[Federal Register Volume 72, Number 101 (Friday, May 25, 2007)]
[Proposed Rules]
[Pages 29368-29402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-2579]



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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 422 and 423



Medicare Program; Revisions to the Medicare Advantage and Part D 
Prescription Drug Contract Determinations, Appeals, and Intermediate 
Sanctions Processes; Proposed Rules

  Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed 
Rules  

[[Page 29368]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4124-P]
RIN 0938-AO78


Medicare Program; Revisions to the Medicare Advantage and Part D 
Prescription Drug Contract Determinations, Appeals, and Intermediate 
Sanctions Processes

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would clarify the Medicare program 
provisions relating to contract determinations involving Medicare 
Advantage (MA) organizations and Medicare Part D prescription drug plan 
sponsors, including eliminating the reconsideration process for review 
of contract determinations; revising the provisions related to appeals 
of contract determinations and clarifying the process for MA 
organizations and Part D plan sponsors to complete corrective action 
plans. This proposed rule would also clarify the intermediate sanction 
and civil money penalty (CMP) provisions that apply to MA organizations 
and Medicare Part D prescription drug plan sponsors, modify elements of 
their compliance plans, and revise provisions to ensure HHS has access 
to the books and records of MA organizations and Part D plan sponsors' 
first tier, downstream, and related entities.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on July 24, 2007.

ADDRESSES: In commenting, please refer to file code CMS-4124-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-4124-P, P.O. Box 8012, Baltimore, MD 21244-8012.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-4124-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-9994 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
    Christine Perenich, (410) 786-2987.
    Kevin Stansbury, (410) 786-2570.
    Stephanie Kaisler, (410) 786-0957, for issues regarding access to 
records and compliance.
    Rita Wurm, (410) 786-1139, for issues regarding access to records 
and compliance.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-4124-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Abbreviations

    Because of the many terms to which we refer by abbreviation in this 
proposed rule, we are listing these abbreviations and their 
corresponding terms in alphabetical order below:

ALJ Administrative Law Judge
BBA Balanced Budget Act of 1997
BBRA Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999
CAP Corrective Action Plan
CMP Civil Money Penalty
CMS Centers for Medicare & Medicaid Services
DAB Departmental Appeals Board
ESRD End-Stage Renal Disease
FWA Fraud, Waste, and Abuse
HHS Department of Health and Human Services
MA Medicare Advantage
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 
2003
M+C Medicare + Choice
OIG Office of the Inspector General
PBM Pharmaceutical Benefit Manager
PDE Prescription Drug Event
PPO Preferred Provider Organization

I. Background

    [If you choose to comment on issues in this section, please include 
the caption ``BACKGROUND'' at the beginning of your comments.]

[[Page 29369]]

A. Overview of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA)

    The President signed the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) into law on 
December 8, 2003. The MMA established the Medicare prescription drug 
benefit program and renamed the Medicare+Choice program the Medicare 
Advantage (MA) program. In accordance with the MMA, we revised the 
existing Medicare regulations applicable to the MA program at 42 CFR 
part 422 and published regulations governing the prescription drug 
benefit program at 42 CFR part 423.
    As we have gained more experience with MA organizations and Part D 
prescription drug plan sponsors, we are proposing clarifications to the 
Medicare program provisions relating to contract determinations 
involving Medicare Advantage organizations and Medicare Part D 
prescription drug plan sponsors, including eliminating the 
reconsideration process for review of contract determinations; revising 
the provisions related to appeals of contract determinations and 
clarifying the process for MA organizations and Part D plan sponsors to 
complete corrective action plans. This proposed rule would clarify the 
intermediate sanction and civil money penalty (CMP) provisions that 
apply to MA organizations and Medicare Part D prescription drug plan 
sponsors. We have also proposed changes to clarify the compliance plan 
requirements and our access to the books and records of an MA 
organization or Part D sponsor's first tier, downstream, and related 
entities.

B. Relevant Legislative History and Overview

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
the Medicare+Choice (M+C) program. Under section 1851(a)(1) of the Act, 
every individual with Medicare Parts A and B, except for individuals 
with end-stage renal disease (ESRD), could elect to receive benefits 
either through the original Medicare program or an M+C plan, if one was 
offered where the beneficiary lived. The primary goal of the M+C 
program was to provide Medicare beneficiaries with a wider range of 
health plan choices.
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA) (Pub. L. 106-113), amended the M+C provisions of the BBA. 
Further amendments were made to the M+C program by the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554), enacted December 21, 2000.
    The President signed the MMA into law on December 8, 2003. Title I 
of the MMA added new sections 1860D-1 through 1860D-42 to the Act 
creating the Medicare Prescription Drug Benefit program, a landmark 
change to the Medicare program since its inception in 1965.
    Sections 201 through 241 of Title II of the MMA made significant 
changes to the M+C program. As directed by Title II of the MMA, we 
renamed the M+C program the MA program. We also revised our regulations 
to include new payment and bidding provisions based largely on risk, to 
recognize the addition of regional Preferred Provider Organization 
(PPO) plans, to address the provision of prescription drug benefits 
under the Medicare Part D regulations, and to make other changes.
    The MMA, at section 1860D-12(b)(3) of the Act, directed that 
specific aspects of the MA contracting requirements apply to the 
prescription drug plan benefit program. Consequently, the processes for 
contract determinations and the administrative appeal rights in the two 
programs are virtually identical.
    We published the regulations implementing the MA and prescription 
drug benefit regulations separately, though their development and 
publication were closely coordinated. On August 3, 2004, we published 
proposed rules for the MA program (69 FR 46866) and prescription drug 
benefit program (69 FR 46632). The final regulations implementing both 
the MA and prescription drug programs were published on January 28, 
2005 (70 FR 4588 and 70 FR 4194, respectively). We revised some of our 
proposed provisions in the final rules in response to public comments. 
For further discussion of the revisions we made to our proposed rules, 
see the final rules cited above. CMS has not issued previous guidance, 
other than regulatory requirements regarding contract determinations, 
corrective action plans, contract determination appeals, intermediate 
sanctions or civil money penalties. However, CMS has published guidance 
on how to develop an effective fraud, waste and abuse (FWA) prevention 
program. This guidance is found in Chapter 9 of the Prescription Drug 
Benefit Manual entitled ``Part D Program to Control Fraud, Waste and 
Abuse.'' This rule proposes further revisions to the MA and 
prescription drug regulations and we welcome your comments on our 
proposed regulations.

II. Provisions of the Proposed Regulations

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS OF THE PROPOSED REGULATIONS'' at the beginning 
of your comments.]

A. Overview of Proposed Changes to the Medicare Advantage Program and 
the Prescription Drug Benefit Program

    Our experience involving contract determinations, appeals, 
intermediate sanctions, and CMPs since the enactment of the Balanced 
Budget Act of 1997 have led us to propose changes to our regulations. 
In this rule, we propose to simplify the procedures for contract 
determinations; to clarify the procedures regarding submission and 
review of corrective action plans; to clarify the procedures for 
imposition of intermediate sanctions and CMPs; and to clarify the 
procedures to appeal CMPs imposed under the MA and Part D programs.
    In addition, we propose revisions to the appeal procedures for all 
types of contract determinations, which would make these procedures 
identical for decisions not to contract, for nonrenewals, and for 
terminations. We propose to provide for enhanced beneficiary 
protections when we decide to terminate a plan on an expedited basis.
    In this rule, we are also proposing changes and making 
clarifications to Subpart K, contract requirements under the MA and 
Part D programs. We have proposed changes to clarify HHS' access to the 
books and records of a MA organization or Part D sponsor's first tier, 
downstream, and related entities, including records relating to Part D 
rebates and price concessions and any underlying PDE records. We have 
also proposed changes to clarify that certain elements of the 
compliance plan apply to first tier, downstream, and related entities.
    The proposed changes would ensure that both the MA and Medicare 
Part D prescription drug benefit programs may operate as efficiently as 
possible within the guidelines of the statute.
    Below, we set forth the proposed regulation changes and 
corresponding proposed implementation dates:

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------------------------------------------------------------------------
                                                            Proposed
              Proposed regulation change                 implementation
                                                              date
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Incorporation of Fraud, Waste, and Abuse Prevention             1/1/2009
 Measures into Compliance Plan........................
Requirement to apply Compliance Plan's training and             1/1/2009
 communication requirements to first tier, downstream,
 and related entities.................................
Mandatory procedures for self-reporting potential               1/1/2009
 fraud and misconduct.................................
Requirement to obtain access to Part D sponsor's first          1/1/2009
 tier, downstream, and related entity's books and
 records through contractual arrangements.............
Elimination of CMS' requirement to inform organization          1/1/2008
 of renewal...........................................
Change date of CMS' notification of non-renewal from            1/1/2008
 May 1 to September 1.................................
Provide for same administrative appeal rights                   1/1/2008
 (including CAP) for all contract determinations (non-
 renewal, expedited termination, termination).........
Change regarding CAP process may be provided prior to           1/1/2008
 notification of termination, and the imposition of
 time limits on Corrective Action Plans...............
Change immediate termination to expedited termination           1/1/2008
 with CMS setting the effective date of termination...
Elimination of Reconsideration Step for contract                1/1/2008
 determination appeals................................
Implementation of Burden of Proof for contract                  1/1/2008
 determinations.......................................
Ability for a hearing officer to issue summary                  1/1/2008
 judgment.............................................
Request for Administrator review, submission of                 1/1/2008
 information, and timeframe associated with
 Administrator review.................................
Settlement of Civil Money Penalties...................          1/1/2008
Appeal procedures for Civil Money Penalties...........          1/1/2008
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B. Distribution Table

    The following crosswalk table references the changes we propose to 
make to the prescription drug and the MA programs. We propose to make 
the same changes to 42 CFR Parts 422 and 423 with minimum differences. 
The crosswalk lists the section headings, for parts 422 and 423, and 
indicates if the section is being deleted.

                            Table 1.--Crosswalk of Part 422 and Part 423 CFR Sections
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              Section heading                Section references in part 422     Section references in part 423
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Definitions...............................  422.2..........................  423.4.
Compliance Plan...........................  422.503(b)(4)(vi)..............  423.504(b)(4)(vi).
Access to Facilities and Records..........  422.504(e) and                   423.505(e).
                                             422.503(d)(2)(iii).
Contract Provisions.......................  422.504(i).....................  423.505(i).
Effective Date and Term of Contract.......  422.505........................  423.506.
Non-renewal of contract...................  422.506........................  423.507.
Termination of contract by CMS............  422.510........................  423.509.
Notice of contract determination..........  422.644........................  423.642.
Effect of contract determination..........  422.646........................  423.643.
Reconsideration: applicability............  422.648 (delete)...............  423.644 (delete).
Request for reconsideration...............  422.650 (delete)...............  423.645 (delete).
Opportunity to submit evidence............  422.652 (delete)...............  423.646 (delete).
Reconsidered determination................  422.654 (delete)...............  423.647 (delete).
Notice of reconsidered determination......  422.656 (delete)...............  423.648 (delete).
Effect of reconsidered determination......  422.658 (delete)...............  423.649 (delete).
Right to a hearing and burden of proof....  422.660........................  423.650.
Request for hearing.......................  422.662........................  423.651.
Postponement of effective date of a         422.664........................  423.652.
 contract determination when a request for
 a hearing with respect to a contract
 determination is filed timely.
Time and Place of Hearing.................  422.670........................  423.655.
Discovery.................................  422.682........................  423.661.
Prehearing and Summary Judgment...........  422.684........................  423.662.
Review by the Administrator...............  422.692........................  423.666.
Reopening of initial contract               422.696........................  423.668.
 determination or intermediate sanction or
 decision of a hearing officer or the
 Administrator.
Effect of revised determination...........  422.698 (delete)...............  423.669 (delete).
Types of intermediate sanctions and civil   422.750........................  423.750.
 money penalties.
Basis for imposing intermediate sanctions   422.752........................  423.752.
 and civil money penalties.
Procedures for imposing intermediate        422.756........................  423.756.
 sanctions and civil money penalties.
Collection of civil money penalty imposed   422.758........................  423.758.
 by CMS.
Determinations regarding the amount of      422.760........................  423.760.
 civil money penalties and assessment
 imposed by CMS.
Settlement of penalties...................  422.762........................  423.762.
Other applicable provisions...............  422.764........................  423.764.
Basis and scope...........................  422.1000.......................  423.1000.
Definitions...............................  422.1002.......................  423.1002.
Scope and applicability...................  422.1004.......................  423.1004.
Appeal rights.............................  422.1006.......................  423.1006.
Appointment of representatives............  422.1008.......................  423.1008.

[[Page 29371]]

 
Authority of representatives..............  422.1010.......................  423.1010.
Fees for services of representatives......  422.1012.......................  423.1012.
Charge for transcripts....................  422.1014.......................  423.1014.
Filing of briefs with the Administrative    422.1016.......................  423.1016.
 Law Judge or Departmental Appeals Board,
 and opportunity for rebuttal.
Notice and effect of initial                422.1018.......................  423.1018.
 determinations.
Request for hearing.......................  422.1020.......................  423.1020.
Parties to the hearing....................  422.1022.......................  423.1022.
Designation of hearing official...........  422.1024.......................  423.1024.
Disqualification of Administrative Law      422.1026.......................  423.1026.
 Judge.
Prehearing conference.....................  422.1028.......................  423.1028.
Notice of prehearing conference...........  422.1030.......................  423.1030.
Conduct of prehearing conference..........  422.1032.......................  423.1032.
Record, order, and effect of prehearing     422.1034.......................  423.1034.
 conference.
Time and place of hearing.................  422.1036.......................  423.1036.
Change in time and place of hearing.......  422.1038.......................  423.1038.
Joint hearing.............................  422.1040.......................  423.1040.
Hearing on new issues.....................  422.1042.......................  423.1042.
Subpoenas.................................  422.1044.......................  423.1044.
Conduct of hearing........................  422.1046.......................  423.1046.
Evidence..................................  422.1048.......................  423.1048.
Witnesses.................................  422.1050.......................  423.1050.
Oral and written summation................  422.1052.......................  423.1052.
Record of hearing.........................  422.1054.......................  423.1054.
Waiver of right to appear and present       422.1056.......................  423.1056.
 evidence.
Dismissal of request for hearing..........  422.1058.......................  423.1058.
Dismissal for abandonment.................  422.1060.......................  423.1060.
Dismissal for cause.......................  422.1062.......................  423.1062.
Notice and effect of dismissal and right    422.1064.......................  423.1064.
 to request review.
Vacating a dismissal of request for         422.1066.......................  423.1066.
 hearing.
Administrative Law Judge's decision.......  422.1068.......................  423.1068.
Removal of hearing to Departmental Appeals  422.1070.......................  423.1070.
 Board.
Remand by the Administrative Law Judge....  422.1072.......................  423.1072.
Right to request Departmental Appeals       422.1074.......................  423.1074.
 Board review of Administrative Law
 Judge's decision or dismissal.
Request for Departmental Appeals Board      422.1076.......................  423.1076.
 review.
Departmental Appeals Board action on        422.1078.......................  423.1078.
 request for review.
Procedures before Departmental Appeals      422.1080.......................  423.1080.
 Board on review.
Evidence admissible on review.............  422.1082.......................  423.1082.
Decision or remand by the Departmental      422.1084.......................  423.1084.
 Appeals Board.
Effect of Departmental Appeals Board        422.1086.......................  423.1086.
 decision.
Extension of time for seeking judicial      422.1088.......................  423.1088.
 review.
Basis, timing, and authority for reopening  422.1090.......................  423.1090.
 an Administrative Law Judge or Board
 decision.
Revision of reopened decision.............  422.1092.......................  423.1092.
Notice and effect of revised decision.....  422.1094.......................  423.1094.
----------------------------------------------------------------------------------------------------------------

C. Proposed Changes to Part 422--Medicare Advantage Program and Part 
423--Medicare Prescription Drug Benefit Program

Sections 422.2 and 423.4--Definitions
    We are proposing to correct a technical oversight in both 
regulations by including the definitions of ``downstream entity,'' 
``first tier entity,'' and ``related entity,'' in the overall 
definitions sections of both the MA and Part D regulations at Sec.  
422.2 and Sec.  423.4 to ensure that these terms are used consistently 
throughout both programs. Since these three terms are only defined in 
Subpart K of Parts 422 and 423, we are proposing to add them to Subpart 
A, General Provisions at Sec.  422.4 and Sec.  423.4. The definitions 
are as follows:
    First tier entity means any party that enters into a written 
arrangement, acceptable to CMS, with a Part D sponsor or an MA 
organization or applicant to provide administrative services or health 
care services for a Medicare eligible individual under the Part D or MA 
program.
    Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, below the level of the arrangement 
between a Part D sponsor or an MA organization (or applicant) and a 
first tier entity. These written arrangements continue down to the 
level of the ultimate provider of both health and administrative 
services.
    Related entity means any entity that is related to the Part D 
sponsor or MA organization by common ownership or control and (1) 
Performs some of the Part D sponsor or MA organization's management 
functions under contract or delegation; (2) Furnishes services to 
Medicare enrollees under an oral or written agreement; or (3) Leases 
real property or sells materials to the Part D sponsor or MA 
organization at a cost of more than $2,500 during a contract period.
    Below is a flow chart that provides examples of, and describes the 
relationships between, Part D sponsors, and first tier, downstream, and 
related entities. In accordance with the proposed changes above, we are 
removing the term ``subcontractor'' from this previously published 
flowchart. The original flowchart was published in the final version of 
Chapter 9 of the Part

[[Page 29372]]

D Manual last year. We will make conforming changes to the manual at a 
later date. After the flowchart we have provided examples of first tier 
and downstream entities for MA organizations.
[GRAPHIC] [TIFF OMITTED] TP25MY07.000

    An example of a first tier entity for MA organizations would be a 
provider group that contracts with the MA organization to provide 
health care services to MA members. An example of a downstream entity 
for MA organizations would be an individual provider who contracts with 
a provider group that contracts with the MA organization to provide 
health care services to MA members.
Sections 422.503 and 423.504--General Provisions
    The current regulations at Sec.  423.504 include a requirement that 
a Part D sponsor's compliance plan consist of training and education as 
well as effective lines of communication between the compliance 
officer, and the organization's employees, contractors, agents, 
directors, and managers. The terms ``contractor'' and ``agent'' are not 
defined in current regulation, and it has been unclear to the industry 
which entities are subject to the training and education, and the 
effective lines of communication requirements. In response to industry 
concerns and to eliminate the confusion associated with using the term 
``contractor'', currently used in those sections, we are proposing to 
revise paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D) of Sec.  423.504 to 
clarify that a compliance plan must consist of training, education, and 
effective lines of communication between the compliance officer and the 
Part D sponsor's employees, managers, and directors, as well as the 
Part D sponsor's ``first tier, downstream, and related entities'' which 
are defined at 422.500 and 423.501. This proposed change would clarify 
that Part D plan sponsors need to apply these training and 
communication requirements to all entities they are partnering with to 
provide benefits or services in the Part D program, not just their 
direct employees within their organizations.
    Pursuant to our authority under section 1856(b)(1) of the Act to 
establish Medicare Advantage standards by regulation, we are also 
proposing to require MA organizations to apply their training and 
education and effective lines of communication requirements to their 
first tier, downstream, and related entities. Since many MA-PDs, as 
Part D sponsors, have already been required to apply these requirements 
to the entities they contract with to deliver the Part D benefit, we 
are taking this opportunity to make the compliance plan requirements 
uniform across MA organizations, MA-PDs, and other Part D sponsors.
    Additionally, we propose clarifying paragraph (b)(4)(vi) in Sec.  
422.503 and Sec.  423.504 by removing what we believe to be a 
duplicative and confusing ``final element'' of the compliance plan-- a 
``comprehensive fraud, waste, and abuse plan to detect, correct, and 
prevent fraud, waste and abuse'' at paragraph (b)(4)(vi)(H) of both 
regulations. We are proposing to remove this element because we 
received feedback from many Part D sponsors indicating that it was not 
clear whether CMS was requiring a fraud, waste, and abuse (FWA) plan 
separate and distinct from a compliance plan. In fact, we believe that 
a compliance plan that meets the compliance plan requirements in the 
regulations already has a ``comprehensive fraud, waste, and abuse plan 
to detect, correct, and prevent fraud, waste, and abuse.''

[[Page 29373]]

    In April 2006, we issued Chapter 9 of the Part D Manual (``Part D 
Program to Control Fraud, Waste and Abuse'') as ``best practices'' 
guidance for Part D sponsors to develop a FWA plan. We intended for 
Chapter 9 to be similar to the type of best practices guidance issued 
by the Office of the Inspector General (OIG) in its Compliance Program 
Guidance for drug manufacturers and health care providers. While we 
clarified in Chapter 9 that Part D sponsors could choose whether to 
incorporate FWA measures in a compliance plan or develop a separate, 
stand-alone FWA plan, we believe the final element continues to cause 
potential confusion to the industry and therefore, are proposing to 
remove this element from (b)(4)(vi) of 422.503 and 422.504.
    We continue to believe an effective compliance plan includes 
procedures and policies for preventing fraud, waste, and abuse and have 
proposed changes to the introductory clause of Sec.  423.504(b)(4)(vi) 
that reflect our policy stance. Since Congress mandated that Part D 
sponsors have a ``program to control fraud, waste, and abuse'' (section 
1860D-4(c)(1)(D) of the Act), we also are clarifying that if Part D 
plan sponsors develop an effective compliance plan that incorporates 
measures to detect, prevent, and correct fraud, waste, and abuse, this 
compliance plan would also satisfy the statutory requirement for 
sponsors to have a FWA plan. Part D sponsors should look to Chapter 9 
as recommended guidance for the types of measures we recommend in 
detecting and preventing fraud, waste, and abuse. Chapter 9 can be 
viewed at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf.
    Also pursuant to our authority under section 1856(b)(1) of the Act, 
we are proposing to make the same change to the introductory clause of 
Sec.  422.503(b)(4)(vi) so that the compliance plan requirements for MA 
organizations will be identical to those for Part D sponsors. We 
propose that MA organizations must include ``measures to detect, 
correct, and prevent fraud, waste, and abuse'' throughout the 7 
elements of the compliance plan requirement. While the existing MA 
compliance plan requirement does not explicitly refer to the prevention 
of fraud, waste, and abuse, it has always been our expectation that 
fraud, waste, and abuse would be addressed through the implementation 
of each of the 7 elements in a compliance plan, enumerated at 
paragraphs (A) through (G) of Sec.  422.504(b)(4)(vi). It has been our 
longstanding policy that an effective MA compliance plan addresses the 
detection, correction, and prevention of fraud, waste, and abuse in the 
MA program, and our proposed change would make this policy explicit in 
our regulations. We welcome your comments on this proposal.
    Since we are proposing to remove Sec.  423.504(b)(4)(vi)(H), we are 
proposing to add paragraph (b)(4)(vi)(G)(3) to Sec.  423.504 to include 
a provision on self-reporting of potential fraud or misconduct, which 
was addressed in Sec.  423.504(b)(4)(vi)(H). Pursuant to our authority 
under section 1856(b)(1) of the Act we also propose to add paragraph 
(b)(4)(vi)(G)(3) to Sec.  422.503 to add a self-reporting provision to 
the MA regulations as well, in order to make the compliance plan 
requirements uniform across MA organizations and Part D sponsors.
    We note that when the original Part C regulations were issued in a 
June 26, 1998 interim final rule establishing a new part 422, they 
included a self-reporting requirement at Sec.  423.501(b)(4)(vi)(H). 
(See 63 FR 35100.) Unlike the current Part D self-reporting provision, 
this original paragraph (H) required that compliance plans have an 
``adhered-to-process for reporting to [CMS] and/or the OIG credible 
information of violations of law by the [MA] organization * * *.'' In a 
June 29, 2000 final rule responding to comments on the June 26, 1998 
interim final rule, this mandatory self-reporting requirement was 
eliminated. (See 65 FR 40264-40265, 40299.)
    We believe that the decision to eliminate a mandatory self-
reporting requirement has contributed to some highly publicized cases 
in which we have first found out about a major MA organization 
compliance issue when it appeared in the press. We have expressed our 
concerns in such situations that the matter was not promptly reported 
to us when it came to the attention of the MA organization in question. 
We believe that it is important for the government to have information 
on possible fraud or misconduct as soon as possible in order to 
determine whether any actions would be appropriate. We therefore are 
proposing to restore a mandatory self-reporting requirement for MA 
organizations, and to make the self-reporting provision that applies to 
Part D sponsors mandatory. The language in the new proposed Sec.  
423.504(b)(4)(vi)(G)(3) and new proposed Sec.  422.503(b)(4)(vi)(G)(3) 
accordingly provides for mandatory self-reporting. We welcome your 
comments on all of these changes.
Sections 422.504 and 423.505--General Provisions
    We are proposing to clarify which entities under contract to MA 
organizations and Part D sponsors are subject to the contract 
provisions in the MA and Part D programs. Currently, the contract 
provisions at 422.504 and 423.505 refer to such entities as the MA 
organization or Part D sponsor's ``contractors'' and 
``subcontractors,'' which as we described above, are undefined terms in 
the statute and regulations. We are proposing, where applicable, to 
delete the term ``contractor'' and replace the term ``subcontractor'' 
with the terms ``first tier and downstream entity'' in 422.504(e) and 
(i) to clarify which entities are subject to the contract provisions at 
422.504.
    We are also proposing, where applicable, to delete the term 
``contractor,'' and replace the term ``subcontractor'' with the terms 
``first tier entity'' and ``downstream entity'' in the Part D contract 
provisions at 423.505(e) and (i) for the same reasons. We believe using 
``first tier and downstream entity'' instead of ``subcontractor'' would 
lessen the potential for confusion in the Part D program. To clarify, 
under the Part D program, an example of a ``first tier entity'' is a 
pharmaceutical benefit manager (PBM) under contract to a Part D sponsor 
to provide all or some aspect of the Part D benefit on behalf of the 
sponsor. An example of a ``downstream entity'' in the Part D program is 
a pharmacy under contract to such a PBM. As discussed above, we are 
proposing to use the definitions of ``first tier entity'' and 
``downstream entity'' (as well as ``related entity'') set forth at 
Sec.  423.501 to lessen any potential confusion in both programs. We 
welcome your comments on these proposed changes to the contract 
provisions.
    We have existing authority under section 1860D-12(b)(3)(c) of the 
Act and Sec.  422.504(e) and Sec.  423.505(e) to inspect and audit any 
books, contracts, requests, and records of a Part D sponsor or MA 
organization relating to the Part D program. In the preamble to the 
Part D proposed rule, published on January 28, 2005 (70 FR 4194), 
describing these provisions, we clearly stated our inspection and audit 
rights with respect to a Part D sponsor and its contractors, 
subcontractors, and related entities under the section entitled 
``Access to Facilities and Records.'' (69 FR 46632, 46712). These third 
party disclosure requirements were finalized in the final MA and Part D 
rules and were approved

[[Page 29374]]

under the Paperwork Reduction Act approval under OMB 0938-1004 
(Part C) and OMB 0938-1000 (Part D). The information 
collection section of this preamble also references the OMB approval 
numbers.
    In addition, we note that the solicitation for a Part D application 
already requires that a Part D sponsor's contract or letter of 
agreement with each subcontractor ``contain language ensuring that the 
subcontractor will make its books and other records available in 
accordance with 42 CFR 423.505(i)(2).''
    Under this established legal authority, HHS, the Comptroller 
General, or their designees have the right to inspect, evaluate, and 
audit the books and other records of Part D sponsors and their first 
tier, downstream, and related entities. These rights continue for a 
period of 10 years from the final date of the contract period or the 
date of audit completion, whichever is later. However, based on 
industry feedback and our own varied experience with accessing Medicare 
payment-related records from subcontracting entities, we believe we 
need to provide clarity to both the Part D sponsors and their first 
tier, downstream, and related entities regarding our expectation for 
complying with this disclosure requirement. Our expectation is that the 
first tier, downstream, and related entities will, upon CMS' or our 
designees' request, produce any pertinent contracts, books, documents, 
papers, and records relating to the Part D program.
    We are proposing in this rule to add a provision to the contracts 
and written arrangements between sponsors and their first tier, 
downstream, and related entities at Sec.  423.505(i)(3)(iv) to clarify 
that this information can be provided to either the Part D sponsor or 
directly to CMS or our designees. We do not intend this new contract 
provision to explicitly require first tier, downstream, or related 
entities to produce their books and records directly to the Part D 
sponsor. Instead, we propose to leave it to the contracting parties to 
determine during their contract negotiations the process for submitting 
the requested information to CMS or our designees. The provision must 
be clear as to whether or not the requested documentation is to be 
submitted through the Part D sponsor to CMS, or submitted directly to 
CMS or our designees. The parties could also decide to have such books 
and records made directly available to CMS or our designees through 
onsite access. The Part D sponsor should be prepared to submit evidence 
of this agreed upon provision in its executed contracts to CMS.
    Because of the proposed contract provision, we are also proposing 
to redesignate Sec.  423.505(i)(4)(iv) as Sec.  423.505(i)(4)(v).
    In accessing Part D-related books and records, HHS, the Comptroller 
General, or its designees have the authority to collect any information 
from the first tier, downstream, or related entities that is related to 
the Medicare Part D prescription drug transaction. Examples of this 
type of information include, but are not limited to: Policies and 
procedures; compliance plans; statements of conflict of interest; proof 
of beneficiary identification; documentation of the quantity and 
frequency of drugs being received by the beneficiary; evidence of the 
prescriber of the Part D drugs and the individual who signs for the 
drugs; and documentation relating to the drug's history and origin. 
This information is critical to our ability to effectively oversee and 
monitor the Part D benefit, with the ultimate goal of protecting the 
Medicare Trust Fund and those beneficiaries enrolled in Part D. The 
information provided will be used to conduct investigations and audits 
of the Part D sponsors and its first tier, downstream, or related 
entities, to ensure compliance with Medicare Part D requirements, and 
to address potential fraud, waste, and abuse in the Part D benefit.
    CMS or our designees will make information requests as necessary to 
support any Part D investigations and audits. There is no continuous 
reporting requirement under sections 423.505(e) and (i), but rather 
requests are dependent upon the nature and severity of the complaint 
and the extent to which the investigation relies on supporting data 
from the first tier, downstream, and related entities.
    In addition to proposing a new contract provision at Sec.  
423.505(i)(4)(iv), we are also proposing minor regulatory changes which 
clarify the sponsor's CMS contractual requirements. While we continue 
to believe our regulations clearly state our authority to access the 
books and records of a sponsor's first tier, downstream, and related 
entities, we are proposing to add language about these partnering 
entities to Sec.  423.505(b)(10) and proposing to consolidate Sec.  
423.505(e)(2) and (3) into one provision at (e)(2). We are proposing 
these revisions to make explicit the Part D plan sponsor's contractual 
obligation to ensure HHS, the Comptroller General, or their designees 
have access to any books and records related to the Part D program, 
including those of a sponsor's first tier, downstream, and related 
entities. These proposed revisions do not impose any new requirements 
on Part D sponsors or its partnering entities.
    We are also proposing to clarify, without specific regulatory 
change in this rule that HHS, the Comptroller General, or their 
designees have the authority under the statute to request records 
relating to Part D rebate and any other price concessions information 
from Part D sponsors or their first tier, downstream, or related 
entities. These records would include, for example, copies of rebate 
agreements between PBMs and manufacturers and any records reflecting 
discounts, price concessions, chargebacks, rebates, cash discounts, 
free goods contingent on a purchase agreement, up-front payments, 
coupons, goods in kind, free or reduced price services, grants or other 
price concessions or similar benefits offered to some or all 
purchasers.
    Part D plan sponsors must maintain, as required by Sec.  
423.505(d), financial records, books and records pertaining to 
``determinations of amounts payable under the contract,'' agreements, 
contracts, and subcontracts, and ``all prescription drug claims for the 
current period and 10 prior periods.'' Since Part D sponsors have 
delegated many Part D functions to their first tier entities, many of 
these records reside with first tier entities, such as PBMs. We are 
taking this opportunity in this proposed rule to make explicit that we 
have the authority to request for verification of payment purposes, any 
records relating to rebates and any other price concessions between 
PBMs and manufacturers that may impact payments made to sponsors in the 
Part D program.
    We believe our proposal to obtain rebate and price-concession 
related records is supported by the statute. Sections 1860D-15(d)(2) 
and 1860D-15(f)(1)(A) of the Act give us authority to request any 
information ``necessary'' to carry out the payment provisions in 
section 1860D-15 of the Act, which include payments of direct 
subsidies, reinsurance, and risk corridor costs to sponsors. While the 
rebate and other price concession information reported by the sponsors 
may provide some payment information, it may not be enough for us to 
determine in all cases whether appropriate payments have been made to 
the sponsor. It may be ``necessary'' for us to obtain more detailed 
rebate and other price concession information from first tier entities 
in order to verify proper payments made to the sponsor. For example, we 
must receive accurate and complete rebate and other price concession 
information in order to determine what was ``actually paid'' and

[[Page 29375]]

to clearly reflect what was a gross covered cost, which excludes 
administrative costs.
    As stated in the CMS 2007 Prescription Drug Sponsor Call Letter, 
``CMS must assume that if a PBM retains a portion of the manufacturer 
rebates it negotiates on behalf of the Part D sponsors then the direct 
payment the sponsor pays the PBM for its services will be less, that 
is, the sponsor receives a price concession from the PBM.'' If the 
rebates are passed completely through to the Plan then the charge from 
the PBM to the Plan would be an administrative cost that will need to 
be deducted from the ``gross covered prescription drug costs'' which 
along with the ``actually paid costs'' are a basis for CMS payment to 
the plans.
    In addition, such rebate and other price concession information is 
critical to our oversight efforts in curbing fraud, waste, and abuse in 
the Part D program. Congress granted us, under section 1860D-2(d)(3) of 
the Act, the right to conduct periodic audits of a sponsor's financial 
statements, books, and records ``to protect against fraud and abuse and 
to ensure proper disclosure and accounting'' in the Part D program. 
Given the history of rebate reporting problems the government has 
encountered with PBMs in administering the Medicaid Drug Rebate Act, we 
believe we must have the ability to evaluate and inspect records 
relating to Part D rebates and other price concessions in order to 
fulfill our statutory duty of protecting beneficiaries from fraud and 
abuse and to ensure the financial integrity of the Part D program. 
Therefore, we propose when appropriate, to reserve the right to request 
records relating to Part D rebates and price concessions from the 
sponsor's first tier entities.
    To the extent information necessary to verify payment would be 
collected under the auspices of section 1860D-15 of the Act, the 
restrictions on using such information under 1860D-15(f) and (d) of the 
Act would also apply. Thus, the information collected to verify payment 
would be used only in carrying out the provisions of section 1860D-15 
of the Act, and would not be used for other purposes.
    We are also clarifying in this proposed rule that in instances of 
suspected improper payment or potential fraud, we may obtain the actual 
records used by a Part D sponsor to submit its prescription drug event 
(PDE) data for payment, whether such records are with the sponsor or 
its first tier, downstream, or related entities. Sections 1860D-
15(d)(2)(A) and 1860D-15(f)(1) of the Act require the sponsor to 
disclose or provide ``such information as the Secretary determines is 
necessary'' to verify appropriate payments made to the Part D sponsor 
and to do so in a ``form and manner'' specified by the Secretary. The 
Secretary has also delegated to CMS inspection and audit rights under 
section 1860D-15(f)(1)(B) of the Act to ensure proper payments to 
sponsors.
    Based on these authorities, we are clarifying in the preamble of 
this proposed rule that we have the ability to access any records used 
by a Part D plan sponsor to calculate and submit its PDE data, 
including any records with the sponsor's first tier, downstream, or 
related entities, for purposes of verifying payment. In order to verify 
accurate payments to the Part D plan sponsor, we may need at times to 
evaluate the records which comprised the basis for the PDE submission 
to ensure there are no inconsistencies, inaccuracies, or mistakes 
contained in these records which could have resulted in inappropriate 
or inaccurate determinations of payment. Moreover, we may need to 
review the underlying records of the PDE submission for purposes of 
investigating allegations of misconduct such as data tampering, 
fraudulent misrepresentation, or omissions of data which could have 
affected whether appropriate and accurate payments were made to the 
sponsor.
    In such instances of suspected fraud or improper payment, we may 
request from the sponsor, or its first tier, downstream, and related 
entities, records that include for example, the prescription drug claim 
or transaction record submitted by a pharmacy to a PBM. We are 
soliciting comment on what types of records should be subject to this 
access requirement. Again, to the extent such information would be 
provided under the authority of 1860D-15 of the Act, the restrictions 
on use in that section would also apply.
    We note that any failure or omission by a first tier, downstream, 
or related entity to provide information requested by us, or to allow 
HHS access to its books and records relating to payment, would 
constitute a violation by the MA organization or Part D plan sponsor of 
its contract with us and a violation of the MA and Part D regulations. 
Such a failure would provide the basis for any applicable adverse 
actions, including potentially, the imposition of intermediate 
sanctions, civil money penalties, or contract termination against the 
Part D sponsor or MA organization. We welcome comments on these 
proposed changes.
Sections 422.505 and 423.506--Effective Date and Term of Contract
    We propose removing Sec.  422.505(c)(1) and Sec.  423.506(c)(1), 
which state that contracts with MA organizations or Part D plan 
sponsors are only renewed if CMS informs the MA organization or Part D 
sponsor that it has authorized a renewal. Section 1857(c)(1) of the Act 
provides that the contract renews automatically, unless CMS or the 
organization notifies the other party of its intent to terminate the 
contract at the end of the existing contract term. Therefore, we 
propose to revise Sec.  422.505(c) and Sec.  423.506(c) to state that 
in accordance with Sec.  422.506 and Sec.  423.507, contracts are 
renewed annually only if the MA organization or Part D plan sponsor has 
not provided us with a notice of intent not to renew and we have not 
provided the MA organization or Part D plan sponsor with a notice of 
intent not to renew. This proposed change would better align the 
regulations with the statute.
Sections 422.506 and Sec.  423.507--Nonrenewal of a Contract
    We propose revising the introductory text for Sec.  422.506(b)(2) 
and Sec.  423.507(b)(2). In addition, we propose revising Sec.  
422.506(b)(2)(i) and Sec.  423.507 (b)(2)(i). The existing provisions 
require us to provide plans with notice of both renewal and nonrenewal 
decisions by May 1. We propose that a notice only be provided if we 
decide not to renew an MA organization or a Part D plan sponsor's 
contract with us. As discussed above, Section 1857(c)(1) of the Act 
provides for an automatically renewable contract and does not require 
us to provide notice when we decide to renew a plan or sponsor's 
contract with us. We propose revising the Sec.  422.506(b)(2) 
introductory text and the Sec.  423.507(b)(2) introductory text to 
clarify that we must provide notice of our decision not to authorize 
renewal of a contract. In addition, we propose to revise Sec.  
422.506(b)(2)(i) and Sec.  423.507 (b)(2)(i) to require that we provide 
notice by September 1 of the contract year, rather than May 1. If an MA 
organization or Part D sponsor receives a non-renewal notice from CMS, 
we will not provide information regarding the MA or Part D plans that 
the organization or sponsor offers in certain hard copy materials, such 
as the ``Medicare & You'' handbook. Information regarding the plans 
would continue to be available on the CMS website. For purposes of this 
proposed rule, a non-renewal would take effect on January 1 of the 
following contract year, whereas a termination may take effect at any 
time during the

[[Page 29376]]

contract year. Our proposed provisions would make contract renewal 
automatic, without notice, unless we notify the MA organization or 
Medicare Part D plan sponsor of our intent to nonrenew the contract by 
September 1 of the current contract year. We welcome comments on these 
proposed changes.
    Changing the notification deadline to September 1 would provide us 
with additional time to make a determination as to whether an MA 
organization or Part D plan sponsor is in compliance with our 
requirements and should have its contract renewed for the following 
contract year. It has been our experience that the May 1 deadline does 
not provide us with enough time to obtain accurate up-to-date 
information in order to make a decision about contract renewals. This 
change would provide more time for us to make an accurate determination 
concerning contract non-renewals.
    We propose redesignating Sec.  422.506(b)(3) as Sec.  422.506(b)(4) 
and redesignating Sec.  423.507(b)(3) as Sec.  423.507(b)(4). We 
propose adding a new paragraph at Sec.  422.506(b)(3) and Sec.  
423.507(b)(3) which would clarify the CAP process for nonrenewals. The 
Act requires us to provide MA organizations and Part D plan sponsors 
with a reasonable opportunity to develop a CAP prior to terminating a 
contract, in this case, a nonrenewal. The CAP process for nonrenewals 
would be the same process as we propose for terminations. We propose a 
more structured process which outlines the processes and timeframes for 
CAPs. Since we have the discretion to provide plans with the 
opportunity to develop and implement a CAP either prior to, or after, 
sending out a notice of intent to nonrenew, we would provide an MA 
organization or Part D plan sponsor with an opportunity to develop and 
implement a CAP prior to sending the sponsor or organization a notice 
of intent to nonrenew. This proposal marks a divergence from our past 
practice with respect to the CAP process as we have previously asked 
sponsors or organizations to develop CAPs subsequent to notifying them 
of a nonrenewal or termination decision. Our proposal clarifies that, 
in the future, once we issue a notice of nonrenewal or a notice of 
termination, the MA organization or Part D plan sponsor would not have 
an opportunity to submit a CAP. We would provide that opportunity to 
organizations and sponsors prior to issuing a notice of intent to 
nonrenew or a notice of intent to terminate. MA organizations and Part 
D plan sponsors should take very seriously any request from us to 
develop and implement a CAP since a failure to comply may result in a 
nonrenewal or termination action. We welcome comments on these proposed 
changes.
    We propose time limits at Sec.  422.506(b)(3) and Sec.  
423.507(b)(3) for the development and implementation of a CAP. Our 
experience with the CAP process is that plans may attempt to draw out 
the process indefinitely in the absence of a time limit. We do not 
believe that the statute intends for this process to go on 
indefinitely. We propose to provide the MA organization or Part D plan 
sponsor 45 days in which to submit a CAP to us. If we find that the CAP 
is unacceptable, the MA organization or Part D plan sponsor would have 
an additional 30 days to revise and resubmit the CAP. If we then find 
the CAP acceptable, we would provide the MA organization or Part D plan 
sponsor with a deadline by which the CAP must be implemented. If we 
find that the second version of the CAP is unacceptable, we would be 
under no obligation to accept further revisions to the CAP and would 
have the discretion to proceed directly to issuing a notice of 
nonrenewal to the MA organization or Part D plan sponsor. We welcome 
comments on these proposed changes.
Sections 422.510 and 423.509--Termination of Contract by CMS
    We propose revising Sec.  422.510(a)(1) and Sec.  423.509(a)(1) to 
clarify one of the bases for contract termination. The existing 
provision states that we may terminate an MA organization or Part D 
plan sponsor's contract with us if the MA organization or Part D plan 
sponsor ``failed substantially to carry out the terms of its contract 
with CMS.'' We propose language to clarify that we may terminate an MA 
organization or Part D plan sponsor's contract if the organization 
substantially failed to carry out the terms of its contract with us for 
the current term or its contract from a previous term. This 
clarification would be consistent with section 1857(c)(1) of the Act, 
which states that a contract must be for a period of at least 1 year 
with the contract being automatically renewable from term to term, 
absent notice from either party of an intent to terminate the contract 
at the end of the current term. Given that we have already adopted 
automatically renewable multi-year contracts, failure to substantially 
carry out a contract term necessarily would apply to all years of the 
contract.
    We propose revising Sec.  422.510(b) and Sec.  423.509(b) 
introductory text and revising the paragraph heading for Sec.  
422.510(b)(2) and Sec.  423.509(b)(2) to delete the term ``immediate'' 
and replace it with ``expedited''. In addition, we propose revising 
Sec.  422.510(b)(2)(i) and Sec.  423.509(b)(2)(i) to state that an 
expedited termination would take effect on a date specified by us. 
According to the existing regulations, an immediate termination takes 
effect once the MA organization or Part D plan sponsor receives notice 
that we intend to immediately terminate the plan's contract with us and 
a plan's enrollees are automatically disenrolled from the plan on the 
date such notice is received. Our proposed change would provide greater 
protection for Medicare beneficiaries because we would have time 
between notifying a plan of an expedited termination decision and the 
actual date of termination to provide enrollees of the MA or Part D 
plan with enough information to enroll in another plan. We welcome 
comments on these proposed changes.
    These changes are supported by section 1857(h)(2) of the Act which 
permits us to terminate a contract with an MA organization or Part D 
plan sponsor without providing the plan with an opportunity to submit a 
CAP and without notice and opportunity for a hearing, where the notice 
and hearing procedures required by section 1857(h)(1) of the Act would 
pose an imminent and serious risk to the health of enrollees in the 
plan. Section 1857(h)(2) of the Act is silent on the specifics of this 
alternate termination process and does not require ``immediate'' 
termination; merely that the procedures at section 1857(h)(1) of the 
Act shall not apply.
    We would also clarify that we would be able to invoke the expedited 
termination process when a determination regarding an MA organization 
is made according to Sec.  422.510(a)(5). The existing regulations 
state that we invoke the current immediate termination process when a 
determination is made according to Sec.  422.510(a)(4) for the MA 
program and Sec.  423.509(a)(4) or (a)(5) for the Medicare Part D 
program. By adding (a)(5) as a basis for an expedited termination for 
MA organizations, the grounds for expedited terminations would be 
identical for the MA and Part D programs. The addition of Sec.  
422.510(a)(5) would provide consistency between the Part C regulations 
and the Part D regulations.
    We propose to amend our procedures at Sec.  422.510(c) and Sec.  
423.509(c) to provide more structure to the process for the submission 
and review of CAPs. The Act requires us to provide MA organizations and 
Part D plan sponsors with a reasonable opportunity to

[[Page 29377]]

develop and implement a CAP before we terminate the organization or 
sponsor's contract. The CAP process we are proposing is the same 
process for nonrenewals outlined above and which we are proposing at 
Sec.  422.506 and Sec.  423.507, providing for a more structured 
process and timeframes for the development and implementation of a CAP.
Subpart N--Medicare Contract Determinations and Appeals
    We propose revisions to subpart N of 42 CFR part 422 and 42 CFR 
part 423 to coordinate and improve the contract determination and 
appeals processes for MA organizations and Part D plan sponsors. We 
propose removing the reconsideration process for appeals of all types 
of contract determinations. We also propose to make the appeals process 
consistent for all three types of contract determinations 
(terminations, nonrenewals, and decisions by us not to enter into a 
contract with an applicant). In addition, we propose that the MA 
organization or Part D plan sponsor have the burden of proof in 
appealing a contract determination. Below is a more detailed 
explanation of our proposals.
    We propose removing the provisions regarding the reconsideration 
process for appeals of contract determinations at Sec.  422.648, Sec.  
422.650, Sec.  422.652, Sec.  422.654, Sec.  422.656, Sec.  422.658, 
Sec.  423.644, Sec.  423.645, Sec.  423.646, Sec.  423.647, Sec.  
423.648, and Sec.  423.649. Section 1857(h) of the Act requires only 
that we provide an organization with notice and an opportunity for a 
hearing before terminating a contract. The reconsideration process is 
not required by statute. Eliminating the reconsideration process would 
expedite the appeals process which would benefit MA organizations and 
Part D plan sponsors as well as CMS. We welcome comments on the 
proposal to eliminate the reconsideration process for appeals or 
contract determinations.
Sections 422.644 and 423.642--Notice of Contract Determination
    We are proposing to make conforming changes to Sec.  422.644(b)(2) 
and Sec.  423.642(b)(2) as a result of the changes we are making to the 
immediate termination process. Consistent with the proposed revisions 
we have previously described, we propose to revise Sec.  422.644(c) and 
Sec.  423.642(c) to state that we would determine the effective date of 
an expedited termination. We also propose adding the reference Sec.  
422.510(a)(4) as a basis for which we may undertake an expedited 
termination.
    We also propose to revise the provisions at Sec.  422.644(d) and 
Sec.  423.642(d) to conform to the proposed change previously described 
whereby we would provide notice of nonrenewal to MA organizations or 
Part D plan sponsors by September 1, rather than the current May 1. We 
welcome comments on the proposal to shift the date of the notice of 
nonrenewal from May 1 to September 1.
Sections 422.646 and 423.643--Effect of Contract Determination
    We propose making conforming changes to the provisions at Sec.  
422.646 and Sec.  423.643 to reflect our proposal to eliminate the 
reconsideration process. The current regulations state that a contract 
determination is final unless an MA organization or Part D plan sponsor 
requests reconsideration. Since we have proposed eliminating the 
reconsideration process, we are proposing a conforming change to 
indicate that a contract determination would be a final decision unless 
a timely request for a hearing is filed.
Sections 422.660 and 423.650--Right to a Hearing and Burden of Proof
    We also propose making conforming changes to the provisions at 
Sec.  422.660(a) and 423.650(a) to reflect our proposal to eliminate 
the reconsideration process. These provisions would then state that if 
we determine that an applicant is not qualified to enter into a 
contract with us and the applicant chooses to appeal the determination, 
a hearing before a CMS hearing officer would be the first step in the 
appeal process. We propose to make similar conforming changes to Sec.  
422.660(b) and Sec.  423.650(b), to indicate that a hearing before a 
CMS hearing officer would be the first step in appealing a nonrenewal 
determination or a termination decision.
    We propose to add a new provision at Sec.  422.660(c) and at Sec.  
423.650(c) to clarify that the burden of proof would be on the MA 
organization or Part D plan sponsor at a hearing appealing a CMS 
contract determination. We believe case law supports our decision to 
place the burden of proof on the affected party in an administrative 
hearing on a contract determination involving a Part D plan sponsor or 
MA organization. The DAB has previously held that in a termination 
proceeding by the Secretary, the facility bears the ultimate burden of 
proving it is in compliance with program requirements. (See Hillman 
Rehabilitation Center, DAB No. 1611 (1990), aff'd Hillman 
Rehabilitation Center v. United States, No. 98-3789 (GEB)(D.N.J. May 
13,1999).) We require that MA organizations and Part D sponsors are in 
compliance with our program requirements during the entire contract 
period. When we provide a notice of nonrenewal or termination, the 
basis for the notice is noncompliance with contractual and regulatory 
provisions. Once we have determined that the MA organization or Part D 
plan sponsor is out of compliance, the MA organization or Part D plan 
sponsor has the burden to prove it was in compliance. In addition, we 
also propose to specify that the MA organization or Part D plan sponsor 
must demonstrate substantial compliance with the relevant MA or Part D 
plan requirements as of the earliest of the following dates: (1) The 
date the organization or sponsor received written notice of the 
contract determination; (2) the date of the most recent on-site audit 
conducted as the basis of the termination; (3) or the date of the 
alleged breach of the current contract or past substantial 
noncompliance as determined by CMS. We welcome comments on these 
proposed changes.
    Based on our experience with appeals of contract determinations, we 
have found the current regulations do not provide hearing officers with 
a particular ``compliance date'' to use as a reference point in issuing 
a ruling. This creates the potential for inconsistency in the decisions 
issued by hearing officers. We believe our proposal to provide a 
framework for hearing officers to use in establishing a compliance date 
as a reference point will lessen the potential for such inconsistency. 
By requiring the compliance date to be the earliest of the three 
possible dates, the hearing will reflect that circumstances may differ 
on a case by case basis. For example, where an onsite audit was 
conducted or where a significant breach occurred, we think it is 
appropriate for us to base our decision to terminate a plan's contract 
on the date of either the audit or the breach. However, where an onsite 
audit did not occur, or where the basis of our termination decision is 
not one major breach, we think it is appropriate to use the date we 
notified the MA organization or Part D sponsor of our intent to 
terminate as a reference point. Without a specific date as a reference 
point for evaluating compliance, the hearing officer lacks the 
information necessary to arrive at a determination. We welcome comments 
on these proposed changes.
Sections 422.662 and 423.651--Request for a Hearing
    We propose to revise Sec.  422.662(b) and Sec.  423.651(b) to 
conform to our proposed

[[Page 29378]]

change to eliminate the reconsideration process. These provisions would 
specify that a request for a hearing must be filed within 15 days after 
the date of the initial determination.
Sections 422.664 and 423.652--Postponement of Effective Date of a 
Contract Determination When a Request for a Hearing is Filed Timely
    We propose to revise Sec.  422.664 and Sec.  423.652 to postpone 
the effective date of a contract determination when an MA organization 
or Part D sponsor timely requests a hearing to appeal the contract 
determination. However, the postponement would not override the 
requirement that any final decision in favor of the plan or sponsor 
must be issued by July 15 for an initial contract to be effective for 
the upcoming year. Thus, if an organization's application is not 
approved and the hearing officer's decision is not provided until 
August, the applicant would not be able to have a contract for the next 
year. This is consistent with our current process. We do not currently 
postpone the effective date of termination in cases of immediate 
termination, and we are not proposing any change in policy with respect 
to expedited terminations.
Sections 422.670 and 423.655--Time and Place of Hearing
    We propose revising Sec.  422.670(a) and Sec.  423.655(a), to 
require the hearing officer to send written notice to the parties 
specifying the general and specific issues to be resolved at the 
hearing, outlining the burden of proof and providing any information 
about the hearing procedures. In addition, the notice would inform the 
parties that they may conduct formal discovery.
Sections 422.682 and 423.661--Discovery
    We propose revising Sec.  422.682 and Sec.  423.661, to clarify the 
scope of permissible discovery, and to require the hearing officer to 
conclude discovery and provide all documents to both the hearing 
officer and the opposing party at least 10 days prior to the hearing. 
It has been our experience that such a deadline, which is not set out 
in the existing regulations, is necessary to provide enough time for 
the parties or the hearing officer to review documents prior to the 
hearing. We welcome comments on these proposed changes.
Sections 422.684 and 423.662--Prehearing and Summary Judgment
    We propose to amend the provisions at Sec.  422.684 and Sec.  
423.662 (and revise the section heading accordingly) to permit the 
hearing officer to rule on a motion for summary judgment filed by 
either of the parties to the hearing. In ruling on such a motion, we 
propose that the hearing officer would be bound by CMS regulations and 
general instructions. Where no factual dispute exists, the hearing 
officer may make a decision on the papers, without the need for a 
hearing. This would be more efficient and cost effective for both 
parties when no factual dispute exists. We welcome comments on these 
proposed changes.
Sections 422.692 and 423.666--Review by the Administrator
    The existing regulations only explicitly permit Administrator 
review of a hearing officer's decision in appeals of a contract 
termination. We clarify that this review is available for all appeals 
of CMS contract terminations, including decisions not to contract with 
an applicant and nonrenewals.
    We propose revising the provisions at Sec.  422.692(a) and Sec.  
423.666(a) to allow us to request Administrator review of a hearing 
officer's decision regarding a contract determination. The existing 
regulations permit only the MA organization or Part D sponsor to 
request Administrator review. In addition, we propose to amend the same 
provisions to permit both the parties to submit written arguments to 
the Administrator.
    We propose revising the provisions at Sec.  422.692(b) and Sec.  
423.666(b), to permit the Administrator, upon receipt of a request for 
Administrator review, to accept or decline to review the hearing 
decision. The existing regulations require the Administrator to review 
the decision when a request for review is received. We believe that 
providing the Administrator with the discretion to accept or decline 
the request for review would lead to a more expeditious resolution of 
appeals of contract determinations.
    We propose redesignating Sec.  422.692(c) as Sec.  422.692(e) and 
redesignating Sec.  423.666(c) as Sec.  423.666(e).
    We propose adding a new Sec.  422.692(c) and Sec.  423.666(c), to 
require the Administrator to make a determination as to whether to 
accept or decline the request for review within 30 days of the request 
of the review. The failure of the Administrator to make a determination 
within 30 days of the request would be treated as a decision to decline 
the request for review. We believe that providing this timeline would 
assist all parties in reaching a final decision in an expeditious 
manner. We welcome comments on these proposed changes.
    In addition, we propose amending our existing regulations to add a 
new paragraph at Sec.  422.692(d) and Sec.  423.666(d) which specifies 
that Administrator review is based on the hearing record and any 
written arguments submitted by the parties. However, review would not 
be based on any new evidence, such as evidence that was not before the 
hearing officer. We believe the specified sources provide a sufficient 
basis for the Administrator to make a determination.
    If the Administrator declines to review the hearing officer's 
decision, the decision of the hearing officer would become final and 
binding.
Sections 422.696 and 423.668--Reopening of Initial Contract 
Determination or Intermediate Sanction or Decision of a Hearing Officer 
of the Administrator
    We propose to revise the section headings for Sec.  422.696 and 
Sec.  423.668 from ``Reopening of a contract or reconsidered 
determination or decision of a hearing officer or the Administrator'' 
to ``Reopening of an initial contract determination or decision of a 
hearing officer or the Administrator'' to conform to our proposed 
elimination of the reconsideration process described above.
Sections 422.698 and 423.669--Effect of Revised Determination
    We propose making a conforming change to reflect our proposed 
elimination of the reconsideration process by removing in its entirety 
Sec.  422.698 and Sec.  423.669, ``Effect of revised determination.''
Subpart O--Intermediate Sanctions
    We are proposing several changes to our regulations in Subpart O--
Intermediate Sanctions in 42 CFR Part 422 and 42 CFR Part 423, to 
clarify our policies and procedures for imposing intermediate sanctions 
and Civil Money Penalties (CMPs) on MA organizations and Part D 
sponsors. Specifically, we propose to modify the appeals procedures for 
intermediate sanctions and clarify which set of procedures affected 
parties should use to appeal a CMP. We are soliciting public comment on 
our proposed changes to subpart O.
Sections 422.750 and 423.750--Types of Intermediate Sanctions and Civil 
Monetary Penalties
    We propose reorganizing Sec.  422.750 and Sec.  423.750, to 
distinguish the three different types of intermediate sanctions from 
CMPs. We also propose to clarify that each of the three intermediate

[[Page 29379]]

sanctions, (suspension of enrollment, suspension of payment, and 
suspension of marketing) would remain in effect until we are satisfied 
that the reasons for the initial suspensions have been corrected and 
are not likely to reoccur. This revision reflects our current policy 
and practice.
    For clarity, we propose specifying at Sec.  422.750(b) and Sec.  
423.750(b) that we may impose CMPs in the dollar amounts specified in 
Sec.  422.760 and Sec.  423.760. We propose to remove the prior 
reference at Sec.  422.750(a)(1) and Sec.  423.750(a)(1) to the range 
of CMPs because it is confusing.
Sections 422.752 and 423.752--Basis for Imposing Intermediate Sanctions 
and Civil Money Penalties
    At Sec.  422.752 and Sec.  423.752, we are proposing to reorganize 
the regulation to clarify the breakdown of responsibility between CMS 
and the OIG for imposing intermediate sanctions and CMPs based on the 
type of violation involved. Specifically, we clarify that CMS may 
impose a suspension of enrollment, payment, or marketing on an MA 
organization or Part D sponsor for violations specified in Sec.  
422.752(a)(1) through (a)(8) and for violations specified in Sec.  
423.752(a)(1) through (a)(6).
    As part of the reorganization to the regulation, we also are 
proposing to add a new Sec.  422.752(c) and Sec.  423.752(c), to 
clarify that in addition to the intermediate sanctions, we continue to 
have authority to impose CMPs for contract determinations made under 
Sec.  422.510(a) and Sec.  423.509(a). However, as specified in Sec.  
422.752(c)(2) and Sec.  423.752(c)(2), OIG would continue to have sole 
authority to impose CMPs for any determinations concerning the MA 
organization or the Part D sponsor committing or participating in 
false, fraudulent, or abusive activities affecting the Medicare 
program, including the submission of false or fraudulent data, as 
stated in Sec.  422.510(a)(4) and Sec.  423.509(a)(4).
Sections 422.756 and 423.756--Procedures for Imposing Intermediate 
Sanctions and Civil Money Penalties
    At Sec.  422.756 and Sec.  423.756 we propose to eliminate the 
existing informal reconsideration process used for review of a decision 
by CMS to impose an intermediate sanction, and allow an MA organization 
or Part D sponsor to proceed directly to a hearing, pursuant to the 
same procedures used to appeal contract determinations in Subpart N. 
(See Sec.  422.660 through Sec.  422.698 and Sec.  423.650 through 
Sec.  423.669.) We believe it would be more efficient and effective to 
allow the MA organization or Part D sponsor to proceed to a hearing in 
appealing an intermediate sanction. We note that a request to appeal an 
intermediate sanction before a hearing officer does not delay the 
intermediate sanction from taking effect on the date specified in the 
sanction notice. We welcome comments on these proposed changes.
    Because we propose to eliminate the informal reconsideration step, 
we propose that an MA organization or Part D sponsor have an 
opportunity to present information to us that may affect our decision 
to impose an intermediate sanction prior to the sanction taking effect. 
We recognize there may be occasions when we receive information that we 
previously did not have when making a decision to impose an 
intermediate sanction. Therefore, we propose that MA organizations and 
Part D sponsors have an opportunity to submit a written rebuttal 
statement as specified at Sec.  422.756(a)(2) and Sec.  423.756(a)(2), 
and to require the rebuttal statement be provided to us within ten (10) 
calendar days after the MA organization or sponsor receives notice of 
the intermediate sanction. The 10 calendar days begin the day after the 
notice of intermediate sanction is mailed to the plan. A notice of 
intermediate sanction is sent by overnight mail and by e-mail or fax.
    In some cases we may decide to impose multiple sanctions, for 
example, contract termination, intermediate sanction, or CMP, against 
an MA organization or Part D sponsor. We propose to have the CMP appeal 
process go to an ALJ while the other actions such as an intermediate 
sanction or a termination go to a CMS hearing official. Although the 
same underlying conduct may be the basis for both actions we believe 
that the separate processes would result in more consistent decision 
making by hearing officers and ALJs.
Sections 422.758 and 423.758--Collection of Civil Money Penalties 
Imposed by CMS
    At Sec.  422.758 and Sec.  423.758 we propose to revise the section 
heading ``Maximum amount of civil money penalties imposed by CMS'' to 
read ``Collection of civil money penalties imposed by CMS.'' In 
addition, we propose to revise Sec.  422.758 and Sec.  423.758. 
Specifically, we propose that we would initiate collection of the CMPs 
if the MA organization or Part D sponsor does not timely request a 
hearing, or if our decision to impose a CMP is upheld by an ALJ.
Sections 422.760 and 423.760-- Determinations Regarding the Amount of 
Civil Money Penalties and Assessment Imposed by CMS
    We propose redesignating the existing Sec.  422.760 as Sec.  
422.764 and redesignating the existing Sec.  423.760 as Sec.  423.764 
because in this rule we have made explicit which provisions of section 
1128A of the Act apply to CMP appeals procedures in proposed subpart T 
in parts 422 and 423.
    We propose adding a new Sec.  422.760 and Sec.  423.760 to clarify 
that we use the statutory factors in section 1128(A) of the Act in 
determining the appropriate amount of civil money penalties or 
assessments to impose on an MA organization or Part D sponsor. These 
factors, if applicable, include the nature of the conduct, the degree 
of culpability, the prior history of offenses, the financial condition 
of the MA organization or Medicare Part D sponsor presenting the 
claims, and other matters as fair administration may require. These 
factors are based on the same statutory factors used in other Medicare 
enforcement programs, including those in the nursing facility 
enforcement context.
    We also propose to clarify in Sec.  422.760(b) and Sec.  
423.760(b), the amounts that may be assessed for CMPs that we impose. 
We welcome comments on these proposed changes.
Sections 422.762 and 423.762--Settlement of Penalties
    We propose to add a new Sec.  422.762 and Sec.  423.762 to clarify 
that in accordance with section 1128A(f) of the Act, we have the 
authority to settle CMPs imposed by us. This provision would make it 
explicit what the parties may agree to settle the dispute instead of 
litigating an appeal. We welcome comments on these proposed changes.
Sections 422.764 and 423.764--Other Applicable Provisions
    We propose to redesignate Sec.  422.760 and Sec.  423.760 as Sec.  
422.764 and Sec.  423.764 respectively to conform to the changes 
proposed at the new Sec.  422.760 and Sec.  423.760. No substantive 
changes to the text have been made.
Subpart T--Appeal Procedures for Civil Money Penalties
    We propose to reserve subparts P, Q, R, and S in Part 422. In 
addition, we propose to add a new subpart T in Part 422 and Part 423, 
respectively. These new subparts would outline the CMP appeal 
procedures for MA organizations and Part D sponsors.
    Our current MA and Part D regulations do not specify which

[[Page 29380]]

procedures an MA organization or Part D sponsor must use to appeal a 
CMS-imposed penalty under either of these two programs. The regulations 
at 42 CFR part 422.760 and 42 CFR part 423.760 state only that the 
provisions of section 1128A of the Act (except paragraphs (a) and (b)) 
apply to civil money penalties under this subpart to the same extent 
that they apply to a civil money penalty or procedure under section 
1128A of the Act. Nor have we issued any guidance directing parties to 
the appropriate appeals procedures for MA and Part D CMPs.
    Therefore, to ensure a consistent approach in this area, we are 
proposing incorporating appeals procedures for parties to use when 
appealing a CMP imposed under the MA or Part D program in a new subpart 
T in Parts 422 and 423 respectively.
    Based on certain statutory requirements and policy considerations, 
we are proposing to adopt CMP appeals procedures almost identical to 
those in part 498 of Title 42, which are used by certain Medicare 
providers and suppliers to challenge adverse agency enforcement 
decisions. Part 498 sets forth the rules for administrative and 
judicial review of CMS determinations that affect participation in the 
Medicare and Medicaid programs for a wide array of medical providers of 
services. These rules, issued on June 12, 1987 (52 FR 22446), have been 
used by CMS for almost 20 years and provide established appeals 
procedures for various types of adverse agency determinations, 
including civil money penalties imposed on nursing facilities. We 
welcome comments on the proposed changes to adopt most aspects of 42 
CFR 498 into the 42 CFR 422 and 42 CFR 423 proposed regulations.
    The statute authorizing CMPs in the MA and Part D programs require 
the provisions of section 1128A of the Act, (except for subsection (a) 
and (b)), to apply to MA and Part D CMP proceedings, in the ``same 
manner'' as such provisions apply to other CMPs imposed under section 
1128A. (See section 1857(g)(4) of the Act.) CMPs imposed on nursing 
facilities are also authorized under section 1128A of the Act. (See 
section 1819(h)(2)(B)(ii) of the Act (SNFs) and section 
1919(h)(3)(C)(ii) of the Act (NFs), which state that ``[t]he provisions 
of the section 1128A (other than subsections (a) and (b)) shall apply 
to a civil money penalty[] in the same manner as such provisions apply 
to a penalty or proceeding under section 1128A(a).'') Based on this 
common statutory basis, we believe using the Part 498 procedures to 
hear CMP appeals in the MA and Part D programs is consistent with 
Congress' intent.
    We also believe that relying on Part 498 appeals procedures for CMP 
appeals in the MA and Part D programs make sense for policy reasons. We 
have substantial experience using these procedures and they provide an 
established infrastructure and well-vetted process for hearing CMP 
appeals. The bases on which we may impose CMP in the MA and Part D 
programs are also somewhat similar to those used in the nursing 
facility context. For example, CMPs can be imposed on MA organization 
and Part D sponsors for a wide range of regulatory and/or contractual 
violations, which may be brought to the agency's attention based on 
audit findings. We believe the part 498 appeals procedures are the most 
appropriate procedures to use for hearing disputes involving a wide 
range of violations. We welcome your comments on our proposal to adopt 
the part 498 procedures as our CMP appeals procedures.
    While the statute authorizing CMPs in the MA and Part D programs 
requires the provisions of section 1128A of the Act, (except for 
subsections (a) and (b)), to apply to MA and Part D CMP proceedings, it 
does not require that section 1128A's provisions apply to other CMP 
appeals procedures in the exact same manner, or without some 
consideration for the MA or Part D program's unique characteristics. In 
fact, section 1857(g)'s ``same manner'' language appears throughout the 
Act and serves as the statutory basis for several different types of 
CMP enforcement and appeals procedures. In the past, we have used our 
discretion to tailor certain hearing procedures to the particular type 
when developing other CMP appeals proceedings. Since the MA and Part D 
programs differ from the nursing facility program, we are proposing 
modifying certain sections of part 498 to take into account some of 
these differences.
    For example, we have proposed removing the reconsideration step in 
the MA and Part D CMP appeals procedures since this step in part 498 
only applies to initial determinations made for prospective providers 
entering the Medicare or Medicaid program and is not applicable to CMP 
appeals. Removing the reconsideration step in subpart T would also help 
expedite the CMP appeals process.
    Since it is not clearly stated in part 498's regulations, we are 
proposing to make explicit in our regulations that in a hearing of a 
CMP appeal before an ALJ or the Departmental Appeals Board (DAB), the 
ultimate burden of persuasion would rest on the MA organization or Part 
D sponsor. The DAB has previously held that in a provider termination 
proceeding by the Secretary, the facility bears the ultimate burden of 
proving it is in compliance with program requirements. (See Hillman 
Rehabilitation Center, DAB No. 1611 (1990), aff'd Hillman 
Rehabilitation Center v. United States, No. 98-3789 (GEB) (D.N.J. May 
13, 1999).) The DAB has also held that the same allocation of the 
burden of proof is appropriate where a CMP has been imposed on a 
nursing facility participating in Medicare. (See Batavia Nursing and 
Convalescent Center, DAB No. 1904 (2004).) We believe the 
administrative caselaw supports our decision to place the burden of 
proof on the affected party in an administrative hearing on the 
imposition of MA and Part D CMPs. As discussed above, noncompliance 
with requirements for MA and Part D organizations who participate in 
Medicare is analogous to noncompliance by providers (including nursing 
facilities) who participate in the program. Moreover, like the 
providers in the cited cases, an MA or Part D organization is party in 
possession of the most complete evidence of the state of its 
compliance. Thus, placing the ultimate burden of persuasion on the 
organization is fair.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we 
solicit comment on the following issues:
     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.
    The following information collection requirements included in this 
proposed rule and their associated burdens are subject to the PRA.
    We are soliciting public comment on each of the issues for the 
following sections of this document that contain

[[Page 29381]]

information collection requirements and are not currently approved by 
the OMB.

Section 422.503 General Provisions

    Sections 422.503(b)(4)(vi)(C) and (b)(4)(vi)(D) require a MA 
organization to have a compliance plan, which includes measures to 
detect, correct, and prevent fraud, waste, and abuse. The compliance 
plan shall include effective training and education between the 
compliance officer and the MA organization's employees, managers and 
directors, the MA organization's first tier, downstream, and related 
entities; and, effective lines of communication between the compliance 
officer, members of the compliance committee, the MA organization's 
employees, managers and directors, and the MA organization's first 
tier, downstream, and related entities.
    The burden associated with this requirement is the time and effort 
put forth by the MA organization to prepare a compliance plan that 
meets the requirements of this section. While this requirement is 
subject to the PRA, it is currently approved under OMB 0938-
1004.
    Section 422.503(b)(4)(vi)(G)(3) would require a MA organization to 
have procedures in place for mandatory self-reporting of potential 
fraud or misconduct related to the MA program to the appropriate 
government authority. The MA organization would be required to report 
potential fraud or misconduct related to the MA program to the 
appropriate government authority.
    The burden associated with this requirement is the time and effort 
put forth by the MA organization to implement procedures for mandatory 
self-reporting. We estimate it would take one MA organization 40 hours 
to fulfill this requirement. The total number of MA organizations 
affected by this requirement is 393. The total one-time burden for this 
requirement would be 15,720 hours. We cannot anticipate how many plans 
will need to report any potentially fraudulent activities to CMS. 
However, based on historical evidence, we believe that less than 10 MA 
organizations would be required to self-report potential fraud or 
misconduct related to the MA program. While this burden is subject to 
the PRA, we expect that less than 10 entities will be affected. 
Therefore, we believe these collection requirements are exempt as 
specified at 5 CFR 1320.3(c)(4).

Section 422.504 Contract Provisions

    Section 422.504(e)(2) requires MA organizations to agree to allow 
HHS, the Comptroller General, or their designees to audit, evaluate, or 
inspect any books, contracts, medical records, patient care 
documentation, and other records of the MA organization, its first 
tier, downstream, related entity, or its transferee that pertain to any 
aspect of services performed, reconciliation of benefit liabilities, 
and determination of amounts payable under the contract, or as the 
Secretary may deem necessary to enforce the contract.
    The burden associated with this requirement is the time and effort 
put forth by the MA organization to maintain appropriate records and 
documentation. While this requirement is subject to the PRA, it is 
currently approved under OMB 0938-1004.
    Section 422.504(i)(2) requires the MA organization to require all 
first tier, downstream, and related entities to agree that HHS, the 
Comptroller General, or their designees have the right to inspect, 
evaluate, and audit any pertinent contracts, books, documents, papers, 
and records of the first tier, downstream, and related entities 
involving transactions related to CMS' contract with the MA 
organization.
    The burden associated with this requirement is the time and effort 
put forth by the MA organization's first tier, downstream, and related 
entities to maintain appropriate records and documentation. While the 
burden associated with this requirement is subject to the PRA, it is 
currently approved under OMB 0938-1004.

Section 422.505 Effective Date and Term of Contract

    Section 422.505(c) requires MA organizations who wish not to renew 
their contract to submit a notice of intent to CMS.
    The burden associated with this requirement is the time and effort 
put forth by the MA organization to prepare the notice and submit it to 
CMS. While this requirement is subject to the PRA, it is currently 
approved under OMB 0938-0753.

Section 422.506 Nonrenewal of Contract

    Section 422.506 requires an MA organization to develop and submit a 
CAP to correct the deficiencies that are the basis of the termination 
decision. The MA organization must submit the CAP within 45 days of 
receiving notice of termination.
    The burden associated with this requirement is the time and effort 
it would take for the MA organization to develop and submit a CAP. 
While this requirement is subject to the PRA, we expect less than 10 
entities will be affected; therefore, we believe these collection 
requirements are exempt as specified at 5 CFR 1320.3(c)(4).

Section 423.504 General Provisions

    Sections 423.504(b)(4)(vi)(C) and (b)(4)(vi)(D) require Part D 
Sponsors to have a compliance plan, which includes measures to detect, 
correct, and prevent fraud, waste, and abuse. The compliance plan shall 
include effective training and education between the compliance officer 
and the Part D sponsor's employees, managers and directors, and the 
Part D plan sponsor's first tier, downstream, and related entities; and 
effective lines of communication between the compliance officer, 
members of the compliance committee, the Part D sponsor's employees, 
managers and directors, and the Part D sponsor's first tier, 
downstream, and related entities.
    The burden associated with this requirement is the time and effort 
put forth by the Part D sponsor to prepare a compliance plan that meets 
the requirements of this section. While this requirement is subject to 
the PRA, it is currently approved under OMB 0938-1000.
    Section 423.504(b)(4)(vi)(G)(3) would require a Part D sponsor to 
have procedures in place for mandatory self-reporting of potential 
fraud or misconduct related to the Part D program to the appropriate 
government authority. The Part D sponsor would be required to report 
potential fraud or misconduct related to the Part D program to the 
appropriate government authority.
    The burden associated with this requirement is the time and effort 
put forth by the Part D sponsor to implement procedures for mandatory 
self-reporting. We estimate it would take one Part D sponsor 40 hours 
annually to fulfill this requirement. The total number of Part D 
sponsors affected by this requirement is 91. The total one-time burden 
would be 3,640 hours. We cannot anticipate how many plans will need to 
report any potentially fraudulent activities to CMS. However, in the 
event a Part D sponsor needed to self-report potential fraud or 
misconduct related to the Part D sponsor the total burden would be 5 
hours annually. If every sponsor had to report potential fraud or 
misconduct, the total burden would be 455 annual hours.

Section 423.505 Contract Provisions

    Section 423.505(e)(2) requires Part D sponsors to make available 
its premises, physical facilities, equipment, and records that relate 
to its Medicare enrollees, and any additional relevant

[[Page 29382]]

information that CMS may require. The Part D sponsor also agrees to 
make available any books, contracts, medical records, patient care 
documentation, and other records of the Part D sponsor, first tier, 
downstream and related entity(s), or its transferee.
    The burden associated with this requirement is the time and effort 
put forth by the Part D sponsor to make available records that relate 
to its Medicare enrollees. The burden associated with this requirement 
is currently approved under OMB 0938-1000.
    Section 423.505(i)(2) requires the Part D sponsor to require all 
first tier, downstream, and related entities to agree that HHS, the 
Comptroller General, or their designees have the right to inspect, 
evaluate, and audit any pertinent contracts, books, documents, papers, 
and records of the first tier, downstream, and related entities 
involving transactions related to CMS' contract with the Part D 
sponsor.
    The burden associated with this requirement is the time and effort 
put forth by the Part D sponsor's first tier, downstream, and related 
entities to maintain appropriate records and documentation. While this 
requirement is subject to the PRA, it is currently approved under OMB 
0938-1000. However, we have prepared the following analysis of 
the costs and burden associated with our proposal to require sponsors 
to include a provision in their contracts requiring their first tier 
and downstream entities to produce or make available their books and 
records.
    In the January 28, 2005 final rule that implemented the Medicare 
Prescription Drug Program (70 FR 4194), we noted that ``The 
administrative cost estimates are based on taking into account the 
normal fixed costs associated with administering a prescription drug 
benefit, for example, such functions as claims processing, responding 
to customer inquiries, information, dissemination, appeals processes, 
pharmacy network negotiations, and contracting. The other factor taken 
into account when developing our estimate is that Prescription Drug 
Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs) 
will likely incur slightly higher administrative costs during the 
initial few years of the Part D benefit due to start-up costs related 
to implementation and initial operation for a new benefit.'' The 
narrative explains that the average administrative costs associated 
with insurance products are typically expressed as a percentage 
relative to net standard benefit expenses and that the administrative 
load is expected to decline slightly over time. For purposes of this 
analysis, the impact is presented in burden hours and broken out into 
requests for purposes of:
    1. Provision in Contracts;
    2. BI Audit; and
    3. Investigation of complaints.
1. Provision in contracts
    Ultimately, this additional provision would have to be discussed 
like all other provisions of a contract between a Part D sponsor and 
its first tier, downstream, and related entities. Since we have the 
authority to request this information and the Part D sponsor has 
attested to providing this data, we do not believe that this issue 
would be contentious or constitute negotiation discussion. We believe 
that, at the most, this provision would require 1 hour of attorney time 
to draft and discuss the provision.
2. BI Audit
    Currently, there are a total of 650 Part D contracts (90 of those 
contracts represent PDPs and the remainder, 560 contracts, represents 
MA-PDs and employer groups). A further breakdown of those numbers out 
to the plan level would be: 4,927 total MA-PDs and PDP plans (including 
employer groups). We note that if employer groups are excluded, the 
actual number drops to 4,191.
    Based on this information, it is believed that 16 percent of the 
plans will be audited during the course of a contract year. Of the 
plans audited, it is estimated that approximately 10 percent of the 
plans will be required to produce evidence or other supporting 
documentation related to ``first tier, downstream and other related 
entities.'' It is further asserted that the labor hours required to 
produce the required documentation for those entities would be 
estimated at 10 hours per plan. Therefore, based on the number of Part 
D plans, the percentage of organizations that might be required to 
produce documentation for ``first tier, downstream, and other related 
entities'' and the number of labor hours required to produce this 
documentation we expect that the total impact would be 140 hours in 
administrative costs. The following table summarizes our calculation of 
the burden estimate for Part D plans:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total number of Part D plans (PDP, MA-PD & Employer Groups)...       650
Percentage of plans to be audited (16%).......................       104
Percentage of plans audited that would be required to produce         10
 additional documentation for ``first tier, downstream and
 related entities'' (10%).....................................
Burden hours required to assemble documentation and submit to        100
 CMS (10 hours/plan)..........................................
------------------------------------------------------------------------

    3. Investigation of complaints
    Based on the past 18 months, we assume that investigation of 
complaints that require contacting a Part D plan to request 
documentation from first tier, downstream, and related entities would 
be approximately six instances. In the following table, we show our 
estimate of burden hours for downstream entities:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total number of Part D plans (PDP, MA-PD & Employer Groups)...       650
Percentage of plans to be audited (16%).......................       104
Percentage of plans audited that would be required to produce         10
 additional documentation for ``first tier, downstream and
 related entities'' (10%).....................................
Average number of ``downstream entities'' (e.g. pharmacy
 network):
    Retail....................................................    55,000
    Mail Order................................................         1
    Home Infusion.............................................       150
    Long Term Care............................................       593
    I/T/U.....................................................       329
Total burden hours required for downstream entities to           166,440
 assemble and submit documentation to the Part D organizations
 (hours/organization) at 3 hrs/downstream entity..............
------------------------------------------------------------------------


[[Page 29383]]

Section 423.506 Effective Date and Term of Contract

    This section states that an entity is determined qualified to renew 
its contract annually only if the Part D sponsor has not provided CMS 
with a notice of intention not to renew and CMS has not provided the 
Part D sponsor with a notice of intention not to renew.
    The burden associated with this requirement is the time and effort 
put forth by the Part D sponsor to prepare a notice of intent not to 
renew and submit it to CMS. While this requirement is subject to the 
PRA, it is currently approved under OMB 0938-0964.

Section 423.507 Nonrenewal of Contract

    Section 423.507 requires a Part D Plan Sponsor to develop and 
submit a corrective action plan (CAP) to correct the deficiencies that 
are the basis of the termination decision. The Part D Sponsor must 
submit the CAP within 45 days of receiving notice of termination.
    The burden associated with this requirement is the time and effort 
it would take for the Part D Sponsor to develop and submit a CAP. While 
this requirement is subject to the PRA, we expect less than 10 entities 
will be affected; therefore, we believe these collection requirements 
are exempt as specified at 5 CFR 1320.3(c)(4).
    As reflected in the table that follows, the aggregate annual burden 
associated with the collection of information section totals 73,236 
hours.

----------------------------------------------------------------------------------------------------------------
                                                           Number of
            OMB No.                  Requirements         respondents      Burden hours     Total annual burden
----------------------------------------------------------------------------------------------------------------
0938-1004.....................  422.503(b)(4)(vi)(C)   393.............  96 hours........  12,576 hours (based
                                 and (b)(4)(vi)(D),                                         on 131 responses per
                                 422.504(e)(2) &                                            year).
                                 422.504(i)(2).
None-requesting OMB approval..  422.503(b)(4)(vi)(G)(  393.............  40 hours........  15,720 hours (based
                                 3).                                                        on every plan
                                                                                            reporting fraud or
                                                                                            misconduct).
0938-0753.....................  422.505(c)...........  5-10............  2 hours per       20 hours (estimated
                                                                          notice.           using 10
                                                                                            respondents).
None/Exempt...................  422.506..............  Less than 10....  N/A.............  N/A.
0938-1000\*\..................  423.504(b)(4)(vi)(C)   430.............  96 hours........  41,280 hours.
                                 and (b)(4)(vi)(D),
                                 423.505(e)(2), &
                                 423.505(i)(2).
None-requesting OMB approval..  423.504(b)(4)(vi)(G)(  91..............  40 hours........  3,640 hours.
                                 3).
Exemption mentioned in 0938-    423.506..............  Less than 10....  N/A.............  N/A.
 0964.
None/Exempt...................  423.507..............  Less than 10....  N/A.............  N/A.
    Total Annual Burden.......  .....................  ................  ................  73,236 hours.
----------------------------------------------------------------------------------------------------------------
*This package will be revised to reflect new respondent numbers & annual burden, which are previously discussed
  in this section (166,440 hours). The total annual burden of 73,236 hours includes 19,360 new hours, which
  added to 166,440 gives a total new burden of 185,800 hours which have not previously been approved.

    If you comment on any of these information collection and 
recordkeeping requirements, please mail copies directly to the 
following:

Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development Group, 
Attn.: Melissa Musotto, CMS-4124-P, Room C4-26-05, 7500 Security 
Boulevard, Baltimore, MD 21244-1850; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Carolyn Lovett, CMS Desk Officer, (CMS-4124-P), [email protected]. Fax (202) 395-6974.

IV. Response to Comments

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

V. 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.
    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. The provisions of this proposed rule would require MA and 
Part D sponsors to spend a total of approximately 186,000 additional 
hours on the functions addressed in this proposed rule. This includes 
our reestimates of burden. The details behind these estimates are 
presented in the preceding Paperwork Reduction Act section.
    Assuming an average cost to plans and downstream entities of $37.50 
an hour for staff time spent on auditing and related functions covered 
by this proposed rule, the total net incremental cost of this proposal 
would be approximately $7 million ($37.50 x 185,000 hours), far below 
the $100 million threshold for a major rule. This cost would be spread 
more or less evenly across participating plans, and hence would impose 
negligible burden on any plan in relation to existing administrative 
costs.
    In the Regulatory Impact Analysis of the January 28, 2005 final 
rule that implemented the Medicare Prescription Drug Program (70 FR 
4194), we noted that ``The administrative cost estimates are based on 
taking into account the normal fixed costs associated with 
administering a prescription drug

[[Page 29384]]

benefit, for example, such functions as claims processing, responding 
to customer inquiries, information, dissemination, appeals processes, 
pharmacy network negotiations, and contracting.'' This estimate 
included audit and related costs. The estimate was that administrative 
costs would constitute about one tenth of the cost of the program, or 
about $5 billion a year. (Similar estimates were prepared for the 
Medicare Advantage program's final rule.) Accordingly, the estimated 
cost of this proposed rule adds negligibly to the total administrative 
costs of these programs.
    With respect to economic benefits, we have no reliable basis for 
estimating the effects of these proposals. It is important to 
understand that MA and Part D sponsors--not the government--bear the 
direct consequences of all their program costs, including unnecessary 
costs created by downstream entities. These plans are paid on a 
capitated basis and the amounts paid are not adjusted for realized 
costs. Hence, these plans already have strong incentives to prevent all 
forms of waste, including fraud and abuse. Accordingly, we estimate the 
benefits of these proposals as likely to be small, though larger than 
the costs involved. These benefits will accrue primarily to the plans 
themselves and, over time, to the participants who pay lower premiums 
as a result of plans' cost-reducing incentives.
    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 year. Individuals and States are not 
included in the definition of a small entity. As explained above, this 
proposed rule will not impose consequential costs on affected entities. 
Accordingly, we have determined that this proposed rule will not have a 
significant economic impact on a substantial number of small entities, 
and are not preparing an initial regulatory flexibility analysis.
    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 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area 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.
    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. This rule will have no 
consequential effect on State, local, or tribal governments or on the 
private sector.
    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.

List of Subjects

42 CFR Part 422

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

42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations (HMO), Medicare, 
Penalties, Privacy, Reporting and recordkeeping.

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

PART 422--MEDICARE ADVANTAGE PROGRAM

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

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

Subpart A--General Provisions

    2. Section 422.2 is amended by adding the definitions ``Downstream 
entity'', ``First tier entity'', and ``Related entity'' to read as 
follows:


Sec.  422.2  Definitions.

* * * * *
    Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, below the level of the arrangement 
between an MA organization (or applicant) and a first tier entity. 
These written arrangements continue down to the level of the ultimate 
provider of both health and administrative services.
    First tier entity means any party that enters into a written 
arrangement, acceptable to CMS, with an MA organization or applicant to 
provide administrative services or health care services for a Medicare 
eligible individual under the MA program.
* * * * *
    Related entity means any entity that is related to the MA 
organization by common ownership or control and
    (1) Performs some of the MA organization's management functions 
under contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the MA organization 
at a cost of more than $2,500 during a contract period.
* * * * *

Subpart K--Contracts With Medicare Advantage Organizations

    3. Amend Sec.  422.503 by--
    A. Revising paragraph (b)(4)(vi) introductory text.
    B. Revising paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D).
    C. Adding paragraph (b)(4)(vi)(G)(3)
    D. Removing paragraph (b)(4)(vi)(H).
    The revisions and additions read as follows:


Sec.  422.503  General provisions.

* * * * *
    (b) * * *
    (4) * * *
    (vi) A compliance plan, which must include measures to detect, 
correct, and prevent fraud, waste, and abuse, shall include the 
following elements:
* * * * *
    (C) Effective training and education between the compliance officer 
and the MA organization's employees, managers and directors, and the MA 
organization's first tier, downstream, and related entities.
    (D) Effective lines of communication between the compliance 
officer, members of the compliance committee, the MA organization's 
employees, managers and directors, and the MA organization's first 
tier, downstream, and related entities.
* * * * *
    (G) * * *
    (3) The MA organization must have procedures for mandatory self-
reporting of potential fraud or misconduct related

[[Page 29385]]

to the MA program to the appropriate government authority. The MA 
organization is required to report potential fraud or misconduct 
related to the MA program to the appropriate government authority.
* * * * *
    4. Amend Sec.  422.504 by--
    A. Republishing paragraph (e) introductory text.
    B. Revising paragraph (e)(1) introductory text
    C. Revising paragraph (i) introductory text and (i)(1).
    D. Revising paragraph (i)(2) introductory text.
    E. Revising paragraph (i)(2)(i).
    F. Revising paragraph (i)(3) introductory text.
    G. Revising paragraph (i)(3)(ii).
    H. Revising paragraph (i)(3)(iii)
    I. Revising paragraph (i)(4) introductory text.
    The revisions and additions read as follows:


Sec.  422.504  Contract provisions.

* * * * *
    (e) Access to facilities and records. The MA organization agrees to 
the following:
    (1) HHS, the Comptroller General, or their designee may evaluate, 
through inspection, audit, or other means--
* * * * *
    (2) HHS, the Comptroller General, or their designees may audit, 
evaluate, or inspect any books, contracts, medical records, patient 
care documentation, and other records of the MA organization, its first 
tier, downstream, related entity, or its transferee that pertain to any 
aspect of services performed, reconciliation of benefit liabilities, 
and determination of amounts payable under the contract, or as the 
Secretary may deem necessary to enforce the contract.
* * * * *
    (i) MA organization relationship with first tier, downstream, and 
related entities. (1) Notwithstanding any relationship(s) that the MA 
organization may have with first tier, downstream, and related 
entities, the MA organization maintains ultimate responsibility for 
adhering to and otherwise fully complying with all terms and conditions 
of its contract with CMS.
    (2) The MA organization agrees to require all first tier, 
downstream, and related entities to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent contracts, books, 
documents, papers, and records of the first tier, downstream, and 
related entities involving transactions related to CMS' contract with 
the MA organization.
* * * * *
    (3) All contracts or written arrangements between MA organizations 
and providers, related entities, first tier and downstream entities 
must contain the following:
* * * * *
    (ii) Accountability provisions that indicate that the MA 
organization may only delegate activities or functions to a provider, 
first tier, downstream, or related entity, in a manner consistent with 
the requirements set forth at paragraph (i)(4) of this section.
    (iii) A provision requiring that any services or other activity 
performed by a related entity, first-tier, or downstream entity in 
accordance with a contract or written agreement are consistent and 
comply with the MA organization's contractual obligations.
    (4) If any of the MA organizations' activities or responsibilities 
under its contract with CMS are delegated to other parties, the 
following requirements apply to any provider or first tier, downstream 
and related entity:
* * * * *
    5. Amend Sec.  422.505 by revising paragraph (c) to read as 
follows:


Sec.  422.505  Effective date and term of contract.

* * * * *
    (c) Renewal of contract. In accordance with Sec.  422.506, 
contracts are renewed annually only if the MA organization has not 
provided CMS with a notice of intention not to renew and CMS has not 
provided the MA organization with a notice of intention not to renew.
* * * * *
    6. Amend Sec.  422.506 by--
    A. Revising paragraph (b)(2) introductory text.
    B. Revising paragraph (b)(2)(i).
    C. Redesignating paragraph (b)(3) as (b)(4).
    D. Adding a new paragraph (b)(3).
    The revisions and additions read as follows:


Sec.  422.506  Nonrenewal of contract.

* * * * *
    (b) * * *
    (2) Notice of non-renewal. CMS provides notice of its decision not 
to authorize renewal of a contract as follows:
    (i) To the MA organization by September 1 of the contract year.
* * * * *
    (3) Corrective action plan. (i) Before nonrenewing a contract, CMS 
will provide the MA organization with a reasonable opportunity to 
develop and submit a corrective action plan (CAP).
    (ii) The MA organization must develop and submit the CAP within 45 
days of receiving a request for a CAP.
    (iii) If CMS determines the CAP is unacceptable, CMS will provide 
the MA organization with an additional 30 days to submit a revised CAP.
    (iv) If CMS determines the CAP is acceptable, CMS will notify the 
MA organization of a deadline by which the CAP must be fully 
implemented. CMS has sole discretion on whether the CAP is fully 
implemented.
    (v) Failure to develop and implement a CAP within the timeframes 
specified in paragraphs (3)(i) through (3)(iii) of this section may 
result in the nonrenewal of the MA contract.
* * * * *
    7. Amend Sec.  422.510 by--
    A. Republishing paragraph (a) introductory text.
    B. Revising paragraph (a)(1).
    C. Revising paragraph (b) introductory text.
    D. Revising paragraph (b)(2) heading.
    E. Revising paragraph (b)(2)(i).
    F. Revising paragraph (c).
    The revisions read as follows:


Sec.  422.510  Termination of contract by CMS.

    (a) Termination by CMS. CMS may terminate a contract for any of the 
following reasons:
    (1) The MA organization has failed substantially to carry out the 
terms of--
    (i) Its current contract term with CMS, or
    (ii) Its contract with CMS from the preceding contract term.
* * * * *
    (b) Notice. If CMS decides to terminate a contract for reasons 
other than the grounds specified in Sec.  422.510(a)(4) or Sec.  
422.510(a)(5), it gives notice of the termination as follows:
* * * * *
    (2) Expedited termination of contract by CMS. (i) For terminations 
based on violations prescribed in Sec.  422.510(a)(4) or Sec.  
422.510(a)(5), CMS notifies the MA organization in writing that its 
contract will be terminated on a date specified by CMS. If termination 
is effective in the middle of a month, CMS has the right to recover the 
prorated share of the capitation payments made to the MA organization 
covering the period of the month following the contract termination.
* * * * *
    (c) Corrective action plan.--(1) General. Before terminating a 
contract for reasons other than the grounds specified in paragraphs 
(a)(4) or (a)(5) of

[[Page 29386]]

this section, CMS will provide the MA organization with a reasonable 
opportunity to develop and submit a corrective action plan (CAP).
    (i) The MA organization must develop and submit the CAP within 45 
days of receiving a request for a CAP.
    (ii) If CMS determines the CAP is unacceptable, CMS will provide 
the MA organization with an additional 30 days to submit a revised CAP.
    (iii) If CMS determines the CAP is acceptable, CMS will notify the 
MA organization of a deadline by which the CAP must be fully 
implemented. CMS has sole discretion on whether the CAP is fully 
implemented.
    (iv) Failure to develop and implement a CAP within the timeframes 
specified in paragraphs (c)(1)(i) through (c)(1)(iii) may result in the 
termination of the MA contract.
    (2) Exceptions. If a contract is terminated under Sec.  
422.510(a)(4) or Sec.  422.510(a)(5), the MA organization will not have 
the opportunity to submit a CAP.
* * * * *

Subpart N--Medicare Contract Determinations and Appeals

    8. Amend Sec.  422.644 by--
    A. Republishing paragraph (b) introductory text.
    B. Revising paragraph (b)(2).
    C. Revising paragraph (c).
    D. Revising paragraph (d).
    The revisions read as follows:


Sec.  422.644  Notice of contract determination.

* * * * *
    (b) The notice specifies--
    (1) * * *
    (2) The MA organization's right to request a hearing.
    (c) For CMS-initiated terminations, CMS mails notice to the MA 
organization 90 days before the anticipated effective date of the 
termination. For terminations based on determinations described at 
Sec.  422.510(a)(4) or Sec.  422.510(a)(5) CMS notifies the MA 
organization of the date that it will terminate the organization's MA 
contract.
    (d) When CMS determines that it will not authorize a contract 
renewal, CMS mails the notice to the MA organization by September 1 of 
the current contract year.
    9. Section 422.646 is revised to read as follows:


Sec.  422.646  Effect of contract determination.

    The contract determination is final and binding unless a timely 
request for a hearing is filed under Sec.  422.662.


Sec.  422.648  [Removed]

    10. Section 422.648 is removed.


Sec.  422.650  [Removed]

    11. Section 422.650 is removed.


Sec.  422.652  [Removed]

    12. Section 422.652 is removed.


Sec.  422.654  [Removed]

    13. Section 422.654 is removed.


Sec.  422.656  [Removed]

    14. Section 422.656 is removed.


Sec.  422.658  [Removed]

    15. Section 422.658 is removed.
    16. Revise Sec.  422.660 to read as follows:


Sec.  422.660  Right to a hearing and burden of proof.

    (a) The following parties are entitled to a hearing:
    (1) A contract applicant that has been determined to be unqualified 
to enter into a contract with CMS under Part C of Title XVIII of the 
Act pursuant to Sec.  422.501.
    (2) An MA organization whose contract has been terminated pursuant 
to Sec.  422.510.
    (3) An MA organization whose contract has not been renewed pursuant 
to Sec.  422.506.
    (4) An MA organization who has had an intermediate sanction imposed 
pursuant to Sec.  422.752(a) through (b).
    (b) The MA organization bears the burden of proof to demonstrate 
that it was in substantial compliance with the requirements of the MA 
program on the earliest of the following three dates:
    (1) The date the organization received written notice of the 
contract determination or intermediate sanction.
    (2) The date of the most recent on-site audit conducted by CMS.
    (3) The date of the alleged breach of the current contract or past 
substantial noncompliance as determined by CMS.
    (c) Notice of any decision favorable to the MA organization 
appealing a determination that it is not qualified to enter into a 
contract with CMS must be issued by July 15 for the contract in 
question to be effective on January 1 of the following year.
    17. Amend Sec.  422.662 by revising paragraph (b) to read as 
follows:


Sec.  422.662  Request for hearing.

* * * * *
    (b) Time for filing a request. A request for a hearing must be 
filed within 15 days from the date CMS notifies the MA organization of 
its determination.
* * * * *
    18. Revise Sec.  422.664 to read as follows:


Sec.  422.664  Postponement of effective date of a contract 
determination when a request for a hearing is filed timely.

    (a) Hearing. When a request for a hearing is timely filed, CMS will 
postpone the proposed effective date of the contract determination 
listed at Sec.  422.641 until a hearing decision is reached and 
affirmed by the Administrator following review according to Sec.  
422.692 in instances where an MA organization or CMS requests 
Administrator review and the Administrator accepts the matter for 
review.
    (b) Exceptions: (1) If a final decision is not reached on CMS' 
determination for an initial contract by July 15, CMS will not enter 
into a contract with the applicant for the following year.
    (2) A contract terminated in accordance with Sec.  422.510(a)(4) or 
Sec.  422.510(a)(5) will be terminated on the date specified by CMS and 
will not be postponed if a hearing is requested.
    19. Amend Sec.  422.670 by revising paragraph (a) to read as 
follows:


Sec.  422.670  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing, 
which is not to exceed 30 days from the receipt of request for the 
hearing, and sends written notice to the parties. The notice informs 
the parties of--
    (1) The general and specific issues to be resolved, the burden of 
proof, and information about the hearing procedure, and
    (2) The ability to conduct formal discovery.
* * * * *
    20. Revise Sec.  422.682 to read as follows:


Sec.  422.682  Discovery.

    (a) Either party may make a request to another party for the 
production of documents for inspection and copying which are relevant 
and material to the issues before the hearing officer.
    (b) The hearing officer will provide the parties with a reasonable 
time for inspection and reproduction of documents, provided that 
discovery is concluded at least 10 calendar days prior to the hearing.
    (c) The hearing officer's order on discovery matters is final.
    21. Revise Sec.  422.684 to read as follows:


Sec.  422.684  Prehearing and summary judgment.

    (a) Prehearing. The hearing officer may schedule a prehearing 
conference if he or she believes that a conference would more clearly 
define the issues.
    (b) Summary judgment. Either party to the hearing may ask the 
hearing

[[Page 29387]]

officer to rule on a motion for summary judgment.
    22. Amend Sec.  422.692 by--
    A. Revising paragraph (a).
    B. Revising paragraph (b).
    C. Redesignating paragraph (c) as paragraph (e).
    D. Adding a new paragraph (c).
    E. Adding a new paragraph (d).
    The revisions and additions read as follows:


Sec.  422.692  Review by Administrator.

    (a) Request for review by Administrator. CMS or an MA organization 
that has received a hearing decision regarding a contract determination 
may request review by the Administrator within 15 calendar days of 
receiving the hearing decision as provided under Sec.  422.690(b). Both 
the MA organization and CMS may provide written arguments to the 
Administrator for review.
    (b) Decision to review the hearing decision. After receiving a 
request for review, the Administrator has the discretion to elect to 
review the hearing decision in accordance with paragraph (d) of this 
section or to decline to review the hearing decision.
    (c) Notification of Administrator determination. The Administrator 
notifies both parties of his or her determination regarding review of 
the hearing decision within 30 days of receiving the request for 
review. If the Administrator declines to review the hearing decision or 
the Administrator does not make a determination regarding review within 
30 days, the decision of the hearing officer is final.
    (d) Review by the Administrator. If the Administrator elects to 
review the hearing decision regarding a contract determination, the 
Administrator shall review the hearing officer's decision and 
determine, based upon this decision, the hearing record, and any 
written arguments submitted by the MA organization or CMS, whether the 
determination should be upheld, reversed, or modified.
* * * * *
    23. Amend Sec.  422.696 by--
    A. Revising the section heading.
    B. Revising paragraph (a).
    The revisions read as follows:


Sec.  422.696  Reopening of an initial contract determination or 
decision of a hearing officer or the Administrator.

    (a) Initial determination. CMS may reopen and revise an initial 
determination upon its own motion.
* * * * *


Sec.  422.698  [Removed]

    24. Section 422.698 is removed.

Subpart O--Intermediate Sanctions

    25. Revise Sec.  422.750 to read as follows:


Sec.  422.750  Types of intermediate sanctions and civil money 
penalties.

    (a) The following intermediate sanctions may be imposed and will 
continue in effect until CMS is satisfied that the deficiency on which 
the determination was based has been corrected and is not likely to 
reoccur:
    (1) Suspension of enrollment of Medicare beneficiaries.
    (2) Suspension of payment to the MA organization for Medicare 
beneficiaries who are enrolled in the MA plan.
    (3) Suspension of all marketing activities to Medicare 
beneficiaries by an MA organization for all MA plans.
    (b) CMS may impose civil money penalties as specified in Sec.  
422.760.
    26. Amend Sec.  422.752 by--
    A. Revising the section heading.
    B. Revising paragraph (a) introductory text.
    C. Revising paragraph (b).
    D. Adding a new paragraph (c).
    The revisions and additions read as follows:


Sec.  422.752  Basis for imposing intermediate sanctions and civil 
money penalties.

    (a) All intermediate sanctions. For the violations listed in this 
paragraph, CMS may impose one or more of the sanctions as specified in 
Sec.  422.750(a) on any MA organization that has a contract in effect. 
The MA organization may also be subject to other applicable remedies 
available under law.
* * * * *
    (b) Suspension of enrollment and marketing. If CMS makes a 
determination that could lead to a contract termination under Sec.  
422.510(a), CMS may impose the intermediate sanctions at Sec.  
422.750(a)(1) and (a)(3).
    (c) Civil Money Penalties.
    (1) CMS. In addition to, or in place of, any intermediate 
sanctions, CMS may impose civil money penalties in the amounts 
specified in Sec.  422.760 for any of the determinations at Sec.  
422.510(a), except Sec.  422.510(a)(4).
    (2) OIG. In addition to, or in place of any intermediate sanctions 
imposed by CMS, the OIG, in accordance with section 1003 of this 
chapter, may impose civil money penalties for the following:
    (i) Violations listed at Sec.  422.752(a).
    (ii) Determinations made pursuant to Sec.  422.510(a)(4).
    27. Amend Sec.  422.756 by--
    A. Revising the section heading.
    B. Revising paragraph (a).
    C. Revising paragraph (b).
    D. Revising paragraph (f).
    The revisions read as follows:


Sec.  422.756  Procedures for imposing intermediate sanctions and civil 
money penalties.

    (a) Notice of intermediate sanction and opportunity to respond.--
(1) Notice of intent. Before imposing the intermediate sanction, CMS--
    (i) Sends a written notice to the MA organization stating the 
nature and basis of the proposed intermediate sanction and the MA 
organization's right to a hearing as specified in paragraph (b); and
    (ii) Sends the OIG a copy of the notice.
    (2) Opportunity to respond. CMS allows the MA organization 10 
calendar days from receipt of the notice to provide a written rebuttal. 
CMS considers receipt of notice as the day after notice is sent by fax, 
e-mail, or submitted for overnight mail.
    (b) Hearing. The MA organization may request a hearing before a CMS 
hearing officer. A written request must be received by CMS within 15 
calendar days of the MA organization receiving the notice of intent to 
impose an intermediate sanction. A request for a hearing under Sec.  
422.660 does not delay the date specified by CMS when the sanction 
becomes effective. The MA organization must follow the right to a 
hearing procedure as specified at Sec.  422.660 through Sec.  422.684.
* * * * *
    (f) Notice to impose civil money penalties.
    (1) CMS notice to OIG. If CMS determines that an MA organization 
has failed to comply with a requirement as described in Sec.  422.752, 
CMS notifies the OIG of this determination. OIG may impose a civil 
money penalty upon an MA organization as specified at Sec.  
422.752(c)(2).
    (2) CMS notice of civil money penalties to MA organizations. If CMS 
makes a determination to impose a CMP as described in Sec.  
422.752(c)(1), CMS will send a written notice of the Agency's decision 
to impose a civil money penalty to include--
    (i) A description of the basis for the determination.
    (ii) The basis for the penalty.
    (iii) The amount of the penalty.
    (iv) The date the penalty is due.
    (v) The MA organization's right to a hearing under subpart T.
    (vi) Information about where to file the request for hearing.
    28. Revise Sec.  422.758 to read as follows:

[[Page 29388]]

Sec.  422.758  Collection of civil money penalties imposed by CMS.

    (a) When an MA organization does not request a hearing, CMS 
initiates collection of the civil money penalty following the 
expiration of the timeframe for requesting an ALJ hearing as specified 
in Subpart T.
    (b) If an MA organization requests a hearing and CMS' decision to 
impose a civil money penalty is upheld, CMS may initiate collection of 
the civil money penalty once the administrative decision is final.
    29. Amend Sec.  422.760 by--
    A. Redesignating Sec.  422.760 as Sec.  422.764.
    B. Adding a new Sec.  422.760 to read as follows:


Sec.  422.760  Determinations regarding the amount of civil money 
penalties and assessment imposed by CMS.

    (a) Determining the appropriate amount of any penalty. In 
determining the amount of penalty imposed under Sec.  422.752(c)(1), 
CMS will consider as appropriate:
    (1) The nature of the conduct;
    (2) The degree of culpability of the MA organization;
    (3) The harm which resulted or could have resulted from the conduct 
of MA organization;
    (4) The financial condition of the MA organization;
    (5) The history of prior offenses by the MA organization or 
principals of the MA organization; and,
    (6) Such other matters as justice may require.
    (b) Amount of penalty. CMS may impose civil money penalties in the 
following amounts:
    (1) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more MA enrollees--up to $25,000 for each 
determination.
    (2) For each week that a deficiency remains uncorrected after the 
week in which the MA organization receives CMS' notice of the 
determination--up to $10,000.
    (3) If CMS makes a determination that a MA organization has 
terminated its contract other than in a manner described under Sec.  
422.512 and that the MA organization has therefore failed to 
substantially carry out the terms of the contract--$250 per Medicare 
enrollee from the terminated MA plan or plans at the time the MA 
organization terminated its contract, or $100,000, whichever is 
greater.
    30. Adding a new Sec.  422.762 to read as follows:


Sec.  422.762  Settlement of penalties.

    For civil money penalties imposed by CMS, CMS may settle civil 
money penalty cases at any time before a final decision is rendered.

Subpart P--[Reserved]

    31. Subpart P is reserved.

Subpart Q--[Reserved]

    32. Subpart Q is reserved.

Subpart R--[Reserved]

    33. Subpart R is reserved.

Subpart S--[Reserved]

    34. Subpart S is reserved.
    35. A new subpart T is added to read as follows:
Subpart T--Appeal Procedures for Civil Money Penalties
Sec.
422.1000 Basis and scope.
422.1002 Definitions.
422.1004 Scope and applicability.
422.1006 Appeal rights.
422.1008 Appointment of representatives.
422.1010 Authority of representatives.
422.1012 Fees for services of representatives.
422.1014 Charge for transcripts.
422.1016 Filing of briefs with the Administrative Law Judge or 
Departmental Appeals Board, and opportunity for rebuttal.
422.1018 Notice and effect of initial determinations.
422.1020 Request for hearing.
422.1022 Parties to the hearing.
422.1024 Designation of hearing official.
422.1026 Disqualification of Administrative Law Judge.
422.1028 Prehearing conference.
422.1030 Notice of prehearing conference.
422.1032 Conduct of prehearing conference.
422.1034 Record, order, and effect of prehearing conference.
422.1036 Time and place of hearing.
422.1038 Change in time and place of hearing.
422.1040 Joint hearing.
422.1042 Hearing on new issues.
422.1044 Subpoenas.
422.1046 Conduct of hearing.
422.1048 Evidence.
422.1050 Witnesses.
422.1052 Oral and written summation.
422.1054 Record of hearing.
422.1056 Waiver of right to appear and present evidence.
422.1058 Dismissal of request for hearing.
422.1060 Dismissal for abandonment.
422.1062 Dismissal for cause.
422.1064 Notice and effect of dismissal and right to request review.
422.1066 Vacating a dismissal of request for hearing.
422.1068 Administrative Law Judge's decision.
422.1070 Removal of hearing to Departmental Appeals Board.
422.1072 Remand by the Administrative Law Judge.
422.1074 Right to request Departmental Appeals Board review of 
Administrative Law Judge's decision or dismissal.
422.1076 Request for Departmental Appeals Board review.
422.1078 Departmental Appeals Board action on request for review.
422.1080 Procedures before the Departmental Appeals Board on review.
422.1082 Evidence admissible on review.
422.1084 Decision or remand by the Departmental Appeals Board.
422.1086 Effect of Departmental Appeals Board Decision.
422.1088 Extension of time for seeking judicial review.
422.1090 Basis, timing, and authority for reopening an 
Administrative Law Judge or Board decision.
422.1092 Revision of reopened decision.
422.1094 Notice and effect of revised decision.

Subpart T--Appeal procedures for Civil Money Penalties


Sec.  422.1000  Basis and scope.

    (a) Statutory basis.
    (1) Section 1128A(c)(2) of the Act provides that the Secretary may 
not collect a civil money penalty until the affected party has had 
notice and opportunity for a hearing.
    (2) Section 1857(g) of the Act provides that, for MA organizations 
out of compliance with the requirements in part 422 specified remedies 
may be imposed instead of, or in addition to, termination of the MA 
organization's contract. Section 1857(g)(4) of the Act makes certain 
provisions of section 1128A of the Act applicable to civil money 
penalties imposed on MA organizations.
    (b) [Reserved]


Sec.  422.1002  Definitions.

    As used in this subpart--
    Affected party means an MA organization impacted by an initial 
determination or if applicable, by any subsequent determination or 
decision issued under this part. For this definition, ``party'' means 
the affected party or CMS, as appropriate.
    ALJ stands for Administrative Law Judge.
    Departmental Appeals Board or Board means a Board established in 
the Office of the Secretary to provide impartial review of disputed 
decisions made by the operating components of the Department.
    MA organization has the meaning given the term in Sec.  422.2 of 
this title.


Sec.  422.1004  Scope and applicability.

    (a) Scope. (1) This subpart sets forth procedures for reviewing 
initial determinations that CMS makes with

[[Page 29389]]

respect to the matters specified in paragraph (b) of this section.
    (2) The determinations listed in this section affect participation 
in the Medicare program.
    (3) The following provisions in this subpart specify the 
applicability of the provisions of part 422, subpart O to civil money 
penalties or remedies imposed on the indicated entities on MA 
organizations and MA-Part DD organizations.
    (b) Initial determinations by CMS. CMS makes initial determinations 
with respect to the imposition of civil money penalties in accordance 
with part 422, subpart O.


Sec.  422.1006  Appeal rights.

    (a) Appeal rights of MA organizations. (1) Any MA organization 
dissatisfied with an initial determination as specified in Sec.  
422.1004, has a right to a hearing before an ALJ in accordance with 
this subpart and may request Departmental Appeals Board review of the 
ALJ decision.
    (2) MA organizations may request judicial review of the 
Departmental Appeals Board's decision that imposes a CMP.
    (b) [Reserved]


Sec.  422.1008  Appointment of representatives.

    (a) An affected party may appoint as its representative anyone not 
disqualified or suspended from acting as a representative in 
proceedings before the Secretary or otherwise prohibited by law.
    (b) If the representative appointed is not an attorney, the party 
must file written notice of the appointment with the ALJ or the 
Departmental Appeals Board.
    (c) If the representative appointed is an attorney, the attorney's 
statement that he or she has the authority to represent the party is 
sufficient.


Sec.  422.1010  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec.  422.1008 may, on behalf of the represented party--
    (1) Give and accept any notice or request pertinent to the 
proceedings set forth in this part;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party to the same extent as the party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request may be sent to the affected party, to the 
party's representative, or to both. A notice or request sent to the 
representative has the same force and effect as if it had been sent to 
the party.


Sec.  422.1012  Fees for services of representatives.

    Fees for any services performed on behalf of an affected party by 
an attorney appointed and qualified in accordance with Sec.  422.1008 
are not subject to the provisions of section 206 of Title II of the 
Act, which authorizes the Secretary to specify or limit those fees.


Sec.  422.1014  Charge for transcripts.

    A party that requests a transcript of prehearing or hearing 
proceedings or Board review must pay the actual or estimated cost of 
preparing the transcript unless, for good cause shown by that party, 
the payment is waived by the ALJ or the Departmental Appeals Board, as 
appropriate.


Sec.  422.1016  Filing of briefs with the Administrative Law Judge or 
Departmental Appeals Board, and opportunity for rebuttal.

    (a) Filing of briefs and related documents. If a party files a 
brief or related document such as a written argument, contention, 
suggested finding of fact, conclusion of law, or any other written 
statement, it must submit an original and 1 copy to the ALJ or the 
Departmental Appeals Board, as appropriate. The material may be filed 
by mail or in person and must include a statement certifying that a 
copy has been furnished to the other party.
    (b) Opportunity for rebuttal. (1) The other party will have 20 days 
from the date of mailing or personal service to submit any rebuttal 
statement or additional evidence. If a party submits a rebuttal 
statement or additional evidence, it must file an original and 1 copy 
with the ALJ or the Board and furnish a copy to the other party.
    (2) The ALJ or the Board will grant an opportunity to reply to the 
rebuttal statement only if the party shows good cause.


Sec.  422.1018  Notice and effect of initial determinations.

    (a) Notice of initial determination.--CMS, as required under 
422.756(f)(2) in Subpart O, mails notice of an initial determination to 
the affected party, setting forth the basis or reasons for the 
determination, the effect of the determination, and the party's right 
to a hearing, and information about where to file the request for 
hearing.
    (b) Effect of initial determination. An initial determination is 
binding unless--
    (1) The affected party requests a hearing; or
    (2) CMS revises its decision.


Sec.  422.1020  Request for hearing.

    (a) Manner and timing of request.
    (1) An MA organization is entitled to a hearing as specified in 
Sec.  422.1006 and may file a request for a hearing with the 
Departmental Appeals Board office specified in the initial 
determination.
    (2) The MA organization or its legal representative or other 
authorized official must file the request, in writing, to the 
appropriate Departmental Appeals Board office, with a copy to CMS, 
within 60 calendar days from receipt of the notice of initial 
determination, to request a hearing before an ALJ to appeal any 
determination by CMS to impose a civil money penalty.
    (b) Content of request for hearing. The request for hearing must--
    (1) Identify the specific issues, and the findings of fact and 
conclusions of law with which the affected party disagrees; and
    (2) Specify the basis for each contention that the finding or 
conclusion of law is incorrect.


Sec.  422.1022  Parties to the hearing.

    The parties to the hearing are the affected party and CMS, as 
appropriate.


Sec.  422.1024  Designation of hearing official.

    (a) The Chair of the Departmental Appeals Board, or his or her 
delegate designates an ALJ or a member or members of the Departmental 
Appeals Board to conduct the hearing.
    (b) If appropriate, the Chair or the delegate may substitute 
another ALJ or another member or other members of the Departmental 
Appeals Board to conduct the hearing.
    (c) As used in this part, ``ALJ'' includes a member or members of 
the Departmental Appeals Board who are designated to conduct a hearing.


Sec.  422.1026  Disqualification of Administrative Law Judge.

    (a) An ALJ may not conduct a hearing in a case in which he or she 
is prejudiced or partial to the affected party or has any interest in 
the matter pending for decision.
    (b) A party that objects to the ALJ designated to conduct the 
hearing must give notice of its objections at the earliest opportunity.
    (c) The ALJ will consider the objections and decide whether to 
withdraw or proceed with the hearing.
    (1) If the ALJ withdraws, another ALJ will be designated to conduct 
the hearing.
    (2) If the ALJ does not withdraw, the objecting party may, after 
the hearing, present its objections to the Departmental Appeals Board 
as reasons

[[Page 29390]]

for changing, modifying, or reversing the ALJ's decision or providing a 
new hearing before another ALJ.


Sec.  422.1028  Prehearing conference.

    (a) At any time before the hearing, the ALJ may call a prehearing 
conference for the purpose of delineating the issues in controversy, 
identifying the evidence and witnesses to be presented at the hearing, 
and obtaining stipulations accordingly.
    (b) On the request of either party or on his or her own motion, the 
ALJ may adjourn the prehearing conference and reconvene at a later 
date.


Sec.  422.1030  Notice of prehearing conference.

    (a) Timing of notice. The ALJ will fix a time and place for the 
prehearing conference and mail written notice to the parties at least 
10 days before the scheduled date.
    (b) Content of notice. The notice will inform the parties of the 
purpose of the conference and specify what issues are sought to be 
resolved, agreed to, or excluded.
    (c) Additional issues. Issues other than those set forth in the 
notice of determination or the request for hearing may be considered at 
the prehearing conference if--
    (1) Either party gives timely notice to that effect to the ALJ and 
the other party; or
    (2) The ALJ raises the issues in the notice of prehearing 
conference or at the conference.


Sec.  422.1032  Conduct of prehearing conference.

    (a) The prehearing conference is open to the affected party or its 
representative, to the CMS representatives and their technical 
advisors, and to any other persons whose presence the ALJ considers 
necessary or proper.
    (b) The ALJ may accept the agreement of the parties as to the 
following:
    (1) Facts that are not in controversy.
    (2) Questions that have been resolved favorably to the affected 
party after the determination in dispute.
    (3) Remaining issues to be resolved.
    (c) The ALJ may request the parties to indicate the following:
    (1) The witnesses that will be present to testify at the hearing.
    (2) The qualifications of those witnesses.
    (3) The nature of other evidence to be submitted.


Sec.  422.1034  Record, order, and effect of prehearing conference.

    (a) Record of prehearing conference. (1) A record is made of all 
agreements and stipulations entered into at the prehearing conference.
    (2) The record may be transcribed at the request of either party or 
the ALJ.
    (b) Order and opportunity to object.
    (1) The ALJ issues an order setting forth the results of the 
prehearing conference, including the agreements made by the parties as 
to facts not in controversy, the matters to be considered at the 
hearing, and the issues to be resolved.
    (2) Copies of the order are sent to all parties and the parties 
have 10 days to file objections to the order.
    (3) After the 10 days have elapsed, the ALJ settles the order.
    (c) Effect of prehearing conference. The agreements and 
stipulations entered into at the prehearing conference are binding on 
all parties, unless a party presents facts that, in the opinion of the 
ALJ, would make an agreement unreasonable or inequitable.


Sec.  422.1036  Time and place of hearing.

    (a) The ALJ fixes a time and place for the hearing and gives the 
parties written notice at least 10 days before the scheduled date.
    (b) The notice informs the parties of the general and specific 
issues to be resolved at the hearing.


Sec.  422.1038  Change in time and place of hearing.

    (a) The ALJ may change the time and place for the hearing either on 
his or her own initiative or at the request of a party for good cause 
shown, or may adjourn or postpone the hearing.
    (b) The ALJ may reopen the hearing for receipt of new evidence at 
any time before mailing the notice of hearing decision.
    (c) The ALJ gives the parties reasonable notice of any change in 
time or place or any adjournment or reopening of the hearing.


Sec.  422.1040  Joint hearings.

    When two or more affected parties have requested hearings and the 
same or substantially similar matters are at issue, the ALJ may, if all 
parties agree, fix a single time and place for the prehearing 
conference or hearing and conduct all proceedings jointly. If joint 
hearings are held, a single record of the proceedings is made and a 
separate decision issued with respect to each affected party.


Sec.  422.1042  Hearing on new issues.

    (a) Basic rules. (1) Within the time limits specified in paragraph 
(b), the ALJ may, at the request of either party, or on his or her own 
motion, provide a hearing on new issues that impinge on the rights of 
the affected party.
    (2) The ALJ may consider new issues even if CMS has not made 
initial or reconsidered determinations on them, and even if they arose 
after the request for hearing was filed or after a prehearing 
conference.
    (3) The ALJ may give notice of hearing on new issues at any time 
after the hearing request is filed and before the hearing record is 
closed.
    (b) Notice and conduct of hearing on new issues. (1) Unless the 
affected party waives its right to appear and present evidence, notice 
of the time and place of hearing on any new issue will be given to the 
parties in accordance with Sec.  422.1036.
    (2) After giving notice, the ALJ will, except as provided in 
paragraph (c) of this section, proceed to hearing on new issues in the 
same manner as on an issue raised in the request for hearing.
    (c) Remand to CMS. At the request of either party, or on his or her 
own motion, in lieu of a hearing under paragraph (b) of this section, 
the ALJ may remand the case to CMS for consideration of the new issue 
and, if appropriate, a determination. If necessary, the ALJ may direct 
CMS to return the case to the ALJ for further proceedings.


Sec.  422.1044  Subpoenas.

    (a) Basis for issuance. The ALJ, upon his or her own motion or at 
the request of a party, may issue subpoenas if they are reasonably 
necessary for the full presentation of a case.
    (b) Timing of request by a party. The party must file a written 
request for a subpoena with the ALJ at least 5 days before the date set 
for the hearing.
    (c) Content of request. The request must:
    (1) Identify the witnesses or documents to be produced;
    (2) Describe their addresses or location with sufficient 
particularity to permit them to be found; and
    (3) Specify the pertinent facts the party expects to establish by 
the witnesses or documents, and indicate why those facts could not be 
established without use of a subpoena.
    (d) Method of issuance. Subpoenas are issued in the name of the 
Secretary.


Sec.  422.1046  Conduct of hearing.

    (a) Participants in the hearing. The hearing is open to the parties 
and their representatives and technical advisors, and to any other 
persons whose presence the ALJ considers necessary or proper.
    (b) Hearing procedures. (1) The ALJ inquires fully into all of the 
matters at issue, and receives in evidence the testimony of witnesses 
and any

[[Page 29391]]

documents that are relevant and material.
    (2) If the ALJ believes that there is relevant and material 
evidence available which has not been presented at the hearing, he may, 
at any time before mailing of notice of the decision, reopen the 
hearing to receive that evidence.
    (3) The ALJ decides the order in which the evidence and the 
arguments of the parties are presented and the conduct of the hearing.
    (4) CMS has the burden of coming forward with evidence related to 
disputed findings that is sufficient (together with any undisputed 
findings and legal authority) to establish a prima facie case that CMS 
has a legally sufficient basis for its determination.
    (5) The affected party has the burden of coming forward with 
evidence sufficient to establish the elements of any affirmative 
argument or defense which it offers.
    (6) The affected party bears the ultimate burden of persuasion. To 
prevail, the affected party must prove by a preponderance of the 
evidence on the record as a whole that there is no basis for the 
determination.
    (c) Review of the penalty. When an administrative law judge finds 
that the basis for imposing a civil money penalty exists, as specified 
in Sec.  422.752, the administrative law judge may not--
    (1) Set a penalty of zero or reduce a penalty to zero, or
    (2) Review the exercise of discretion by CMS to impose a civil 
money penalty.


Sec.  422.1048  Evidence.

    Evidence may be received at the hearing even though inadmissible 
under the rules of evidence applicable to court procedure. The ALJ 
rules on the admissibility of evidence.


Sec.  422.1050  Witnesses.

    Witnesses at the hearing testify under oath or affirmation. The 
representative of each party is permitted to examine his or her own 
witnesses subject to interrogation by the representative of the other 
party. The ALJ may ask any questions that he or she deems necessary. 
The ALJ rules upon any objection made by either party as to the 
propriety of any question.


Sec.  422.1052  Oral and written summation.

    The parties to a hearing are allowed a reasonable time to present 
oral summation and to file briefs or other written statements of 
proposed findings of fact and conclusions of law. Copies of any briefs 
or other written statements must be sent in accordance with Sec.  
422.1016.


Sec.  422.1054  Record of hearing.

    A complete record of the proceedings at the hearing is made and 
transcribed in all cases.


Sec.  422.1056  Waiver of right to appear and present evidence.

    (a) Waiver procedures. (1) If an affected party wishes to waive its 
right to appear and present evidence at the hearing, it must file a 
written waiver with the ALJ.
    (2) If the affected party wishes to withdraw a waiver, it may do 
so, for good cause, at any time before the ALJ mails notice of the 
hearing decision.
    (b) Effect of waiver. If the affected party waives the right to 
appear and present evidence, the ALJ need not conduct an oral hearing 
except in one of the following circumstances:
    (1) The ALJ believes that the testimony of the affected party or 
its representatives or other witnesses is necessary to clarify the 
facts at issue.
    (2) CMS shows good cause for requiring the presentation of oral 
evidence.
    (c) Dismissal for failure to appear. If, despite the waiver, the 
ALJ sends notice of hearing and the affected party fails to appear, or 
to show good cause for the failure, the ALJ will dismiss the appeal in 
accordance with Sec.  422.1060.
    (d) Hearing without oral testimony. When there is no oral 
testimony, the ALJ will--
    (1) Make a record of the relevant written evidence that was 
considered in making the determination being appealed, and of any 
additional evidence submitted by the parties;
    (2) Furnish to each party copies of the additional evidence 
submitted by the other party; and
    (3) Give both parties a reasonable opportunity for rebuttal.
    (e) Handling of briefs and related statements. If the parties 
submit briefs or other written statements of evidence or proposed 
findings of facts or conclusions of law, those documents will be 
handled in accordance with Sec.  422.1016.


Sec.  422.1058  Dismissal of request for hearing.

    (a) The ALJ may, at any time before mailing the notice of the 
decision, dismiss a hearing request if a party withdraws its request 
for a hearing or the affected party asks that its request be dismissed.
    (b) An affected party may request a dismissal by filing a written 
notice with the ALJ.


Sec.  422.1060  Dismissal for abandonment.

    (a) The ALJ may dismiss a request for hearing if it is abandoned by 
the party that requested it.
    (b) The ALJ may consider a request for hearing to be abandoned if 
the party or its representative--
    (1) Fails to appear at the prehearing conference or hearing without 
having previously shown good cause for not appearing; and
    (2) Fails to respond, within 10 days after the ALJ sends a ``show 
cause'' notice, with a showing of good cause.


Sec.  422.1062  Dismissal for cause.

    On his or her own motion, or on the motion of a party to the 
hearing, the ALJ may dismiss a hearing request either entirely or as to 
any stated issue, under any of the following circumstances:
    (a) Res judicata. There has been a previous determination or 
decision with respect to the rights of the same affected party on the 
same facts and law pertinent to the same issue or issues which has 
become final either by judicial affirmance or, without judicial 
consideration, because the affected party did not timely request 
reconsideration, hearing, or review, or commence a civil action with 
respect to that determination or decision.
    (b) No right to hearing. The party requesting a hearing is not a 
proper party or does not otherwise have a right to a hearing.
    (c) Hearing request not timely filed. The affected party did not 
file a hearing request timely and the time for filing has not been 
extended.


Sec.  422.1064  Notice and effect of dismissal and right to request 
review.

    (a) Notice of the ALJ's dismissal action is mailed to the parties. 
The notice advises the affected party of its right to request that the 
dismissal be vacated as provided in Sec.  422.1066.
    (b) The dismissal of a request for hearing is binding unless it is 
vacated by the ALJ or the Departmental Appeals Board.


Sec.  422.1066  Vacating a dismissal of request for hearing.

    An ALJ may vacate any dismissal of a request for hearing if a party 
files a request to that effect within 60 days from receipt of the 
notice of dismissal and shows good cause for vacating the dismissal.


Sec.  422.1068  Administrative Law Judge's decision.

    (a) Timing, basis and content. As soon as practical after the close 
of the hearing, the ALJ issues a written decision in the case. The 
decision is based on the evidence of record and

[[Page 29392]]

contains separate numbered findings of fact and conclusions of law.
    (b) Notice and effect. A copy of the decision is mailed to the 
parties and is binding on them unless--
    (1) A party requests review by the Departmental Appeals Board 
within the time period specified in Sec.  422.846, and the Board 
reviews the case;
    (2) The Departmental Appeals Board denies the request for review 
and the party seeks judicial review by filing an action in a United 
States District Court or, in the case of a civil money penalty, in a 
United States Court of Appeals;
    (3) The decision is revised by an ALJ or the Departmental Appeals 
Board; or
    (4) The decision is a recommended decision directed to the Board.


Sec.  422.1070  Removal of hearing to Departmental Appeals Board.

    (a) At any time before the ALJ receives oral testimony, the Board 
may remove itself from any pending request for a hearing.
    (b) Notice of removal is mailed to each party.
    (c) The Board conducts the hearing in accordance with the rules 
that apply to ALJ hearings under this subpart.


Sec.  422.1072  Remand by the Administrative Law Judge.

    (a) If CMS requests remand, and the affected party concurs in 
writing or on the record, the ALJ may remand any case properly before 
him or her to CMS for a determination satisfactory to the affected 
party.
    (b) The ALJ may remand at any time before notice of hearing 
decision is mailed.


Sec.  422.1074  Right to request Departmental Appeals Board review of 
Administrative Law Judge's decision or dismissal.

    Either of the parties has a right to request Departmental Appeals 
Board review of the ALJ's decision or dismissal order, and the parties 
are so informed in the notice of the ALJ's action.


Sec.  422.1076  Request for Departmental Appeals Board review.

    (a) Manner and time of filing. (1) Any party that is dissatisfied 
with an ALJ's decision or dismissal of a hearing request, may file a 
written request for review by the Departmental Appeals Board.
    (2) The requesting party or its representative or other authorized 
official must file the request with the DAB within 60 calendar days 
from receipt of the notice of decision or dismissal, unless the Board, 
for good cause shown by the requesting party, extends the time for 
filing.
    (b) Content of request for review. A request for review of an ALJ 
decision or dismissal must specify the issues, the findings of fact or 
conclusions of law with which the party disagrees, and the basis for 
contending that the findings and conclusions are incorrect.


Sec.  422.1078  Departmental Appeals Board action on request for 
review.

    (a) Request by CMS. The Departmental Appeals Board may dismiss, 
deny, or grant a request made by CMS for review of an ALJ decision or 
dismissal.
    (b) Request by the affected party. The Board may deny or grant the 
affected party's request for review or may dismiss the request for one 
of the following reasons:
    (1) The affected party requests dismissal of its request for 
review.
    (2) The affected party did not file timely or show good cause for 
late filing.
    (3) The affected party does not have a right to review.
    (4) A previous determination or decision, based on the same facts 
and law, and regarding the same issue, has become final through 
judicial affirmance or because the affected party failed to timely 
request reconsideration, hearing, Board review, or judicial review, as 
appropriate.
    (c) Effect of dismissal. The dismissal of a request for 
Departmental Appeals Board review is binding and not subject to further 
review.
    (d) Review panel. If the Board grants a request for review of the 
ALJ's decision, the review will be conducted by a panel of three 
members of the Board, designated by the Chair or Deputy Chair.


Sec.  422.1080  Procedures before the Departmental Appeals Board on 
review.

    The parties are given, upon request, a reasonable opportunity to 
file briefs or other written statements as to fact and law, and to 
appear before the Departmental Appeals Board to present evidence or 
oral arguments. Copies of any brief or other written statement must be 
sent in accordance with Sec.  422.1016.


Sec.  422.1082  Evidence admissible on review.

    (a) The Departmental Appeals Board may admit evidence into the 
record in addition to the evidence introduced at the ALJ hearing, (or 
the documents considered by the ALJ if the hearing was waived), if the 
Board considers that the additional evidence is relevant and material 
to an issue before it.
    (b) If it appears to the Board that additional relevant evidence is 
available, the Board will require that it be produced.
    (c) Before additional evidence is admitted into the record--
    (1) Notice is mailed to the parties (unless they have waived 
notice) stating that evidence will be received regarding specified 
issues; and
    (2) The parties are given a reasonable time to comment and to 
present other evidence pertinent to the specified issues.
    (d) If additional evidence is presented orally to the Board, a 
transcript is prepared and made available to any party upon request.


Sec.  422.1084  Decision or remand by the Departmental Appeals Board.

    (a) When the Departmental Appeals Board reviews an ALJ's decision 
or order of dismissal, or receives a case remanded by a court, the 
Board may either issue a decision or remand the case to an ALJ for a 
hearing and decision or a recommended decision for final decision by 
the Board.
    (b) In a remanded case, the ALJ initiates additional proceedings 
and takes other actions as directed by the Board in its order of 
remand, and may take other action not inconsistent with that order.
    (c) Upon completion of all action called for by the remand order 
and any other consistent action, the ALJ promptly makes a decision or, 
as specified by the Board, certifies the case to the Board with a 
recommended decision.
    (d) The parties have 20 days from the date of a notice of a 
recommended decision to submit to the Board any exception, objection, 
or comment on the findings of fact, conclusions of law, and recommended 
decision.
    (e) After the 20-day period, the Board issues its decision 
adopting, modifying or rejecting the ALJ's recommended decision.
    (f) If the Board does not remand the case to an ALJ, the following 
rules apply:
    (1) The Board's decision--
    (i) Is based upon the evidence in the hearing record and any 
further evidence that the Board receives during its review;
    (ii) Is in writing and contains separate numbered findings of fact 
and conclusions of law; and
    (iii) May modify, affirm, or reverse the ALJ's decision.
    (2) A copy of the Board's decision is mailed to each party.


Sec.  422.1086  Effect of Departmental Appeals Board Decision.

    (a) General rule. The Board's decision is binding unless--
    (1) The affected party has a right to judicial review and timely 
files a civil

[[Page 29393]]

action in a United States District Court or, in the case of a civil 
money penalty, in a United States Court of Appeals; or
    (2) The Board reopens and revises its decision in accordance with 
Sec.  422.862.
    (b) Right to judicial review. Section 422.1006 specifies the 
circumstances under which an affected party has a right to seek 
judicial review.
    (c) Special rules: Civil money penalty. (1) Finality of Board's 
decision. When CMS imposes a civil money penalty, notice of the Board's 
decision (or denial of review) is the final administrative action that 
initiates the 60-day period for seeking judicial review.


Sec.  422.1088  Extension of time for seeking judicial review.

    (a) Any affected party that is dissatisfied with a Departmental 
Appeals Board decision and is entitled to judicial review must commence 
civil action within 60 calendar days from receipt of the notice of the 
Board's decision, unless the Board extends the time in accordance with 
paragraph (c) of this section.
    (b) The request for extension must be filed in writing with the 
Board before the 60-day period ends.
    (c) For good cause shown, the Board may extend the time for 
commencing civil action.


Sec.  422.1090  Basis, timing, and authority for reopening an ALJ or 
Board decision.

    (a) Basis and timing for reopening. An ALJ of Departmental Appeals 
Board decision may be reopened, within 60 days from the date of the 
notice of decision, upon the motion of the ALJ or the Board or upon the 
petition of either party to the hearing.
    (b) Authority to reopen. (1) A decision of the Departmental Appeals 
Board may be reopened only by the Departmental Appeals Board.
    (2) A decision of an ALJ may be reopened by that ALJ, by another 
ALJ if that one is not available, or by the Departmental Appeals Board. 
For purposes of this paragraph, an ALJ is considered to be unavailable 
if the ALJ has died, terminated employment, or been transferred to 
another duty station, is on leave of absence, or is unable to conduct a 
hearing because of illness.


Sec.  422.1092  Revision of reopened decision.

    (a) Revision based on new evidence. If a reopened decision is to be 
revised on the basis of new evidence that was not included in the 
record of that decision, the ALJ or the Departmental Appeals Board--
    (1) Notifies the parties of the proposed revision; and
    (2) Unless the parties waive their right to hearing or appearance--
    (i) Grants a hearing in the case of an ALJ revision; and
    (ii) Grants opportunity to appear in the case of a Board revision.
    (b) Basis for revised decision and right to review.
    (1) If a revised decision is necessary, the ALJ or the Departmental 
Appeals Board, as appropriate, renders it on the basis of the entire 
record.
    (2) If the decision is revised by an ALJ, the Departmental Appeals 
Board may review that revised decision at the request of either party 
or on its own motion.


Sec.  422.1094  Notice and effect of revised decision.

    (a) Notice. The notice mailed to the parties states the basis or 
reason for the revised decision and informs them of their right to 
Departmental Appeals Board review of an ALJ revised decision, or to 
judicial review of a Board reviewed decision.
    (b) Effect--(1) ALJ revised decision. An ALJ revised decision is 
binding unless it is reviewed by the Departmental Appeals Board.
    (2) Departmental Appeals Board revised decision. A Board revised 
decision is binding unless a party files a civil action in a district 
court of the United States within the time frames specified in Sec.  
422.858.

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

    36. The authority citation for part 423 continues to read as 
follows:

    Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the 
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, 
and 1395hh).

Subpart A--General Provisions

    37. Section 423.4 is amended by adding the definitions of 
``Downstream entity'', ``First tier entity'', and ``Related entities'' 
to read as follows:


Sec.  423.4  Definitions.

* * * * *
    Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, below the level of the arrangement 
between a Part D plan sponsor (or applicant) and a first tier entity. 
These written arrangements continue down to the level of the ultimate 
provider of both health and administrative services.
* * * * *
    First tier entity means any party that enters into a written 
arrangement, acceptable to CMS, with a Part D plan sponsor or applicant 
to provide administrative services or health care services for a 
Medicare eligible individual under Part D.
* * * * *
    Related entity means any entity that is related to the Part D 
sponsor by common ownership or control and
    (1) Performs some of the Part D plan sponsor's management functions 
under contract or delegation;
    (2) Furnishes services to Medicare enrollees under an oral or 
written agreement; or
    (3) Leases real property or sells materials to the Part D plan 
sponsor at a cost of more than $2,500 during a contract period.
* * * * *

Subpart K--Application Procedures and Contracts With Part D Plan 
Sponsors

    39. Amend Sec.  423.504 by--
    A. Revising paragraph (b)(4)(vi) introductory text.
    B. Revising paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D).
    C. Adding paragraph (b)(4)(vi)(G)(3).
    D. Removing paragraph (b)(4)(vi)(H).
    The revisions read as follows:


Sec.  423.504  General provisions.

* * * * *
    (b) * * *
    (4) * * *
    (vi) A compliance plan, which must include measures to detect, 
correct, and prevent fraud, waste, and abuse, shall include the 
following elements:
* * * * *
    (C) Effective training and education between the compliance 
officer, and the Part D plan sponsor's employees, managers and 
directors, and the Part D plan sponsor's first tier, downstream, and 
related entities.
    (D) Effective lines of communication between the compliance 
officer, members of the compliance committee, the Part D plan sponsor's 
employees, managers and directors, and the Part D plan sponsor's first 
tier, downstream, and related entities.
* * * * *
    (G) * * *
    (3) The Part D plan sponsor must have procedures for mandatory 
self-reporting of potential fraud or misconduct related to the Part D 
program to the appropriate government authority. The Part D sponsor is 
required to report potential fraud or misconduct related to the Part D 
program to the appropriate government authority.
    40. Amend Sec.  423.505 by--
    A. Republishing paragraph (b) introductory text.
    B. Revising paragraph (b)(10).
    C. Republishing paragraph (e) introductory text.

[[Page 29394]]

    D. Revising paragraph (e)(1) introductory text.
    E. Revising paragraph (e)(2).
    F. Revising paragraph (i) introductory text and (i)(1).
    G. Revising paragraph (i)(2) introductory text.
    H. Revising paragraph (i)(2)(i).
    I. Revising paragraph (i)(3) introductory text.
    J. Revising paragraph (i)(3)(ii).
    K. Revising paragraph (i)(3)(iii)
    L. Adding paragraphs (i)(3)(iv) and (v).
    M. Revising paragraph (i)(4) introductory text.
    N. Revising paragraph (i)(4)(iv).
    O. Redesignating (i)(4)(iv) as (i)(4)(v).
    The revisions and additions read as follows:


Sec.  423.505  Contract provisions.

* * * * *
    (b) Requirements for contracts. The Part D plan sponsor agrees to--
* * * * *
    (10) Allow CMS to inspect and audit any books and records of a Part 
D plan sponsor and its delegated first tier, downstream and related 
entities, that pertain to the information regarding costs provided to 
CMS under paragraph (b)(9) of this section, or, if a fallback entity, 
the information submitted under subpart Q.
* * * * *
    (e) Access to facilities and records. The Part D plan sponsor 
agrees to the following:
    (1) HHS, the Comptroller General, or their designee may evaluate, 
through audit, inspection, or other means--
* * * * *
    (2) The Part D plan sponsor agrees to make available to HHS, the 
Comptroller General, or their designees, for the purposes specified in 
paragraph (d) of this section, its premises, physical facilities and 
equipment, records relating to its Medicare enrollees, and any 
additional relevant information that CMS may require. The Part D plan 
sponsor also agrees to make available any books, contracts, medical 
records, patient care documentation, and other records of the Part D 
plan sponsor, first tier, downstream and related entity(s), or its 
transferee that pertain to any aspect of services performed, 
reconciliation of benefit liabilities, and determination of amounts 
payable under the contract, or as the Secretary may deem necessary to 
enforce the contract.
* * * * *
    (i) Relationship with first tier, downstream, and related entities. 
(1) Notwithstanding any relationship(s) that the Part D plan sponsor 
may have with first tier, downstream, and related entities, the Part D 
sponsor maintains ultimate responsibility for adhering to and otherwise 
fully complying with all terms and conditions of its contract with CMS.
    (2) The Part D sponsor agrees to require all first tier, 
downstream, and related entities to agree that--
    (i) HHS, the Comptroller General, or their designees have the right 
to inspect, evaluate, and audit any pertinent contracts, books, 
documents, papers, and records of the first tier, downstream, and 
related entities involving transactions related to CMS' contract with 
the Part D sponsor.
* * * * *
    (3) All contracts or written arrangements between Part D sponsors 
and pharmacies or other providers, related entities, first tier and 
downstream entities must contain the following:
* * * * *
    (ii) Accountability provisions that indicate that the Part D 
sponsor may delegate activities or functions to a pharmacy, first tier, 
downstream, and related entity, only in a manner consistent with 
requirements set forth at paragraph (i)(4) of this section.
    (iii) A provision requiring that any services or other activity 
performed by a related entity, first tier, downstream, and related 
entity in accordance with a contract or written agreement are 
consistent and comply with the Part D plan sponsor's contractual 
obligations.
    (iv) A provision requiring the Part D sponsor's first tier, 
downstream, and related entities to produce upon request by CMS or its 
designees any pertinent contracts, books, documents, papers, and 
records relating to the Part D program to either the sponsor or 
directly to CMS or its designees.
    (v) All contracts or written arrangements must specify that the 
related entity, contractor, or subcontractor must comply with all 
applicable Federal laws, regulations, and CMS instructions.
    (4) If any of the Part D plan sponsors' activities or 
responsibilities under its contract with CMS is delegated to other 
parties, the following requirements apply to any first tier, 
downstream, and related entity, or pharmacy:
* * * * *
    (v) All contracts or written arrangements must specify that the 
first tier, downstream, or related entity, or pharmacy must comply with 
all applicable Federal laws, regulations, and CMS instructions.
* * * * *
    41. Amend Sec.  423.506 by revising paragraph (c) to read as 
follows:


Sec.  423.506  Effective date and term of contract.

* * * * *
    (c) Qualification to renew a contract. In accordance with Sec.  
423.507 of this subpart, an entity is determined qualified to renew its 
contract annually only if the Part D plan sponsor has not provided CMS 
with a notice of intention not to renew and CMS has not provided the 
Part D organization with a notice of intention not to renew.
* * * * *
    42. Amend Sec.  423.507 by--
    A. Revising paragraph (b)(2) introductory text.
    B. Revising paragraph (b)(2)(i).
    C. Redesignating paragraph (b)(3) as (b)(4).
    D. Adding a new paragraph (b)(3).
    The revisions and additions read as follows:


Sec.  423.507  Nonrenewal of contract.

* * * * *
    (b) * * *
    (2) Notice of non-renewal. CMS provides notice of its decision not 
to authorize renewal of a contract as follows:
    (i) To the Part D plan sponsor by September 1 of the contract year.
* * * * *
    (3) Corrective action plan. (i) Before nonrenewing a contract, CMS 
will provide the Part D sponsor with a reasonable opportunity to 
develop and submit a corrective action plan (CAP).
    (ii) The Part D sponsor must develop and submit the CAP within 45 
days of receiving a request for a CAP.
    (iii) If CMS determines the CAP is unacceptable, CMS will provide 
the Part D sponsor with an additional 30 days to submit a revised CAP.
    (iv) If CMS determines the CAP is acceptable, CMS will notify the 
Part D sponsor of a deadline by which the CAP must be fully 
implemented. CMS has sole discretion on whether the CAP is fully 
implemented.
    (v) Failure to develop and implement a CAP within the timeframes 
specified in paragraphs (3)(i) through (3)(iii) of this section may 
result in the nonrenewal of the Part D contract.
* * * * *
    43. Section 423.509 is amended by--
    A. Revising paragraph (a)(1).
    B. Revising paragraph (b) introductory text.
    C. Revising paragraph (b)(2).
    D. Revising paragraph (c).
    The revisions read as follows:


Sec.  423.509  Termination of contract by CMS.

    (a) * * *

[[Page 29395]]

    (1) The Part D plan sponsor has failed substantially to carry out 
the terms of--
    (i) Its current contract term with CMS, or
    (ii) Its contract with CMS from the preceding contract term.
* * * * *
    (b) Notice. If CMS decides to terminate a contract for reasons 
other than the grounds specified Sec.  423.509(a)(4) or Sec.  
423.509(a)(5), it gives notice of the termination as follows:
* * * * *
    (2) Expedited termination of contract by CMS. (i) For terminations 
based on violations prescribed in Sec.  423.509(a)(4) or Sec.  
423.509(a)(5), CMS notifies the Part D plan sponsor in writing that its 
contract will be terminated on a date specified by CMS. If termination 
is effective in the middle of a month, CMS has the right to recover the 
prorated share of the capitation payments made to the Part D plan 
sponsor covering the period of the month following the contract 
termination.
* * * * *
    (c) Corrective action plan.--(1) General. Before terminating a 
contract for reasons other than the grounds specified in paragraphs 
(a)(4) or (a)(5) of this section, CMS will provide the MA organization 
with a reasonable opportunity to develop and submit a corrective action 
plan (CAP).
    (i) The Part D plan sponsor must develop and submit the CAP within 
45 days of receiving a request for a CAP.
    (ii) If CMS determines the CAP is unacceptable to CMS, the Part D 
plan sponsor will have an additional 30 days to submit a revised CAP.
    (iii) If CMS determines the CAP is acceptable, CMS will notify the 
Part D plan sponsor of a deadline by which the CAP must be fully 
implemented. CMS has sole discretion on whether the CAP is fully 
implemented.
    (iv) Failure to develop and implement a CAP within the timeframes 
specified in paragraphs (c)(1)(i) through (c)(1)(iii) of this section, 
may result in the termination of the Part D contract.
    (2) Exceptions. If a contract is terminated under Sec.  
423.509(a)(4) or Sec.  423.509(a)(5), the Part D plan sponsor will not 
have the opportunity to submit a CAP.
* * * * *

Subpart N--Medicare Contract Determinations and Appeals

    44. Amend Sec.  423.642 by--
    A. Republishing paragraph (b) introductory text.
    B. Revising paragraph (b)(2).
    C. Revising paragraph (c).
    D. Revising paragraph (d).
    The revisions read as follows:


Sec.  423.642  Notice of contract determination.

* * * * *
    (b) The notice specifies the--
    (1) * * *
    (2) The Part D sponsor's right to request a hearing.
    (c) For CMS-initiated terminations, CMS mails notice to the Part D 
sponsor 90 days before the anticipated effective date of the 
termination. For terminations based on determinations described at 
Sec.  423.509(a)(4) or Sec.  423.509(a)(5), CMS notifies the Part D 
sponsor of the date that it will terminate the organization's Part D 
contract.
    (d) When CMS determines that it will not authorize a contract 
renewal, CMS mails the notice to the Part D sponsor by September 1 of 
the current contract year.
    45. Section 423.643 is revised to read as follows:


Sec.  423.643  Effect of contract determination.

    The contract determination is final and binding unless a timely 
request for a hearing is filed under Sec.  423.651.


Sec.  423.644  [Removed]

    46. Section 423.644 is removed.


Sec.  423.645  [Removed]

    47. Section 423.645 is removed.


Sec.  423.646  [Removed]

    48. Section 423.646 is removed.


Sec.  423.647  [Removed]

    49. Section 423.647 is removed.


Sec.  423.648  [Removed]

    50. Section 423.648 is removed.


Sec.  423.649  [Removed]

    51. Section 423.649 is removed.
    52. Revise Sec.  423.650 to read as follows:


Sec.  423.650  Right to a hearing and burden of proof.

    (a) The following parties are entitled to a hearing:
    (1) A contract applicant that has been determined to be unqualified 
to enter into a contract with CMS pursuant to Sec.  423.503.
    (2) A Part D sponsor whose contract has been terminated pursuant to 
Sec.  423.509.
    (3) A Part D sponsor whose contract has not been renewed pursuant 
to Sec.  423.507.
    (4) A Part D sponsor who has had an intermediate sanction imposed 
according to Sec.  423.752(a) and Sec.  423.752(b).
    (b) The Part D sponsor bears the burden of proof to demonstrate 
that it was in substantial compliance with the requirements of the Part 
D program on the earliest of the following three dates:
    (1) The date the sponsor received written notice of the contract 
determination or intermediate sanction.
    (2) The date of the most recent on-site audit conducted by CMS.
    (3) The date of the alleged breach of the current contract or past 
substantial noncompliance as determined by CMS.
    (c) Notice of any decision favorable to the Part D sponsor 
appealing a determination that it is not qualified to enter into a 
contract with CMS must be issued by July 15 for the contract in 
question to be effective on January 1 of the following year.
    53. Amend Sec.  423.651 by revising paragraph (b) to read as 
follows:


Sec.  423.651  Request for hearing.

* * * * *
    (b) Time for filing a request. A request for a hearing must be 
filed within 15 days from the date CMS notifies the Part D sponsor of 
its determination.
* * * * *
    54. Revise Sec.  423.652 to read as follows:


Sec.  423.652  Postponement of effective date of a contract 
determination when a request for a hearing is filed timely.

    (a) Hearing. When a request for a hearing is timely filed, CMS will 
postpone the proposed effective date of the contract determination 
listed at Sec.  423.641 until a hearing decision is reached and 
affirmed by the Administrator following review pursuant to Sec.  
423.666 in instances where a Part D sponsor or CMS requests 
Administrator review and the Administrator accepts the matter for 
review.
    (b) Exceptions: (1) If a final decision is not reached on CMS's for 
an initial contract by July 15, CMS will not enter into a contract with 
the applicant for the following year.
    (2) A contract terminated in accordance with Sec.  423.509(a)(4) or 
Sec.  423.509(a)(5) will be terminated on the date specified by CMS and 
will not be postponed if a hearing is requested.
    55. Amend Sec.  423.655 by revising paragraph (a) to read as 
follows:


Sec.  423.655  Time and place of hearing.

    (a) The hearing officer fixes a time and place for the hearing, 
which is not to exceed 30 days from the receipt of request for the 
hearing, and sends written notice to the parties. The notice informs 
the parties of--
    (1) The general and specific issues to be resolved, the burden of 
proof, and information about the hearing procedure, and

[[Page 29396]]

    (2) The ability to conduct formal discovery.
* * * * *
    56. Revise Sec.  423.661 to read as follows:


Sec.  423.661  Discovery.

    (a) Either party may make a request to another party for the 
production of documents for inspection and copying which are relevant 
and material to the issues before the hearing office.
    (b) The hearing officer will provide the parties with a reasonable 
time for inspection and reproduction of documents, provided that 
discovery concluded at least 10 calendar days prior to the hearing.
    (c) The hearing officer's order on discovery matters is final.
    57. Revise Sec.  423.662 to read as follows:


Sec.  423.662  Prehearing and summary judgment.

    (a) Prehearing. The hearing officer may schedule a prehearing 
conference if he or she believes that a conference would more clearly 
define the issues.
    (b) Summary judgment. Either party to the hearing, may ask the 
hearing officer to rule on a motion for summary judgment.
    58. Amend Sec.  423.666 by--
    A. Revising paragraph (a).
    B. Revising paragraph (b).
    C. Redesignating paragraph (c) as paragraph (e).
    D. Adding a new paragraph (c).
    E. Adding a new paragraph (d).
    The revisions and additions read as follows:


Sec.  423.666  Review by Administrator.

    (a) Request for review by Administrator. CMS or a Part D sponsor 
that has received a hearing decision regarding a contract determination 
may request review by the Administrator within 15 calendar days of 
receiving the hearing decision as provided under Sec.  423.665(b). Both 
the Part D sponsor and CMS may provide written arguments to the 
Administrator for review.
    (b) Decision to review the hearing decision. After receiving a 
request for review, the Administrator has the discretion to elect to 
review the hearing determination in accordance with paragraph (d) of 
this section or to decline to review the hearing decision.
    (c) Notification of Administrator determination. The Administrator 
notifies both parties of his or her determination regarding review of 
the hearing decision within 30 days of receiving the request for 
review. If the Administrator declines to review the hearing decision or 
the Administrator does not make a determination regarding review within 
30 days, the decision of the hearing officer is final.
    (d) Review by the Administrator. If the Administrator elects to 
review the hearing decision regarding a contract determination, the 
Administrator shall review the hearing officer's decision and 
determine, based upon this decision, the hearing record, and any 
written arguments submitted by the Part D sponsor or CMS, whether the 
determination should be upheld, reversed, or modified.
* * * * *
    59. Amend Sec.  423.668 by--
    A. Revising the section heading.
    B. Revising paragraph (a).
    The revisions read as follows:


Sec.  423.668  Reopening of an initial contract determination or 
decision of a hearing officer or the Administrator.

    (a) Initial determination. CMS may reopen and revise an initial 
determination upon its own motion.
* * * * *


Sec.  423.669  [Removed]

    60. Section 423.669 is removed.

Subpart O--Intermediate Sanctions

    61. Revise Sec.  423.750 to read as follows:


Sec.  423.750  Types of intermediate sanctions and civil money 
penalties.

    (a) The following intermediate sanctions may be imposed and will 
continue in effect until CMS is satisfied that the deficiency on which 
the determination was based has been corrected and is not likely to 
reoccur.
    (1) Suspension of enrollment of Medicare beneficiaries.
    (2) Suspension of payment to the Part D plan sponsor for Medicare 
beneficiaries who are enrolled in the Part D plan.
    (3) Suspension of all marketing activities to Medicare 
beneficiaries by a Part D plan sponsor for all Part D plans.
    (b) CMS may impose civil money penalties as specified in Sec.  
423.760.
    62. Amend Sec.  423.752 by--
    A. Revising the section heading.
    B. Revising paragraph (a) introductory text.
    C. Revising paragraph (b).
    D. Adding a new paragraph (c).
    The revisions and additions read as follows:


Sec.  423.752  Basis for imposing intermediate sanctions and civil 
money penalties.

    (a) All intermediate sanctions. For the violations listed in this 
paragraph (a), CMS may impose one, or more, of the sanctions as 
specified in Sec.  423.750(a) on any Part D plan sponsor that has a 
contract in effect. The Part D plan sponsor may also be subject to 
other applicable remedies available under law.
* * * * *
    (b) Suspension of enrollment and marketing. If CMS makes a 
determination that could lead to a contract termination under Sec.  
423.509(a), CMS may impose the intermediate sanctions at Sec.  
423.750(a)(1) and (a)(3).
    (c) Civil Money Penalties. (1) CMS. In addition to, or in place of, 
any intermediate sanctions, CMS may impose civil money penalties in the 
amounts specified in Sec.  423.760, for any of the determinations at 
Sec.  423.509(a), except Sec.  423.509(a)(4).
    (2) OIG. In addition to, or in place of any intermediate sanctions 
imposed by CMS, the OIG, in accordance with section 1003 of this 
chapter, may impose civil money penalties for the following:
    (i) Violations listed at Sec.  423.752(a).
    (ii) Determinations made pursuant to Sec.  423.509(a)(4).
    63. Amend Sec.  423.756 by--
    A. Revising the section heading.
    B. Revising paragraph (a).
    C. Revising paragraph (b).
    D. Revising paragraph (f).
    The revisions read as follows:


Sec.  423.756  Procedures for imposing intermediate sanctions and civil 
money penalties.

    (a) Notice of intermediate sanction and opportunity to respond.-- 
(1) Notice of intent. Before imposing the intermediate sanctions, CMS--
    (i) Sends a written notice to the Part D plan sponsor stating the 
nature and basis of the proposed intermediate sanction, and the Part D 
plan sponsor's right to a hearing as specified in paragraph (b) of this 
section; and
    (ii) Sends the OIG a copy of the notice.
    (2) Opportunity to respond. CMS allows the Part D plan sponsor 10 
days from receipt of the notice to provide a written rebuttal. CMS 
considers receipt of notice as the day after notice is sent by fax, e-
mail, or submitted for overnight mail.
    (b) Hearing. The Part D sponsor may request a hearing before a CMS 
hearing officer. A written request must be received by CMS within 15 
calendar days of the Part D sponsor receiving the notice of intent to 
impose an intermediate sanction. A request for a hearing under Sec.  
423.650 does not delay the date specified by CMS when the sanction 
becomes effective. The Part D sponsor must follow the right to a

[[Page 29397]]

hearing procedure as specified at Sec.  423.650 through Sec.  423.662.
* * * * *
    (f) Notice to impose civil money penalties. (1) CMS notice to OIG. 
If CMS determines that a Part D sponsor has committed an act or failed 
to comply with a requirement as described in Sec.  423.752, CMS 
notifies the OIG of this determination. OIG may impose a civil monetary 
penalty upon a Part D sponsor as specified at Sec.  423.752(c)(2)
    (2) CMS notice of civil money penalties to Part D plan sponsors. If 
CMS makes a determination to impose a CMP described in Sec.  
423.509(c)(1), CMS will send a written notice of the Agency's decision 
to impose a civil money penalty to include--
    (i) A description of the basis for the determination.
    (ii) The basis for the penalty.
    (iii) The amount of the penalty.
    (iv) The date the penalty is due.
    (v) The Part D sponsor's right to a hearing as specified under 
Sec.  423.650.
    (vi) Information about where to file the request for hearing.
    64. Revise Sec.  423.758 to read as follows:


Sec.  423.758  Collection of civil money penalties imposed by CMS.

    (a) When a Part D plan sponsor does not request a hearing CMS 
initiates collection of the civil money penalty following the 
expiration of the timeframe for requesting an ALJ hearing as specified 
in Subpart T.
    (b) If a Part D sponsor requests a hearing and CMS's decision to 
impose a civil money penalty is upheld, CMS may initiate collection of 
the civil money penalty once the administrative decision is final.
    65. Amend Sec.  423.760 by--
    A. Redesignating Sec.  423.760 as Sec.  423.764.
    B. Adding a new Sec.  423.760 to read as follows:


Sec.  423.760  Determinations regarding the amount of civil money 
penalties and assessment imposed by CMS.

    (a) Determining the appropriate amount of any penalty. In 
determining the amount of penalty imposed under Sec.  423.752(c)(1), 
CMS will consider as appropriate:
    (1) The nature of the conduct;
    (2) The degree of culpability of the Part D sponsor;
    (3) The harm which resulted or could have resulted from the conduct 
of the Part D sponsor;
    (4) The financial condition of the Part D sponsor;
    (5) The history of prior offenses by the Part D sponsor or 
principals of the Part D sponsor; and,
    (6) Such other matters as justice may require.
    (b) Amount of penalty. CMS may impose civil money penalties in the 
following amounts:
    (1) If the deficiency on which the determination is based has 
directly adversely affected (or has the substantial likelihood of 
adversely affecting) one or more Part D enrollees--up to $25,000 for 
each determination.
    (2) For each week that a deficiency remains uncorrected after the 
week in which the Part D sponsor receives CMS' notice of the 
determination--up to $10,000.
    (3) If CMS makes a determination that a Part D sponsor has 
terminated its contract other than in a manner described under Sec.  
423.510 and that the Part D sponsor has therefore failed to 
substantially carry out the terms of the contract, $250 per Medicare 
enrollee from the terminated Part D sponsor or plans at the time the 
Part D sponsor terminated its contract, or $100,000, whichever is 
greater.
    66. Adding a new Sec.  423.762 to read as follows:


Sec.  423.762  Settlement of penalties.

    For civil money penalties imposed by CMS, CMS may settle civil 
money penalty cases at any time before a final decision is rendered.
    67. A new subpart T is added to read as follows:
Subpart T--Appeal Procedures for Civil Money Penalties
Sec.
423.1000 Basis and scope.
423.1002 Definitions.
423.1004 Scope and applicability.
423.1006 Appeal rights.
423.1008 Appointment of representatives.
423.1010 Authority of representatives.
423.1012 Fees for services of representative.
423.1014 Charge for transcripts.
423.1016 Filing of briefs with the Administrative Law Judge or 
Departmental Appeals Board, and opportunity for rebuttal.
423.1018 Notice and effect of initial determinations.
423.1020 Request for hearing.
423.1022 Parties to the hearing.
423.1024 Designation of hearing official.
423.1026 Disqualification of Administrative Law Judge.
423.1028 Prehearing conference.
423.1030 Notice of prehearing conference.
423.1032 Conduct of prehearing conference.
423.1034 Record, order, and effect of prehearing conference.
423.1036 Time and place of hearing.
423.1038 Change in time and place of hearing.
423.1040 Joint hearings.
423.1042 Hearing on new issues.
423.1044 Subpoenas.
423.1046 Conduct of hearing.
423.1048 Evidence.
423.1050 Witnesses.
423.1052 Oral and written summation.
423.1054 Record of hearing.
423.1056 Waiver of right to appear and present evidence.
423.1058 Dismissal of request for hearing.
423.1060 Dismissal for abandonment.
423.1062 Dismissal for cause.
423.1064 Notice and effect of dismissal and right to request review.
423.1066 Vacating a dismissal of request for hearing.
423.1068 Administrative Law Judge's decision.
423.1070 Removal of hearing to Departmental Appeals Board.
423.1072 Remand by the Administrative Law Judge.
423.1074 Right to request Departmental Appeals Board review of 
Administrative Law Judge's decision or dismissal.
423.1076 Request for Departmental Appeals Board review.
423.1078 Departmental Appeals Board action on request for review.
423.1080 Procedures before the Departmental Appeals Board on review.
423.1082 Evidence admissible on review.
423.1084 Decision or remand by the Departmental Appeals Board.
423.1086 Effect of Departmental Appeals Board Decision.
423.1088 Extension of time for seeking judicial review.
423.1090 Basis, timing, and authority for reopening an 
Administrative Law Judge or Board decision.
423.1092 Revision of reopened decision.
423.1094 Notice and effect of revised decision.
Subpart T--Appeal procedures for Civil Money Penalties


Sec.  423.1000  Basis and scope.

    (a) Statutory basis. (1) Section 1128A(c)(2) of the Act provides 
that the Secretary may not collect a civil money penalty until the 
affected party has had notice and opportunity for a hearing.
    (2) Section 1857(g) of the Act provides that, for Part D sponsors 
found to be out of compliance with the requirements in part 423, 
specified remedies may be imposed instead of, or in addition to, 
termination of the Part D sponsor's contract. Section 1857(g)(4) of the 
Act makes certain provisions of section 1128A of the Act applicable to 
civil money penalties imposed on Part D sponsors.
    (b) [Reserved]


Sec.  423.1002  Definitions.

    As used in this subpart--
    Affected party means a Part D sponsor impacted by an initial 
determination or if applicable, by any subsequent determination or 
decision issued under this part, and ``party'' means the affected party 
or CMS, as appropriate.
    ALJ stands for Administrative Law Judge.

[[Page 29398]]

    Departmental Appeals Board or Board means a Board established in 
the Office of the Secretary to provide impartial review of disputed 
decisions made by the operating components of the Department.
    Part D sponsor has the meaning given the term in Sec.  423.4.


Sec.  423.1004  Scope and applicability.

    (a) Scope. (1) This subpart sets forth procedures for reviewing 
initial determinations that CMS makes with respect to the matters 
specified in paragraph (b).
    (2) The determinations listed in this section affect participation 
in the Medicare program.
    (3) The following provisions in this subpart specify the 
applicability of the provisions of part 423, subpart O to civil money 
penalties or remedies imposed on the indicated entities on Part D 
sponsors
    (b) Initial determinations by CMS. CMS makes initial determinations 
with respect to the imposition of civil money penalties in accordance 
with part 423, subpart T.


Sec.  423.1006  Appeal rights.

    (a) Appeal rights of Part D sponsors. (1) Any Part D sponsor 
dissatisfied with an initial determination as specified in Sec.  
423.1004, has a right to a hearing before an ALJ in accordance with 
this subpart and may request Departmental Appeals Board review of the 
ALJ decision.
    (2) Part D sponsors may request judicial review of the Departmental 
Appeals Board's decision that imposes a CMP.
    (b) [Reserved]


Sec.  423.1008  Appointment of representatives.

    (a) An affected party may appoint as its representative anyone not 
disqualified or suspended from acting as a representative in 
proceedings before the Secretary or otherwise prohibited by law.
    (b) If the representative appointed is not an attorney, the party 
must file written notice of the appointment with the ALJ or the 
Departmental Appeals Board.
    (c) If the representative appointed is an attorney, the attorney's 
statement that he or she has the authority to represent the party is 
sufficient.


Sec.  423.1010  Authority of representatives.

    (a) A representative appointed and qualified in accordance with 
Sec.  423.1008 may, on behalf of the represented party--
    (1) Give and accept any notice or request pertinent to the 
proceedings set forth in this part;
    (2) Present evidence and allegations as to facts and law in any 
proceedings affecting that party to the same extent as the party; and
    (3) Obtain information to the same extent as the party.
    (b) A notice or request may be sent to the affected party, to the 
party's representative, or to both. A notice or request sent to the 
representative has the same force and effect as if it had been sent to 
the party.


Sec.  423.1012  Fees for services of representatives.

    Fees for any services performed on behalf of an affected party by 
an attorney appointed and qualified in accordance with Sec.  423.1008 
are not subject to the provisions of section 206 of Title II of the 
Act, which authorizes the Secretary to specify or limit those fees.


Sec.  423.1014  Charge for transcripts.

    A party that requests a transcript of prehearing or hearing 
proceedings or Board review must pay the actual or estimated cost of 
preparing the transcript unless, for good cause shown by that party, 
the payment is waived by the ALJ or the Departmental Appeals Board, as 
appropriate.


Sec.  423.1016  Filing of briefs with the ALJ or Departmental Appeals 
Board, and opportunity for rebuttal.

    (a) Filing of briefs and related documents. If a party files a 
brief or related document such as a written argument, contention, 
suggested finding of fact, conclusion of law, or any other written 
statement, it must submit an original and 1 copy to the ALJ or the 
Departmental Appeals Board, as appropriate. The material may be filed 
by mail or in person and must include a statement certifying that a 
copy has been furnished to the other party.
    (b) Opportunity for rebuttal. (1) The other party will have 20 days 
from the date of mailing or personal service to submit any rebuttal 
statement or additional evidence. If a party submits a rebuttal 
statement or additional evidence, it must file an original and 1 copy 
with the ALJ or the Board and furnish a copy to the other party.
    (2) The ALJ or the Board will grant an opportunity to reply to the 
rebuttal statement only if the party shows good cause.


Sec.  423.1018  Notice and effect of initial determinations.

    (a) Notice of initial determination--(1) General rule. CMS, as 
required under 422.756(f)(2), mails notice of an initial determination 
to the affected party, setting forth the basis or reasons for the 
determination, the effect of the determination, the party's right to a 
hearing, and information about where to file the request for a hearing.
    (b) Effect of initial determination. An initial determination is 
binding unless--
    (1) The affected party requests a hearing; or
    (2) CMS revises its decision.


Sec.  423.1020  Request for hearing.

    (a) Manner and timing of request. (1) An Part D sponsor is entitled 
to a hearing as specified in Sec.  423.1006 and may file a request with 
the Departmental Appeals Board office specified in the initial 
determination.
    (2) The Part D sponsor or its legal representative or other 
authorized official must file the request, in writing, to the 
appropriate Departmental Appeals Board office, with a copy to CMS, 
within 60 calendar days from receipt of the notice of initial 
determination, to request a hearing before an ALJ to appeal any 
determination by CMS to impose a civil money penalty.
    (b) Content of request for hearing. The request for hearing must--
    (1) Identify the specific issues, and the findings of fact and 
conclusions of law with which the affected party disagrees; and
    (2) Specify the basis for each contention that a CMS finding or 
conclusion of law is incorrect.


Sec.  423.1022  Parties to the hearing.

    The parties to the hearing are the affected party and CMS, as 
appropriate.


Sec.  423.1024  Designation of hearing official.

    (a) The Chair of the Departmental Appeals Board, or his or her 
delegate, designates an ALJ or a member or members of the Departmental 
Appeals Board to conduct the hearing.
    (b) If appropriate, the Chair or the delegate may substitute 
another ALJ or another member or other members of the Departmental 
Appeals Board to conduct the hearing.
    (c) As used in this part, ``ALJ'' includes a member or members of 
the Departmental Appeals Board who are designated to conduct a hearing.


Sec.  423.1026  Disqualification of Administrative Law Judge.

    (a) An ALJ may not conduct a hearing in a case in which he or she 
is prejudiced or partial to the affected party or has any interest in 
the matter pending for decision.
    (b) A party that objects to the ALJ designated to conduct the 
hearing must

[[Page 29399]]

give notice of its objections at the earliest opportunity.
    (c) The ALJ will consider the objections and decide whether to 
withdraw or proceed with the hearing.
    (1) If the ALJ withdraws, another ALJ will be designated to conduct 
the hearing.
    (2) If the ALJ does not withdraw, the objecting party may, after 
the hearing, present its objections to the Departmental Appeals Board 
as reasons for changing, modifying, or reversing the ALJ's decision or 
providing a new hearing before another ALJ.


Sec.  423.1028  Prehearing conference.

    (a) At any time before the hearing, the ALJ may call a prehearing 
conference for the purpose of delineating the issues in controversy, 
identifying the evidence and witnesses to be presented at the hearing, 
and obtaining stipulations accordingly.
    (b) On the request of either party or on his or her own motion, the 
ALJ may adjourn the prehearing conference and reconvene at a later 
date.


Sec.  423.1030  Notice of prehearing conference.

    (a) Timing of notice. The ALJ will fix a time and place for the 
prehearing conference and mail written notice to the parties at least 
10 days before the scheduled date.
    (b) Content of notice. The notice will inform the parties of the 
purpose of the conference and specify what issues are sought to be 
resolved, agreed to, or excluded.
    (c) Additional issues. Issues other than those set forth in the 
notice of determination or the request for hearing may be considered at 
the prehearing conference if--
    (1) Either party gives timely notice to that effect to the ALJ and 
the other party; or
    (2) The ALJ raises the issues in the notice of prehearing 
conference or at the conference.


Sec.  423.1032  Conduct of prehearing conference.

    (a) The prehearing conference is open to the affected party or its 
representative, to the CMS representatives and their technical 
advisors, and to any other persons whose presence the ALJ considers 
necessary or proper.
    (b) The ALJ may accept the agreement of the parties as to the 
following:
    (1) Facts that are not in controversy.
    (2) Questions that have been resolved favorably to the affected 
party after the determination in dispute.
    (3) Remaining issues to be resolved.
    (c) The ALJ may request the parties to indicate the following:
    (1) The witnesses that will be present to testify at the hearing.
    (2) The qualifications of those witnesses.
    (3) The nature of other evidence to be submitted.


Sec.  423.1034  Record, order, and effect of prehearing conference.

    (a) Record of prehearing conference. (1) A record is made of all 
agreements and stipulations entered into at the prehearing conference.
    (2) The record may be transcribed at the request of either party or 
the ALJ.
    (b) Order and opportunity to object. (1) The ALJ issues an order 
setting forth the results of the prehearing conference, including the 
agreements made by the parties as to facts not in controversy, the 
matters to be considered at the hearing, and the issues to be resolved.
    (2) Copies of the order are sent to all parties and the parties 
have 10 days to file objections to the order.
    (3) After the 10 days have elapsed, the ALJ settles the order.
    (c) Effect of prehearing conference. The agreements and 
stipulations entered into at the prehearing conference are binding on 
all parties, unless a party presents facts that, in the opinion of the 
ALJ, would make an agreement unreasonable or inequitable.


Sec.  423.1036  Time and place of hearing.

    (a) The ALJ fixes a time and place for the hearing and gives the 
parties written notice at least 10 days before the scheduled date.
    (b) The notice informs the parties of the general and specific 
issues to be resolved at the hearing.


Sec.  423.1038  Change in time and place of hearing.

    (a) The ALJ may change the time and place for the hearing either on 
his or her own initiative or at the request of a party for good cause 
shown, or may adjourn or postpone the hearing.
    (b) The ALJ may reopen the hearing for receipt of new evidence at 
any time before mailing the notice of hearing decision.
    (c) The ALJ gives the parties reasonable notice of any change in 
time or place or any adjournment or reopening of the hearing.


Sec.  423.1040  Joint hearings.

    When two or more affected parties have requested hearings and the 
same or substantially similar matters are at issue, the ALJ may, if all 
parties agree, fix a single time and place for the prehearing 
conference or hearing and conduct all proceedings jointly. If joint 
hearings are held, a single record of the proceedings is made and a 
separate decision issued with respect to each affected party.


Sec.  423.1042  Hearing on new issues.

    (a) Basic rules. (1) Within the time limits specified in paragraph 
(b) of this section, the ALJ may, at the request of either party, or on 
his or her own motion, provide a hearing on new issues that impinge on 
the rights of the affected party.
    (2) The ALJ may consider new issues even if CMS has not made 
initial or reconsidered determinations on them, and even if they arose 
after the request for hearing was filed or after a prehearing 
conference.
    (3) The ALJ may give notice of hearing on new issues at any time 
after the hearing request is filed and before the hearing record is 
closed.
    (b) Notice and conduct of hearing on new issues.
    (1) Unless the affected party waives its right to appear and 
present evidence, notice of the time and place of hearing on any new 
issue will be given to the parties in accordance with Sec.  423.1036.
    (2) After giving notice, the ALJ will, except as provided in 
paragraph (c), proceed to hearing on new issues in the same manner as 
on an issue raised in the request for hearing.
    (c) Remand to CMS. At the request of either party, or on his or her 
own motion, in lieu of a hearing under paragraph (b), the ALJ may 
remand the case to CMS for consideration of the new issue and, if 
appropriate, a determination. If necessary, the ALJ may direct CMS to 
return the case to the ALJ for further proceedings.


Sec.  423.1044  Subpoenas.

    (a) Basis for issuance. The ALJ, upon his or her own motion or at 
the request of a party, may issue subpoenas if they are reasonably 
necessary for the full presentation of a case.
    (b) Timing of request by a party. The party must file a written 
request for a subpoena with the ALJ at least 5 days before the date set 
for the hearing.
    (c) Content of request. The request must:
    (1) Identify the witnesses or documents to be produced;
    (2) Describe their addresses or location with sufficient 
particularity to permit them to be found; and
    (3) Specify the pertinent facts the party expects to establish by 
the witnesses or documents, and indicate why those facts could not be 
established without use of a subpoena.
    (d) Method of issuance. Subpoenas are issued in the name of the 
Secretary.

[[Page 29400]]

Sec.  423.1046  Conduct of hearing.

    (a) Participants in the hearing. The hearing is open to the parties 
and their representatives and technical advisors, and to any other 
persons whose presence the ALJ considers necessary or proper.
    (b) Hearing procedures. (1) The ALJ inquires fully into all of the 
matters at issue, and receives in evidence the testimony of witnesses 
and any documents that are relevant and material.
    (2) If the ALJ believes that there is relevant and material 
evidence available which has not been presented at the hearing, he may, 
at any time before mailing of notice of the decision, reopen the 
hearing to receive that evidence.
    (3) The ALJ decides the order in which the evidence and the 
arguments of the parties are presented and the conduct of the hearing.
    (4) CMS has the burden of coming forward with evidence related to 
disputed findings that is sufficient (together with any undisputed 
findings and legal authority) to establish a prima facie case that CMS 
has a legally sufficient basis for its determination.
    (5) The affected party has the burden of coming forward with 
evidence sufficient to establish the elements of any affirmative 
argument or defense which it offers.
    (6) The affected party bears the ultimate burden of persuasion. To 
prevail, the affected party must prove by a preponderance of the 
evidence on the record as a whole that there is no basis for the 
determination.
    (c) Review of the penalty. When an ALJ finds that the basis for 
imposing a civil money penalty exists, as specified in Sec.  423.752, 
the ALJ may not--
    (1) Set a penalty of zero or reduce a penalty to zero, or
    (2) Review the exercise of discretion by CMS to impose a civil 
money penalty.


Sec.  423.1048  Evidence.

    Evidence may be received at the hearing even though inadmissible 
under the rules of evidence applicable to court procedure. The ALJ 
rules on the admissibility of evidence.


Sec.  423.1050  Witnesses.

    Witnesses at the hearing testify under oath or affirmation. The 
representative of each party is permitted to examine his or her own 
witnesses subject to interrogation by the representative of the other 
party. The ALJ may ask any questions that he or she deems necessary. 
The ALJ rules upon any objection made by either party as to the 
propriety of any question.


Sec.  423.1052  Oral and written summation.

    The parties to a hearing are allowed a reasonable time to present 
oral summation and to file briefs or other written statements of 
proposed findings of fact and conclusions of law. Copies of any briefs 
or other written statements must be sent in accordance with Sec.  
423.1016.


Sec.  423.1054  Record of hearing.

    A complete record of the proceedings at the hearing is made and 
transcribed in all cases.


Sec.  423.1056  Waiver of right to appear and present evidence.

    (a) Waiver procedures. (1) If an affected party wishes to waive its 
right to appear and present evidence at the hearing, it must file a 
written waiver with the ALJ.
    (2) If the affected party wishes to withdraw a waiver, it may do 
so, for good cause, at any time before the ALJ mails notice of the 
hearing decision.
    (b) Effect of waiver. If the affected party waives the right to 
appear and present evidence, the ALJ need not conduct an oral hearing 
except in one of the following circumstances:
    (1) The ALJ believes that the testimony of the affected party or 
its representatives or other witnesses is necessary to clarify the 
facts at issue.
    (2) CMS shows good cause for requiring the presentation of oral 
evidence.
    (c) Dismissal for failure to appear. If, despite the waiver, the 
ALJ sends notice of hearing and the affected party fails to appear, or 
to show good cause for the failure, the ALJ will dismiss the appeal in 
accordance with Sec.  423.1058.
    (d) Hearing without oral testimony. When there is no oral 
testimony, the ALJ will--
    (1) Make a record of the relevant written evidence that was 
considered in making the determination being appealed, and of any 
additional evidence submitted by the parties;
    (2) Furnish to each party copies of the additional evidence 
submitted by the other party; and
    (3) Give both parties a reasonable opportunity for rebuttal.
    (e) Handling of briefs and related statements. If the parties 
submit briefs or other written statements of evidence or proposed 
findings of facts or conclusions of law, those documents will be 
handled in accordance with Sec.  423.1016.


Sec.  423.1058  Dismissal of request for hearing.

    (a) The ALJ may, at any time before mailing the notice of the 
decision, dismiss a hearing request if a party withdraws its request 
for a hearing or the affected party asks that its request be dismissed.
    (b) An affected party may request a dismissal by filing a written 
notice with the ALJ.


Sec.  423.1060  Dismissal for abandonment.

    (a) The ALJ may dismiss a request for hearing if it is abandoned by 
the party that requested it.
    (b) The ALJ may consider a request for hearing to be abandoned if 
the party or its representative--
    (1) Fails to appear at the prehearing conference or hearing without 
having previously shown good cause for not appearing; and
    (2) Fails to respond, within 10 days after the ALJ sends a ``show 
cause'' notice, with a showing of good cause.


Sec.  423.1062  Dismissal for cause.

    On his or her own motion, or on the motion of a party to the 
hearing, the ALJ may dismiss a hearing request either entirely or as to 
any stated issue, under any of the following circumstances:
    (a) Res judicata. There has been a previous determination or 
decision with respect to the rights of the same affected party on the 
same facts and law pertinent to the same issue or issues which has 
become final either by judicial affirmance or, without judicial 
consideration, because the affected party did not timely request 
reconsideration, hearing, or review, or commence a civil action with 
respect to that determination or decision.
    (b) No right to hearing. The party requesting a hearing is not a 
proper party or does not otherwise have a right to a hearing.
    (c) Hearing request not timely filed. The affected party did not 
file a hearing request timely and the time for filing has not been 
extended.


Sec.  423.1064  Notice and effect of dismissal and right to request 
review.

    (a) Notice of the ALJ's dismissal action is mailed to the parties. 
The notice advises the affected party of its right to request that the 
dismissal be vacated as provided in Sec.  423.1066.
    (b) The dismissal of a request for hearing is binding unless it is 
vacated by the ALJ or the Departmental Appeals Board.


Sec.  423.1066  Vacating a dismissal of request for hearing.

    An ALJ may vacate any dismissal of a request for hearing if a party 
files a request to that effect within 60 days from receipt of the 
notice of dismissal and shows good cause for vacating the dismissal.

[[Page 29401]]

Sec.  423.1068  Administrative Law Judge's decision.

    (a) Timing, basis and content. As soon as practical after the close 
of the hearing, the ALJ issues a written decision in the case. The 
decision is based on the evidence of record and contains separate 
numbered findings of fact and conclusions of law.
    (b) Notice and effect. A copy of the decision is mailed to the 
parties and is binding on them unless--
    (1) A party requests review by the Departmental Appeals Board 
within the time period specified in Sec.  423.1076, and the Board 
reviews the case;
    (2) The Departmental Appeals Board denies the request for review 
and the party seeks judicial review by filing an action in a United 
States District Court or, in the case of a civil money penalty, in a 
United States Court of Appeals;
    (3) The decision is revised by an ALJ or the Department Appeals 
Board; or
    (4) The decision is a recommended decision directed to the Board.


Sec.  423.1070  Removal of hearing to Departmental Appeals Board.

    (a) At any time before the ALJ receives oral testimony, the Board 
may remove itself any pending request for a hearing.
    (b) Notice of removal is mailed to each party.
    (c) The Board conducts the hearing in accordance with the rules 
that apply to ALJ hearings under this subpart.


Sec.  423.1072  Remand by the Administrative Law Judge.

    (a) If CMS requests remand, and the affected party concurs in 
writing or on the record, the ALJ may remand any case properly before 
him or her to CMS for a determination satisfactory to the affected 
party.
    (b) The ALJ may remand at any time before notice of hearing 
decision is mailed.


Sec.  423.1074  Right to request Departmental Appeals Board review of 
Administrative Law Judge's decision or dismissal.

    Either of the parties has a right to request Departmental Appeals 
Board review of the ALJ's decision or dismissal order, and the parties 
are so informed in the notice of the ALJ's action.


Sec.  423.1076  Request for Departmental Appeals Board review.

    (a) Manner and time of filing. (1) Any party that is dissatisfied 
with an ALJ's decision or dismissal of a hearing request, may file a 
written request for review by the Departmental Appeals Board.
    (2) The requesting party or its representative or other authorized 
official must file the request with the DAB within 60 calendar days 
from receipt of the notice of decision or dismissal, unless the Board, 
for good cause shown by the requesting party, extends the time for 
filing.
    (b) Content of request for review. A request for review of an ALJ 
decision or dismissal must specify the issues, the findings of fact or 
conclusions of law with which the party disagrees, and the basis for 
contending that the findings and conclusions are incorrect.


Sec.  423.1078  Departmental Appeals Board action on request for 
review.

    (a) Request by CMS. The Departmental Appeals Board may dismiss, 
deny, or grant a request made by CMS for review of an ALJ decision or 
dismissal.
    (b) Request by the affected party. The Board may deny or grant the 
affected party's request for review or may dismiss the request for one 
of the following reasons:
    (1) The affected party requests dismissal of its request for 
review.
    (2) The affected party did not file timely or show good cause for 
late filing.
    (3) The affected party does not have a right to review.
    (4) A previous determination or decision, based on the same facts 
and law, and regarding the same issue, has become final through 
judicial affirmance or because the affected party failed to timely 
request reconsideration, hearing, Board review, or judicial review, as 
appropriate.
    (c) Effect of dismissal. The dismissal of a request for 
Departmental Appeals Board review is binding and not subject to further 
review.
    (d) Review panel. If the Board grants a request for review of the 
ALJ's decision, the review will be conducted by a panel of three 
members of the Board, designated by the Chair or Deputy Chair.


Sec.  423.1080  Procedures before the Departmental Appeals Board on 
review.

    The parties are given, upon request, a reasonable opportunity to 
file briefs or other written statements as to fact and law, and to 
appear before the Departmental Appeals Board to present evidence or 
oral arguments. Copies of any brief or other written statement must be 
sent in accordance with Sec.  423.1016.


Sec.  423.1082  Evidence admissible on review.

    (a) The Departmental Appeals Board may admit evidence into the 
record in addition to the evidence introduced at the ALJ hearing, (or 
the documents considered by the ALJ if the hearing was waived), if the 
Board considers that the additional evidence is relevant and material 
to an issue before it.
    (b) If it appears to the Board that additional relevant evidence is 
available, the Board will require that it be produced.
    (c) Before additional evidence is admitted into the record--
    (1) Notice is mailed to the parties (unless they have waived 
notice) stating that evidence will be received regarding specified 
issues; and
    (2) The parties are given a reasonable time to comment and to 
present other evidence pertinent to the specified issues.
    (d) If additional evidence is presented orally to the Board, a 
transcript is prepared and made available to any party upon request.


Sec.  423.1084  Decision or remand by the Departmental Appeals Board.

    (a) When the Departmental Appeals Board reviews an ALJ's decision 
or order of dismissal, or receives a case remanded by a court, the 
Board may either issue a decision or remand the case to an ALJ for a 
hearing and decision or a recommended decision for final decision by 
the Board.
    (b) In a remanded case, the ALJ initiates additional proceedings 
and takes other actions as directed by the Board in its order of 
remand, and may take other action not inconsistent with that order.
    (c) Upon completion of all action called for by the remand order 
and any other consistent action, the ALJ promptly makes a decision or, 
as specified by the Board, certifies the case to the Board with a 
recommended decision.
    (d) The parties have 20 days from the date of a notice of a 
recommended decision to submit to the Board any exception, objection, 
or comment on the findings of fact, conclusions of law, and recommended 
decision.
    (e) After the 20-day period, the Board issues its decision 
adopting, modifying or rejecting the ALJ's recommended decision.
    (f) If the Board does not remand the case to an ALJ, the following 
rules apply:
    (1) The Board's decision--
    (i) Is based upon the evidence in the hearing record and any 
further evidence that the Board receives during its review;
    (ii) Is in writing and contains separate numbered findings of fact 
and conclusions of law; and
    (iii) May modify, affirm, or reverse the ALJ's decision.
    (2) A copy of the Board's decision is mailed to each party.

[[Page 29402]]

Sec.  423.1086  Effect of Departmental Appeals Board Decision.

    (a) General rule. The Board's decision is binding unless--
    (1) The affected party has a right to judicial review and timely 
files a civil action in a United States District Court or, in the case 
of a civil money penalty, in a United States Court of Appeals; or
    (2) The Board reopens and revises its decision in accordance with 
Sec.  423.1092.
    (b) Right to judicial review. Section 423.1006 specifies the 
circumstances under which an affected party has a right to seek 
judicial review.
    (c) Special rules: Civil money penalty. Finality of Board's 
decision. When CMS imposes a civil money penalty, notice of the Board's 
decision (or denial of review) is the final administrative action that 
initiates the 60-day period for seeking judicial review.


Sec.  423.1088  Extension of time for seeking judicial review.

    (a) Any affected party that is dissatisfied with an Departmental 
Appeals Board decision and is entitled to judicial review must commence 
civil action within 60 calendar days from receipt of the notice of the 
Board's decision, unless the Board extends the time in accordance with 
paragraph (c) of this section.
    (b) The request for extension must be filed in writing with the 
Board before the 60-day period ends.
    (c) For good cause shown, the Board may extend the time for 
commencing civil action.


Sec.  423.1090  Basis, timing, and authority for reopening an ALJ or 
Board decision.

    (a) Basis and timing for reopening. An ALJ of Departmental Appeals 
Board decision may be reopened, within 60 days from the date of the 
notice of decision, upon the motion of the ALJ or the Board or upon the 
petition of either party to the hearing.
    (b) Authority to reopen. (1) A decision of the Departmental Appeals 
Board may be reopened only by the Departmental Appeals Board.
    (2) A decision of an ALJ may be reopened by that ALJ, by another 
ALJ if that one is not available, or by the Departmental Appeals Board. 
For purposes of this paragraph, an ALJ is considered to be unavailable 
if the ALJ has died, terminated employment, or been transferred to 
another duty station, is on leave of absence, or is unable to conduct a 
hearing because of illness.


Sec.  423.1092  Revision of reopened decision.

    (a) Revision based on new evidence. If a reopened decision is to be 
revised on the basis of new evidence that was not included in the 
record of that decision, the ALJ or the Departmental Appeals Board--
    (1) Notifies the parties of the proposed revision; and
    (2) Unless the parties waive their right to hearing or appearance--
    (i) Grants a hearing in the case of an ALJ revision; and
    (ii) Grants opportunity to appear in the case of a Board revision.
    (b) Basis for revised decision and right to review.
    (1) If a revised decision is necessary, the ALJ or the Departmental 
Appeals Board, as appropriate, renders it on the basis of the entire 
record.
    (2) If the decision is revised by an ALJ, the Departmental Appeals 
Board may review that revised decision at the request of either party 
or on its own motion.


Sec.  423.1094  Notice and effect of revised decision.

    (a) Notice. The notice mailed to the parties states the basis or 
reason for the revised decision and informs them of their right to 
Departmental Appeals Board review of an ALJ revised decision, or to 
judicial review of a Board reviewed decision.
    (b) Effect--(1) ALJ revised decision. An ALJ revised decision is 
binding unless it is reviewed by the Departmental Appeals Board.
    (2) Departmental Appeals Board revised decision. A Board revised 
decision is binding unless a party files a civil action in a district 
court of the United States within the time frames specified in Sec.  
423.858.

(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)

    Editorial Note: This document was received at the Office of the 
Federal Register on May 21, 2007.

    Dated: November 9, 2006.
Leslie V. Norwalk,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: January 9, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-2579 Filed 5-21-07; 4:20 pm]
BILLING CODE 4120-01-P