteristics of the service area.
    Response: As in other types of health care facilities, the 
participant population in PACE sites varies. These differences should 
not affect the QAPI process but may determine what performance 
indicators (that is, adverse patient events, satisfaction, wound 
healing, etc.) a PO uses to identify areas requiring continuous quality 
assessment and performance improvement.
    Comment: One commenter supported CMS's plan, as explained in the 
1999 interim final rule (64 FR 66259), not to impose standardized data 
collection requirements by implementing OBCQI, pending the outcome of 
work by CHSPR. The commenter also supports CMS continuing to work with 
States to collect data to be used in the development and implementation 
of outcome measures that would allow comparison between varied types of 
programs serving individuals with like needs as well as with cross-site 
comparison. Other commenters indicated that the application of numerous 
other data collection instruments such as those noted in the Preamble 
of the interim final rule, that is, the MDS, OASIS, DataPACE, etc., 
could divert resources from providing services to PACE enrollees.
    Another commenter expressed concern that POs will be unduly 
subjected to data reporting and quality assessment requirements 
exceeding those imposed on other Medicare provider types. The commenter 
indicated it would be better to condense the data collection 
responsibilities of the PACE provider and establish a core set of 
minimum data and reporting requirements.
    Response: We are concerned that specifically mandated measures such 
as the OBCQI may compromise the discretion of POs to use other 
assessment tools that may be more appropriate for their settings. At 
this time, CMS does not have any plans to establish a minimum data set 
for PACE. As stated in previous responses, we are not requiring POs to 
comply with the OBCQI system in this final rule. However, we believe 
some structure for quality-related data collection and reporting is 
necessary. We expect POs to exercise flexibility in determining the 
most appropriate methods and instruments for their participant 
caseloads. Those POs that have experience with data sets should be able 
to manage the data needs of their QAPI program.
    We recognize that in some States, POs are already subject to OASIS 
reporting requirements because they are licensed as home health 
agencies and must comply with OASIS requirements. It was not our intent 
to subject POs to more reporting requirements than other providers. 
However, as more States develop specific licensure requirements for 
PACE, this reporting burden will be greatly reduced. We also recognize 
that some POs have experience in utilizing the draft performance 
measures developed by the NPA Performance Measure Workgroup. Although 
we are not requiring that POs use the OBCQI nor submit the COCOA-B data 
at this time, for POs still searching for guidelines to develop or 
improve their assessment tools or quality enhancement, the COCOA-B is 
available at http://www.cms.hhs.gov/QualityInitiativesGenInfo.
    The commenters may have misunderstood the preamble discussion of 
QAPI in the 1999 interim final rule. We stated that the CHSPR was 
examining existing CMS data instruments such as MDS, OASIS, DataPACE 
and FIM for data items, which may be pertinent for PACE. We did not 
intend to imply that POs would have to comply with these other CMS data 
sets. However, States have differing requirements for PACE licensure 
and

[[Page 71307]]

with licensure and if the State requires a PO to be licensed as several 
provider types the PO would be responsible for the reporting 
requirements of each of the licensed provider types.
    Comment: One commenter requested information about CMS's plan for 
working with States to establish outcome measures and minimum levels of 
performance.
    Response: At this time, we have no specific plans to establish 
additional outcome measures or minimum levels of performance beyond the 
data elements for monitoring which were established in 2001 and are 
included in the program agreement as Appendix L. State licensure 
requirements are based on the State's designation of PACE as a 
particular provider type. The State designation determines the State 
and Federal requirements, which may include outcome measures or minimum 
levels of performance.
    We believe that State licensure requirements together with QAPI 
program requirements and our reporting requirements related to the data 
elements for monitoring are sufficient to ensure quality care for PACE 
participants without being excessively burdensome for the POS. In 2001, 
we established the Data Elements for Monitoring. POs are required to 
submit quarterly data on each of the following 9 elements:
    1. Routine Immunization
    2. Grievance and Appeals
    3. Enrollments
    4. Disenrollments
    5. Prospective Enrollees
    6. Readmissions
    7. Emergency (unscheduled) Care
    8. Unusual Incidents for Participants and the PACE site (to include 
staff if participant was involved)
    9. Deaths
    Final rule actions:
    This final rule will finalize Sec.  460.134 as published in the 
1999 interim final rule.

Section 460.136 Internal QAPI Activities

    In Sec.  460.136, we require that the PO must use a set of outcome 
measures to identify areas of good or problematic performance and must 
take actions targeted at reinforcing or improving care based on these 
outcome measures.
    The PO also must incorporate any actions that result in performance 
improvement into its standards of practice for the delivery of care. A 
method of periodically tracking performance to assure that any 
improvements are sustained over time must also be incorporated in the 
program. The PO must use its own experience from its performance 
improvement program to change care behaviors and to ensure that these 
behaviors are sustained.
    We require the PO to set priorities for performance improvement, 
considering the prevalence and severity of identified problems and 
giving priority to improvement activities that affect clinical 
outcomes. However, any identified problems that directly or potentially 
threaten the health and safety of participants must be corrected 
immediately. Prioritizing areas of improvement is essential to ensure 
consistency in the quality of care furnished over time. Conditions that 
may threaten the health and safety of participants must be immediately 
and directly addressed when they are identified.
    Similar to the Protocol, we require the PO to designate an 
individual to coordinate and oversee implementation of QAPI activities. 
The purpose of this requirement is to ensure that the PO designates 
responsibility for a QAPI plan and the various activities resulting 
from this plan. Also, this individual is responsible for ensuring that 
all team members, PACE staff, and contract providers are aware of the 
various quality QAPI activities.
    We require that the PO ensure that all team members, PACE staff, 
and contract providers are involved in the development and 
implementation of the QAPI activities and are aware of the results of 
these activities. The process of service delivery in PACE requires the 
team to identify participant problems, determine appropriate treatment 
objectives, select interventions and evaluate outcomes of care on an 
individual participant basis. The IDT is in a unique position to 
provide PACE management with structured feedback on the performance of 
the PACE program and suggest ways in which performance can be improved. 
Thus, we expect the PO to make full use of the IDT and other staff in 
contributing to its internal quality improvement program.
    Finally, consistent with the Protocol, we require the PO to 
encourage PACE participants and caregivers to be involved in QAPI 
activities, including providing information about their satisfaction 
with services. One of the best sources of information about the 
strengths and weaknesses of a program is from the users of the program. 
In this case, it is important for PACE programs to get feedback from 
both PACE participants and caregivers to help identify areas that need 
improvement.
    Comment: Many commenters expressed support for the use of an OBCQI 
system.
    Response: We thank the commenters for their support although we are 
not requiring POs to comply with a specific OBCQI system at this time.
    Comment: A commenter pointed out that the QAPI coordinator has a 
similar function similar to the medical director with regard to 
quality. The commenter asked if one person could hold both positions.
    Response: The medical director has responsibility for patient 
outcomes and for the organization's QAPI program. It is the PO's choice 
to determine that the medical director will serve as the QAPI 
coordinator. The coordinator's function is to coordinate and oversee 
the implementation of quality assessment and performance improvement 
activities. We envisioned the QAPI coordinator as an individual other 
than the medical director. The QAPI coordinator would be responsible 
for day-to-day quality issues, collecting data, analyzing data, 
detecting trends, coordinating IDT involvement in QAPI activities, and 
compiling comments related to participant/caregiver satisfaction and 
concerns.
    Final rule actions:
    This final rule will finalize Sec.  460.136 as published in the 
1999 interim final rule.

Section 460.138 Committees With Community Input

    Consistent with the Protocol, we require that the PO develop a 
committee(s) with community input to (1) evaluate data collected 
pertaining to quality outcome measures, (2) address the implementation 
of and results from the QAPI plan, and (3) provide input related to 
ethical decision-making including end-of-life issues and implementation 
of the Patient Self-Determination Act. Through this committee, the PO 
will be able to receive guidance regarding its QAPI program and the 
ethical issues faced by POs.
    Comment: One commenter disagreed with the requirement, stating that 
it does not seem reasonable or necessary, for a small PO to be required 
to involve community members in one or more committees to evaluate data 
from the quality outcomes measures and to address implementation of the 
organization's QAPI plan. The commenter indicated that it should be 
sufficient for the SAA and CMS to evaluate the QAPI data and plan 
implementation on behalf of the enrollees and community.
    Response: The requirement for a PO to establish committee(s) with 
community input was adopted from the Protocol. Section 1894(f) of the 
Act

[[Page 71308]]

requires that the Secretary ``* * * incorporate the requirements 
applied to PACE demonstration waiver programs under the PACE 
protocol.'' The use of community input is contained in that protocol. 
Our intention is to provide a participant protection through community 
involvement in the oversight of participant satisfaction and QAPI 
activities.
    Final rule actions:
    This final rule will finalize Sec.  460.138 as published in the 
1999 interim final rule.

Section 460.140 Additional Quality Assessment Activities

    We require that POs participate in periodic, external quality 
improvement reporting requirements as may be specified by the CMS or 
the SAA. Examples of participation in an activity include the reporting 
of data items for outcome measurement purposes, participation in the 
survey process, and participation in a CMS-directed national quality 
improvement project.
    Comment: One commenter asked when CMS would provide the ``external 
quality assessment and reporting requirements.''
    Response: The only quality assessment reporting that we currently 
require is the Data Elements for Monitoring.
    Final rule actions:
    This final rule will finalize Sec.  460.140 as published in the 
1999 interim final rule.

Subpart I: Participant Enrollment and Disenrollment

    The purpose of subpart I is to establish the requirements for 
enrollment and disenrollment of a PACE participant. We received a large 
number of comments related to enrollment and disenrollment in PACE.

Section 460.150 Eligibility To Enroll in a PACE Program

    In accordance with sections 1894(a)(5) and (c)(1) and 1934(a)(5) 
and (c)(1) of the Act, we established Sec.  460.150, to specify the 
requirements for eligibility to enroll in a PACE program.
    Sections 1894(c)(2) and 1934(c)(2) of the Act provide that a PACE 
program eligible individual must have a health status comparable to the 
health status of individuals who participated in the PACE demonstration 
programs. Further, sections 1894(c)(2) and 1934(c)(2) of the Act 
specify that this determination will be based upon information on 
health status related indicators (such as medical diagnoses and 
measures of activities of daily living, instrumental activities of 
daily living, and cognitive impairment) that are part of the 
information collected by POs on potential PACE program eligible 
individuals. This provision was intended to ensure that POs continue to 
serve patients who are as frail as those served under the PACE 
demonstration program and will prevent POs from selecting enrollees who 
need less care and whose care is less costly.
    As we explained in the 1999 interim final rule, we examined data 
extracted from the PACE Fact Book (Second Edition, 1996, prepared by On 
Lok, Inc., 1333 Bush Street, San Francisco, California, 94109) which 
provides a portrait of participants in the eleven fully-capitated 
demonstration programs as of December 31, 1995. Activities of daily 
living (ADLs) are personal care tasks (bathing, dressing, toileting, 
transferring, and eating) that a person must be able to perform to be 
considered independent. A person is considered to have an ADL 
dependency and a score of ``1'' is assigned, for each of those 5 tasks 
for which some or full assistance is needed to perform the task. A 
similar scale measured dependencies in eight instrumental activities of 
daily living (IADLs), which include meal preparation, shopping, 
housework, laundry, heavy chores, money management, taking medications, 
and transportation. The 2710 participants in these 11 sites at the end 
of 1995 had an average of 2.8 ADL dependencies (varying by site from 
2.3 to 3.8) and an average of 7.5 IADL dependencies (varying from 6.9 
to 7.9 by site). Additionally, these participants had an average of 7.9 
medical conditions (varying from 4.9 to 11.0 by site) and an average 
number of 4.5 errors or unanswered questions (varying from 2.0 to 6.4) 
on the Short Portable Mental Status Questionnaire used to evaluate 
mental functioning.
    The PACE Fact Book acknowledges the difficulty of maintaining a 
valid and consistent data set in a multisite project with sites 
scattered across the country. However, there are many reasons why the 
data would be expected to show differences across sites. Although the 
targeted population for all PACE demonstration programs consisted of 
individuals who met the NF level of care, the specific criteria used to 
determine if an individual needs this level of care varies by State. 
Actual implementation of the PACE program also differs in other ways 
across sites to reflect the particular community in which the site is 
located. Furthermore, marketing efforts vary, as do the maturity of the 
site and particular staffing arrangements. We are convinced that any 
means of determining whether individuals have a health status 
comparable to that of participants in the PACE demonstration programs 
must take into account variances among sites and differences across 
patients within a site. Therefore, we concluded that we could not 
develop a tool that would more adequately determine health status 
comparable to individuals in the PACE demonstration programs than the 
current criteria used by States to determine if an individual needs a 
NF level of care.
    In determining how best to implement this requirement, we also 
considered other safeguards against selective enrollment. Sections 
1894(c)(3) and 1934(c)(3) of the Act include a requirement that 
participants be recertified annually as requiring a NF level of care. 
Under the demonstration program, there was a one-time certification of 
a participant's meeting the NF level of care. Thus, under the 
demonstration program, POs could continue to serve individuals who had 
a short-term need for a NF level of care but whose condition had shown 
significant improvement. The law's annual recertification requirement 
ensures that participants will continue to need a NF level of care.
    Additionally, we included a requirement that POs must notify CMS 
and the SAA of enrollment denials. CMS and the SAA can analyze this 
information to detect selective enrollment.
    After weighing both the need to maintain State and organization 
flexibility to develop programs suitable to the communities in which 
the POs operate and the implementation of other safeguards against 
selective enrollment, we believe having a health status comparable to 
the PACE demonstration programs is inherently equivalent to needing a 
NF level of care. We are satisfied that applying the NF level of care 
requirement in conjunction with the other safeguards discussed will 
minimize selective enrollment while preserving program flexibility; 
however, we invited comments with regard to other ways to implement 
this provision.
    Additionally, the statute requires that an individual meet any 
other eligibility conditions imposed under the PACE program agreement. 
We are aware that under the demonstration program, some PACE sites 
instituted some other eligibility conditions. For example, some set 
their minimum age limits higher than 55. However, we do not believe the 
intent of section 1894(a)(5)(D) of the Act was to allow for 
modification of the requirements of section 1894(a)(5)(A-C) of the Act, 
including the age criteria of 55 or older.

[[Page 71309]]

Thus, POs may not turn away any otherwise eligible individual who is at 
least age 55.
    In the 1999 interim final rule, we cautioned organizations that 
these site-specific eligibility requirements are not intended to allow 
programs to discriminate against individuals with problems such as 
cognitive deficits, disruptive behavior, or substance abuse. Any site-
specific eligibility criteria must be specified in the program 
agreement. We will not approve criteria that would serve as a way to 
selectively enroll individuals whose care is anticipated to be less 
costly or who are thought have easier care needs.
    The eligibility requirement specified in Sec.  460.150(c) 
incorporated the Protocol provision that at the point of enrollment, an 
individual's condition must be such that his or her health or safety 
would not be jeopardized by living in a community setting. We recognize 
that enrollment in the PACE program is not appropriate for everyone who 
meets the basic eligibility criteria. Determining whether or not an 
individual's health or safety would be jeopardized by living in the 
community involves assessing the individual's care support network as 
well as the individual's health condition. As specified in Sec.  
460.152(a)(4), this assessment is done by the PO based upon criteria 
developed by the SAA and specified in the program agreement.
    We indicated in the statutory provisions in sections 1894(i) and 
1934(j) of the Act that PACE program eligibility is not contingent upon 
an individual's eligibility for Medicare or Medicaid.
    Comment: Two commenters disagreed with the regulatory requirement 
permitting enrollment of individuals 55 years of age or older. One 
commenter requested allowing the age limitation be established at the 
State's discretion. The other commenter requested more restrictive age 
targeting criteria which would be consistent with pre-PACE and PACE 
demonstration programs. This commenter would limit eligibility to those 
age 65 years old and older.
    Response: The age requirement is consistent with sections 
1894(a)(5)(A) and 1934(a)(5)(A) of the Act, which defines a PACE 
program eligible individual as ``55 years of age or older.''
    Comments: There were numerous requests for clarification of the 
State responsibility related to PACE eligibility determinations. 
Commenters asked who determines NF level of care for PACE applicants 
who are not Medicaid-eligible.
    Response: The SAA is responsible for determining the NF level of 
care for all PACE applicants, regardless of Medicaid status.
    Comment: Four commenters concurred with our interpretation of 
health status comparable to individuals enrolled in the PACE 
demonstration programs. One commenter asked about the meaning of the NF 
certification requirement and if States have the ability to set 
criteria that would limit enrollment to persons who are more costly or 
more difficult to care for than persons who meet the State's minimum 
threshold level for NF level of care.
    Response: Section 460.150(b) requires that an individual must meet 
3 basic eligibility requirements in order to enroll in PACE. These are: 
(1) Be 55 years old or older, (2) be determined by the SAA to need the 
level of care required under the State Medicaid plan for coverage of NF 
services (that is, the individual's health status is comparable to the 
health status of individuals who participated in the PACE demonstration 
programs), and (3) reside in the PO's service area.
    If a State establishes that its minimum threshold to qualify for a 
NF level of care would permit the enrollment of less frail individuals 
than those who participated in PACE demonstration programs (on a 
nationwide or State basis), we will approve the use of a more stringent 
or higher level of care requirement in order to ensure that the PACE 
permanent providers continue to serve a population that is comparable 
to those served under the PACE demonstration programs.
    Comment: Several commenters requested clarification on the 
requirement that individuals with neither Medicare nor Medicaid may 
enroll in PACE. Commenters asked if this requirement was intended to 
mandate that States provide PACE as a private pay benefit or whether 
this would be an option. Commenters noted that establishing PACE as a 
private pay benefit may subject POs to State insurance laws.
    Another concern was that the regulation addressed all combinations 
for premiums except for individuals with neither Medicare nor Medicaid. 
One commenter requested clarification of premium amounts for non-
Medicare and non-Medicaid participants.
    Response: Based on sections 1894(i) and 1934(j) of the Act, we 
believe the Congress intended to permit individuals with Medicare Part 
A, Medicare Part B, Medicaid, any combination of the above, or none of 
the above mentioned benefits to participate in PACE. Therefore, Sec.  
460.150(d) indicates that a potential participant is not required to be 
Medicare enrolled or Medicaid eligible. The statute does not specify 
the premium that may be charged to non-Medicare and non-Medicaid 
participants. However, in response to inquiring POs, we have indicated 
they could charge the non-Medicare and non-Medicaid participants the 
combined Medicare and Medicaid capitation rates as their premium.
    Comment: A commenter asked if an individual who met all enrollment 
criteria, except the ability to live safely in a community setting 
could be denied enrollment. The commenter asked whether this would be 
the only condition under which a willing individual could be denied 
enrollment.
    Response: Consistent with the Protocol, the only permitted reason 
for a denial of enrollment is when a participant's health or safety 
would be jeopardized by living in a community setting. The criteria 
used to determine if an individual's health or safety would be 
jeopardized by living in a community setting are often developed by the 
SAA and must be included in the PACE program agreement in accordance 
with sections 1894(c) and 1934(c) of the Act. PACE staff must assess 
the potential participant to establish that the participant can be 
cared for appropriately in a community setting and that he or she meets 
all requirements for PACE eligibility specified in this part. The SAA 
is responsible for oversight of this process and has ultimate 
responsibility for the determination. If a PO denies enrollment because 
based on their assessment, that is, they do not believe the individual 
can be safely maintained in the community, the PO must notify CMS and 
the SAA.
    Comment: When determining whether an individual can be maintained 
safely in the community, one commenter asked if we intended to include 
all possible community settings or merely the one in which the 
individual resides at the time of application.
    Response: The intent of the requirement is that POs consider the 
individual's residence at the time of application. However, if the 
individual cannot be maintained safely in their current residence but 
the PO believes they could live safely in another community setting, 
the option of moving should be presented to the individual before 
enrollment is denied.
    Comment: Several commenters recommended regulatory revisions that: 
(1) Provide the SAA flexibility to ensure that selective enrollment is 
avoided; (2) permit denial of enrollment to those with End-Stage Renal 
Disease (ESRD) (alternatively, CMS should reconsider a proposed change 
in financing for

[[Page 71310]]

enrollees with ESRD); and (3) specifically exclude conditions 
prohibited elsewhere in the regulation from being approved as an 
additional program specific eligibility requirement. Commenters noted 
that specific mention of important protections against discriminatory 
exclusion would be beneficial. Lastly, commenters requested that we 
provide an example of an optional eligibility criterion.
    Response: The regulations include several provisions intended to 
prevent selective enrollment. First, participants must have a health 
status comparable to the health status of individuals who participated 
in the PACE demonstration program. This is incorporated into the 
requirement that eligible individuals must meet the State's NF level of 
care requirements. If a State establishes that its minimum threshold to 
qualify for a NF level of care would permit the enrollment of less 
frail individuals than those who participated in the PACE demonstration 
program (on a nationwide or State basis), the State may request the use 
of a more stringent or higher level of care requirements in order to 
ensure that the POs continue to serve a population that is comparable 
to that served under the PACE demonstration. Other safeguards include a 
requirement that participants be recertified annually as requiring a NF 
level of care as well as a requirement that POs must notify both CMS 
and the SAA of enrollment denials.
    It is the SAA's responsibility to establish the criteria used by 
the PO in assessing an individual's ability to live safely in the 
community. These criteria are included in the program agreement. The 
PO's assessment is used by the SAA in their final enrollment/denial 
determination. Although we believe that the States will be open to PO 
assessments regarding a participant's ability to live safely in the 
community, the decision to permit a denial of enrollment is ultimately 
delegated to the State. If the PO determines that the individual must 
be denied enrollment, the PO must inform CMS and the SAA. In addition, 
the PO is required to inform the individual in writing of the reason 
for the denial.
    We understand individuals with ESRD are among the most frail and 
complex persons to care for and in the past POs have had reservations 
about enrolling this population due to additional cost of their care. 
However, we believe that PACE is a care delivery model well-suited to 
meeting the needs of this population. Thus, we do not believe that it 
is appropriate for POs to deny enrollment to individuals solely based 
on ESRD status.
    In January 2005, we implemented a risk-adjusted capitation model 
exclusively for ESRD. The ESRD CMS-HCC model accounts for the 
additional costs of providing ESRD patients with the costly and highly 
specialized care needed. This model is exclusively for ESRD patients 
and has three categories of ESRD acuity: those that are on dialysis, 
those that have had kidney or kidney and pancreas transplant(s), and 
those that have had kidney grafts.
    We agree with the commenter's suggestion that any condition that is 
specifically excluded in statute or regulation not be included in a 
program agreement as an additional program specific eligibility 
condition. As all additional program specific eligibility conditions 
must be approved by CMS and the SAA, we do not believe that additional 
regulatory language is needed.
    Although we have not yet approved any site-specific eligibility 
requirements, we anticipate that the most likely proposal would be to 
develop a disease or condition-specific program, such as programs for 
participants with Alzheimer's disease. Site-specific requirements may 
not modify the three basic eligibility requirements and may not serve 
as a way to selectively enroll participants. We will consider other 
proposals on a case-by-case basis.
    Comment: Several commenters asked which IDT members are required to 
assess the participant to determine the participant's ability to live 
safely in the community. Another commenter requested that the PO's 
ability to safely transport a participant be considered in the 
determination of whether a participant could live safely in the 
community.
    Response: We did not specify particular IDT members that must 
assess the participant's ability to live safely in the community 
because we believe that the PO is in the best position to assign this 
responsibility. It is our expectation that individuals' health 
condition and their social support system will be considered in their 
assessment. In addition, as transportation is a major activity, whether 
to the PACE center, or to off-site providers, we expect this assessment 
to include the PO's ability to transport individuals safely.
    Comment: One commenter requested that for POs located in areas 
where there are a disproportionate number of Medicaid-only elderly, 
they be permitted a waiver or modification of the mandate to enroll all 
individuals meeting the eligibility requirements. The commenter 
indicated that a PO in this situation will have a serious financial 
burden from the substantial loss of revenues related to the prohibition 
from collecting the Medicare capitation amount from these participants.
    Response: With implementation of the Part D benefit, all States 
will have to develop Medicaid rates that vary depending on whether the 
participant is dually eligible (Medicare and Medicaid eligible) or is a 
Medicaid-only individual. The costs utilized as the basis for the 
calculation of the Medicaid rate will vary for these two comparable 
populations due to service utilization and will result in a higher rate 
for the Medicaid-only population. Therefore, the Medicaid capitation 
payment is adjusted to account for the difference in costs between the 
dually-eligible individual and the Medicaid-only individual. We 
recognize that an organization may receive more for a dually-eligible 
participant, due to the receipt of both Medicare and Medicaid 
capitation payments rather than only the Medicaid capitation for a 
Medicaid-only participant. However, we believe the Medicaid capitation 
payments are adequately adjusted to account for the difference in 
costs, and we are not inclined to grant a waiver of the requirement to 
enroll the Medicaid-only population.
    Final rule actions:
    This final rule will finalize Sec.  460.150 as published in the 
1999 interim final rule.

Section 460.152 Enrollment Process

    We established Sec.  460.152 to specify the PO's responsibility 
during the intake process and actions required in the event a potential 
PACE participant is denied enrollment because his or her health and 
safety would be jeopardized by living in a community setting.
    Although we recognize that the intake process must be flexible to 
meet the needs of POs and potential PACE enrollees, in the 1999 interim 
final rule, we specified certain steps that must, at a minimum, be 
included in the process. These are not intended to be sequential steps 
and may in fact occur concurrently. Potential participants need 
reliable, accurate information on the PACE delivery system in order to 
make a rational decision whether to enroll. There is both a legal and 
an ethical obligation to inform potential participants about how the PO 
controls and affects the delivery of health care and other services, 
albeit in full partnership with the participant.
    The following discussion describes the information that is made 
available to the potential participant routinely and upon request. One-
on-one assistance is

[[Page 71311]]

provided throughout the intake process. In all situations, the 
information is provided in a culturally competent manner, including 
providing information in a language understood by the participant.
    The most basic disclosure is that all health care services must be 
received through the PO. Once that disclosure is made and understood by 
the potential participant, other key disclosures related to what is 
included within and what is excluded from the PACE program, what costs 
would be borne by the participant, how to access emergency services, 
and how the grievance and appeals processes work. Additional 
information that should be disclosed upon request includes the process 
that the PO uses to decide that drugs, devices, and procedures are 
experimental and whether the PO uses a drug formulary.
    The uniqueness of the PACE model depends upon the partnership 
formed between the participant and the IDT. Therefore, a potential 
participant should also be made aware of how the team works, who is on 
it, and what choices exist for participant selection of a primary care 
physician. The participant must also know how the organization provides 
access to services not provided directly by the IDT. These services may 
include contractors who furnish specialty services, health care 
facilities such as hospitals and nursing homes, and providers of home 
health care. Also, participants may request information regarding 
whether there are financial incentives to PO staff and contractors that 
may impact care. Finally, upon request, the following information must 
be disclosed: Information regarding board certification and other 
credentialing requirements; clinical protocols; medical practice 
guidelines, consumer satisfaction survey results; or the results of the 
organization's most recent Federal or State review.
    With regard to specific intake tasks, we did not include the 
Protocol requirement for a complete assessment by the IDT prior to the 
denial of enrollment based on health and safety issues. We believe that 
such a determination can generally be made without a complete IDT 
assessment. In establishing enrollment requirements, our intent was to 
clarify, not change, the enrollment process as described in the 
Protocol.
    If a prospective participant is denied enrollment because his or 
her health or safety would be jeopardized by living in the community, 
we require the PO to inform CMS and the SAA as well as make the 
documentation available for review; notify the individual in writing of 
the reason for the denial; as appropriate, refer the individual to 
alternative services; and retain supporting documentation of the reason 
for the determination.
    We received the following comments related to the PACE enrollment 
process.
    Comment: Commenters asked if the State review was limited to 
certifying a potential participant's eligibility for NF level of care. 
Commenters also asked if the State was prohibited from reviewing other 
eligibility criteria such as the ability for the potential participant 
to be maintained safely in the home.
    Response: In addition to certifying NF level of care, States are 
responsible for establishing the criteria used for the PO assessment to 
determine if an individual's health and safety would be jeopardized by 
living in a community setting. States are also responsible for 
oversight of the PO's intake process.
    Comment: A commenter asked if Federal financial participation (FFP) 
is available to States for administrative costs related to the State 
performing preadmission screening for NF level of care determinations 
for participants, particularly if they are not Medicaid eligible.
    Response: FFP is provided to States for all administrative costs 
for administering the PACE program. Because the State NF level of care 
determination is a statutory eligibility requirement for the PACE 
program, the State may claim FFP for this administrative function 
regardless of whether the participant is ultimately determined eligible 
for Medicaid or Medicare.
    Comment: Commenters requested we identify which members of the IDT 
must conduct assessments prior to enrollment.
    Response: We have not specified which IDT members must conduct 
assessments prior to enrollment. We believe the PO is best able to 
identify staff qualified to perform the assessment to determine whether 
the participant can live safely in the community and provide a 
preliminary explanation of the services that an individual would 
receive from the program. An initial comprehensive assessment as 
described in Sec.  460.104 must be completed by all members of the IDT 
promptly following enrollment.
    Comment: We received several comments related to denials of 
enrollment that we believe indicate some confusion regarding the 
differences between ``withdrawal'' by a participant, ``screen-out'' by 
the PO when the prospective enrollee does not meet eligibility 
requirements, and ``denial of enrollment''.
    Response: We wish to clarify the difference between ``withdrawal,'' 
``screen-out,'' and ``denial of enrollment.''
    When a prospective enrollee begins the intake process, the PO must 
determine whether or not the prospective enrollee meets the three basic 
eligibility criteria:
    (1) Age 55 or older,
    (2) Lives in the service area of the PO, and,
    (3) Requires the State's NF level of care.
     If the potential enrollee does not meet any of these three 
basic eligibility criteria, we consider the result to be a ``screen-
out'' by the PO.
     If the prospective enrollee meets the three basic 
eligibility criteria but decides not to enroll in the PACE program, we 
consider the enrollee's action to be a ``withdrawal.''
     If the potential enrollee meets the three basic 
eligibility criteria, they are then assessed to ensure they can safely 
live in the community and be provided a preliminary explanation of 
services that would be provided. If the enrollee then chooses not to 
enroll, it is still considered a ``withdrawal.'' Neither screen-outs 
nor withdrawals are required to be reported to CMS or the SAA by our 
regulations.
     A ``denial of enrollment'' may occur when the person is 
determined to be unable to live in the community without jeopardizing 
his or her health and safety. The PO must report this denial of 
enrollment to CMS and the SAA and provide the individual with a written 
explanation of the denial of enrollment. Consistent with the Protocol, 
the only permitted reason for a denial of enrollment is that living in 
a community setting would jeopardize an individual's health and safety.
    Comment: Commenters asked about the purpose of notifying CMS and 
the State of each denial of enrollment, and how this notification was 
to occur. We were also asked if the intent of reporting a denial of 
enrollment is to communicate the presence of an ``at risk'' individual 
living in the community, for which the State already has established 
reporting requirements and protocols for addressing such situations. 
Commenters also asked if potential participants could appeal denials of 
enrollment.
    Response: The purpose for notifying CMS and the SAA of each 
enrollment denial is to prevent selective enrollment by the PO. We 
believe this reporting is another participant protection preventing the 
practice of enrolling those individuals with less expensive care needs 
or implementing

[[Page 71312]]

discriminatory practices. The CMS requirement is fulfilled through the 
quarterly HPMS reporting. The SAA is responsible for the oversight of 
the denial process and may specify additional reporting requirements.
    Denials of enrollment are may be appealed by potential participants 
through the State fair hearing process, and this process is applicable 
for all enrollment denials, regardless of the participant's Medicare 
and Medicaid status.
    Comment: Two commenters recommended that we modify requirements to 
explicitly permit qualified M+C (now MA) enrollees to disenroll from MA 
at any point in the year for the purpose of enrolling in PACE.
    Response: Medicare has an operational process called the Special 
Election Period (SEP) which allows Medicare managed care enrollees to 
disenroll from MA plans at any time in order to enroll in PACE. The SEP 
for PACE is in the Medicare Managed Manual, section 30.4.4., and can be 
located on the CMS Web site at http://www.cms.hhs.gov/manuals/downloads/mc86c02.pdf. Moreover, after disenrolling from PACE, under 
the SEP, individuals are allowed two months to enroll in an MA plan or 
revert to the original Medicare program. As SEPs are an operational 
practice of the MA program, we do not believe it is appropriate to 
include SEP provisions in PACE regulations.
    Comment: One commenter recommended that the regulation be revised 
to require POs to explain to potential enrollees which services or 
benefits are excluded and how the PACE service delivery model differs 
from the other service alternatives.
    Response: The intake process is an extensive and interactive 
activity between the PO, the participant and their family or caregiver. 
During these encounters the PO staff explains PACE, what it encompasses 
and the differences between PACE and other service delivery 
alternatives including what services generally are not covered. The 
PACE benefit includes all Medicare services, all Medicaid services, and 
services the IDT determines is necessary for a particular participant. 
Therefore, we believe regulatory language requiring POs to provide 
information on excluded services would be inappropriate because PACE 
services are participant-specific and excluded services for one 
participant may become required services for another participant.
    Comment: One commenter recommended that the information supplied to 
prospective participants include a review of post-eligibility treatment 
of income, which was not expressly included in the 1999 interim final 
rule.
    Response: Although not specified in this section of the regulation, 
we require that information regarding post-eligibility treatment of 
income is included in the enrollment agreement (see Sec.  460.154(g).
    However, we agree with the commenter and as an additional 
participant protection, we are adding a requirement to Sec.  460.152(a) 
that POs review post-eligibility treatment of income with prospective 
enrollees.
    Comment: Commenters asked if the State could delegate review of 
denials of enrollment and review of proposed involuntary disenrollments 
to local departments of social services.
    Response: The PO must provide written notification to individuals 
denied enrollment. We note that a denial occurs when an individual 
meets the basic eligibility criteria of age, living in the service area 
and requiring NF level of care but is determined to be unable to live 
safely in the community. The SAA is ultimately responsible for 
oversight of this process and for prior review of involuntary 
disenrollments. While the SAA can delegate these activities, the SAA 
must maintain adequate and appropriate oversight and review of any 
delegated activities/responsibilities.
    Final rule actions:
    In this final rule, we are adding a requirement that POs review 
post-eligibility treatment of income with prospective enrollees.

Section 460.154 Enrollment Agreement

    While the program agreement contains the specific enrollment and 
disenrollment procedures to be followed by the PO, in Sec.  460.154, we 
specify general requirements, which must be met by all POs. Although 
the statute is silent as to any general enrollment requirements, it 
requires that the regulations should incorporate, to the extent 
possible, the requirements applied to the PACE demonstration programs 
under the Protocol. Thus, we adopted the Protocol enrollment and 
disenrollment provisions with the exceptions noted below.
    We removed the reference to the Member Handbook because we found 
the distinction between the Member Handbook and the enrollment 
agreement to be confusing. We define the minimum information that must 
be included in the enrollment agreement to incorporate those materials 
that would generally be expected to be included in a Member Handbook. 
Although some POs may use a cover sheet to obtain the participant's 
signature and a ``handbook'' to provide the required information, the 
cover sheet alone does not constitute the enrollment agreement and must 
be accompanied by the additional minimum information specified when 
provided to the participant.
    In the 1999 interim final rule, we emphasized that an individual 
who accepts PACE as his or her sole source of services could not then 
make an election of hospice care under section 1812(d) of the Act and 
42 CFR 418.24 or section 1905(o)(2) of the Act. However, hospice-type 
services are available from the PO as the PACE model of care is 
designed to furnish a continuum of services which meet health care 
needs. We included a requirement that the enrollment agreement include 
notification that Medicaid recipients and individuals dually-eligible 
for Medicare and Medicaid enrolled in PACE are not liable for any 
premiums, but they may be held liable for any applicable spenddown 
liability under 42 CFR 435.121 and 435.831 and any amounts due under 
the post-eligibility treatment of income process under Sec.  460.184.
    We also included a requirement for the enrollment agreement to 
include information on the consequences of subsequent enrollment in 
other optional Medicare or Medicaid programs following disenrollment 
from PACE. This provision was intended to ensure that participants are 
informed in advance of conditions that might apply if they are 
disenrolled from PACE and elect, for example, to enroll in another 
managed care plan.
    We added a requirement that any changes to the information 
contained in the enrollment agreement must be provided to the 
participant in writing and fully discussed with the participant and his 
or her representative or caregiver. We believe it is essential that all 
participants are made aware of any changes in this information in order 
to protect and exercise their rights.
    Comment: We received four comments related to the enrollment 
agreement. One commenter expressed concern that in Sec.  460.154(h) our 
requirement that the enrollment agreement contain a notice that a 
Medicare participant may not disenroll from a PACE program at a Social 
Security office seems likely to create confusion and could be more 
appropriately handled by proper education of Social Security 
Administration staff.

[[Page 71313]]

    Response: Social Security Administration staff are unable to make 
an eligibility determination for PACE enrollment. The PO and SAA make 
the required determinations that a prospective PACE enrollee meets the 
State's NF eligibility criteria and can be safely cared for in the 
community.
    Because most Medicare beneficiaries are familiar with the Social 
Security office in their community as the place where they signed up 
for their Social Security and Medicare benefits, it is reasonable to 
assume that Medicare beneficiaries would think that the Social Security 
office is the logical place to enroll or disenroll from PACE. We 
included this requirement in our regulations to ensure that all PACE 
participants understand that, unlike other Medicare benefits, they 
cannot enroll in or disenroll from PACE at a Social Security office.
    We are clarifying this requirement by revising the regulatory 
language to state that enrollees may not enroll or disenroll at a 
Social Security office.
    Comment: Two commenters requested we modify Sec.  460.154(k) to 
require POs to include in the enrollment agreement all services that 
are covered and not covered through the PACE providers.
    Response: We disagree with the commenters; PACE services are 
participant-specific as determined by the IDT and specified in the 
participant's plan of care. Therefore, identifying covered and non-
covered services could be misleading and potentially confusing for 
participants and their family or representative.
    Comment: One commenter requested we modify Sec.  460.154(t) to 
specify that the enrollment agreement contain the signature of the 
applicant or his or her designated representative, and the date.
    Response: We agree with this commenter, and are amending Sec.  
460.154(t) to include ``or his or her designated representative'' to 
sign the enrollment agreement.
    Final rule actions:
    In this final rule we are revising:
     Sec.  460.150(h) by clarifying that individuals may not 
enroll or disenroll at a Social Security office.
     Sec.  460.154(t) to read ``The signature of the applicant 
or his or her designated representative and the date.''

Section 460.156 Other Enrollment Procedures

    We established this section to specify the documentation that must 
be provided to a PACE participant who signs an enrollment agreement. 
Specifically, a PACE participant must be given a copy of the enrollment 
agreement, a PACE membership card, emergency information to be posted 
in his or her home which includes the phone number of the PO, and when 
applicable, stickers for the PACE participant's Medicare or Medicaid 
cards (or both) that indicate the individual is a PACE participant and 
include the phone number of the PO.
    In addition, the PO must submit participant information to CMS and 
the SAA in accordance with established procedures.
    We also included a requirement that, in the event there are changes 
in the enrollment agreement information at any time during the 
participant's enrollment, the PO must provide to the participant an 
updated copy of the information and explain the changes to the 
participant and their representative in a manner they understand.
    Comment: One commenter requested clarification of the ``established 
procedures'' POs are required to use for submitting enrollment 
information to CMS and the SAA.
    Response: The ``established procedures'' refers to CMS and SAA 
procedure for enrollment and payment. CMS and the SAA notify the PO how 
to submit information regarding enrollment.
    Final rule actions:
    This final rule will finalize Sec.  460.156 as published in the 
1999 interim final rule.

Section 460.158 Effective Date of Enrollment

    Consistent with the Protocol, this section established that a 
participant's enrollment in the PACE program is effective the first day 
of the calendar month following the date the PO receives the signed 
enrollment agreement.
    Comment: Three commenters indicated that unless we require that 
PACE enrollment be effective on the same date for both Medicare and 
Medicaid, there is the potential that a participant could be enrolled 
in Medicare a month earlier than they are enrolled in Medicaid. The 
commenters indicated that as written, this requirement is problematic 
for States that set the enrollment date for PACE on a day other than 
the first day of the month following the date of the signed enrollment 
agreement. Commenters indicated that potential PACE participants may 
very likely be in situations where they need to enroll before the 
beginning of the next month. The commenters explained that since 
capitation payment is tied to pull down dates for the Medicaid 
Management Information System and the effective date of enrollment 
impacts the effective date of the capitation payment, they need 
flexibility in establishing the effective date for Medicaid enrollment, 
and should be permitted to adjust that first month's capitation 
payment.
    Response: Our regulation at Sec.  460.158 requires that a 
participant's enrollment in the program is effective on the first day 
of the month following the date the PO receives the signed enrollment 
agreement. This is applicable for all participants regardless of 
Medicare or Medicaid eligibility. Therefore, the effective date for 
Medicare and Medicaid payment will be the same, even if the participant 
is eligible for both programs.
    In an instance where there is a lag time between the signing of the 
enrollment agreement and its effective date, the PO may choose to 
provide services to the newly signed enrollee. However, any services 
provided are not considered ``PACE'' services until the effective date 
of enrollment. Therefore, services would only be covered to the extent 
an individual's existing health plan (for example, Medicare fee-for-
service or Medicaid) provided the coverage. Should the PO choose to 
provide services outside the individuals existing benefits package 
prior to the effective date of enrollment in PACE, the PO would be 
liable for the cost of providing these services.
    A State may choose to pay the PO for services for a participant 
prior to the effective date of enrollment whether on a fee-for-service 
or pro-rated capitated basis. However, the participant's effective date 
of enrollment as a PACE participant is not established until the first 
of the following month.
    Comment: A commenter asked what the PO's responsibilities are for 
covering nursing home care in the event that a participant's condition 
necessitates such placement before the effective date of enrollment.
    Response: Section 460.150(c) requires that at the time of 
enrollment into PACE, an individual must be able to live in a community 
setting without jeopardizing his or her safety. If a participant's 
condition or situation changes prior to the effective date of 
enrollment such that they can no longer be maintained safely in the 
community, the PO, with SAA concurrence, may deny the enrollment. Since 
the enrollment was never implemented, there is no need to involuntarily 
disenroll the enrollee. However, once the enrollment status has become 
effective, a participant may not be disenrolled due to health status.
    Final rule actions:

[[Page 71314]]

    This final rule will finalize Sec.  460.158 as published in the 
1999 interim final rule.

Section 460.160 Continuation of Enrollment

    In this section, we specify that a PACE participant's enrollment 
continues until death regardless of changes in health status unless the 
PACE participant voluntarily disenrolls in accordance with Sec.  
460.162 or is involuntarily disenrolled in accordance with Sec.  
460.164.
    We incorporated the statutory requirement contained in sections 
1894(c)(3) and 1934(c)(3) of the Act for an annual recertification of 
need for NF level of care. We believe that the law contemplated that 
reevaluations would be conducted by the SAA for all participants, 
whether Medicaid eligible or not.
    The statute provides that the annual recertification may be waived 
for those individuals for whom the SAA determines there is no 
reasonable expectation of improvement or significant change in 
condition. As a waiver may not be granted until the first annual 
recertification is due, a participant for whom this requirement is 
waived would have been receiving services under the PACE program for at 
least a year. We believe it is unlikely, especially in view of the 
average age and frailty of PACE participants, that a person who has not 
shown significant improvement in the past year would show enough 
improvement in the future to no longer need a NF level of care. The law 
permits a waiver ``during a period in accordance with regulations'' in 
those cases where the SAA determines there is no reasonable expectation 
of improvement. Therefore, we provided in the 1999 interim final rule 
that such a waiver should be for the life of the participant. However, 
the reasons for the waiver must be explicitly documented in the medical 
record. We indicated that we did not provide a mechanism for 
reinitiating the recertification process once a waiver was granted, and 
we invited comments on this issue.
    Finally, sections 1894(c)(4) and 1934(c)(4) of the Act allow for 
the continuation, or deemed eligibility, of participants who are 
determined, through the annual recertification process, to no longer 
meet the NF level of care requirement but who, in the absence of 
continued coverage under PACE, would reasonably be expected to again 
meet the NF level of care within the next 6 months. We indicated that 
the determination is made by the SAA, which may solicit input from the 
PACE organization and that the deemed eligibility continues until the 
next annual recertification. While it is the SAA's responsibility to 
determine the need for NF level of care, the PO has a detailed 
knowledge of the day-to-day care and service requirements of the 
participants and would, therefore, be better able to predict a 
participant's reaction to the loss of PACE services. We invited 
comments on whether this responsibility should be shared or carried out 
solely by either the SAA or the PO.
    Comment: Eight commenters supported differing requirements related 
to continuation of enrollment. The commenters generally agreed with 
annual recertification of NF eligibility. Half of the commenters 
supported deeming the annual recertification a State responsibility 
after working with the PO to make the determination. The remaining 
commenters viewed deeming a PO responsibility subject to State review 
or a joint State/PO activity.
    One commenter did not support annual recertification, stating that 
disenrolling a participant from the program penalizes the participant 
and IDT team for reaching their goals.
    Five commenters responded to our request for input regarding 
whether deemed eligibility should continue until the next annual 
recertification. They unanimously agreed that the period of deemed 
eligibility should continue for 12 months until the next annual 
recertification is due.
    Response: With the publication of the 1999 interim final rule and 
the transition of PACE programs from demonstration programs to 
permanent provider status, the provisions regarding continued 
enrollment in the program changed. Under the demonstration program, the 
NF level of care determination was a one-time certification prior to 
enrollment and PACE participants were not recertified as needing a NF 
level of care. While sections 1894(c)(3) and 1934(c)(3) of the Act, 
implemented a new annual certification requirement, the law balanced 
this requirement with an important beneficiary protection in the 
continued eligibility provisions of section 1894(c)(4) and 1934(c)(4) 
of the Act. The continued eligibility provisions take into account that 
a participant's condition may have improved such that he or she no 
longer meets the NF level of care solely due to the services being 
received from the PACE program. Thus, being disenrolled from the 
program could result in a decline in which the person quickly needs a 
NF level of care once again and would be eligible to re-enroll in the 
program. The continued eligibility provisions at Sec.  460.160(b)(2) 
avoid this unnecessary and disruptive cycling in and out of eligibility 
by allowing participants to remain in the program even though they do 
not currently meet the NF level of care requirement if a determination 
is made that, in the absence of PACE services, they would reasonably be 
expected to meet the requirement within the next 6 months.
    In the 1999 interim final rule, we solicited comments on whether 
the determination of continued eligibility should be a responsibility 
that should be shared or carried out solely by either the State 
administering agency or the PACE organization. In considering the 
comments received, and in light of the fact that it is the State's 
responsibility to determine the need for nursing facility level of 
care, we have concluded that all States should develop appropriate 
criteria and implement a process whereby continued eligibility 
determinations can be made. However, we recognize that the PO has 
knowledge of the care and service requirements of the individual 
participants and should be consulted in making the determination of 
continued eligibility based on these criteria. For this reason, we are 
revising Sec.  460.160(b)(3)(i) to specify that the SAA must establish 
criteria, in consultation with the PO, make a determination of deemed 
continued eligibility based on a review of the participant's medical 
record and plan of care.
    With regard to the comments on annual recertification, we 
understand the argument presented by the commenter that disenrolling a 
participant who does not meet the NF level of care at the time of 
recertification penalizes the participant and the IDT for reaching 
their goals. However, the annual recertification required at Sec.  
460.160(b) is a statutory requirement (sections 1894(c)(2)-(4) and 
1934(c)(2)-(4) of the Act). The recertification process is an important 
safeguard to ensure that PACE programs continue to serve individuals 
who have a health status comparable to those who participated in the 
demonstration program. We believe the provisions allowing the waiver of 
this requirement on a case-by-case basis as well as the use of the 
deemed continued eligibility provisions provide important flexibility 
and safeguards for States in administering the program and would not 
result in penalizing the participant or the PO.
    Regarding whose responsibility it is to determine or deem a 
participant's continued eligibility, we believe that establishing 
whether a participant meets

[[Page 71315]]

the State's criteria for NF level of care is a State responsibility. We 
believe this activity includes pre-enrollment or post-enrollment 
eligibility. We also acknowledge that due to the gravity of continued 
eligibility determinations, the SAAs should solicit input and 
assistance from the PO in making these determinations, but the SAA 
retains the ultimate responsibility.
    Comment: Several commenters agreed that a mechanism for 
reinitiating the recertification process once a waiver had been granted 
was not necessary because waivers would only be granted in cases where 
the possibility of improvement is extremely remote.
    Response: We agree with the commenters and therefore have not 
developed a mechanism for reinitiating the recertification process once 
a waiver has been granted.
    Final rule actions:
    In this final rule we are revising paragraph (b)(3)(i) to clarify 
that the SAA must establish criteria for use in making deemed 
eligibility determinations.

Section 460.162 Voluntary Disenrollment

    In accordance with sections 1894(c)(5)(A) and 1934(c)(5)(A) of the 
Act, this section specifies that a PACE participant may voluntarily 
disenroll from the program without cause at any time. We received no 
public comments on Sec.  460.162.
    Final rule actions:
    This final rule will finalize Sec.  460.162 as published in the 
1999 interim final rule.

Section 460.164 Involuntary Disenrollment

    In accordance with sections 1894(c)(5)(B) and 1934(c)(5)(B) of the 
Act, we established this section to specify the conditions under which 
a PACE participant can be involuntarily disenrolled from a PACE 
program. The Protocol, in Part III, section D.1, describes various 
circumstances under which a participant may be involuntarily 
disenrolled.
    The statutory language at sections 1894(c)(5)(B) and 1934(c)(5)(B) 
of the Act provides that a participant may only be involuntarily 
disenrolled for nonpayment of premiums on a timely basis or for 
engaging in disruptive or threatening behavior. In our regulations at 
Sec.  460.164(a)(1), we adopted the requirement that a participant may 
be involuntarily disenrolled if they fail to pay or to make 
satisfactory arrangements to pay any premium due the PO after a 30-day 
grace period.
    We also incorporated the following reasons for involuntary 
disenrollment from the Protocol:
    (a) The participant moves out of the PO's program service area or 
is out of the service area for more than 30 days unless the PO agrees 
to a longer absence due to extenuating circumstances;
    (b) The PO is unable to offer health care services due to loss of 
State licensure or contracts with outside providers.
    We added as a reason for involuntary disenrollment that the PO 
agreement with CMS and the SAA is not renewed or is terminated. We also 
incorporated, at Sec.  460.164(a)(4), as a reason for involuntary 
disenrollment the statutory provision regarding the annual 
recertification of NF level of care. In all of these situations the 
disenrollment is not a subjective determination made by the PO but is 
necessary due to the application of objective criteria.
    We did not incorporate the following reasons for disenrollment from 
the Protocol: the participant refuses to provide accurate financial 
information, provides false information, or illegally transfers assets. 
As these situations would affect the determination of Medicaid 
eligibility, we believe they would actually prevent enrollment in the 
first place. However, if the individual is already enrolled when these 
situations occur or are discovered, they may affect the participant's 
payment responsibility and thus lead to either voluntary disenrollment 
or involuntary disenrollment based on failure to pay premiums.
    In order to incorporate the statutory provision regarding 
disruptive or threatening behavior, we felt the need to balance two 
concerns: (1) To protect participants who are exhibiting difficult 
behaviors from being disenrolled by the PO, and (2) to provide a 
safeguard for the PO, by permitting them to disenroll a competent but 
noncompliant participant whose behavior disrupts the organization's 
ability to furnish adequate services to that individual for reasons 
beyond the organization's control. Therefore, after consulting with 
SAAs, we defined a person who engages in disruptive or threatening 
behavior as:
    a. A person whose behavior is jeopardizing his or her health or 
safety or that of others; or
    b. A person with decision-making capacity who consistently refuses 
to comply with his or her individual plan of care or the terms of the 
enrollment agreement.
    However, in accordance with paragraphs (c)(5)(B)(ii) of sections 
1894 and 1934 of the Act, a PO may not involuntarily disenroll a PACE 
participant on the grounds that the individual has engaged in 
noncompliant behavior if such behavior is related to a mental or 
physical condition of the individual unless the individual's behavior 
is jeopardizing his or her health or safety or that of others. The term 
``noncompliant behavior'' includes repeated noncompliance with medical 
advice and repeated failure to keep appointments.
    While we believe this definition provides a necessary safeguard, we 
are not suggesting that a participant should be disenrolled at the 
first sign of difficulty. We caution organizations to use this 
authority only as a last resort when all reasonable remedies (which 
must be documented in the medical record) have been exhausted.
    Based on sections 1894(c)(5)(B)(iii) and 1934(c)(5)(B)(iii) of the 
Act, we specified that proposed involuntary disenrollments are subject 
to a timely review and final determination by the SAA prior to the 
effective date of the proposed disenrollment. This provision protects 
the participant from being inappropriately disenrolled and provides for 
the continuation of services until a final determination is made. We 
invited comments on whether the regulations should specify a timeframe 
in which the review must be conducted and, if so, what an appropriate 
timeframe would be.
    We received a large number of comments regarding involuntary 
disenrollment.
    Comment: Several commenters requested that we expand the reasons 
for involuntary disenrollment to include the failure to pay any 
allowable fees and share of costs including amounts required as part of 
a participant's spenddown liability and post-eligibility treatment of 
income amounts.
    Response: Sections 1894(c)(5)(B) and 1934(c)(5)(B) of the Act 
explicitly state that the PO may involuntarily disenroll a participant 
for only one payment-related issue, which is nonpayment of premiums.
    However, CMS has the authority to provide BIPA 903 waivers in 
instances where the POs are unable to comply with regulatory 
requirements (see Sec.  460.26). We have approved several BIPA 902 
grandfathering requests and BIPA 903 waiver requests regarding this 
issue. However, to retain flexibility in application of these waivers, 
we are not expanding the reasons for involuntary disenrollment for non-
payment of premiums in this final regulation.
    Comment: Three commenters requested that we eliminate the 
requirement for State review of an

[[Page 71316]]

involuntary disenrollment due to failure to pay a premium.
    Response: We believe the commenters' concern about the SAA review 
of a proposed involuntary disenrollment due to failure to pay premiums 
may be that the process would cause further delay and present a 
financial hardship for the POs. The intent of this requirement is 
oversight by the SAA to ensure that the disenrollment documentation 
reflects adequate grounds for involuntary disenrollment. The review was 
established as a check in the process to ensure an important 
participant protection. We are confident the SAAs have established 
procedures that ensure the State review is completed prior to the 
effective date of the proposed disenrollment.
    Comment: One commenter requested that we include the disruptive or 
threatening behavior of family members, where they are involved in 
health care or decisions at the participant's request, as a reason for 
involuntary disenrollment.
    Response: It is not our intention to jeopardize the safety of those 
providing care. However we expect POs to make every effort to resolve 
such situations before considering disenrollment. Sections 1894(c)(5) 
and 1934(c)(5)of the Act specify the reasons a PACE Program eligible 
individual may be disenrolled, including ``for engaging in disruptive 
or threatening behavior, as defined in such regulations (developed in 
close consultation with State administering agencies).''
    In consultation with SAAs, we have defined disruptive or 
threatening behavior in our regulations at Sec.  460.164(b) as 
including consistent refusal by a competent participant to comply with 
the plan of care. If PO staff or contractors cannot furnish necessary 
care because of the threatening behavior of someone other than the 
participant, then we expect the PO to establish alternative 
arrangements that would not disrupt the PO's ability to provide 
adequate services and to include those arrangements in the 
participant's plan of care. Such arrangements might include providing 
services at the PACE center, arranging for alternative living 
arrangements, or obtaining the participant's agreement to control the 
actions of the caregiver or family member during the time PO staff are 
on the premises. Should the participant refuse to cooperate with the 
plan of care and all efforts fail, as a last resort the PO may submit a 
proposal to involuntarily disenroll a competent participant for refusal 
to comply with their plan of care, as provided in Sec.  460.164(b). As 
required by Sec.  460.164(d) and (e), all pertinent documentation must 
be submitted to the SAA for review before the PO may implement an 
involuntary disenrollment.
    Comment: One commenter agreed that the breakdown in the physician/
IDT and participant relationship is not a reason for involuntary 
disenrollment.
    Response: We appreciate the commenters support. We believe that a 
breakdown in the IDT/participant relationship is an unacceptable reason 
for involuntary disenrollment and would undermine the participant's 
right to participate in treatment decisions. Our expectation in this 
situation is that the PO would work with the participant and the IDT to 
establish a mutually acceptable resolution. Should the participant 
remain dissatisfied after the PO attempts to reestablish an acceptable 
working relationship, it would be the participant's right to 
voluntarily disenroll. We view this breakdown as an incident the PO 
would review as a part of its QAPI plan.
    Comment: Commenters supported a variety of timeframes for SAA 
review of involuntary disenrollments. Recommended timeframes included 
no required timeframe, in a timely manner, 72 hours, up to 30 days 
(depending on the cause of the disenrollment, especially where the 
participant's health and safety may be in jeopardy or the participant 
has not paid their premiums). Commenters suggested that the involuntary 
disenrollment be deemed approved if the SAA does not respond within a 
reasonable timeframe.
    Response: Our experience to date has been that States have 
developed adequate procedures and are in a position to know when a 
particular situation warrants an expedited review. While we understand 
the concerns behind the suggestion that involuntary disenrollments 
should be deemed approved if the SAA has not responded within an 
appropriate timeframe, we are not including this provision in this 
final rule. We view the State review as an important beneficiary 
protection and are concerned that a specific timeframe might unduly 
constrain or limit the State's ability to provide an adequate review. 
Therefore, we are retaining Sec.  460.164(e) and will require SAA 
review in a timely manner for involuntary disenrollments.
    Comment: One commenter suggested we give the State the authority to 
consider all relevant evidence in their review of proposed involuntary 
disenrollment, not to limit review to the sufficiency of reasons shown 
in the records.
    Response: Documentation provided to the SAA by the PO should 
include all relevant information supporting their reason for initiating 
an involuntary disenrollment. Our regulations do not preclude the SAA 
from requesting additional documentation if it feels that the 
organization has not provided adequately documented grounds for 
disenrollment.
    Comment: One commenter expressed support for CMS' attempt to 
distinguish between behavior that jeopardizes health and safety and 
noncompliant behavior. They requested further clarification as to 
whether a PO may disenroll a participant for noncompliant behavior if 
the behavior is not related to a mental or physical condition of the 
participant. The commenter questioned whether noncompliant behavior 
would be considered disruptive behavior if the participant is competent 
and the noncompliance was addressed in the participant's care plan.
    Response: We note that Sec.  460.164(b) does not distinguish 
between disruptive behavior and noncompliant behavior, but rather 
defines noncompliant behavior as disruptive behavior, consistent with 
the statute. The PO may involuntarily disenroll a participant for 
noncompliance with their plan of care provided the noncompliance is not 
related to a mental or physical condition.
    Comment: Two commenters requested that we eliminate noncompliance 
as a reason for involuntary disenrollment. Other commenters were 
concerned that we unduly expanded the definition of disruptive or 
threatening behavior to include a competent participant who 
consistently refuses to comply with his or her individual plan of care 
or terms of the PACE enrollment agreement.
    Another commenter indicated that this type of disenrollment 
violates the participant's right to refuse treatment. Therefore, they 
requested that noncompliance be eliminated as a reason to disenroll a 
participant.
    Response: We disagree with the commenters' suggestion that we 
delete noncompliance as a reason to involuntarily disenroll. We do not 
believe that a disenrollment based upon noncompliance by a competent 
participant violates their right to refuse treatment.
    The competent participant actively participates in establishing 
their plan of care, and it is at this juncture that the participant 
should raise any objections to the components of their plan of care and 
refuse treatment. At the time the participant refuses the proposed 
treatment, the IDT should present and discuss other treatment options. 
If the

[[Page 71317]]

participant has issues with the treatment after the establishment of 
the plan of care, there should be discussion with his or her IDT. 
Because of the cooperative nature of establishing the plan of care, 
once the participant has agreed with the plan of care they are 
committed to following it. If the participant later refuses to comply 
with the agreed upon plan of care and the IDT and the participant are 
unable to agree to an alternative treatment, the PO can involuntarily 
disenroll that participant. We believe that the noncompliant behavior 
will disrupt the provision of care to the participant and jeopardize 
their health or safety.
    Additionally, potential participants are informed of the terms of 
the enrollment agreement during the enrollment process and signing of 
the enrollment agreement indicates the person's willingness to comply 
with those terms. We believe we must provide this safeguard to allow 
POs to disenroll competent but willfully noncompliant participants if 
their behavior disrupts the organization's ability to furnish adequate 
services and safeguard the participant's health and safety.
    Comment: One commenter questioned the requirement that the State 
review involuntary disenrollments initiated by the PO without respect 
to the enrollee payer status and asked if the SAA review was considered 
to be a final determination that can be appealed.
    Response: As specified in Sec.  460.164(e), the SAA must review all 
proposed involuntary disenrollments, regardless of payer status, in 
order to determine that the PO has adequately documented acceptable 
grounds for disenrollment. This was one of the issues specifically 
discussed with the State workgroup in developing the 1999 interim final 
rule. At that time, the States correctly predicted that this provision 
would not lead to a major increase in workload. If the State supports 
the PO's decision to involuntarily disenroll the PACE participant, the 
participant may pursue an external appeal. States must provide an 
alternative to the Medicaid State Fair Hearing process for Medicare-
only participants because Medicare's independent review entity does not 
hear involuntary disenrollment appeals.
    The SAA review of involuntary disenrollments is a final 
determination, which would allow a Medicaid-eligible participant to 
pursue a Medicaid Fair Hearing. POs should contact their SAA for 
details on their State's Fair Hearing process. Medicaid regulations 
regarding the State Fair Hearing process are located at 42 CFR 431.200 
through 431.250.
    Comment: One commenter indicated that there is no need for SAA 
review of proposed disenrollments due to nonpayment of premiums.
    Response: As a participant protection, we believe the SAA should 
review all involuntary disenrollments, including involuntary 
disenrollment related to nonpayment or failure to make satisfactory 
arrangements to pay premiums.
    Final rule actions:
    In this final rule, we are finalizing Sec.  460.164 as published in 
the 1999 interim final rule.

Section 460.166 Effective Date of Disenrollment

    We require that the PO must use the most expedient process allowed 
for by Medicare and Medicaid procedures to ensure that the 
disenrollment date is coordinated between Medicare and Medicaid for 
participants who are dually eligible for both programs and that 
reasonable advance notice is given to the participant. In addition, 
until such time the enrollment is terminated, PACE participants must 
continue to use PO services and remain liable for any premiums, and the 
PO must continue to furnish all needed services.
    Comment: One commenter recommended that an involuntary 
disenrollment should not be effective until Medicare and/or Medicaid 
eligibility has actually been established and alternative providers are 
available to provide the services in the participant's care plan.
    Response: We believe the disenrollment date must be the same for 
Medicare and Medicaid participants. We intend that no disenrollment 
would become effective until the participant is appropriately 
reinstated into other Medicare and Medicaid programs and alternative 
services are arranged.
    Final rule actions:
    In this final rule, we are finalizing Sec.  460.166 as published in 
the 1999 interim final rule.

Section 460.168 Reinstatement in Other Medicare and Medicaid Programs

    We established this section to prescribe the PO's responsibility to 
facilitate a participant's reinstatement in other Medicare and Medicaid 
programs after disenrollment. We require that the PO make appropriate 
referrals and ensure that medical records are made available to new 
providers in a timely manner. In addition, we require that the PO work 
with the SAA and CMS to reinstate the participant in other Medicare and 
Medicaid programs for which the individual is eligible.
    We received no comments on this section.
    Final rule actions:
    This final rule will finalize Sec.  460.168 as published in the 
1999 interim final rule.

Section 460.170 Reinstatement in PACE

    Section 460.170 provides that a previously disenrolled participant 
may be reinstated in the PACE program. However, we did not adopt the 
Protocol provision limiting a participant to a one-time-only 
reinstatement following a voluntary disenrollment. We believe that 
frail elderly individuals may experience living arrangement changes 
that take them in and out of a PO's service area and result in 
unavoidable disenrollments. However, we included the Protocol provision 
that a PACE participant may be reinstated in the PACE program with no 
break in coverage if the reason for the disenrollment was failure to 
pay premiums and the PACE participant pays the premium before the 
effective date of the disenrollment.
    Comment: One commenter recommended that the State be granted the 
flexibility to set criteria for multiple re-enrollments of participants 
after involuntary disenrollment. Two other commenters indicated that it 
would be appropriate to restrict the number of times an individual may 
be reinstated.
    One commenter suggested a one-time reinstatement or, alternatively, 
that the PO be granted the discretion to determine whether to reinstate 
a participant multiple times based upon the unique circumstances of the 
previous disenrollment. The commenter recommended that the PO identify 
the circumstances for reinstatement and establish policies and 
procedures prior to implementation of the PACE program.
    Response: We believe the decision to allow participants the ability 
to be reinstated repeatedly is appropriate in some cases, especially 
for participants who voluntarily disenroll. Therefore, we are not 
inclined to limit the number of allowable reinstatements. However, if a 
participant has been involuntarily disenrolled, and wishes to re-enroll 
in the PO, the issue that caused the involuntary disenrollment must be 
resolved, before the participant can be reinstated.
    Final rule actions:
    This final rule will finalize Sec.  460.170 as published in the 
1999 interim final rule.

[[Page 71318]]

Section 460.172 Documentation of Disenrollment

    We established Sec.  460.172 to specify that a PO must have 
procedures to document the reasons for all voluntary and involuntary 
disenrollments, make the documentation available for review by CMS and 
the SAA, and use the information on voluntary disenrollments in the 
PO's internal QAPI plan.
    Comment: One commenter recommended that the information on all 
disenrollments be used in quality assurance.
    Response: It is our intent to use only the voluntary disenrollment 
information in QAPI as these disenrollments are more likely to be 
impacted by participant impressions of the quality of their care and 
their satisfaction. Involuntary disenrollment is not usually initiated 
because a participant is unhappy with their care but rather the 
participant has not met their responsibilities to the PO. Therefore, we 
only require that voluntary disenrollment information be used in QAPI.
    Final rule actions:
    This final rule will finalize Sec.  460.172 as published in the 
1999 interim final rule.

Subpart J: Payment

    The 1999 interim final rule described Medicare payment as follows. 
Sections 1894(d) and 1934(d) of the Act requires that payment to a PO 
be based on a capitation amount. The Medicare capitation amount is 
based upon the M+C (now MA) payment rates established under section 
1853 of the Act. The Medicaid capitation amount is negotiated between 
the State and the PO.
    The following basic principles distinguish the PACE financing 
model.
     Obligation for payments is shared by Medicare, Medicaid, 
and individuals who do not participate in Medicare and Medicaid.
     Medicare, Medicaid, and private payments for acute, long-
term care, and other services are pooled.
     The capitation rates paid by Medicare and Medicaid are 
designed to result in cost savings relative to expenditures that would 
otherwise be paid for a comparable NF-eligible population not enrolled 
under the PACE program.
     The PO accepts the capitation payment amounts described in 
this section as payment in full from Medicare and Medicaid.

Section 460.180 Medicare Payment to PACE Organizations

    Section 1894(d)(1) of the Act requires that POs be paid monthly 
payments of a capitation amount for each eligible enrolled PACE program 
individual, in the same manner and from the same sources as payments 
that are made to a M+C (now MA) organization under section 1853 of the 
Act. In accordance with section 1894(d)(2) of the Act, PACE capitation 
amounts are based upon payment rates established for the purposes of 
payment under section 1853 of the Act and shall be adjusted to take 
into account the comparative frailty of PACE enrollees and other 
factors the Secretary determines appropriate. Payments of a capitated 
amount are to be adjusted in the manner described in section 1853(a)(2) 
or section 1876(a)(1)(E) of the Act; that is, retroactively adjusted to 
take into account any difference between the actual number of 
participants and the estimated number of participants to be enrolled in 
determining the amount of the advance payment.
    Consistent with the basic methodology applied to M+C (now MA) plans 
at the time of publication of the 1999 interim final rule, Medicare 
paid monthly payments based on an interim per capita rate per 
participant. Under that methodology, separate rates were established 
for Part A and Part B. The PO received payments based on each 
participant's entitlement to Medicare Part A and Part B. Therefore, if 
the participant was entitled to Part A benefits, but was not enrolled 
under Part B, the PO received only the monthly capitation rate 
established for Part A. For Medicare Part A-only participants who are 
also eligible for Medicaid, the State is obligated to pay Medicare Part 
B premiums under section 1902(a)(10) of the Act. Therefore, POs needed 
to verify at the time of enrollment whether the participant was dually 
eligible for Medicare and Medicaid and whether the participant has 
Medicare Part A and Part B. As required in 1999 and still currently 
required, payment for a participant begins upon the effective date of 
enrollment (see Sec.  460.158).
    Under section 1894(d)(2) of the Act, the capitation amount should 
be adjusted to take into account the comparative frailty of PACE 
participants and other factors the Secretary determines to be 
appropriate. As explained below, a frailty factor and an adjustment 
factor for PACE participants who have ESRD were applied to the 
appropriate demographic payment rate.
    Under the PACE demonstration program, the Medicare capitation rate 
for each PO was calculated using CMS' standard Adjusted Average Per 
Capita Cost (AAPCC) methodology (also referred to as the demographic 
rate methodology) developed in accordance with the 1982 Tax Equity and 
Fiscal Responsibility Act to pay risk-based health maintenance 
organizations for Medicare enrollees. However, instead of using the 
usual adjustments for age, sex, welfare status, institutional status, 
employment status, and disability, there was one frailty adjuster of 
2.39 for all PACE participants except those diagnosed with ESRD. 
Therefore, in accordance with 1894(d)(2) of the Act, as of January 1, 
1998, the Medicare capitation rate paid to PACE demonstration programs 
was calculated using the M+C (now MA) AAPCC rates with an additional 
frailty adjuster of 2.39 to account for the higher costs related to 
caring for this frail population.
    Subsequently, the BBA mandated M+C (now MA) plans to implement a 
risk adjusted methodology starting January 1, 2000. However, PACE 
payment continued to be based on the frailty adjusted demographic rate 
methodology until refinements to the risk adjustment methodology 
specific to PACE were completed. Implementation of the risk adjustment 
payment methodology with PACE specific adjustments began January 1, 
2004.
    Changes to PACE payment methodology are proposed in the annual 
Advance Notice of Methodological Changes for Medicare Advantage Payment 
Rates (Advance Notice), along with changes to MA methodology. After 
publication of the Advance Notice, the public is given a two-week 
period to provide comments. The final changes are described in the 
Announcement of Medicare Advantage Payment Rates (Announcement). The 
Announcement is published the first Monday in April, and the Advance 
Notice is published 45 days before that. Any changes that have been 
made to PACE payment methodology since the publication of the 1999 
proposed rule were dealt with through that process.
    Many of the changes to the PACE payment methodology since 1999 are 
based on the January 1, 2004 implementation of the CMS-Hierarchical 
Conditions Category (CMS-HCC) based MA risk adjustment payment 
methodology with refinements for PACE. These changes are reflected 
throughout Sec.  460.180. The risk adjustment payment methodology, 
history and authority are initially described in the Advance Notice and

[[Page 71319]]

Announcement for calendar year 2004, with the refinements described in 
subsequent Advance Notices and Announcements. Advanced Notices and 
Announcements can be found on the CMS Web site at http://www.cms.hhs.gov.
    The purpose of risk adjustment is to use health status indicators 
to improve the accuracy of payments and establish incentives for plans 
to enroll and treat less healthy Medicare beneficiaries. The risk 
adjustment model was phased-in for all MA plans. The gradual phase-in 
provided a safeguard against abrupt changes in payments and effects 
related to risk adjustment. However, due to the additional refinements 
that were made to the PACE payment, the implementation of the risk 
adjustment phase-in was delayed for PACE. The phase-in schedule for 
PACE will lag the phase-in of MA risk adjustment by one year. The 
additional refinements to the risk adjustment model for PACE, mentioned 
above, surrounded the frailty adjuster. A deferral was needed so that 
CMS could study the applicability and impact of risk adjustment on 
capitated payments for the frail elderly.
    On January 1, 2004, PACE began the phase-out of the demographic 
payment methodology adjusted by the 2.39 frailty adjuster and phase-in 
of the new MA risk-adjusted payment methodology. To ease the 
transition, the rates will blend a gradual decreasing amount of the 
demographic payment methodology adjusted by the 2.39 frailty adjuster 
and a gradual increasing amount of the new MA risk-adjusted payment 
methodology. The blended phase-in rates for PACE are provided in the 
following table.

------------------------------------------------------------------------
                                              Percent
                                              frailty      Percent risk
                                             adjusted      adjusted rate
              Calendar year                 demographic   (CMS-HCC times
                                            rate (AAPCC   frailty score)
                                            times 2.39)
------------------------------------------------------------------------
2004....................................              90              10
2005....................................              70              30
2006....................................              50              50
2007....................................              25              75
2008....................................               0             100
------------------------------------------------------------------------

    The demographic payment methodology referenced above, which is the 
payment methodology that is being phased out, was used at the time of 
the interim final rule in 1999. Under that methodology, the Medicare 
capitation rate paid to PACE demonstration programs was calculated 
using the MA AAPCC rates with an additional frailty adjuster of 2.39 to 
account for the higher costs related to caring for this frail 
population.
    As discussed above, section 1894(d) of the Act mandated that the 
Medicare capitated payments to POs be based on MA rates and be adjusted 
to account for the comparative frailty of PACE enrollees. The CMS-HCC 
payment approach described herein is a further refinement to the risk 
adjustment payment methodology to ensure that capitated payments to POs 
that serve frail community-based populations are accurate.
    The CMS-HCC payment model described above is the basis of the new 
PACE payment. The individual participant risk score for MA and PACE is 
calculated using the appropriate CMS-HCC model (community, long-term 
institutionalized, ESRD or new enrollee) based on the participant's 
status. Risk adjustment explains the future Medicare expenditures of 
individuals based on diagnoses and demographics. The risk score is 
computed for each participant for a given year and applied 
prospectively. The risk score generally follows the beneficiary for one 
calendar year. But risk adjustment does not explain all of the 
variations in expenditures for frail community populations. We 
determined that it was appropriate to augment risk adjustment with a 
frailty adjustor for functionally impaired community residents in PACE. 
The purpose of the PACE frailty adjustment is to predict the Medicare 
expenditures of community populations with functional impairments that 
are unexplained by risk adjustment. Therefore, we developed a payment 
approach that adjusts the risk adjustment payment to an organization 
according to the frailty of the organization's enrollees. To clarify, 
the PACE frailty adjustment currently is made in addition to the risk 
adjustments made under the MA payment methodology.
    The PACE frailty adjustment is based on activities of daily living 
(ADLs), a proxy for functional impairment, and applies only to 
community-based and short-term institutionalized participants (that is, 
the frailty adjustment for long-term institutionalized participants is 
zero).
    The prospective frailty adjustment was designed to adjust for the 
average difference between the predicted and actual expenditures for 
each group. The prior year's functional impairment data are used to 
predict the next year's payment adjustment. Functional data are 
submitted to CMS, where they are calculated to establish the PO's 
frailty score, which is then applied to each participant's risk 
adjusted payment. The frailty adjustment approach is applied in 
conjunction with the CMS-HCC risk adjustment model. The frailty 
adjustment and factors were initially described in the CY 2004 Advance 
Notice and Announcement of MA Payment Rates. The CY 2004 Advance Notice 
and Announcement of MA Payment Rates can be found on the CMS Web site 
at: http://www.cms.hhs.gov/MedicareAdvtgSpecRatesStats/Downloads. We 
continue to refine our risk adjusted payment methodology to ensure that 
capitated payments to POs are accurate and take into account the 
comparative frailty of PACE enrollees. Any changes to our current PACE 
payment methodology will be described in subsequent Advance Notices and 
Announcements.
    Comment: We received numerous comments, recommendations and 
concerns related to the Medicare payment methodology provided in the 
1999 interim final rule. Overall, the commenters disapproved with 
changing the established payment methodology, discontinuing the 2.39 
frailty adjustment, and speculation regarding how the Principal 
Inpatient-Diagnostic Cost Group (PIP-DCG) methodology risk adjustment 
payment methodology would work, including the rate amounts and how an 
MA payment methodology would be appropriate for calculating the PACE 
capitation payments. They also requested we continue to explore methods 
to capture the frailty status of PACE participants. Several commenters 
also inquired how ESRD payment would be calculated.
    Response: The PIP-DCG risk adjustment methodology has been replaced 
by the CMS-HCC risk

[[Page 71320]]

adjustment model, that provides numerous adjustments related to 
participant demographics, characteristics, and diagnosis. CMS provided 
extensive technical assistance and training to the NPA and POs prior to 
the phase-in of risk adjustment for PACE. We also provided guidance and 
training on the ESRD payment methodology.
    We believe that the comments presented have been answered to the 
satisfaction of the commenters. Further information and specific MA 
risk adjustment rate updates and MA documentation pertinent to risk 
adjustment methodology can be found on the CMS Web site at http://www.cms.hhs.gov. Annual rate updates are also published in the Advanced 
Notice of Methodological Changes for Calendar Year (CY)--Medicare 
Advantage (MA) Payment Rates and are also located on the CMS Web site.
End-Stage Renal Disease (ESRD) Adjustment Under the PACE Demonstration 
Program
    Under the PACE demonstration program, POs were paid in two ways for 
Medicare ESRD participants. Each month for each ESRD participant, the 
PACE program was paid the AAPCC Part A and Part B ESRD rate. The rate 
was not adjusted by the 2.39 frailty factor. Instead, PACE programs 
received additional payment each month for the actual cost of services 
in excess of the AAPCC ESRD payment rate. As section 1894(d) of the Act 
does not authorize payment of actual cost, we conducted an analysis of 
1994 Medicare claims data for ESRD patients. The analysis shows that 
Medicare expenditures for ESRD patients who are 75 or older are 
significantly higher than expenditures for all ESRD patients. This 
finding was fairly constant over time. The group of ESRD patients who 
are 75 or older tend to be very frail and in most cases would be 
considered NF-eligible. This group of elderly ESRD patients were used 
as a proxy for ESRD patients who are NF-eligible. ESRD patients who are 
75 or older have 46 percent higher Part A expenditures relative to all 
ESRD patients, while their Part B expenditures are 36 percent higher. 
We applied this information to calculate adjusters for ESRD patients 
enrolled in PACE. Thus, the Part A ESRD adjuster was 1.46 and the Part 
B ESRD adjuster was 1.36. These ESRD adjustment factors were 
established at the time the 1999 interim final rule was published as an 
interim measure pending development of a risk adjustment methodology.
New ESRD Risk Adjustment Model
    Simultaneous with the implementation of the CMS-HCC model for risk 
adjustment, we have implemented a new approach to improve payments on 
behalf of enrollees with ESRD. The approach is the same for both PACE 
and MA plans. Section 605 of BIPA required CMS to adjust the approach 
to computing ESRD payment rates to reflect the method used in the ESRD 
social HMO (S/HMO) demonstration program then in place. We interpreted 
this to mean that ESRD payments to MA organizations should employ the 
same basic approach used under the ESRD demonstration referenced in 
section 605. To implement the BIPA provision for 2002, CMS increased 
the base rates by three percent and began adjusting payments with age 
and sex factors, while continuing to review other options.
    Effective January 2005, MA enrollees with ESRD were incorporated 
into diagnosis-based risk adjustment using a different version of the 
CMS-HCC model. (A list of coefficients for each disease group can be 
found at http://www.cms.hhs.gov.) The new ESRD payment model aligned us 
further with the method used in the ESRD S/HMO demonstration program by 
allowing us to capture co-morbidity information in addition to 
demographic information and basic disease markers for ESRD 
beneficiaries. ESRD status is recognized in the payment year. The data 
for 100 percent of ESRD beneficiaries were used to develop the model. 
The CMS-HCC model for ESRD is described in the Advance Notice and 
Announcement for Calendar Year 2005, which is available on the CMS Web 
site. Any updates will be described in future Advance Notices and 
Announcements.
    In this final rule, we are revising Sec.  460.180(b)(4) to reflect 
the new ESRD risk adjustment model.
    We are also revising Sec.  460.180(b)(1) to require that the PACE 
program agreement contain the ``methodology'' for establishing the 
monthly capitation rather than the ``amount'' of the monthly 
capitation. Section 1894(d)(2) of the Act, requires that capitation 
amount be specified in the program agreement. As such, under the new 
risk adjustment methodology, specifying the capitation amount in the 
program agreement is operationally impractical. We believe that 
continuing to include the capitation amount would require CMS, the SAA, 
and the PO to establish and sign new program agreements each time a new 
individual enrolled in the PACE program. We believe that the change 
from including the capitation amount to the methodology used to 
calculate the risk adjusted capitation payment amount is consistent 
with the statutory intent that the program agreement should specify how 
the PO will be paid. Because of the change in the MA payment 
methodology enacted by the Congress, it is no longer feasible to 
include the amount of payment. We will therefore include the payment 
methodology in the program agreement as a way to give effect to the 
intent of the PACE statute.
    Under the demographic rate methodology, the capitation amount per 
person was the same for all participants (except participants with 
ESRD) and was multiplied by the number of participants. Under the new 
risk adjusted methodology each participant receives a individualized 
diagnosis-related payment. There is no way for CMS, the SAA, or the PO 
to predict what diseases or number of diseases future participants will 
have. Therefore, we have replace the capitation amount with the 
methodology for calculating the capitation amount in the PACE program 
agreement in Appendix M.
    Comment: Commenters suggested that the actual fee-for-service cost 
factors be utilized in developing the new MA capitation rates and that 
the regulation should include language which allows alternatives to the 
MA methodology. Commenters also requested that CMS continue to explore 
methodology options and test the validity of various methods of 
capturing the true frailty status of PACE participants.
    Response: Section 1894(d) of the Act directs that PACE payment be 
based on MA payment rates, adjusted for frailty of PACE enrollees and 
other factors as appropriate. The differences in the cost of caring for 
the community based frail population led to the implementation of a 
frailty adjustor being added to the risk adjustment methodology of the 
CMS-HCC model.
    Comment: In the 1999 interim final rule, we also solicited comment 
related to the data collection that would be required to develop a 
specific risk adjustment methodology for PACE.
    Numerous commenters presented their concerns that CMS sets Medicare 
payments to PACE providers based on the rate CMS pays to a MA 
organization. The commenters questioned whether the MA payment 
methodology is an appropriate foundation for calculating capitation 
payments for PACE providers considering the inherent problems with 
applying the PIP-DCG methodology to PACE and the decision to delay 
implementation of risk adjustment for PACE. They also believe that a 
risk-adjustment methodology that relies on

[[Page 71321]]

inpatient diagnosis as a determinant for payment is an inappropriate 
payment methodology for innovative programs such as PACE that 
diligently strive to minimize inpatient days through aggressive 
preventative and primary care and serve a frail elderly population with 
multiple chronic and complex health conditions.
    Response: The Congress, through BIPA, required the implementation 
of a payment model for M+C organizations using not only diagnoses from 
inpatient hospital stays, but also from ambulatory settings, beginning 
in 2004. In addition, as described previously, CMS applies a frailty 
adjuster to an individual participant's risk-adjusted payment to 
account for the frailty of PACE participants.
    Comment: The commenters also indicated that risk adjustment for 
PACE must account for PACE participants' functional status and 
cognitive impairment as well as other factors that may systematically 
impact Medicare utilization and costs in the fee-for-service 
environment and the need to base payment methodology (and related 
reporting requirements) for PACE programs on Medicare expenses incurred 
by comparable individuals outside PACE, not utilization of Medicare 
covered expenses by PACE participants themselves.
    Because the 1999 interim final regulation was not specific in 
regard to the manner in which MA rates will be established in the 
future or the manner in which CMS will adjust MA rates for frailty and 
other factors determined by CMS to be appropriate, they requested that 
any process that CMS employs to modify the current rate-setting 
methodology for PACE, include consistent and timely communication with 
POs.
    They also recommended that CMS consult with NPA regarding the 
reasonableness and impact of proposed changes well in advance of a 
final determination regarding a particular rate-setting approach and 
its implementation.
    Response: In response to our solicitation for comment we received 
numerous comments on the data collection required to develop a PACE-
specific risk adjustment methodology. The 1999 interim final rule 
discussed a MA payment methodology that no longer applies to PACE 
payment since that MA payment methodology is in the process of being 
phased out as required by BIPA.
    Implementation of a new risk adjusted payment methodology based on 
the CMS-HCC model began in 2004. The transition to 100 percent payment 
using the new risk adjusted payment methodology will occur over a 5-
year period. Implementation of the MA risk adjustment payment 
methodology for PACE programs was delayed until 2004 to provide CMS 
with sufficient time to evaluate differences in cost of care for the 
frail elderly community dwelling population.
    In response to the commenters, the risk adjustment methodology for 
PACE, includes a frailty adjustment based on the functional status of 
the PO's participant population.
    After the development of the MA risk adjustment model and of PACE 
specific modifications to the MA payment methodology, CMS had 
discussions with NPA regarding implementation of the new PACE payment 
methodology.
    Comment: A commenter asked if the Medicare capitation rate would be 
based on the location of the program or the residence of the 
participant if the program spanned more than one county.
    Response: The Medicare capitation rate is based on the county in 
which the participant resides.
    Final rule actions:
    In this final rule, we are amending Sec.  460.180 to:
     Reflect statutory changes in the capitation payment 
methodology used to determine payment amounts for MA plans, and thus 
payment amounts for POs; and
     Require that the PACE program agreement contain the 
payment methodology for establishing the monthly capitation rate, 
rather than specifying a payment amount, in accordance with the changes 
to the MA capitation payment methodology.

Section 460.182 Medicaid Payment

    Section 1934(d) of the Act requires a State to make prospective 
monthly capitated payments for each PACE program participant eligible 
for medical assistance under the State plan. The capitation payment 
amount must be specified in the PACE program agreement and be less, 
taking into account the frailty of PACE participants, than the amount 
that would otherwise have been paid under the State plan if the 
individuals were not enrolled in a PACE program.
    A national Medicaid rate-setting methodology for PACE has not been 
established. Rather, each State that elects PACE as a Medicaid State 
plan option must develop a payment amount based on the cost of 
comparable services for the State's nursing-facility-eligible 
population. Generally, the amounts are based on a blend of the cost of 
nursing home and community-based care for the frail elderly. The 
monthly capitation payment amount is negotiated between the PO and the 
SAA and can be renegotiated on an annual basis.
    As the statutory requirements do not differ from the Protocol 
requirements regarding Medicaid payments under the PACE demonstration 
program, the regulations mirror the Protocol requirements. We received 
three comments pertaining to Medicaid payment.
    Comment: One commenter stated that considering the relationship 
between PACE payments and M+C (now MA) methodologies, there should be 
ample safeguards to assure that PACE entities can reasonably be 
expected to provide high quality services at these (Medicaid) payment 
levels. The commenter was also concerned that Medicaid payments are set 
at the state, not national level, and suggested we should examine the 
variation in state payments in relation to outcomes.
    Response: We believe this commenter was indicating their opinion 
that the Medicaid payment amount in conjunction with the Medicare 
payment was ample to provide the highest quality care.
    Medicaid costs vary depending on the State plan and home and 
community-based services offered in the State. The Medicaid capitation 
payment must be less than the amount that would otherwise have been 
paid under the State plan if the participant were not enrolled in a 
PACE program. As costs and benefits vary by State, we do not believe it 
would be appropriate to set Medicaid rates at a national level.
    Comment: A commenter indicated that to date POs have operated with 
a fixed rate that does not change based on the participant's health 
status and suggested testing alternative approaches. The commenter 
offered to assist CMS with testing an alternative approach involving a 
rate change (at specified intervals) if there is significant change in 
a participant's health status. The commenter also requested that 
waivers be considered to facilitate testing this payment approach.
    Response: We appreciate the commenter's offer, however, the statute 
does not address risk adjustment for Medicaid rates in PACE. As 
explained above, CMS does not want to impose a rate setting methodology 
on States. States have flexibility to implement a risk adjusted payment 
methodology that would recognize differences in health status among 
participants should they choose to do so consistent with the 
requirements of 1934(d)(2) of the Act.
    Comment: The third commenter asked if the requirement at Sec.  
460.182(b) precludes the establishment of multiple

[[Page 71322]]

rate cells, with different payment levels that may change based on an 
annual reassessment, that address the frailty level and health status 
of the participant.
    Response: States are afforded the flexibility to establish various 
payment levels reflective of frailty levels as long as payment is 
prospective and does not change before the annual renegotiation of the 
Medicaid capitation rate due to a change in health status. Section 
460.182(b)(4) permits capitation rates to be renegotiated on an annual 
basis. It would be the responsibility of the State Medicaid Agency to 
ensure that payments for participants are accurately made for the 
appropriate payment level.
    Comment: A commenter asked if the requirement at Sec.  460.182(c) 
precludes risk sharing on losses and profits on the Medicaid services.
    Response: Under sections 1894 and 1934(f)(2)(B)(v) of the Act, the 
PO must be at full financial risk. The State may not share risk with 
the PO.
    Accordingly, Sec.  460.182(c) states that the PO must accept the 
capitation payment as payment in full for Medicaid participants and may 
not bill, charge, collect, or receive any other forms of payment from 
the SAA. Therefore, the PO cannot share the risk with the State under 
stop-loss provisions.
    POs are permitted to purchase stop-loss insurance from entities in 
the form of reinsurance, which is discussed in Sec.  460.80(c)(2). 
States can offer stop-loss or reinsurance as a product to be purchased 
by the PO. Stop-loss provisions should be established based on the 
total costs for a participant and may not be based on a particular 
aspect of the benefit package.
    Final rule actions:
    This final rule finalizes Sec.  460.182 as published in the 1999 
interim final rule.

Section 460.184 Post-Eligibility Treatment of Income

    Section 1934(b)(1)(A)(i) of the Act states that a PO shall provide, 
to eligible individuals, all covered items and services without 
application of deductibles, copayments, coinsurance, or other cost 
sharing that would otherwise apply under Medicare or Medicaid. Section 
1934(i) of the Act permits States to use post-eligibility treatment of 
income in the same manner as it is applied for individuals receiving 
services under a waiver under section 1915(c) of the Act.
    The post-eligibility treatment of income provision reduces the 
amount of Medicaid payments to a PO by the amount remaining after 
specified deductions are made from the income of the PACE participant. 
The income that remains after these deductions are applied is the 
amount a participant is liable to pay toward the cost of the PACE 
services. Therefore, an argument could be made that sections 1934(b) 
and (i) of the Act are in conflict since under section 1934(i) of the 
Act, PACE participants may incur limited liability for part of the cost 
of their services. However, we have concluded that the type of Medicaid 
participant liability permitted by section 1934(i) of the Act is not 
cost sharing prohibited by section 1934(b)(1)(A)(I) of the Act.
    Section 1902(a)(17) of the Act permits an individual (or family) 
who has more income than allowed for Medicaid eligibility to reduce 
excess income by incurring expenses for medical or remedial care to 
establish Medicaid eligibility. However, this spenddown process is used 
in establishing Medicaid eligibility rather than being the type of cost 
sharing prohibited by section 1934(b)(1)(A)(I) of the Act.
    We interpret section 1934(b)(1)(A)(i) of the Act, to refer to 
deductibles, copayments, coinsurance or other cost sharing beyond 
participant liabilities related to Medicaid eligibility. Any other 
reading of the law would make section 1934(i) of the Act merely 
surplusage and not meaningful. Therefore, to give significance to these 
sections of the Act, we provided in Sec.  460.184, which implements 
section 1934(i) of the Act, references to 42 CFR 435.726 and 435.735. 
Sections 435.726 and 435.735 lay out the post-eligibility treatment of 
income requirements that may be applied to PACE participants in the 
same manner as applied to individuals receiving home and community-
based services.
Conforming Amendments
    The BBA made conforming amendments to sections 1924(a)(5) and 
1903(f)(4)(C) of the Act pertaining to eligibility for medical 
assistance. Section 1924(a)(5) of the Act, was revised to indicate that 
special treatment of income and resources for institutionalized spouses 
in determining eligibility for medical assistance is applied to 
individuals receiving services under a PACE program under sections 1934 
or 1894 of the Act. Further, section 710 of the Omnibus Appropriation 
Bill (Pub. L. 105-277) enacted October 21, 1998, permits PACE program 
eligible individuals enrolled in a PACE program under section 1934 of 
the Act to be eligible for Medicaid under the optional categorically 
needy eligibility group at section 1902(a)(10)(A)(ii)(IV) of the Act. 
Under this authority, States can determine eligibility for PACE 
enrollees using institutional rules, including use of the special 
income level group described at section 1902(a)(10)(A)(ii)(IV) of the 
Act.
    We received no public comments on Sec.  460.184.
    Final rule actions:
    This final rule will finalize Sec.  460.184 as published in the 
1999 interim final rule.

Section 460.186 PACE Premiums

    Neither section 1894 nor section 1934 of the Act addresses the 
premiums a PO can charge a PACE participant. As a result, we have 
adopted most of the PACE premium requirements in this section from Part 
VI, section D of the Protocol. It is important to note that the term 
``premiums'' as used in this regulation does not include spenddown 
liability under 42 CFR 435.121 and 435.831, or post-eligibility 
treatment of income under Sec.  460.184. This use of the word premiums 
is narrower than the way the word is used in the Protocol, where a 
participant's ``share of cost'' responsibility under Medicaid is 
referred to as a type of premium. In addition, POs may continue to 
collect any liability due them under Medicaid spenddown and post-
eligibility processes, but that liability is not a premium.
    We specify that a participant's monthly premium responsibility 
depends upon his or her eligibility under Medicare and Medicaid.
    The Protocol says that the premium for Medicare-only participants 
is equal to the Medicaid capitation amount. Nearly all Medicare 
participants have both Part A and Part B, and the capitation amount 
that Medicare pays is the sum of the Part A and Part B capitation 
rates. However, section 1894(a)(1) of the Act permits an individual who 
is entitled to Medicare benefits under Part A or enrolled under Part B 
to enroll in the PACE program. For those rare persons who are eligible 
under only one part, the Medicare capitation amount will be only the 
portion for that part. Such a participant is required to make up the 
difference, that is, pay an additional premium amount equal to the 
missing piece of the Medicare capitation amount. We specify the 
premiums for Medicare-only participants as follows--
     For a participant who is entitled to Medicare Part A and 
enrolled under Medicare Part B, but is not eligible for Medicaid, the 
premium equals the Medicaid capitation amount.
     For a participant who is entitled to Medicare Part A, but 
is not enrolled under Part B and is not eligible for Medicaid, the 
premium equals the

[[Page 71323]]

Medicaid capitation amount plus the Medicare Part B capitation rate.
     For a participant who is enrolled only under Medicare Part 
B and is not eligible for Medicaid, the premium equals the Medicaid 
capitation amount plus the Medicare Part A capitation rate.
    We specify that no premium may be charged to a participant who is 
dually eligible for both Medicare and Medicaid or one who is only 
eligible for Medicaid.
    We received four comments regarding PACE premiums.
    Comment: Commenters requested clarification on the premiums for 
those with neither Medicare nor Medicaid. One commenter recommended 
that POs not be permitted to establish private pay premiums for 
Medicare covered services in excess of the Medicare capitation amount. 
Two commenters suggested that private pay premiums for non-Medicaid 
eligible participants be no less than the Medicaid capitation rate.
    Response: We believe it was congressional intent to permit 
individuals with Medicare Part A, Part B, Medicaid, any combination of 
the above or none of the above to participate in PACE based on sections 
1894(i) and 1934(j) of the Act. Therefore, POs must enroll any 
individual who meets the enrollment criteria even if they participate 
in neither Medicare nor Medicaid.
    However, as we noted previously, the statute does not address the 
amount a private pay PACE enrollee can be charged in premiums. 
Therefore, we will leave the premium amount to the discretion of the 
POs, based on their individual population and service needs.
    Comment: One commenter recommended that, through the waiver 
process, POs be allowed to explore alternate methods of establishing 
premiums for non-Medicaid participants, who have Medicare so long as 
the premiums are set to be actuarially equivalent to, those established 
for the Medicaid populations.
    Response: In accordance with BIPA 903, the 2002 interim final rule 
provides a waiver process that can be accessed by a PO, that is unable 
to meet a regulatory requirement or, if they are an experienced PO, 
waivers to explore alternative practices (see Sec.  460.26 and Sec.  
460.28 regarding waiver process). Additional information regarding the 
waiver process is on the PACE Web site, www.cms.hhs.gov/PACE.
    As explained above, CMS requires that the premium for Medicare-only 
participants enrolled in both Medicare Part A and Part B be equal to 
the Medicaid capitation amount. The PO does not have the discretion to 
establish a higher premium amount for these participants. CMS specifies 
the premium amount that may be charged to these PACE participants so 
that premiums correlate with (Medicaid) costs and are equal for 
participants with the same eligibility. CMS and States go through an 
extensive process to calculate Medicaid rates that take into account 
the frailty of PACE participants. Therefore, the Medicaid capitation 
rate, should be an acceptable amount for a premium.
    Final rule actions:
    This final rule will finalize Sec.  460.186 as published in the 
1999 interim final rule.

Subpart K: Federal/State Monitoring

Section 460.190 Monitoring During Trial Period

    Sections 1894(e)(4)(A) and 1934(e)(4)(A) of the Act provide for 
annual close oversight during the trial period, which is a PO's first 3 
contract years. We established Sec.  460.190 to address the 
requirements for monitoring during the trial period. During the trial 
period, CMS in cooperation with the SAA conducts comprehensive annual 
reviews of a PO.
    In accordance with the statute and as specified in Sec.  460.190 
the review includes an on-site visit to the PO, a comprehensive 
assessment of the organization's fiscal soundness, a comprehensive 
assessment of the organization's capacity to furnish all PACE services 
to all enrolled participants, a detailed analysis of the organization's 
substantial compliance with all significant requirements of sections 
1894 and 1934 of the Act and these regulations, and any other elements 
that CMS or the SAA find necessary.
    No public comments were received on Sec.  460.190.
    Final rule actions:
    This final rule will finalize Sec.  460.190 as published in the 
1999 interim final rule.

Section 460.192 Ongoing Monitoring After Trial Period

    In accordance with paragraph (e)(4)(B) of sections 1894 and 1934 of 
the Act, we specified that at the conclusion of the trial period, CMS, 
in cooperation with the SAA, would continue to conduct reviews of a 
PACE program, as appropriate. These reviews must take into account the 
performance level of the PO with respect to the quality of care 
provided and compliance of the organization in meeting the PACE program 
requirements. Such reviews include an on-site visit at least every two 
years.
    No public comments were received on Sec.  460.192.
    Final rule actions:
    This final rule will finalize Sec.  460.192 as published in the 
1999 interim final rule.

Section 460.194 Corrective Action

    We require the PO to take action to correct deficiencies identified 
during the reviews. CMS or the SAA will monitor the effectiveness of 
corrective actions. Failure to correct deficiencies can result in 
sanctions or terminations in accordance with subpart D.
    Comment: One commenter inquired how it would be determined whether 
the CMS or the State would monitor a CAP.
    Response: CMS works in partnership with the SAA to monitor POs. 
Information received by either agency in response to the CAP is shared 
with the other agency. As indicated in Sec.  460.194, either CMS or the 
SAA will monitor the CAP. The determination of which agency will 
monitor the CAP will vary depending on the issues addressed by the CAP. 
Since CMS and the SAA have their own regulations, each agency is 
monitoring for deficiencies in relation to their regulations as well as 
any general deficiency they identify that needs correction. CMS and the 
SAA discuss the monitoring review findings and the actions that need to 
be taken, to assure the PO has corrected or is in the process of 
correcting the deficiencies, prior to releasing the official CAP report 
to the PO. During those discussions, they will decide who will be the 
lead for monitoring the progress of the CAP. One of the factors 
involved in that decision is the number of follow-up visits that will 
be required and the proximity of the SAA and CMS offices. Often times, 
quarterly calls between CMS, the SAA, and the PO can include specific 
CAP items on the agenda. Follow-up visits can be conducted by the SAA, 
CMS, or the results can be reviewed at the next monitoring visit.
    Final rule actions:
    This final rule will finalize Sec.  460.194 as published in the 
1999 interim final rule.

Section 460.196 Disclosure of Review Results

    In accordance with paragraph (e)(4)(C) of sections 1894 and 1934 of 
the Act, we specified requirements for disclosing the results of 
monitoring reviews. CMS and the SAA promptly report the results of 
reviews under Sec.  460.190 and Sec.  460.192 to the PO, along with any 
recommendations for changes to the organization's program. The results 
are made available to the public upon

[[Page 71324]]

request. In addition, we require that the PO post a notice of the 
availability of the results of the most recent review and any CAPs or 
responses related to the most recent review. The PO must also make the 
results available for examination in a place readily accessible to 
participants.
    Comment: One commenter stated that access to the information by the 
public would be greatly expanded by requiring the SAA to post the 
results of PACE monitoring reviews on the agency's Web sites.
    Response: We believe the decision regarding whether the State posts 
the results of PACE monitoring reviews is a State determination. We 
encourage access to information for the public but do not believe it is 
necessary to dictate specific methods in regulations.
    Comment: Another commenter questioned if the definition for 
``promptly'' means within 45 days.
    Response: CMS and the SAA expect to complete the analysis of 
monitoring review findings and provide them to the PO within 30 days 
after completion of the review and, if this timeframe is not possible, 
then as close to 30 days as possible. Due to the in-depth review 
performed by the CMS and SAA monitoring review teams, it is not always 
possible to complete an extensive report quickly. Therefore, we have 
decided to retain the term promptly and not provide a specific 
timeframe.
    Final rule actions:
    This final rule will finalize Sec.  460.196 as published in the 
1999 interim final rule.

Subpart L: Data Collection, Record Maintenance, and Reporting

    The purpose of subpart L is to establish the requirements for data 
collection, record maintenance, and reporting. This subpart describes 
in detail the manner in which POs must collect, maintain and report 
data including participant health outcomes, organization financial 
information, and medical records.

Section 460.200 Maintenance of Records and Reporting of Data

    In accordance with sections 1894(e)(3)(A) and 1934(e)(3)(A) of the 
Act, we require POs to collect data, maintain records, and submit 
reports. We describe data and records to include participant health 
outcome data, financial books and records, medical records, and 
personnel records. We require the documents to be accessible to CMS and 
the SAA upon request and be stored in a manner consistent with the PO's 
written policies that protect them from loss, destruction, unauthorized 
use or inappropriate alteration.
    We established several requirements intended to safeguard the 
privacy of any information that identifies a particular participant. 
The PO must establish written policies and implement procedures to 
ensure that information from, or copies of, records are released only 
to authorized individuals and that original medical records are 
released only in accordance with Federal or State laws, court orders, 
or subpoenas. In addition, a participant's written consent must be 
obtained before the release of identifiable information to persons not 
otherwise authorized to receive it. The written consent may limit the 
degree of information and the persons to whom information may be 
released. Participants are guaranteed timely access to review and copy 
their own medical records and may request amendments to their records. 
Finally, the PO must abide by all Federal and State laws regarding 
confidentiality and disclosure of participant mental health and medical 
records and other health information.
    The Protocol did not specify a minimum record retention timeframe. 
In order to enable adequate oversight and to be consistent with the 
requirements established for M+C plans, we require POs to retain 
records for the longest of the following periods: the period specified 
by State law; six years from the date of the last entry made in the 
record; or for medical records of disenrolled participants, six years 
after the date of disenrollment. If any litigation, claim, financial 
management review, or audit is started before the expiration of the 
retention period, we are requiring that those records be retained until 
completion of the litigation, or until claims or audit findings 
involving the records have been resolved and final action taken.
    We note that for purposes of Medicare Part D, POs are required to 
retain Part D related records for a period of 10 years in accordance 
with 42 CFR 423.505(d).
    Comment: One commenter asked when data collection, maintenance, and 
reporting requirements would be issued by CMS and the SAA.
    Response: In the fall of 2001 the PACE demonstration programs were 
instructed to submit Data Elements for Monitoring on a quarterly basis 
via the HPMS. This reporting requirement remains in effect for POs.
    Prior to signing the program agreement, which contains these 
reporting requirements, POs are provided with instructions on the HPMS: 
The HPMS Connectivity Guide, HPMS User's Guide and HPMS Connectivity 
for States. These materials can also can be found on the PACE Web site 
at http://www.cms.hhs.gov/PACE/09_AdditionalResources.asp.
    The Data Elements for Monitoring include information on the number 
of grievances and appeals; reasons for disenrollment; and vaccination 
rates for flu and pneumonia.
    Appendix M of the PACE program agreement indicates that Medicare 
payment is also reliant on information reported to CMS. As discussed in 
the payment section, the risk score for PACE participants is based on 
the CMS-HCC, which is based on the diagnostic information submitted by 
the PO. The PO's frailty score is based on the responses received from 
community-dwelling participants on the Modified HOS (Health Outcomes 
Survey), which identifies participant difficulty in performing ADLs.
    To the extent the SAA establishes additional reporting 
requirements, the requirements would be identified in a separate 
contract between the SAA and the PO.
    Final rule actions:
    This final rule will finalize Sec.  460.200 as published in the 
1999 interim final rule.

Section 460.202 Participant Health Outcomes Data

    In the 1999 interim final rule, we modified the requirement in Part 
VII, section B of the Protocol for data collection and reporting. We 
require POs to maintain a health information system that collects, 
analyzes, integrates, and reports data necessary to measure their 
performance and to develop their QAPI. As discussed above, POs are 
expected to collect data for monitoring and report it at quarterly 
intervals via HPMS. HPMS information may be used by CMS, SAAs, and POs.
    Each PO must collect, evaluate, and report the data as part of 
managing its QAPI. These data will assist the PO in its efforts to 
identify opportunities to improve participant care and outcomes, and to 
evaluate the results of its performance improvement activities.
    Additionally, we have a requirement that the PO must furnish data 
and information in the manner and at the time intervals specified by 
CMS and the SAA, pertaining to its participant care activities. The 
items to be collected are specified in the PACE program agreement and 
will be subject to the confidentiality requirements specified in Sec.  
460.200.
    Finally, we require that each PO conduct an annual satisfaction 
survey of its participants and caregivers. The

[[Page 71325]]

findings should be used by the PO to identify opportunities for 
improvement.
    Comment: Four commenters commented on health outcomes data, and 
although they were supportive of requirements for participant health 
outcomes data, they maintain that flexibility is important in 
developing State or site specific systems. Commenters asked that CMS 
focus on the specific data elements that will be required but leave the 
decision about which tool to use to the States or providers.
    One commenter indicated that it is important for States to know, up 
front, the participant health outcome data reporting requirements to 
assist them in making PACE a State plan option.
    Response: Although the reporting requirements discussed above were 
not available when we published the 1999 interim final rule, we 
established the requirement shortly after publication. We also provided 
training to the POs. States should now be aware of the reporting 
requirements for PACE.
    Comment: One commenter indicated that if encounter data were going 
to be used for uses other than risk adjustment, then a broader range of 
data requirements would be needed. This commenter was interested in CMS 
developing consistency in reporting requirements in order to minimize 
the reporting burden for POs.
    Response: Currently, encounter data is only being used to determine 
reimbursement under the risk adjustment payment methodology. As 
discussed in the QAPI section, we are no longer pursuing development of 
a standardized assessment tool for PACE.
    Comment: Several commenters stressed the importance of streamlining 
all Federal and State reporting requirements. Two commenter opposed 
CMS' application of a broad range of reporting requirements to POs 
which were developed for, and are more appropriate to, managed care 
entities and more limited provider types, such as, home health agencies 
or nursing homes. One commenter discouraged whole scale application of 
these types of requirements and encouraged the development of OBCQI 
requirements unique to PACE providers.
    Response: At the time we published the 1999 interim final rule, 
several PACE demonstration programs were licensed under State law as 
home health agencies. In these cases, the POs were subject to the 
additional reporting requirements based upon their licensure. We 
understand many States are now developing licensure programs for PACE. 
When this occurs, the POs would no longer be required to submit 
additional OASIS information. The encounter and functional status 
reporting are necessary for PACE payment under risk adjustment 
methodology.
    Final rule actions:
    This final rule will finalize Sec.  460.202 as published in the 
1999 interim final rule.

Section 460.204 Financial Recordkeeping and Reporting Requirements

    In Sec.  460.204, we require that a PO must provide CMS and the SAA 
with accurate financial reports that are prepared using an accrual 
basis of accounting and verifiable by auditors.
    In addition, we require that the PO maintain an accrual accounting 
recordkeeping system that accurately documents all financial 
transactions, provides an audit trail to source documents, and 
generates financial statements.
    Further, except as stipulated under Medicare principles of 
reimbursement set forth in 42 CFR part 413, a PO must follow 
standardized definitions and accounting, statistical, and reporting 
practices that are widely accepted in the health care industry.
    We also require that a PO must permit CMS and the SAA to audit or 
inspect any books and records of original entry that pertain to any 
aspect of services performed, reconciliation of participants' benefit 
liabilities or determination of Medicare and Medicaid amounts payable.
    We note the statute does not provide for risk-sharing arrangements 
between CMS and POs. It places the organization at full financial risk 
for all services, thus our emphasis is on the need for accurate 
accounting records.
    Comment: One commenter recommended that CMS require POs that are a 
subdivision of a larger parent organization, to maintain a balance 
sheet, statement of income and expenses, and documentation of the 
sources and uses of its funds that is separate and distinct from the 
parent organization's financial record keeping.
    Response: We agree. We believe it is important for us to receive 
the financial information for the PO in order to determine the PO's 
solvency. However, where the PO's financial solvency is based on a 
guarantee by the PO's parent organization, we request this information 
as well.
    Final rule actions:
    This final rule will finalize Sec.  460.204 as published in the 
1999 interim final rule.

Section 460.208 Financial Statements

    CMS, in cooperation with the SAA, has the responsibility of 
assessing fiscal soundness as described in Sec.  460.80. The financial 
information required to assess the fiscal soundness of a PO is 
information from basic financial statements, balance sheets, statement 
of revenues and expenses, and sources and uses of funds statement. An 
organization that has completed its trial period is required to submit 
financial statements annually. An organization that is in the trial 
period is required to submit quarterly financial statements in addition 
to the annual certified financial statements. An organization may use 
the ``Annual Statement'' (also known as the ``orange blank''), which 
was developed by the National Association of Insurance Commissioners 
for reporting by HMOs. For information contact NAIC 2301 McGee Street, 
Suite 800 Kansas City, MO 64108 (816-842-3600).
    We require that, not later than 180 days after the end of the 
organization's fiscal year, the PO submit the annual financial 
statement that includes appropriate footnotes. This financial statement 
must be certified by an independent certified public accountant. At a 
minimum, the certified financial statement must include a certification 
statement, a balance sheet, a statement of revenues and expenses, and a 
source and use of funds statement.
    Throughout the trial period, we require that not later than 45 days 
after the end of each quarter of the organization's fiscal year, a PO 
must submit a quarterly financial statement. Quarterly financial 
statements are not required to be certified by an independent certified 
public accountant.
    At the conclusion of the trial period, CMS or the SAA may require a 
PO to submit monthly or quarterly financial statements, or both, if CMS 
or the SAA determines that an organization's performance requires more 
frequent monitoring and oversight due to concerns about fiscal 
soundness. These additional reports do not have to be certified by a 
certified public accountant.
    Sections 1894(e)(3) and (4) and 1934(e)(3) and (4) of the Act 
require CMS and the SAA to work in consultation to determine what data, 
cost and financial reports the PO must submit so these agencies can 
monitor the cost and effectiveness of a PO and perform necessary 
reviews.
    We consulted with representatives from various State organizations 
that serviced PACE demonstration programs. We have determined that data 
collection

[[Page 71326]]

and financial reporting requirements vary among the State 
organizations. The data collection and financial reports we require for 
purposes of assessing fiscal soundness can also assist the SAA in their 
monitoring and oversight requirements. Of course, States have the 
authority to request any data and reports that they consider to be 
necessary in implementing the PACE program. We solicited comments on 
consistency in reporting requirements in the 1999 interim final rule.
    Comment: Two commenters asked whether financial statements and 
reports should be routed to CMS via the SAA or if they should go to CMS 
and the SAA simultaneously.
    Response: Financial reports should go to CMS and the SAA 
simultaneously.
    Comment: Commenters asked whether there is any flexibility in CMS 
requirements at Sec.  460.208 for submission of financial reporting 
documents to CMS and the State, if the State establishes a different 
reporting cycle.
    Response: The financial statements are due to CMS within the 
required timeframes of 45 days from the end of the quarter (during the 
trial period) and 180 days after the fiscal year end. There is no 
flexibility in CMS' timeframes, but States may have discretion 
regarding their timeframes for reporting requirements if they are 
different than the Federal requirements.
    Comment: Several commenters asked if CMS has standard reporting 
formats and if States have flexibility to develop their own financial 
reporting documents.
    Response: CMS does not have a standard format for financial 
reporting for POs. As specified in Sec.  460.204, financial reports are 
required to be prepared using an accrual basis of accounting and must 
be verifiable by qualified auditors.
    There is flexibility for States to develop their own financial 
reporting formats if they choose to do so.
    Final rule actions:
    This final rule will finalize Sec.  460.208 as published in the 
1999 interim final rule.

Section 460.210 Medical Records

    The participant's medical record presents a total picture of the 
care provided. The medical record is a useful tool in diagnosing, 
treating and caring for the participant. The medical record: (1) 
Facilitates communication among the various health care professionals 
providing services to the participant; (2) provides a focal point for 
coordinating the actions of the IDT; (3) provides an accurate picture 
of the participant's progress in achieving care goals; and (4) provides 
the team members with data for evaluating and documenting the quality 
and appropriateness of care delivered. Because care for the PACE 
population will be provided by a variety of sources (for example, PACE 
center employees, contracted personnel, hospital staff, nursing home 
staff, etc.), it is critical that all information on the participant be 
documented in the medical record to ensure quality and continuity of 
care. As a result, in the 1999 interim final rule, we retained with few 
modifications the minimum elements specified in the Protocol to be 
included in the participant's medical record.
    To facilitate continuity of care, we require in Sec.  460.210 that 
the PO maintain a single comprehensive medical record for each 
participant at the PACE center they attend. Participant medical records 
should be complete, accurately documented, easily retrievable, 
systematically organized, and available to all staff. We recognize that 
a PO may have more than one PACE center, however, participant medical 
records must be located at the PACE center where the participant 
receives services so that staff has access to pertinent information. 
This requirement also should prevent time lost in obtaining records and 
facilitate timely review and documentation of the medical record.
    At a minimum, the participant medical record must include:
     Appropriate identifying information;
     Documentation of all services furnished, including:
    + A summary of emergency care and other inpatient or long-term care 
services. (We included this last phrase to ensure that any services 
furnished to the participant outside the scope of the PACE center's 
direct care is documented in the medical record. It is critical to the 
continuity of care that the IDT be informed of all outside services 
furnished to the participant. Once the participant returns to the PACE 
center, the course of treatment can be reevaluated and adjusted based 
on any changes in the participant's status.);
    + Services furnished by employees of the PACE center; and
    + Services furnished by contractors and their reports (This item is 
intended to ensure that anyone who furnishes services to the 
participant, employees of the PO or contractors, shares the information 
with the IDT for documentation in the medical record. Again, this 
requirement is intended to facilitate communication between 
providers.);
    + Interdisciplinary assessments, reassessments, plans of care, and 
treatment and progress notes that are signed and dated;
    + Laboratory, radiological and other test reports (This change from 
the Protocol clarifies that all tests should be included in the 
participant medical record.);
    + Medication records;
    + Hospital discharge summaries, if applicable;
    + Reports of contact with informal support (for example, 
representatives/care givers, legal guardian, or next of kin);
    + Enrollment Agreement signed by the participant;
    + Physician orders;
    + Disenrollment justification, if applicable;
    + Advance directives, if applicable (For example, when a 
participant has executed an advance directive, that fact should be 
prominently displayed. If the PO cannot implement an advance directive 
as a matter of conscience that fact also should be prominently 
displayed and explained to prospective enrollees.);
    + A signed release permitting disclosure of personal information; 
and
    + Accident and incident reports. (Accident and incident reports 
were included because we believed they may be an indicator of changes 
in the participant's functional status, problems or changes in the 
participant's home environment, or physical problems with the PACE 
center or its staff.)
    We also require the PO to provide for the prompt transfer of copies 
of appropriate medical record information between treatment facilities 
to ensure continuity of care whenever a participant is temporarily or 
permanently transferred to another facility. Examples of appropriate 
medical record information include, but are not limited to, the reason 
for the transfer, the name and phone number of the attending physician, 
participants' demographics, active diagnosis and treatment plan 
including current medications and ADL status, special dietary 
considerations, etc. It is essential that the medical history and plan 
of care follow the participant. This requirement is intended to ensure 
communication between providers. We solicited comments on whether a 
specific timeframe for the transfer of participant medical record 
information should be required.
    We included a requirement for authentication of the medical record 
to ensure that the appropriate individuals have reviewed and completed 
the participant's medical records. All

[[Page 71327]]

entries must be legible, clear, complete, and appropriately 
authenticated and dated.
    Authentication must include signatures or a secured computer entry 
by a unique identifier of the primary author who has reviewed and 
approved the entry.
    Comment: Three commenters indicated that it is inappropriate for 
accident and incident reports to be kept in the medical record. They 
suggest that changes in a participant's health status resulting from an 
accident and other incident not be noted in the medical record. Rather 
the commenter believed that accident or incident reports should be 
maintained in a secure, confidential location that is available to CMS 
and the SAA for review.
    Response: Our intent at the time of drafting the 1999 interim final 
rule was that POs would record changes in health status resulting from 
accidents or incidents in the medical record and all records would be 
consolidated into one medical record. However, we agree with the 
commenters that specific accident or incident reports should be 
maintained in a secure confidential location and should be available to 
CMS and the SAA for review. We believe the purpose of including such 
items in the medical record is served by noting the change in medical 
condition. We do not think that the origin of the change is required in 
the medical record but agree that accident and incident reports should 
be available to CMS and the SAA for purposes of program review. Changes 
in participant health status and related participant assessments and 
modifications to care plans are required to be included in the medical 
record. We will, however, no longer require that accident and incident 
reports be filed in participant medical records.
    Therefore, we are amending Sec.  460.210 by deleting paragraph 
(b)(13) from the required content of medical record.
    Comment: Two commenters responded to our request for comments 
regarding whether to impose specific timeframes for the transfer of 
participant medical record information between the PO and another 
treatment facility or provider. One commenter did not recommend the 
imposition of a timeframe for transfer of records, while the other 
commenter recommended implementing a timeframe requirement only when 
providing the participant with a copy of their medical record when 
requested.
    Response: We believe that a comprehensive treatment history equips 
providers to deliver appropriate care. We also believe that POs are 
cognizant of the importance of prompt transfer of medical records in 
order to assist other providers and facilities in coordinating PACE 
participant care.
    Therefore, we believe that POs will provide for the prompt transfer 
of appropriate medical record information between treatment facilities 
to ensure continuity of care whenever a participant is temporarily or 
permanently transferred to another facility and a timeframe for doing 
so is not necessary. Accordingly, we are not imposing a timeframe for 
transferring medical records in this final rule.
    Comment: Two commenters questioned whether the PO must maintain a 
hardcopy of all electronically maintained medical records. The 
commenters requested clarification of the requirement for electronic 
record integrity and back-up.
    Response: CMS does not require the hardcopy backup of electronic 
medical records. We are not mandating a specific system for electronic 
medical record backup but the PO needs to develop and maintain a backup 
system for their electronic medical records to ensure that they can 
reproduce their medical records should there be a systems dysfunction 
or physical destruction such as a fire. The electronic medical records 
should be periodically and systematically backed-up, secure, and 
located off site in case of a physical disaster. The PO must be able to 
provide a copy of participants medical records upon request by CMS or 
the SAA.
    Final rule actions:
    This final rule will amend Sec.  460.210 by deleting paragraph 
(b)(13) ``Accident and incident reports'' from the required contents of 
the medical record.

IV. Provisions of Final Rule

Part 460 Authority Citation

    We are adding sections 1894(f) and 1934(f) of the Social Security 
Act to the authority citation for part 460 because they specifically 
require the Secretary to promulgate regulations for these sections.

Subpart A--Basis, Scope, and Definitions

Section 460.2 Basis--No Change

Section 460.4 Scope and Purpose--No Change

Section 460.6 Definitions

    We are amending this section to redefine the term ``PACE center'' 
as ``a facility which includes a primary care clinic, areas for 
therapeutic recreation, restorative therapies, socialization, personal 
care, and dining which serves as the focal point for coordination and 
provision of most PACE services.'' We are also amending this section by 
adding the definition of ``PACE program''.

Subpart B--PACE Organization Application and Waiver Process

Section 460.10 Purpose--No Change

Section 460.12 Application Requirements

    The October 2002 interim final with comment removed and reserved 
Sec.  460.12(a)(2). In this final rule, we are redesignating Sec.  
460.12(a)(3) as Sec.  460.12(a)(2). We are also removing the cross 
reference to Sec.  460.14 in newly redesignated paragraph (a)(2)(i) of 
Sec.  460.12, and the cross reference to Sec.  460.16 in newly 
redesignated paragraph (a)(2)(ii) of Sec.  460.12, since Sec.  460.14 
and Sec.  460.16 are being removed in this rule.

Section 460.14 Priority Consideration

    In this final rule, we are deleting Sec.  460.14 which no longer 
applies since August 5, 2000 timeframe has passed and all PACE 
demonstration programs have transitioned to permanent providers. We are 
reserving this section.

Section 460.16 Special Consideration

    In this final rule, we are deleting Sec.  460.16 which no longer 
applies since the August 5, 2000 timeframe has passed and all PACE 
demonstration programs have transitioned to permanent providers. We are 
reserving this section.

Section 460.18 CMS Evaluation of Application--No Change

Section 460.20 Notice of CMS Determination--No Change

Section 460.22 Service Area Determination--No Change

Section 460.24 Limit on Number of PACE Program Agreements--No Change

Section 460.26 Submission and Evaluation of Waiver Requests

    In this final rule, we are amending Sec.  460.26 by redesignating 
paragraph (a) as paragraph (a)(1) and adding paragraph (a)(2) 
permitting non-operational entities submitting a PACE provider 
application to submit a waiver request at the same time. The waiver 
request must be submitted as a separate document and follow all other 
requirements as stated in this section. We are also amending paragraphs 
(b) and (b)(1) by adding ``or PACE applicant.''

Section 460.28 Notice of CMS Determination on Waiver Requests

    We are amending (a)(2) by adding ``or PACE applicant,'' thereby 
requiring

[[Page 71328]]

CMS to notify the PO or PACE applicant in writing of the decision to 
deny the submitted wavier request.

Subpart C--PACE Program Agreement

Section 460.30 Program Agreement Requirement--No Change

Section 460.32 Content and Terms of PACE Program Agreement

    We are amending paragraph (a)(12) to require the PACE program 
agreement to include the Medicaid capitation rate and the methodology 
used to calculate the Medicare capitation rate.

Section 460.34 Duration of Program Agreement--No Change

Subpart D--Sanctions, Enforcement Actions, and Termination

Section 460.40 Violations for Which CMS May Impose Sanctions--No Change

Section 460.42 Suspension of Enrollment or Payment by CMS--No Change

Section 460.46 Civil Money Penalties--No Change

Section 460.48 Additional Actions by CMS or the State--No Change

Section 460.50 Termination of PACE Program Agreement--No Change

Section 460.52 Transitional Care During Termination--No Change

Section 460.54 Termination Procedures--No Change

Subpart E--PACE Administrative Requirements

Section 460.60 PACE Organizational Structure

    In this final rule, we are amending Sec.  460.60(d)(3) by changing 
``60'' to ``14'' days. Together with the following deletions of 
paragraphs (d)(4) and (d)(5) of this section, we are reducing 
administrative burden for POs.
    We are deleting paragraph (d)(4) that states ``changes in 
organizational structure must be approved in advance by CMS and the 
SAA.''
    We are also deleting paragraph (d)(5) that states, ``changes in 
organizational structure approved by CMS and the SAA must be forwarded 
to the consumer advisory committee, described in Sec.  460.62(c) for 
dissemination to participants as appropriate.''

Section 460.62 Governing Body

    In this final rule, we are clarifying the requirements for 
community involvement on issues relating to participants. We are 
revising the name of the ``Consumer Advisory Committee'' to be the 
``Participant Advisory Committee'' to more adequately reflect the 
intent of the PO having an advisory committee that is comprised of 
participants and participant representatives who are focused on their 
issues. The Participant Advisory Committee provides the Participant 
Representative with issues as recorded in minutes of their meeting to 
present at the PO governing body meeting required in the new paragraph 
(c)(3).

Section 460.64 Personnel Qualifications for Staff With Direct 
Participant Contact

    We are amending the title of Sec.  460.64 and the personnel 
qualifications to clarify that the qualifications apply to all PACE 
staff with direct participant contact and decrease the burden in hiring 
and contracting for adequate numbers of staff members. We are removing 
the educational requirements and other qualifications at Sec.  
460.64(c) that we established for professions where no States require 
licensure, certification, or registration. All PACE staff with direct 
participant contact must meet the general personnel qualifications.
    The amended requirements also clarify that physicians must meet the 
requirements for Federally-defined qualifications for a physician in 
addition to the general personnel requirements.

Section 460.66 Training

    We are clarifying the training requirement for personal care 
attendants by requiring that their competency must be exhibited before 
performing personal care services independently.

Section 460.68 Program Integrity

    We are amending the conflict of interest prohibitions. We provided 
a mechanism for disclosure and recusal in the event that a PO 
experiences any direct or indirect conflict of interest by a member of 
the governing body or an immediate family member.

Section 460.70 Contracted Services

    We are reducing operational burden by amending this regulation to 
remove the requirement that POs submit each signed contract for 
inpatient care.

Section 460.71 Oversight of Direct Participant Care

    We are amending this requirement to be consistent with the general 
personnel qualifications by clarifying that all direct participant care 
staff and contractors be free of communicable diseases and have all 
immunizations up to date before performing direct participant care.

Section 460.72 Physical Environment

    We are amending this requirement to clarify that POs must perform 
the manufacturers' recommended maintenance.

Section 460.74 Infection Control--No Change

Section 460.76 Transportation Services--No Change

Section 460.78 Dietary Services

    In this section, we are clarifying that each participant's dietary 
requirements are determined by assessment and included in the 
participant's plan of care. It also clarifies that the PO must ensure 
that each participant receives meals that are specific to their dietary 
needs. If the PO needs to provide meals, which are included in the 
participant's plan of care, the meals must be nourishing, palatable, 
well-balanced, and meet the participant's daily nutritional and special 
dietary needs.

Section 460.80 Fiscal Soundness--No Change

Section 460.82 Marketing Materials--No Change

Subpart F--PACE Services

Section 460.90 PACE Benefits Under Medicare and Medicaid--No Change

Section 460.92 Required Services

    We are amending the list of required services to clarify that the 
PACE benefit package include all Medicare-covered items and services, 
Medicaid-covered items and services specified in the State's approved 
Medicaid plan, and other services determined necessary by the IDT to 
improve and maintain the participant's overall health status.

Section 460.94 Required Services for Medicare Participants

    We are amending the requirement to clarify that payment for PACE 
program services is for services that are provided to the PACE 
participants.

Section 460.96 Excluded Services

    We are correcting a technical error published in Sec.  460.96(e)(1) 
by replacing the word ``through'' with the word ``and'' so that 
paragraph (e) reads ``Services furnished outside of the United States, 
except as follows: (1) In accordance with Sec.  424.122 and Sec.  
424.124 of this chapter.''

Section 460.98 Service Delivery

    We are expanding participant rights by amending this requirement to 
include sexual orientation in the list of

[[Page 71329]]

categories under which PO must not discriminate.

Section 460.100 Emergency Care

    We are defining urgent care and post-stabilization care outside of 
the service area.
    We are also expanding participant protection by amending this 
requirement to clarify that the PO must explain to the participant or 
caregiver that they can obtain emergency care without prior 
authorization.

Section 460.102 Interdisciplinary Team

    We are clarifying the position and responsibilities of the social 
worker on the IDT by amending it to ``Master's level social worker 
(MSW).'' This will make the requirement consistent with other Medicare 
regulations.

Section 460.104 Participant Assessment

    We are amending this provision to require that the in-person 
assessment and reassessments be performed by both a physical therapist 
and an occupational therapist, thus clarifying one discipline cannot 
replace the other discipline.
    We are clarifying that a MSW performs assessments and 
reassessments.
    We are also redesignating paragraph (c)(3) as new paragraph (d) and 
changing the heading from ``Reassessment based on change in participant 
status or at the request of the participant or designated 
representative'' to ``Unscheduled reassessments.'' We are identifying 
separate requirements in paragraph (d) for reassessments based on a 
change in participant status or requested by a participant or his or 
her representative.
    We are decreasing the operational burden by removing the 
requirement that all reassessments be performed by the IDT minus the 
personal care attendant, driver, and PACE center manager. We are 
amending this requirement to require the IDT members listed in 
paragraph (a)(2) to perform in-person reassessments for change in 
status and permit the IDT to determine which IDT members must perform 
reassessments when requested by the participant or their designated 
representative. However, we added a requirement that if a significant 
change in the participant's health or psychosocial status occurs, the 
in-person reassessment must be performed by the entire IDT minus the 
personal care attendant, driver, and PACE center manager.

Section 460.106 Plan of Care--No Change

Subpart G--Participant Rights

Section 460.110 Bill of Rights--No Change

Section 460.112 Specific Rights to Which a Participant Is Entitled

    We are amending this requirement by expanding the Participant's 
rights to include sexual orientation in the list of categories that a 
PO must not discriminate against.
    Also we are revising paragraph (b)(1)(iii) to require the 
disclosure of all PO services and services delivered by contracted 
providers at the time a participants needs necessitate the disclosure 
and delivery of such information to allow the participant to make an 
informed choice.

Section 460.114 Restraints--No Change

Section 460.116 Explanation of Rights--No Change

Section 460.118 Violation of Rights--No Change

Section 460.120 Grievance Process--No Change

Section 460.122 PACE Organization's Appeals Process

    We are amending this requirement to clarify that noncoverage of 
services including denials, reduction, or termination of services are 
included as a basis for appeal.
    We are also expanding participant protections by changing ``would'' 
be seriously jeopardized to ``could'' be seriously jeopardized and 
revising ``regain'' maximum function to ``regain or maintain'' maximum 
function.

Section 460.124 Additional Appeal Rights Under Medicare or Medicaid--No 
Change

Subpart H--Quality Assessment and Performance Improvement--No Change

Subpart I--Participant Enrollment and Disenrollment

Section 460.150 Eligibility To Enroll in the PACE Program--No Change

Section 460.152 Enrollment Process

    We are expanding participant protection by amending the requirement 
that POs must explain and provide information related to post-
eligibility treatment of income during the intake process.

Section 460.154 Enrollment Agreement

    We are clarifying the requirement that a participant may not enroll 
or disenroll at a Social Security office.
    We are also expanding participant protection by amending this 
requirement allowing the participant or their designated representative 
to sign and date the reenrollment agreement.

Section 460.156 Other Enrollment Procedure--No Change

Section 460.158 Effective Date of Enrollment--No Change

Section 460.160 Continuation of Enrollment

    We are revising paragraph (b)(3)(i) to clarify that the SAA must 
establish criteria for use in making deemed eligibility determinations.

Section 460.162 Voluntary Disenrollment--No Change

Section 460.164 Involuntary Disenrollment--No Change

Section 460.166 Effective Date of Enrollment--No Change

Section 460.168 Reinstatement in Other Medicare and Medicaid Programs--
No Change

Section 460.170 Reinstatement in PACE--No Change

Section 460.172 Documentation of Disenrollment.--No Change

Subpart J--Payment

Section 460.180 Medicare Payments to POs

    We are amending this section to reflect the new Medicare risk 
adjustment payment methodology and are requiring that the PACE program 
agreement contain the ``methodology'' for establishing the monthly 
capitation rather than the ``amount'' of the monthly capitation rate.

Section 460.182 Medicaid Payment--No Change

Section 460.184 Post-Eligibility Treatment of Income--No Change

Section 460.186 PACE Premiums--No Change

Subpart K--Federal/State Monitoring

Section 460.190 Monitoring During Trial Period--No Change

Section 460.192 Ongoing Monitoring After Trial Period--No Change

Section 460.194 Corrective Action--No Change



[[Page 71330]]

Section 460.196 Disclosure of Review Results--No Change

Subpart L--Data Collection, Record Maintenance, and Reporting

Section 460.200 Maintenance of Records and Reporting Data--No Change

Section 460.202 Participant Health Outcomes Data--No Change

Section 460.204 Financial Recordkeeping and Reporting Requirements--No 
Change

Section 460.208 Financial Statements--No Change

Section 460.210 Medical Records

    We are amending this section by removing the requirement that 
accident and incident reports be contained in the medical record. The 
origin of a change in the status of a medical condition is not required 
in the medical record, but should be available for CMS and the SAA for 
review.

V. Collection of Information Requirements

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

Section 460.30 Program Agreement Requirement

    Section 460.30(c) states that CMS may only sign program agreements 
with PACE organizations that are located in States with approved State 
plan amendments electing PACE as an optional benefit under their 
Medicaid State plan.
    The burden associated with this requirement is the time and effort 
for a State to develop its State plan amendment to elect PACE as an 
optional Medicaid benefit. We estimate that 25 States will each take 10 
hours to complete this requirement for a total annual burden of 250 
hours. We estimate the total burden for these requirements to be 358 
hours.

Section 460.68 Program Integrity

    Section 460.68(b)(1) requires PACE organizations to develop written 
policies and procedures for handling direct or indirect conflict of 
interest by a member of the governing board or an immediate family 
member.
    The burden associated with this requirement is the time and effort 
for a PACE organization to develop written policies and procedures for 
handling direct or indirect conflict of interest by a member of the 
governing board or an immediate family member. We estimate that each 
organization will spend 1 hour developing and writing these policies 
and procedures. There will be approximately 54 organizations for a 
total annual burden of 54 hours.
    Section 460.68(b)(2) requires that in the event of a direct or 
indirect conflict of interest the PACE organization must document the 
disclosure of the exact nature of the conflict.
    We estimate each organization will spend 30 minutes documenting a 
conflict of interest disclosure. There will be approximately 54 
organizations for a total burden of 27 hours.


    Note: The following ICRs are subject to the PRA. However, we 
believe that the burden associated with these ICRs is exempt from 
the PRA in accordance with 5 CFR 1320.3(b)(2) because the time, 
effort, and financial resources necessary to comply with these 
requirements would be incurred by persons in the normal course of 
their activities.

Section 460.52 Transitional Care Following Termination

    Section 460.52(b) states that an entity whose PACE program 
agreement is terminated must provide assistance to each participant in 
obtaining necessary transitional care through appropriate referrals and 
making the individual's medical records available to new providers.

Section 460.70 Contracted Services

    Section 460.70(a) states that the PACE organization must have a 
written contract with each outside organization, agency, or individual 
that furnishes administrative or care-related services not furnished 
directly by the PACE organization.
    Section 460.70(c) states that a list of contractors must be on file 
at the PACE center and a copy must be provided to anyone upon request.

Section 460.72 Physical Evironnment

    Section 460.72(c)(1) states that the PACE organization must 
establish, implement, and maintain documented procedures to manage 
medical and nonmedical emergencies and disasters that are likely to 
threaten the health or safety of the participants, staff or the public.
    Section 460.72(c)(4) states that the organization must have a 
documented plan to obtain emergency medical assistance from sources 
outside the center when needed.

Section 460.74 Infection Control

    Section 460.74(b) states that the PACE organization must establish, 
implement, and maintain a documented infection control plan.

Section 460.82 Marketing

    Section 460.82(a) states that a PACE organization must inform the 
public about its program and give prospective participants the 
following written information: An adequate description of the PACE 
organization's enrollment and disenrollment policies and requirements; 
PACE enrollment procedures; description of benefits and services; 
premiums; and other information necessary for prospective participants 
to make an informed decision about enrollment.
    Section 460.82(d) states that marketing materials must inform a 
potential participant that he or she must receive all needed health 
care (other than emergency or urgently needed services) from the PACE 
organization or from an entity authorized by the PACE organization. All 
marketing materials must state clearly that PACE participants may be 
fully and personally liable for the costs of unauthorized or out-of-
PACE program agreement services.

Section 460.98 Service Delivery

    Section 460.98(a) states that a PACE organization must establish 
and implement a written plan to furnish care that meets the needs of 
each participant in all care settings 24 hours a day, every day of the 
year.

Section 460.100 Emergency Care

    Section 460.100(a) states that a PACE organization must establish 
and maintain a written plan to handle emergency care.

[[Page 71331]]

Section 460.102 Interdisciplinary Team

    In summary, section 460.102(d) states that the interdisciplinary 
team is responsible for the initial assessment, periodic reassessments, 
plan of care, and coordination of 24 hour care delivery. Each team 
member must regularly inform the interdisciplinary team of the medical, 
functional, and psychosocial condition of each participant; and 
document changes in a participant's condition in the participant's 
medical record consistent with documentation policies established by 
the medical director.

Section 460.104 Participant Assessment

    In summary, section 460.104(d) states that the interdisciplinary 
team must explain why it denies a participant's request for services, 
inform participants of additional appeal processes available, and 
document all assessment and reassessment information in the 
participant's medical record.

Section 460.106 Plan of Care

    Section 460.106(f) states that the team must document the plan of 
care, and any changes made to it, in the participant's medical record.

Section 460.110 Bill of Rights

    Section 460.110(a) states that a PACE organization must have a 
written participant bill of rights designed to protect and promote the 
rights of each participant.
    Section 460.110(b) states that upon enrollment, the organization 
must inform a participant in writing of her or his rights and 
responsibilities, and all rules and regulations governing 
participation.

Section 460.112 Specific Rights to Which a Participant Is Entitled

    Section 460.112(b)(1) states that a participant has the right to be 
fully informed in writing of the services available from the PACE 
organization.
    Section 460.112(b)(2) states that a participant has the right to 
have the enrollment agreement fully explained in a manner understood by 
the participant.
    Section 460.112(e)(2) states that a participant has the right to 
have the PACE organization explain advance directives and to establish 
them, if the participant so desires.
    Section 460.112(e)(3) states that a participant has the right to be 
fully informed of his or her health and functional status by the 
interdisciplinary team and to participate in the development and 
implementation of the plan of care.
    Section 460.112(e)(6) states that a participant has the right to be 
given reasonable advance notice, in writing, of any transfer to another 
treatment setting, and the justification for it, due to medical reasons 
or for the participant's welfare, or that of other participants. The 
PACE organization must document the justification in the participant's 
medical record.

Section 460.116 Explanation of Rights

    Section 460.116(a) states that a PACE organization must have 
written policies and implement procedures to ensure that the 
participant, his or her representative, if any, and staff understand 
these rights.
    Section 460.116(b) states that upon enrollment, the staff must 
fully explain the rights to the participant and his or her 
representative, if any, in a manner understood by the participant.

Section 460.122 PACE Organization's Appeals Process

    Section 460.122(d) states that a PACE organization must give all 
parties involved in the appeal appropriate written notification and a 
reasonable opportunity to present evidence related to the dispute in 
person, as well as in writing.

Section 460.152 Enrollment Process

    Section 460.152(a)(1) requires that at a minimum, the intake 
process must include the following steps: the PACE staff must explain 
to the potential participant and his or her representative or 
caregiver: the PACE program; the requirement that the PACE organization 
is the participant's sole service provider; monthly premiums, if any; 
any Medicaid spend-down obligations, and post-eligibility treatment of 
income, if any.
    Section 460.152(a)(2) states that the potential participant must 
sign a release to allow the PACE organization to obtain his or her 
medical and financial information and eligibility status for Medicare 
and Medicaid.
    Section 460.152(b)(1) states that if a prospective participant is 
denied enrollment because his or her health or safety would be 
jeopardized by living in a community setting, the PACE organization 
must notify the individual in writing of the reason for denial.
    Section 460.152(b)(2) states that if a prospective participant is 
denied enrollment because his or her health or safety would be 
jeopardized by living in a community setting, the PACE organization 
must refer the individual to alternative services, as appropriate.
    Section 460.152(b)(3) states that if a prospective participant is 
denied enrollment because his or her health or safety would be 
jeopardized by living in a community setting, the PACE organization 
must maintain supporting documentation of the reason for the 
determination.

Section 460.154 Enrollment Agreement

    Section 460.154 states that if the potential participant meets the 
eligibility requirements and wants to enroll, he or she or their 
representative must sign an enrollment agreement in accordance with the 
requirements in this section.

Section 460.156 Other Enrollment Procedures

    Section 460.156(c) states that if there are changes in the 
enrollment agreement information at any time during the participant's 
enrollment, the PACE organization must give an updated copy of the 
information to the participant; and explain the changes to the 
participant and his or her representative or caregiver in a manner they 
understand.

Section 460.168 Reinstatement in Other Medicare and Medicaid Programs

    Section 460.168(a) states that in order to facilitate a 
participant's reinstatement in other Medicare and Medicaid programs 
after disenrollment, the PACE organization must make appropriate 
referrals and ensure medical records are made available to new 
providers in a timely manner.

Section 460.172 Documentation of Disenrollment

    Section 460.172(a) states that a PACE organization must have a 
procedure in place to document the reasons for all voluntary and 
involuntary disenrollments.

Section 460.200 Maintenance of Records and Reporting of Data

    Section 460.200(e) states that a PACE organization must safeguard 
the confidentiality of any information that identifies a particular 
participant; establish and implement procedures that govern the use and 
release of a participant's information before releasing personal 
information that is not required by law to be released.
    Section 460.200(f)(1) states that a PACE organization must retain 
records for the longest of the following periods: the period of time 
specified in State law; six years from the last entry date; or for 
medical records of disenrolled participants, six years after the date 
of disenrollment.

[[Page 71332]]

Section 460.204 Financial Recordkeeping and Reporting Requirements

    Section 460.204(b) states that a PACE organization must maintain an 
accrual accounting recordkeeping system.

Section 460.210 Medical Records

    Section 460.210(a) states that a PACE organization must maintain a 
single, comprehensive medical record for each participant, in 
accordance with accepted professional standards.
    Section 460.210(c) states that the PACE organization must promptly 
transfer copies of medical record information between treatment 
facilities.
    Section 460.210(d) states that all entries must be legible, clear, 
complete, and appropriately authenticated and dated. Authentication 
must include signatures or a secured computer entry by a unique 
identifier of the primary author who has reviewed and approved the 
entry.


    Note: We believe the following requirements are not subject to 
the PRA in accordance with CFR 1320.3(c)(4) since they do not 
require information from ten or more entities on an annual basis.

Section 460.60 PACE Organizational Structure

    Section 460.60(d)(3) states that a PACE organization planning a 
change in organizational structure must notify CMS and the State 
administering agency, in writing, at least 14 days before the change 
takes effect.

Section 460.82 Marketing

    Section 460.82 states that once a PACE organization is under a PACE 
program agreement, any revisions to existing marketing information and 
any new information is subject to CMS' time period for approval. CMS 
approves or disapproves marketing information within 45 days after 
receipt from the organization.


    Note: In accordance with 5 CFR 1320.4(a)(2), we believe the 
following ICRs are exempt from the PRA since it is in response to an 
administrative action, investigation, or audit against specific 
individuals or entities.

Section 460.68 Program Integrity

    Section 460.68(c) states that a PACE organization must have a 
formal process in place to gather information related to paragraphs (a) 
and (b) of this section, and must be able to respond in writing to a 
request for information from CMS within a reasonable amount of time.

Section 460.172 Documentation of Disenrollment

    Section 460.172(b) states a PACE organization must make 
documentation available for review by CMS and the State administering 
agency.

Section 460.192 Ongoing Monitoring After Trial Period

    Section 460.192(a) states that at the conclusion of the trial 
period, CMS, in cooperation with the State administering agency, will 
continue to conduct reviews of a PACE organization, as appropriate, 
taking into account the performance level of the organization with 
respect to the quality of care provided and the organization's 
compliance with all requirements of this part.

Section 460.194 Corrective Action

    Section 460.194(a) states that a PACE organization must take action 
to correct deficiencies identified during reviews.

Section 460.200 Maintenance of Records

    Section 460.200(f)(2) states that if litigation, a claim, a 
financial management review, or an audit arising from the operation of 
the PACE program is started before the expiration of the retention 
period, specified in paragraph (f)(1) of this section, the PACE 
organization must retain the records until the completion of the 
litigation, or resolution of the claims or audit findings.

Section 460.204 Financial Recordkeeping and Reporting Requirements

    Section 460.204(d) states that a PACE organization must permit CMS 
and the State administering agency to audit or inspect any books and 
records of original entry that pertain to the following: any aspect of 
services performed; reconciliation of participant's benefit 
liabilities; or determination of Medicare and Medicaid amounts payable.

Section 460.208 Financial Statements

    Section 460.208(c) states that if CMS or the State administering 
agency determines that an organization's performance requires more 
frequent monitoring and oversight due to concerns about fiscal 
soundness, CMS or the State administering agency may require a PACE 
organization to submit monthly or quarterly financial statements, or 
both.


    Note: There is additional burden associated with Sections 
460.12, 460.26, 460.30(a) & (b), 460.70, 460.71, 460.72, 460.82, 
460.102, 460.104, 460.116, 460.120(b) & (e), 460.122, 460.124, 
460.132, 460.152, 460.156, 460.160, 460.164, 460.190, 460.196, 
460.202, 460.208, 460.22, 460.32, 460.52, 460.60(d)(1) & (2), 
460.68, 460.80, 460.104, 460.118, 460.120, 460.122, 460.132, 
460.200, 460.204; however, that burden is currently approved under 
OMB  0938-0790 with an expiration date of 2/28/2009.

    In the 2002 IFC, Sec.  460.12 was redesignated as Sec.  460.30(c) 
and the burden was approved at that time. It continues to be currently 
approved under OMB0938-0790 with an expiration date of 
February 28, 2009.
    If you comment on these information collection and record keeping 
requirements, please mail copies directly to the following: Centers for 
Medicare & Medicaid Services, Office of Strategic Operations and 
Regulatory Affairs, Division of Regulations Development, Attn.: Melissa 
Musotto, CMS-1201-F, Room C5-14-03, 7500 Security Boulevard, Baltimore, 
MD 21244-1850. Office of Information and Regulatory Affairs, Office of 
Management and Budget, Room 10235, New Executive Office Building, 
Washington, DC 20503, Attn: Carolyn Lovett, CMS Desk Officer, CMS-1201-
F, [email protected]. Fax (202) 395-6974.

VI. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    First, 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 in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule.
    Next, 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 small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $6 million to $29 million in any 1

[[Page 71333]]

year. Individuals and States are not included in the definition of a 
small entity. Although PACE organizations (POs) are nearly always small 
entities, the industry is limited in scope with a growth rate of new 
POs averaging fewer than six per year. Currently, there are 36 POs that 
have program agreements. In addition, the requirements contained in 
this rule are largely similar to the requirements that have been 
applicable to the existing organizations through the 1999 and 2002 
interim final rules. Other entities that have contemplated or already 
have started developing PACE programs have been aware of those 
requirements and would have designed their potential programs to comply 
with them. Because the basic effect of this rule is to finalize 
prevailing industry standards, its impact is not significant.
    While we do not have data on which to base an estimate of overall 
costs or savings to the Medicare and Medicaid programs, we believe that 
any incremental difference would be so small as to be negligible. PACE 
services substitute for services that would otherwise be covered, and 
payment rates are adjusted so that the total payment level is less than 
the projected payment that would have been made if the participants 
were not enrolled in PACE. Thus, the overall result should be a slight 
savings for this small population. PACE services substitute for 
services that would otherwise be covered, and payment rates are 
adjusted so that the total payment level is less than the projected 
payment that would have been made if the participants were not enrolled 
in PACE. Thus, the overall result should be a slight savings for this 
small population. Because this rule will not have a significant 
economic impact on a substantial number of small entities, we are not 
preparing an analysis for the RFA.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of 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 and relating to Medicare 
payment, we define a small rural hospital as a hospital that is located 
outside of a Metropolitan Statistical Area and has fewer than 100 beds. 
In terms of Medicaid payment, we define a small rural hospital as a 
hospital that is located outside of a Core-Based Statistical Area and 
has fewer than 100 beds. We are not preparing an analysis for section 
1102(b) of the Act, because we have determined that this rule will not 
have a significant impact on the operations of a substantial number of 
small rural hospitals.
    Next, Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. Consistent with our 
approach in the 1999 and 2002 PACE interim final rules, we are not 
preparing an analysis of section 202. Even as we factor in the growth 
rate of PACE since the two previous interim final rules, the mandates 
of this rule do not require spending $100 million or more in any 1 
year. This rule will have no consequential effect on State, local, or 
Tribal governments or on the private sector.
    Finally, Executive Order 13132 establishes certain requirements 
that an agency must meet when it promulgates a proposed rule (and 
subsequent final rule) that imposes substantial direct requirement 
costs on State and local governments, preempts State law, or otherwise 
has Federalism implications. Under Executive Order 13132, this 
regulation will not significantly affect the States beyond what is 
required and provided for under the BBA. It follows the intent and 
letter of the law and does not usurp State authority beyond what the 
BBA requires. This regulation describes the processes that must be 
undertaken by CMS, the States, and POs in order to implement the PACE 
benefit.
    As noted previously, sections 4801 and 4802 of the BBA clearly 
describe a cooperative relationship between the Secretary and the 
States in the development, implementation, and administration of the 
PACE benefit. The following are some examples of areas in which we 
engaged in partnership with States to establish policy and procedures:
    1. Establishing procedures for entering into, extending, and 
terminating PACE agreements--sections 1894(e)(1)(A) and 1934(e)(1)(A) 
of the Act.
    2. Establishing procedures for excluding service areas already 
covered under other PACE program agreements in order to avoid 
unnecessary duplication of services and also to avoid impairing the 
financial and service viability of the existing program--sections 
1894(e)(2)(B) and 1934(e)(2)(B) of the Act.
    3. Establishing procedures for the POs to make available PACE 
program data--sections 1894(e)(3)(A)(i)(III) and 1934(e)(2)(A)(i)(III) 
of the Act.
    4. In conjunction with the PO, developing and implementing health 
status and quality of life outcome measures--sections 1894(e)(3)(B) and 
1934(e)(3)(B) of the Act.
    5. The statute requires the Secretary and State to conduct a 
comprehensive annual review--sections 1894(e)(4)(A) and 1934(e)(4)(A) 
of the Act.
    6. Establishing the frequency of the monitoring reviews--sections 
1894(e)(4)(B) and 1934(e)(4)(B) of the Act.
    7. Establishing a mechanism for communicating CMS Secretary's 
findings and State action when a PO is failing to comply with Federal 
requirements--sections 1894(e)(6)(A) and 1934(e)(6)(A) of the Act.
    8. Establishing the entity responsible for the annual eligibility 
recertification--sections 1894(c)(3) and 1934(c)(3) of the Act; and 
continuation of eligibility requirements--sections 1894(c)(4) and 
1934(c)(4) of the Act.
    For this reason, we obtained State input in the early stages of 
policy development through conference calls with State Medicaid Agency 
representatives. The 8 agencies that volunteered to participate in 
these discussions represented a balanced view of States; some with PACE 
demonstration program experience and some that were not involved with 
PACE at that time, but were interested in providing input to establish 
a new long term care optional benefit. The calls were very productive 
in understanding the variety of State concerns inherent in implementing 
a new program. In addition, in order to formulate processes to 
operationalize the PACE benefit, we maintained ties with State 
representatives through conference calls to obtain information on a 
variety of topics including the applications review and approval 
process, data collection needs, and enrollment/disenrollment issues, 
join CMS/State onsite surveys. We are committed to continuing this 
dialogue with States after publication of this regulation to ensure 
this cooperative atmosphere continues as the PACE matures.
    Since this regulation finalizes costs associated with PACE and does 
not impose any new costs on State or local governments, the 
requirements of E.O. 13132 are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 460

    Aged, Health care, Health records, Medicaid, Medicare, Reporting 
and recordkeeping requirements.

[[Page 71334]]


0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services confirms as final the interim final rules amending 42 
CFR Chapter IV, published on November 24, 1999 (64 FR 66234) and 
October 1, 2002 (67 FR 61496), as final with the following changes:

PART 460--PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)

0
1. The authority citation for part 460 is revised to read as follows:

    Authority: Secs. 1102, 1871, 1894(f), and 1934(f) of the Social 
Security Act (42 U.S.C. 1302, 1395, 1395eee(f), and 1396u-4(f)).


Sec. Sec.  460.72, 460.74, 460.98, and 460.102  [Amended]

0
2. In the following paragraphs in part 460, remove the word ``center'' 
and add the phrase ``PACE center'' in its place:
0
Sec.  460.72(b)(1) at the end of the first sentence
0
(b)(2)(ii)
0
(b)(4)
0
Sec.  460.74(c)(1)
0
Sec.  460.98(d) heading
0
(d)(3)
0
(e) heading and in the body of the paragraph Sec.  460.102(a)(1)

Subpart A--Basis, Scope, and Definitions

0
3. Section 460.6 is amended by revising the definition of ``PACE 
center'' and by adding a definition of ``PACE program'' to read as 
follows:


Sec.  460.6  Definitions.

* * * * *
    PACE center is a facility which includes a primary care clinic, and 
areas for therapeutic recreation, restorative therapies, socialization, 
personal care, and dining, and which serves as the focal point for 
coordination and provision of most PACE services.
* * * * *
    PACE program means a program of all-inclusive care for the elderly 
that is operated by an approved PACE organization and that provides 
comprehensive healthcare services to PACE enrollees in accordance with 
a PACE program agreement.
* * * * *


Sec.  460.12  [Amended]

0
4. Section 460.12 is amended by--
0
A. Redesignating paragraph (a)(3) as paragraph (a)(2).
0
B. In newly redesignated paragraph (a)(2)(i), removing the phrase ``, 
as provided in Sec.  460.14.''
0
C. In newly redesignated paragraph (a)(2)(ii), removing the phrase ``, 
as provided in Sec.  460.16.''


Sec.  460.14  [Removed and Reserved]

0
5. Section 460.14 is removed and reserved.


Sec.  460.16  [Removed and Reserved]

0
6. Section 460.16 is removed and reserved.

0
7. Section 460.26 is amended as follows:
0
A. Redesignating paragraph (a) as paragraph (a)(1).
0
B. Adding paragraph (a)(2).
0
C. Revising paragraph (b) introductory text.
0
D. Revising paragraph (b)(1).
    The revisions read as follows:


Sec.  460.26  Submission and evaluation of waiver requests.

    (a)(1) A PACE organization must submit its waiver request through 
the State administering agency for initial review. The State 
administering agency forwards the waiver requests to CMS along with any 
concerns or conditions regarding the waiver.
    (2) Entities submitting an application to become a PACE 
organization may submit a waiver request. The entity must submit its 
waiver request through the State administering agency for initial 
review. The State administering agency forwards the waiver requests to 
CMS along with any concerns or conditions regarding the waiver. The 
waiver request is submitted as a document separate from the application 
but may be submitted in conjunction with and at the same time as the 
application.
    (b) CMS evaluates a waiver request from a PACE organization or PACE 
applicant on the basis of the following information:
    (1) The adequacy of the description and rationale for the waiver 
provided by the PACE organization or PACE applicant, including any 
additional information requested by CMS.
* * * * *

0
8. Section 460.28 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  460.28  Notice of CMS determination on waiver requests.

    (a) * * *
    (2) Denies the request and notifies the PACE organization or PACE 
applicant in writing of the basis of the denial.
* * * * *

0
9. Section 460.32 is amended by revising paragraph (a)(12) to read as 
follows:


Sec.  460.32  Content and terms of PACE program agreement.

    (a) * * *
    (12) The Medicaid capitation rate and the methodology used to 
calculate the Medicare capitation rate.
* * * * *


Sec.  460.60  [Amended]

0
10. Section 460.60 is amended as follows:
0
A. Paragraph (d)(3) is revised.
0
B. Paragraphs (d)(4) and (d)(5) are removed.
    The revisions read as follows:


Sec.  460.60  PACE organizational structure.

* * * * *
    (d) * * *
    (3) A PACE organization planning a change in organizational 
structure must notify CMS and the State administering agency, in 
writing, at least 14 days before the change takes effect.

0
11. Section 460.62 is amended by--
0
A. Revising paragraph (b).
0
B. Revising paragraph (c).
    The revisions read as follows:


Sec.  460.62  Governing body.

* * * * *
    (b) Participant advisory committee. (1) A PACE organization must 
establish a participant advisory committee to provide advice to the 
governing body on matters of concern to participants. Participants and 
representatives of participants must constitute a majority of the 
membership of this committee.
    (2) The participant advisory committee must provide the liaison to 
the governing body with meeting minutes that include participant 
issues.
    (c) Participant representation on the governing body. (1) A PACE 
organization must ensure participant representation on issues related 
to participant care. This shall be achieved by having a participant 
representative on the governing body.
    (2) The participant representative is a liaison of the participant 
advisory committee to the PACE organization governing body.
    (3) Duty of the participant representative. The participant 
representative must present issues from the participant advisory 
committee to the governing body.

0
12. Section 460.64 is revised to read as follows:


Sec.  460.64  Personnel qualifications for staff with direct 
participant contact.

    (a) General qualification requirements. Each member of the PACE 
organization's staff that has direct participant contact, (employee or 
contractor) must meet the following conditions:

[[Page 71335]]

    (1) Be legally authorized (for example, currently licensed, 
registered or certified if applicable) to practice in the State in 
which he or she performs the function or action;
    (2) Only act within the scope of his or her authority to practice;
    (3) Have 1 year of experience with a frail or elderly population;
    (4) Meet a standardized set of competencies for the specific 
position description established by the PACE organization and approved 
by CMS before working independently.
    (5) Be medically cleared for communicable diseases and have all 
immunizations up-to-date before engaging in direct participant contact.
    (b) Federally-defined qualifications for physician. In addition to 
the qualification specified in paragraph (a) of this section, a 
physician must meet the qualifications and conditions in Sec.  410.20 
of this chapter.

0
13. Section 460.66 is amended by adding paragraph (c) to read as 
follows:


Sec.  460.66  Training.

    (c) Personal care attendants must exhibit competency before 
performing personal care services independently.
0
14. Section 460.68 is amended by-
0
A. Revising paragraph (b).
0
B. Redesignating paragraph (d) as paragraph (c).
0
C. Revising the heading of newly redesignated paragraph (c).
    The revisions read as follows:


Sec.  460.68  Program integrity.

* * * * *
    (b) Direct or indirect interest in contracts. The PACE organization 
shall identify members of its governing body or any immediate family 
member having a direct or indirect interest in any contract that 
supplies any administrative or care-related service or materials to the 
PACE organization.
    (1) PACE organizations must develop policies and procedures for 
handling any direct or indirect conflict of interest by a member of the 
governing body or by the member's immediate family.
    (2) In the event of a direct or indirect conflict of interest by a 
member of the PACE organization's governing body or his or her 
immediate family member, the board member must--
    (i) Fully disclose the exact nature of the conflict to the board of 
directors and have the disclosure documented; and
    (ii) Recuse himself or herself from discussing, negotiating, or 
voting on any issue or contract that could result in an inappropriate 
conflict.
    (c) Disclosure and recusal requirements. * * *


Sec.  460.70  [Amended]

0
15. Section 460.70 is amended by--
0
A. Removing paragraph (d).
0
B. Redesignating paragraph (e) as paragraph (d).
0
C. Redesignating paragraph (f) as paragraph (e).

0
16. Section 460.71 is amended by republishing paragraph (b) 
introductory text and revising paragraph (b)(4) to read as follows:


Sec.  460.71  Oversight of direct participant care.

* * * * *
    (b) The PACE organization must develop a program to ensure that all 
staff furnishing direct participant care services meet the following 
requirements:
* * * * *
    (4) Are free of communicable diseases and are up to date with 
immunizations before performing direct patient care.
* * * * *


Sec.  460.72  [Amended]

0
17. Section 460.72 is amended by revising paragraph (a)(3) to read as 
follows:


Sec.  460.72  Physical environment.

    (a) * * *
    (3) Equipment maintenance.
    (i) A PACE organization must establish, implement, and maintain a 
written plan to ensure that all equipment is maintained in accordance 
with the manufacturer's recommendations.
    (ii) A PACE organization must perform the manufacturer's 
recommended maintenance on all equipment as indicated in the 
organization's written plan.
* * * * *

0
18. Section 460.78 is amended by revising paragraph (a)(1) introductory 
text to read as follows:


Sec.  460.78  Dietary services.

    (a) Meal requirements. (1) Except as specified in paragraphs (a)(2) 
or (a)(3) of this section, the PACE organization must ensure, through 
the assessment and care planning process, that each participant 
receives nourishing, palatable, well-balanced meals that meet the 
participant's daily nutritional and special dietary needs. Each meal 
must meet the following requirements:
* * * * *

Subpart F--PACE Services

0
19. Section 460.92 is revised to read as follows:


Sec.  460.92  Required services.

    The PACE benefit package for all participants, regardless of the 
source of payment, must include the following:
    (a) All Medicare-covered items and services.
    (b) All Medicaid-covered items and services, as specified in the 
State's approved Medicaid plan.
    (c) Other services determined necessary by the interdisciplinary 
team to improve and maintain the participant's overall health status.

0
20. Section 460.94 amended by revising paragraph (b)(5) to read as 
follows:


Sec.  460.94  Required services for Medicare participants.

* * * * *
    (b) * * *
    (5) Section 411.15(g) and Sec.  411.15(k) of this chapter that may 
prevent payment for PACE program services that are provided to PACE 
participants.

0
21. Section 460.96 is amended by revising paragraph (e)(1) to read as 
follows:


Sec.  460.96  Excluded services.

* * * * *
    (e) * * *
    (1) In accordance with Sec.  424.122 and Sec.  424.124 of this 
chapter.
* * * * *

0
22. Section 460.98 is amended by revising paragraph (b)(3) to read as 
follows:


Sec.  460.98  Service delivery.

* * * * *
    (b) * * *
    (3) The PACE organization may not discriminate against any 
participant in the delivery of required PACE services based on race, 
ethnicity, national origin, religion, sex, age, sexual orientation, 
mental or physical disability, or source of payment.
* * * * *

0
23. Section 460.100 is amended by:
0
A. Revising paragraph (d).
0
B. Republishing the introductory text to paragraph (e).
0
C. Adding paragraph (e)(3) containing definitions of ``Post 
stabilization care'' and ``Urgent care.''
    The revisions read as follows:


Sec.  460.100  Emergency care.

* * * * *
    (d) Explanation to participant. The organization must ensure that 
the participant or caregiver, or both, understand when and how to get 
access to emergency services and that no prior authorization is needed.

[[Page 71336]]

    (e) On-call providers. The plan must provide for the following:
* * * * *
    (3) Definitions. As used in this section, the following definitions 
apply:
    (i) Post stabilization care means services provided subsequent to 
an emergency that a treating physician views as medically necessary 
after an emergency medical condition has been stabilized. They are not 
emergency services, which POs are obligated to cover. Rather, they are 
non-emergency services that the PO should approve before they are 
provided outside the service area.
    (ii) Urgent care means the care provided to a PACE participant who 
is out of the PACE service area, and who believes their illness or 
injury is too severe to postpone treatment until they return to the 
service area, but their life or function is not in severe jeopardy.

0
24. In Sec.  460.102, paragraph (b)(3) is revised to read as follows:


Sec.  460.102  Interdisciplinary team.

* * * * *
    (b) * * *
    (3) Master's-level social worker.
* * * * *


Sec.  460.104  [Amended]

0
25. Section 460.104 is amended by--
0
A. Revising paragraph (a)(2).
0
B. Revising paragraph (c)(1)(iii).
0
C. Revising paragraph (c)(2).
0
D. Redesignating paragraphs (d) and (e) as paragraphs (e) and (f), 
respectively.
0
E. Redesignating paragraph (c)(3) as new paragraph (d) and revising it.
    The revisions read as follows:


Sec.  460.104  Participant assessment.

    (a) * * *
    (2) As part of the initial comprehensive assessment, each of the 
following members of the interdisciplinary team must evaluate the 
participant in person, at appropriate intervals, and develop a 
discipline-specific assessment of the participant's health and social 
status:
    (i) Primary care physician.
    (ii) Registered nurse.
    (iii) Master's-level social worker.
    (iv) Physical therapist.
    (v) Occupational therapist.
    (vi) Recreational therapist or activity coordinator.
    (vii) Dietitian.
    (viii) Home care coordinator.
* * * * *
    (c) * * *
    (1) * * *
    (iii) Master's-level social worker.
* * * * *
    (2) Annual reassessment. On at least an annual basis, the following 
members of the interdisciplinary team must conduct an in-person 
reassessment:
    (i) Physical therapist.
    (ii) Occupational therapist.
    (iii) Dietitian.
    (iv) Home care coordinator.
    (d) Unscheduled reassessments. In addition to annual and semiannual 
reassessments, unscheduled reassessments may be required based on the 
following:
    (1) A change in participant status. If the health or psychosocial 
status of a participant changes, the members of the interdisciplinary 
team, listed in paragraph (a)(2) of this section, must conduct an in-
person reassessment.
    (2) At the request of the participant or designated representative. 
If a participant (or his or her designated representative) believes 
that the participant needs to initiate, eliminate, or continue a 
particular service, the appropriate members of the interdisciplinary 
team, as identified by the interdisciplinary team, must conduct an in-
person reassessment.
    (i) The PACE organization must have explicit procedures for timely 
resolution of requests by a participant or his or her designated 
representative to initiate, eliminate, or continue a particular 
service.
    (ii) Except as provided in paragraph (d)(2)(iii) of this section, 
the interdisciplinary team must notify the participant or designated 
representative of its decision to approve or deny the request from the 
participant or designated representative as expeditiously as the 
participant's condition requires, but no later than 72 hours after the 
date the interdisciplinary team receives the request for reassessment.
    (iii) The interdisciplinary team may extend the 72-hour timeframe 
for notifying the participant or designated representative of its 
decision to approve or deny the request by no more than 5 additional 
days for either of the following reasons:
    (A) The participant or designated representative requests the 
extension.
    (B) The team documents its need for additional information and how 
the delay is in the interest of the participant.
    (iv) The PACE organization must explain any denial of a request to 
the participant or the participant's designated representative orally 
and in writing. The PACE organization must provide the specific reasons 
for the denial in understandable language. The PACE organization is 
responsible for the following:
    (A) Informing the participant or designated representative of his 
or her right to appeal the decision as specified in Sec.  460.122.
    (B) Describing both the standard and expedited appeals processes, 
including the right to, and conditions for, obtaining expedited 
consideration of an appeal of a denial of services as specified in 
Sec.  460.122.
    (C) Describing the right to, and conditions for, continuation of 
appealed services through the period of an appeal as specified in Sec.  
460.122(e).
    (v) If the interdisciplinary team fails to provide the participant 
with timely notice of the resolution of the request or does not furnish 
the services required by the revised plan of care, this failure 
constitutes an adverse decision, and the participant's request must be 
automatically processed by the PACE organization as an appeal in 
accordance with Sec.  460.122.
* * * * *

0
26. Section 460.112 is amended by--
0
A. Revising the introductory text of paragraph (a).
0
B. Revising paragraph (b)(1)(iii).
    The revisions read as follows:


Sec.  460.112  Specific rights to which a participant is entitled.

    (a) Respect and nondiscrimination. Each participant has the right 
to considerate, respectful care from all PACE employees and contractors 
at all times and under all circumstances. Each participant has the 
right not to be discriminated against in the delivery of required PACE 
services based on race, ethnicity, national origin, religion, sex, age, 
sexual orientation, mental or physical disability, or source of 
payment. Specifically, each participant has the right to the following:
* * * * *
    (b) * * *
    (1) * * *
    (iii) At the time a participant's needs necessitate the disclosure 
and delivery of such information in order to allow the participant to 
make an informed choice.
* * * * *

0
27. Section 460.122 is amended by--
0
A. Revising the introductory text to the section.
0
B. Revising paragraph (f)(1).
    The revisions read as follows:


Sec.  460.122  PACE organization's appeals process.

    For purposes of this section, an appeal is a participant's action 
taken with respect to the PACE organization's noncoverage of, or 
nonpayment for, a

[[Page 71337]]

service including denials, reductions, or termination of services.
* * * * *
    (f) Expedited appeals process. (1) A PACE organization must have an 
expedited appeals process for situations in which the participant 
believes that his or her life, health, or ability to regain or maintain 
maximum function could be seriously jeopardized, absent provision of 
the service in dispute.
* * * * *

Subpart I--Participant Enrollment and Disenrollment

0
28. Section 460.152 is amended by adding paragraph (a)(1)(vi) to read 
as follows:


Sec.  460.152  Enrollment process.

    (a) * * *
    (1) * * *
    (vi) Post-eligibility treatment of income.
* * * * *

0
29. Section 460.154 is amended by--
0
A. Revising paragraph (h).
0
B. Revising paragraph (t).
    The revisions read as follows:


Sec.  460.154  Enrollment agreement.

* * * * *
    (h) Notification that a Medicare participant may not enroll or 
disenroll at a Social Security office.
* * * * *
    (t) The signature of the applicant or his or her designated 
representative and the date.

0
30. Section 460.160 is amended by revising paragraph (b)(3) to read as 
follows:


Sec.  460.160  Continuation of enrollment.

* * * * *
    (b) * * *
    (3) Continued eligibility criteria. (i) The State administering 
agency, must establish criteria to use in making the determination of 
``deemed continued eligibility.'' The State administering agency, in 
consultation with the PACE organization, makes a determination of 
deemed continued eligibility based on a review of the participant's 
medical record and plan of care. These criteria must be applied in 
reviewing the participant's medical record and plan of care.
    (ii) The criteria used to make the determination of continued 
eligibility must be specified in the program agreement.

Subpart J--Payment

0
31. Section 460.180 is amended by--
0
A. Revising paragraph (a).
0
B. Revising paragraphs (b)(1) through (b)(4).
    The revisions read as follows:


Sec.  460.180  Medicare payment to PACE organizations.

    (a) Principle of payment. Under a PACE program agreement, CMS makes 
a prospective monthly payment to the PACE organization of a capitation 
amount for each Medicare participant in a payment area based on the 
rate it pays to a Medicare Advantage organization.
    (b) Determination of rate. (1) The PACE program agreement specifies 
the methodology used to calculate the monthly capitation amount 
applicable to a PACE organization.
    (2) Except as specified in paragraph (b)(4) of this section, the 
monthly capitation amount is based on the Part A and Part B payment 
rates established for purposes of payment to Medicare Advantage 
organizations. As used in this section, ``Medicare Advantage rates'' 
means the Part A and Part B rates calculated by CMS for making payment 
to Medicare Advantage organizations under section 1853(c) of the Act.
    (3) CMS will adjust the monthly capitation payment amount derived 
under paragraph (b)(2) of this section based on a risk adjustment that 
reflects the individual's health status. CMS will ensure that payments 
take into account the comparative frailty of PACE enrollees relative to 
the general Medicare population.
    (4) For Medicare participants who require ESRD services, the 
monthly capitation amount is based on the Medicare Advantage ESRD risk 
adjustment model.
* * * * *

Subpart L--Data Collection, Record Maintenance, and Reporting


Sec.  460.210  [Amended]

0
32. Section 460.210 is amended by removing paragraph (b)(13).

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

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

    Dated: September 26, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 14, 2006.
Michael O. Leavitt,
Secretary.
[FR Doc. E6-20544 Filed 12-7-06; 8:45 am]
BILLING CODE 4120-01-P