[Federal Register Volume 72, Number 233 (Wednesday, December 5, 2007)]
[Rules and Regulations]
[Pages 68700-68741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5946]



[[Page 68699]]

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Part V





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; Final Rule

  Federal Register / Vol. 72, No. 233 / Wednesday, December 5, 2007 / 
Rules and Regulations  

[[Page 68700]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4124-FC]
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: Final rule with comment period.

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SUMMARY: This rule with comment period finalizes 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. In this final rule with comment period, we 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, retain voluntary 
self-reporting for Part D sponsors and implement a voluntary self-
reporting recommendation for MA organizations, 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. 
Although we have decided not to finalize the mandatory self-reporting 
provisions that we proposed, CMS remains committed to adopting a 
mandatory self-reporting requirement. To that end, we are requesting 
comments that will assist CMS in crafting a future proposed regulation 
for a mandatory self-reporting requirement.

DATES: Effective date: These regulations are effective on January 4, 
2008, except for the amendments to Sec. Sec.  422.503, 422.504, 
423.504, and 423.505, which are effective January 1, 2009.
    Comment Period: We will consider comments on the mandatory self-
reporting provisions discussed in section II of this final rule with 
comment period at the appropriate address, as provided below, no later 
than February 4, 2008.

ADDRESSES: In commenting, please refer to file code CMS-4124-FC. 
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-FC, P.O. Box 8020, Baltimore, MD 21244-8020.
    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-FC, 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 Reinhard, (410) 786-2987.
    Kevin Stansbury, (410) 786-2570.
    Stephanie Kaisler, (410) 786-0957, for issues regarding voluntary 
self-reporting, access to records, and compliance.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on 
mandatory self-reporting to assist us in fully considering issues and 
developing policies. You can assist us by referencing the file code 
CMS-4124-FC and ``self-reporting.''
    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 
final rule with comment period, we are listing these abbreviations and 
their corresponding terms in alphabetical order below:

ALJ Administrative Law Judge
BBA Balanced Budget Act of 1997
CAP Corrective Action Plan
CMP Civil Money Penalty
CMS Centers for Medicare & Medicaid Services
DAB Departmental Appeals Board
FWA Fraud, Waste, and Abuse
HHS U.S. 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

[[Page 68701]]

PBM Pharmaceutical Benefit Manager
PDE Prescription Drug Event

I. Background

    On May 25, 2007, we published a proposed rule in the Federal 
Register (72 FR 29368, hereafter referred to as the proposed rule), 
setting forth the proposed provisions relating to contract 
determinations involving Medicare Advantage (MA) organizations and 
Medicare Part D prescription drug plan sponsors, intermediate sanction 
and civil money penalty (CMP) provisions, compliance plans, mandatory 
self-reporting, and provisions to ensure the Department of Health and 
Human Services (HHS) has access to the books and records of MA 
organizations and Part D plan sponsors' first tier, downstream, and 
related entities. In this final rule with comment period we are 
finalizing the majority of the provisions of the proposed rule, with 
some clarifications in response to public comments. At this time, we 
are not finalizing the proposed provision for mandatory self-reporting 
of potential fraud and abuse, but we intend to issue future rulemaking 
on this topic, as discussed below in section II.

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 (M+C) 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 proposed clarifications to the 
Medicare program provisions relating to contract determinations 
involving 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. We proposed clarifications to the intermediate sanction and 
civil money penalty (CMP) provisions that apply to MA organizations and 
Medicare Part D prescription drug plan sponsors. We also proposed 
changes in both programs to clarify elements of the compliance plan 
requirements, such as training and education, and changes to clarify 
our access to the books and records of a MA organization or Part D 
sponsor's first tier, downstream, and related entities. Finally, we 
proposed a self-reporting requirement as part of both MA organization 
and Part D sponsor's compliance plans. We have decided at this time not 
to finalize the provision requiring mandatory self-reporting of 
potential fraud and misconduct. Until such time as such a provision is 
finalized, we have chosen to retain voluntary self-reporting for Part D 
sponsors and implement a recommendation for voluntary self-reporting 
for MA Organizations.

B. Relevant Legislative History and Overview

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
the M+C program. Under section 1851(a)(1) of the Social Security Act 
(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 State Children's Health Insurance 
Program (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. We have not issued previous guidance, 
other than regulatory requirements regarding contract determinations, 
corrective action plans, contract determination appeals, intermediate 
sanctions, or CMPs. However, we have 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 makes further revisions to the MA and prescription drug 
regulations.

II. Summary of the Provisions of the Proposed Rule and Analysis of and 
Response to Public Comments

    In response to the publication of the May 25, 2007 proposed rule, 
we received 58 timely items of correspondence from the public. We 
received numerous comments from various trade associations and health 
insurance providers. Comments also originated from other providers, 
suppliers, and practitioners, health care consulting firms, and private 
citizens.
    Brief summaries of each proposed provision, a summary of the public 
comments we received (with the exception of specific comments on the 
paperwork burden or the impact analysis), and our responses to the 
comments are set forth below. Comments related to the paperwork burden 
and the impact analysis are addressed in the Collection of Information 
and Impact Analysis Sections in this preamble.

[[Page 68702]]

A. General Comments on the Proposed Rule

    Comment: We received a question related to the applicability of the 
Part 423 provisions to Medicare cost contractors who offer Part D 
plans.
    Response: Cost plans, per 42 CFR 417.440(b)(2)(ii), which offer a 
Part D prescription drug program as an optional supplemental benefit, 
must offer the benefits ``in accordance with applicable requirements 
under Part 423.'' The current proposed revisions do not change the 
existing regulations. Therefore, the Part 423 regulations would 
continue to apply to cost plans just as they have prior to the 
publication of this rule.

B. 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 BBA of 1997 
led us to propose changes to our regulations. In the proposed rule, we 
proposed 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 proposed revisions to the appeal procedures for all 
types of contract determinations, which would make these procedures 
identical for decisions not to contract, nonrenewals, and terminations. 
We proposed to provide for enhanced beneficiary protections when we 
decide to terminate a plan on an expedited basis.
    In the proposed rule, we also proposed changes and clarifications 
to Subpart K, contract requirements under the MA and Part D programs. 
We 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. We also proposed changes to clarify that certain 
elements of the compliance plan apply to first tier, downstream, and 
related entities. We also proposed mandatory self-reporting in both the 
MA and Part D programs, but we are not finalizing the provision at this 
time.
    Below, we set forth the final regulatory changes, and corresponding 
final implementation dates:

------------------------------------------------------------------------
                                                        Implementation
                  Regulation change                          date
------------------------------------------------------------------------
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...................
Voluntary procedures for MA organizations for self-             1/1/2009
 reporting potential fraud and misconduct...........
Requirement to obtain access to Part D sponsor's                1/1/2009
 first tier, downstream, and related entity's books
 and records through contractual arrangements.......
Elimination of CMS' requirement to inform                       1/4/2008
 organization of renewal............................
Change date of CMS' notification of non-renewal from            1/4/2008
 May 1 to August 1..................................
Provide for same administrative appeal rights                   1/4/2008
 (including Corrective Action Plans (CAPs)) for all
 contract determinations (non-renewal, expedited
 termination, termination)..........................
Change regarding CAP process may be provided prior              1/4/2008
 to notification of termination, and the imposition
 of time limits on Corrective Action Plans..........
Change immediate termination to expedited                       1/4/2008
 termination with CMS setting the effective date of
 termination........................................
Elimination of Reconsideration Step for contract                1/4/2008
 determination appeals..............................
Implementation of Burden of Proof for contract                  1/4/2008
 determinations.....................................
Ability for a hearing officer to issue summary                  1/4/2008
 judgment...........................................
Request for Administrator review, submission of                 1/4/2008
 information, and timeframe associated with
 Administrator review...............................
Settlement of Civil Money Penalties.................            1/4/2008
Appeal procedures for Civil Money Penalties.........            1/4/2008
------------------------------------------------------------------------

    We did not receive any comments on the implementation dates we 
proposed and are generally finalizing the implementation dates as we 
proposed, with minor modification to reflect that certain provisions 
will be effective on January 4, 2008. However, since we are not 
implementing the proposed mandatory self-reporting requirement at this 
time, we have only included a reference to an implementation date for 
the voluntary self-reporting recommendation for MA organizations in the 
above chart. We are retaining the existing voluntary self-reporting 
recommendation for Part D sponsors so that recommendation is currently 
in effect and will remain in effect in the future.

C. Distribution Table

    The following crosswalk table references the changes we are making 
to the prescription drug and the MA programs. We proposed making the 
same changes to 42 CFR parts 422 and 423 with minimal 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 references in
                  Section heading                           part 422            Section references in part 423
----------------------------------------------------------------------------------------------------------------
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

[[Page 68703]]

 
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 contract        422.664.................  423.652
 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 determination or      422.696.................  423.668
 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 money     422.750.................  423.750
 penalties.
Basis for imposing intermediate sanctions and       422.752.................  423.752
 civil money penalties.
Procedures for imposing intermediate sanctions and  422.756.................  423.756
 civil money penalties.
Collection of civil money penalty imposed by CMS..  422.758.................  423.758
Determinations regarding the amount of civil money  422.760.................  423.760
 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
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 Law Judge  422.1016................  423.1016
 or Departmental Appeals Board, and opportunity
 for rebuttal.
Notice and effect of initial determinations.......  422.1018................  423.1018
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 Judge......  422.1026................  423.1026
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 conference  422.1034................  423.1034
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 evidence....  422.1056................  423.1056
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 to         422.1064................  423.1064
 request review.
Vacating a dismissal of request for hearing.......  422.1066................  423.1066
Administrative Law Judge's decision...............  422.1068................  423.1068
Removal of hearing to Departmental Appeals Board..  422.1070................  423.1070
Remand by the Administrative Law Judge............  422.1072................  423.1072
Right to request Departmental Appeals Board review  422.1074................  423.1074
 of Administrative Law Judge's decision or
 dismissal.
Request for Departmental Appeals Board review.....  422.1076................  423.1076
Departmental Appeals Board action on request for    422.1078................  423.1078
 review.
Procedures before Departmental Appeals Board on     422.1080................  423.1080
 review.

[[Page 68704]]

 
Evidence admissible on review.....................  422.1082................  423.1082
Decision or remand by the Departmental Appeals      422.1084................  423.1084
 Board.
Effect of Departmental Appeals Board decision.....  422.1086................  423.1086
Extension of time for seeking judicial review.....  422.1088................  423.1088
Basis, timing, and authority for reopening an       422.1090................  423.1090
 Administrative Law Judge or Board decision.
Revision of reopened decision.....................  422.1092................  423.1092
Notice and effect of revised decision.............  422.1094................  423.1094
----------------------------------------------------------------------------------------------------------------

    We did not receive any comments on the crosswalk distribution table 
and have made no substantial changes to it. We are finalizing the table 
as proposed.

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

Sections 422.2 and 423.4--Definitions
    We proposed 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 proposed to add them to Subpart A, General Provisions at Sec.  
422.2 and Sec.  423.4.
    Please see page 29372 of the proposed rule for a flow chart that 
provides examples of, and describes the relationships between, Part D 
sponsors, and first tier, downstream, and related entities.
    Comment: A few commenters requested more explicit definitions of 
first tier, downstream, and related entities. They asked us to provide 
clarification for the terms record retention, administrative services, 
written arrangements, acceptable to CMS, CMS instructions, and 
directors. We also received a request that we clarify the phrase ``a 
written agreement, acceptable to CMS,'' found in the definition of 
``downstream entity,'' and a request that we clarify which entities are 
involved in such an arrangement.
    Response: The terms ``first tier entity,'' ``downstream entity,'' 
and ``related entity'' are already defined in Subpart K of parts 422 
and 423, and we are only including them in Subpart A, General 
Provisions at Sec.  422.2 and Sec.  423.4 for clarity, since these 
terms were originally defined in only Subpart K. Examples of downstream 
entities include, but are not limited to, pharmacy benefit managers, 
mail order pharmacies, retail pharmacies, firms providing agent/broker 
services, agents, brokers, marketing firms, and call center firms. We 
are neither providing definitions nor clarifications for the terms 
``record retention,'' ``administrative services,'' ``written 
arrangements,'' ``acceptable to CMS,'' ``CMS instructions,'' or 
``directors,'' since these terms are longstanding terms used by us and 
the industry. We are finalizing the definitions of ``first tier 
entity'' and ``related entity'' as proposed.
    Based upon an unintentional oversight in the proposed regulation, 
we are revising the definition of ``downstream entity'' for improved 
clarity, as described below. The definition of a Part D ``downstream 
entity'' at Sec.  423.4 states that a ``[d]ownstream 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.'' In response to this comment, we 
are modifying the proposed definition to address with whom the entity 
is entering into a written arrangement. The definition is revised to 
read: ``Downstream entity means any party that enters into a written 
arrangement, acceptable to CMS, with persons or entities involved with 
the Part D benefit, 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.'' We are making similar 
changes to the definition of ``downstream entity'' in the MA regulation 
at Sec.  422.2.
    Comment: One commenter questioned whether a pharmacist is a 
downstream entity.
    Response: As illustrated in the sample flowchart provided on p. 
29372 of the proposed rule, and below, a pharmacist would be considered 
a downstream entity as defined in the regulation.

[[Page 68705]]

[GRAPHIC] [TIFF OMITTED] TR05DE07.014

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, 
and 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 the 
current regulations, 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 proposed to revise 
paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D) of Sec.  423.504. The 
proposed revision clarified that a compliance plan must consist of 
training and 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 change clarifies 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 to their direct employees within their organizations.
    Pursuant to our authority under Sec.  1856(b)(1) of the Act to 
establish MA standards by regulation, we also proposed to make the same 
changes in the MA program. We similarly proposed to require MA 
organizations to apply their training and education and effective lines 
of communication requirements to their first tier, downstream, and 
related entities, in an effort to make the compliance plan requirements 
uniform across MA organizations, Medicare Advantage Prescription Drug 
Plans (MA-PDs), and other Part D sponsors. Additionally, we proposed 
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 proposed to remove 
this element because since the Part D program's inception, we received 
feedback from many Part D sponsors indicating that it was not clear 
whether we were requiring a fraud, waste, and abuse (FWA) plan separate 
and distinct from a compliance plan.
    In April 2006, we issued Chapter 9 of the Prescription Drug Benefit 
Manual (``Part D Program to Control Fraud, Waste and Abuse,'' hereafter 
referred to as ``Chapter 9'') as best practices guidance for Part D 
sponsors to develop an FWA plan. We intend 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, we believe the final element continues to cause 
potential confusion to the industry, and therefore, proposed to remove 
this element from (b)(4)(vi) of Sec.  422.503 (for MA-PDs) and Sec.  
423.504 (for Part D sponsors).
    We continue to believe an effective compliance plan includes 
procedures and policies for preventing fraud, waste, and abuse, and so 
proposed changes to the introductory clause of Sec.  423.504(b)(4)(vi) 
that reflect our policy stance. Congress mandated that Part D sponsors 
have a ``program to control fraud, waste, and abuse.'' See Sec.  1860D-
4(c)(1)(D) of the Act. Therefore, we are also 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 that 
sponsors have a FWA plan in place. Part D sponsors should continue to 
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.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf.
    We recognize that Chapter 9 was specifically developed for Part D 
sponsors and is not applicable for MA organizations that do not offer a 
prescription drug benefit. In the interim,

[[Page 68706]]

MA organizations should refer to Chapter 9 as a reference regarding how 
to incorporate fraud, waste, and abuse detection and prevention into 
their compliance plans. We plan to develop separate guidelines for MA 
organizations for implementation by January 1, 2009.
    Pursuant to our authority under section 1856(b)(1) of the Act, we 
also proposed 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 
proposed that MA organizations must include ``measures to detect, 
correct, and prevent fraud, waste, and abuse'' throughout the 7 
elements of the compliance plan requirement. Before this proposed 
change, only MA-PDs were explicitly required to include detection and 
prevention of fraud, waste, and abuse into their compliance plans. 
However, it has always been our expectation that fraud, waste, and 
abuse would be addressed through the implementation of all 7 elements 
in a MA organization's 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 we believe that our proposed change makes this policy 
explicit in our regulations. As previously stated in this final rule 
with comment period, MA organizations may refer to Chapter 9 in the 
interim, and further guidance on the types of measures we recommend in 
detecting and preventing fraud, waste, and abuse will be developed 
specifically for MA organizations.
    Comment: A number of respondents requested further clarification 
regarding who must provide training and education under the compliance 
plan and who must be trained and educated.
    Response: We did not intend to imply that MA organizations and Part 
D sponsors are required to directly provide Part D compliance training 
and education to all of their first tier, downstream, and related 
entities. Instead, we seek to reaffirm the role and responsibilities of 
the MA organization and Part D sponsor in this area. To the extent that 
aspects of the compliance plan are delegated, it is important to 
remember that the MA organization's or Part D sponsor's compliance 
officer must maintain appropriate oversight of those delegated 
activities. The Part D sponsor and the MA organization maintain 
ultimate responsibility regardless of whether training has been 
delegated to the first tier, downstream, or related entities. In 
accordance with the Part D and MA applications, the Part D sponsor or 
MA organization must attest it will implement a compliance plan that 
includes effective training and education between the compliance 
officer, organization employees, contractors, agents and directors. In 
addition, as part of plan audits, CMS will verify that all necessary 
training has been provided. Therefore, CMS would expect that a Part D 
sponsor and MA organization would have training logs and copies of 
attestations from the first tier, downstream or related entities to 
comply with this requirement. As previously stated in this final rule 
with comment period, MA organizations may refer to Chapter 9 in the 
interim, and further guidance will be developed for MA organizations.
    Comment: A few commenters questioned ``who would be responsible'' 
for implementing the compliance program's fraud, waste, and abuse 
detection and prevention efforts related to Part D.
    Response: The MA organization or Part D sponsor is ultimately 
responsible for meeting the compliance plan requirement to implement 
measures for detecting and preventing fraud, waste, and abuse. However, 
we realize that each MA organization and Part D sponsor has a unique 
business model and structure, and that some will choose to perform 
certain functions themselves while some MA organizations and Part D 
sponsors will subcontract certain functions and rely on the expertise 
and operations that first tier, downstream, and related entities offer. 
The job of the compliance officer cannot be delegated. But MA 
organizations and Part D sponsors have the flexibility to determine 
how, and to what extent, they will delegate their compliance 
activities, which may include training and education to control fraud, 
waste, and abuse. MA organizations and Part D sponsors have the 
flexibility to determine how and to what extent they will delegate 
other aspects of their contractual requirements. To the extent that any 
compliance activities are delegated to first tier, downstream, and 
related entities, MA organizations and Part D sponsors are ultimately 
responsible for compliance plan oversight, including monitoring 
training and education, and complying with all statutory and regulatory 
requirements, as well as any additional guidance identified by us. One 
option MA organizations and Part D sponsors may choose is to 
contractually require their first tier, downstream, and related 
entities to train their own workforce on delegated activities and 
establish lines of communication to the appropriate managers in those 
entities. We recommend that Part D sponsors review chapter 9 of the 
Prescription Drug Benefit Manual for further guidance regarding 
accountability and oversight of first tier, downstream, and related 
entities. As previously stated in this final rule with comment period, 
MA organizations may refer to Chapter 9 in the interim, and further 
guidance will be developed specifically for MA organizations.
    MA organizations and Part D sponsors should consider requiring that 
any first tier, downstream, and related entities performing activities 
on behalf of the MA organization or Part D sponsor, provide their own 
training in accordance with Sec.  422.504(b)(4)(vi)(C) or Sec.  
423.504(b)(4)(vi)(C) respectively, or where there are sufficient 
organizational similarities, the MA organization or sponsor may choose 
to make its training programs available to these entities. This will 
allow the first tier, downstream, and related entities the choice of 
accessing the MA organization or Part D sponsor's training and 
education materials, or providing proof to them of their compliance 
with the training and education requirement. For further guidance, 
please refer to chapter 9 of the Prescription Drug Benefit Manual.
    Employees with specific responsibilities in Medicare Part D 
business areas should receive specialized training on issues posing 
compliance risks based on their job function (for example, pharmacist, 
statistician, and so on), upon initial hire, when requirements change, 
or when an employee works in an area previously found to be 
noncompliant with program requirements or associated with past 
misconduct. Such training should also be required at least annually 
thereafter as a condition of employment. Specialized training content 
may be developed by the sponsor or employees may attend professional 
education courses that help meet this objective. Further discussion 
related to this subject may be found in Chapter 9.
    In Chapter 9, we discuss how delegation of training would be 
applicable, if deemed appropriate by the sponsor, for General 
Compliance Training and Specialized Compliance Training. We did not 
make any changes to our proposed provisions as a result of this 
comment.
    Comment: We received some comments suggesting that we should work 
with the industry to develop a

[[Page 68707]]

standardized training and communication plan applicable to all 
stakeholders, and make it available on the internet. This way, 
stakeholders would receive one comprehensive training and communication 
package.
    Response: We believe this to be a valuable suggestion, and we will 
take it under consideration.
    Comment: Some commenters requested that we conduct certifications 
to verify that training and education had been completed for Part D 
plans and their first tier, downstream, and related entities.
    Response: At this time, we do not require a certification process 
but rather, through our audit and review process, will determine 
whether or not the training and education requirements were fulfilled. 
We hold the Part D sponsor or MA organization responsible for 
fulfilling this requirement regardless of whether first tier, 
downstream, and related entities certify to that effect. We may revisit 
the idea of certification in the future.
    Comment: One respondent questioned who downstream entities should 
contact with ``compliance concerns.''
    Response: We have contracted with program integrity contractors who 
will use innovative techniques to monitor and analyze data to help 
identify and prevent fraud, waste, and abuse. Any person or entity at a 
first tier, downstream, or related entity level that wishes to report 
potential fraud or misconduct may contact a program integrity 
contractor and/or the MA organization or the Part D sponsor, depending 
on the type of violation.
    Comment: Another respondent questioned who would be responsible for 
reporting potential prescription drug fraud.
    Response: The Part D sponsor or MA organization maintains ultimate 
responsibility regardless of whether oversight duties have been 
delegated. To the extent that any of the compliance activities for 
Parts C or D are delegated, it is important that the MA or Part D 
compliance officer maintain appropriate oversight of those duties that 
have been delegated. The compliance officer is responsible for 
determining whether voluntary self-reporting of any potential fraud or 
misconduct related to the MA or Part D program is appropriate. In 
addition, first tier, downstream, and related entities are encouraged 
to report fraud, waste, or abuse to the program integrity contractor 
and/or the MA organization or the Part D sponsor.
Sections 422.503(b)(4)(vi)(G)(3) and 423.504(b)(4)(vi)(G)(3)--Mandatory 
Self-Reporting
    At Sec.  422.503(b)(4)(vi)(G)(3) and Sec.  423.504(b)(4)(vi)(G)(3), 
we proposed mandatory self-reporting of potential fraud or misconduct 
in both the MA and Part D programs. We believe that it is important for 
the government to have information on potential fraud or misconduct as 
soon as possible. The comments we received on the May 25, 2007, 
proposed rule highlighted the challenges in establishing the parameters 
of a mandatory self-reporting process in the context of MA and PDP 
plans. Commenters expressed several concerns during the public comment 
period, including the need for us to better define what constitutes 
``potential'' fraud and misconduct, the process for reporting, and the 
need to be consistent with other agencies' guidance regarding self-
reporting. After reviewing these comments, we determined that 
additional analysis needs to be undertaken and additional information 
sought before implementing a mandatory self-reporting requirement.
    In the meantime, we believe that self-reporting is a valuable 
component of an MA organization's or Part D sponsor's compliance plan. 
Therefore, in an effort to make the compliance plan requirements 
uniform across MA organizations, Medicare Advantage Prescription Drug 
Plans (MA-PDs), and other Part D sponsors, we will amend proposed 
paragraph (b)(4)(vi)(G)(3) of both Sec. Sec.  422.503 and 423.504 to 
read: A MA organization or Part D sponsor ``should have procedures for 
voluntary self-reporting of potential fraud or misconduct * * *.'' We 
are essentially retaining the voluntary self-reporting recommendation 
for Part D sponsors, but merely moving it within the regulatory text to 
accommodate other regulatory changes we are making, and implementing a 
voluntary self-reporting recommendation for MA organizations. We are 
strongly recommending that, if after conducting a reasonable inquiry, 
it is determined that potential fraud or misconduct has occurred, the 
conduct should be promptly referred to the program integrity contractor 
for further investigation. While we are not requiring mandatory self-
reporting in this final rule with comment period, there may be 
instances under federal criminal and fraud and abuse statutes where MA 
organizations and Part D sponsors are potentially subject to 
prosecution if certain issues are not properly addressed. We further 
note that our decision not to amend the existing MA and PDP 
requirements further at this time does not mean that organizations may 
not be liable under other Federal laws or regulations if they fail to 
disclose a violation they have discovered.
    We wish to call attention to the existing guidance we provide on 
self-reporting. Key documents include Chapter 9 of the Prescription 
Drug Benefit Manual, concerning fraud, waste, and abuse (at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBManual_Chapter9_FWA.pdf) and the Medicare Part D Reporting Requirements for 
Contract Year 2007 (at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PartDReportingRequirements_CurrentYear.pdf). While these documents are not codified rules, the 
guidance they contain provides clear direction to plans as to our 
expectations. We will periodically revise these guidelines to reflect 
additional guidance on ways to improve reporting of fraud, waste, and 
abuse.
    We are committed to implementing mandatory self-reporting and we 
intend to issue a proposed rule. Finally, we believe that it would be 
valuable to obtain additional input at this time, in order to inform 
our evaluative, analytic, and guidance efforts. Accordingly, we are 
asking for additional public comments on this issue. Specifically, we 
ask for comments regarding the following:
     We proposed requiring MA organizations and Part D sponsors 
to report potential ``fraud or misconduct.'' We seek guidance as to how 
to define what kinds of offenses would constitute fraud and misconduct 
for purposes of this reporting requirement. We seek specific examples 
of what constitutes potential fraud and misconduct.
     Alternatively, we seek input as to whether there is an 
alternate formulation, rather than ``fraud or misconduct'' that would 
better describe the categories of offenses that should be reported to 
CMS (for example violations of administrative, civil and/or criminal 
authorities).
     Who are the entities that would be responsible for 
reporting to CMS (sponsor, first tier, downstream entities)?
     At what point would CMS require that a MA or Part D plan 
report a potential issue that could fall into the category of offenses 
that would require self-reporting (for example, upon initial discovery 
or after an opportunity for reasonable inquiry or due diligence)?
     How should this information be reported to CMS (through 
the MEDICs, disclosure to the CMS plan manager, or

[[Page 68708]]

CMS central office)? Please provide a discussion of the advantages or 
disadvantages of any of these or other reporting mechanisms.
     In addition to the specific questions raised above, please 
provide us with any other comments or constructive feedback that might 
assist us in crafting a mandatory self-reporting requirement.
Sections 422.504 and 423.505--General Provisions
    We proposed 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 in the proposed rule, are 
undefined terms in the statute and regulations. We proposed, where 
applicable, to delete the term ``contractor,'' because of potential 
confusion and redundancy, and replace the term ``subcontractor'' with 
the terms ``first tier entity'' and ``downstream entity'' in 422.504(e) 
and (i), to clarify which entities are subject to the contract 
provisions at 422.504.
    We also proposed, 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 believed 
using ``first tier and downstream, entities'' instead of 
``subcontractor'' would lessen the potential for confusion in the Part 
D program. Please see page 29372 of the proposed rule for examples of 
first tier, downstream, and related entities.
    Comment: We received a number of technical comments concerning the 
definitions of ``contractor'' and ``subcontractor.''
    Response: Based on these comments, we are correcting a few 
typographical errors in Sec.  423.505(i)(3)(v) by replacing the phrase 
``related entity, contractor or subcontractor'' with the phrase ``first 
tier, downstream, and related entities'' to be consistent with the 
other parts of the regulation. In Sec. Sec.  423.505(i)(3), and 
Sec. Sec.  423.505(i)(3)(ii), (i)(4), and (i)(4)(v), we are deleting 
the term ``pharmacy'' as it was included in error and is redundant. 
Section 423.505(i)(4) will now read: ``If any of the Part D plan 
sponsor's 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,'' and Sec.  
423.505(i)(4)(v) will read: ``All contracts or written arrangements 
must specify that the first tier, downstream, or related entity must 
comply with all applicable Federal laws, regulations, and CMS 
instructions.'' We also are making similar corrections to Sec.  
422.504(i)(3), (i)(3)(ii), and (i)(4) where the term ``provider'' was 
left in the regulations unintentionally. All references to ``provider'' 
have been deleted in the final regulations.
    We proposed 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 to give to 
CMS, or can be provided directly to CMS or its designees. We discussed 
in the proposed rule at page 29373 our 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. 
Because of the proposed contract provision, we also proposed to 
redesignate Sec.  423.505(i)(3)(iv) as Sec.  423.505(i)(3)(v). We are 
finalizing these changes as proposed.
    Comment: A few commenters questioned our authority to access the 
books and records of first tier, downstream and related entities. One 
commenter suggested a need for more formal rulemaking on this topic.
    Response: We have existing authority under section 1860D-
12(b)(3)(c) of the Act and Sec.  422.504(e)(2) and Sec.  423.505(e)(2) 
to inspect and audit any books, contracts, and records of a Part D 
sponsor or MA organization and its first tier, downstream, and related 
entities that pertain to any aspect of services performed, 
reconciliation of benefit liabilities, and determination of accounts 
payable under the contract or as the Secretary may deem necessary to 
enforce the contract. Therefore, it is not necessary, as the commenters 
suggested, to propose a more formal regulation and offer another public 
comment period. These third party disclosure requirements were 
finalized in the final MA and Part D rules and were approved under the 
Paperwork Reduction Act approval under OMB 0938-1004 (Part C) 
and OMB 0938-1000 (Part D). Additionally, in the preamble to 
the Part D proposed rule, published on January 28, 2005 (70 FR 4194), 
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). In this regulation, we have further 
clarified that our access rights apply to ``first tier, downstream, and 
related entities,'' and not ``contractors, subcontractors, and related 
entities.''
    The limited rebate and other price concession information provided 
to the Part D sponsor by its contracting entities may provide some 
payment information to us, but it may not be enough for us to determine 
in all cases whether appropriate payments have been made to the 
sponsor. Therefore, it may be necessary for us to rely on our authority 
to access books and records to obtain more detailed rebate and other 
price concession information in order to verify proper payments were 
made to the Part D sponsor.
    Comment: We received a number of comments questioning whether books 
and records must be made available to us directly or through the Part D 
sponsor.
    Response: We have chosen not to be prescriptive regarding whether 
first tier, downstream, and related entities must make their books and 
records available to us directly or through the Part D Sponsor. It is 
our opinion that this is considered to be part of the negotiation 
process between the Part D sponsor and its first tier, downstream, and 
related entities. The provision must be clear as to whether or not the 
requested documentation is to be submitted through the Part D sponsor 
to us (or our designee(s)), or submitted directly to us (or our 
designee(s)). The parties could also decide to have such books and 
records made directly available to us, or our designee(s), through 
onsite access. The Part D sponsor must be prepared to submit evidence 
of this agreed upon provision in its executed contracts to us. To 
clarify, the ``designee'' either refers to entities under a program 
integrity contract with us, or entities, such as law enforcement, 
working in collaboration with us to fight fraud, waste and abuse in the 
Medicare Part D program.
    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 the type of information collected are provided 
at Sec.  423.505(e)(2).
    In addition to proposing a new contract provision at Sec.  
423.505(i)(4)(iv), we also proposed minor regulatory changes which 
clarify the Part D sponsor's CMS contractual requirements. While we 
continue to believe our regulations clearly state our authority to 
access the books and records of a Part D sponsor's first tier, 
downstream, and related entities, we proposed to add language about 
these

[[Page 68709]]

partnering entities to Sec.  423.505(b)(10), and proposed to 
consolidate Sec.  423.505(e)(2) and (3) into one provision at (e)(2). 
We proposed 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 revisions do not impose any new requirements on 
Part D sponsors or its partnering entities. We are finalizing these 
proposed provisions without change.
    Comment: A few commenters noted that the proposed revision to Sec.  
422.504 and Sec.  423.505 has not prescribed ``typical'' data sets to 
be reported within the context of our request for books and records of 
first tier, downstream, and related entities. Another commenter 
indicated that the information that could be collected is too broad.
    Response: We want to clarify that the ``books and records'' we are 
entitled to access do not make up a typical data set included in the 
Medicare Part D Reporting Requirements. There is no report form to be 
defined, as the format will be dependent upon the information being 
requested and the unique circumstances upon which the request is based. 
The scope of the information collected will be based on the type of 
audit being performed. If upon review of the information submitted we, 
or our designee(s), determine that additional information or 
clarification is warranted, the scope of the review may be expanded.
    Comment: A commenter suggested that we should rely on subpoena 
authority, regulation, provider contracts, or some other method to 
collect books and records in connection with investigations.
    Response: We do not have subpoena authority; however, our law 
enforcement partners such as OIG and DOJ do. The government may use a 
variety of methods to obtain records and books from entities under 
contract with MA organizations and/or Part D sponsors. There may be 
instances where we may need to see books and records without involving 
law enforcement. These provisions at Sec.  422.504 and Sec.  423.505 
only clarify one method we may employ to do so.
    We clarified in the preamble to the proposed rule that HHS, the 
Comptroller General, or their designees have the authority under the 
statute to request records from MA organizations and Part D sponsors or 
their first tier, downstream, or related entities. MA organizations and 
Part D plan sponsors must maintain, as required by Sec.  423.505(d), 
``books, records, documents and other evidence of accounting procedures 
and practices,'' pertaining to determinations of amounts payable under 
the contract, agreements, contracts, and subcontracts. Since Part D 
sponsors have delegated many Part D functions to their first tier 
entities, we are aware that many of these records reside with first 
tier and downstream entities, such as pharmaceutical benefits managers 
(PBMs). We are taking the opportunity again, in this final rule with 
comment period, 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.
    Comment: We received a comment addressing the 10-year record 
retention requirement.
    Response: This requirement was implemented in a prior regulation 
and is outside the scope of this final rule with comment period.
    Comment: A number of commenters expressed concern that information 
submitted by first tier, downstream, and related entities, especially 
proprietary information, would not be kept confidential by us.
    Response: As an agency, we are subject to various Federal 
disclosure laws, such as the Trade Secrets Act, the Privacy Act, and 
the Freedom of Information Act (FOIA) (5 U.S.C. 552). We are also 
subject to confidentiality and disclosure regulations at 42 CFR Part 
401 Subpart B. In addition, sections 1860D-15(d)(2)(B) and (f)(2) of 
the Act place restrictions on the Secretary's disclosure of certain 
payment data collected in the Part D program to anyone outside of HHS. 
Therefore, we believe there are sufficient legal restrictions to 
protect the disclosure of such proprietary data outside of the agency.
    Comment: One commenter questioned our need to gather information 
about rebate agreements between potential first tier and downstream 
entity contracted partners.
    Response: Our proposal to obtain rebate and price-concession 
related records is supported by statute. Sections 1860D-15(d)(2) and 
1860D-15(f)(1)(A) of the Act authorize us 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, downstream, and related 
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 to clearly reflect what was a gross prescription drug 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. Under section 1860D-2(d)(3) of the MMA, Congress 
granted us 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 are restating in this final rule with comment period that 
we reserve the right to request records relating to Part D rebates and 
price concessions from the sponsor's first tier entities, downstream, 
and related entities when appropriate.
    Comment: A commenter questioned whether certain contracted partners 
are considered to be downstream entities.
    Response: In Exhibit 1 of the proposed rule, on p. 29372, and in 
this final rule with comment period, we

[[Page 68710]]

provided examples of first tier and downstream entities. We encourage 
you to contact the CMS staff listed at the beginning of this final rule 
with comment period if you have any questions as to whether a 
contracted partner is a downstream entity.
Sections 422.505 and 423.506--Effective Date and Term of Contract
    We proposed 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 
proposed 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 change better aligns the regulations with the 
statute and we are finalizing the provision as proposed.
    Comment: One commenter asked whether contracts needing amendment as 
a result of this final rule with comment period could be made at the 
time of contract renewal.
    Response: As indicated in the proposed rule and finalized here, the 
implementation date of this provision is January 1, 2009. Therefore, 
all revised contracts need to be in place by that date. We did not make 
any changes based on this comment and are finalizing the provision as 
proposed.
Sections 422.506 and Sec.  423.507 Nonrenewal of a Contract
    We proposed revising the introductory text for Sec.  422.506(b)(2) 
and Sec.  423.507(b)(2). In addition, we proposed 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 proposed 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 in the proposed rule, 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 proposed 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 proposed to revise Sec.  422.506(b)(2)(i) and Sec.  
423.507 (b)(2)(i) to require that we provide such notice by September 1 
of the contract year, rather than May 1. If an MA organization or Part 
D sponsor receives a nonrenewal 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 Web site. For purposes of this final rule with 
comment period, a nonrenewal would take effect on January 1 of the 
following contract year (unless a nonrenewal is being appealed through 
the administrative appeals process and the appeals process is ongoing, 
or additional time is required to comply with our requirements with 
respect to providing notice to beneficiaries of the nonrenewal, in 
which case the nonrenewal may become effective during the following 
calendar year), whereas a termination may take effect at any time 
during the contract year. Our proposed provisions 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. Please see the proposed rule 
for our rational for changing the nonrenewal notification date to a 
date later than May 1.
    Comment: We received several comments concerning the proposed 
September 1 nonrenewal notification date. Several commenters believed 
that plans will have to incur significant expenditures prior to 
September 1 to prepare for the following calendar year, and that a 
September 1 date would require plans to incur expenditures that would 
not have been incurred before the existing May 1 nonrenewal 
notification date, in the event that we take action to nonrenew a plan.
    Response: We understand that MA organizations and Part D sponsors 
expend effort in preparing for the following contract year. Therefore, 
while we will not retain the existing May 1 nonrenewal notification 
date, we are revising our proposal and finalizing a notification date 
of August 1, instead of our proposed September 1 notification date.
    We understand that MA organizations and Part D sponsors expend 
effort in preparing for the following contract year. Therefore, while 
we will not retain the existing May 1 nonrenewal notification date, we 
are responding to commenters' concerns and revising our proposal and 
finalizing a notification date of August 1, instead of our proposed 
September 1 notification date. We believe that this is an appropriate 
compromise. While we appreciate commenters' concerns, we believe we 
have a significant countervailing interest in moving the current May 1 
nonrenewal notification date to later in the calendar year. As we 
explained in the preamble to the proposed rule, these additional months 
will allow us to have access to significantly more information about 
plan performance, which will allow for more informed and educated 
decisions about MA organizations and Part D sponsors that have serious 
compliance problems and may be the subject of a nonrenewal 
determination. We believe that allowing for the opportunity to access 
this data will benefit both CMS and the MA organizations and Part D 
sponsors.
    Comment: Another commenter said that the September 1 date would not 
provide for enough time for beneficiary notification.
    Response: As explained above, we are finalizing a nonrenewal 
notification date of August 1, rather than September 1 as we proposed. 
We believe this change is more likely to result in administrative 
appeals of CMS nonrenewal actions being completed in time to allow for 
90 days notice of the nonrenewal to be provided to members and the 
general public prior to the end of the calendar year.
    Comment: One commenter requested clarification as to whether 
deficiencies could be cured after receiving the notice of an intent to 
nonrenew. The commenter stated that a September 1 date would not give 
enough time for an organization to make necessary changes to come into 
compliance for the next contract year. This commenter also expressed 
concern about the inability of a plan to participate in the program for 
the following year because of the timeframes associated with Corrective 
Action Plans (CAPs) and appeal rights, potentially rendering a plan's 
appeal rights moot.
    Response: We believe comments related to plan participation in the 
following calendar year based on CAP submission dates reflect a 
misunderstanding of our proposals in the proposed rule. We clarified in 
our proposed rule that we will offer plans an opportunity to submit an 
acceptable CAP prior to notifying them of our intent to nonrenew or 
terminate their

[[Page 68711]]

contract. If an acceptable CAP is submitted to us, we will not take 
action to nonrenew or terminate the sponsor or organization's contract. 
Once a sponsor or organization receives a nonrenewal notification from 
us (or a termination notice), the sponsor or organization is not 
entitled to an additional opportunity to submit another CAP. We will 
not be required to provide any additional time for a MA organization or 
Part D sponsor to come into compliance or cure deficiencies once we 
have notified a sponsor or organization of our intent to nonrenew (or 
terminate) its contract. We proposed this clarification in an effort to 
streamline the CAP and nonrenewal process. We have added additional 
language at Sec.  422.506, Sec.  422.510, Sec.  423.507, and Sec.  
423.509 to expressly clarify that the opportunity to submit an 
acceptable CAP is afforded to a MA organization or Part D sponsor prior 
to our decision to nonrenew or terminate a contract.
    With respect to the comment regarding ongoing administrative 
appeals, if a MA organization or Part D sponsor is in the process of 
appealing a nonrenewal or termination, and the appeal process has not 
been concluded, the organization will be able to participate in the 
program the following calendar year until such time during the 
following calendar year as the appeals process is concluded and 
appropriate notice is provided to beneficiaries. Therefore, appeal 
rights will not be moot.
    Comment: Several commenters believed that the September 1 date 
would place an undue burden on pharmacies to join plan provider 
networks and the commenters recommended that we provide some sort of 
contingent renewal notice for organizations and sponsors to send to 
providers for the following year.
    Response: MA organizations and Part D sponsors who have not 
received a request for a CAP from us as a result of deficiencies are 
not in jeopardy of receiving a nonrenewal notification, making the need 
for a contingent nonrenewal notice unnecessary. Furthermore, as 
explained above, we are changing the proposed September 1 nonrenewal 
notification date to August 1, affording pharmacies an additional month 
to make network decisions.
    We proposed 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 proposed 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, either through the 
termination process or the nonrenewal process. The CAP process for 
nonrenewals would be the same process as we proposed for terminations. 
We proposed a more defined process than currently exists and we 
proposed a process and timeframes for the submission and review of 
CAPs. Our proposal clarified that, in the future, once we issue a 
nonrenewal notice or a termination notice, the MA organization or Part 
D plan sponsor will not be entitled to an opportunity to submit a CAP. 
We will provide that opportunity to organizations and sponsors prior to 
issuing a notice of intent to nonrenew or terminate a contract. 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 fully 
comply may result in a nonrenewal or termination action.
    Comment: One commenter questioned whether the termination and CAP 
process applied to all contract years and if the termination would be 
retroactive to the beginning of a plan contract.
    Response: The most recent finding of deficiencies and the request 
for a CAP would be relied upon to support a termination or other 
contract determination. Prior CAPs may provide additional information 
to us and support for our action if the MA organization or Part D 
sponsor has had continued compliance problems that have not been 
resolved, but would not be the basis of a contract determination if the 
prior CAPs have been accepted by us and implemented to our 
satisfaction. A termination action would affect the existing contract 
with us. Given that we have already adopted automatically renewable 
multi-year contracts, failure to substantially carry out a contract 
term necessarily would apply to the entire term of the contract (that 
is, the life of the contract). Part D and MA contracts are evergreen, 
so the existing contract is not just the current calendar year's 
contract, but is a continuing contract that existed during prior 
calendar years (assuming the Part D sponsor or MA organization 
participated in the program in prior calendar years).
    We proposed time limits at Sec.  422.506(b)(3) and Sec.  
423.507(b)(3) for the development and implementation of a CAP. We 
proposed 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.
    Comment: One commenter requested clarification on whether the 
timeframe is measured in business or calendar days. The commenter 
requested that we leave open lines of communication with organizations 
with respect to working to develop acceptable CAPs. The commenter was 
concerned that there would only be one chance to provide an acceptable 
CAP.
    Response: We are clarifying here, and at Sec. Sec.  422.506(3) and 
423.507(3), that the CAP timeframes are measured in calendar days. We 
will provide MA organizations and Part D sponsors two opportunities to 
submit acceptable CAPs. Prior to requesting a CAP, or simultaneous with 
a request for a CAP, we will inform the MA organization or Part D 
sponsor about the deficiencies that must be addressed and corrected. If 
the first CAP submission is unacceptable to us, we will inform the MA 
organization or Part D sponsor as to what is unacceptable. The MA 
organization or Part D sponsor will then have a second opportunity to 
submit an acceptable CAP.
    It is our intent to assist plans in submitting acceptable CAPs, 
while implementing a limit on the number of CAP submissions in order to 
bring some closure to this process when Part D sponsors or MA 
organizations are unable or unwilling to bring their organizations into 
compliance with our requirements. Aside from the clarification 
explained above regarding the use of calendar days, we are finalizing 
our proposed processes and timeframes for the submission and review of 
CAPs as proposed.
Sections 422.510 and 423.509--Termination of Contract by CMS
    We proposed 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 proposed language to clarify that we may terminate an MA 
organization or Part D plan sponsor's contract if the organization 
substantially failed to carry

[[Page 68712]]

out the terms of its contract with us during the current calendar year 
or for a prior calendar year. This clarification is 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 (that is, calendar year to calendar year), 
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 the entire term of 
the contract (that is, the life of the contract).
    We have made a minor change to the regulatory text at Sec. Sec.  
422.510(a)(1) and 423.509(a)(1) to clarify our proposal. The change is 
a technical edit to accurately reflect the multi-year nature of our 
contracts with MA organizations and Part D sponsors.
    We proposed 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 proposed 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. The proposed change will 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 are 
finalizing this proposal without change.
    Comment: We received a recommendation that we auto-enroll 
beneficiaries into another plan for seamless continuity of care, 
provided the beneficiary was able to make another health care choice. 
Another commenter felt that the effective date should be made in 
consultation with the terminated plan to better meet the needs of 
beneficiaries.
    Response: We will take actions to ensure beneficiaries are 
protected and that continuity of care is a priority in our planning for 
all termination actions. We are not addressing beneficiary auto-
enrollment in regulation since it is an operational issue. We have 
considered the suggestion that we involve the terminated plan in 
determining the effective date of the termination but believe that we 
are in the best position to determine the effective date of the 
termination. Determining the effective date of an expedited termination 
is a decision that should be made solely by us. We are finalizing the 
provision as proposed.
    Comment: A few commenters did not believe we should be able to 
terminate a contract based on deficiencies during prior years. 
Commenters also stated that deficiencies that have been cured should 
not be the basis for a contract termination.
    Response: We clarify here that failure to carry out contract terms 
means the MA organization or Part D sponsor is not currently in 
compliance. The failure to be in compliance currently may be a 
continuation of a failure to be in compliance in the previous year and/
or the result of an incident(s) that occurred during the prior year or 
years. For example, a notice of intent to terminate provided to an 
organization in February of the current year might be based on the 
organization failing to provide an acceptable CAP for an audit that 
occurred in December of the previous year. In addition, the 
deficiencies found in December of the previous year may be unresolved 
deficiencies from a prior audit, never having been cured. We need the 
ability to look into previous contract terms for uncured deficiencies. 
We proposed the ability to terminate a contract based on current, open 
deficiencies, no matter how long they have been open deficiencies. It 
is not our intent to terminate a contract based on deficiencies that 
have been, and remain, cured.
    Comment: One commenter recommended an expedited hearing process for 
expedited terminations.
    Response: The current regulations provide for a hearing process to 
occur after an immediate, proposed expedited, termination has occurred. 
Current regulations do not provide for an expedited appeals process. 
Our proposed changes to the appeals process do not provide for an 
expedited appeals process. We do not believe an expedited appeals 
process is warranted. However, we note that eliminating the 
reconsideration process for all contract determinations, as we have 
proposed and are finalizing, will have the effect of accelerating the 
appeals process for all contract determinations. We are finalizing this 
provision as proposed.
    Comment: One commenter requested guidance or examples of what we 
consider to be ``imminent and serious risk to enrollees.''
    Response: We do not wish to provide examples of what ``imminent and 
serious risk to enrollees'' might entail because of the complexities of 
each and every expedited termination that may take place. Each case is 
different and we do not feel that past examples will necessarily help 
plans in preventing future expedited terminations.
    We also proposed to clarify that we are 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.
    Comment: One commenter did not agree that expedited terminations 
should be based on instances where an MA organization or Part D sponsor 
provides ``false'' data without any fraudulent intent or knowledge that 
false data was provided. The commenter believes that expedited 
terminations should be reserved for instances of beneficiary harm and 
intentional fraud.
    Response: We proposed in the Part C regulations, at 422.510, that 
the submission of false data may serve as the basis for an immediate 
termination (proposed name change to expedited termination) to 
correlate with existing Part D regulations. Our ability to immediately 
terminate based on the submission of false data has already been 
subject to notice and comment during the comment period for the 
existing Part D regulations. We now proposed this change to the Part C 
regulations to ensure that the Part C and Part D regulations mirror 
each other where appropriate. We believe that this change is necessary 
to ensure the integrity of the Part C program and to continue to ensure 
that conduct under both the Part C and Part D programs is handled 
similarly. Therefore, we are finalizing our proposal without 
modification.
    We proposed to amend our procedures at Sec.  422.510(c) and Sec.  
423.509(c) to more clearly define the process for the submission and 
review of CAPs prior to a termination action.

[[Page 68713]]

The Act requires us to provide MA organizations and Part D plan 
sponsors with a reasonable opportunity to develop and implement a CAP 
before we terminate the organization or sponsor's contract. The CAP 
process we proposed is the same process for nonrenewals outlined above 
and which we proposed at Sec.  422.506 and Sec.  423.507, providing for 
a more structured process and timeframes for the development and 
implementation of a CAP. We received comments concerning CAPs as 
applied to terminations, and have addressed them above in Sec. Sec.  
422.506 and 423.507, given that the CAP process is identical for 
nonrenewals and terminations.
Subpart N--Medicare Contract Determinations and Appeals
    We proposed 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 
proposed eliminating the reconsideration process for appeals of all 
types of contract determinations. We also proposed 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 proposed that the MA 
organization or Part D plan sponsor have the burden of proof in 
appealing a contract determination. Please see the proposed rule for a 
more detailed explanation of our proposals.
Sections 422.644 and 423.642--Notice of Contract Determination
    We proposed 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 proposed 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 proposed adding Sec.  
422.510(a)(4) as a basis for which we may undertake an expedited 
termination. We are finalizing these provisions as proposed.
    We also proposed 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. 
Please see above for a discussion of nonrenewal notification dates. We 
are finalizing these proposals with a modification to reflect the fact 
that we are finalizing the nonrenewal notification date as August 1, 
rather than September 1 as we proposed.
Sections 422.646 and 423.643--Effect of Contract Determination
    We proposed 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 proposed eliminating the 
reconsideration process, we also proposed a conforming change to 
indicate that a contract determination would be a final decision unless 
a timely request for a hearing is filed.
    Comment: One commenter felt that eliminating a step for ``informal 
collaboration'' with us would create a process that is not in the best 
interest of beneficiaries. The commenter stated that by eliminating the 
reconsideration process, we appear to be eliminating opportunities to 
remedy potential problems prior to taking a formal contract action.
    Response: We have reviewed the comment and have decided to finalize 
our proposal without modification. The commenter seems to be under the 
impression that the existing reconsideration process is an informal, 
collaborative process which provides the organization with another 
opportunity to come into compliance with our requirements. The 
commenter is misinformed about the nature of the current 
reconsideration process. The reconsideration is the first formal step 
in the administrative appeals process for organizations. The time for 
informal collaboration is prior to the commencement of an appeal, and 
prior to the seeking of reconsideration.
Sections 422.660 and 423.650--Right to a Hearing and Burden of Proof
    We proposed 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 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 proposed 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 did not receive any 
comments on these provisions and are revising them as proposed.
    We proposed 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. The MA organization or Part D plan sponsor must 
demonstrate that they were in compliance at the stated time by a 
preponderance of the evidence. 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. See Hillman Rehabilitation Center, DAB 
No.1611 (1999), aff'd Hillman Rehabilitation Center v. U.S. No.98-3789 
(GEB) (D.N.J. May 13, 1999).
    Comment: We received comments related to our effort to clarify that 
burden of proof is on the MA Organization or Part D sponsor. Commenters 
stated that the burden of proof should be on us, and not the 
organization or sponsor, since we are taking the contract action and 
that imposing the burden of proof on the organization or sponsor is 
contrary to traditional principles of jurisprudence and is unfair. One 
commenter suggested that if the burden is on the organization or 
sponsor, then there should be a rebuttable presumption of non-
compliance with the organization or sponsor assuming the burden of 
proof to rebut the presumption on a going forward basis. The commenter 
stated that if the organization or sponsor submits at least colorable 
evidence of substantial compliance the burden of persuasion should 
shift to CMS to prove non-compliance by clear and convincing evidence.
    Another commenter stated that putting the burden of proof on the 
organization or sponsor effectively removes the organization or 
sponsor's ability to self-regulate and come into compliance once the 
compliance issue has been identified. The commenter stated that the 
date of compliance must allow for entities to fix identified 
deficiencies and cure the deficiencies.
    Response: We have considered these comments and have determined 
that the proposed provision should be finalized without modification. 
Plans, following an audit, receive a report notifying the plan of any 
non-compliance. Following the report, plans have an opportunity to 
dispute the findings. For those compliance issues not related to formal 
audits, we continue to notify the plan about deficiencies of which we 
become aware, giving the plan an opportunity to

[[Page 68714]]

dispute the allegation. Whenever a plan is found to be non-compliant, 
we will request a CAP to cure the deficiencies. We are finalizing 
regulations that will provide a MA organization of Part D sponsor with 
an opportunity to submit an acceptable CAP before we decide to take 
contract action. It is important to understand that the date we notify 
an organization of our intent to take a termination or nonrenewal 
action is not the first time the organization learns that it is out of 
compliance with our requirements.
    In addition, we also proposed that the MA organization or Part D 
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.
    Comment: We received a comment stating that the date of compliance 
should be the hearing date, not the earliest of the three dates 
proposed in the regulation. The commenter stated that using the 
earliest of the three dates violates due process.
    Response: We have reviewed the comment and do not believe requiring 
compliance at the earliest of the three dates violates due process. MA 
organizations and Part D sponsors are required to be in compliance at 
all times. If we used the hearing date as the date by which we measured 
compliance, we would have absolutely no way of disputing a MA 
organizations or Part D sponsor's assertion that they are currently in 
compliance. Under no circumstance to we believe that the date for 
determining compliance should be after the date of termination 
notification. We are finalizing the proposal without modification.
Sections 422.662 and 423.651--Request for a Hearing
    We proposed to revise Sec.  422.662(b) and Sec.  423.651(b) to 
conform to our proposed change to eliminate the reconsideration 
process. These provisions specify that a request for a hearing must be 
filed within 15 days after the date of the initial determination. We 
did not receive any comments on this provision and are adopting it as 
proposed.
Sections 422.664 and 423.652--Postponement of Effective Date of a 
Contract Determination When a Request for a Hearing Is Filed Timely
    We proposed 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 did not propose any change in policy with respect to 
expedited terminations. We did not receive any comments on this 
provision and are adopting it as proposed.
Sections 422.670 and 423.655--Time and Place of Hearing
    We proposed 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. We did not receive any 
comments on this provision and are adopting it as proposed.
Sections 422.682 and 423.661--Discovery
    We proposed 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. 
We did not receive any comments on this provision and are adopting it 
as proposed.
Sections 422.684 and 423.662--Prehearing and Summary Judgment
    We proposed 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. We did not receive any comments on this provision and are 
adopting it as proposed.
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 proposed 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 proposed to amend the 
same provisions to permit both the parties to submit written arguments 
to the Administrator.
    Comment: One commenter did not feel that we should be able to 
request an appeal to the Administrator.
    Response: We believe that we should have the right to request a 
review by the Administrator. We feel that appeal rights should be 
provided to both parties to provide for an equal opportunity to be 
heard by the Administrator. Therefore, we are not making any changes to 
the proposed regulations based on these comments.
    We proposed 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.
    Comment: We received a comment stating that the Administrator 
failing to take action within 30 days authorizes an unstructured, 
unrecorded exercise of the Administrators decision that can hide 
unequal treatment which evades review. The commenter stated that the 
Administrator taking no action does not afford the plan the level of 
review of other plans in which the Administrator reviews the appeal.
    Response: We believe the Administrator has the authority to either

[[Page 68715]]

accept to review Hearing Officer decisions or to decline to review 
Hearing Officer decisions. This right is well-founded in current 
Provider Reimbursement Review Board policy. We are not making any 
changes to the proposed regulation as a result of this comment.
    We proposed redesignating Sec.  422.692(c) as Sec.  422.692(e) and 
redesignating Sec.  423.666(c) as Sec.  423.666(e). We proposed 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 assists all 
parties in reaching a final decision in an expeditious manner. We did 
not receive any comments on this provision and are adopting it as 
proposed.
    In addition, we proposed 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.
    Comment: A commenter stated that Administrator review should not be 
limited to the record but should accept additional evidence.
    Response: The Administrator review does allow for each party to 
submit additional arguments, but the current regulation does not 
provide for additional evidence to be submitted. We feel that the 
hearing record is sufficient, with enough information provided for the 
Administrator to make a determination. Therefore, we are not making any 
changes to the proposed regulations based on these comments.
Sections Sec. Sec.  422.696 and 423.668--Reopening of Initial Contract 
Determination or Intermediate Sanction or Decision of a Hearing Officer 
of the Administrator
    We proposed 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. We did not 
receive any comments on this provision and are adopting it as proposed.
Sections Sec. Sec.  422.698 and 423.669--Effect of Revised 
Determination
    We proposed 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.'' We did 
not receive any comments on this provision and are adopting it as 
proposed.
Subpart O--Intermediate Sanctions
    We proposed 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 proposed to modify the appeals procedures 
for intermediate sanctions and clarify which set of procedures affected 
parties should use to appeal a CMP.
General Comments:
    Comment: We received a few comments concerning bifurcated hearings 
for intermediate sanctions and/or CMPs. The commenters felt that one 
hearing should be used for both CMS imposed intermediate sanctions or 
CMPs and OIG imposed CMPs.
    Another commenter expressed concern that there is no explanation as 
to when both CMS and OIG may impose CMPs based upon the same set of 
facts. The commenter stated that only in the most egregious cases 
should both CMS and the OIG impose CMPs.
    Response: Appeals of CMS intermediate sanctions or CMPs and OIG 
imposed CMPs are governed by different regulatory processes and 
therefore cannot be combined in one hearing. In addition, CMS and OIG 
may impose sanctions/CMPs under different and independent authorities. 
The regulations currently provide for both OIG and CMS to impose 
sanctions on the same set of facts. We have considered the comment and 
are not making any changes to the regulations.
Sections Sec. Sec.  422.750 and 423.750--Types of Intermediate 
Sanctions and Civil Monetary Penalties
    We proposed reorganizing Sec.  422.750 and Sec.  423.750, to 
distinguish the three different types of intermediate sanctions from 
CMPs. We also proposed to clarify that each of the three intermediate 
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.
    Comment: We received a comment stating that the suspension of all 
marketing activities is too severe for ``noncompliant behavior.'' The 
commenter stated that the suspension should only be for the particular 
MA or Part D plan that is non-compliant.
    Response: We are revising Sec.  422.750(a) and Sec.  423.750(a) to 
clarify that the marketing sanctions will be imposed only on CMS-
specified plans. We did not intend to expand the scope of the sanction 
with our proposed change. Therefore, we have changed the proposed 
regulatory language to be consistent with the existing provisions.
    For clarity, we proposed 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 proposed 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. We did not receive any comments on 
this provision and are adopting it as proposed.
Sections Sec. Sec.  422.752 and 423.752--Basis for Imposing 
Intermediate Sanctions and Civil Money Penalties
    At Sec.  422.752 and Sec.  423.752, we proposed 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 proposed 
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

[[Page 68716]]

fraudulent data, as stated in Sec.  422.510(a)(4) and Sec.  
423.509(a)(4). We did not receive any comments on this provision and 
are adopting it as proposed.
Sections Sec. Sec.  422.756 and 423.756--Procedures for Imposing 
Intermediate Sanctions and Civil Money Penalties
    At Sec.  422.756 and Sec.  423.756, we proposed 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 did not receive any comments on this provision and 
are adopting it as proposed.
    Because we proposed to eliminate the informal reconsideration 
process, we proposed 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 proposed 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 take multiple actions, for example, 
contract termination, intermediate sanction, or CMP, against an MA 
organization or Part D sponsor. We proposed to have the appeals of CMPs 
go to an ALJ while the appeals of other actions, such as an 
intermediate sanction or a termination, will be before 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. We did 
not receive any comments on this provision and are adopting as 
proposed.
    In addition, in preparing this final rule with comment period, we 
recognized that we inadvertently omitted some corresponding revisions 
to the existing regulatory text. These changes are necessary to 
implement the policies that we articulated in the proposed rule and are 
finalizing here. Specifically, we are revising Sec.  422.756(c) and 
Sec.  423.756(c) to reflect the fact that we have eliminated the 
reconsideration process and that an intermediate sanction imposed by 
CMS will go into effect on the date specified in the notice (15 days 
after the date of notification) and a reconsideration, or now an appeal 
to a hearing officer, will not delay the effective date of the 
sanction. See page 29379 of the proposed rule. We are also revising 
Sec. Sec.  422.756(d) and 423.756(d) to reflect the fact that we have 
eliminated the reconsideration process, that an appeal will not delay 
the effective date of the sanction, and that where the exception at 
Sec.  422.756(d)(2) or Sec.  423.756(d)(2) applies, CMS may make the 
sanction effective on a specified date prior to 15 days after the date 
of notification. The changes to Sec.  422.756(d)(2) and Sec.  
423.756(d)(2) are consistent with our existing authority. We interpret 
the existing provisions to allow us to make a sanction effective at any 
time when there is a serious threat to an enrollee's health and safety, 
including prior to 15 days after notification. It is critical that we 
continue to have the ability to protect the interests of Part C and D 
enrollees by taking immediate action in some cases.
    In addition, upon review, we realized that some typographical 
corrections to the proposed regulatory text at Sec.  423.756(f) were 
necessary. Specifically, in the proposed rule, we realized that we had 
typographical errors at Sec.  423.756(f)(2) and (f)(2)(v). We have 
corrected the cross-reference to Sec.  423.509(c)(1) and replaced it 
with a cross-reference to Sec.  423.752(c)(1). We have also replaced 
the reference at (f)(2)(v) to Sec.  423.650 with a reference to Subpart 
T since those are now the appeals provisions that govern appeals of 
CMPs.
Sections Sec. Sec.  422.758 and 423.758--Collection of Civil Money 
Penalties Imposed by CMS
    At Sec.  422.758 and Sec.  423.758 we proposed 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 proposed to revise Sec.  422.758 and Sec.  423.758. 
Specifically, we proposed 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. We did 
not receive any comments on this provision and are adopting as 
proposed.
Sections Sec. Sec.  422.760 and 423.760--Determinations Regarding the 
Amount of Civil Money Penalties and Assessment Imposed By CMS
    We proposed 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 explicitly outlined the CMP appeals 
procedures in proposed subpart T in parts 422 and 423.
    We proposed 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 the nursing facility enforcement 
context.
    We also proposed to clarify, in Sec.  422.760(b) and Sec.  
423.760(b), the amounts that may be assessed for CMPs that we impose.
    Comment: We received a comment stating that we should provide for 
additional mitigating factors that would affect the penalty 
determination as a result of the MA organization or Part D sponsor's 
noncompliance/deficiencies. The commenter suggested that we review 
mitigating factors such as the corrective action that the organization 
has taken and the nature and extent to which the organization has 
cooperated with CMS.
    Response: We have reviewed the comment and believe that 
consideration of mitigating factors is already included in the proposed 
provision. We state that factors that may be reviewed include the 
degree of culpability of the MA organization, the history of the prior 
offenses by the organization and other matters as justice may require. 
We believe these proposed factors provide sufficient opportunity for us 
to adjust

[[Page 68717]]

sanctions as warranted. We are finalizing our proposal without 
modification.
Sections Sec. Sec.  422.762 and 423.762--Settlement of Penalties
    We proposed 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 that the parties may agree to settle the dispute instead of 
litigating an appeal. We did not receive any comments on this provision 
and are adopting as proposed.
Sections Sec. Sec.  422.764 and 423.764--Other Applicable Provisions
    We proposed 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 were proposed. We did not receive any comments on 
this provision and are adopting it as proposed.
Subpart T--Appeal Procedures for Civil Money Penalties
    We proposed to reserve subparts P, Q, R, and S in Part 422. In 
addition, we proposed 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 
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 CMPs under this subpart to the same extent that they apply to 
a CMP 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 
proposed 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 proposed 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 
more than 20 years and provide established appeals procedures for 
various types of adverse agency determinations, including civil money 
penalties imposed on nursing facilities. For numerous reasons laid out 
in the proposed rule, we believe the part 498 appeals procedures are 
the most appropriate procedures to use for hearing disputes involving a 
wide range of violations. We did not receive any comments on this 
provision and are generally adopting it as proposed. We are making a 
technical revision to remove proposed paragraphs Sec.  422.1004(a)(2) 
and (a)(3), and Sec.  423.1004(a)(2) and (a)(3) because they were 
inadvertently retained from the part 498 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. Because program violations may 
vary by the type and nature of the violation, we have modified our CMP 
appeal procedures when necessary. Since the MA and Part D programs 
differ from the nursing facility program, we proposed modifying certain 
sections of part 498 to take into account some of these differences.
    For example, we 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 
proposed 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. See the proposed rule for instances when the DAB has 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 (Hillman Rehabilitation Center, DAB No.1611 
(1999), aff'd Hillman Rehabilitation Center v. U.S. No.98-3789 (GEB) 
(D.N.J. May 13, 1999)). 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. We did 
not receive any comments on this provision and are finalizing it as 
proposed.

III. Provisions of the Final Rule With Comment Period

    In this final rule with comment period, we are adopting the 
provisions as set forth in the May 25, 2007 proposed rule with the 
following revisions:
    Amend Sec.  422.2, ``Definitions,'' by--
     Revising the proposed definition of the term ``downstream 
entity'' to read as follows: Downstream entity means any party that 
enters into a written arrangement, acceptable to CMS, with persons or 
entities involved with the MA benefit, below the level of the 
arrangement between an a 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.
    Amend Sec.  422.503 ``General Provisions'' by--
     Revising proposed paragraph (b)(4)(vi)(G)(3) to read as 
follows: The MA organization should have procedures to voluntarily 
self-report potential fraud or misconduct related to the MA program to 
CMS or its designee.
    Amend Sec.  422.504 ``Contract provisions'' by--
     Revising proposed paragraph (e)(2) for clarity.
     Revising proposed paragraph (i)(2)(i) for clarity.
     Revising paragraphs (i)(3) introductory text, (i)(3)(ii), 
and (i)(3)(iii) for clarity, and by deleting the term ``providers.''
     Revising paragraph (i)(4) introductory text by deleting 
the phrase ``provider or.''
    Amend Sec.  422.506 by--
     Revising proposed paragraph (b)(2)(i) to make the date of 
notice of nonrenewal by CMS August 1.
     Revising proposed paragraph (b)(3)(i) to clarify that a MA 
organization will have an opportunity to submit a corrective action 
plan (CAP) prior to

[[Page 68718]]

CMS providing a notice of intent to nonrenew.
     Revising proposed paragraphs (b)(3)(i) and (b)(3)(ii) to 
clarify that CAP submission deadlines are measured in calendar days.
    Amend Sec.  422.510 ``Termination of contract by CMS'' by--
     Revising proposed paragraph (a)(1) for clarity.
     Revising proposed paragraph (c)(1) to clarify that MA 
organizations will have the opportunity to submit a CAP before CMS 
notifies them of an intent to terminate.
    Amend Sec.  422.644 by--
     Revising proposed paragraph (d) to clarify that a CMS 
notice of an intent to nonrenew will be sent to a MA organization by 
August 1.
    Amend Sec.  422.750 by--
     Revising proposed paragraph (a)(3) to clarify that 
suspension of all marketing activities to Medicare beneficiaries by an 
MA organization applies only to specified MA plans.
    Amend Sec.  422.752 by--
     Revising proposed paragraph (c)(2) to reference section 
1003 of chapter V of this title.
    Amend Sec.  422.756 by--
     Revising paragraph (c) to reflect the fact that we have 
eliminated the reconsideration process, and that an intermediate 
sanction imposed by CMS will go into effect on the date specified by 
the notice, and that an appeal will not delay the effective date of the 
sanction.
     Revising paragraph (d) to reflect the fact we have 
eliminated the reconsideration process, that an appeal will not delay 
the effective date of the sanction, and that where the exception at 
Sec.  422.756(d)(2) applies, CMS may make the sanction effective on a 
specified date prior to 15 days after the date of notification.
    Amend Sec.  422.1004 by--
     Deleting proposed paragraphs (a)(2) and (a)(3).
     Redesignating paragraph (a)(1) as paragraph (a).
    Amend Sec.  422.1070, ``Removal of hearing to Departmental Appeals 
Board,'' by--
     Revising paragraph (a) to correct a typographical error. 
The revised paragraph now reads: ``At any time before the ALJ receives 
oral testimony, the Board may remove to itself any pending request for 
a hearing.''
    Amend Sec.  423.4, ``Definitions,'' by--
     Revising the proposed definition of the term ``downstream 
entity'' to read as follows: Downstream entity means any party that 
enters into a written arrangement, acceptable to CMS, with persons or 
entities involved with the Part D benefit, 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.
    Amend Sec.  423.504, ``General Provisions'' by--
     Revising paragraph (b)(4)(vi)(C) for clarity.
     Revising proposed paragraph (b)(4)(vi)(G)(3) to read: The 
Part D plan sponsor should have procedures to voluntarily self-report 
potential fraud or misconduct related to the Part D program to CMS or 
its designee.
    Amend Sec.  423.505, ``Contract Provisions,'' by--
     Revising proposed paragraph (e)(2) for clarity.
     Revising proposed paragraph (i)(2)(i) for clarity.
     Revising proposed paragraph (i)(3) introductory text to 
read as follows: All contracts or written arrangements between Part D 
sponsors and first tier, downstream, and related entities must contain 
the following:
     Revising proposed paragraph (i)(3)(ii) to read as follows: 
Accountability provisions that indicate that the Part D sponsor may 
delegate activities or functions to a first tier, downstream, or 
related entity, only in a manner consistent with requirements set forth 
at paragraph (i)(4) of this section.
     Revising proposed paragraph (i)(3)(iv) to read as follows: 
A provision requiring the Part D sponsor's first tier, downstream, and 
related entities to produce upon request by CMS or its designees any 
books, contracts, records, including medical records and documentation 
of the MA organization, relating to the Part D program to either the 
sponsor to provide to CMS, or directly to CMS or its designees.
     Revise proposed paragraph (i)(3)(v) to read as follows: 
All contracts or written arrangements must specify that the first tier, 
downstream, and related entities must comply with all applicable 
Federal laws, regulations, and CMS instructions.
     Revise proposed paragraph (i)(4) introductory text and 
paragraph (i)(4)(v) to remove the word pharmacy.
    Amend Sec.  423.507 ``Nonrenewal of Contract'' by--
     Revising proposed paragraph (b)(2)(i) to make the date of 
notice of nonrenewal by CMS August 1.
     Revising proposed paragraph (b)(3) to clarify that a Part 
D sponsor will have an opportunity to submit a CAP prior to receiving a 
letter of intent to nonrenew.
     Revise proposed paragraphs (b)(3)(ii) and (b)(3)(iii) to 
clarify that CAP submission deadlines are measured in calendar days.
    Amend Sec.  423.509 ``Termination of contract by CMS'' by--
     Revising proposed paragraph (a)(1) for clarity.
     Correcting a typographical error in paragraph (a)(9) by 
replacing the reference to Sec.  423.128 with a reference to Sec.  
423.50.
     Revising proposed paragraph (b) introductory text for 
clarity.
     Revising paragraph (c)(1) to clarify that before providing 
an intent to terminate, CMS will provide a Part D sponsor with an 
opportunity to submit a CAP.
     Correcting a typographical error in paragraph (c)(1) by 
replacing the term ``MA organization'' with the term ``Part D plan 
sponsor.''
    Amend Sec.  423.642 by--
     Revising proposed paragraph (d) to clarify that a CMS 
notice of an intent to nonrenew will be sent to a MA organization by 
August 1.
    Amend Sec.  423.750 by--
     Revising proposed paragraph (a)(3) to clarify that 
suspension of all marketing activities to Medicare beneficiaries by a 
Part D plan sponsor applies only to specified Part D plans.
    Amend Sec.  422.752 by--
     Revising proposed paragraph (c)(2) to reference section 
1003 of Chapter V of this title.
    Amend Sec.  423.756 by--
     Revising paragraph (c) to reflect the fact that we have 
eliminated the reconsideration process, and that an intermediate 
sanction imposed by CMS will go into effect on the date specified by 
the notice, and that an appeal will not delay the effective date of the 
sanction.
     Revising paragraph (d) to reflect the fact we have 
eliminated the reconsideration process, that an appeal will not delay 
the effective date of the sanction, and that where the exception at 
Sec.  423.756(d)(2) applies, CMS may make the sanction effective on a 
specified date prior to 15 days after the date of notification.
     Revising paragraph (f) to correct typographical errors.
    Amend Sec.  423.1004 by--
     Deleting proposed paragraphs (a)(2) and (a)(3).
     Redesignating paragraph (a)(1) as paragraph (a).
    Amend Sec.  423.1070, ``Removal of hearing to Departmental Appeals 
Board,'' by--
     Revising paragraph (a) to correct a typographical error. 
The revised paragraph now reads: ``At any time

[[Page 68719]]

before the ALJ receives oral testimony, the Board may remove to itself 
any pending request for a hearing.''

IV. Collection of Information Requirements

    We received no public comments concerning the collection of 
information requirements of the proposed rule. 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 solicited public comment on each of the issues for the following 
sections of this document that contain information collection 
requirements and are not currently approved by the OMB.

Section Sec.  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) recommends a MA organization to 
have procedures in place for voluntary self-reporting of potential 
fraud or misconduct related to the MA program to the appropriate 
government authority. We recommend that the MA organization report 
potential fraud or misconduct related to the MA program to the 
appropriate government authority.
    The burden associated with this recommendation is the time and 
effort put forth by the MA organization to implement procedures for 
voluntary self-reporting. We estimate it would take one MA organization 
40 hours to fulfill this recommendation. The total number of MA 
organizations affected by this recommendation is 393. The total one-
time burden for this recommendation would be 15,720 hours. We cannot 
anticipate how many plans will report any potentially fraudulent 
activities to CMS. However, based on historical evidence, we believe 
that less than 10 MA organizations will 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 recommendations 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, 
and inspect any books, contracts, records, including medical records 
and documentation 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 audit, 
evaluate, and inspect any books, contracts, records, including medical 
records and documentation 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 provides a MA organization an opportunity 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 by receiving a notice of intent to nonrenew. 
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

[[Page 68720]]

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) recommends a Part D sponsor have 
procedures in place for voluntary self-reporting of potential fraud or 
misconduct related to the Part D program to the appropriate government 
authority. We recommend that the Part D sponsor report potential fraud 
or misconduct related to the Part D program to the appropriate 
government authority.
    The burden associated with this recommendation is the time and 
effort put forth by the Part D sponsor to implement procedures for 
voluntary self-reporting. We estimate it will take one Part D sponsor 
40 hours annually to fulfill this recommendation. The total number of 
Part D sponsors affected by this recommendation is 91. The total one-
time burden would be 3,640 hours. We cannot anticipate how many plans 
will report any potentially fraudulent activities to CMS. However, in 
the event a Part D sponsor self-reports potential fraud or misconduct 
related to the Part D sponsor the total burden would be 5 hours 
annually. If every sponsor reports 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 information that 
CMS may require. The Part D sponsor also agrees to make available any 
books, contracts, records, including medical records and documentation 
of its 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 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 books, contracts, records, including medical 
records and documentation 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

[[Page 68721]]

 
Percentage of plans audited that would be required to                 10
 produce 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.....................................................
 

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 provides a Part D Plan Sponsor an opportunity 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 by receiving a notice of an intent to nonrenew; 
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                             Total annual
             OMB No.                 Requirements         respondents        Burden hours           burden
----------------------------------------------------------------------------------------------------------------
0938-1004.......................  422.503(b)(4)(vi)(  393...............  96 hours..........  12,576 hours
                                   C) and                                                      (based on 131
                                   (b)(4)(vi)(D),                                              responses per
                                   422.504(e)(2) &                                             year).
                                   422.504(i)(2).
None-requesting OMB approval....  422.503(b)(4)(vi)(  393...............  40 hours..........  15,720 hours
                                   G)(3).                                                      (based on every
                                                                                               plan reporting
                                                                                               fraud or
                                                                                               misconduct).
0938-0753.......................  422.505(c)........  5-10..............  2 hours per notice  20 hours
                                                                                               (estimated using
                                                                                               10 respondents).
None/Exempt.....................  422.506...........  Less than 10......  N/A...............  N/A.
0938-1000 *.....................  423.504(b)(4)(vi)(  430...............  96 hours..........  41,280 hours.
                                   C) and
                                   (b)(4)(vi)(D),
                                   423.505(e)(2), &
                                   423.505(i)(2).
None-requesting OMB approval....  423.504(b)(4)(vi)(  91................  40 hours..........  3,640 hours.
                                   G)(3).
Exemption mentioned in 0938-0964  423.506...........  Less than 10......  N/A...............  N/A.
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-F, 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.

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 final rule with comment period 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 
\1\ an

[[Page 68722]]

hour for staff time spent on auditing and related functions covered by 
this final rule with comment period, 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 will be spread more or less evenly across participating plans, and 
hence would impose negligible burden on any plan in relation to 
existing administrative costs.
---------------------------------------------------------------------------

    \1\ The hourly rate of $37.50 for the burden requirement was 
developed using the Department of Labor May 2006 National Average 
wage for management analysts. The May 2006 rate for this occupation 
was $37.15. The $37.50 rate accounts for an increase of 
approximately 1%.
---------------------------------------------------------------------------

    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 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 final rule with comment 
period 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. For details, see the Small 
Business Administration's regulation that set forth the current size 
standards for health care industries (65 FR 69432). Individuals and 
States are not included in the definition of a small entity. As 
explained above, this final rule with comment period will not impose 
consequential costs on affected entities. Accordingly, we have 
determined that this final rule with comment period 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 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area 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.

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

PART 422--MEDICARE ADVANTAGE PROGRAM

0
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

0
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, with persons or entities involved with 
the MA benefit, 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

0
3. Amend Sec.  422.503 by--
0
A. Revising paragraph (b)(4)(vi) introductory text.
0
B. Revising paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D).
0
C. Adding paragraph (b)(4)(vi)(G)(3).
0
D. Removing paragraph (b)(4)(vi)(H).
    The revisions and additions read as follows:

[[Page 68723]]

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 should have procedures to voluntarily self-
report potential fraud or misconduct related to the MA program to CMS 
or its designee.
* * * * *

0
4. Amend Sec.  422.504 by--
0
A. Republishing paragraph (e) introductory text.
0
B. Revising paragraph (e)(1) introductory text.
0
C. Revising paragraph (i) heading and (i)(1).
0
D. Revising paragraph (i)(2) introductory text.
0
E. Revising paragraph (i)(2)(i).
0
F. Revising paragraph (i)(3) introductory text.
0
G. Revising paragraph (i)(3)(ii).
0
H. Revising paragraph (i)(3)(iii).
0
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 have the right 
to audit, evaluate, and inspect any books, contracts, records, 
including medical records and documentation of the MA organization, its 
first tier, downstream, 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) 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 audit, evaluate, and inspect any books, contracts, records, 
including medical records and documentation 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 first tier, downstream, and related entities must contain the 
following:
* * * * *
    (ii) Accountability provisions that indicate that the MA 
organization may only delegate activities or functions to a 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 first tier, downstream, or related 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 first tier, downstream and related 
entity:
* * * * *

0
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.
* * * * *

0
6. Amend Sec.  422.506 by--
0
A. Revising paragraph (b)(2) introductory text.
0
B. Revising paragraph (b)(2)(i).
0
C. Redesignating paragraph (b)(3) as (b)(4).
0
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 August 1 of the contract year.
* * * * *
    (3) Corrective action plan.
    (i) Before providing a notice of intent to non-renew the 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 
calendar 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 calendar 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 (b)(3)(i) through (b)(3)(iii) of this section 
may result in the non-renewal of the MA contract.
* * * * *
0
7. Amend Sec.  422.510 by--
0
A. Republishing paragraph (a) introductory text.
0
B. Revising paragraph (a)(1).
0
C. Revising paragraph (b) introductory text.
0
D. Revising paragraph (b)(2) heading.
0
E. Revising paragraph (b)(2)(i).
0
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 its current or previous contract terms with CMS.
* * * * *
    (b) Notice. If CMS decides to terminate a contract for reasons 
other than the grounds specified in

[[Page 68724]]

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 providing a notice of an intent to terminate 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 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

0
8. Amend Sec.  422.644 by--
0
A. Republishing paragraph (b) introductory text.
0
B. Revising paragraph (b)(2).
0
C. Revising paragraph (c).
0
D. Revising paragraph (d).
    The revisions read as follows:


Sec.  422.644  Notice of contract determination.

* * * * *
    (b) The notice specifies--
* * * * *
    (2) The MA organization's right to request a hearing.
    (c) For CMS-initiated terminations, CMS mails notice to the MA 
organization 90 calendar 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 August 1 of the 
current contract year.

0
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]

0
10. Section 422.648 is removed.


Sec.  422.650  [Removed]

0
11. Section 422.650 is removed.


Sec.  422.652  [Removed]

0
12. Section 422.652 is removed.


Sec.  422.654  [Removed]

0
13. Section 422.654 is removed.


Sec.  422.656  [Removed]

0
14. Section 422.656 is removed.


Sec.  422.658  [Removed]

0
15. Section 422.658 is removed.

0
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.

0
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 calendar days from the date CMS notifies the MA 
organization of its determination.
* * * * *

0
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.

0
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 calendar 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.
* * * * *

[[Page 68725]]


0
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.

0
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 officer to rule on a motion for summary judgment.

0
22. Amend Sec.  422.692 by--
0
A. Revising paragraph (a).
0
B. Revising paragraph (b).
0
C. Redesignating paragraph (c) as paragraph (e).
0
D. Adding a new paragraph (c).
0
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 calendar 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 calendar 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.
* * * * *

0
23. Amend Sec.  422.696 by--
0
A. Revising the section heading.
0
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]

0
24. Section 422.698 is removed.

Subpart O--Intermediate Sanctions

0
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 specified MA plans.
    (b) CMS may impose civil money penalties as specified in Sec.  
422.760.

0
26. Amend Sec.  422.752 by--
0
A. Revising the section heading.
0
B. Revising paragraph (a) introductory text.
0
C. Revising paragraph (b).
0
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 part 1003 of Chapter V of 
this title, 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).

0
27. Amend Sec.  422.756 by--
0
A. Revising the section heading.
0
B. Revising paragraph (a).
0
C. Revising paragraph (b).
0
D. Revising paragraph (c).
0
E. Revising paragraph (d).
0
F. 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) of this 
section; 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

[[Page 68726]]

hearing procedure as specified at Sec.  422.660 through Sec.  422.684.
    (c) If CMS determines that a MA organization has acted or failed to 
act as specified in Sec.  422.752, CMS may--
    (1) Require the MA organization to suspend acceptance of 
applications made by Medicare beneficiaries for enrollment in the 
sanctioned MA plan during the sanction period;
    (2) In the case of a violation under Sec.  422.752, suspend 
payments to the MA organization for Medicare beneficiaries enrolled in 
the sanctioned MA plan during the sanction period; and
    (3) Require the MA organization to suspend all marketing activities 
for the sanctioned MA plan to Medicare enrollees.
    (d) Effective date and duration of sanctions. (1) Effective date. 
Except as provided in paragraph (d)(2) of this section, a sanction is 
effective 15 calendar days after the date that the organization is 
notified of the decision to impose the sanction.
    (2) Exception. If CMS determines that the MA organization's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on an earlier date that CMS specifies.
* * * * *
    (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 of 
this part.
    (vi) Information about where to file the request for hearing.
0
28. Revise Sec.  422.758 to read as follows:


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 of this part.
    (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.


Sec.  422.760  [Redesignated as Sec.  422.764]

0
29. Amend Sec.  422.760 by--
0
A. Redesignate Sec.  422.760 as Sec.  422.764.
0
B. Add 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.

0
30. Add 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 [Added and Reserved]

0
31. Subpart P is added and reserved.

Subpart Q [Added and Reserved]

0
32. Subpart Q is added and reserved.

Subpart R [Added and Reserved]

0
33. Subpart R is added and reserved.

Subpart S [Added and Reserved]

0
34. Subpart S is added and reserved.
0
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 hearings.
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.

[[Page 68727]]

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.


Sec.  422.1004  Scope and applicability.

    (a) Scope. This subpart sets forth procedures for reviewing initial 
determinations that CMS makes with respect to the matters specified in 
paragraph (b) of this section.
    (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 Sec.  
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, 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

[[Page 68728]]

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 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 calendar 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 calendar days to file objections to the order.
    (3) After the 10 calendar 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 calendar 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) 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 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,

[[Page 68729]]

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 calendar 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 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 calendar days after the ALJ sends a 
``show cause'' notice, with a showing of good cause.

[[Page 68730]]

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 calendar 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 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 to 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.  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.

[[Page 68731]]

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 calendar 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-calendar 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 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--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-calendar 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 
Administrative Law Judge or Board decision.

    (a) Basis and timing for reopening. An ALJ of Departmental Appeals 
Board decision may be reopened, within 60 calendar 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

0
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

0
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, with persons or entities involved with 
the Part D benefit, 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;

[[Page 68732]]

    (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

0
39. Amend Sec.  423.504 by--
0
A. Revising paragraph (b)(4)(vi) introductory text.
0
B. Revising paragraphs (b)(4)(vi)(C) and (b)(4)(vi)(D).
0
C. Adding paragraph (b)(4)(vi)(G)(3).
0
D. Removing paragraph (b)(4)(vi)(H).
    The revisions and additions 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 should have procedures to voluntarily 
self-report potential fraud or misconduct related to the Part D program 
to CMS or its designee.
* * * * *

0
40. Amend Sec.  423.505 by--
0
A. Republishing paragraph (b) introductory text.
0
B. Revising paragraph (b)(10).
0
C. Republishing paragraph (e) introductory text.
0
D. Revising paragraph (e)(1) introductory text.
0
E. Revising paragraph (e)(2).
0
F. Revising paragraph (i) heading and (i)(1).
0
G. Revising paragraph (i)(2) introductory text.
0
H. Revising paragraph (i)(2)(i).
0
I. Revising paragraph (i)(3) introductory text.
0
J. Revising paragraph (i)(3)(ii).
0
K. Revising paragraph (i)(3)(iii).
0
L. Adding paragraphs (i)(3)(iv) and (v).
0
M. Revising paragraph (i)(4) introductory text.
0
N. Revising paragraph (i)(4)(iv).
    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 of this part.
* * * * *
    (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, records and 
documentation 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--
    (ii) HHS, the Comptroller General, or their designees have the 
right to audit, evaluate, and inspect any books, contracts, records 
including medical records, and documentation 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 first tier, downstream, and related entities, must contain the 
following:
* * * * *
    (ii) Accountability provisions that indicate that the Part D 
sponsor may delegate activities or functions to a first tier, 
downstream, or 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 books, contracts, records, including medical records and 
documentation of the MA organization, relating to the Part D program to 
either the sponsor to provide to CMS, or directly to CMS or its 
designees.
    (v) All contracts or written arrangements must specify that first 
tier, downstream, and related entities 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:
* * * * *
    (iv) All contracts or written arrangements must specify that the 
first tier, downstream, or related entity must comply with all 
applicable Federal laws, regulations, and CMS instructions.
* * * * *

0
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, 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

[[Page 68733]]

organization with a notice of intention not to renew.
* * * * *

0
42. Amend Sec.  423.507 by--
0
A. Revising paragraph (b)(2) introductory text.
0
B. Revising paragraph (b)(2)(i).
0
C. Redesignating paragraph (b)(3) as (b)(4).
0
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 August 1 of the contract year.
* * * * *
    (3) Corrective action plan. (i) Before providing a notice of an 
intent to nonrenew 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 
calendar 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 calendar 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 (b)(3)(i) through (b)(3)(iii) of this section 
may result in the nonrenewal of the Part D contract.
* * * * *

0
43. Section 423.509 is amended by--
0
A. Revising paragraph (a)(1).
0
B. Revising paragraph (a)(9).
0
C. Revising paragraph (b) introductory text.
0
D. Revising paragraph (b)(2)(i).
0
E. Revising paragraph (c).
    The revisions read as follows:


Sec.  423.509  Termination of contract by CMS.

    (a) * * *
    (1) The Part D plan sponsor has failed substantially to carry out 
the terms of its current or previous contract terms with CMS.
* * * * *
    (9) Substantially fails to comply with the marketing requirements 
in Sec.  423.50;
* * * * *
    (b) Notice. If CMS decides to terminate a contract for reasons 
other than the grounds specified in 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 providing an intent 
to terminate a contract for reasons other than the grounds specified in 
paragraphs (a)(4) or (a)(5) of this section, CMS will provide the Part 
D plan sponsor 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 calendar 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 calendar 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

0
44. Amend Sec.  423.642 by--
0
A. Republishing paragraph (b) introductory text.
0
B. Revising paragraph (b)(2).
0
C. Revising paragraph (c).
0
D. Revising paragraph (d).
    The revisions read as follows:


Sec.  423.642  Notice of contract determination

* * * * *
    (b) The notice specifies the--
* * * * *
    (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 calendar 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 August 1 of the 
current contract year.

0
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]

0
46. Section 423.644 is removed.


Sec.  423.645  [Removed]

0
47. Section 423.645 is removed.


Sec.  423.646  [Removed]

0
48. Section 423.646 is removed.


Sec.  423.647  [Removed]

0
49. Section 423.647 is removed.


Sec.  423.648  [Removed]

0
50. Section 423.648 is removed.


Sec.  423.649  [Removed]

0
51. Section 423.649 is removed.

0
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.

[[Page 68734]]

    (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.

0
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 calendar days from the date CMS notifies the Part D 
sponsor of its determination.
* * * * *

0
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' 
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.  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.

0
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 calendar 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.
* * * * *

0
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.

0
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.

0
58. Amend Sec.  423.666 by--
0
A. Revising paragraph (a).
0
B. Revising paragraph (b).
0
C. Redesignating paragraph (c) as paragraph (e).
0
D. Adding a new paragraph (c).
0
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 calendar 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 calendar 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.
* * * * *

0
59. Amend Sec.  423.668 by--
0
A. Revising the section heading.
0
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]

0
60. Section 423.669 is removed.

Subpart O--Intermediate Sanctions

0
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 specified Part D plans.
    (b) CMS may impose civil money penalties as specified in Sec.  
423.760.

0
62. Amend Sec.  423.752 by--
0
A. Revising the section heading.
0
B. Revising paragraph (a) introductory text.
0
C. Revising paragraph (b).
0
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

[[Page 68735]]

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 part 1003 of Chapter V of 
this title, 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).

0
63. Amend Sec.  423.756 by--
0
A. Revising the section heading.
0
B. Revising paragraph (a).
0
C. Revising paragraph (b).
0
D. Revising paragraph (c).
0
E. Revising paragraph (d).
0
F. 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 
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 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 
hearing procedure as specified at Sec.  423.650 through Sec.  423.662.
    (c) If CMS determines that a Part D sponsor has acted or failed to 
act as specified in Sec.  423.752, CMS may--
    (1) Require the Part D sponsor to suspend acceptance of 
applications made by Medicare beneficiaries for enrollment in the 
sanctioned Part D plan during the sanction period:
    (2) In the case of a violation under Sec.  423.752, suspend 
payments to the Part D sponsor for Medicare beneficiaries enrolled in 
the sanctioned Part D plan during the sanction period; and
    (3) Require the Part D sponsor to suspend all marketing activities 
for the sanctioned Part D plan to Medicare enrollees.
    (d) Effective date and duration of sanctions. (1) Effective date. 
Except as provided in paragraph (d)(2) of this section, a sanction is 
effective 15 calendar days after the date that the organization is 
notified of the decision to impose the sanction.
    (2) Exception. If CMS determines that the Part D sponsor's conduct 
poses a serious threat to an enrollee's health and safety, CMS may make 
the sanction effective on an earlier date that CMS specifies.
* * * * *
    (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 money 
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.  
423.752(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 Part D sponsor's right to a hearing as specified under 
Subpart T of this part.
    (vi) Information about where to file the request for hearing.

0
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' decision to 
impose a civil money penalty is upheld, CMS may initiate collection of 
the civil money penalty once the administrative decision is final.

0
65. Amend Sec.  423.760 by--
0
A. Redesignating Sec.  423.760 as Sec.  423.764.
0
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.

0
66. Add 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.

[[Page 68736]]


0
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 any 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.
    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. This subpart sets forth procedures for reviewing initial 
determinations that CMS makes with respect to the matters specified in 
paragraph (b) of this section.
    (b) Initial determinations by CMS. CMS makes initial determinations 
with respect to the imposition of civil money penalties in accordance 
with part 423, subpart O.


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 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

[[Page 68737]]

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 
calendar 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) A 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 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 calendar 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 calendar days to file objections to the order.
    (3) After the 10 calendar 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 calendar days before the scheduled 
date.

[[Page 68738]]

    (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 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) 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.  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 calendar 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.  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.

[[Page 68739]]

    (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 calendar 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 calendar days from receipt of 
the notice of dismissal and shows good cause for vacating the 
dismissal.


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 to 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,

[[Page 68740]]

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 calendar 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-calendar 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.  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-calendar 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-calendar 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 
Administrative Law Judge or Board decision.

    (a) Basis and timing for reopening. An ALJ of Departmental Appeals 
Board decision may be reopened, within 60 calendar 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

[[Page 68741]]

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)

    Dated: September 14, 2007.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: October 26, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-5946 Filed 11-30-07; 5:10 pm]
BILLING CODE 4120-01-P